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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001
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.)
35 EAST 62ND STREET, NEW YORK, NEW YORK 10021
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 572-8600
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OR 12(g) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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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 DECEMBER
31, 2001, WAS 1,000.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
BACKGROUND
REV Holdings Inc. (together with its subsidiaries, "REV Holdings" or
the "Company") is a holding company formed in Delaware in February 1997 that
conducts its business exclusively through its indirect subsidiary, Revlon
Consumer Products Corporation ("Products Corporation"). Products Corporation
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. The Company's products are marketed under such
well-known brand names as REVLON, COLORSTAY, REVLON AGE DEFYING, and
SKINLIGHTS, as well as ALMAY and ULTIMA II in cosmetics; ALMAY Kinetin,
VITAMIN C ABSOLUTES, ETERNA 27, ULTIMA II and JEANNE GATINEAU in skin care;
CHARLIE and FIRE & ICE in fragrances; and HIGH DIMENSION, FLEX, MITCHUM,
COLORSILK, JEAN NATE AND BOZZANO 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 70 years ago. Today, the Company has the number three position in
the color cosmetics category in the U.S. mass-market distribution channel and
leading market positions in a number of its principal product categories,
including the lip, face makeup and nail enamel categories. The Company also
has leading market positions in several product categories in certain markets
outside of the United States, including in Australia, Canada, Mexico and South
Africa. The Company's products are sold in more than 100 countries across five
continents.
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 mass-market 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. Additionally, as
of August 4, 2001, AC Nielsen's data does not reflect sales volume from
Wal-Mart, Inc.
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., a subsidiary of the
Company and the direct parent of Products Corporation, MacAndrews & Forbes
through REV Holdings beneficially owns (i) 11,650,000 shares of the Class A
Common Stock of Revlon, Inc. (representing approximately 57% of the
outstanding shares of Class A Common Stock of Revlon, Inc.), (ii) all of the
outstanding 31,250,000 shares of Class B Common Stock of Revlon, Inc., which
together with the shares referred to in clause (i) above represent
approximately 83% of the outstanding shares of Revlon, Inc. common stock, and
(iii) all of the outstanding 4,333 shares of Series B Convertible Preferred
Stock of Revlon, Inc. (the "Series B Preferred Stock") (each of which is
entitled to 100 votes and each of which is convertible into 100 shares of
Class A Common Stock and which conversion rights are subject to approval by
Revlon, Inc.'s stockholders at its 2002 Annual Meeting of Stockholders).
RECENT DEVELOPMENTS
On November 26, 2001 Products Corporation issued and sold $363
million in aggregate principal amount of 12% Senior Secured Notes due 2005
(the "12% Notes") at 96.569%, in a private placement, receiving gross proceeds
of $350.5 million.
On November 30, 2001 Products Corporation entered into a new credit
agreement (the "2001 Credit Agreement"). The 2001 Credit Agreement provides up
to $250.0 million in credit facilities comprised of $117.9 million in a term
loan facility and $132.1 million in a multi-currency revolving credit facility
(the issuance of the 12% Notes and the 2001 Credit Agreement are referred to
herein as the "2001 Refinancing Transactions"). The
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proceeds from the offering of the 12% Notes along with borrowings under the 2001
Credit Agreement were used to repay all amounts outstanding under the 1997
Credit Agreement (as hereinafter defined) and to pay fees and expenses incurred
in connection with the 2001 Refinancing Transactions, and the balance is
available for general corporate purposes. On February 25, 2002, Products
Corporation filed a registration statement with the Securities and Exchange
Commission (the "Commission") with respect to an offer to exchange the 12% Notes
for registered notes with substantially the same terms (the "Exchange Offer").
Products Corporation's obligations under the 12% Notes are secured on
a second-priority basis by substantially the same collateral that secures the
2001 Credit Agreement on a first-priority basis, which includes, with certain
limited exceptions, Products Corporation's capital stock, substantially all of
Products Corporation's non-real property assets in the United States, Products
Corporation's facility in Oxford, North Carolina, the capital stock of
Products Corporation's domestic subsidiaries and 66% of the capital stock of
Products Corporation's first-tier foreign subsidiaries.
Effective February 14, 2002, Jeffrey M. Nugent, Revlon, Inc.'s and
Products Corporation's former President and Chief Executive Officer, resigned
from employment. On February 19, 2002, Revlon, Inc. announced its appointment of
Jack L. Stahl as its President and Chief Executive Officer.
PRODUCTS
The Company manufactures and markets a variety of products worldwide.
The following table sets forth the Company's principal brands and certain
selected products.
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PERSONAL
BRAND COSMETICS SKIN CARE FRAGRANCES CARE
PRODUCTS
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REVLON Revlon Eterna 27 Charlie High Dimension
ColorStay Vitamin C Absolutes Ciara Colorsilk
Revlon Age Defying Revlon Absolutes Fire & Ice Frost & Glow
Super Lustrous Absolutely Fabulous ColorStay
Moon Drops Flex
New Complexion Absolutely Outrageous
Fabulous Aquamarine
Line & Shine Mitchum
Skinlights Lady Mitchum
Super Top Speed Hi & Dri
Shine Control Mattifying Jean Nate
High Dimension Revlon Beauty Tools
Illuminance
Wet/Dry
Everylash
StreetWear
ALMAY Almay Almay Kinetin Almay
Time-Off Almay MilkPlus
Amazing
One Coat
Skin Stays Clean
Beyond Powder
Organic Fluoride Plus
ULTIMA II Ultima II Glowtion U II Sheer Scent
Beautiful Nutrient Vital Radiance Ultimately U
Wonderwear CHR
Full Moisture LightCaptor-C
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PERSONAL
BRAND COSMETICS SKIN CARE FRAGRANCES CARE
PRODUCTS
- --------------------------------------------------------------------------------------------------------------------------
Glowtion
Pucker & Pout
Ultimate Edition
SIGNIFICANT Jeanne Gatineau Jeanne Gatineau Bozzano
REGIONAL BRANDS Cutex Juvena
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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 mass-market 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 38 shades. COLORSTAY LIQUID LIP and
COLORSTAY LIP SHINE, a patented lip technology introduced in 1999, is produced
in approximately 64 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 30 shades. LINE & SHINE utilizes an innovative product form,
combining lipliner and lip gloss in one package, and is produced in
approximately 8 shades. REVLON MOISTURESTAY uses patented technology to
moisturize the lips even after the color wears off, and is produced in
approximately 40 shades. In 2001, the Company launched ABSOLUTELY FABULOUS
Lipcream, a new premium line of emollient-rich lip color which is produced in
30 shades.
The Company's nail color and nail care lines include enamels, cuticle
preparations and enamel removers. The Company's flagship REVLON nail enamel is
produced in approximately 64 shades and uses a patented formula that provides
consumers with improved wear, application, shine and gloss in a toluene-free
and formaldehyde-free formula. In 2001, the Company launched SUPER TOP SPEED
nail enamel, currently available in approximately 48 shades, containing a
patented speed drying polymer formula which sets in 60 seconds. REVLON has the
number two position in nail enamel in the United States mass-market
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. In
2001, the Company launched SKINLIGHTS skin brighteners, that brightens skin
with sheer washes of color, which created an entirely new category in color
cosmetics.
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. In 2001, the Company launched ILLUMINANCE,
an eye shadow that "brightens up eyes", and HIGH DIMENSION mascara and
eyeliners.
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. The ALMAY brand flagship ONE COAT
franchise consists of lip makeup and eye makeup products including mascara and
eye shadow. The Company also sells Skin Stays Clean liquid and compact
foundation makeup with its patented "clean pore complex." The ALMAY AMAZING
LASTING Collection features long-wearing mascaras and foundations. In
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2001, the Company launched ALMAY Kinetin Skincare Advanced Anti-Aging Series
featuring Kinetin, in a patented technology.
The Company's STREETWEAR brand consists of a quality, value-priced
line of nail enamels, mascaras, lip and eye liners, lip glosses and body
accessories that are targeted for the young, beauty savvy consumer.
The Company's premium-priced cosmetics and skin care products are
sold under the ULTIMA II brand name, which is the Company's flagship
premium-priced brand sold throughout the world. ULTIMA II 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, CHR and LIGHTCAPTOR-C skin care
products; the BEAUTIFUL NUTRIENT collection, a complete line of nourishing
makeup that provides advanced nutrient protection against dryness; and
Wonderwear. The WONDERWEAR collection includes a long-wearing foundation that
uses patented technology, cheek and eyecolor products that use proprietary
technology providing long wear, and WONDERWEAR lipstick, which uses patented
transfer-resistant technology.
The Company sells Revlon Beauty Tools, which include nail and eye
grooming tools such as clippers, scissors, files, tweezers and eye lash
curlers. Revlon Beauty Tools are sold individually and in sets under the
REVLON brand name and are the number one brand in the United States
mass-market distribution channel.
The Company's skin care products, including moisturizers, are sold
under brand names including ETERNA 27, VITAMIN C ABSOLUTES, REVLON ABSOLUTES,
ALMAY Kinetin, ALMAY MILK-PLUS, and ULTIMA II GLOWTION, ULTIMA II CHR, ULTIMA
II LIGHTCAPTOR-C and 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. In 2001, the Company launched ALMAY Kinetin Skincare Advanced
Anti-Aging Series featuring Kinetin, a patented technology.
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
mass-market distribution channel, the Company sells haircare, antiperspirant
and other personal care products, including the FLEX and AQUAMARINE haircare
lines throughout the world and the BOZZANO and JUVENA brands in Brazil; as
well as COLORSILK, FROST & GLOW and COLORSTAY 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 moisturizers and antiperspirants, under the ALMAY
brand. In 2001, the Company launched its HIGH DIMENSION hair color, a
revolutionary 10-minute home permanent hair color, compared to many of our
competitors' home permanent hair color which require two to three times as
long.
Fragrances. The Company sells a selection of moderately priced and
premium-priced fragrances, including perfumes, eau de toilettes, colognes and
body sprays. The Company's portfolio includes fragrances such as CHARLIE, CIARA,
FIRE & ICE and ABSOLUTELY FABULOUS.
MARKETING
The Company markets extensive consumer product lines at a range of
retail prices primarily through the mass-market distribution channel and
outside the U.S. also markets select premium lines through
demonstrator-assisted channels. Each line is distinctively positioned and is
marketed globally with consistently recognizable logos, packaging and
advertising. The Company's existing product lines are carefully tailored, 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. This resulted in a shift from the
historical use of an in-house advertising division to create and execute
advertising to the use of outside agencies to develop advertising campaigns
for a number of the Company's key new product launches and to bring new energy
to the REVLON and ALMAY brands, respectively. Additionally in 2002 the Company
will consolidate all of its advertising for the REVLON and ALMAY brands into a
single advertising agency. The Company believes that this shift to a leading
outside agency will increase the effectiveness and relevance of its worldwide
advertising, as well as result in more efficient media placement.
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The Company uses print and television advertising and point-of-sale
merchandising, including displays and samples. The Company's marketing
emphasizes a uniform global image and product for its portfolio of core
brands, including REVLON, COLORSTAY, REVLON AGE DEFYING, ALMAY, ULTIMA II,
FLEX, CHARLIE, 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 on merchandising units,
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, in 2001
the Company relaunched its website devoted to the REVLON brand,
www.revlon.com, and launched a new website for its ALMAY product lineup,
www.almay.com. Each of these websites feature current product and promotional
information for the REVLON and ALMAY brands, respectively, and are updated
regularly to stay current with the Company's new product launches and other
advertising and promotional campaigns.
NEW PRODUCT DEVELOPMENT AND RESEARCH AND DEVELOPMENT
The Company believes that it is an industry leader in the development
of innovative and technologically-advanced consumer products. The Company's
marketing and research and development groups identify consumer needs and
shifts in consumer preferences in order to develop new products, tailor line
extensions and promotions and redesign or reformulate existing products to
satisfy such needs or preferences. The Company's research and development
group comprises departments specialized in the technologies critical to the
Company's various product categories, as well as an advanced technology
department that promotes inter-departmental, cross-functional research on a
wide range of technologies to develop new and innovative products. The Company
independently develops substantially all of its new products.
As part of the Company's 2001 strategic plan, one of the Company's
key objectives was to reinvigorate the Company's brands by developing a
pipeline of innovative new products. In 2001, the Company created one of its
most extensive line-ups of new products since the development and introduction
of COLORSTAY in the mid-1990s, with major new product launches including:
SKINLIGHTS skin brighteners, that brightens skin with sheer washes of color,
which created an entirely new category in color cosmetics; ABSOLUTELY FABULOUS
Lipcream, a new premium line of emollient-rich lip color; and SUPER TOP SPEED
nail enamel, currently available in 48 shades, containing a patented speed
drying polymer formula which sets in 60 seconds. In 2001, the Company launched
ILLUMINANCE, an eye shadow that "brightens up eyes." Also in 2001, the Company
launched ALMAY Kinetin Skincare Advanced Anti-Aging Series featuring Kinetin,
in a patented technology, and HIGH DIMENSION hair color, a revolutionary
10-minute home permanent hair color, compared to many of the Company's
competitors' home permanent hair color which require two to three times as
long.
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 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, 2001, the Company employed approximately 160
people in its research and development activities, including specialists in
pharmacology, toxicology, chemistry, microbiology, engineering, biology,
dermatology and quality control. In 2001, 2000 and 1999, the Company spent
approximately $24.4 million, $27.3 million and $32.9 million, respectively, on
research and development activities.
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MANUFACTURING AND RELATED OPERATIONS AND RAW MATERIALS
Since late 2000, the Company completed a number of measures related
to rationalizing its global manufacturing capacity, which are designed to
substantially reduce costs and increase operating efficiencies. The Company
sold or closed approximately 55% of its manufacturing and distribution
facility square footage, including:
o the sale of the Company's Phoenix, Arizona facility in May 2001
(a portion of which the Company leased back through the end of
2001);
o the shutdown of the Company's manufacturing facility in
Mississauga, Canada;
o the sale of the Company's manufacturing facility in Maesteg,
Wales (UK) in July 2001; as part of this sale the Company
entered into a long-term supply agreement with the purchaser
pursuant to which the purchaser manufactures and supplies to
the Company cosmetics and personal care products for sale
throughout Europe;
o the closure of the Company's manufacturing facilities in
Auckland, New Zealand (which was completed in late 2000), which
manufacturing activities were consolidated into the Company's
facility in Australia; and
o the sale of the Company's manufacturing facility in Sao Paulo,
Brazil in July 2001 (which was completed as part of the sale of the
Company's Colorama brand); as part of this sale the purchaser
manufactures for the Company in Brazil.
In connection with the sale of the Phoenix facility and the closing
of the Canadian facility, the Company consolidated North American
manufacturing into its Oxford, North Carolina facility, which consolidation
was completed in late 2001. Revlon Beauty Tools for sale throughout the world
are manufactured and/or assembled at the Company's Irvington, New Jersey
facility.
During 2001, cosmetics and personal care products also were produced
at the Company's facilities in Venezuela, Brazil (which was sold as noted
above), France and South Africa and personal care products in Mexico. The
Company continually reviews its manufacturing needs against its manufacturing
capacity for opportunities to reduce costs and produce more efficiently.
The Company purchases raw materials and components throughout the
world. The Company continuously pursues reductions in cost of goods through
the global sourcing of raw materials and components from qualified vendors,
utilizing its large purchasing capacity to maximize cost savings. The global
sourcing of raw materials and components from accredited vendors also ensures
the quality of the raw materials and components. The Company believes that
alternate sources of raw materials and components exist and does not
anticipate any significant shortages of, or difficulty in obtaining, such
materials.
DISTRIBUTION
The Company's products are sold in more than 100 countries across
five continents. The Company's worldwide sales force had approximately 500
people as of December 31, 2001, including a dedicated sales force for
cosmetics, skin care, fragrance and personal care products in the mass-market
distribution channel in the U.S. In addition, the Company utilizes sales
representatives and independent distributors to serve specialized markets and
related distribution channels.
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United States and Canada. Net sales in the United States and Canada
accounted for approximately 68% of the Company's 2001 net sales, a majority of
which were made in the mass-market 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, 2001, 11
licenses were in effect relating to 14 product categories to be marketed
principally in the mass-market 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 royalties.
As part of its strategy to increase consumption of the Company's
products at retail, the Company has increased 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.
The Company also intends to update its retail presence and is
evaluating and testing in retail stores a new merchandising wall that is
designed to help drive impulse purchases by consumers. The Company also
intends to update the image of the REVLON brand through the introduction of
new graphics and package designs.
International. Net sales outside the United States and Canada
accounted for approximately 32% of the Company's 2001 net sales. The ten
largest countries in terms of these sales, which include the United Kingdom,
Mexico, Australia, Brazil, France, South Africa, Venezuela, Hong Kong,
Argentina and Italy, accounted for approximately 25% of the Company's net
sales in 2001. 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, 2001, 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, Walgreen, Rite Aid, CVS, Eckerd, Albertsons Drugs and Longs in
the United States, Boots in the United Kingdom, and Wal-Mart internationally.
Wal-Mart and its affiliates worldwide accounted for approximately 19.9% of the
Company's 2001 consolidated net sales, before the EITF Issue 01-9 adjustment.
As a result of the Company's dispositions of certain non-core assets,
including certain international businesses, the Company expects that for
future periods a small number of other customers will, in the aggregate,
account for a large portion of the Company's net sales. Although the Company's
loss of Wal-Mart or one or more other customers that may account for a
significant portion of the Company's sales, or any significant decrease in
sales to any of these customers, could have a material adverse effect on the
Company's business, financial condition or results of operations. The Company
has no reason to believe that any such loss of customer or decrease in sales
will occur. In January 2002, Kmart Corporation filed a bankruptcy petition for
reorganization under Chapter 11 of the U.S. Bankruptcy Code. Less than 5% of
the Company's 2001 net sales were made to Kmart. The Company plans to continue
doing business with Kmart for the foreseeable future and accordingly, based
upon the information currently available, believes that Kmart's bankruptcy
proceedings will not have a material adverse effect on the Company's business,
financial condition or results of operations.
COMPETITION
The consumer products business is highly competitive, characterized
by vigorous competition throughout the world. The Company competes on the
basis of numerous factors, including brand recognition, product quality,
performance and price and the extent to which consumers are educated on
product benefits, each of which 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 has experienced declines
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in its market shares in the U.S. mass market in various product categories since
late 1998 and there can be no assurance that such declines will not continue. In
addition, the Company competes in selected product categories against a number
of multinational companies, some of which are larger and have substantially
greater resources than the Company, and which may therefore have the ability to
spend more aggressively on advertising and marketing and have more flexibility
to respond to changing business and economic conditions than the Company.
Certain of the Company's competitors have increased their spending on
discounting and promotional activities in U.S. mass-market cosmetics. In
addition to products sold in the mass-market 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, SKINLIGHTS, ABSOLUTELY
FABULOUS, HIGH DIMENSION, FROST & GLOW, ILLUMINANCE, FLEX, CUTEX (outside the
U.S.), MITCHUM, ETERNA 27, ULTIMA II, ALMAY, ALMAY Kinetin, CHARLIE, JEAN
NATE, 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, SKINLIGHTS skin brightener, HIGH DIMENSION hair color,
SUPER TOP SPEED nail enamel, REVLON AGE DEFYING foundation and cosmetics, NEW
COMPLEXION makeup, WONDERWEAR foundation and lipstick, ALMAY Kinetin skin
care, TIME-OFF makeup, AMAZING LASTING cosmetics, ALMAY ONE COAT eye makeup
and cosmetics and VITAL RADIANCE skin care products. 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
Oxford, North Carolina manufacturing facility is registered with the FDA as a
drug manufacturing establishment, 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 18 of the
Notes to Consolidated Financial Statements of the Company.
EMPLOYEES
As of December 31, 2001, the Company employed the equivalent of
approximately 6,000 full-time persons. As of December 31, 2001, approximately
130 of such employees in the United States were covered by collective
bargaining agreements. 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.
9
ITEM 2. PROPERTIES
The following table sets forth as of December 31, 2001 the Company's
major manufacturing, research and warehouse/distribution facilities, all of
which are owned except where otherwise noted.
APPROXIMATE FLOOR SPACE
LOCATION USE SQ. FT.
- -------- --- -----------------------
Oxford, North Carolina ......... Manufacturing, warehousing, distribution and office 1,012,000
Edison, New Jersey ............. Research and office (leased) 175,000
Irvington, New Jersey .......... Manufacturing, warehousing and office 96,000
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
During 2001, Products Corporation sold or closed its facilities in
Phoenix, Arizona and Mississauga, Canada (and consolidated the cosmetics
manufacturing operations into the Company's Oxford, North Carolina facility),
Maesteg, Wales (UK), Sao Paulo, Brazil, and New Zealand (see "Manufacturing
and Related Operations and Raw Materials"). 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
6,000 square feet were sublet to affiliates of the Company and approximately
171,000 square feet were sublet to unaffiliated third parties as of December
31, 2001). Management considers the Company's facilities to be well-maintained
and satisfactory for the Company's operations, and believes that the Company's
facilities and third party contractual supplier arrangements 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 and former officers and directors
and the parent of Revlon, 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 under the caption "In
Re Revlon, Inc. Securities Litigation" and limited the alleged class to
security purchasers during the period from October 29, 1997 through October 1,
1998. In June 2000, the defendants 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 is vigorously defending 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 "Second Gavish Action"). In November 2001, plaintiffs
amended their complaint. The amended complaint alleges, among other things,
that Revlon, Inc., 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. In December 2001, the defendants moved to dismiss the
amended complaint. The Company believes the allegations in the amended
complaint are without merit and, if its motion to dismiss is not granted,
intends to vigorously defend against them.
10
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 2001 or 2000. The terms of the 2001 Credit Agreement, the
8 5/8% Notes, the 8 1/8% Notes, the 9% Notes (each as hereinafter defined) and
the 12% Notes currently restrict the ability of Products Corporation to pay
dividends or make distributions to Revlon, Inc. The terms of 12% Senior
Secured Notes due 2004 (the "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.
ITEM 6. SELECTED FINANCIAL DATA
The Consolidated Statements of Operations Data for each of the years
in the five-year period ended December 31, 2001 and the Balance Sheet Data as
of December 31, 2001, 2000, 1999, 1998 and 1997 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,
------------------------------------------------------------------------------
2001 2000 1999 1998 1997
----------- ----------- ----------- ----------- -----------
(IN MILLIONS)
STATEMENTS OF OPERATIONS DATA (a) (b) (c) (e):
Net sales ................................... $ 1,321.5 $ 1,447.8 $ 1,709.9 $ 2,149.7 $ 2,156.4
Operating income (loss) ..................... 16.1(d) 15.9(f) (212.0)(g) 124.7(h) 214.2(i)
Loss from continuing operations ............. (181.2) (209.7) (441.9) (93.5) (31.3)
DECEMBER 31,
------------------------------------------------------------------------------
2001 2000 1999 1998 1997
----------- ----------- ----------- ----------- -----------
(IN MILLIONS)
BALANCE SHEET DATA (b) (e):
Total assets ................................ $ 998.1 $ 1,102.7 $ 1,563.2 $ 1,839.0 $ 2,101.0
Long-term debt, including current portion ... 1,728.6 2,316.7 2,450.8 2,271.2 2,305.0
Total stockholder's deficiency .............. (1,381.5) (1,863.9) (1,691.1) (1,252.7) (995.2)
(a) In November 2001, the FASB Emerging Issues Task Force (the "EITF") reached
consensus on EITF Issue 01-9 entitled, "Accounting for Consideration Given by
a Vendor to a Customer or a Reseller of the Vendor's Products" (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 Company adopted the earlier
portion of these new Guidelines (formerly EITF Issue 00-14) addressing certain
sales incentives effective January 1, 2001, and accordingly, all prior period
financial statements reflect the implementation of the earlier portion of the
Guidelines.
(b) In September 2001, Revlon, Inc. acquired from Holdings (as hereinafter
defined) and contributed to Products Corporation all of the assets and
liabilities of the Charles of the Ritz business. The transaction has been
accounted for at historical cost in a manner similar to that of a pooling of
interests and, accordingly, all prior period financials
11
statements presented have been restated as if the acquisition took place at the
beginning of such periods. (See Note 15 to the Consolidated Financial
Statements).
(c) On July 16, 2001, the Company completed the disposition of the Colorama
brand in Brazil. Accordingly, the selected financial data includes the results
of operations of the Colorama brand through the date of disposition.
(d) Includes restructuring costs and other, net, and additional consolidation
costs associated with the shutdown of the Phoenix and Canada facilities of
$38.1 million and $43.6 million, respectively. (See Note 2 to the Consolidated
Financial Statements).
(e) 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.
(f) Includes restructuring costs and other, net, and additional consolidation
costs associated with the shutdown of the Phoenix facility of $54.1 million
and $4.9 million, respectively. (See Note 2 to the Consolidated Financial
Statements).
(g) Includes restructuring costs and other, net of $40.2 million and executive
separation costs of $22.0 million. (See Note 2 to the Consolidated Financial
Statements).
(h) Includes restructuring costs and other, net, aggregating $35.8 million.
(i) Includes restructuring costs and other, net, of $3.6 million.
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. In addition, the Company has a licensing group.
On March 30, 2000, May 8, 2000, and July 16, 2001 Products
Corporation completed the dispositions of its worldwide professional products
line, Plusbelle brand in Argentina and Colorama brand in Brazil, respectively.
Accordingly, the Consolidated Condensed Financial Statements include the
results of operations of the professional products line and the Plusbelle and
Colorama brands through the dates of their respective dispositions.
During the first quarter of 2001, to reflect the integration of
management reporting responsibilities, the Company reclassified Canada's
results from its international operations to its United States operations.
Management's discussion and analysis data reflects this change for all periods
presented.
In November 2001, the EITF reached consensus on EITF Issue 01-9,
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 Company adopted the earlier portion of these new
Guidelines (formerly EITF Issue 00-14) addressing certain sales incentives
effective January 1, 2001, and accordingly, all prior period financial
statements reflect the implementation of the earlier portion of the
Guidelines.
In September 2001, Revlon, Inc. acquired from Holdings and
contributed to Products Corporation all of the assets and liabilities of the
Charles of the Ritz business. The transaction has been accounted for at
historical cost in a manner similar to that of a pooling of interests and,
accordingly, all prior period financials statements presented have been
restated as if the acquisition took place at the beginning of such periods.
