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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM 10-Q
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 2002
OR
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from__________________ to _______________
Commission file number 1-11178
REVLON, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-3662955
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
625 MADISON AVENUE, NEW YORK, NEW YORK 10022
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 212-527-4000
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 whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes ___ No _X_
As of September 30, 2002, 20,516,135 shares of Class A Common Stock and
31,250,000 shares of Class B Common Stock were outstanding. 11,650,000 shares of
Class A Common Stock and all the shares of Class B Common Stock were held by REV
Holdings Inc., an indirect wholly owned subsidiary of Mafco Holdings Inc.
Total Pages -- 34
REVLON, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
SEPTEMBER 30, DECEMBER 31,
ASSETS 2002 2001
--------------- -------------
Current assets: (Unaudited)
Cash and cash equivalents ............................................ $ 59.2 $ 103.3
Marketable securities ................................................ - 2.2
Trade receivables, less allowances of $18.2
and $15.4, respectively ........................................ 218.6 203.9
Inventories .......................................................... 165.8 157.9
Prepaid expenses and other ........................................... 44.5 45.6
-------- --------
Total current assets ........................................... 488.1 512.9
Property, plant and equipment, net ......................................... 131.8 142.8
Other assets ............................................................... 143.6 143.4
Intangible assets, net ..................................................... 198.1 198.5
-------- --------
Total assets ................................................... $ 961.6 $ 997.6
======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Short-term borrowings - third parties ................................ $ 24.4 $ 17.5
Accounts payable ..................................................... 97.0 87.0
Accrued expenses and other ........................................... 266.8 281.3
-------- --------
Total current liabilities ...................................... 388.2 385.8
Long-term debt - third parties ............................................. 1,693.6 1,619.5
Long-term debt - affiliates ................................................ 24.1 24.1
Other long-term liabilities ................................................ 255.9 250.9
Stockholders' deficiency:
Preferred stock, par value $.01 per share; 20,000,000
shares authorized, 546 shares of Series A Preferred Stock
issued and outstanding ......................................... 54.6 54.6
Preferred stock, par value $.01 per share; 20,000,000
shares authorized, 4,333 shares of Series B Preferred Stock
issued and outstanding ......................................... - -
Class B Common Stock, par value $.01 per share; 200,000,000
shares authorized, 31,250,000 issued and outstanding ........... 0.3 0.3
Class A Common Stock, par value $.01 per share; 350,000,000
shares authorized, 20,516,135 issued and outstanding ........... 0.2 0.2
Capital deficiency ................................................... (201.3) (201.3)
Accumulated deficit since June 24, 1992 .............................. (1,182.5) (1,075.4)
Accumulated other comprehensive loss ................................. (71.5) (61.1)
-------- --------
Total stockholders' deficiency ................................. (1,400.2) (1,282.7)
-------- --------
Total liabilities and stockholders' deficiency ................. $ 961.6 $ 997.6
======== ========
See Accompanying Notes to Unaudited Consolidated Condensed Financial Statements.
2
REVLON, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------------- ----------------------------------
2002 2001 2002 2001
---------------- ------------- -------------- ----------------
Net sales .................................. $ 323.2 $ 320.2 $ 906.8 $ 955.9
Cost of sales .............................. 121.6 129.8 350.4 404.4
------------- ------------- -------------- --------------
Gross profit .......................... 201.6 190.4 556.4 551.5
Selling, general and administrative expenses 177.7 162.9 525.2 522.3
Restructuring costs ........................ 2.1 3.0 9.3 25.5
------------- ------------- -------------- --------------
Operating income ...................... 21.8 24.5 21.9 3.7
------------- ------------- -------------- --------------
Other expenses (income):
Interest expense ...................... 40.1 34.1 118.4 104.8
Interest income ....................... (0.8) (0.5) (2.6) (2.0)
Amortization of debt issuance costs ... 2.0 1.6 5.8 4.6
Foreign currency losses, net .......... 1.2 2.7 3.0 2.5
Loss on sale of assets and brand, net . -- 7.9 1.0 15.0
Miscellaneous, net .................... 0.4 0.1 1.3 0.9
------------- ------------- -------------- --------------
Other expenses, net .............. 42.9 45.9 126.9 125.8
------------- ------------- -------------- --------------
Loss before income taxes ................... (21.1) (21.4) (105.0) (122.1)
Provision for income taxes ................. 1.0 1.5 2.1 3.3
------------- ------------- -------------- --------------
Net loss ................................... $ (22.1) $ (22.9) $ (107.1) $ (125.4)
============= ============= ============== ==============
Basic and diluted loss per common share .... $ (0.42) $ (0.44) $ (2.05) $ (2.40)
============= ============= ============== ==============
Weighted average number of
common shares outstanding:
Basic and diluted .................... 52,199,468 52,199,388 52,199,468 52,199,308
============= ============= ============== ==============
See Accompanying Notes to Unaudited Consolidated Condensed Financial Statements.
3
REVLON, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS' DEFICIENCY
AND COMPREHENSIVE LOSS
(DOLLARS IN MILLIONS)
ACCUMULATED
OTHER
PREFERRED COMMON CAPITAL ACCUMULATED COMPREHENSIVE
STOCK STOCK DEFICIENCY DEFICIT LOSS (a)
----------- ----------- ----------- ------------- ----------------
Balance, January 1, 2001 ........................$ 54.6 $ 0.5 $ (210.3) $ (921.7) $ (29.8)
Capital contribution from indirect parent .. 10.0
Net distribution from affiliate ............ (1.0)(b)
Comprehensive loss:
Net loss ................................ (125.4)
Currency translation adjustment ......... 16.8 (c)
Revaluation of foreign currency forward
exchange contracts ................. 0.4
Total comprehensive loss ...................
----------- ----------- ----------- ------------- ----------------
Balance, September 30, 2001 .....................$ 54.6 $ 0.5 $ (201.3) $(1,047.1) $ (12.6)
=========== =========== =========== ============= ================
Balance, January 1, 2002 ........................$ 54.6 $ 0.5 $ (201.3) $(1,075.4) $ (61.1)
Comprehensive loss:
Net loss ............................... (107.1)
Currency translation adjustment ........ (10.4)
Total comprehensive loss ...................