Discussion of Critical Accounting Policies:
In the ordinary course of business, the Company has made a number of
estimates and assumptions relating to the reporting of results of operations
and financial condition in the preparation of its financial statements in
conformity with accounting principles generally accepted in the United States
of America. Actual results could differ significantly from those estimates
under different assumptions and conditions. The Company believes that the
following discussion addresses the Company's most critical accounting
policies, which are those that are most important to the portrayal of the
Company's financial condition and results and require management's most
difficult, subjective and complex judgments, often as a result of the need to
make estimates about the effect of matters that are inherently uncertain.
Sales Returns:
The Company allows customers to return their unsold products when
they meet certain Company-established criteria as outlined in the Company's
trade terms. The Company regularly reviews and revises when deemed necessary
its estimates of sales returns based primarily upon actual returns, planned
product discontinuances, and promotional sales, which would permit customers
to return items based upon the Company's trade terms. The Company records
estimated 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. Returned products which are recorded as
inventories are valued based upon expected realizablity. The physical
condition and marketability of the returned products are the major factors
considered by the Company in estimating realizable value. Actual returns, as
well as realized values on returned products, may differ significantly, either
favorably or unfavorably, from our estimates if factors such as economic
conditions, customer inventory levels or competitive conditions differ from
our expectations.
Trade Support Costs:
In order to support the retail trade, the Company has various
performance-based arrangements with retailers to reimburse them for all or a
portion of their promotional activities related to the Company's products. The
13
Company regularly reviews and revises, when deemed necessary, estimates of
costs to the Company for these promotions based on estimates of what has been
incurred by the retailers. Actual costs incurred by the Company may differ
significantly if factors such as the level and success of the retailers'
programs or other conditions differ from our expectations.
Inventories:
Inventories are stated at the lower of cost or market value. Cost is
principally determined by the first-in, first-out method. The Company records
adjustments to the value of inventory based upon its forecasted plans to sell
its inventories. The physical condition (e.g., age and quality) of the
inventories is also considered in establishing its valuation. These
adjustments are estimates, which could vary significantly, either favorably or
unfavorably, from actual requirements if future economic conditions, customer
inventory levels or competitive conditions differ from our expectations.
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.
Changes in circumstances such as technological advances, changes to the
Company's business model or changes in the Company's capital strategy can
result in the actual useful lives differing from the Company's estimates. In
those cases where the Company determines that the useful life of property,
plant and equipment should be shortened, the Company would depreciate the net
book value in excess of the salvage value, over its revised remaining useful
life thereby increasing depreciation expense. Factors such as changes in the
planned use of fixtures or software or closing of facilities could result in
shortened useful lives.
Long-lived assets, including fixed assets and intangibles other than
goodwill, are reviewed by the Company for impairment whenever events or
changes in circumstances indicate that the carrying amount of any such asset
may not be recoverable. The estimate of cash flow is based upon, among other
things, certain assumptions about expected future operating performance. The
Company's estimates of undiscounted cash flow may differ from actual cash flow
due to, among other things, technological changes, economic conditions,
changes to its business model or changes in its operating performance. If the
sum of the undiscounted cash flows (excluding interest) is less than the
carrying value, the Company recognizes an impairment loss, measured as the
amount by which the carrying value exceeds the fair value of the asset.
Pension Benefits:
The Company sponsors pension and other retirement plans in various
forms covering substantially all employees who meet eligibility requirements.
Several statistical and other factors which attempt to anticipate future
events are used in calculating the expense and liability related to the plans.
These factors include assumptions about the discount rate, expected return on
plan assets and rate of future compensation increases as determined by the
Company, within certain guidelines. In addition, the Company's actuarial
consultants also use subjective factors such as withdrawal and mortality rates
to estimate these factors. The actuarial assumptions used by the Company may
differ materially from actual results due to changing market and economic
conditions, higher or lower withdrawal rates or longer or shorter life spans
of participants. These differences may result in a significant impact to the
amount of pension expense recorded by the Company. Due to decreases in
interest rates and declines in the income of assets in the plans, it is
expected that the pension expense for 2002 will be significantly higher than
in recent years.
14
RESULTS OF OPERATIONS
In order to provide a more meaningful comparison of results from
operations, the Company's discussion is presented on an ongoing operations
basis. The following table sets forth certain summary unaudited data for the
Company for each of the last three years reconciling the Company's actual as
reported results to the ongoing operations, after giving effect to the
following: (i) the disposition of the worldwide professional products line,
and the Plusbelle and Colorama brands, assuming such transactions occurred on
January 1, 1999; (ii) the elimination of restructuring costs in the period
incurred; and (iii) the elimination of additional costs associated with the
closing of the Phoenix and Canada facilities that were included in cost of
sales and selling, general and administrative expenses ("SG&A") and executive
severance costs that were included in selling, general and administrative
expenses in the period incurred (after giving effect thereto, the "Ongoing
Operations"). The adjustments are based upon available information and certain
assumptions that our management believes are reasonable and do not represent
pro forma adjustments prepared in accordance with Regulation S-X. The summary
unaudited data for the Ongoing Operations does not purport to represent the
results of operations or our financial position that actually would have
occurred had the foregoing transactions referred to in (i) above been
consummated on January 1, 1999.
YEAR ENDED DECEMBER 31, 2001:
- ----------------------------------------------------------------------
PRODUCT LINE,
BRANDS AND RESTRUCTURING
FACILITIES COSTS AND ONGOING
AS REPORTED SOLD OTHER, NET OPERATIONS
--------------- --------------- --------------- --------------
Net sales ......................................... $ 1,321.5 $ (16.4) $ - $ 1,305.1
Gross profit ...................................... 777.3 (6.5) 38.2 809.0
Selling, general and administrative expenses ...... 723.1 (9.1) (5.4) 708.6
Restructuring costs and other, net ................ 38.1 - (38.1) -
YEAR ENDED DECEMBER 31, 2000:
- --------------------------------------------------- PRODUCT LINE,
BRANDS AND RESTRUCTURING
FACILITIES COSTS AND ONGOING
AS REPORTED SOLD OTHER, NET OPERATIONS
--------------- --------------- --------------- --------------
Net sales ......................................... $ 1,447.8 $ (144.1) $ - $ 1,303.7
Gross profit ...................................... 873.5 (77.8) 4.9 800.6
Selling, general and administrative expenses ...... 803.5 (72.2) - 731.3
Restructuring costs and other, net ................ 54.1 - (54.1) -
YEAR ENDED DECEMBER 31, 1999:
- --------------------------------------------------- PRODUCT LINE,
BRANDS AND RESTRUCTURING
FACILITIES COSTS AND ONGOING
AS REPORTED SOLD OTHER, NET OPERATIONS
--------------- --------------- --------------- --------------
Net sales ......................................... $ 1,709.9 $ (441.1) $ - $ 1,268.8
Gross profit ...................................... 983.6 (261.3) - 722.3
Selling, general and administrative expenses ...... 1,155.4 (231.8) (22.0) 901.6
Restructuring costs and other, net ................ 40.2 (3.9) (36.3) -
15
YEAR ENDED DECEMBER 31, 2001 COMPARED WITH YEAR ENDED DECEMBER 31, 2000
Net sales
Net sales were $1,321.5 and $1,447.8 for 2001 and 2000, respectively,
a decrease of $126.3, or 8.7% on a reported basis (a decrease of 6.0% on a
constant U.S. dollar basis). The decline in consolidated net sales for year
ended 2001 as compared with the year ended 2000 is primarily due to the sale
of the worldwide professional products line and the Plusbelle brand in
Argentina in the first and third quarters of 2000, respectively, and the
Colorama brand in Brazil in July of 2001.
Net sales of the Ongoing Operations were $1,305.1 and $1,303.7 for
2001 and 2000, respectively (an increase of 2.6% on a constant U.S. dollar
basis).
United States and Canada. Net sales in the United States and Canada
------------------------
were $901.0 for 2001 compared with $895.8 for 2000, an increase of $5.2, or
0.6%. Net sales of the Company's Ongoing Operations in the United States and
Canada were $901.0 for 2001, compared with $860.1 for 2000, an increase of
$40.9, or 4.8%. The increase for 2001 of 4.8%, was driven primarily by lower
sales returns and allowances of $55.7 as a result of the Company's revised
trade terms, which was partially offset by reduced sales volume of $14.8. This
volume decline is net of $14.0 of increased sales in the fourth quarter of
2001 resulting from the decision by major U.S. retail customers to shift
planned plan-o-gram timing for 2002 new products.
International. Net sales in the Company's international operations
-------------
were $420.5 for the 2001, compared with $552.0 for 2000, a decrease of $131.5,
or 23.8% on a reported basis (a decrease of 17.7% on a constant U.S. dollar
basis). The decline for year ended 2001 as compared with the year ended 2000
is primarily due to the sale of the worldwide professional products line and
the Plusbelle brand in Argentina in 2000, respectively, and the Colorama brand
in Brazil in July of 2001.
Net sales in the Company's international Ongoing Operations ("Ongoing
International Operations") were $404.1 and $443.6 for 2001 and 2000,
respectively, a decrease of $39.5, or 8.9%, on a reported basis (a decrease of
2.4% on a constant U.S. dollar basis).
Ongoing International Operations sales are divided by the Company
into three geographic regions. In Europe and Africa, which comprises Europe,
the Middle East and Africa, net sales decreased by 8.8% on a reported basis to
$160.2 for 2001, as compared with 2000 (a decrease of 1.6% on a constant U.S.
dollar basis). In Latin America, which comprises Mexico, Central America,
South America and Puerto Rico, net sales decreased by 7.4% on a reported basis
to $131.9 for 2001, as compared with 2000 (a decrease of 2.1% on a constant
U.S. dollar basis). In the Far East, net sales decreased by 10.8% on a
reported basis to $112.0 for 2001, as compared with 2000 (a decrease of 3.9%
on a constant U.S. dollar basis). Net sales in the Company's international
operations may be adversely affected by weak economic conditions, political
uncertainties, adverse currency fluctuations, and competitive activities.
The decrease in net sales for 2001, as compared to 2000, for Ongoing
International Operations on a comparable currency basis, was primarily due to
the increased competitive activity in Japan, Hong Kong and Australia (which
factor the Company estimates contributed to an approximately 1.9% reduction in
net sales), a reduction in sales volume in certain tourist related markets in
Latin America (which factor the Company estimates contributed to an
approximately 0.9% reduction in net sales), the conversion of an operation to
a distributor in 2001 (which factor the Company estimates contributed to an
approximately 0.9% reduction in net sales) and difficulties in the economy and
increased sales returns in the Company's Argentine operation (which factor the
Company estimates contributed to an approximately 1.4% reduction in net
sales), offset by increased new products in China, Brazil, South Africa and
Mexico (which factor the Company estimates contributed to an approximately
3.1% increase in net sales).
Gross profit
Gross profit was $777.3 for 2001, compared with $873.5 for 2000. As a
percentage of net sales, gross profit margins were 58.8% for 2001 compared
with 60.3% for 2000. The decline in gross profit and gross profit
16
margin in 2001 compared to 2000 is due to $38.2 ($6.1 of which represents
increased depreciation recorded for the Phoenix facility - See Note 2) and $4.9
of additional consolidation costs associated with the shutdown of the Phoenix
and Canada facilities in 2001 and 2000, respectively. This decline is partially
offset by the improvement in sales returns and allowances and the dispositions
of lower margin businesses. Gross profit and gross profit margin for Ongoing
Operations were $809.0 and 62.0%, respectively, in 2001 compared with gross
profit and gross profit margin of $800.6 and 61.4% in 2000. The increase in
gross profit margin for 2001 is primarily related to the improvement in sales
returns and allowances versus 2000.
SG&A expenses
SG&A expenses were $723.1 for 2001, compared with $803.5 for 2000.
SG&A expenses for the Ongoing Operations, which excludes $5.4 of additional
consolidation costs associated with the shutdown of the Phoenix and Canada
facilities in 2001, were $708.6 for 2001, compared with $731.3 for 2000. The
decrease in SG&A expenses for our Ongoing Operations for 2001, as compared to
the comparable 2000 period, is due primarily to the reduction of departmental
general and administrative expenses from $332.1 in 2000 to $283.0 for 2001 as
a result of the Company's restructuring efforts, partially offset by an
increase in brand support expenses from $332.9 for 2000 to $350.7 for 2001.
Restructuring costs
In the first quarter of 2000, the Company recorded a charge of $9.5
relating to the 1999 restructuring program that began in the fourth quarter of
1999. The Company continued to implement the 1999 restructuring program during
the second quarter of 2000 during which it recorded a charge of $5.1.
During the third quarter of 2000, the Company continued to
re-evaluate its organizational structure. As part of this re-evaluation, the
Company initiated a new restructuring program in line with the original
restructuring plan developed in late 1998, designed to improve profitability
by reducing personnel and consolidating manufacturing facilities. The Company
recorded a charge of $13.7 in the third quarter of 2000 for programs begun in
such quarter, as well as for the expanded scope of programs previously
commenced. The 2000 restructuring program focused on the Company's plans to
close its manufacturing operations in Phoenix, Arizona and Mississauga, Canada
and to consolidate its cosmetics production into its plant in Oxford, North
Carolina. The 2000 restructuring program 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, each of which were effected to reduce and
streamline corporate overhead costs. In the fourth quarter of 2000, the
Company recorded a charge of $25.8 related to the 2000 restructuring program,
principally for additional employee severance and other personnel benefits and
to consolidate worldwide operations.
In the first, second, third and fourth quarters of 2001, the Company
recorded charges of $14.6, $7.9, $3.0 and $12.6, respectively, related to the
2000 restructuring program, principally for additional employee severance and
other personnel benefits, relocation and other costs related to the
consolidation of worldwide operations. The charge in the fourth quarter of
2001 also was for an adjustment to previous estimates of approximately $6.6.
The Company anticipates annualized savings of approximately $25 to
$30 relating to the restructuring charges recorded during 2001.
Other expenses (income)
Interest expense was $165.0 for 2001 compared with $219.4 for 2000.
The decrease in interest expense for 2001, as compared to 2000, is primarily
due to the cancellation of the Senior Secured Discount Notes due 2001 (the
"Old REV Holdings Notes"), the repayment of borrowings under the 1997 Credit
Agreement with the net proceeds from the disposition of the worldwide
professional products line, the Plusbelle brand in Argentina and the Colorama
brand in Brazil and by lower interest rates under the Credit Agreement,
partially offset by interest on the New REV Holdings Notes and the 12% Notes,
which were issued in February 2001 and November 2001, respectively.
17
Sale of product line, brands and facilities, net
Described below are the principal sales of certain brands and
facilities entered into by Products Corporations during 2001:
In December 2001, Products Corporation sold a facility in Puerto Rico
for approximately $4. In connection with such disposition, the Company
recorded a pre-tax and after-tax gain on the sale of $3.1 in the fourth
quarter of 2001.
In July 2001, Products Corporation completed the disposition of the
Colorama brand of cosmetics and hair care products, as well as Products
Corporation's manufacturing facility located in Sao Paulo, Brazil, for
approximately $57. Products Corporation used $22 of the net proceeds, after
transaction costs and retained liabilities, to permanently reduce commitments
under the 1997 Credit Agreement. In connection with such disposition, the
Company recognized a pre-tax and after-tax loss of $6.7.
In July 2001, Products Corporation completed the disposition of its
subsidiary that owned and operated its manufacturing facility in Maesteg,
Wales (UK), including all production equipment. As part of this sale, Products
Corporation entered into a long-term supply agreement with the purchaser
pursuant to which the purchaser manufactures and supplies to Products
Corporation cosmetics and personal care products for sale throughout Europe.
The purchase price was approximately $20.0, $10.0 of which was received on the
closing date and $10.0 is to be received over a six-year period, a portion of
which is contingent upon certain future events. In connection with such
disposition, the Company recognized a pre-tax and after-tax loss of $8.6.
In May 2001, Products Corporation sold its Phoenix, Arizona facility
for approximately $7 and leased it back through the end of 2001. After
recognition of increased depreciation in the first quarter of 2001, the
Company recorded a loss on the sale of $3.7 in the second quarter of 2001,
which is included in SG&A expenses.
In April 2001, Products Corporation sold land in Minami Aoyama near
Tokyo, Japan and related rights for the construction of a building on such
land (the "Aoyama Property") for approximately $28. In connection with such
disposition, the Company recognized a pre-tax and after-tax loss of $0.8
during the second quarter of 2001.
Provision for income taxes
The provision for income taxes was $9.3 for 2001 compared with $8.6
for 2000. The increase in the provision for income taxes for 2001 as compared
to 2000, was attributable to the alternative minimum tax liability recorded in
2001 in connection with the retirement of the Old REV Holdings Notes,
partially offset by adjustments to certain deferred tax assets and higher
taxes associated with the worldwide professional products line in the first
quarter of 2000 and lower taxable income in 2001 in certain markets outside
the United States. In March 2002, new tax legislation was enacted that will
allow for full utilization of alternative minimum tax net operating losses to
offset alternative minimum taxable income. The benefit relating to this new
legislation will be recorded in the first quarter of 2002.
Extraordinary item
The extraordinary loss of $3.6 (net of taxes) in 2001 resulted
primarily from the write-off of financing costs in connection with the 2001
Refinancing Transactions.
YEAR ENDED DECEMBER 31, 2000 COMPARED WITH YEAR ENDED DECEMBER 31, 1999
Net sales
Net sales were $1,447.8 and $1,709.9 for 2000 and 1999, respectively,
a decrease of $262.1, or 15.3% on a reported basis (a decrease of 12.8% 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.
18
Net sales of the Ongoing Operations were $1,303.7 and $1,268.8 for
2000 and 1999, respectively, an increase of $34.9, or 2.8% on a reported basis
(an increase of 4.9% on a constant U.S. dollar basis).
United States and Canada. Net sales in the United States and Canada
------------------------
were $895.8 for 2000 compared with $954.8 for 1999, a decrease of $59.0, or
6.2%. Net sales of the Company's Ongoing Operations in the United States and
Canada were $860.1 for 2000 compared with $796.2 for 1999, an increase of
$63.9, or 8.0%. The increase in net sales is primarily due to a decline in
sales returns and allowances for 2000 of $174.2. This decline was partially
offset by $110.3 of lower shipments due to (i) a reduction of overall U.S.
customer inventories, and (ii) reduced consumer demand for the Company's
cosmetics due in part to fewer new product introductions in 2000 compared to
1999.
International. Net sales in the Company's international operations
-------------
were $552.0 for 2000, compared with $755.1 for 1999, a decrease of $203.1, or
26.9% on a reported basis (a decrease of 22.1% 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 of the Company's Ongoing International Operations were
$443.6 and $472.6 for 2000 and 1999, respectively, a decrease of $29.0, or
6.1%, on a reported basis (a decrease of 0.9% on a constant U.S. dollar
basis).
Ongoing International Operations sales are divided by the Company
into three geographic regions. In Europe and Africa, which comprises Europe,
the Middle East and Africa, net sales decreased by 9.2% on a reported basis to
$175.7 for 2000, as compared with 1999 (an increase of 0.2% on a constant U.S.
dollar basis). In Latin America, which comprises Mexico, Central America,
South America and Puerto Rico, net sales increased by 3.4% on a reported basis
to $142.4 for 2000, as compared with 1999 (a increase of 3.8% on a constant
U.S. dollar basis). In the Far East, net sales decreased by 11.2% on a
reported basis to $125.5 for 2000, as compared with 1999 (a decrease of 7.2%
on a constant U.S. dollar basis). Net sales in the Company's international
operations may be adversely affected by weak economic conditions, political
and economic uncertainties, adverse currency fluctuations, and competitive
activities.
The decrease in net sales for 2000, as compared to 1999 for Ongoing
International Operations on a comparable currency basis, was primarily due to
a reduction in sales volume in Japan, Hong Kong and France due to the exit of
certain product lines (which factor the Company estimates contributed to
approximately 2.9% of the decrease in net sales on a constant U.S. dollar
basis), offset by increased new product and promotional activity in South
Africa, Mexico, Brazil, Argentina and Italy.
Gross profit
Gross profit was $873.5 for 2000, compared with $983.6 for 1999. As a
percentage of net sales, gross profit margins were 60.3% for 2000 compared
with 57.5% for 1999. Gross profit and gross profit margin for the Ongoing
Operations, which excludes $4.9 of additional costs associated with the
consolidation of worldwide operations, were $800.6 and 61.4%, respectively, in
2000 compared with gross profit and gross profit margin of $722.3 and 56.9%,
respectively, in 1999. The increase in gross profit margin for 2000 is
primarily related to the improvement in sales returns and allowances versus
1999. This improvement was partially offset by a 4.4% increase in
manufacturing costs as a percentage of net shipments due to lower shipments in
the U.S. as discussed above.
SG&A expenses
SG&A expenses were $803.5 for 2000, compared with $1,155.4 for 1999.
As a percentage of net sales, SG&A expenses were 55.5% for 2000 compared with
67.6% for 1999. SG&A expenses for the Ongoing Operations, which excludes $22
of separation costs of various executives terminated in 1999, were $731.3 in
2000, or 56.1% percent of net sales, compared with $901.6 or 71.1% of net
sales in 1999. The decrease in SG&A expenses as a percentage of net sales
during 2000 primarily reflects reduced brand support as a percentage of net
sales from 33.8% in 1999 to 25.5% in 2000 and a decline in departmental and
other SG&A expenses of $67.1 or 16.9% primarily due to the favorable impact of
the Company's restructuring efforts.
19
Restructuring costs and other, net
In late 1998, the Company developed a strategy to reduce overall
costs and streamline operations. To execute against this strategy, the Company
began to develop a restructuring plan and executed the plan in several phases,
which has resulted in several restructuring charges being recorded.
In the fourth quarter of 1998, the Company began to execute the 1998
restructuring program which was designed to realign and reduce personnel, exit
excess leased real estate, realign and consolidate regional activities,
reconfigure certain manufacturing operations and exit certain product lines.
During the nine-month period ended September 30, 1999, the Company continued
to execute the 1998 restructuring program and recorded an additional net
charge of $20.5 principally for employee severance and other personnel
benefits and obligations for excess leased real estate primarily in the United
States. Additionally, 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 the fourth quarter of 1999, the Company continued to restructure
its organization and began a new program in line with its original
restructuring plan developed in late 1998, principally for additional employee
severance and other personnel benefits and to restructure certain operations
outside the United States, including certain operations in Japan, resulting in
a charge of $18.1. Additionally, during the fourth quarter of 1999 the Company
recorded a charge of $22.0 for executive separation costs to SG&A related to
this new program. In the first quarter of 2000, the Company recorded a charge
of $9.5 relating to the 1999 restructuring program that began in the fourth
quarter of 1999. The Company continued to implement the 1999 restructuring
program during the second quarter of 2000 during which it recorded a charge of
$5.1.
During the third quarter of 2000, the Company continued to
re-evaluate its organizational structure. As part of this re-evaluation, the
Company initiated a new restructuring program in line with the original
restructuring plan developed in late 1998, designed to improve profitability
by reducing personnel and consolidating manufacturing facilities. The Company
recorded a charge of $13.7 in the third quarter of 2000 for programs begun in
such quarter, as well as the expanded scope of programs previously commenced.
The 2000 restructuring program focused on the Company's plans to close its
manufacturing operations in Phoenix, Arizona and Mississauga, Canada and to
consolidate its cosmetics production into its plant in Oxford, North Carolina.
The 2000 restructuring program 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, each of which were effected to reduce and streamline corporate
overhead costs. In the fourth quarter of 2000, the Company recorded a charge
of $25.8 related to the 2000 restructuring program, principally for additional
employee severance and other personnel benefits and to consolidate worldwide
operations.
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 1997 Credit Agreement, partially offset by the
repayment of borrowings under the 1997 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, brands and facilities, net
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
20
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.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Net cash used for operating activities was $91.0, $84.0 and $81.8 for
2001, 2000 and 1999, respectively. The slight increase in net cash used for
operating activities for 2001 compared to 2000 resulted primarily from a
higher net loss and changes in working capital, partially offset by lower
purchases of permanent displays. 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.
Net cash provided by (used for) investing activities was $87.2,
$322.1 and $(40.7) for 2001, 2000 and 1999, respectively. Net cash provided by
investing activities for 2001 consisted of net proceeds from the sale of the
Company's Colorama brand in Brazil, the Company's subsidiary in Maesteg, Wales
(UK), the Aoyama Property in Japan, the Phoenix facility and a facility in
Puerto Rico, partially offset by capital expenditures. Net cash provided by
investing activities for 2000 consisted of proceeds from the sale of the
Company's worldwide professional products line and the Plusbelle brand in
Argentina, partially offset by cash used for capital expenditures. Net cash
used for investing activities in 1999 related principally to capital
expenditures. Net cash used for investing activities for 2001, 2000 and 1999
included capital expenditures of $15.1, $19.0 and $42.3, respectively.
Investing activities in 1999 included substantial upgrades to the Company's
management information systems.
Net cash provided by (used for) financing activities was $50.8,
$(203.7) and $117.5 for 2001, 2000 and 1999, respectively. Net cash provided
by financing activities for 2001 included cash drawn under the 2001 and 1997
Credit Agreements and proceeds from the issuance of the 12% Notes, partially
offset by the repayment of borrowings under the 1997 Credit Agreement (as
hereinafter defined) with the net proceeds from the disposition of the
Colorama brand in Brazil, and subsequently with proceeds from the issuance of
the 12% Notes and proceeds from the 2001 Credit Agreement and payment of debt
issuance costs in connection with the issuance of the 12% Notes and the 2001
Credit Agreement (as hereinafter defined). Net cash used for financing
activities for 2000 included repayments of borrowings under the Credit
Agreement with the net proceeds from the disposition of the worldwide
professional products line and the Plusbelle brand in Argentina and the
repayment of Products Corporation's Japanese yen-denominated credit agreement
(the "Yen Credit Agreement"), partially offset by cash drawn under the 1997
Credit Agreement. Net cash provided by financing activities for 1999 included
cash drawn under the 1997 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.
On November 26, 2001, Products Corporation issued and sold $363 in
aggregate principal amount of 12% Notes in a private placement, receiving
gross proceeds of $350.5. Products Corporation used the proceeds from the 12%
Notes and borrowings under the 2001 Credit Agreement to repay outstanding
indebtedness under Products Corporation's 1997 Credit Agreement and to pay
fees and expenses incurred in connection with the 2001 Refinancing
Transactions, and the balance is available for general corporate purposes. On
or before February 25, 2002, Products Corporation expects to file a
registration statement with the Commission with respect to the Exchange Offer.
On November 30, 2001, Products Corporation entered into the 2001
Credit Agreement with a syndicate of lenders, whose individual members change
from time to time, which agreement amended and restated the credit agreement
entered into by Products Corporation in May 1997 (as amended, the "1997 Credit
Agreement"; the 2001 Credit Agreement and the 1997 Credit Agreement are
sometimes referred to as the "Credit Agreement"), and which matures on May 30,
2005. As of December 31, 2001, the 2001 Credit Agreement provided up to
$250.0, which is comprised of a $117.9 term loan facility (the "Term Loan
Facility") and a $132.1 multi-currency revolving credit facility (the
"Multi-Currency Facility"). At December 31, 2001, the Term Loan Facility was
fully drawn and $103.5 was available under the Multi-Currency Facility,
including the letters of credit. The 2001 Credit Agreement
21
contains minimum EBITDA levels for the four consecutive quarters ending March
31, 2002 of $180, June 30, 2002 through September 30, 2002 of $185, December 31,
2002 through September 30, 2003 of $210, December 31, 2003 through September 30,
2004 of $230 and December 31, 2004 and thereafter of $250, as well as leverage
ratio and capital expenditure covenants and, negative covenants consistent with
the 1997 Credit Agreement with certain exceptions. The Credit Facilities (other
than loans in foreign currencies) bear interest as of December 31, 2001 at a
rate equal to, at Products Corporation's option, either (A) the Alternate Base
Rate plus 3.75% (which was 4.75% at December 31, 2001); or (B) the Eurodollar
Rate plus 4.75% (which was 3.00% at December 31, 2001), which margins are higher
than those under the 1997 Credit Agreement. Loans in foreign currencies bear
interest in certain limited circumstances or if mutually acceptable to Products
Corporation and the relevant foreign lenders at the Local Rate and otherwise at
the Eurocurrency Rate, in each case plus 4.75% (which was 3.49% at December 31,
2001). Products Corporation pays a commitment fee of 0.75% of the average daily
unused portion of the Multi-Currency Facility. Under the Multi-Currency
Facility, the Company pays (i) to foreign lenders a fronting fee of 0.25% per
annum on the aggregate principal amount of specified Local Loans (which fee is
retained by the foreign lenders out of the portion of the Applicable Margin
payable to such foreign lender), (ii) to foreign lenders an administrative fee
of 0.25% per annum on the aggregate principal amount of specified Local Loans,
(iii) to the multi-currency lenders a letter of credit commission equal to (a)
the Applicable Margin for Eurodollar Rate loans (adjusted for the term that the
letter of credit is outstanding) times (b) the aggregate undrawn face amount of
letters of credit and (c) to the issuing lender a letter of credit fronting fee
of 0.25% per annum of the aggregate undrawn face amount of letters of credit
(which fee is a portion of the Applicable Margin).
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.
The Company's principal sources of funds are expected to be cash flow
generated from operations (before interest), cash on hand and available
borrowings under the Multi-Currency Facility of the 2001 Credit Agreement and
advances under the Keepwell Agreement (as hereinafter defined). The Credit
Agreement, Products Corporation's 12% Notes, Products Corporation's 8 5/8%
Notes due 2008 (the "8 5/8% Notes"), Products Corporation's 8 1/8% Notes due
2006 (the "8 1/8% Notes") and Products Corporation's 9% Notes due 2006 (the
"9% Notes") contain certain provisions that by their terms limit Products
Corporation's and/or its subsidiaries' ability to, among other things, incur
additional debt. The 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 restructuring programs referred to above, debt service payments and
interest under the New REV Holdings Notes.
The Company estimates that cash payments related to the restructuring
programs referred to in Note 2 to the Consolidated Financial Statements and
executive separation costs will be $20 to $25 in 2002. Additionally, the Company
estimates $6 in costs for certain former senior executives of Revlon, Inc. and
Products Corporation separated in the first quarter of 2002. Pursuant to tax
sharing agreements, REV Holdings and Revlon, Inc. may be required to make tax
sharing payments to 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
22
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 2002.
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, 2001.
The Company expects that cash flows from operations before interest,
cash on hand, available borrowings under the Multi-Currency Facility of the
2001 Credit Agreement and advances under the Keepwell Agreement will be
sufficient to enable the Company to meet its anticipated cash requirements
during 2002 including debt service of its subsidiaries and expenses in
connection with the Company's restructuring programs. However, there can be no
assurance that the combination of cash flow from operations, cash on hand,
available borrowings under the Multi-Currency Facility of the 2001 Credit
Agreement and advances under the Keepwell Agreement will be sufficient to meet
the Company's cash requirements on a consolidated basis. Additionally, in the
event of a decrease in demand for Products Corporation's products or reduced
sales, such development, if significant, could reduce Products Corporation's
cash flow from operations and could adversely affect Products Corporation's
ability to achieve certain financial covenants under the 2001 Credit
Agreement, including the minimum EBITDA covenant, and in such event the
Company could be required to take measures, including reducing discretionary
spending. 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
programs, restructuring subsidiary indebtedness, selling assets or operations,
selling its equity securities, seeking capital contributions or 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,
2003. 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 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 interest and the principal amount at maturity of the New REV Holdings
Notes. The terms of the Credit Agreement, the 12% Notes, 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 Commission filing fees and other
miscellaneous expenses related to being a public holding company and, subject
to certain limitations, to pay dividends or make distributions in certain
circumstances to finance the purchase by Revlon, Inc. of its Class A Common
Stock in connection with the delivery of such Class A Common Stock to grantees
under the Revlon, Inc. Amended and Restated 1996 Stock Plan (the "Amended
Stock Plan").
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
23
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, 2001, 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 December 31, 2001, the last reported sale price of GSB
common stock on the New York Stock Exchange ("NYSE") was $26.15 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
seven quarterly dividends of $0.10 per share, or an aggregate of $30.3, 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. On August 1,
2001 and February 1, 2002, GSB Investments Corp. made non-interest bearing
advances of $4.5 and $4.8, respectively, to REV Holdings under the Keepwell
Agreement, which was used to make the August 1, 2001 and February 1, 2002
interest payments on the New REV Holdings Notes. The Keepwell Agreement will
terminate at such time as there are no New REV Holdings Notes outstanding, at
which time GSB Investments Corp. may require repayment of advances under the
Keepwell Agreement.
The Company is currently developing and testing a new design for its
permanent display units and, subject to a number of factors including results
from tests, the Company currently plans to begin installing them at certain
customers' doors during 2002. If we proceed with such installation, we may
need to accelerate the amortization of our existing display units beginning in
2002. The scope of any display unit replacements has not yet been determined
and, therefore, the amount of additional amortization cannot be precisely
calculated. However, we estimate if we proceed with the installation of new
displays that additional amortization will be in the range of $12 to $18
during 2002. The Company estimates that purchases of permanent displays for
2002 will be $45 to $60.
Additionally, the Company is evaluating its management information
systems to determine if the current system should be replaced with an
Enterprise Resource Planning ("ERP") System intended to provide benefits to
the Company in excess of the related purchase and implementation costs. If we
determine to implement the ERP System, certain existing information systems
would be amortized on an accelerated basis. Based upon the estimated time
required to implement an ERP System, the Company currently estimates that it
would record additional amortization of its current information system in the
range of $15 to $25 during 2002 if it proceeds with the implementation of an
ERP System. The Company estimates that capital expenditures for 2002 will be
$15 to $25.
In the first quarter of 2002, the Company expects to record a charge
of approximately $6 related to separation costs for certain former senior
executives of Revlon, Inc. and Products Corporation.
24
DISCLOSURES ABOUT CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS
The SEC has encouraged all public companies to aggregate all
contractual commitments and commercial obligations that affect financial
condition and liquidity as of December 31, 2001. To respond to this, the
Company has included the following table:
- ---------------------------------------------------------------------------------------------------------------------
PAYMENTS DUE BY PERIOD
(DOLLARS IN MILLIONS)
- ---------------------------------------------------------------------------------------------------------------------
CONTRACTUAL OBLIGATIONS TOTAL LESS THAN 1 YEAR 1-3 YEARS 4-5 YEARS AFTER 5 YEARS
- ---------------------------------------------------------------------------------------------------------------------
LONG-TERM DEBT $1,728.6 $1.3 $577.8 $499.6 $649.9
- ---------------------------------------------------------------------------------------------------------------------
CAPITAL LEASE OBLIGATIONS Nil Nil Nil Nil Nil
- ---------------------------------------------------------------------------------------------------------------------
OPERATING LEASES 67.1 26.1 23.1 7.0 10.9
- ---------------------------------------------------------------------------------------------------------------------
UNCONDITIONAL PURCHASE OBLIGATIONS 194.5(a) 52.8 69.5 41.8 30.4
- ---------------------------------------------------------------------------------------------------------------------
OTHER LONG-TERM OBLIGATIONS 33.4(b) 16.2 11.5 1.5 4.2
- ---------------------------------------------------------------------------------------------------------------------
TOTAL CONTRACTUAL CASH OBLIGATIONS $2,023.6 $96.4 $681.9 $549.9 $695.4
- ---------------------------------------------------------------------------------------------------------------------
(a) Includes primarily $145.5 relating to fixed annual purchase commitments
over the eight-year term of the supply agreement which the Company
entered into in connection with the sale of its manufacturing facility in
Maesteg, Wales (UK), $13.4 relating to fixed purchase commitments under
an agreement which the Company entered into in connection with the sale
of the Company's manufacturing facility in Sao Paulo, Brazil, and the
balance of $35.6 consists of other fixed purchase commitments for
finished goods, raw materials and components.
(b) Such amounts exclude severance and other contractual commitments related
to restructuring, which are discussed under "Restructuring Costs".
EURO CONVERSION
As part of the European Economic and Monetary Union, a single
currency (the "Euro") has replaced 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 being removed from circulation between
January 1, 2002 and June 30, 2002 and replaced by Euro notes and coinage.
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 begin using the Euro for invoicing and payments by the end of the second
quarter of 2002. Based upon the information currently available, the Company
does not expect that the transition to the Euro will have a material adverse
effect on the business or consolidated financial condition of the Company.
EFFECT OF NEW ACCOUNTING STANDARDS
In November of 2001, the EITF reached consensus on the Guidelines,
the second portion of which (formerly EITF Issue 00-25) addresses vendor
income statement characterization of consideration to a purchaser of the
vendor's products or services, including the classification of slotting fees,
cooperative advertising arrangements and buy-downs. Certain promotional
payments that are currently classified in SG&A expenses will be classified as
a reduction of net sales. The impact of the adoption of the second portion of
the Guidelines on the consolidated financial statements will reduce both net
sales and SG&A expenses by equal and offsetting amounts of $43.9 in 2001,
$38.4 in 2000 and $80.1 in 1999, respectively. The adoption will not have any
impact on the Company's
25
reported operating income or net loss. The Company has adopted the second
portion of the Guidelines effective January 1, 2002.
In July 2001, the FASB issued Statement No. 141, Business
Combinations, and Statement No. 142, Goodwill and Other Intangible Assets.
Statement 141 requires that the purchase method of accounting be used for all
business combinations initiated after June 30, 2001 as well as all purchase
method business combinations completed after June 30, 2001. Statement 141 also
specifies criteria that must be met in order for intangible assets acquired in
a purchase method business combination to be recognized and reported apart
from goodwill. Statement 142 will require that goodwill and intangible assets
with indefinite useful lives no longer be amortized, but instead tested for
impairment at least annually in accordance with the provisions of Statement
142. Statement 142 will also require that intangible assets with definite
useful lives be amortized over their respective estimated useful lives to
their estimated residual values, and reviewed for impairment in accordance
with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets. The Company adopted the provisions of Statement 141 immediately and
Statement 142 effective January 1, 2002.
As of January 1, 2002, the Company expects to have unamortized
goodwill in the amount of approximately $186, and unamortized identifiable
intangible assets in the amount of approximately $13. Amortization expense
related to goodwill was $7.1 for the year ended December 31, 2001. Any
transitional impairment losses will be required to be recognized as the
cumulative effect of a change in accounting principle. The Company has made a
preliminary estimate of the impact of these Statements and has determined that
these Statements will not have a significant effect from impairment on its
financial statements.
In August 2001, the FASB issued Statement No. 143, Accounting for
Asset Retirement Obligations. Statement 143 requires recording the fair market
value of an asset retirement obligation as a liability in the period in which
a legal obligation associated with the retirement of tangible long-lived
assets is incurred. The Statement also requires recording the contra asset to
the initial obligation as an increase to the carrying amount of the related
long-lived asset and depreciation of that cost over the life of the asset. The
liability is then increased at the end of each period to reflect the passage
of time and changes in the initial fair value measurement. The Company is
required to adopt the provisions of Statement 143 effective January 1, 2003
and has not yet determined the extent of its impact, if any.
In October 2001, the FASB issued Statement No. 144, Accounting for
Impairment or Disposal of Long-Lived Assets. Statement 144 addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
The Statement also extends the reporting requirements to report separately as
discontinued operations, components of an entity that have either been
disposed of or classified as held for sale. The Company has adopted the
provisions of Statement 144 effective January 1, 2002 and such adoption did
not have a significant effect on its financial statements.
FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K for the year ended December 31, 2001,
as well as other public documents and statements of the Company, contain
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 (whether qualitative or quantitative) as
to: the introduction of new products; the Company's plans to update its retail
presence, evaluate, test and install new display walls (and the Company's
estimates of the costs of such new displays, the effects of such plans on the
accelerated amortization of existing displays and the estimated amount of such
amortization) and the Company's plans to update the image of the Revlon brand
through the introduction of new graphics and package designs; its future
financial performance; the effect on sales of political and/or economic
conditions, adverse currency fluctuations and competitive activities; the
possible implementation of a new ERP System, the costs and benefits of such
system and the effects of the adoption of such system on the accelerated
amortization of existing information systems if the Company proceeds with such
system; restructuring activities, restructuring costs, the timing of such
payments and annual savings and other benefits from such activities; the
charges, the cash cost and the savings resulting from plant shutdowns,
dispositions and outsourcing; the effects of revised trade terms for its U.S.
customers, including reduced returns; cash flow from operations, cash on hand
and availability of borrowings under the 2001 Credit Agreement, the
sufficiency of such funds to satisfy the Company's cash requirements in 2002,
and the availability of funds from capital contributions or loans from
affiliates, advances under the Keepwell
26
Agreement and the sale of additional shares of Revlon, Inc. or the sale of
equity securities of REV Holdings; uses of funds, including for the purchases of
permanent displays, capital expenditures (and the Company's estimates of the
amounts of such expenses) and restructuring costs (and the Company's estimates
of the amounts of such costs); the availability of raw materials and components
and, with respect to Europe, products, including that the Company's facilities
and third party contractual supplier arrangements will provide sufficient
capacity for the Company's current and expected production requirements; matters
concerning market-risk sensitive instruments; the effects of transition to the
Euro; the effects of the adoption of certain accounting principles, including
the Company's estimates of the amounts of unamortized goodwill and identifiable
intangible assets; and the effects of the loss of one or more customers,
including, without limitation, Wal-Mart, and the status of the Company's
relationship with its customers. 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,"
"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 except for the Company's ongoing obligations to
disclose material information under the U.S. federal securities laws, the
Company undertakes no obligation to publicly update any forward-looking
statements, whether as a result of new information, future events or otherwise.
Investors are advised, however, to consult any additional disclosures the
Company makes in its Quarterly Reports on Form 10-Q, Annual Report on Form 10-K
and Current Reports on Form 8-K to the Commission (which, among other places,
can be found on the Commission's website at http://www.sec.gov), as well as on
the Company's website at www.revloninc.com. The information available from time
to time on such website shall not be deemed incorporated by reference into this
Annual Report on Form 10-K. 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) difficulties or delays or
unanticipated costs associated with the Company's test and possible
implementation of new display walls and new graphics and package designs; (iii)
changes in consumer preferences, including reduced consumer demand for the
Company's color cosmetics and other current products; (iv) 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; (v) actions by competitors, including business
combinations, technological breakthroughs, new product offerings, promotional
spending and marketing and promotional successes, including increases in market
share; (vi) unanticipated costs or difficulties or delays in completing projects
associated with the Company's strategic plan, including in connection with the
implementation of a new ERP System; (vii) difficulties, delays or unanticipated
costs or less than expected savings and other benefits resulting from the
Company's restructuring activities; (viii) difficulties or delays in
implementing, higher than expected charges and cash costs or lower than expected
savings from the shutdown, disposition, outsourcing and consolidation of
manufacturing operations; (ix) difficulties or delays in achieving the intended
results of the revised trade terms, including, without limitation, lower returns
or unexpected consequences from the revised trade terms including the possible
effect on sales; (x) lower than expected cash flow from operations, the
inability to secure capital contributions or loans from affiliates or advances
under the Keepwell Agreement or the unavailability of funds under the 2001
Credit Agreement or sell additional shares of Revlon, Inc. or equity securities
of REV Holdings; (xi) higher than expected operating expenses, working capital
expenses, permanent display costs, capital expenditures, restructuring costs or
debt service payments; (xii) difficulties or delays in sourcing raw materials or
components, and with respect to Europe, products; (xiii) interest rate or
foreign exchange rate changes affecting the Company and its market sensitive
financial instruments; (xiv) difficulties, delays or unanticipated costs
associated with the transition to the Euro; (xv) unanticipated effects of the
Company's adoption of certain new accounting standards; and (xvi) combinations
among significant customers or the loss, insolvency or failure to pay debts by a
significant customer or customers. Factors other than those listed above could
cause the Company's results to differ materially from expected results. This
discussion is provided as permitted by the Private Securities Litigation Reform
Act of 1995.
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
27
countries around the world, such as Argentina, Brazil, Venezuela and Mexico that
have experienced hyperinflation. 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
In February 2002, Products Corporation completed the disposition of
its subsidiaries that operated its marketing, sales and distribution business
in Belgium, the Netherlands and Luxembourg ("Benelux"). As part of this sale,
Products Corporation entered into a long-term distribution agreement with the
purchaser pursuant to which the purchaser distributes Products Corporation's
products in Benelux. The purchase price consisted principally of the
assumption of certain liabilities and deferred contingent purchase price of up
to approximately $3.3 to be received over approximately a seven-year period.
In connection with the disposition, the Company does not anticipate a
significant gain or loss.
Effective February 14, 2002, Jeffrey M. Nugent, Revlon, Inc.'s and
Products Corporation's former President and Chief Executive Officer, resigned
from employment. On February 19, 2002, Revlon, Inc. announced its appointment of
Jack L. Stahl as its President and Chief Executive Officer.
On February 1, 2002, GSB Investments Corp. made a non-interest
bearing advance of $4.8 to REV Holdings under the Keepwell Agreement, which
was used to make the February 1, 2002 interest payment on the New REV Holdings
Notes.
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. There were no such derivative financial instruments
outstanding at December 31, 2001. 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, 2001. 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 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. There were no derivative instruments outstanding as of December 31,
2001.
28
As referred to above, on November 26, 2001 Products Corporation
issued and sold the 12% Notes and on November 30, 2001 refinanced its 1997
Credit Agreement.
EXPECTED MATURITY DATE FOR YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------------
FAIR VALUE
DEC. 31,
2002 2003 2004 2005 2006 THEREAFTER TOTAL 2001
-------- -------- ------- -------- -------- ------------ --------- ----------
(US dollar equivalent in millions)
Debt
Short-term variable rate (various currencies). $17.5 $17.5 $17.5
Average interest rate (a) .............. 5.9%
Long-term fixed rate ($US) ................... $350.8 $499.6 $ 649.9 1,500.3 976.2
Average interest rate .................. 12.0% 8.6% 8.6%
Long-term variable rate ($US) ................ 117.9 117.9 117.9
Average interest rate (a) .............. 9.9%
Long-term variable rate (various currencies) . 1.3 1.3 1.3
Average interest rate (a) .............. 9.4%
-------- -------- ------- --------- -------- ----------- --------- --------
Total debt** ................................. $17.5 $ - $ - $ 470.0 $ 499.6 $ 649.9 $ 1,637.0 $1,112.9
======== ======== ======= ========= ======== =========== ========= ========
(a) Weighted average variable rates are based upon implied forward rates from
the yield curves at December 31, 2001.
** The New REV Holdings Notes are excluded from the table above since there is
no active trading market for the New REV Holdings Notes and therefore the
Company is unable to assess the fair market value at this time. The New REV
Holdings Notes mature on February 1, 2004 and have a face value of $80.5.
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.
29
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 December 31, 2001), principal occupation for the
last five years, selected biographical information and period of service for
each of the Directors and executive officers of the Company during the year
ended December 31, 2001 are set forth below.
Mr. Perelman (58) has been Chairman of the Board of Directors and a
Director of the Company since 1993 and Chief Executive Officer of the Company
since March 1997. 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 1993 and Vice Chairman of the Board of the Company since March 1997. 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 and Sunbeam Corporation
("Sunbeam").
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.
Mr. Schwartz (51) has been Executive Vice President and General
Counsel of the Company since March 1997. 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.
30
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 December 31, 2001) concerning the
executive officers of Revlon, Inc. and Products Corporation during the year
ended December 31, 2001 who do not also serve as executive officers of the
Company.
Name Position
Jeffrey M. Nugent Former President, Chief Executive Officer and Director
Douglas H. Greeff Executive Vice President and Chief Financial Officer
Paul E. Shapiro Executive Vice President and Chief Administrative Officer
Mr. Nugent (55) was President and Chief Executive Officer of Revlon,
Inc. and of Products Corporation from December 1999 until February 14, 2002. He
had been a Director of Revlon, Inc. and of Products Corporation since February
2000. He had been Worldwide President and Chief Executive Officer of Neutrogena
Corporation from January 1995 until December 1999. Prior to that, Mr. Nugent
held various senior executive positions at Johnson & Johnson.
Mr. Greeff (45) has been Executive Vice President and Chief Financial
Officer of Revlon, Inc. and of Products Corporation since 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.
Mr. Shapiro (60) has been Executive Vice President and Chief
Administrative Officer of Revlon, Inc. since August 2001 and of Products
Corporation since September 2001. From June 1998 until July 2001, he was
Executive Vice President and Chief Administrative Officer of Sunbeam and The
Coleman Company, Inc. ("Coleman"). Mr. Shapiro served as a Director of Coleman
from June 1998 until July 2001. Mr. Shapiro previously held the position of
Executive Vice President of Coleman from July 1997 until its acquisition by
Sunbeam in March 1998. From January 1994, before joining Coleman, he was
Executive Vice President and Chief Administrative Officer of Marvel
Entertainment Group, Inc. Mr. Shapiro is a member of the Board of Directors of
Toll Brothers, Inc., which files reports pursuant to the Exchange Act.
31
ITEM 11. EXECUTIVE COMPENSATION
The Company conducts its business through Revlon, Inc., Products
Corporation and Products Corporation's subsidiaries. For 2001, 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 2001 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 2001
(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
- ---------------------------------------------------------------------------------------------------------------------------------
RESTRICTED
OTHER ANNUAL STOCK SECURITIES ALL OTHER
NAME AND PRINCIPAL YEAR SALARY BONUS COMPENSATION AWARDS UNDERLYING COMPENSATION
POSITION ($) ($) ($) ($)(b) OPTIONS ($)
- ---------------------------------------------------------------------------------------------------------------------------------
Jeffrey M. Nugent 2001 1,150,000 (c) 333,078 666,000 75,000 194,953
Former President and Chief 2000 1,000,000 500,000 430,948 100,000 489,454
Executive Officer (c) 1999 160,256 0 36,382 300,000 38,743
- ---------------------------------------------------------------------------------------------------------------------------------
Douglas H. Greeff 2001 731,375 211,200(d) 16,513 333,000 50,000 8,786
Executive Vice President 2000 422,500 450,000 7,868 100,000 0
and Chief Financial
Officer (d)
- ---------------------------------------------------------------------------------------------------------------------------------
Paul E. Shapiro 2001 207,692 500,000 5,671 333,000 100,000 0
Executive Vice President
and Chief Administrative
Officer (e)
- ---------------------------------------------------------------------------------------------------------------------------------
(a) The amounts shown in Annual Compensation for 2001, 2000 and 1999 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 participated (including Messrs. Nugent, Greeff
and Shapiro) (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"). Revlon, Inc. and Products Corporation did not have any "executive
officers" during 2001 other than Messrs. Nugent, Greeff and Shapiro.
Accordingly, for 2001 Revlon, Inc. and Products Corporation are reporting the
compensation of Messrs. Nugent, Greeff and Shapiro. Mr. Greeff's compensation is
reported for 2001 and 2000 only because he did not serve as an executive officer
of Revlon, Inc. and Products Corporation prior to May 2000. Mr. Shapiro's
compensation is reported for 2001 only because he did not serve as an executive
officer of Revlon, Inc. and Products Corporation prior to 2001.
(b) See footnotes (c), (d) and (e) below for information concerning the
number, value, vesting schedules and dividends on restricted stock awards to
the Named Executive Officers under the Amended Stock Plan.
32
(c) Mr. Nugent served as President and Chief Executive Officer of Revlon, Inc.
and Products Corporation during 1999, 2000 and 2001. Mr. Nugent is not
entitled to any bonus in respect of 2001. The amount shown for Mr. Nugent
under Other Annual Compensation for 2001 includes $333,078 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 2001. The amount shown under All Other
Compensation for 2001 reflects (i) $15,289 in company-paid relocation
expenses, (ii) $38,058 in respect of life insurance premiums, and (iii)
$141,606 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"). On June 18, 2001 (the "Grant Date"), Mr. Nugent was awarded a
grant of 100,000 shares of restricted stock under the Amended Stock Plan. The
value of such restricted stock award to Mr. Nugent reflected in the table is
based on $6.66, the closing price of Revlon, Inc.'s Class A Common Stock on
the New York Stock Exchange (the "NYSE") on December 31, 2001. Provided Mr.