----------- ----------- ----------- ------------- ----------------
Balance, September 30, 2002 .....................$ 54.6 $ 0.5 $ (201.3) $(1,182.5) $ (71.5)
=========== =========== =========== ============= ================
TOTAL
STOCKHOLDERS'
DEFICIENCY
-------------
Balance, January 1, 2001 ........................ $ (1,106.7)
Capital contribution from indirect parent .. 10.0
Net distribution from affiliate ............ (1.0)
Comprehensive loss:
Net loss ................................ (125.4)
Currency translation adjustment ......... 16.8
Revaluation of foreign currency forward
exchange contracts ................. 0.4
------------
Total comprehensive loss ................... (108.2)
------------
Balance, September 30, 2001 ..................... $ (1,205.9)
============
Balance, January 1, 2002 ........................ $ (1,282.7)
Comprehensive loss:
Net loss ............................... (107.1)
Currency translation adjustment ........ (10.4)
------------
Total comprehensive loss ................... (117.5)
------------
Balance, September 30, 2002 ..................... $ (1,400.2)
============
____________________
(a) Accumulated other comprehensive loss includes unrealized losses (gains) on
revaluations of foreign currency forward exchange contracts of nil and
$(0.4) as of September 30, 2002 and 2001, respectively, cumulative net
translation losses of $25.4 and $9.4 as of September 30, 2002 and 2001,
respectively, and adjustments for the minimum pension liability of $46.1
and $3.6 as of September 30, 2002 and 2001, respectively.
(b) Represents net distributions in capital from the Charles of the Ritz
business.
(c) The change in the currency translation adjustment during the nine months
ended September 30, 2001 includes a reclassification adjustment of $7.1 for
realized losses on foreign currency adjustments associated primarily with
the sale of the Colorama brand in Brazil.
See Accompanying Notes to Unaudited Consolidated Condensed Financial Statements.
4
REVLON, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(DOLLARS IN MILLIONS)
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------------
CASH FLOWS FROM OPERATING ACTIVITIES: 2002 2001
------------- -----------
Net loss ....................................................................... $ (107.1) $ (125.4)
Adjustments to reconcile net loss to net cash
(used for) provided by operating activities:
Depreciation and amortization ............................................. 89.9 86.9
Loss on sale of brand and assets, net ..................................... 1.0 15.0
Change in assets and liabilities, net of acquisitions and dispositions:
(Increase) decrease in trade receivables ............................. (20.0) 7.1
Increase in inventories .............................................. (10.6) (15.0)
Increase in prepaid expenses and
other current assets .................................... (3.7) (6.2)
Increase in accounts payable ......................................... 10.7 14.9
Decrease in accrued expenses and other
current liabilities ..................................... (9.6) (32.9)
Purchase of permanent displays ....................................... (53.5) (35.6)
Other, net ........................................................... (8.0) 2.2
------------- -----------
Net cash used for operating activities ......................................... (110.9) (89.0)
------------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ........................................................... (9.4) (10.4)
Sale of marketable securities .................................................. 1.8 -
Net proceeds from the sale of brand and certain assets ......................... - 97.5
------------- -----------
Net cash (used for) provided by investing activities ........................... (7.6) 87.1
------------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in short-term borrowings - third parties .......................... 7.7 0.5
Proceeds from the issuance of long-term debt - third parties ................... 94.6 196.1
Repayment of long-term debt - third parties .................................... (23.5) (208.8)
Net distribution from affiliate ................................................ - (1.0)
Payment of debt issuance costs ................................................. (0.3) (2.4)
------------- -----------
Net cash provided by (used for) financing activities ........................... 78.5 (15.6)
------------- -----------
Effect of exchange rate changes on cash and cash equivalents ................... (4.1) (1.6)
------------- -----------
Net decrease in cash and cash equivalents ................................. (44.1) (19.1)
Cash and cash equivalents at beginning of period .......................... 103.3 56.3
------------- -----------
Cash and cash equivalents at end of period ................................ $ 59.2 $ 37.2
============= ===========
Supplemental schedule of cash flow information:
Cash paid during the period for:
Interest ............................................................. $ 118.6 $ 113.4
Income taxes, net of refunds ......................................... 2.4 2.4
Supplemental schedule of noncash financing activities:
Noncash capital contribution from indirect parent pursuant to the
amended tax sharing agreement ....................................... $ - $ 10.0
See Accompanying Notes to Unaudited Consolidated Condensed Financial Statements.
5
REVLON, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
(1) BASIS OF PRESENTATION
Revlon, Inc. (the "Company") is a holding company, formed in April 1992,
that conducts its business exclusively through its direct subsidiary, Revlon
Consumer Products Corporation and its subsidiaries ("Products Corporation"). The
Company is an indirect majority 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.
The accompanying Consolidated Condensed Financial Statements are unaudited.
In management's opinion, all adjustments (consisting of only normal recurring
accruals) necessary for a fair presentation have been made.
The Unaudited Consolidated Condensed Financial Statements include the
accounts of the Company after elimination of all material intercompany balances
and transactions. The Company has made a number of estimates and assumptions
relating to the assets and liabilities, the disclosure of contingent assets and
liabilities and the reporting of revenues and expenses to prepare these
financial statements in conformity with accounting principles generally accepted
in the United States. Actual results could differ from those estimates. The
Unaudited Consolidated Condensed Financial Statements should be read in
conjunction with the consolidated financial statements and related notes
contained in the Company's Annual Report on Form 10-K for the year ended
December 31, 2001.
The results of operations and financial position, including working
capital, for interim periods are not necessarily indicative of those to be
expected for a full year.
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 second portion of the Guidelines (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 were classified in selling, general and administrative ("SG&A") expenses
are now classified as a reduction of net sales. The impact of the adoption of
the second portion of the Guidelines on the consolidated financial statements
reduced both net sales and SG&A expenses by equal and offsetting amounts. Such
adoption did not have any impact on the Company's reported operating loss or net
loss. The Company adopted the second portion of the Guidelines effective January
1, 2002, and accordingly, all prior period financial statements reflect the
implementation of the second portion of the Guidelines.