Nugent remained continuously employed by Revlon, Inc., his 2001 restricted
stock award would have vested as to one-third of the restricted shares on the
day after which the 20-day average of the closing price of Revlon, Inc.'s
Class A Common Stock on the NYSE equals or exceeds $20.00, an additional
one-third of such restricted shares would have vested on the day after which
the 20-day average of the closing price of Revlon, Inc.'s Class A Common Stock
on the NYSE equals or exceeds $25.00 and the balance would have vested on the
day after which the 20-day average of the closing price of Revlon, Inc.'s
Class A Common Stock on the NYSE equals or exceeds $30.00, provided that (i)
subject to clause (ii) below, no portion of Mr. Nugent's restricted stock
award would have vested until the second anniversary of the Grant Date, (ii)
all of the shares of restricted stock awarded to Mr. Nugent would have vested
immediately in the event of a "change of control" as defined in the restricted
stock agreement, and (iii) all of the shares of restricted stock granted to
Mr. Nugent which had not previously vested would have fully vested on the
third anniversary of the Grant Date. No dividends will be paid on unvested
restricted stock. 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 in respect
of 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.
(d) Mr. Greeff served as Executive Vice President and Chief Financial Officer
of Revlon, Inc. and Products Corporation during 2000 and 2001. Mr. Greeff
received a bonus of $211,200 pursuant to the terms of his employment agreement
as a special bonus in respect of the Loan Payment (see "Employment Agreements
and Termination of Employment Arrangements"). The amount of Mr. Greeff's bonus
in respect of 2001 pursuant to the Revlon Executive Bonus Plan is not
calculable as of the date of this report and therefore will be disclosed in
the Company's Annual Report on Form 10-K for the fiscal year ending December
31, 2002 in the appropriate column for 2001. The amount shown for Mr. Greeff
under Other Annual Compensation for 2001 includes $16,513 in respect of gross
ups for taxes on imputed income arising out of personal use of a
company-provided automobile. The amounts shown under All Other Compensation
for 2001 reflects (i) $4,436 in life insurance premiums and (ii) $4,350 in
respect of matching contributions under the Revlon Employees' Savings,
Investment, and Profit Sharing Plan. On the Grant Date, Mr. Greeff was awarded
a grant of 50,000 shares of restricted stock under the Amended Stock Plan. The
value of such restricted stock award to Mr. Greeff reflected in the table is
based on $6.66, the closing price of Revlon, Inc.'s Class A Common Stock on
the NYSE on December 31, 2001. Provided Mr. Greeff remains continuously
employed by Revlon, Inc., his 2001 restricted stock award will vest as to
one-third of the restricted shares on the day after which the 20-day average
of the closing price of Revlon, Inc.'s Class A Common
33
Stock on the NYSE equals or exceeds $20.00, an additional one-third of such
restricted shares will vest on the day after which the 20-day average of the
closing price of Revlon, Inc.'s Class A Common Stock on the NYSE equals or
exceeds $25.00 and the balance will vest on the day after which the 20-day
average of the closing price of Revlon, Inc.'s Class A Common Stock on the NYSE
equals or exceeds $30.00, provided that (i) subject to clause (ii) below, no
portion of Mr. Greeff's restricted stock award will vest until the second
anniversary of the Grant Date, (ii) all of the shares of restricted stock
awarded to Mr. Greeff will vest immediately in the event of a "change of
control" as defined in the restricted stock agreement, and (iii) all of the
shares of restricted stock granted to Mr. Greeff which have not previously
vested will fully vest on the third anniversary of the Grant Date. No dividends
will be paid on unvested restricted stock. 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.
(e) Mr. Shapiro became Executive Vice President and Chief Administrative
Officer of Revlon, Inc. and Products Corporation in September 2001. Mr.
Shapiro received a bonus of $500,000 in respect of 2001 pursuant to the terms
of his employment agreement. The amount shown for Mr. Shapiro under Other
Annual Compensation for 2001 includes $5,671 in respect of gross ups for taxes
on imputed income arising out of personal use of a company-provided
automobile. On the Grant Date, Mr. Shapiro was awarded a grant of (subject to
his election as an executive officer of Revlon, Inc.) 50,000 shares of
restricted stock under the Amended Stock Plan. The value of such restricted
stock award to Mr. Shapiro reflected in the table is based on $6.66, the
closing price of Revlon, Inc.'s Class A Common Stock on the NYSE on December
31, 2001. Provided Mr. Shapiro remains continuously employed by Revlon, Inc.,
his 2001 restricted stock award will vest as to one-third of the restricted
shares on the day after which the 20-day average of the closing price of
Revlon, Inc.'s Class A Common Stock on the NYSE equals or exceeds $20.00, an
additional one-third of such restricted shares will vest on the day after
which the 20-day average of the closing price of Revlon, Inc.'s Class A Common
Stock on the NYSE equals or exceeds $25.00 and the balance will vest on the
day after which the 20-day average of the closing price of Revlon, Inc.'s
Class A Common Stock on the NYSE equals or exceeds $30.00, provided that (i)
subject to clause (ii) below, no portion of Mr. Shapiro's restricted stock
award will vest until the second anniversary of the Grant Date, (ii) all of
the shares of restricted stock awarded to Mr. Shapiro will vest immediately in
the event of a "change of control" as defined in the restricted stock
agreement, and (iii) all of the shares of restricted stock granted to Mr.
Shapiro which have not previously vested will fully vest on the third
anniversary of the Grant Date. Mr. Shapiro will be considered to have been
continuously employed by Revlon, Inc. if his employment agreement is not
extended beyond its initial term which expires on July 31, 2003 or his
employment is terminated prior to June 18, 2003 other than either for (i)
"good reason" as defined in Products Corporation's Executive Severance Policy,
or (ii) "cause". No dividends will be paid on unvested restricted stock.
OPTION GRANTS IN THE LAST FISCAL YEAR
During 2001, the following grants of stock options were made pursuant
to the Amended Stock Plan to the Named Executive Officers:
- ----------------------------------------------------------------------------------------------------------------
GRANT
DATE
INDIVIDUAL GRANTS VALUE (a)
- ----------------------------------------------------------------------------------------------------------------
PERCENT OF
NUMBER OF TOTAL OPTIONS EXERCISE GRANT
SECURITIES UNDERLYING GRANTED TO OR BASE DATE
OPTIONS EMPLOYEES IN PRICE EXPIRATION PRESENT
NAME GRANTED (#) FISCAL YEAR ($/SH) DATE VALUE ($)
- ----------------------------------------------------------------------------------------------------------------
Jeffrey M. Nugent 75,000 7% 5.66 6/18/11 285,395
- ----------------------------------------------------------------------------------------------------------------
Douglas H. Greeff 50,000 5% 4.90 3/26/11 163,966
- ----------------------------------------------------------------------------------------------------------------
Paul E. Shapiro 100,000 9% 5.66 6/18/11 380,530
- ----------------------------------------------------------------------------------------------------------------
34
The grants made during 2001 under the Amended Stock Plan to Messrs.
Nugent and Shapiro were awarded on June 18, 2001 pursuant to each of their
employment agreements, consist of non-qualified options having a term of 10
years, vest 25% on each anniversary of the grant date (or in the event of a
"Change of Control" as defined in the option agreement) 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 2001 under the Amended Stock Plan were made on March
26, 2001 pursuant to his amended 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 (or in the event of a "Change of Control" as defined in the option
agreement) 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. During 2001, Revlon, Inc. also granted an option
to purchase 225,000 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 25% on each anniversary of the grant date and will become 100%
vested on the fourth anniversary of the grant date and has an exercise price
of $5.66, the closing price per share on the NYSE of Revlon, Inc.'s Class A
Common Stock on June 18, 2001, 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 March 26, 2001
with respect to the options granted to Mr. Greeff on such date and June 18,
2001 with respect to the options granted to Messrs. Nugent and Shapiro 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 4.82% with
respect to the options granted to Mr. Greeff on March 26, 2001 and 5.10% with
respect to the option granted to Messrs. Nugent and Shapiro on June 18, 2001,
which were the rates as of the applicable grant dates for the U.S. Treasury
Zero Coupon Bond issues with a remaining term similar to the expected term of
the options; (ii) stock price volatility of 68% based upon the volatility of
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.'s 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 2001 and the 2001 year-end value of the stock options held by the Named
Executive Officers:
- ---------------------------------------------------------------------------------------------------------------
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. Nugent 0 0 25,000/450,000 66,500/341,000
- ---------------------------------------------------------------------------------------------------------------
Douglas H. Greeff 0 0 25,000/125,000 0/88,000
- ---------------------------------------------------------------------------------------------------------------
Paul E. Shapiro 0 0 0/100,000 0/100,000
- ---------------------------------------------------------------------------------------------------------------
(a) Amounts shown represents the difference between the exercise price of the
options (exercisable or unexercisable, as the case may be) and the market
value of the underlying shares of Revlon, Inc.'s Class A Common Stock at year
end, calculated using $6.66, the December 31, 2001 closing price per share on
the NYSE of Revlon, Inc.'s Class A Common Stock. The actual value, if any, an
executive may realize upon exercise of a stock option
35
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.
EMPLOYMENT AGREEMENTS AND TERMINATION OF EMPLOYMENT ARRANGEMENTS
Mr. Nugent had, until his resignation on February 14, 2002, and each
of Messrs. Greeff and Shapiro has, an executive employment agreement with
Products Corporation. Mr. Nugent's employment agreement, as amended, provided
that he would serve as President and Chief Executive Officer of Products
Corporation at a base salary of not less than $1,150,000 for 2001 and not less
than $1,300,000 for 2002. Mr. Nugent's employment agreement provided for a grant
of 100,000 restricted shares and 75,000 options during 2001 (which grants were
made on June 18, 2001).
Mr. Greeff's employment agreement with Products Corporation, as
amended, 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 a grant
of 50,000 restricted shares and 50,000 options during 2001 (which grants were
made on June 18, 2001 and March 26, 2001, respectively) and 50,000 options in
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").
Mr. Shapiro's employment agreement with Products Corporation provides
that he will serve as Executive Vice President and Chief Administrative
Officer of Products Corporation at a base salary of not less than $500,000 per
annum, that he receive a $500,000 bonus in respect of 2001 and a grant of
50,000 restricted shares and 100,000 options in 2001 (which grants were made
on June 18, 2001) and 100,000 options in 2002. At any time after July 31,
2003, either Products Corporation or Mr. Shapiro may terminate Mr. Shapiro's
employment by providing written notice of non-renewal.
Mr. Nugent's employment agreement provided, and each of Messrs.
Greeff's and Shapiro's employment agreement provides, for participation in the
Executive Bonus Plan and other executive benefit plans on a basis equivalent
to other senior executives of Products Corporation generally and for
company-paid supplemental disability insurance (except that Mr. Shapiro waived
company-provided life insurance coverage). Mr. Nugent's agreement provided for
company-paid supplemental term life insurance during employment in the amount
of three times base salary. Each of the employment agreements for each of
Messrs. Nugent, Greeff and Shapiro provides for protection of company
confidential information and includes a non-compete obligation.
Mr. Nugent's employment agreement provided that in the event of
termination of the term by Mr. Nugent for breach by Products Corporation of a
material provision 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. In addition, Mr. Nugent's agreement provided that if he
remained employed by Products Corporation or its affiliates until age 62, then
upon any subsequent retirement he would 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, as well as any such plans of Mr. Nugent's past employers or their
affiliates (expressed as a straight life annuity), would equal $500,000. For
termination on or after September 30, 2001 and prior to September 30, 2002 he
would receive 22.2% of the supplemental pension benefit otherwise payable
pursuant to his employment agreement. 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
36
"cause" (as defined in his employment agreement). Mr. Nugent's employment
agreement provided for continuation of life insurance and executive medical
insurance coverage in the event of permanent disability.
Mr. Greeff's employment agreement provides that in the event of
termination of the term by Mr. Greeff for breach by Products Corporation of a
material provision 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 and continued company-paid supplemental
disability insurance. In addition, Mr. Greeff's agreement 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, as well as any such plans of Mr. Greeff's past employers or their
affiliates (expressed as a straight life annuity), equals $400,000. If Mr.
Greeff's employment were to terminate on or after January 31, 2002 and prior
to January 31, 2003 then he would receive 18.18% of the supplemental pension
benefit 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). Mr. Greeff's employment agreement provides for
continuation of life insurance and executive medical insurance coverage in the
event of permanent disability.
Mr. Shapiro's employment agreement provides that in the event of
termination of the term of such agreement by Mr. Shapiro for breach by
Products Corporation of a material provision or failure of the Compensation
Committee to adopt and implement the recommendations of management with
respect to stock option or restricted stock grants or by Products Corporation
prior to July 31, 2003 (otherwise than for "cause" as defined in Mr. Shapiro's
employment agreement or disability), or by Mr. Shapiro or Products Corporation
upon providing notice of non-renewal of the term at any time on or after July
31, 2003, Mr. Shapiro would be entitled to continued payments of base salary
and monthly payments of one-twelfth of the maximum annual bonus to which he
would be eligible under his employment agreement, continued participation in
the company's medical plans, subject to the terms of the plans, and continued
company-paid supplemental disability insurance through the later of January
31, 2005 or 18 months after the effective date of termination. In addition,
Mr. Shapiro's employment agreement provides that at age 65 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, as well as any such plans of Mr. Shapiro's
past employers or their affiliates (expressed as a straight life annuity),
equals $400,000. Mr. Shapiro 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 July 31, 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). The employment agreement
in effect for Mr. Shapiro provides for continuation of executive medical
insurance coverage in the event of permanent disability.
Mr. Nugent's employment agreement provided that he was entitled to a
loan from Products Corporation of up to $500,000 for relocation expenses
(which he received in an installment of $400,000 in 1999 and $100,000 in
2000), which is due and payable with interest at the applicable federal rate
upon the earlier of the termination of his employment for any reason or five
years from the initial loan. In addition, during the term of his employment
agreement, Mr. Nugent would have received 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. Mr. Nugent's termination
37
of his employment for other than "good reason" or his termination for "cause"
(as such terms are defined in his employment agreement) obligates Mr. Nugent
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 provided that he would 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 2002, 40%; for termination in 2003,
60%; for termination in 2004, 80%; and for termination in 2005 or thereafter,
100%. Notwithstanding the above, Mr. Nugent's termination of his employment
for other than "good reason" or his termination for "cause" (as such terms are
defined in his employment agreement), or his breach of certain post-employment
covenants, would require that any bonus described above 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 in
2000), with the principal to be payable in five equal installments of
$160,000, plus interest at the applicable federal rate, on each of May 9, 2001
(which installment was repaid) 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 (which was paid) 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.
EXECUTIVE SEVERANCE POLICY
Products Corporation's Executive Severance Policy provides that upon
termination of employment of eligible executive employees, including Messrs.
Nugent, Greeff and Shapiro, 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, 2001 Messrs. Nugent, Greeff and Shapiro would be entitled to
severance pay equal to 20, 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.
38
DEFINED BENEFIT PLANS
In accordance with the terms of the Revlon Employees'
Retirement Plan (the "Retirement Plan"), the following table shows the
estimated annual retirement benefits payable (as of December 31, 2001) under
the non-cash balance program of the Retirement Plan (the "Non-Cash Balance
Program") 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, including amounts
attributable to the Pension Equalization Plan, as described below.
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 Program benefits are a function of service and final
average compensation. The Non-Cash Balance Program is designed to provide an
employee having 30 years of credited service with an annuity generally equal
to 52% of final average compensation, less 50% of estimated individual Social
Security benefits. Final average compensation is defined as average annual
base salary and bonus (but not any part of bonuses in excess of 50% of base
salary) during the five consecutive calendar years in which base salary and
bonus (but not any part of bonuses in excess of 50% of base salary) were
highest out of the last 10 years prior to retirement or earlier termination.
Except as otherwise indicated, credited service includes all periods of
employment with Revlon, Inc. or a subsidiary prior to retirement or earlier
termination. Messrs. Nugent, Greeff and Shapiro do not participate in the
Non-Cash Balance Program.
Effective January 1, 2001, Products Corporation amended the
Retirement Plan to provide for a cash balance program under the Retirement
Plan (the "Cash Balance Program"). Under the Cash Balance Program, 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, which commenced June 30, 2001, are allocated
quarterly (based on the yield of the 30-year Treasury bond). 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 Program
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 Program "frozen" at the current level on December 31, 2000 and began
to participate in the Cash Balance Program 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. Mr.
Nugent participated, and Messrs. Greeff and Shapiro participate, in the Cash
Balance Program. Mr. Nugent was and Mr. Greeff is eligible to receive basic
and transition pay
39
credits. As he was not employed by Revlon, Inc. on January 1, 2001 (the date on
which a "transition" employee was determined), Mr. Shapiro is eligible to
receive only basic pay credits. The estimated annual benefits payable under the
Cash Balance Program as a single life annuity (assuming Messrs. Greeff and
Shapiro remain employed by Revlon, Inc. until age 65 at their current level of
compensation) is $248,100 for Mr. Greeff and $18,400 for Mr. Shapiro. Messrs.
Nugent's, Greeff's and Shapiro'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 Program and the Cash Balance
Program) 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, 2002 (rounded to full years)
for Mr. Nugent is two years and for Mr. Greeff is one year. Mr. Shapiro had no
years of credited service as of January 1, 2002.
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. MacAndrews & Forbes through Mafco Holdings
(which through REV Holdings), beneficially owns (i) 11,650,000 shares of Class
A Common Stock of Revlon, Inc. (representing approximately 57% of the
outstanding shares of Class A Common Stock of Revlon, Inc.), (ii) all of the
outstanding 31,250,000 shares of Class B Common Stock of Revlon, Inc., which
together with the shares referred to in clause (i) above represent
approximately 83% of the outstanding shares of Revlon, Inc. common stock, and
(iii) all of the outstanding 4,333 shares of Series B Convertible Preferred
Stock of Revlon, Inc. (the "Series B Preferred Stock") (each of which is
entitled to 100 votes and each of which is convertible into 100 shares of
Class A Common Stock and which conversion rights are subject to approval by
Revlon, Inc.'s stockholders at its 2002 Annual Meeting of Stockholders). Based
on the shares referred in clauses (i), (ii) and (iii) above, Mr. Perelman
through Mafco Holdings (which through REV Holdings) has approximately 97.3% of
the combined voting power of the outstanding shares of common and preferred
stock of Revlon, Inc. 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 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 Holding's stockholder, including
extraordinary transactions such as mergers or sales of all or substantially
all of REV Holdings' 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.
40
TRANSFER AGREEMENTS
In June 1992, Revlon, Inc. and Products Corporation entered into an
asset transfer agreement with Revlon Holdings Inc. ("Holdings"), an affiliate
and an indirect wholly owned subsidiary of Mafco 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 Revlon, Inc.'s business and which historically had
not been profitable (the "Retained Brands") and certain other 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 2001 was $0.2 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, legal and accounting services and air transportation 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 2001 was $1.6 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.
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 2001.
41
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 and
restated, 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, 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,
effective as of January 1, 2001 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 2001, REV Holdings recorded an alternative minimum tax
liability of $5.2 million pursuant to the 1993 Tax Sharing Agreement related to
the retirement of the Old REV Holdings Notes. 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 2001. In March 2002, new tax legislation was
enacted that will allow for full utilization of alternative minimum tax net
operating losses to offset alternative minimum taxable income. The benefit
relating to this new legislation will be recorded in the first quarter of 2002.
REGISTRATION RIGHTS AGREEMENT
REV Holdings and 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
42
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. On July 31, 2001,
the Registration Rights Agreement was amended to require Revlon, Inc. to
register under the Securities Act all or part of Revlon, Inc.'s Class A Common
Stock issuable upon conversion of Revlon, Inc.'s Series B Preferred Stock,
which conversion rights are subject to approval by Revlon, Inc.'s stockholders
at its 2002 Annual Meeting of Stockholders.
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. On August 1, 2001 and February 1, 2002, GSB Investments
Corp. made noninterest-bearing advances of $4.5 million and $4.8 million,
respectively, to REV Holdings under the Keepwell Agreement, which were used to
make the August 1, 2001 and February 1, 2002 interest payments, respectively, on
the New REV Holdings Notes. The Keepwell Agreement will terminate at such time
as there are no New REV Holdings Notes outstanding, at which time GSB
Investments Corp. may require repayment of advances 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
through September 1, 2013 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 2001 was $0.2 million.
During 2001, 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 through January 31, 2001 at Products Corporation's offices in London. The
rent paid to Products Corporation for 2001 was $0.5 million.
Products Corporation's Credit Agreement and the 12% Notes
are supported by, among other things, guarantees from Revlon, Inc., and,
subject to certain limited exceptions, all of the domestic subsidiaries of
Products Corporation. The obligations under such guarantees are secured by,
among other things, the capital stock of Products Corporation and, subject to
certain limited exceptions, the capital stock of all of Products Corporation's
domestic subsidiaries and 66% of the capital stock of Products Corporation's
and its domestic subsidiaries' first-tier foreign subsidiaries.
43
Products Corporation has received a commitment from Mafco Holdings
that it is prepared to provide, if necessary, additional financial support to
Products Corporation of up to $40.0 million on appropriate terms through
December 31, 2003.
Effective September 2001, Revlon, Inc. acquired from Holdings all the
assets and liabilities of the Charles of the Ritz brand (which Revlon, Inc.
contributed to Products Corporation in the form of a capital contribution), in
consideration for 400,000 newly issued shares of Revlon, Inc.'s Class A Common
Stock and 4,333 shares of newly issued voting (with 433,333 votes in the
aggregate) Series B Preferred Stock which are convertible into 433,333 shares
in the aggregate of Revlon, Inc.'s Class A Common Stock, which conversion
rights are subject to approval by the stockholders of Revlon, Inc. at the 2002
Annual Meeting. An investment banking firm rendered its written opinion that
the terms of the transaction were fair from a financial standpoint to Revlon,
Inc.
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, of which $0.2 million was repaid by Mr. Greeff
to Products Corporation during 2001.
During 2001, Products Corporation made payments of $0.3 million to
Ms. Ellen Barkin (spouse of Mr. Perelman) under an agreement pursuant to which
she provided voiceover services for certain of Products Corporation's
advertisements, which payments were competitive with industry rates for
similarly situated talent.
Mr. Nugent's spouse provided consulting services in 2000 and 2001 for
product and concept development, for which Products Corporation paid her $0.1
million in 2001.
During 2001, Products Corporation made payments of $0.1 million to a
fitness center, in which an interest is owned by members of the immediate
family of Mr. Donald Drapkin, who is a member of Products Corporation's Board
of Directors, for discounted health club dues for an executive health program
of Products Corporation.
In connection with the cancellation of the Senior Secured Discount
Notes Due 1998, at December 31, 2001 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, 2001 REV Holdings had an outstanding payable to an affiliate of
approximately $3.1 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.
In December 2001, Products Corporation employed in a junior
entry-level marketing position the daughter of the Chairman of Revlon, Inc.'s
Executive Committee, with compensation paid for 2001 of less than $5,000.
During 2001, Products Corporation employed in a junior entry-level
marketing position the daughter of Mr. Donald Drapkin, who is a member of
Products Corporation's Board of Directors, with compensation paid for 2001 of
less than $60,000.
44
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. ("REV Holdings") (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 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 November 26, 2001, among Products
Corporation, the Guarantors party thereto, including Revlon,
Inc., as parent guarantor, and Wilmington Trust Company, as
trustee, relating to the 12% Senior Secured Notes due 2005
(incorporated by reference to Exhibit 4.2 to the Current Report
on Form 8-K of Products Corporation filed with the Commission on
November 30, 2001 (the "Products Corporation November 2001 Form
8-K")).
4.2 Revlon Pledge Agreement, dated as of November 30, 2001, between
Revlon, Inc., as pledgor, in favor of Wilmington Trust Company,
as note collateral agent (the "Note Collateral Agent")
(incorporated by reference to Exhibit 4.2 to the Annual Report
on Form 10-K of Products Corporation for the year ended December
31, 2001 (the "Products Corporation 2001 Form 10-K")).
4.3 Company Pledge Agreement (Domestic), dated as of November 30,
2001, between Products Corporation, as pledgor, in favor of
Wilmington Trust Company, as Note Collateral Agent (incorporated
by reference to Exhibit 4.3 to the Products Corporation 2001
Form 10-K).
4.4 Subsidiary Pledge Agreement (Domestic), dated as of November 30,
2001, between RIROS Corporation, as pledgor, in favor of
Wilmington Trust Company, as Note Collateral Agent (incorporated
by reference to Exhibit 4.4 to the Products Corporation 2001
Form 10-K).
4.5 Subsidiary Pledge Agreement (Domestic), dated as of November 30,
2001, between Revlon International Corporation, as pledgor, in
favor of Wilmington Trust Company, as Note Collateral Agent
(incorporated by reference to Exhibit 4.5 to the Products
Corporation 2001 Form 10-K).
45
EXHIBIT NO. DESCRIPTION
- ---------- ------------
4.6 Subsidiary Pledge Agreement (Domestic), dated as of November 30,
2001, between PPI Two Corporation, as pledgor, in favor of
Wilmington Trust Company, as Note Collateral Agent (incorporated
by reference to Exhibit 4.6 to the Products Corporation 2001
Form 10-K).
4.7 Company Pledge Agreement (International), dated as of November
30, 2001, between Products Corporation, as pledgor, in favor of
Wilmington Trust Company, as Note Collateral Agent (incorporated
by reference to Exhibit 4.7 to the Products Corporation 2001
Form 10-K).
4.8 Subsidiary Pledge Agreement (International), dated as of
November 30, 2001, between RIROS Corporation, as pledgor, in
favor of Wilmington Trust Company, as Note Collateral Agent
(incorporated by reference to Exhibit 4.8 to the Products
Corporation 2001 Form 10-K).
4.9 Subsidiary Pledge Agreement (International), dated as of
November 30, 2001, between Revlon International Corporation, as
pledgor, in favor of Wilmington Trust Company, as Note
Collateral Agent (incorporated by reference to Exhibit 4.9 to
the Products Corporation 2001 Form 10-K).
4.10 Subsidiary Pledge Agreement (International), dated as of
November 30, 2001, between PPI Two Corporation, as pledgor, in
favor of Wilmington Trust Company, as Note Collateral Agent
(incorporated by reference to Exhibit 4.10 to the Products
Corporation 2001 Form 10-K).
4.11 Company Security Agreement, dated as of November 30, 2001,
between Products Corporation, as grantor, in favor of Wilmington
Trust Company, as Note Collateral Agent (incorporated by
reference to Exhibit 4.11 to the Products Corporation 2001 Form
10-K).
4.12 Subsidiary Security Agreement, dated as of November 30, 2001,
among Almay, Inc., Carrington Parfums Ltd., Charles of the Ritz
Group Ltd., Charles Revson Inc., Cosmetics & More, Inc., North
America Revsale Inc., Pacific Finance & Development Corp., PPI
Two Corporation, Prestige Fragrances, Ltd., Revlon Consumer
Corp., Revlon Government Sales, Inc., Revlon International
Corporation, Revlon Products Corp., Revlon Real Estate
Corporation, RIROS Corporation, RIROS Group Inc. and RIT Inc.,
each as grantor, in favor of Wilmington Trust Company, as Note
Collateral Agent (incorporated by reference to Exhibit 4.12 to
the Products Corporation 2001 Form 10-K).
4.13 Company Copyright Security Agreement, dated as of November 30,
2001, between Products Corporation, as grantor, in favor of
Wilmington Trust Company, as Note Collateral Agent (incorporated
by reference to Exhibit 4.13 to the Products Corporation 2001
Form 10-K).
4.14 Company Patent Security Agreement, dated as of November 30,
2001, between Products Corporation, as grantor, in favor of
Wilmington Trust Company, as Note Collateral Agent (incorporated
by reference to Exhibit 4.14 to the Products Corporation 2001
Form 10-K).
4.15 Company Trademark Security Agreement, dated as of November 30,
2001, between Products Corporation, as grantor, in favor of
Wilmington Trust Company, as Note Collateral Agent (incorporated
by reference to Exhibit 4.15 to the Products Corporation 2001
Form 10-K).
4.16 Subsidiary Trademark Security Agreement, dated as of November
30, 2001, between Charles Revson Inc., as grantor, in favor of
Wilmington Trust Company, as Note Collateral Agent (incorporated
by reference to Exhibit 4.16 to the Products Corporation 2001
Form 10-K).
4.17 Subsidiary Trademark Security Agreement, dated as of November
30, 2001, between Charles of the Ritz Group, Ltd., as grantor,
in favor of Wilmington Trust Company, as Note Collateral Agent
(incorporated by reference to Exhibit 4.17 to the Products
Corporation 2001 Form 10-K).
4.18 Deed of Trust, Assignment of Rents and Leases and Security
Agreement, dated as of November 30, 2001, between Products
Corporation and First American Title Insurance Company for the
use and benefit of Wilmington Trust Company, as Note Collateral
Agent (incorporated by reference to Exhibit 4.18 to the Products
Corporation 2001 Form 10-K).
4.19 Amended and Restated Collateral Agency Agreement, dated as of
May 30, 1997, and further amended and restated as of November
30, 2001, between Products Corporation, JPMorgan Chase Bank, as
bank agent and as administrative agent, and Wilmington Trust
Company, as trustee and as Note Collateral Agent (incorporated
by reference to Exhibit 4.19 to the Products Corporation 2001
Form 10-K).
46
EXHIBIT NO. DESCRIPTION
- ----------- --------------
4.20 Indenture, dated as of February 1, 1998, between Revlon Escrow
Corp. ("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")).
4.21 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 Subordinated Notes Due 2008 (the "8 5/8% Senior
Subordinated Notes Indenture")(incorporated by reference to
Exhibit 4.3 to the Products Corporation 1998 Form S-1).
4.22 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).
4.23 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).
4.24 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.).
4.25 Second Amended and Restated Credit Agreement, dated as of
November 30, 2001, among Products Corporation, the
subsidiaries of Products Corporation parties thereto, the
lenders parties thereto, the Co-Agents parties thereto,
Citibank, N.A., as documentation agent, Lehman Commercial
Paper Inc., as syndication agent, J.P. Morgan Securities Inc.,
as sole arranger and bookrunner, and JPMorgan Chase Bank, as
administrative agent (incorporated by reference to Exhibit 4.1
to the Products Corporation November 2001 Form 8-K).
4.26 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 (incorporated by reference to
Exhibit 4.14 to the Annual Report on Form 10-K of REV Holdings
for the year ended December 31, 2000 (the "REV Holdings 2000
Form 10-K")).
10. MATERIAL CONTRACTS.
10.1 Asset Transfer Agreement, dated as of June 24, 1992, among
Revlon Holdings Inc., 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).
10.2 Tax Sharing Agreement, entered into as of June 24, 1992, among
Mafco Holdings, Revlon, Inc., Products Corporation and certain
subsidiaries of Products Corporation as amended and restated as
of January 1, 2001 (incorporated by reference to Exhibit 10.2 to
the Products Corporation 2001 Form 10-K).
10.3 Employment Agreement, dated as of November 2, 1999, between
Products Corporation and Jeffrey M. Nugent (the "Nugent
Employment Agreement") (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")).
10.4 Amendment dated June 15, 2001, to the Nugent Employment
Agreement dated as of November 2, 1999 (incorporated by
reference to Exhibit 10.18 to the Quarterly Report on Form 10-Q
for the quarterly period ended June 30, 2001 of Revlon, Inc.
(the "Revlon 2001 Second Quarter Form 10-Q").
47
EXHIBIT NO. DESCRIPTION
- ----------- --------------
10.5 Employment Agreement, amended and restated as of May 9, 2000,
between Products Corporation and Douglas H. Greeff (the "Greeff
Employment Agreement") (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.).
10.6 Amendment dated June 18, 2001 to the Greeff Employment Agreement
(incorporated by reference to Exhibit 10.6 to the Products
Corporation 2001 Form 10-K).
10.7 Employment Agreement, effective as of August 1, 2001, between
Products Corporation and Paul E. Shapiro (incorporated by
reference to Exhibit 10.7 to the Products Corporation 2001 Form
10-K).
10.8 Revlon Executive Bonus Plan (Amended and Restated as of June 18,
2001) (incorporated by reference to Exhibit 10.8 to the Products
Corporation 2001 Form 10-K).
10.9 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.).
10.10 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).
10.11 Benefit Plans Assumption Agreement, dated as of July 1, 1992, by
and among Revlon Holdings Inc., Revlon, Inc. and Products
Corporation (incorporated by reference to Exhibit 10.25 to the
Annual Report on Form 10-K for the year ended December 31, 1992
of Products Corporation).
10.12 Revlon Amended and Restated Executive Deferred Compensation Plan
dated as of August 6, 1999 (incorporated by reference to Exhibit
10.27 to the Quarterly Report on Form 10-Q of Revlon, Inc. for
the quarterly period ended September 30, 1999).
10.13 Revlon Executive Severance Policy effective January 1, 1996
(incorporated by reference to Exhibit 10.23 to the Amendment No.
3 to the Registration Statement on Form S-1 of Revlon, Inc.
filed with the Commission on February 5, 1996, File No.
33-99558).
10.14 Revlon, Inc. Third Amended and Restated 1996 Stock Plan (amended
and restated as of May 10, 2000) (incorporated by reference to
Exhibit 10.16 to the Revlon 2001 Second Quarter Form 10-Q).
10.15 Purchase Agreement, dated as of February 18, 2000, by and among
Revlon, Inc., 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 Form 10-K).
10.16 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")).
10.17 Indemnity Agreement, dated March 25, 1993, between Revlon
Worldwide Corporation and Revlon Holdings Inc. (incorporated by
reference to Exhibit 10.32 to the Worldwide 1993 Form S-1).
10.18 Form of Registration Rights Agreement dated March 5, 1996 (the
"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).
10.19 Keepwell Agreement between GSB Investments Corp. and REV
Holdings dated February 12, 2001 (incorporated by reference to
Exhibit 10.21 to the REV Holdings 2000 Form 10-K).
10.20 Purchase and Sale Agreement, dated as of July 31, 2001, by and
between Revlon Holdings Inc.
48
EXHIBIT NO. DESCRIPTION
- ------------ --------------
and Revlon, Inc. (incorporated by reference to Exhibit 10.6 to
the Products Corporation 2001 Form 10-K).
*10.21 First Amendment dated as of July 31, 2001 to the Registration
Rights Agreement.
21. SUBSIDIARIES.
*21.1 Subsidiaries of REV Holdings.
24. POWERS OF ATTORNEY.
*24.1 Power of Attorney executed by Ronald O. Perelman.
*24.2 Power of Attorney executed by Howard Gittis.
- ---------------
*Filed herewith.
(b) Reports on Form 8-K.
None.
49
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, 2001 and 2000...........................................F-3
Consolidated Statements of Operations for each of the years in the three-year
period ended December 31, 2001......................................................................F-4
Consolidated Statements of Stockholder's Deficiency and Comprehensive Loss for each of the years in
the three-year period ended December 31, 2001.......................................................F-5
Consolidated Statements of Cash Flows for each of the years in the three-year
period ended December 31, 2001......................................................................F-6
Notes to Consolidated Financial Statements.............................................................F-7
FINANCIAL STATEMENT SCHEDULES:
Schedule II--Valuation and Qualifying Accounts.........................................................F-42
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, 2001 and 2000, 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, 2001. 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, 2001 and 2000 and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 2001, 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
February 25, 2002
F-2
REV HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in millions, except per share data)
DECEMBER 31, DECEMBER 31,
ASSETS 2001 2000
------------- --------------
Current assets:
Cash and cash equivalents .............................. $ 103.3 $ 56.3
Marketable securities .................................. 2.2 -
Trade receivables, less allowances of $15.4
and $16.1, respectively 203.9 220.5
Inventories ............................................ 157.9 184.8
Prepaid expenses and other ............................. 45.6 66.1
------------- --------------
Total current assets ............................... 512.9 527.7
Property, plant and equipment, net ........................... 142.8 221.7
Other assets ................................................. 143.9 147.2
Intangible assets, net ....................................... 198.5 206.1
------------- --------------
Total assets ....................................... $ 998.1 $ 1,102.7
============= ==============
LIABILITIES AND STOCKHOLDER'S DEFICIENCY
Current liabilities:
Short-term borrowings - third parties .................. $ 17.5 $ 30.7
Current portion of long-term debt - third parties ...... - 753.6
Accounts payable ....................................... 87.0 86.3
Accrued expenses and other ............................. 285.4 310.7
------------- --------------
Total current liabilities .......................... 389.9 1,181.3
Long-term debt - third parties ............................... 1,700.0 1,539.0
Long-term debt - affiliates .................................. 28.6 24.1
Other long-term liabilities .................................. 261.1 222.2
Stockholder's deficiency:
Common Stock, par value $1.00 per share; 1,000
shares authorized, issued and outstanding .......... - -
Additional paid-in-capital (capital deficiency) ........ 306.7 (391.8)
Accumulated deficit since June 24, 1992 ................ (1,627.1) (1,442.3)
Accumulated other comprehensive loss ................... (61.1) (29.8)
------------- --------------
Total stockholder's deficiency ..................... (1,381.5) (1,863.9)
------------- --------------
Total liabilities and stockholder's deficiency ..... $ 998.1 $ 1,102.7
============= ==============
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,
----------------------------------------------------
2001 2000 1999
-------------- -------------- --------------
Net sales .............................................................. $ 1,321.5 $ 1,447.8 $ 1,709.9
Cost of sales .......................................................... 544.2 574.3 726.3
-------------- -------------- --------------
Gross profit ...................................................... 777.3 873.5 983.6
Selling, general and administrative expenses ........................... 723.1 803.5 1,155.4
Restructuring costs and other, net ..................................... 38.1 54.1 40.2
-------------- -------------- --------------
Operating income (loss) ........................................... 16.1 15.9 (212.0)
-------------- -------------- --------------
Other expenses (income):
Interest expense .................................................. 165.0 219.4 215.4
Interest income ................................................... (3.9) (2.1) (2.8)
Amortization of debt issuance costs ............................... 7.1 9.2 7.9
Foreign currency losses (gains), net .............................. 2.2 1.6 (0.5)
Gain on sale of subsidiary stock .................................. - (1.1) (0.1)
Loss (gain) on sale of product line, brands and facilities, net ... 14.4 (10.8) -
Miscellaneous, net 3.2 0.8 0.9
-------------- -------------- --------------
Other expenses, net ........................................... 188.0 217.0 220.8
-------------- -------------- --------------
Loss before income taxes and extraordinary item ........................ (171.9) (201.1) (432.8)
Provision for income taxes ............................................. 9.3 8.6 9.1
-------------- -------------- --------------
Loss before extraordinary item ......................................... (181.2) (209.7) (441.9)
Extraordinary item - early extinguishment of debt, net of tax .......... (3.6) - -
-------------- -------------- --------------
Net loss ............................................................... $ (184.8) $ (209.7) $ (441.9)
============== ============== ==============
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)
ADDITIONAL ACCUMULATED
PAID-IN-CAPITAL OTHER TOTAL
(CAPITAL ACCUMULATED COMPREHENSIVE STOCKHOLDER'S
DEFICIENCY) DEFICIT LOSS (A) DEFICIENCY
------------ ------------ ------------------ --------------
Balance, January 1, 1999 ................................ $ (389.4) $ (790.7) $ (72.6) $ (1,252.7)
Net distribution from affiliate .................... (1.0)(c) (1.0)
Comprehensive loss:
Net loss .................................... (441.9) (441.9)
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 ........................... (437.4)
------------ ------------ ------------------ --------------
Balance, December 31, 1999 .............................. (390.4) (1,232.6) (68.1) (1,691.1)
Net distribution from affiliate .................... (1.4)(c) (1.4)
Comprehensive loss:
Net loss (209.7) (209.7)
Adjustment for minimum pension liability .... 1.3 1.3
Loss on marketable securities ............... 3.8 (b) 3.8
Currency translation adjustment ............. 33.2 (b) 33.2
--------------
Total comprehensive loss ........................... (171.4)
------------ ------------ ------------------ --------------
Balance, December 31, 2000 .............................. (391.8) (1,442.3) (29.8) (1,863.9)
Net distribution from affiliate .................... (1.0)(c) (1.0)
Capital contribution from indirect parent .......... 699.5 699.5
Comprehensive loss:
Net loss .................................... (184.8) (184.8)
Adjustment for minimum pension liability .... (42.5) (42.5)
Revaluation of forward currency contracts ... 0.1 0.1
Currency translation adjustment ............. 11.1 (b) 11.1
--------------
Total comprehensive loss ........................... (216.1)
------------ ------------ ------------------ --------------
Balance, December 31, 2001 .............................. $ 306.7 $(1,627.1) $ (61.1) $(1,381.5)
============ ============ ================== ==============
- --------------------
(a) Accumulated other comprehensive loss includes unrealized gains on
revaluations of forward currency contracts of $0.1 for 2001, unrealized
losses on marketable securities of $3.8 for 1999, cumulative net
translation losses of $15.1, $26.2 and $59.4 for 2001, 2000 and 1999,
respectively, and adjustments for the minimum pension liability of
$46.1, $3.6 and $4.9 for 2001, 2000 and 1999, respectively.
(b) The currency translation adjustment as of December 31, 2001 and December
31, 2000 includes a reclassification adjustment of $7.1 and $48.3,
respectively, for realized lossses on foreign currency adjustments
associated primarily with the sale of the Colorama brand
in Brazil and the sale of the Company's worldwide professional products
line and for marketable securities, respectively. Accumulated other
comprehensive loss as of December 31, 2000 also includes $3.8 in
realized losses on marketable securities.
(c) Represents net distributions in capital from the Charles of the Ritz
business (See Note 15).
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: 2001 2000 1999
------------ ------------ ------------
Net loss ................................................................... $ (184.8) $ (209.7) $ (441.9)
Adjustments to reconcile net loss to net cash
(used for) provided by operating activities:
Depreciation and amortization ......................................... 116.0 130.5 129.7
Amortization of debt discount ......................................... 15.7 74.9 67.5
Extraordinary items ................................................... 3.6 - -
Gain on sale of marketable securities ................................. (2.2) - -
Gain on sale of subsidiary stock ...................................... - (1.1) (0.1)
Loss (gain) on sale of certain assets, net ............................ 14.4 (13.2) 1.6
Change in assets and liabilities, net of acquisitions and dispositions:
Decrease in trade receivables ..................................... 5.9 29.1 187.2
Decrease (increase) in inventories ................................ 10.2 32.8 (22.3)
(Increase) decrease in prepaid expenses and
other current assets .................................. (2.1) 18.8 12.6
Increase (decrease) in accounts payable ........................... 4.4 (21.0) 10.8
(Decrease) increase in accrued expenses and other
current liabilities ................................... (38.4) (80.7) 20.5
Purchase of permanent displays .................................... (44.0) (51.4) (66.5)
Other, net ........................................................ 10.3 7.0 19.1
------------ ------------ ------------
Net cash used for operating activities ..................................... (91.0) (84.0) (81.8)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ....................................................... (15.1) (19.0) (42.3)
Acquisition of technology rights ........................................... - (3.0) -
Proceeds from the sale of certain assets ................................... 102.3 344.1 1.6
------------ ------------ ------------
Net cash provided by (used for) investing activities ....................... 87.2 322.1 (40.7)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in short-term borrowings - third parties ........... (11.3) (2.7) 12.3
Proceeds from the issuance of long-term debt - third parties ............... 698.5 339.1 574.5
Repayment of long-term debt - third parties ................................ (636.0) (538.7) (464.9)
Net proceeds from sale of subsidiary stock ................................. - - 0.1
Net distribution from affiliate ............................................ (1.0) (1.4) (1.0)
Capital contribution from indirect parent .................................. 22.0 - -
Proceeds from the issuance of debt - affiliates ............................ - - 67.1
Repayment of debt - affiliates ............................................. - - (67.1)
Advances under the Keepwell Agreement ...................................... 4.5 - -
Payment of debt issuance costs ............................................. (25.9) - (3.5)
------------ ------------ ------------
Net cash provided by (used for) financing activities ....................... 50.8 (203.7) 117.5
------------ ------------ ------------
Effect of exchange rate changes on cash and cash equivalents ............... - (3.5) (4.3)
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents .................. 47.0 30.9 (9.3)
Cash and cash equivalents at beginning of period ...................... 56.3 25.4 34.7
------------ ------------ ------------
Cash and cash equivalents at end of period ............................ $ 103.3 $ 56.3 $ 25.4
============ ============ ============
Supplemental schedule of cash flow information:
Cash paid during the period for:
Interest .......................................................... $ 139.1 $ 141.3 $ 146.1
Income taxes, net of refunds ...................................... 3.4 4.7 8.2
Supplemental schedule of noncash financing activities:
Noncash capital contributions from indirect parent to cancel the Old
REV Holdings Notes and pursuant to the tax sharing
agreements ........................................................ $ 677.5 $ - $ -
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:
REV Holdings Inc. (together with its subsidiaries, "REV Holdings" or
the "Company") 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. On March 30, 2000, the Company sold
its professional products line and on May 8, 2000 sold the Plusbelle brand in
Argentina. On July 16, 2001 the Company sold the Colorama brand in Brazil.
(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 the Senior Secured Discount
Notes due 1998 (the "1998 Notes"), REV Holdings Senior Secured Discount Notes
due 2001 (the "Old REV Holdings Notes") and the 12% Senior Secured Notes due
2004 (the "New REV Holding 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, capital contributions in 2001 and 1997 from its indirect
parent in connection with the repayment of a portion of the Old REV Holdings
Notes and a portion of the 1998 Notes and on August 1, 2001 and February 1,
2002, GSB Investments Corp. (an affiliate of the Company) made noninterest-
bearing advances of $4.5 and $4.8, respectively, to REV Holdings under the
Keepwell Agreement (as hereinafter defined), which were used to make the
August 1, 2001 and February 1, 2002 interest payments, respectively, on the
New REV Holdings Notes.
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.
In November 2001, the FASB Emerging Issues Task Force (the "EITF")
reached consensus on EITF Issue 01-9 entitled, "Accounting for Consideration
Given by a Vendor to a Customer or a Reseller of the Vendor's Products" (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 Company adopted the earlier
portion of these new Guidelines (formerly EITF Issue 00-14) addressing certain
sales incentives effective January 1, 2001, and accordingly, all prior period
financial statements reflect the implementation of the earlier portion of the
Guidelines. The impact on net sales, gross profit and selling, general and
administrative expenses ("SG&A") as a result of adopting the earlier portion
of these new Guidelines was $46.8, $67.2 and $67.2 and $154.5, $193.5 and
$193.5 in 2000 and 1999, respectively. The Company adopted the second portion
of the Guidelines (formerly EITF Issue 00-25) effective January 1, 2002. (See
Note 19).
F-7
Effective September 2001, Revlon, Inc. acquired from Holdings
(as hereinafter defined) all the assets and liabilities of the Charles of
the Ritz brand (which Revlon, Inc. contributed to Products Corporation).
(See Note 15).
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 $15.3 and $22.2 was restricted and
supported short-term borrowings at December 31, 2001 and 2000, respectively.
(See Note 8).
INVENTORIES:
Inventories are stated at the lower of cost or market value. Cost is
principally determined by the first-in, first-out method.
PROPERTY, PLANT AND EQUIPMENT AND OTHER ASSETS:
Property, plant and equipment is recorded at cost and is depreciated
on a straight-line basis over the estimated useful lives of such assets as
follows: land improvements, 20 to 40 years; buildings and improvements, 5 to
45 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.
Long-lived assets, including fixed assets and intangibles other than
goodwill, are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. If events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable, the Company estimates the
undiscounted future cash flows (excluding interest) resulting from the use of
the asset and its ultimate disposition. If the sum of the undiscounted cash
flows (excluding interest) is less than the carrying value, the Company
recognizes an impairment loss, measured as the amount by which the carrying
value exceeds the fair value of the asset.
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, which was completed in late
2001. As a result, the Company depreciated the net book value of the facility
in excess of its estimated salvage value over its remaining useful life.
Included in other assets are permanent displays amounting to
approximately $91.8 and $111.6 (net of amortization of $62.6 and $68.3) as of
December 31, 2001 and 2000, 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 $33.3 and
$19.9 (net of amortization of $7.1 and $9.2) as of December 31, 2001 and 2000,
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 has been 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 $117.1 and $110.0
at December 31, 2001 and 2000, respectively.
F-8
REVENUE RECOGNITION:
The Company recognizes net sales upon shipment of merchandise. Net
sales is comprised of gross revenues less expected returns, trade discounts
and customer allowances, which include costs associated with off-invoice
mark-downs and other price reductions, as well as coupons. These incentive
costs are recognized at the later of the date on which the Company recognizes
the related revenue or the date on which the Company offers the incentive. 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. Additionally, cost of sales
reflects the costs associated with free products, buy-one-get-one free,
trial-size items, gift-with-purchase and other types of incentives. These
incentive costs are recognized on the later of the date the Company recognizes
the related revenue or the date on which the Company offers the incentive. The
Company adopted the second portion of EITF Issue 01-9 (formerly EITF Issue
00-25) effective January 1, 2002. (See Note 19).
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. Holdings, Revlon, Inc., Products Corporation and
certain of its subsidiaries and Mafco Holdings entered into the 1992 Tax
Sharing Agreement (as hereinafter defined) and REV Holdings and Mafco Holdings
entered into the 1993 Tax Sharing Agreement (as hereinafter defined), each of
which is described in Notes 12 and 15.
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 2001, 2000 and 1999 were $24.4, $27.3 and
$32.9, 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 non-monetary assets and liabilities at historical rates and include
translation adjustments in the results of operations.
F-9
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 14).
DERIVATIVE FINANCIAL INSTRUMENTS:
On January 1, 2001, the Company adopted SFAS 133, "Accounting for
Derivative Instruments and Hedging Activities," as amended. The standard
requires the recognition of all derivative instruments on the balance sheet as
either assets or liabilities measured at fair value. Changes in fair value are
recognized immediately in earnings unless the derivatives qualify as hedges of
future cash flows. For derivatives qualifying as hedges of future cash flows,
the effective portion of changes in fair value is recorded as a component of
Other Comprehensive Income and recognized in earnings when the hedged
transaction is recognized in earnings. Any ineffective portion (representing
the extent that the change in fair value of the hedges does not completely
offset the change in the anticipated net payments being hedged) is recognized
in earnings as it occurs. There was no cumulative effect recognized for
adopting this accounting change.
The Company formally designates and documents each financial
instrument as a hedge of a specific underlying exposure as well as the risk
management objectives and strategies for entering into the hedge transaction
upon inception. The Company also formally assesses upon inception and
quarterly thereafter whether the financial instruments used in hedging
transactions are effective in offsetting changes in the fair value or cash
flows of the hedged items.
The Company uses derivative financial instruments, primarily forward
foreign exchange contracts, to reduce the exposure of adverse effects of
fluctuating foreign currency exchange rates. These contracts, which have been
designated as cash flow hedges, were entered into primarily to hedge
anticipated inventory purchases and certain intercompany payments denominated
in foreign currencies, which have maturities of less than one year. The
unrecognized income (loss) on the revaluation of forward currency contracts is
recognized in cost of sales upon expiration of the contract. Throughout 2001,
the Company entered into these contracts with a counterparty that is a major
financial institution, and accordingly the Company believes that the risk of
counterparty nonperformance is remote. There were no derivative financial
instruments outstanding at December 31, 2001.
The amount of the hedges' ineffectiveness as of December 31, 2001
recorded in the Consolidated Statements of Operations was not significant.
ADVERTISING AND PROMOTION:
Costs associated with advertising and promotion are expensed in the
year incurred. Television advertising production costs are expensed the first
time the advertising takes place. Advertising and promotion expenses were
$272.9, $268.7 and $352.2 for 2001, 2000 and 1999, respectively.
Products Corporation has various arrangements with its customers to
reimburse them for a portion of their advertising costs, which provide
advertising benefits to Products Corporation. Additionally, from time to time
Products Corporation may pay fees to customers in order to expand or maintain
shelf space for its products. The costs that Products Corporation incurs for
"cooperative" advertising programs, end cap replacement, shelf replacement
costs and
F-10
slotting fees are expensed as incurred and are currently included in SG&A
expenses on the Company's Consolidated Statements of Operations. The Company
adopted the second portion of EITF Issue 01-9 (formerly EITF Issue 00-25)
effective January 1, 2002. (See Note 19).