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 requires 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
requires that intangible assets with finite useful lives be amortized over their
respective estimated useful lives to their estimated residual values, and
reviewed for
6
REVLON, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
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 in July 2001 and Statement 142 effective January 1, 2002. In connection with
the adoption of Statement 142, the Company performed a transitional goodwill
impairment test as required and has determined that no goodwill impairment
existed at January 1, 2002. The Company has also evaluated the lives of all of
its intangible assets. As a result of this evaluation, the Company has
determined that none of its intangible assets, other than goodwill, have
indefinite lives and that the existing useful lives are appropriate. (See Note
4).
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 adopted the provisions of
Statement 144 effective January 1, 2002 and such adoption had no effect on its
financial statements.
Certain amounts in the prior year's financial statements have been
reclassified to conform to the current year's presentation.
(2) INVENTORIES
SEPTEMBER 30, DECEMBER 31,
2002 2001
------------- -------------
Raw materials and supplies .... $ 50.0 $ 44.9
Work-in-process ............... 16.0 10.1
Finished goods ................ 99.8 102.9
------------- -------------
$ 165.8 $ 157.9
============= =============
(3) OTHER ASSETS
The Company capitalizes the cost of permanent display fixtures and
amortizes such cost over the estimated useful life of the assets of three to
five years. Beginning in the first quarter of 2002, the Company decided to
roll-out new permanent display units in the U.S., replacing existing permanent
display fixtures at an accelerated rate. As a result, the useful lives of those
permanent display fixtures to be replaced were shortened to their new estimated
useful lives, resulting in accelerated amortization of $1.4 and $11.1 during the
three months and nine months ended September 30, 2002, respectively. The cost of
the new displays will be amortized over its 3-year life.
(4) INTANGIBLE ASSETS, NET
Intangible assets, net of $198.1 and $198.5 at September 30, 2002 and
December 31, 2001, respectively, consists of trademarks, net, patents, net and
goodwill, net. The amounts outstanding for these intangible assets at
September 30, 2002 and December 31, 2001 were as follows: for trademarks, net,
$7.0 and $6.8, respectively; for patents, net, $5.2 and $5.8, respectively; and
for goodwill, net, $185.9 at both September 30, 2002 and December 31, 2001.
Amortization expense for the three months and nine months ended September 30,
2002 and 2001 was $0.4 and $1.2, respectively, and $2.3 and $6.9, respectively.
Amortization of goodwill ceased on January 1, 2002 upon adoption of Statement
142. Excluding amortization expense related to goodwill of $1.9 and $5.7
recognized during the three months and nine months ended September 30, 2001,
respectively, net loss and basic and diluted loss per common share would have
been $21.0 and $0.40, respectively, and $119.7 and $2.29, respectively. The
Company's
7
REVLON, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
intangible assets other than goodwill continue to be subject to amortization,
which is anticipated to be approximately $1.6 annually through December 31,
2007.
(5) BASIC AND DILUTED LOSS PER COMMON SHARE
The basic loss per common share has been computed based upon the weighted
average number of shares of common stock outstanding during each of the periods
presented. Diluted loss per common share has been computed based upon the
weighted average number of shares of common stock outstanding. The Company's
outstanding stock options and restricted shares represent the only potential
dilutive common stock outstanding. The number of shares used in the calculation
of basic and diluted loss per common share was the same in each period
presented, as it does not include any incremental shares that would have been
outstanding assuming the exercise of stock options and the vesting of the
restricted shares because the effect of those incremental shares would have been
antidilutive.
(6) RESTRUCTURING AND OTHER COSTS, NET
During the third quarter of 2000, 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 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. During the third quarter of
2001 and the nine months ended September 30, 2001, the Company continued to
implement the 2000 restructuring program and recorded a charge of $3.0 and
$25.5, respectively, principally for additional employee severance and other
personnel benefits and relocation.
During the third quarter of 2002 and the nine months ended September 30,
2002, the Company continued to implement the 2000 restructuring program, as well
as other restructuring actions, and recorded a charge of $2.1 and $9.3,
respectively, principally for additional employee severance and other personnel
benefits, primarily resulting from reductions in the Company's worldwide sales
force, relocation and other costs related to the consolidation of worldwide
operations.
In connection with the 2000 restructuring program, termination benefits for
2,446 employees were included in the Company's restructuring charges,
substantially all of whom have been terminated as of September 30, 2002. The
remaining employees from the 2000 restructuring program, as well as other
restructuring actions, are expected to be terminated within one year from the
date of their notification.
8
REVLON, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
Details of the activity described above during the nine-month period ended
September 30, 2002 are as follows:
BALANCE UTILIZED, NET BALANCE
AS OF ------------------------- AS OF
1/1/02 EXPENSES, NET CASH NONCASH 9/30/02
----------- ---------------- ----------- --------- ----------
Employee severance and other
personnel benefits ........ $ 15.1 $ 6.6 $ (15.1) $ - $ 6.6
Relocation....................... - 0.4 (0.4) - -
Leases and equipment write-offs.. 7.4 1.5 (2.9) - 6.0
Other obligations ............... 0.3 0.8 (0.4) - 0.7
----------- ----------- ----------- --------- ----------
$ 22.8 $ 9.3 $ (18.8) $ - $ 13.3
=========== =========== =========== ========= ==========
In connection with the 2000 restructuring program, in the beginning of the
fourth quarter of 2000, the Company 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 the Company 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. At the time the
decision was made the useful lives of the facility and production assets which
would not be relocated to the Oxford facility were shortened 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 their estimated salvage value over the estimated
nine-month useful life. This resulted in the recognition of increased
depreciation through September 30, 2001 of $6.1, which is included in cost of
sales.
(7) GEOGRAPHIC INFORMATION
The Company manages its business on the basis of one reportable operating
segment. The Company is exposed to the risk of changes in social, political and
economic conditions inherent in foreign operations and the Company's results of
operations and the value of its foreign assets and liabilities are affected by
fluctuations in foreign currency exchange rates.
During the first quarter of 2002, to reflect the integration of management
reporting responsibilities, the Company reclassified Puerto Rico's results from
its international operations to its United States operations. The geographic
information reflects this change for both the 2002 and 2001 periods.
9
REVLON, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
GEOGRAPHIC AREAS: ------------------------------ ------------------------------
Net sales: 2002 2001 2002 2001
------------ ------------ ------------ ------------
United States .................. $ 221.1 $ 216.6 $ 614.2 $ 624.6
Canada ......................... 10.9 11.9 31.2 32.6
------------ ------------ ------------ ------------
United States and Canada ....... 232.0 228.5 645.4 657.2
International .................. 91.2 91.7 261.4 298.7
------------ ------------ ------------ ------------
$ 323.2 $ 320.2 $ 906.8 $ 955.9
============ ============ ============ ============
SEPTEMBER 30, DECEMBER 31,
Long-lived assets: 2002 2001
------------ ------------
United States .................. $ 399.9 $ 410.6
Canada ......................... 2.5 2.5
------------ ------------
United States and Canada ....... 402.4 413.1
International .................. 71.1 71.6
------------ ------------
$ 473.5 $ 484.7
============ ============
THREE MONTHS ENDED NINE MONTHS ENDED
CLASSES OF SIMILAR PRODUCTS: SEPTEMBER 30, SEPTEMBER 30,
------------------------------ ------------------------------
Net sales: 2002 2001 2002 2001
------------ ------------ ------------ ------------
Cosmetics, skin care and fragrances . $ 212.4 $ 210.5 $ 581.3 $ 614.7
Personal care ....................... 110.8 109.7 325.5 341.2
------------ ------------ ------------ ------------
$ 323.2 $ 320.2 $ 906.8 $ 955.9
============ ============ ============ ============
(8) DISPOSITION
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 the Company's products in
Benelux. The purchase price consisted principally of the assumption of certain
liabilities and a deferred purchase price contingent upon future results of up
to approximately $4.7, which could be received over approximately a seven-year
period. In connection with the disposition, the Company recognized a pre-tax and
after-tax loss of $1.0 in the first quarter of 2002.
(9) DERIVATIVE FINANCIAL INSTRUMENTS
The Company uses derivative financial instruments, primarily foreign
currency forward exchange contracts, to reduce the exposure of adverse effects
of fluctuations in 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. Any
unrecognized income (loss) related to these contracts are recorded in the
Statement of Operations when the underlying transactions hedged are realized
(e.g., when inventory is sold or intercompany transactions are settled). During
2002, 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. The notional amount of the foreign
currency forward exchange contracts outstanding at September 30, 2002 was $17.1.
The fair value of the foreign currency forward exchange contracts outstanding at
September 30, 2002 was nil.
10
REVLON, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
(10) GUARANTOR FINANCIAL INFORMATION
On June 21, 2002, the 12% Senior Secured Notes due 2005 (the "Original 12%
Notes"), which were issued by Products Corporation in November 2001, were
exchanged for new 12% Senior Secured Notes due 2005 which have substantially
identical terms as the Original 12% Notes (the "12% Notes"), except that the 12%
Notes are registered with the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended (the "Securities
Act"), and the transfer restrictions and registration rights applicable to the
Original 12% Notes do not apply to the 12% Notes. 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
(as hereinafter defined) (the "Guarantor Subsidiaries") (Subsidiaries of
Products Corporation that do not guarantee the 12% Notes are referred to as the
"Non- Guarantor Subsidiaries"). The Supplemental Guarantor Condensed
Consolidating Financial 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 unaudited and audited consolidating condensed
balance sheets, unaudited consolidating condensed statements of operations and
unaudited consolidating condensed statements 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
from those of Products Corporation.
UNAUDITED CONSOLIDATING CONDENSED BALANCE SHEETS
AS OF SEPTEMBER 30, 2002
(DOLLARS IN MILLIONS)
NON-
PARENT GUARANTOR GUARANTOR
ASSETS CONSOLIDATED ELIMINATIONS COMPANY SUBSIDIARIES SUBSIDIARIES
-------------- --------------- ----------- --------------- --------------
Current assets ................................ $ 496.2 $ - $ 286.9 $ 33.7 $ 175.6
Intercompany receivables....................... - (1,456.7) 793.4 466.9 196.4
Investment in subsidiaries..................... - 222.1 (176.0) (95.1) 49.0
Property, plant and equipment, net............. 131.8 - 120.3 2.9 8.6
Other assets................................... 131.4 - 114.0 6.5 10.9
Intangible assets, net......................... 198.1 - 161.3 3.3 33.5
------------- -------------- ---------- ----------- ---------
Total assets............................ $ 957.5 $ (1,234.6) $ 1,299.9 $ 418.2 $ 474.0
============= ============== ========== =========== =========
LIABILITIES AND STOCKHOLDER'S DEFICIENCY
Current liabilities............................ $ 388.1 $ - $ 272.6 $ 23.6 $ 91.9
Intercompany payables.......................... - (1,456.7) 480.5 612.6 363.6
Long-term debt................................. 1,717.7 - 1,704.3 8.5 4.9
Other long-term liabilities.................... 255.9 - 246.7 9.2 -
------------- -------------- ---------- ----------- ---------
Total liabilities.............................. 2,361.7 (1,456.7) 2,704.1 653.9 460.4
Stockholder's deficiency ...................... (1,404.2) 222.1 (1,404.2) (235.7) 13.6
------------- -------------- ---------- ----------- ---------
Total liabilities and stockholder's deficiency. $ 957.5 $ (1,234.6) $ 1,299.9 $ 418.2 $ 474.0
============= ============== ========== =========== =========
11
REVLON, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
UNAUDITED CONSOLIDATING CONDENSED BALANCE SHEETS
AS OF DECEMBER 31, 2001
(DOLLARS IN MILLIONS)
NON-
PARENT GUARANTOR GUARANTOR
ASSETS CONSOLIDATED ELIMINATIONS COMPANY SUBSIDIARIES SUBSIDIARIES
-------------- --------------- ----------- -------------- --------------
Current assets.................................. $ 517.9 $ - $ 294.9 $ 28.2 $ 194.8
Intercompany receivables........................ - (1,361.4) 726.0 387.1 248.3
Investment in subsidiaries...................... - 177.5 (150.2) (61.3) 34.0
Property, plant and equipment, net.............. 142.8 - 131.1 3.3 8.4
Other assets.................................... 132.2 - 115.6 6.7 9.9
Intangible assets, net.......................... 198.5 - 161.9 3.4 33.2
-------------- --------------- ----------- ----------- ----------
Total assets.............................. $ 991.4 $ (1,183.9) $ 1,279.3 $ 367.4 $ 528.6
============== =============== =========== =========== ==========
LIABILITIES AND STOCKHOLDER'S DEFICIENCY
Current liabilities............................. $ 385.7 $ - $ 258.6 $ 21.2 $ 105.9
Intercompany payables........................... - (1,361.4) 425.5 517.6 418.3
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 (1,361.4) 2,568.1 547.9 525.6
Stockholder's deficiency ....................... (1,288.8) 177.5 (1,288.8) (180.5) 3.0
-------------- --------------- ----------- ----------- ----------
Total liabilities and stockholder's deficiency.. $ 991.4 $ (1,183.9) $ 1,279.3 $ 367.4 $ 528.6