DISTRIBUTION COSTS:
Costs, such as freight and handling costs, associated with
distribution are expensed within SG&A when incurred. Distribution costs were
$65.9, $78.4 and $102.9 for 2001, 2000 and 1999, respectively.
2. RESTRUCTURING COSTS AND OTHER, NET
In late 1998, the Company developed a strategy to reduce overall
costs and streamline operations. To execute against this strategy, the Company
began to develop a restructuring plan and executed the plan in several phases,
which has resulted in several restructuring charges being recorded.
In the fourth quarter of 1998, the Company began to execute the 1998
restructuring program which was designed to realign and reduce personnel, exit
excess leased real estate, realign and consolidate regional activities,
reconfigure certain manufacturing operations and exit certain product lines.
During the nine-month period ended September 30, 1999, the Company continued
to execute the 1998 restructuring program and recorded an additional net
charge of $20.5 principally for employee severance and other personnel
benefits and obligations for excess leased real estate primarily in the United
States. Additionally, 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 the fourth quarter of 1999, the Company continued to restructure
its organization and began a new program in line with its original
restructuring plan developed in late 1998, principally for additional employee
severance and other personnel benefits and to restructure certain operations
outside the United States, including certain operations in Japan, resulting in
a charge of $18.1. Additionally, during the fourth quarter of 1999 the Company
recorded a charge of $22.0 to SG&A for executive separation costs related to
this new program. In the first quarter of 2000, the Company recorded a charge
of $9.5 relating to the 1999 restructuring program that began in the fourth
quarter of 1999. The Company continued to implement the 1999 restructuring
program during the second quarter of 2000 during which it recorded a charge of
$5.1.
During the third quarter of 2000, the Company continued to
re-evaluate its organizational structure. As part of this re-evaluation, the
Company initiated a new restructuring program in line with the original
restructuring plan developed in late 1998, designed to improve profitability
by reducing personnel and consolidating manufacturing facilities. The Company
recorded a charge of $13.7 in the third quarter of 2000 for programs begun in
such quarter, as well as for the expanded scope of programs previously
commenced. The 2000 restructuring program focused on the Company's plans to
close its manufacturing operations in Phoenix, Arizona and Mississauga, Canada
and to consolidate its cosmetics production into its plant in Oxford, North
Carolina. The 2000 restructuring program 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, each of which were effected to reduce and
streamline corporate overhead costs. In the fourth quarter of 2000, the
Company recorded a charge of $25.8 related to the 2000 restructuring program,
principally for additional employee severance and other personnel benefits and
to consolidate worldwide operations.
In the first, second, third and fourth quarters of 2001, the Company
recorded charges of $14.6, $7.9, $3.0 and $12.6, respectively, related to the
2000 restructuring program, principally for additional employee severance and
other personnel benefits, relocation and other costs related to the
consolidation of worldwide operations. The charge in the fourth quarter of
2001 also was for an adjustment to previous estimates of approximately $6.6.
In connection with the 1999 restructuring program and the 2000
restructuring program, termination benefits for 403 employees and 2,188
employees, respectively, were included in the Company's restructuring charges
of which 394 and 2,009 employees have been terminated as of December 31, 2001.
The remaining employees from the 2000 restructuring program are expected to be
terminated within one year from the date of their notification.
F-11
Details of the activity described above during 2001, 2000 and 1999
are as follows:
BALANCE UTILIZED, NET BALANCE
BEGINNING ------------------------ END
OF YEAR EXPENSES, NET CASH NONCASH OF YEAR
----------- ---------------- ---------- ----------- -----------
2001
- ----------------------------------------------
Employee severance and other
personnel benefits ................... $ 28.6 $ 27.5 $ (41.0) $ - $ 15.1
Relocation .................................. - 3.8 (3.8) - -
Leases and equipment write-offs ............. 5.9 5.6 (4.0) (0.1) 7.4
Other obligations ........................... 1.5 1.2 (2.4) - 0.3
----------- -------------- ---------- --------- -----------
$ 36.0 $ 38.1 $ (51.2) $ (0.1) $ 22.8
=========== ============== ========== ========= ===========
2000
- ----------------------------------------------
Employee severance and other
personnel benefits ................... $ 24.6 $ 44.6 $ (39.5) $ (1.1) $ 28.6
Relocation .................................. - - - - -
Leases and equipment write-offs ............. 7.6 6.9 (3.4) (5.2) 5.9
Other obligations ........................... 1.8 2.6 (2.9) - 1.5
----------- -------------- ---------- --------- -----------
$ 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
Relocation .................................. - - - - -
Leases and equipment write-offs ............. 12.1 1.5 (4.6) (1.4) 7.6
Other obligations ........................... - 1.8 - - 1.8
Other ....................................... - 1.6 (1.6) - -
----------- -------------- ---------- --------- -----------
$ 37.0 $ 40.2 $ (41.8) $ (1.4) $ 34.0
=========== ============== ========== ========= ===========
In connection with the 2000 restructuring program, in the beginning
of the fourth quarter of 2000, Products Corporation decided to consolidate its
manufacturing facility in Phoenix, Arizona into its manufacturing facility in
Oxford, North Carolina. The plan was to relocate substantially all of the
Phoenix equipment to the Oxford facility and commence production there over a
period of approximately nine months which would allow Products Corporation to
fully staff the Oxford facility and to produce enough inventory through a
combination of production in the Phoenix and Oxford facilities to meet supply
chain demand as the Phoenix facility production lines were dismantled, moved
across the country, and placed into service at the Oxford facility.
Substantially all production at the Phoenix facility ceased by June 30, 2001,
and the facility was sold. The useful life of the facility and production
assets which would not be relocated to the Oxford facility was shortened at
the time the decision was made to the nine-month period in which the Phoenix
facility would continue production. The Company began depreciating the net
book value of the Phoenix facility and production equipment in excess of its
estimated salvage value over the estimated nine-month useful life. This
resulted in the recognition of increased depreciation through June 30, 2001 of
$6.1, which is included in cost of sales. Due to the sale of the Phoenix
facility in the second quarter of 2001, there was no additional increased
depreciation charged subsequent to June 30, 2001.
As of December 31, 2001, 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. The
remaining balance at December 31, 2001 for employee severance and other
personnel benefits of $15.1 are expected to be paid by the end of 2002, lease
and equipment obligations of $7.4 are expected to be paid by the end of 2008
and other obligations of $0.3 are expected to be paid by the end of 2002.
F-12
3. DISPOSITIONS
Described below are the principal sales of a product line, certain
brands and facilities entered into by Products Corporations during 2001 and
2000:
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,
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
$13.4, $14.8 of which was recorded in 2000 and $1.4 of additional costs was
recorded in the fourth quarter of 2001. Approximately $150.3 of the Net
Proceeds (as defined in the Credit Agreement) were used to reduce the
aggregate commitment under the 1997 Credit Agreement (as hereinafter defined).
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 1997 Credit
Agreement. In connection with the disposition, the Company recognized a
pre-tax and after-tax loss of $4.8.
In April 2001, Products Corporation sold land in Minami Aoyama near
Tokyo, Japan and related rights for the construction of a building on such
land (the "Aoyama Property") for approximately $28. In connection with such
disposition, the Company recognized a pre-tax and after-tax loss of $0.8
during the second quarter of 2001.
In May 2001, Products Corporation sold its Phoenix, Arizona facility
for approximately $7 and leased it back through the end of 2001. After
recognition of increased depreciation in the first quarter of 2001, the
Company recorded a loss on the sale of $3.7 in the second quarter of 2001,
which is included in SG&A expenses.
In July 2001, Products Corporation completed the disposition of the
Colorama brand of cosmetics and hair care products as well as Products
Corporation's manufacturing facility located in Sao Paulo, Brazil, for
approximately $57. Products Corporation used $22 of the net proceeds, after
transaction costs and retained liabilities, to permanently reduce commitments
under the 1997 Credit Agreement. In connection with such disposition, the
Company recognized a pre-tax and after-tax loss of $6.7.
In July 2001, Products Corporation completed the disposition of its
subsidiary that owned and operated its manufacturing facility in Maesteg,
Wales (UK), including all production equipment. As part of this sale, Products
Corporation entered into a long-term supply agreement with the purchaser
pursuant to which the purchaser manufactures and supplies to Products
Corporation cosmetics and personal care products for sale throughout Europe.
The purchase price was approximately $20.0, $10.0 of which was received on the
closing date and $10.0 is to be received over a six-year period, a portion of
which is contingent upon certain future events. In connection with such
disposition, the Company recognized a pre-tax and after-tax loss of $8.6.
In December 2001, Products Corporation sold a facility in Puerto Rico
for approximately $4. In connection with such disposition, the Company
recorded a pre-tax and after-tax gain on the sale of $3.1 in the fourth
quarter of 2001.
F-13
The following represents summary unaudited pro forma information of
the Company's results of operations, which excludes the results of operations
of the Colorama brand, the worldwide professional products line and the
Plusbelle brand in Argentina as if the transactions occurred on January 1,
2000.
YEAR ENDED DECEMBER 31,
---------------------------
2001 2000
--------- --------
Net sales......................... $1,305.1 $1,303.7
Operating income.................. 18.7 10.3
4. INVENTORIES
YEAR ENDED DECEMBER 31,
---------------------------
2001 2000
--------- --------
Raw materials and supplies........ $ 44.9 $ 56.2
Work-in-process .................. 10.1 9.4
Finished goods ................... 102.9 119.2
--------- --------
$ 157.9 $ 184.8
========= ========
5. PREPAID EXPENSES AND OTHER
YEAR ENDED DECEMBER 31,
---------------------------
2001 2000
--------- --------
Prepaid expenses................... $ 22.4 $ 22.8
Asset held for sale ............... 3.4 29.0
Other ......... ................... 19.8 14.3
--------- --------
$ 45.6 $ 66.1
========= ========
In the fourth quarter of 2000, Products Corporation listed the Aoyama
Property for sale. The Company recorded a charge, included in selling, general
and administrative expenses, of approximately $9.4 to reduce the net book
value of the asset held for sale to its estimated net realizable value of
(Y)3.3 billion. (See Note 3).
6. PROPERTY, PLANT AND EQUIPMENT, NET
DECEMBER 31,
------------------
2001 2000
------- ------
Land and improvements................ $ 2.4 $ 13.5
Buildings and improvements................................. 79.8 129.3
Machinery and equipment.................................... 112.5 179.2
Office furniture and fixtures and capitalized software..... 108.8 107.0
Leasehold improvements..................................... 18.3 22.7
Construction-in-progress................................... 10.5 11.2
------- ------
332.3 462.9
Accumulated depreciation................................... (189.5) (241.2)
------- ------
$ 142.8 $221.7
======= ======
Depreciation expense for the years ended December 31, 2001, 2000 and
1999 was $36.8, $42.4 and $45.9, respectively.
F-14
7. ACCRUED EXPENSES AND OTHER
DECEMBER 31,
-------------------
2001 2000
-------- -------
Advertising and promotional costs and accrual for sales returns ....... $ 129.8 $ 121.8
Compensation and related benefits...................................... 61.6 70.5
Interest............................................................... 44.3 39.9
Taxes, other than federal income taxes................................. 5.5 5.6
Restructuring costs.................................................... 18.9 32.2
Other.................................................................. 25.3 40.7
--------- -------
$ 285.4 $ 310.7
========= =======
8. SHORT-TERM BORROWINGS
Products Corporation had outstanding short-term bank borrowings
(excluding borrowings under the Credit Agreement (as hereinafter defined))
aggregating $17.5 and $30.7 at December 31, 2001 and 2000, respectively.
Interest rates on amounts borrowed under such short-term lines at December 31,
2001 and 2000 ranged from 3.0% to 5.6% and from 5.5% to 10.3%, respectively,
excluding Latin American countries in which Products Corporation had
outstanding borrowings of approximately $1.2 and $4.9 at December 31, 2001 and
2000, respectively. Compensating balances at December 31, 2001 and 2000 were
approximately $15.3 and $22.2, respectively. Interest rates on compensating
balances at December 31, 2001 and 2000 ranged from 2.1% to 4.0% and 1.5% to
6.5%, respectively.
9. LONG-TERM DEBT
DECEMBER 31,
-------------------
2001 2000
-------- -------
Credit facilities (a) ................................................. $ 119.2 $ 389.7
8 1/8% Senior Notes due 2006 (b) ...................................... 249.6 249.5
9% Senior Notes due 2006 (c)........................................... 250.0 250.0
8 5/8% Senior Subordinated Notes due 2008 (d) ......................... 649.9 649.8
12% Senior Secured Notes due 2005 (e) ................................. 350.8 --
Senior Secured Discount Notes due 2001, net of
unamortized discoount of $16.4 (f) ................................ -- 753.6
12% Senior Secured Notes due 2004 (f) ................................. 80.5 --
Advances from Holdings and under the Keepwell Agreement (g)............ 28.6 24.1
-------- -------
1,728.6 2,316.7
Less current portion .................................................. -- (753.6)
-------- -------
$1,728.6 $1,563.1
======== =======
(a) On November 30, 2001, Products Corporation entered into the
Second Amended and Restated Credit Agreement (the "2001 Credit Agreement")
with a syndicate of lenders, whose individual members change from time to
time, which agreement amended and restated the credit agreement entered into
by Products Corporation in May 1997 (the "1997 Credit Agreement"; the 2001
Credit Agreement and the 1997 Credit Agreement are sometimes referred to as
the "Credit Agreement"). On November 26, 2001, prior to closing on the 2001
Credit Agreement, Products Corporation issued and sold in a private placement
$363 in aggregate principal amount of 12% Senior Secured Notes due 2005 (the
"12% Notes") at a price of 96.569%, receiving gross proceeds of $350.5 (see
footnote (e) below) (the issuance of the 12% Notes and the 2001 Credit
Agreement are referred to herein as the "2001 Refinancing Transactions").
Products Corporation used the proceeds from the 12% Notes and borrowings under
the 2001 Credit Agreement to repay outstanding indebtedness under Products
Corporation's 1997 Credit Agreement and to pay fees and expenses incurred in
connection with the 2001 Refinancing Transactions, and the balance is
available for general corporate purposes.
The 2001 Credit Agreement provides up to $250.0 and consists of a
$117.9 term loan facility (the "Term Loan Facility") and a $132.1
multi-currency revolving credit facility (the "Multi-Currency Facility") (the
Term Loan
F-15
Facility and the Multi-Currency Facility being referred to as the "Credit
Facilities"). The Multi-Currency Facility is available (i) to Products
Corporation in revolving credit loans denominated in U.S. dollars, (ii) to
Products Corporation in standby and commercial letters of credit denominated in
U.S. dollars up to $50.0, $27.3 of which was issued but undrawn at December 31,
2001 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, 2001 and 2000, Products Corporation had $117.9 and
$106.2, respectively, outstanding under the Term Loan Facility, $28.6 ($27.3 of
which was issued but undrawn letters of credit) and $221.2, respectively,
outstanding under the Multi-Currency Facility, $0 and $62.3, respectively,
outstanding under the revolving acquisition facility and $0 and $22.6,
respectively, of issued but undrawn letters of credit under the special standby
letter of credit facility (which latter two facilities were available under the
1997 Credit Agreement, but have been eliminated in the 2001 Credit Agreement).
The Credit Facilities (other than loans in foreign currencies) bear
interest as of December 31, 2001 at a rate equal to, at Products Corporation's
option, either (A) the Alternate Base Rate plus 3.75%; or (B) the Eurodollar
Rate plus 4.75%. Loans in foreign currencies bear interest in certain limited
circumstances or if mutually acceptable to Products Corporation and the
relevant foreign lenders at the Local Rate and otherwise at the Eurocurrency
Rate, in each case plus 4.75%. Products Corporation pays to those lenders
having multi-currency commitments a commitment fee of 0.75% of the average
daily unused portion of the Multi-Currency Facility, which fee is payable
quarterly in arrears. Under the Multi-Currency Facility, Products Corporation
pays (i) to foreign lenders a fronting fee of 0.25% per annum on the aggregate
principal amount of specified Local Loans (which fee is retained by the
foreign lenders out of the portion of the Applicable Margin payable to such
foreign lender), (ii) to foreign lenders an administrative fee of 0.25% per
annum on the aggregate principal amount of specified Local Loans, (iii) to the
multi-currency lenders a letter of credit commission equal to (a) the
Applicable Margin for Eurodollar Rate loans (adjusted for the term that the
letter of credit is outstanding) times (b) the aggregate undrawn face amount
of letters of credit and (c) to the issuing lender a letter of credit fronting
fee of 0.25% per annum of the aggregate undrawn face amount of letters of
credit (which fee is a portion of the Applicable Margin). Products Corporation
also paid certain facility and other fees to the lenders and agents upon
closing of the 2001 Credit Agreement. Prior to the termination date of the
2001 Credit Facilities, on each November 30 (commencing November 30, 2002)
Products Corporation shall repay $1.25 in aggregate principal amount of the
Term Loan Facility. In addition, prior to its termination, 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 Products
Corporation or any of its subsidiaries (and in excess of an additional $15.0
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, and (iii) the
net proceeds from the issuance by Products Corporation or any of its
subsidiaries of certain additional debt. The 2001 Credit Agreement will
terminate on May 30, 2005. The weighted average interest rates on the Term
Loan Facility, the Multi-Currency Facility and the revolving acquisition
facility (which latter facility was available under the 1997 Credit Agreement,
but has been eliminated in the 2001 Credit Agreement) were 7.75% and 8.49% at
December 31, 2001, respectively, 10.2%, 9.7% and 10.3% at December 31, 2000,
respectively, and 9.9%, 8.1% and 9.8% at December 31, 1999, respectively.
The Credit Facilities are supported by guarantees from Revlon, Inc.
and, subject to certain limited exceptions, the domestic subsidiaries of
Products Corporation. The obligations of Products Corporation under the Credit
Facilities and the obligations under the aforementioned guarantees are
secured, on a first-priority basis (and therefore entitled to payment out of
the proceeds on any sale of the following collateral before the 12% Notes,
which are secured on a second-priority basis), subject to certain limited
exceptions, primarily by (i) a mortgage on Products Corporation's facility in
Oxford, North Carolina; (ii) the capital stock of Products Corporation and its
domestic subsidiaries and 66% of the capital stock of Products Corporation's
and its domestic subsidiaries' first-tier foreign subsidiaries; (iii) domestic
intellectual property and certain other domestic intangibles of Products
Corporation and its domestic subsidiaries; (iv) domestic inventory, accounts
receivable, equipment and certain investment property of Products Corporation
and its domestic subsidiaries; 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 property referred to above may be shared from time to time, subject to
certain limitations, on a first-priority basis, with specified types of other
obligations incurred or guaranteed by Products Corporation, such as interest
rate hedging obligations and working capital lines, and on a second-priority
basis with Products Corporation's obligations under the 12% Notes.
F-16
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 Commission filing fees and other
miscellaneous expenses related to being a public holding company, and, subject
to certain limitations, 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
the Revlon, Inc. Amended and Restated 1996 Stock Plan (the "Amended Stock
Plan"), (iii) creating liens or other encumbrances on Products Corporation's
or its domestic subsidiaries' assets or revenues, granting negative pledges or
selling or transferring any of Products Corporation's or its domestic
subsidiaries' assets except in the ordinary course of business, all subject to
certain limited exceptions, including among others, permitting Products
Corporation to create liens to secure Products Corporations' obligations under
the 12% Notes, (iv) with certain exceptions, engaging in merger or acquisition
transactions, (v) prepaying indebtedness and modifying the terms of certain
indebtedness and specified material contractual obligations, subject to
certain limited exceptions, (vi) making investments, subject to certain
limited exceptions, 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 specified
cumulative EBITDA levels, limiting the leverage ratio of Products Corporation,
and limiting 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.
Upon entering into the 2001 Credit Agreement, the Company recorded an
extraordinary charge of $3.6 for associated costs. (See Note 20).
In May 1997, Products Corporation entered into the 1997 Credit
Agreement (as subsequently amended) with a syndicate of lenders, whose
individual members changed from time to time. The 1997 Credit Agreement
included, among other things, (i) a term to May 2002, and (ii) an original
credit facilities comprised of five senior secured facilities: two term loan
facilities, a multi-currency facility, a revolving acquisition facility, which
was also available for general corporate purposes, and a special standby
letter of credit facility. The weighted average interest rates on the term
loan facilities, multi-currency facility and acquisition facility were 10.2%,
9.7% and 10.3% per annum, respectively, at December 31, 2000.
(b) 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 12% Notes, 9% Notes and the indebtedness under the
Credit Agreement, and are senior to the 8 5/8% Notes and to all future
subordinated indebtedness of Products Corporation. The 8 1/8% Notes are
effectively subordinated to the outstanding indebtedness and other liabilities
of Products Corporation's subsidiaries. Interest is payable on February 1 and
August 1.
The 8 1/8% Notes may be redeemed at the option of Products
Corporation in whole or from time to time in part at any time on or after
February 1, 2002 at the redemption prices set forth in the 8 1/8% Notes
Indenture plus accrued and unpaid interest, if any, to the date of redemption.
Upon a Change of Control (as defined in the 8 1/8% Notes Indenture),
Products Corporation will have the option to redeem the 8 1/8% Notes in whole
at a redemption price equal to the principal amount thereof, plus accrued and
unpaid interest, if any, thereon to the date of redemption plus the Applicable
Premium (as defined in the 8 1/8% Notes Indenture) and, subject to certain
conditions, each holder of the 8 1/8% Notes will have the right to require
Products Corporation to repurchase all or a portion of such holder's 8 1/8%
Notes at a price equal to 101% of the principal amount thereof, plus accrued
and unpaid interest, if any, thereon to the date of repurchase.
F-17
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.
(c) 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 12% Notes, 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.
(d) 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 12% Notes, 9% Notes, the 8 1/8% Notes and the
indebtedness under the Credit Agreement, (ii) pari passu in right of payment
with all future senior subordinated debt, if any, of Products Corporation and
(iii) senior in right of payment to all future subordinated debt, if any, of
Products Corporation. The 8 5/8% Notes are effectively subordinated to the
outstanding indebtedness and other liabilities of Products Corporation's
subsidiaries. Interest is payable on February 1 and August 1.
The 8 5/8% Notes may be redeemed at the option of Products
Corporation in whole or from time to time in part at any time on or after
February 1, 2003 at the redemption prices set forth in the 8 5/8% Notes
Indenture plus accrued and unpaid interest, if any, to the date of redemption.
F-18
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.
(e) On November 26, 2001, prior to closing on the 2001 Credit
Agreement, Products Corporation issued and sold $363.0 in principal amount of
12% Notes in a private placement at a price of 96.569%, receiving gross
proceeds of $350.5. The effective interest rate on the 12% Notes is 13.125%.
On November 26, 2001, the proceeds of the 12% Notes were put into an escrow
account held by Wilmington Trust Company, which proceeds were released to
Products Corporation on November 30, 2001 upon satisfaction of certain
conditions, principally Products Corporation's closing of the 2001 Credit
Agreement, which occurred on November 30, 2001. Products Corporation used the
proceeds from the 12% Notes and borrowings under the 2001 Credit Agreement to
repay outstanding indebtedness under Products Corporation's 1997 Credit
Agreement and to pay fees and expenses incurred in connection with the 2001
Refinancing Transactions, and the balance is available for general corporate
purposes. On February 25, 2002, Products Corporation filed a registration
statement with the Securities and Exchange Commission (the "Commission") with
respect to an offer to exchange the 12% Notes for registered notes with
substantially the same terms (the "Exchange Offer").
The 12% Notes were issued pursuant to an Indenture, dated as of
November 26, 2001 (the "12% Notes Indenture"), among Products Corporation, the
guarantors party thereto, including Revlon, Inc. as parent guarantor, and
Wilmington Trust Company, as trustee. The 12% Notes are supported by
guarantees from Revlon, Inc. and, subject to certain limited exceptions,
Products Corporation's domestic subsidiaries. The obligations of Products
Corporation under the 12% Notes and the obligations under the aforementioned
guarantees are secured, on a second-priority basis, subject to certain limited
exceptions, primarily by (i) a mortgage on Products Corporation's facility in
Oxford, North Carolina; (ii) the capital stock of Products Corporation and its
domestic subsidiaries and 66% of the capital stock of Products Corporation's
and its domestic subsidiaries' first-tier foreign subsidiaries; (iii) domestic
intellectual property and certain other domestic intangibles of Products
Corporation and its domestic subsidiaries; and (iv) domestic inventory,
accounts receivable, equipment and certain investment property of Products
Corporation and its domestic subsidiaries. Such liens are subject to certain
limitations, which among other things, limit the ability of holders of
second-priority liens from exercising any remedies against the collateral
while the Credit Agreement or any other first-priority lien remains in effect.
The 12% Notes are senior secured obligations of Products Corporation
and rank pari passu in right of payment with all existing and future Senior
Debt (as defined in 12% Notes Indenture) including the 8 1/8% Notes, the 9%
Notes and the indebtedness under the Credit Agreement, and are senior to the 8
5/8% Notes and all future subordinated indebtedness of Products Corporation.
The 12% Notes are effectively subordinated to the outstanding indebtedness and
other liabilities of Products Corporation's subsidiaries. The 12% Notes mature
on December 1, 2005. Interest is payable on June 1 and December 1, beginning
June 1, 2002.
The 12% Notes may be redeemed at the option of Products Corporation
in whole or in part at any time at a redemption price equal to the principal
amount thereof, plus accrued and unpaid interest, if any to the date of
redemption, plus the Applicable Premium (as defined in the 12% Notes
Indenture).
Upon a Change in Control (as defined in the 12% Notes Indenture),
subject to certain conditions, each holder of the 12% Notes will have the
right to require Products Corporation to repurchase all or a portion of such
F-19
holder's 12% 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 12% 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 12% 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) 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 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.
The 12% Notes Indenture, 8 1/8% Notes Indenture, the 8 5/8% Notes
Indenture, the 9% Notes Indenture and the New REV Holdings Notes New Indenture
contain customary events of default for debt instruments of such type.