============== =============== =========== =========== ==========
UNAUDITED CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
FOR THE QUARTER ENDED SEPTEMBER 30, 2002
(DOLLARS IN MILLIONS)
NON-
PARENT GUARANTOR GUARANTOR
CONSOLIDATED ELIMINATIONS COMPANY SUBSIDIARIES SUBSIDIARIES
--------------- --------------- -------------- -------------- --------------
Net sales..................................... $ 323.2 $ (38.0) $ 216.8 $ 52.5 $ 91.9
Cost of sales................................. 121.6 (38.0) 73.7 43.1 42.8
------------- --------------- -------------- -------------- -----------
Gross profit............................ 201.6 - 143.1 9.4 49.1
Selling, general and administrative expenses.. 176.7 - 125.4 8.6 42.7
Restructuring costs........................... 2.1 - 1.5 - 0.6
------------- --------------- -------------- -------------- -----------
Operating income........................ 22.8 - 16.2 0.8 5.8
------------- --------------- -------------- -------------- -----------
Other expenses (income):
Interest expense, net................... 39.7 - 39.3 0.1 0.3
Miscellaneous, net...................... 3.6 - (3.6) (16.0) 23.2
Equity in earnings of subsidiaries...... - (13.6) 1.9 11.7 -
------------ --------------- -------------- -------------- ------------
Other expenses (income), net...... 43.3 (13.6) 37.6 (4.2) 23.5
------------ --------------- -------------- -------------- ------------
(Loss) income before income taxes............. (20.5) 13.6 (21.4) 5.0 (17.7)
Provision for income taxes.................... 1.0 - 0.1 0.2 0.7
------------ --------------- -------------- -------------- ------------
Net (loss) income............................. $ (21.5) $ 13.6 $ (21.5) $ 4.8 $ (18.4)
============ =============== ============= ============= ============
12
REVLON, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
UNAUDITED CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
FOR THE QUARTER ENDED SEPTEMBER 30, 2001
(DOLLARS IN MILLIONS)
NON-
PARENT GUARANTOR GUARANTOR
CONSOLIDATED ELIMINATIONS COMPANY SUBSIDIARIES SUBSIDIARIES
------------- -------------- ------------- -------------- ----------------
Net sales...................................... $ 320.2 $ (34.2) $ 211.1 $ 46.1 $ 97.2
Cost of sales.................................. 129.8 (34.2) 81.3 35.5 47.2
---------- -------------- ------------- -------------- ---------------
Gross profit............................. 190.4 - 129.8 10.6 50.0
Selling, general and administrative expenses... 162.0 - 108.2 7.2 46.6
Restructuring costs............................ 3.0 - 0.2 0.3 2.5
---------- -------------- ------------- -------------- ---------------
Operating income......................... 25.4 - 21.4 3.1 0.9
---------- -------------- ------------- -------------- ---------------
Other expenses (income):
Interest expense, net.................... 33.6 - 32.0 0.7 0.9
Loss on sale of assets, net.............. 7.9 - - - 7.9
Miscellaneous, net....................... 4.4 - (0.1) (10.8) 15.3
Equity in earnings of subsidiaries....... - (30.8) 0.6 29.8 0.4
---------- -------------- ------------- -------------- ---------------
Other expenses, net................ 45.9 (30.8) 32.5 19.7 24.5
---------- -------------- ------------- -------------- ---------------
Loss before income taxes....................... (20.5) 30.8 (11.1) (16.6) (23.6)
Provision (benefit) for income taxes........... 1.5 - 10.9 (10.5) 1.1
---------- -------------- ------------- -------------- ---------------
Net loss....................................... $ (22.0) $ 30.8 $ (22.0) $ (6.1) $ (24.7)
========== ============== ============= ============== ===============
UNAUDITED CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002
(DOLLARS IN MILLIONS)
NON-
PARENT GUARANTOR GUARANTOR
CONSOLIDATED ELIMINATIONS COMPANY SUBSIDIARIES SUBSIDIARIES
---------------- -------------- ------------- -------------- --------------
Net sales....................................... $ 906.8 $ (98.5) $ 601.5 $ 135.8 $ 268.0
Cost of sales................................... 350.4 (98.5) 213.1 109.5 126.3
------------- -------------- ------------- -------------- --------------
Gross profit.............................. 556.4 - 388.4 26.3 141.7
Selling, general and administrative expenses.... 522.1 - 362.2 26.5 133.4
Restructuring costs............................. 9.3 - 5.7 0.2 3.4
------------- -------------- ------------- -------------- --------------
Operating income (loss)................... 25.0 - 20.5 (0.4) 4.9
------------- -------------- ------------- -------------- --------------
Other expenses (income):
Interest expense, net..................... 116.8 - 116.1 0.2 0.5
Loss on sale of assets, net............... 1.0 - - - 1.0
Miscellaneous, net........................ 10.1 - 0.4 (22.5) 32.2
Equity in earnings of subsidiaries........ - (68.8) 12.4 56.2 0.2
------------- -------------- ------------- -------------- --------------
Other expenses, net................. 127.9 (68.8) 128.9 33.9 33.9
------------- -------------- ------------- -------------- --------------
Loss before income taxes........................ (102.9) 68.8 (108.4) (34.3) (29.0)
Provision (benefit) for income taxes............ 2.1 - (3.4) 3.1 2.4
------------- -------------- ------------- -------------- --------------
Net loss........................................ $ (105.0) $ 68.8 $ (105.0) $ (37.4) $ (31.4)
============= ============== ============= ============== ==============
13
REVLON, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
UNAUDITED CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001
(DOLLARS IN MILLIONS)
NON-
PARENT GUARANTOR GUARANTOR
CONSOLIDATED ELIMINATIONS COMPANY SUBSIDIARIES SUBSIDIARIES
---------------- -------------- -------------- ------------- --------------
Net sales...................................... $ 955.9 $ (103.0) $ 608.7 $ 114.0 $ 336.2
Cost of sales.................................. 404.4 (103.0) 246.6 87.8 173.0
-------------- ------------ ---------- ------------ --------------
Gross profit............................. 551.5 - 362.1 26.2 163.2
Selling, general and administrative expenses... 520.8 - 337.9 27.3 155.6
Restructuring costs............................ 25.5 - 14.2 1.2 10.1
-------------- ------------ ---------- ------------ --------------
Operating income (loss).................. 5.2 - 10.0 (2.3) (2.5)
-------------- ------------ ---------- ------------ --------------
Other expenses (income):
Interest expense, net.................... 102.8 - 98.2 1.3 3.3
Loss on sale of assets, net.............. 15.0 - - - 15.0
Miscellaneous, net....................... 8.0 - 4.7 (28.5) 31.8
Equity in earnings of subsidiaries....... - (74.1) 20.3 52.5 1.3
-------------- ------------ ---------- ------------ --------------
Other expenses, net................ 125.8 (74.1) 123.2 25.3 51.4
-------------- ------------ ---------- ------------ --------------
Loss before income taxes....................... (120.6) 74.1 (113.2) (27.6) (53.9)
Provision (benefit) for income taxes........... 3.3 - 10.7 (9.4) 2.0
-------------- ------------ ---------- ------------ --------------
Net loss....................................... $ (123.9) $ 74.1 $ (123.9) $ (18.2) $ (55.9)
============== ============ ========== ============ ==============
UNAUDITED CONSOLIDATING CONDENSED STATEMENT OF CASH FLOW
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002
(DOLLARS IN MILLIONS)
PARENT
CONSOLIDATED ELIMINATIONS COMPANY
---------------- -------------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash used for operating activities....................... $ (110.9) $ - $ (90.9)
-------------- -------------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures......................................... (9.4) - (8.0)
Sale of marketable securities................................ 1.8 - 1.8
-------------- -------------- -----------
Net cash used for investing activities....................... (7.6) - (6.2)
-------------- -------------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in short-term borrowings - third parties........ 7.7 - -
Proceeds from the issuance of long-term debt - third parties. 94.6 - 79.5
Repayment of long-term debt - third parties.................. (23.5) - (19.5)
Payment of debt issuance costs............................... (0.3) - (0.3)
-------------- -------------- -----------
Net cash provided by financing activities.................... 78.5 - 59.7
-------------- -------------- -----------
Effect of exchange rate changes on cash and cash equivalents. (4.1) - (0.1)
-------------- -------------- -----------
Net (decrease) increase in cash and cash equivalents... (44.1) - (37.5)
Cash and cash equivalents at beginning of period....... 103.3 - 55.0
-------------- -------------- -----------
Cash and cash equivalents at end of period............. $ 59.2 $ - $ 17.5
============== ============== ===========
NON-
GUARANTOR GUARANTOR
SUBSIDIARIES SUBSIDIARIES
-------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash used for operating activities....................... $ (17.8) $ (2.2)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures......................................... - (1.4)
Sale of marketable securities................................ - -
-------------- -------------
Net cash used for investing activities....................... - (1.4)
-------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in short-term borrowings - third parties........ 2.8 4.9
Proceeds from the issuance of long-term debt - third parties. 10.9 4.2
Repayment of long-term debt - third parties.................. (2.9) (1.1)
Payment of debt issuance costs............................... - -
------------- -------------
Net cash provided by financing activities.................... 10.8 8.0
------------- -------------
Effect of exchange rate changes on cash and cash equivalents. 0.2 (4.2)
------------- -------------
Net (decrease) increase in cash and cash equivalents... (6.8) 0.2
Cash and cash equivalents at beginning of period....... 10.1 38.2
------------- -------------
Cash and cash equivalents at end of period............. $ 3.3 $ 38.4
============= =============
14
REVLON, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
UNAUDITED CONSOLIDATING CONDENSED STATEMENT OF CASH FLOW
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001
(DOLLARS IN MILLIONS)
PARENT
CONSOLIDATED ELIMINATIONS COMPANY
-------------- -------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash (used for) provided by operating activities......... $ (89.0) $ - $ (120.9)
-------------- -------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures......................................... (10.4) - (8.8)
Net proceeds from the sale of brand and certain assets....... 97.5 - 97.5
-------------- -------------- --------------
Net cash provided by (used for) investing activities......... 87.1 - 88.7
-------------- -------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in short-term borrowings - third parties........ 0.5 - 0.1
Proceeds from the issuance of long-term debt - third parties. 196.1 - 161.7
Repayment of long-term debt - third parties.................. (208.8) - (149.1)
Net distribution from affiliate.............................. (1.0) - -
Payment of debt issuance costs............................... (2.4) - (2.4)
-------------- -------------- --------------
Net cash (used for) provided by financing activities......... (15.6) - 10.3
-------------- -------------- --------------
Effect of exchange rate changes on cash and cash equivalents. (1.6) - 0.3
-------------- -------------- --------------
Net (decrease) increase in cash and cash equivalents... (19.1) - (21.6)
Cash and cash equivalents at beginning of period....... 56.3 - 10.7
-------------- -------------- --------------
Cash and cash equivalents at end of period............. $ 37.2 $ - $ (10.9)
============== ============== ==============
NON-
GUARANTOR GUARANTOR
SUBSIDIARIES SUBSIDIARIES
-------------- -----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash (used for) provided by operating activities......... $ (15.8) $ 47.7
-------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures......................................... (1.5) (0.1)
Net proceeds from the sale of brand and certain assets....... - -
-------------- -----------------
Net cash provided by (used for) investing activities......... (1.5) (0.1)
-------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in short-term borrowings - third parties........ - 0.4
Proceeds from the issuance of long-term debt - third parties. 27.1 7.3
Repayment of long-term debt - third parties.................. (9.9) (49.8)
Net distribution from affiliate.............................. (1.0) -
Payment of debt issuance costs............................... - -
-------------- -----------------
Net cash (used for) provided by financing activities......... 16.2 (42.1)
-------------- -----------------
Effect of exchange rate changes on cash and cash equivalents. (0.3) (1.6)
-------------- -----------------
Net (decrease) increase in cash and cash equivalents... (1.4) 3.9
Cash and cash equivalents at beginning of period....... 2.9 42.7
-------------- -----------------
Cash and cash equivalents at end of period............. $ 1.5 $ 46.6
============== =================
(11) SUBSEQUENT EVENT
In October 2002, the Company and its principal third party manufacturer for
Europe and certain other international markets terminated the long-term supply
agreement they had entered into in connection with the Company's disposition of
its Maesteg facility in July 2001, and they entered into a new, more flexible
arrangement with significantly reduced volume commitments. Under the new
arrangement, the Company will loan such supplier approximately $2.0 and the
supplier can earn performance-based payments of approximately $6.3 (less the
unpaid balance of such loan) over a 4-year period, contingent upon the supplier
achieving specific production service level goals. As part of terminating the
long-term supply agreement the supplier released the Company from the Company's
minimum purchase commitments under the old supply agreement, which were
approximately $145.5 over the 8-year term of such agreement. In exchange, the
Company waived approximately $10.0 of deferred purchase price which otherwise
would have been payable by the supplier to the Company in connection with the
July 2001 sale of the Maesteg facility (a portion of which was contingent on
future events). Such deferred purchase price, absent such waiver, would have
been payable by the supplier to the Company over a 6-year period.