(g) 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, 2001, the remaining balance was $24.1 and is evidenced by
noninterest-bearing promissory notes payable to Holdings that are subordinated
to Products Corporation's obligations under the Credit Agreement. At December
31, 2001, the balance outstanding under the Keepwell Agreement (as discussed
below) was $4.5. The Keepwell Agreement will terminate at such time as there are
no New REV Holdings Notes outstanding, at which time GSB Investments Corp. may
require repayment of advances under the Keepwell Agreement.
(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, 2001 and 2000. The interest rates for such
borrowings are more favorable to Products Corporation than interest rates
under the Credit Agreement. The amount of interest paid by Products
Corporation for such borrowings for 2001, 2000 and 1999 was nil, nil and $0.5,
respectively.
F-20
The aggregate amounts of long-term debt maturities (at December 31,
2001), in the years 2002 through 2006 are nil, nil, $80.5, $498.6 and $499.6,
respectively, and $649.9 thereafter.
The Company expects that cash flows from operations before interest,
cash on hand, available borrowings under the Multi-Currency Facility of the 2001
Credit Agreement and advances under the Keepwell Agreement will be sufficient to
enable the Company to meet its anticipated cash requirements during 2002
including for debt service of its subsidiaries and expenses in connection with
the Company's restructuring programs. However, there can be no assurance that
the combination of cash flow from operations, cash on hand, available borrowings
under the Multi-Currency Facility of the 2001 Credit Agreement and advances
under the Keepwell Agreement will be sufficient to meet the Company's cash
requirements on a consolidated basis. Additionally, in the event of a decrease
in demand for Products Corporation's products or reduced sales, such
development, if significant, could reduce Products Corporation's cash flow from
operations and could adversely affect Products Corporation's ability to achieve
certain financial covenants under the 2001 Credit Agreement, including the
minimum EBITDA covenant, and in such event the Company could be required to take
measures, including reducing discretionary spending. 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 programs, restructuring subsidiary indebtedness, selling
assets or operations, selling its equity securities, seeking capital
contributions or 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, 2003. 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 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 interest and the principal amount at maturity of the
New REV Holdings Notes. The terms of the Credit Agreement, the 12% Notes, 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 Commission filing fees and
other miscellaneous expenses related to being a public holding company and,
subject to certain limitations, to pay dividends or make distributions in
certain circumstances to finance the purchase by Revlon, Inc. of its Class A
Common Stock in connection with the delivery of such Class A Common Stock to
grantees under the Amended Stock Plan.
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
F-21
payments to REV Holdings under the Keepwell Agreement or that it will comply
with its obligations under the Keepwell Agreement.
As of December 31, 2001, 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 December 31, 2001, the last reported sale price of GSB
common stock on the New York Stock Exchange ("NYSE") was $26.15 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
seven quarterly dividends of $0.10 per share, or an aggregate of $30.3, 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. On August 1,
2001 and February 1, 2002, GSB Investments Corp. made noninterest-bearing
advances of $4.5 and $4.8, respectively, to REV Holdings under the Keepwell
Agreement, which was used to make the August 1, 2001 and February 1, 2002
interest payments, respectively, on the New REV Holdings Notes. The Keepwell
Agreement will terminate at such time as there are no New REV Holdings Notes
outstanding, at which time GSB Investments Corp. may require repayment of
advances under the Keepwell Agreement.
10. GUARANTOR CONDENSED CONSOLIDATING FINANCIAL DATA
The 12% Notes are jointly and severally, fully and unconditionally
guaranteed by the domestic subsidiaries of Products Corporation that guarantee
Products Corporation's 2001 Credit Agreement (the "Guarantor Subsidiaries",
with Products Corporation's subsidiaries that do not guarantee the 12% Notes
being the "Non-Guarantor Subsidiaries"). The Supplemental Guarantor Condensed
Consolidating Financials Data presented below presents the balance sheets,
statements of operations and statements of cash flow data (i) for Products
Corporation and the Guarantor Subsidiaries and the Non-Guarantor Subsidiaries
on a consolidated basis (which is derived from Products Corporation's
historical reported financial information); (ii) for Products Corporation as
the "Parent Company", alone (accounting for its Guarantor Subsidiaries and the
Non-Guarantor Subsidiaries on an equity basis under which the investments are
recorded by each entity owning a portion of another entity at cost, adjusted
for the applicable share of the subsidiary's cumulative results of operations,
capital contributions and distributions, and other equity changes); (iii) for
the Guarantor Subsidiaries alone; and (iv) for the Non-Guarantor Subsidiaries
alone. Additionally, Products Corporation's 12% Notes are fully and
unconditionally guaranteed by Revlon, Inc. The balance sheet, statement of
operations and statement of cash flow for Revlon, Inc. have not been included
in the accompanying Supplemental Guarantor Condensed Consolidating Financial
Data as such information is not materially different than those of Products
Corporation. The financial statements of Revlon, Inc. for each fiscal year in
the three-year period ended December 31, 2001 are incorporated by reference to
the Annual Report on Form 10-K of Revlon, Inc. for the fiscal year ended
December 31, 2001 filed with the Commission on February 25, 2002.
F-22
CONDENSED CONSOLIDATING BALANCE SHEETS
AS OF DECEMBER 31, 2001
(DOLLARS IN MILLIONS)
PRODUCTS NON-
CORPORATION PRODUCTS GUARANTOR GUARANTOR
ASSETS CONSOLIDATED ELIMINATIONS CORPORATION SUBSIDIARIES SUBSIDIARIES
------------- ------------- ------------ ------------ -------------
Current assets ........................................ $ 517.9 $ - $ 294.9 $ 28.2 $ 194.8
Intercompany receivables .............................. - (1,404.5) 769.1 387.1 248.3
Investment in subsidiaries ............................ - 177.5 (148.3) (28.5) (0.7)
Property, plant and equipment, net .................... 142.8 - 131.1 3.3 8.4
Other assets .......................................... 132.2 - 69.5 6.7 56.0
Intangible assets, net ................................ 198.5 - 161.9 3.4 33.2
------------- ------------- ------------ ------------ ----------
Total assets ...................................... $ 991.4 $ (1,227.0) $ 1,278.2 $ 400.2 $ 540.0
============= ============= ============ ============ ==========
LIABILITIES AND STOCKHOLDER'S DEFICIENCY
Current liabilities ................................... $ 385.7 $ - $ 257.5 $ 21.2 $ 107.0
Intercompany payables ................................. - (1,404.5) 425.5 560.7 418.3
Long-term debt ........................................ 1,643.6 - 1,642.2 - 1.4
Other long-term liabilities ........................... 250.9 - 241.8 9.1 -
------------- ------------- ------------ ------------ ----------
Total liabilities ..................................... 2,280.2 (1,404.5) 2,567.0 591.0 526.7
Stockholder's deficiency .............................. (1,288.8) 177.5 (1,288.8) (190.8) 13.3
------------- ------------- ------------ ------------ ----------
Total liabilities and stockholder's deficiency ........ $ 991.4 $ (1,227.0) $ 1,278.2 $ 400.2 $ 540.0
============= ============= ============ ============ ==========
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2001
(DOLLARS IN MILLIONS)
PRODUCTS NON-
CORPORATION PRODUCTS GUARANTOR GUARANTOR
CONSOLIDATED ELIMINATIONS CORPORATION SUBSIDIARIES SUBSIDIARIES
------------- ------------- ------------ ------------ -------------
Net sales ................................................... $ 1,321.5 $ (132.9) $ 834.4 $ 158.6 $ 461.4
Cost of sales ............................................... 544.2 (132.9) 323.8 121.5 231.8
------------- ------------- ------------ ------------ -----------
Gross profit .......................................... 777.3 - 510.6 37.1 229.6
Selling, general and administrative expenses ................ 720.5 - 466.4 39.0 215.1
Restructuring costs and other, net .......................... 38.1 - 25.4 1.4 11.3
------------- ------------- ------------ ------------ -----------
Operating income (loss) ............................... 18.7 - 18.8 (3.3) 3.2
------------- ------------- ------------ ------------ -----------
Other expenses (income):
Interest expense, net ................................. 137.8 - 132.4 1.6 3.8
Loss (gain) on sale of product line, brands and
facilities, net .................................... 14.4 - - (0.4) 14.8
Miscellaneous, net .................................... 11.1 - (17.0) (12.7) 40.8
Equity in earnings of subsidiaries .................... - (102.4) 51.9 49.0 1.5
------------- ------------- ------------ ------------ -----------
Other expenses, net ............................... 163.3 (102.4) 167.3 37.5 60.9
------------- ------------- ------------ ------------ -----------
Loss before income taxes and extraordinary item ............. (144.6) 102.4 (148.5) (40.8) (57.7)
Provision for income taxes .................................. 4.0 - 0.1 2.6 1.3
------------- ------------- ------------ ------------ -----------
Loss before extraordinary item .............................. (148.6) 102.4 (148.6) (43.4) (59.0)
Extraordinary item - early extinguishment of debt, net of tax (3.6) - (3.6) - -
------------- ------------- ------------ ------------ -----------
Net loss .................................................... $ (152.2) $ 102.4 $ (152.2) $ (43.4) $ (59.0)
============= ============= ============ ============ ===========
F-23
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOW
FOR THE YEAR ENDED DECEMBER 31, 2001
(DOLLARS IN MILLIONS)
PRODUCTS NON-
CORPORATION PRODUCTS GUARANTOR GUARANTOR
CONSOLIDATED ELIMINATIONS CORPORATION SUBSIDIARIES SUBSIDIARIES
------------ ------------- ------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash (used for) provided by operating activities ........... $ (86.5) $ (1.0) $ (45.1) $ 11.6 $ (52.0)
------------ ------------- ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ........................................... (15.1) - (13.0) (1.7) (0.4)
Proceeds from the sale of certain assets ....................... 102.3 - 6.7 56.8 38.8
------------ ------------- ------------ ------------ ------------
Net cash provided by (used for) investing activities ........... 87.2 - (6.3) 55.1 38.4
------------ ------------- ------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in short-term borrowings - third parties (11.3) - - 1.6 (12.9)
Proceeds from the issuance of long-term debt - third parties ... 698.5 - 657.5 22.9 18.1
Repayment of long-term debt - third parties .................... (614.0) - (520.3) (31.3) (62.4)
Intercompany dividends and net change in intercompany obligations - 1.0 (14.5) (52.7) 66.2
Net distribution from affiliate ................................ (1.0) - (1.0) - -
Payment of debt issuance costs ................................. (25.9) - (25.9) - -
------------ ------------- ------------ ------------ ------------
Net cash provided by (used for) financing activities ........... 46.3 1.0 95.8 (59.5) 9.0
------------ ------------- ------------ ------------ ------------
Effect of exchange rate changes on cash and cash equivalents ... - - - - -
------------ ------------- ------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents ..... 47.0 - 44.4 7.2 (4.6)
Cash and cash equivalents at beginning of period ......... 56.3 - 10.7 2.9 42.7
------------ ------------- ------------ ------------ ------------
Cash and cash equivalents at end of period ............... $ 103.3 $ - $ 55.1 $ 10.1 $ 38.1
============ ============= ============ ============ ============
CONDENSED CONSOLIDATING BALANCE SHEETS
AS OF DECEMBER 31, 2000
(DOLLARS IN MILLIONS)
PRODUCTS NON-
CORPORATION PRODUCTS GUARANTOR GUARANTOR
ASSETS CONSOLIDATED ELIMINATIONS CORPORATION SUBSIDIARIES SUBSIDIARIES
------------- ------------- ------------- ------------ -------------
Current assets ............................... $ 530.1 $ - $ 249.6 $ 13.4 $ 267.1
Intercompany receivables ..................... - (1,084.4) 859.1 25.1 200.2
Investment in subsidiaries ................... - 186.7 (111.6) (79.0) 3.9
Property, plant and equipment, net ........... 221.7 - 160.8 1.3 59.6
Other assets ................................. 146.3 (0.1) 72.3 4.7 69.4
Intangible assets, net ....................... 206.1 - 169.1 4.3 32.7
------------- ------------- ------------- ------------ -------------
Total assets ............................. $ 1,104.2 $ (897.8) $ 1,399.3 $ (30.2) $ 632.9
============= ============= ============= ============ =============
LIABILITIES AND STOCKHOLDER'S DEFICIENCY
Current liabilities .......................... $ 427.7 $ 0.4 $ 277.0 $ 12.3 $ 138.0
Intercompany payables ........................ - (1,084.4) 509.3 144.5 430.6
Long-term debt ............................... 1,563.1 - 1,504.5 8.9 49.7
Other long-term liabilities .................. 217.7 - 212.8 - 4.9
------------- ------------- ------------- ------------ -------------
Total liabilities ............................ 2,208.5 (1,084.0) 2,503.6 165.7 623.2
Stockholder's deficiency ..................... (1,104.3) 186.2 (1,104.3) (195.9) 9.7
------------- ------------- ------------- ------------ -------------
Total liabilities and stockholder's deficiency $ 1,104.2 $ (897.8) $ 1,399.3 $ (30.2) $ 632.9
============= ============= ============= ============ =============
F-24
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2000
(DOLLARS IN MILLIONS)
PRODUCTS NON-
CORPORATION PRODUCTS GUARANTOR GUARANTOR
CONSOLIDATED ELIMINATIONS CORPORATION SUBSIDIARIES SUBSIDIARIES
------------- ------------- ----------- ------------ --------------
Net sales ............................................... $ 1,447.8 $ (157.6) $ 795.3 $ 152.8 $ 657.3
Cost of sales ........................................... 574.3 (157.6) 288.8 116.3 326.8
---------- -------- -------- -------- --------
Gross profit ...................................... 873.5 - 506.5 36.5 330.5
Selling, general and administrative expenses ............ 801.8 - 415.7 71.2 314.9
Restructuring costs and other, net ...................... 54.1 - 19.8 1.4 32.9
---------- -------- -------- -------- --------
Operating income (loss) ........................... 17.6 - 71.0 (36.1) (17.3)
---------- -------- -------- -------- --------
Other expenses (income):
Interest expense, net ............................. 142.4 - 119.6 12.3 10.5
Loss (gain) on sale of product line, brands and
facilities, net .............................. (10.8) - (118.7) (4.9) 112.8
Miscellaneous, net ................................ 5.4 - (2.5) (31.6) 39.5
Equity in earnings of subsidiaries ................ - (412.8) 224.9 186.7 1.2
---------- -------- -------- -------- --------
Other expenses, net ........................... 137.0 (412.8) 223.3 162.5 164.0
---------- -------- -------- -------- --------
Loss before income taxes ................................ (119.4) 412.8 (152.3) (198.6) (181.3)
Provision for income taxes .............................. 8.6 - (24.3) 26.6 6.3
---------- -------- -------- -------- --------
Net loss ................................................ $ (128.0) $ 412.8 $ (128.0) $ (225.2) $ (187.6)
========== ======== ======== ======== ========
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOW
FOR THE YEAR ENDED DECEMBER 31, 2000
(DOLLARS IN MILLIONS)
PRODUCTS NON-
CORPORATION PRODUCTS GUARANTOR GUARANTOR
CONSOLIDATED ELIMINATIONS CORPORATION SUBSIDIARIES SUBSIDIARIES
------------- ------------- ----------- ------------ --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash (used for) provided by operating activities ..... $ (84.0) $ - $ 79.9 $ (40.1) $ (123.8)
-------- ------------ -------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ..................................... (19.0) - (12.9) (1.1) (5.0)
Acquisition of technology rights ......................... (3.0) - (3.0) - -
Proceeds from the sale of certain assets ................. 344.1 - 180.9 64.9 98.3
-------- ------------ -------- ------- --------
Net cash provided by investing activities ................ 322.1 - 165.0 63.8 93.3
-------- ------------ -------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in short-term borrowings -
third parties ...................................... (2.7) - - 0.1 (2.8)
Proceeds from the issuance of long-term debt -
third parties ...................................... 339.1 - 286.7 16.1 36.3
Repayment of long-term debt - third parties .............. (538.7) - (428.6) (15.8) (94.3)
Intercompany dividends and net change in
intercompany obligations ........................... - - (78.0) (26.8) 104.8
Net distribution from affiliate .......................... (1.4) - (1.4) - -
-------- ------------ -------- ------- --------
Net cash (used for) provided by financing activities ..... (203.7) - (221.3) (26.4) 44.0
-------- ------------ -------- ------- --------
Effect of exchange rate changes on cash and cash
equivalents ......................................... (3.5) - - (0.1) (3.4)
-------- ------------ -------- ------- --------
Net increase (decrease) in cash and cash
equivalents .................................... 30.9 - 23.6 (2.8) 10.1
Cash and cash equivalents at beginning of period ... 25.4 - (12.8) 5.7 32.5
-------- ------------ -------- ------- --------
Cash and cash equivalents at end of period ......... $ 56.3 $ - $ 10.8 $ 2.9 $ 42.6
======== ============ ======== ======= ========
F-25
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
(DOLLARS IN MILLIONS)
PRODUCTS NON-
CORPORATION PRODUCTS GUARANTOR GUARANTOR
CONSOLIDATED ELIMINATIONS CORPORATION SUBSIDIARIES SUBSIDIARIES
------------- ------------ ---------- ------------ ------------
Net sales .................................................... $ 1,709.9 $ (176.4) $ 748.3 $ 166.1 $ 971.9
Cost of sales ................................................ 726.3 (176.4) 322.6 131.4 448.7
---------- -------- -------- -------- --------
Gross profit ........................................... 983.6 - 425.7 34.7 523.2
Selling, general and administrative expenses ................. 1,154.2 - 580.5 78.7 495.0
Restructuring costs and other, net ........................... 40.2 - 23.2 0.1 16.9
---------- -------- -------- -------- --------
Operating (loss) income ................................ (210.8) - (178.0) (44.1) 11.3
---------- -------- -------- -------- --------
Other expenses (income):
Interest expense, net .................................. 145.1 - 122.5 5.0 17.6
Loss on sale of product line, brands and facilities, net 0.9 - 0.9 - -
Miscellaneous, net ..................................... 3.8 - (9.2) (54.7) 67.7
Equity in earnings of subsidiari ...................... - (162.2) 86.3 77.2 (1.3)
---------- -------- -------- -------- --------
Other expenses, net ................................ 149.8 (162.2) 200.5 27.5 84.0
---------- -------- -------- -------- --------
Loss before income taxes ..................................... (360.6) 162.2 (378.5) (71.6) (72.7)
Provision for income taxes ................................... 9.1 - (8.8) 7.5 10.4
---------- -------- -------- -------- --------
Net loss ..................................................... $ (369.7) $ 162.2 $ (369.7) $ (79.1) $ (83.1)
========== ======== ======== ======== ========
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOW
FOR THE YEAR ENDED DECEMBER 31, 1999
(DOLLARS IN MILLIONS)
PRODUCTS NON-
CORPORATION PRODUCTS GUARANTOR GUARANTOR
CONSOLIDATED ELIMINATIONS CORPORATION SUBSIDIARIES SUBSIDIARIES
------------- ------------ ---------- ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash (used for) provided by operating activities .......... $ (81.7) $ - $ (30.4) $ 5.7 $ (57.0)
-------- -------- -------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures .......................................... (42.3) - (24.7) (0.2) (17.4)
Proceeds from the sale of certain assets Capital expenditures . 1.6 - 1.6 - -
-------- -------- -------- ------- --------
Net cash used for investing activities ........................ (40.7) - (23.1) (0.2) (17.4)
-------- -------- -------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in short-term borrowings - third parties ......... 12.3 - - - 12.3
Proceeds from the issuance of long-term debt - third parties .. 574.5 - 392.7 32.7 149.1
Repayment of long-term debt - third parties ................... (464.9) - (388.8) (37.2) (38.9)
Intercompany dividends and net change in intercompany
obligations .............................................. - - 51.9 (1.8) (50.1)
Net distribution from affiliate ............................... (1.0) - (1.0) - -
Proceeds from the issuance of debt - affiliates ............... 67.1 - 67.1 - -
Repayment of debt - affiliates ................................ (67.1) - (67.1) - -
Payment of debt issuance costs ................................ (3.5) - (3.5) - -
-------- -------- -------- ------- --------
Net cash provided by (used for) financing activities .......... 117.4 - 51.3 (6.3) 72.4
-------- -------- -------- ------- --------
Effect of exchange rate changes on cash and cash equivalents .. (4.3) - - (0.1) (4.2)
-------- -------- -------- ------- --------
Net decrease in cash and cash equivalents ............... (9.3) - (2.2) (0.9) (6.2)
Cash and cash equivalents at beginning of period ........ 34.7 - (10.6) 6.7 38.6
-------- -------- -------- ------- --------
Cash and cash equivalents at end of period .............. $ 25.4 $ - $ (12.8) $ 5.8 $ 32.4
======== ======== ======== ======= ========
F-26
11. FINANCIAL INSTRUMENTS
The fair value of the Company's long-term debt is 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, 2001 and 2000 was approximately $524.1 and
$764.7 less than the carrying values of $1,728.6 and $2,316.7, respectively.
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 $27.3 and $23.1 (including
amounts available under credit agreements in effect at that time) were
maintained at December 31, 2001 and 2000, respectively. Included in these
amounts are $10.1 and $14.2, 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.
12. 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, 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, effective as of January 1, 2001, to eliminate a
contingent payment to Revlon, Inc. under certain circumstances in return for a
$10 note with interest at 12% and interest and principal payable by Mafco
Holdings on December 31, 2005. 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 or 1999. With respect to 2001, REV
Holdings recorded an alternative minimum tax liability of $5.2 pursuant to the
1993 Tax Sharing Agreement related to the retirement of the Old REV Holdings
Notes. With respect to Revlon, Inc. as a result
F-27
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 2001, 2000 or 1999. Revlon, Inc. has a liability of
$0.9 to Holdings in respect of federal taxes for 1997 under the 1992 Tax Sharing
Agreement. In March 2002, new tax legislation was enacted that will allow for
full utilization of alternative minimum tax net operating losses to offset
alternative minimum taxable income. The benefit relating to this new legislation
will be recorded in the first quarter of 2002.
Pursuant to the asset transfer agreement referred to in Note 15,
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 before income taxes and the applicable provision
(benefit) for income taxes are as follows:
YEAR ENDED DECEMBER 31,
-----------------------------------------------
Loss before income taxes: 2001 2000 1999
------------- ------------ ------------
Domestic ............................................ $ (105.5) $ (127.4) $ (360.1)
Foreign ............................................. (66.4) (73.7) (72.7)
----------- ----------- -----------
$ (171.9) $ (201.1) $ (432.8)
=========== =========== ===========
Provision for income taxes:
Federal ............................................. $ 5.2 $ - $ -
State and local ..................................... 0.4 0.4 0.4
Foreign ............................................. 3.7 8.2 8.7
----------- ----------- -----------
$ 9.3 $ 8.6 $ 9.1
=========== =========== ===========
Current ............................................. $ 83.7 $ 8.5 $ 14.7
Deferred ............................................ 5.1 0.8 3.3
Benefits of operating loss carryforwards ............ (79.5) (1.9) (8.8)
Carryforward utilization applied to goodwill ........ - 0.7 -
Effect of enacted change of tax rates ............... - 0.5 (0.1)
----------- ----------- -----------
$ 9.3 $ 8.6 $ 9.1
=========== =========== ===========
The effective tax rate on loss before income taxes is reconciled to
the applicable statutory federal income tax rate as follows:
YEAR ENDED DECEMBER 31,
---------------------------------------------
2001 2000 1999
----------- ------------ ------------
Statutory federal income tax rate ............................ (35.0)% (35.0)% (35.0)%
State and local taxes, net of federal income tax benefit ..... 0.2 0.1 0.1
Foreign and U.S. tax effects attributable to
operations outside the U.S ............................. 0.4 1.1 1.4
Nondeductible amortization expense ........................... 1.2 1.2 0.8
Change in valuation allowance ................................ (16.6) 6.5 34.7
Sale of businesses ........................................... 8.5 16.3 -
Cancellation of indebtedness income .......................... 46.8 13.8 -
Other ........................................................ (0.1) 0.3 0.1
---------- ----------- -----------
Effective rate ............................................... 5.4 % 4.3 % 2.1 %
========== =========== ===========
F-28
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax liabilities
at December 31, 2001 and 2000 are presented below:
DECEMBER 31,
-----------------------------
2001 2000
------------ ------------
Deferred tax assets:
Accounts receivable, principally due to doubtful accounts .............. $ 2.9 $ 2.6
Inventories ............................................................ 9.9 10.8
Net operating loss carryforwards - domestic ............................ 344.7 423.4
Net operating loss carryforwards - foreign ............................. 128.2 119.6
Accruals and related reserves .......................................... 10.0 15.6
Employee benefits ...................................................... 36.7 41.2
State and local taxes .................................................. 12.2 13.1
Advertising, sales discounts and returns and coupon redemptions ........ 27.6 28.3
Other .................................................................. 31.0 32.2
--------- ---------
Total gross deferred tax assets .................................... 603.2 686.8
Less valuation allowance ........................................... (565.1) (637.8)
--------- ---------
Net deferred tax assets ............................................ 38.1 49.0
Deferred tax liabilities:
Plant, equipment and other assets ...................................... (31.3) (42.7)
Other .................................................................. (3.5) (3.0)
--------- ---------
Total gross deferred tax liabilities ............................... (34.8) (45.7)
--------- ---------
Net deferred tax asset ............................................. $ 3.3 $ 3.3
========= =========
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, 2001.
The valuation allowance decreased by $72.7 during 2001, decreased by
$27.1 during 2000 and increased by $85.7 during 1999.
During 2001, 2000 and 1999, certain of the Company's foreign
subsidiaries used operating loss carryforwards to credit the current provision
for income taxes by $3.6, $1.9, and $8.8, respectively. Certain other foreign
operations generated losses during 2001, 2000 and 1999 for which the potential
tax benefit was reduced by a valuation allowance. During 2001, the Company
used domestic operating loss carryforwards to credit the current provision for
income taxes by $75.9. At December 31, 2001, the Company had tax loss
carryforwards of approximately $1,346.7 that expire in future years as
follows: 2002-$31.3; 2003-$23.8; 2004-$29.6; 2005-$45.7; 2006 and
beyond-$1,056.5; unlimited-$159.8. 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.