15
REVLON, INC. AND SUBSIDIARIES
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 July 16, 2001 Products Corporation completed the disposition of the
Colorama brand in Brazil. Accordingly, the Unaudited Consolidated Condensed
Financial Statements include the results of operations of the Colorama brand
through the date of its disposition.
During the first quarter of 2002, to reflect the integration of management
reporting responsibilities, the Company reclassified Puerto Rico's results from
its international operations to its United States operations. Management's
discussion and analysis data reflects this change for both the 2002 and 2001
periods. During the third quarter of 2002, the Company reclassified its South
African operations from the European region to the Far East region to reflect
the management organization responsibility for that country, and accordingly,
management's discussion and analysis data reflects this change for both the 2002
and 2001 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. Actual
results could differ significantly from those estimates and assumptions. 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 the amount that the Company expects to realize upon their
subsequent disposition. 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 the
Company's estimates if factors such as product discontinuances, customer
inventory levels or competitive conditions differ from the Company's estimates
and expectations and, in the case of actual returns, if economic conditions
differ significantly from the Company's estimates and 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
16
REVLON, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
products. The 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 the Company's estimates and
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 the amounts that the Company may ultimately realize upon the disposition of
inventories if future economic conditions, customer inventory levels, product
discontinuances or competitive conditions differ from the Company's estimates
and 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, changes in the planned use of fixtures or software or closing of
facilities or changes in the Company's capital strategy can result in the actual
useful lives differing from the Company's estimates.
Included in other assets are permanent display units, which are recorded at
cost and amortized on a straight-line basis over the estimated useful lives of
such assets. Intangibles other than goodwill are recorded at cost and amortized
on a straight-line basis over the estimated useful lives of such assets.
Long-lived assets, including fixed assets, permanent display units 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. 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. The estimate of undiscounted 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. In those cases where the Company determines that the useful life of
other long-lived assets should be shortened, the Company would depreciate the
net book value in excess of the salvage value (after testing for impairment as
described above), over the revised remaining useful life of such asset thereby
increasing amortization expense.
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, among
other things. These differences may result in a significant impact to the amount
of pension expense recorded
17
REVLON, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
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 and 2003
will be significantly higher than in recent years.
RESULTS OF OPERATIONS
In order to provide a comparison of results from its ongoing operations,
the Company's discussion includes presentation on an "ongoing operations" basis.
The following table sets forth certain summary unaudited data for the Company
for the three months and nine months ended September 30, 2002 and September 30,
2001, respectively, reconciling the Company's actual "as reported results" to
the ongoing operations, after giving effect to the following: (i) the
disposition of the Colorama brand, assuming such transaction occurred on January
1, 2001; (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 SG&A
expenses and executive severance costs that were included in SG&A expenses in
the period incurred (after giving effect thereto, the "Ongoing Operations"). The
adjustments are based upon available information and certain assumptions that
the Company's 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 the Company's financial position that actually would have occurred
had the foregoing transactions referred to in (i) above been consummated on
January 1, 2001.
THREE MONTHS ENDED SEPTEMBER 30, 2002:
- -------------------------------------------------
BRANDS AND RESTRUCTURING
AS FACILITIES COSTS AND ONGOING
REPORTED SOLD OTHER, NET OPERATIONS
----------------- ----------------- ----------------- ----------------
Net sales............................. $ 323.2 $ - $ - $ 323.2
Gross profit.......................... 201.6 - 0.3 201.9
SG&A expenses......................... 177.7 - (1.8) 175.9
Restructuring costs and other, net.... 2.1 - (2.1) -
NINE MONTHS ENDED SEPTEMBER 30, 2002:
- -------------------------------------------------
BRANDS AND RESTRUCTURING
AS FACILITIES COSTS AND ONGOING
REPORTED SOLD OTHER, NET OPERATIONS
----------------- ----------------- ----------------- ----------------
Net sales.............................. $ 906.8 $ - $ - $ 906.8
Gross profit........................... 556.4 - 1.3 557.7
SG&A expenses.......................... 525.2 - (8.4) 516.8
Restructuring costs and other, net..... 9.3 - (9.3) -
18
REVLON, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
THREE MONTHS ENDED SEPTEMBER 30, 2001:
- -------------------------------------------------
BRANDS AND RESTRUCTURING
AS FACILITIES COSTS AND ONGOING
REPORTED SOLD OTHER, NET OPERATIONS
----------------- ----------------- ----------------- ----------------
Net sales............................. $ 320.2 $ (0.3) $ - $ 319.9
Gross profit.......................... 190.4 0.5 5.8 196.7
SG&A expenses......................... 162.9 (2.3) (1.2) 159.4
Restructuring costs and other, net.... 3.0 - (3.0) -
NINE MONTHS ENDED SEPTEMBER 30, 2001:
- -------------------------------------------------
BRANDS AND RESTRUCTURING
AS FACILITIES COSTS AND ONGOING
REPORTED SOLD OTHER, NET OPERATIONS
----------------- ----------------- ----------------- ----------------
Net sales............................ $ 955.9 $ (16.4) $ - $ 939.5
Gross profit......................... 551.5 (6.5) 30.6 575.6
SG&A expenses........................ 522.3 (9.1) (6.9) 506.3
Restructuring costs and other, net... 25.5 - (25.5) -
Net sales
Net sales were $323.2 and $320.2 for the third quarters of 2002 and 2001,
respectively, an increase of $3.0, or 0.9% (an increase of 3.1% on a constant
U.S. dollar basis), and were $906.8 and $955.9 for the nine months ended
September 30, 2002 and 2001, respectively, a decrease of $49.1, or 5.1% (a
decrease of 2.6% on a constant U.S. dollar basis).