F-29
In February 2002, Products Corporation sold its Benelux operations.
The effect of this transaction reduced the amount of losses available for
carryover by $21 (See Note 21).
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 nil at December 31, 2001, excluding those
amounts which, if remitted in the near future, would not result in significant
additional taxes under tax statutes currently in effect.
13. 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 a limited
number of 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 and assets.
F-30
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,
---------------------------------------------------
Change in Benefit Obligation: 2001 2000 2001 2000
---------- ---------- ---------- ----------
Benefit obligation - September 30 of prior year $ (420.6) $ (418.2) $ (9.7) $ (9.2)
Service cost............................................. (10.2) (12.0) - -
Interest cost............................................ (28.0) (29.2) (0.8) (0.7)
Plan amendments.......................................... 11.1 (1.5) - -
Actuarial (loss) gain.................................... (11.1) 9.4 (1.0) (0.4)
Curtailments............................................. 7.1 0.7 - -
Benefits paid............................................ 22.3 21.2 0.7 0.6
Foreign exchange......................................... 1.6 3.5 - -
Plan participant contributions........................... (0.4) (0.7) - -
Disposition.............................................. 3.3 - - -
Settlements.............................................. 2.1 6.2 - -
---------- ---------- ---------- ----------
Benefit obligation - September 30 of current year........ (422.8) (420.6) (10.8) (9.7)
---------- ---------- ---------- ----------
Change in Plan Assets:
Fair value of plan assets - September 30 of prior year... 343.4 323.7 - -
Actual return on plan assets............................. (38.3) 39.9 - -
Employer contributions................................... 8.1 9.6 0.7 0.6
Assets sold.............................................. (3.6) (2.8) - -
Plan participant contributions........................... 0.4 0.7 - -
Benefits paid............................................ (22.3) (21.2) (0.7) (0.6)
Foreign exchange......................................... (1.1) (3.1) - -
Settlements.............................................. (3.9) (3.4) - -
---------- ---------- ---------- ----------
Fair value of plan assets - September 30 of current year. 282.7 343.4 - -
---------- ---------- ---------- ----------
Funded status of plans........................................ (140.1) (77.2) (10.8) (9.7)
Amounts contributed to plans during fourth quarter............ 1.4 1.1 0.1 0.1
Unrecognized net loss (gain).................................. 69.7 (1.6) - (1.1)
Unrecognized prior service cost............................... (6.6) 5.0 - -
Unrecognized net asset........................................ (0.3) (0.5) - -
---------- ---------- ---------- ----------
Accrued benefit cost..................................... $ (75.9) $ (73.2) $ (10.7) $ (10.7)
========== ========== ========== ==========
Amounts recognized in the Consolidated Balance Sheets
consist of:
Prepaid expenses......................................... $ 4.4 $ 7.7 $ - $ -
Other long-term liabilities.............................. (127.3) (85.5) (10.7) (10.7)
Intangible asset......................................... 0.5 0.5 - -
Accumulated other comprehensive loss..................... 46.1 3.6 - -
Other long-term assets................................... 0.4 0.5 - -
---------- ---------- ---------- ----------
$ (75.9) $ (73.2) $ (10.7) $ (10.7)
========== ========== ========== ==========
With respect to the above accrued benefit costs, the Company has
recorded a receivable from affiliates of $1.2 and $1.0 at December 31, 2001
and 2000, respectively, relating to Holdings' participation in Products
Corporation's pension plans and $1.3 and $1.4 at December 31, 2001 and 2000,
respectively, for other postretirement benefits costs attributable to
Holdings.
F-31
The following weighted-average assumptions were used in accounting
for the plans:
U.S. PLANS INTERNATIONAL PLANS
------------------------------ ------------------------------
2001 2000 1999 2001 2000 1999
--------- -------- -------- --------- -------- --------
Discount rate................................ 7.0% 7.5% 7.5% 5.8% 6.5% 6.5%
Expected return on plan assets............... 9.5 9.5 9.5 8.5 9.0 9.2
Rate of future compensation increases........ 5.0 5.3 5.3 3.7 4.5 4.5
The components of net periodic benefit cost for the plans are as
follows:
PENSION PLANS OTHER POSTRETIREMENT BENEFITS
------------------------------ ------------------------------
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
2001 2000 1999 2001 2000 1999
--------- -------- -------- --------- -------- --------
Service costs................................. $ 10.2 $ 12.0 $ 16.0 $ -- $ -- $ 0.1
Interest cost................................. 28.0 29.2 28.7 0.8 0.7 0.7
Expected return on plan assets................ (30.8) (30.1) (26.6) -- -- --
Amortization of prior service cost............ (0.9) 1.7 1.7 -- -- --
Amortization of net transition asset.......... (0.2) (0.2) (0.2) -- -- --
Amortization of actuarial loss (gain)......... 0.7 1.0 5.0 (0.1) (0.1) (0.3)
Settlement gain............................... 0.8 (0.1) -- -- -- --
Curtailment loss (gain)....................... 1.5 (0.4) -- -- -- --
--------- -------- -------- --------- -------- --------
9.3 13.1 24.6 0.7 0.6 0.5
Portion allocated to Holdings................. (0.3) (0.3) (0.3) -- -- 0.1
--------- -------- -------- --------- -------- --------
$ 9.0 $ 12.8 $ 24.3 $ 0.7 $ 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,
----------------------------
2001 2000 1999
--------- ---------- -------
Projected benefit obligation..................... $ 419.6 $ 60.5 $ 61.2
Accumulated benefit obligation................... 402.9 53.9 53.0
Fair value of plan assets........................ 280.0 5.0 0.7
14. STOCK COMPENSATION PLAN
Since March 5, 1996, Revlon, Inc. has had the Amended Stock Plan,
which is a stock-based compensation plan and is described below. The Company
applies APB Opinion No. 25 and its related interpretations in accounting for
the Amended Stock Plan. Under APB Opinion No. 25, because the exercise price
of employee stock options under the Amended Stock 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 Amended Stock Plan been determined
consistent with SFAS No. 123, the Company's net loss of $184.8 for 2001,
$209.7 for 2000, and $441.9 for 1999 would have been changed to the pro forma
amounts of $194.4 for 2001, $220.7 for 2000, and $467.6 for 1999. The fair
value of each option grant is estimated on the date of the grant using the
Black-Scholes option-pricing model assuming no dividend yield, expected
volatility of approximately 68% in 2001, 69% in 2000 and 68% in 1999; weighted
average risk-free interest rate of 5.07% in 2001, 6.53% in 2000, and 5.48% in
1999; and a seven-year expected average life for the Amended Stock Plan's
options issued in 2001, 2000 and 1999. The effects of applying SFAS No. 123 in
this pro forma disclosure are not necessarily indicative of future amounts.
Under the Amended Stock Plan, awards may be granted to employees and
directors of Revlon, Inc., and the Company and its subsidiaries for up to an
aggregate of 8.5 million shares of Revlon, Inc. Class A Common Stock.
Non-qualified options granted under the Amended Stock Plan have a term of 10
years during which the holder can
F-32
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
Amended Stock 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 Revlon, Inc. achieved certain performance objectives relating to
its operating income for the fiscal year preceding such anniversary date, which
objectives were not achieved in 2000 or 2001. During each of 2001, 2000 and
1999, Revlon, Inc. granted to Mr. Perelman, Chairman of the Board of Directors,
Chief Executive Officer and a Director of the Company, options to purchase
225,000, 300,000 and 300,000, respectively, shares of Revlon, Inc. Class A
Common Stock, which grants will vest 25% on each anniversary date of the grant
and will become 100% vested on the fourth anniversary date of the grant date as
to the 2001 grant, will vest in full on the fifth anniversary of the grant date
as to the 2000 grant and which vested 100% on the date of grant as to the 1999
grant. At December 31, 2001, 2000 and 1999 there were 3,296,133, 3,009,908 and
1,850,050 options exercisable under the Amended Stock Plan, respectively.
A summary of the status of the Amended Stock Plan as of December 31,
2001, 2000 and 1999 and changes during the years then ended is presented
below:
SHARES WEIGHTED AVERAGE
(000) EXERCISE PRICE
---------- --------------------
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
Granted..................................... 1,087.6 5.69
Exercised................................... (0.2) 7.06
Forfeited................................... (788.8) 19.16
----------
Outstanding at December 31, 2001............ 6,902.1 19.37
==========
The weighted average grant date fair value of options granted during
2001, 2000 and 1999 approximated $3.82, $4.58 and $10.65, respectively.
F-33
The following table summarizes information about the Amended Stock
Plan's options outstanding, at December 31, 2001:
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 $6.88 1,193.6 9.35 $ 5.49 61.4 $ 4.81
7.06 to 10.44 1,670.5 8.30 7.80 266.2 7.10
15.00 to 24.00 1,400.1 6.16 18.03 1,354.3 18.10
24.13 to 31.94 1,242.5 5.84 28.40 997.7 29.43
34.00 to 53.56 1,395.4 5.83 38.39 616.5 35.43
---------- -------
4.00 to 53.56 6,902.1 3,296.1
========== =======
The Amended Stock Plan also provides that restricted stock may be
awarded to employees and directors of Revlon, Inc. and the Company and its
subsidiaries. On June 18, 2001 (the "Grant Date"), the Compensation Committee
awarded 120,000 shares of restricted stock to Mr. Perelman as a director of
Revlon, Inc. The 2001 restricted stock awards are subject to execution of a
Restricted Stock Agreement by each grantee: Provided the grantee remains
continuously employed by Revlon, Inc. (or, in the case of Mr. Perelman, he
continuously provides services as a director to Revlon, Inc.), the 2001
restricted stock awards will vest as to one-third of the restricted shares on
the day after which the 20-day average of the closing price of Revlon, Inc.'s
Class A Common Stock on the NYSE equals or exceeds $20.00, an additional
one-third of such restricted shares will vest on the day after which the
20-day average of the closing price of Revlon, Inc.'s Class A Common Stock on
the NYSE equals or exceeds $25.00 and the balance will vest on the day after
which the 20-day average of the closing price of Revlon, Inc.'s Class A Common
Stock on the NYSE equals or exceeds $30.00, provided that (i) subject to
clause (ii) below, no portion of the restricted stock awards will vest until
the second anniversary following the Grant Date, (ii) all of the shares of
restricted stock will vest immediately in the event of a "change of control"
of Revlon, Inc., and (iii) all of the shares of restricted stock which have
not previously vested will fully vest on the third anniversary of the Grant
Date. No dividends will be paid on unvested restricted stock. At December 31,
2001, there were 670,000 shares of restricted stock outstanding, and unvested,
under the Amended Stock Plan.
15. 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 Revlon, Inc.'s business and which historically had
not been profitable (the "Retained Brands") and certain other 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 2001, 2000 and 1999 were $0.2, $0.4 and $0.5,
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
F-34
Company's Consolidated Balance Sheets as of such dates. At December 31, 2001
and 2000, the amounts reflected in the Company's Consolidated Balance Sheets
aggregated a net liability of $21.4 and $23.2, respectively, of which $3.0 and
$4.8, 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, legal and accounting services and air transportation 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 amounts reimbursed by MacAndrews
Holdings to Products Corporation for the services provided under the
Reimbursement Agreements for 2001, 2000 and 1999, were $1.6, $0.9 and $0.5,
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, 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 2001.
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 REV Holdings and Mafco Holdings are parties to the 1993 Tax Sharing
Agreement, each of which is described in Note 12. 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. pursuant to the 1992 Tax Sharing Agreement for 2001, 2000
and 1999. With respect to 2001, REV Holdings recorded an alternative minimum
tax liability of $5.2 pursuant to the 1993 Tax Sharing Agreement related to
the retirement of the Old REV Holdings Notes. There were no cash payments in
respect of federal taxes made by REV Holdings pursuant to the 1993 Tax Sharing
Agreement for 2000 and 1999. In March 2002, new tax legislation was enacted
that will allow for full utilization of alternative minimum tax net operating
losses to offset alternative minimum taxable income. The benefit relating to
this new legislation will be recorded in the first quarter of 2002.
F-35
REGISTRATION RIGHTS AGREEMENT
REV Holdings and 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. On July 31, 2001,
the Registration Rights Agreement was amended to require Revlon, Inc. to
register under the Securities Act all or part of Revlon, Inc.'s Class A Common
Stock issuable upon conversion of Revlon, Inc.'s Series B Preferred Stock (as
hereinafter defined), which conversion rights are subject to approval by
Revlon, Inc.'s stockholders at its 2002 Annual Meeting of Stockholders.
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. On August 1, 2001 and February 1, 2002, GSB Investments
Corp. made noninterest-bearing advances of $4.5 and $4.8, respectively, to
REV Holdings under the Keepwell Agreement, which were used to make the August
1, 2001 and February 1, 2002 interest payments, respectively, on the New REV
Holdings Notes. The Keepwell Agreement will terminate at such time as there are
no New REV Holdings Notes outstanding, at which time GSB Investments Corp. may
require repayment of advances 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 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 through September
1, 2013 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 2001, 2000 and 1999 were $0.2, $0.2 and $0.2,
respectively.
Effective September 2001, Revlon, Inc. acquired from Holdings all the
assets and liabilities of the Charles of
F-36
the Ritz business (which Revlon, Inc. contributed to Products Corporation in the
form of a capital contribution), in consideration for 400,000 newly issued
shares of Revlon, Inc.'s Class A Common Stock and 4,333 shares of newly issued
voting (with 433,333 votes in the aggregate) Series B Convertible Preferred
Stock (the "Series B Preferred Stock") which are convertible into 433,333 shares
in the aggregate of Revlon, Inc.'s Class A Common Stock, which conversion rights
are subject to approval by the stockholders of Revlon, Inc. at the 2002 Annual
Meeting. As Holdings and Products Corporation are under common control, the
transaction has been accounted for at historical cost in a manner similar to
that of a pooling of interests and, accordingly, all prior period financial
statements presented have been restated as if the acquisition took place at the
beginning of such periods. An investment banking firm rendered its written
opinion that the terms of the transaction were fair from a financial standpoint
to Revlon, Inc. The effect of the acquisition was to increase both operating
income and net income by $2.3, $0.9 and $0.6 for 2001, 2000 and 1999,
respectively. The net equity (deficit) of the Charles of the Ritz business of
$0.7 and $(0.6) is included in total stockholder's deficiency at December 31,
2001 and December 31, 2000, respectively.
During 2001, 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 through January 31, 2001 at Products Corporation's offices in London. The
rent paid to Products Corporation for 2001, 2000 and 1999 was $0.5, $0.9 and
$1.1, respectively.
Products Corporation's Credit Agreement and the 12% Notes are
supported by, among other things, guarantees from Revlon, Inc., and, subject
to certain limited exceptions, all of the domestic subsidiaries of Products
Corporation. The obligations under such guarantees are secured by, among other
things, the capital stock of Products Corporation and, subject to certain
limited exceptions, the capital stock of all of Products Corporation's
domestic subsidiaries and 66% of the capital stock of Products Corporation's
and its domestic subsidiaries' first-tier foreign subsidiaries.
Products Corporation has received a commitment from Mafco Holdings
that it is prepared to provide, if necessary, additional financial support to
Products Corporation of up to $40 on appropriate terms through December 31,
2003.
During 2000 and 1999, Products Corporation made advances of $0.1 and
$0.4, respectively, to Mr. Jeffrey Nugent, former 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, of which $0.2
was repaid during 2001.
Mr. Nugent's spouse provided consulting services in 2000 and 2001 for
product and concept development, for which Products Corporation paid her
$0.1 in 2001.
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.
F-37
A company that was an affiliate of Products Corporation during part
of 1999 assembled lipstick cases for Products Corporation. Products
Corporation paid approximately $0.1 for such services for 1999.
During 2001, 2000 and 1999, Products Corporation made payments of
$0.1, $0.1 and $0.1, respectively, to a fitness center, in which an interest
is owned by members of the immediate family of Mr. Donald Drapkin, who is a
member of Products Corporation's Board of Directors, for discounted health
club dues for an executive health program of Products Corporation.
During 2001 and 2000, Products Corporation made payments of $0.3 and
$0.2, respectively to Ms. Ellen Barkin (spouse of Mr. Perelman) under an
agreement pursuant to which she provided voiceover services for certain of
Products Corporation's advertisements, which payments were competitive with
industry rates for similarly situated talent.
In connection with the cancellation of the 1998 Notes, at December
31, 2001 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, 2001 REV Holdings had an outstanding payable to an affiliate of
approximately $3.1.
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.
In December 2001, Products Corporation employed in a junior
entry-level marketing position the daughter of the Chairman of the Company's
Executive Committee, with compensation paid for 2001 of less than $5,000.
During 2001, Products Corporation employed in a junior entry-level
marketing position the daughter of Mr. Donald Drapkin, who is a member of the
Company's Board of Directors, with compensation paid for 2001 of less than
$60,000.
16. 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 $29.0, $33.0 and $42.8
for the years ended December 31, 2001, 2000 and 1999, 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, 2001 aggregated $67.1; such commitments for each of the five
years subsequent to December 31, 2001 are $26.1, $14.1, $5.2, $3.7 and $4.4,
respectively. Such amounts exclude the minimum rentals to be received by the
Company in the future under noncancelable subleases of $10.7.
The Company has minimum purchase commitments with suppliers of
finished goods, raw materials and components. The minimum purchase commitments
under these agreements aggregated $194.5; such commitments for each of the
five years subsequent to December 31, 2001 are $52.8 $26.6, $21.6, $21.3 and
$21.3, respectively.
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
F-38
individually and allegedly on behalf of others similarly situated to them
against Revlon, Inc., certain of its present and former officers and directors
and the parent of Revlon, 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 under the caption "In
Re Revlon, Inc. Securities Litigation" and limited the alleged class to
security purchasers during the period from October 29, 1997 through October 1,
1998. In June 2000, the defendants 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 is vigorously defending 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 "Second Gavish Action"). In November 2001, plaintiffs
amended their complaint. The amended complaint alleges, among other things,
that Revlon, Inc., 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. In December 2001, the defendants moved to dismiss the
amended complaint. The Company believes the allegations in the amended
complaint are without merit and, if its motion to dismiss is not granted,
intends to vigorously defend against them.
17. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the unaudited quarterly results of
operations:
YEAR ENDED DECEMBER 31, 2001
----------------------------------------------------
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER(c)
----------- ---------- ---------- -------------
Net sales................................. $ 324.1 $ 337.7 $ 327.2 $ 332.5
Gross profit.............................. 192.5 194.7 197.4 192.7
Net loss (a).............................. (63.1) (59.6) (25.8) (36.3)
YEAR ENDED DECEMBER 31, 2000
----------------------------------------------------
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER
----------- ---------- ---------- -------------
Net sales................................. $ 449.6 $ 339.8 $ 344.8 $ 313.6
Gross profit.............................. 274.1 210.1 216.8 172.5
Net loss (b).............................. (46.4) (43.1) (45.8) (74.4)
(a) Includes restructuring costs of $14.6, $7.9, $3.0 and $12.6 in the
first, second, third and fourth quarters, respectively. (See Note 2).
(b) 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).
(c) In the fourth quarter of 2001, the Company recorded a charge of
$6.9 related to increased sales returns, trade spending and inventory
adjustments in the Company's Argentine operations. In addition, the Company
recorded $5.2 related to alternative minimum taxes resulting from the
cancellation of the Old REV Holdings Notes.
18. GEOGRAPHIC, FINANCIAL AND OTHER 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, 2001, 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
F-39
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 3.2%, 5.1% and 4.3% of the Company's net sales for
2001, 2000 and 1999, respectively. While the Company's operations in Brazil have
historically been significant, as a result of the sale of the Company's Colorama
brand in Brazil in July 2001, the Company's ongoing operations in Brazil are no
longer significant to the Company's consolidated ongoing operations. (See Note
3). Net sales by geographic area are presented by attributing revenues from
external customers on the basis of where the products are sold. During 2001,
2000 and 1999, Wal-Mart and its affiliates worldwide accounted for approximately
19.9%, 16.5% and 13.1%, respectively, of the Company's consolidated net sales,
before the EITF Issue 01-9 adjustment. (See Note 1). As a result of the
Company's dispositions of certain non-core assets, including certain
international businesses, the Company expects that for future periods a small
number of other customers will, in the aggregate, account for a large portion of
the Company's net sales. The Company's loss of Wal-Mart or one or more other
customers that may account for a significant portion of the Company's sales, or
any significant decrease in sales to any of these customers, could have a
material adverse effect on the Company's business, financial condition or
results of operations. The Company has no reason to believe that any such loss
of customer or decrease in sales will occur. In January 2002, Kmart Corporation
filed a bankruptcy petition for reorganization under Chapter 11 of the U.S.
Bankruptcy Code. Less than 5% of the Company's 2001 net sales were made to
Kmart. The Company plans to continue doing business with Kmart for the
foreseeable future and accordingly, based upon the information currently
available, believes that Kmart's bankruptcy proceedings will not have a material
adverse effect on the Company's business, financial condition, or results of
operations.
During the first quarter of 2001, to reflect the integration of
management reporting responsibilities, the Company reclassified Canada's
results from its international operations to its United States operations. The
geographic information reflects this change for all periods presented.
GEOGRAPHIC AREAS: YEAR ENDED DECEMBER 31,
-----------------------------------------------
Net sales: 2001 2000 1999
-------------- ------------- --------------
United States........................... $ 852.2 $ 842.8 $ 908.4
Canada.................................. 48.8 53.0 46.4
-------------- ------------- --------------
United States and Canada................ 901.0 895.8 954.8
International........................... 420.5 552.0 755.1
-------------- ------------- --------------
$ 1,321.5 $ 1,447.8 $ 1,709.9
============== ============= ==============
DECEMBER 31,
-------------------------------
Long-lived assets: 2001 2000
-------------- -------------
United States........................... $ 365.0 $ 399.7
Canada.................................. 2.5 8.1
-------------- -------------
United States and Canada................ 367.5 407.8
International........................... 117.7 167.2
-------------- -------------
$ 485.2 $ 575.0
============== =============
CLASSES OF SIMILAR PRODUCTS: YEAR ENDED DECEMBER 31,
-----------------------------------------------
Net sales: 2001 2000 1999
-------------- ------------- --------------
Cosmetics, skin care and fragrances..... $ 859.4 $ 908.2 $ 881.2
Personal care and professional.......... 462.1 539.6 828.7
-------------- ------------- --------------
$ 1,321.5 $ 1,447.8 $ 1,709.9
============== ============= ==============
F-40
19. EFFECT OF NEW ACCOUNTING STANDARD
In November of 2001, the EITF reached consensus on the Guidelines,
the second portion of which (formerly EITF Issue 00-25) addresses vendor
income statement characterization of consideration to a purchaser of the
vendor's products or services, including the classification of slotting fees,
cooperative advertising arrangements and buy-downs. Certain promotional
payments that are currently classified in SG&A expenses be classified as a
reduction of net sales. The impact of the adoption of the second portion of
the Guidelines on the consolidated financial statements will reduce both net
sales and SG&A expenses by equal and offsetting amounts. The adoption will not
have any impact on the Company's reported operating income or net loss. The
Company has adopted the second portion of the Guidelines effective January 1,
2002.
The Company has quantified the reclassification for 2001, 2000 and
1999 as summarized below:
FOR THE YEAR ENDED
------------------------------------------------------------------------
DECEMBER 31, 2001 DECEMBER 31, 2000 DECEMBER 31, 1999
----------------------- -------------------- ------------------------
AS AS AS AS AS AS
REPORTED ADJUSTED REPORTED ADJUSTED REPORTED ADJUSTED
------------ --------- ---------- ---------- ---------- ------------
Net sales........................ $ 1,321.5 $ 1,277.6 $ 1,447.8 $ 1,409.4 $ 1,709.7 $ 1,629.8
Cost of sales.................... 544.2 544.2 574.3 574.3 726.3 726.3
SG&A expenses.................... 723.1 679.2 803.5 765.1 1,155.4 1,075.3
Operating income (loss).......... 16.1 16.1 15.9 15.9 (212.0) (212.0)
20. EXTRAORDINARY ITEM
The extraordinary loss of $3.6 (net of taxes) in 2001 resulted
primarily from the write-off of financing costs in connection with the 2001
Refinancing Transactions.
21. SUBSEQUENT EVENTS
In February 2002, Products Corporation completed the disposition of
its subsidiaries that operated its marketing, sales and distribution business
in Belgium, the Netherlands and Luxembourg ("Benelux"). As part of this sale,
Products Corporation entered into a long-term distribution agreement with the
purchaser pursuant to which the purchaser distributes Products Corporation's
products in Benelux. The purchase price consisted principally of the
assumption of certain liabilities and deferred contingent purchase price of up
to approximately $3.3 to be received over approximately a seven-year period.
In connection with the disposition, the Company does not anticipate a
significant gain or loss.
Effective February 14, 2002, Jeffrey M. Nugent, Revlon, Inc.'s and
Products Corporation's former President and Chief Executive Officer, resigned
from employment. On February 19, 2002, Revlon, Inc. announced its appointment of
Jack L. Stahl as its President and Chief Executive Officer.
On February 1, 2002, GSB Investments Corp. made a noninterest-
bearing advance of $4.8 to REV Holdings under the Keepwell Agreement, which
was used to make the February 1, 2002 interest payment on the New REV Holdings
Notes.
F-41
SCHEDULE II
REV HOLDINGS INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
(DOLLARS IN MILLIONS)
BALANCE AT CHARGED TO BALANCE
BEGINNING COST AND OTHER AT END
OF YEAR EXPENSES DEDUCTIONS OF YEAR
---------- ---------- ---------- ---------
YEAR ENDED DECEMBER 31, 2001:
Applied against asset accounts:
Allowance for doubtful accounts ........................... $ 7.6 $ 3.5 $ (2.8)(1) $ 8.3
Allowance for volume and early payment
discounts ............................................. $ 8.5 $ 30.0 $ (31.4)(2) $ 7.1
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
- -----------------------
Notes:
(1) Doubtful accounts written off, less recoveries, reclassifications and
foreign currency translation adjustments.
(2) Discounts taken, reclassifications and foreign currency translation
adjustments.
F-42
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: March 26, 2002
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant on
March 26, 2002 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