Net sales from Ongoing Operations were $323.2 and $319.9 for the third
quarters of 2002 and 2001, respectively, an increase of $3.3, or 1.0% (an
increase of 3.1% on a constant U.S. dollar basis), and were $906.8 and $939.5
for the nine months ended September 30, 2002 and 2001, respectively, a decrease
of $32.7, or 3.5% (a decrease of 1.0% on a constant U.S. dollar basis).
United States and Canada. Net sales in the United States and Canada on both
an as reported and Ongoing Operations basis were $232.0 for the third quarter of
2002 compared with $228.5 for the third quarter of 2001, an increase of $3.5, or
1.5%, and were $645.4 and $657.2 for the nine months ended September 30, 2002
and 2001, respectively, a decrease of $11.8, or 1.8%. The increase for the third
quarter of 2002 of 1.5% was driven primarily by an incremental $10.4 in
licensing revenues stemming from the prepayment by a licensee of certain minimum
royalties through 2005 and lower sales returns, partially offset by higher
promotional spending activity and increased sales allowances. The decrease for
the nine months ended September 30, 2002 of 1.8% was driven primarily by lower
shipments to the Company's retail customers as a result of the decision by two
major U.S. retailers to shift the timing of plan-o-gram resets for certain 2002
new products (this resulted in shipments of approximately $14.0 of 2002 new
products in the fourth quarter of 2001) and higher promotional spending activity
and to a lesser extent increased sales allowances. These reductions were offset
in part by the increase of $10.4 in incremental licensing revenues referred to
above.
International. Net sales in the Company's international operations were
$91.2 for the third quarter of 2002, compared with $91.7 for the third quarter
of 2001, a decrease of $0.5, or 0.5% (an increase of 7.0% on a constant U.S.
dollar basis) and were $261.4 and $298.7 for the nine months ended September 30,
2002 and 2001, respectively, a decrease of $37.3 or 12.5% (a decrease of 4.7% on
a constant U.S. dollar basis).
19
REVLON, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
Net sales in the Company's international Ongoing Operations ("Ongoing
International Operations") were $91.2 and $91.4 for the third quarters of 2002
and 2001, respectively, a decrease of $0.2, or 0.2%, (an increase of 7.3% on a
constant U.S. dollar basis) and were $261.4 and $282.3 for the nine months ended
September 30, 2002 and 2001, respectively, a decrease of $20.9, or 7.4% (an
increase of 0.7% on a constant U.S. dollar basis). During the third quarter of
2002, the Company reclassified its South African operations from the European
region to the Far East region to reflect the management organization
responsibility for that country and accordingly, management's discussion and
analysis data reflects this change for both the 2002 and 2001 periods.
Ongoing International Operations sales are divided by the Company into
three geographic regions. In Europe, which is comprised of Europe and the
Middle East, net sales increased by $0.1, or 0.4% to $27.9 for the third quarter
of 2002, as compared with the third quarter of 2001 (a decrease of 6.1% on a
constant U.S. dollar basis), and decreased by $6.7, or 7.7% to $80.3 for the
nine months ended September 30, 2002, as compared with the nine months ended
September 30, 2001 (a decrease of 9.1% on a constant U.S. dollar basis). In
Latin America, which is comprised of Mexico, Central America and South America,
net sales decreased by $4.6, or 17.0% to $22.5 for the third quarter of 2002, as
compared with the third quarter of 2001 (an increase of 13.8% on a constant U.S.
dollar basis) and decreased by $18.1, or 20.3% to $71.1 for the nine months
ended September 30, 2002, as compared with the nine months ended September 30,
2001 (an increase of 1.4% on a constant U.S. dollar basis). In the Far East and
Africa, net sales increased by $4.3, or 11.8% to $40.8 for the third quarter of
2002, as compared with the third quarter of 2001 (an increase of 13.7% on a
constant U.S. dollar basis) and increased by $3.9, or 3.7% to $110.0 for the
nine months ended September 30, 2002, as compared with the nine months ended
September 30, 2001 (an increase of 9.1% 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. During the three months and
nine months ended September 30, 2002, the Company experienced significant
adverse currency fluctuations in Argentina, Venezuela and Brazil. During the
third quarter of 2002, the Company continued to experience production
difficulties with its principal third party manufacturer for Europe and certain
other international markets which operates the Maesteg facility. To rectify this
situation, on October 31, 2002 the Company and such manufacturer terminated the
long-term supply agreement and they entered into a new, more flexible agreement
with significantly reduced volume commitments and the Company will loan such
supplier approximately $2.0. To address the production difficulties, under the
new arrangement, the supplier can earn performance-based payments of
approximately $6.3 (less the unpaid balance of such loan) over a 4-year period
contingent upon the supplier achieving specific production service level goals.
Under the new arrangement, the Company also intends to source certain products
from its Oxford facility and other suppliers. The Company expects that under the
new supply arrangement, the production difficulties at the Maesteg facility will
be resolved during the first half of 2003.
The increase in net sales for the third quarter, as compared to the
comparable 2001 period, for Ongoing International Operations on a comparable
currency basis, was primarily due to increased new product sales and
distribution in the U.K., South Africa, Japan, China, Hong Kong, Taiwan and
distributor markets in Latin America, the Far East and Europe (which factor the
Company estimates contributed to an approximately 10.7% increase in net sales on
a constant U.S. dollar basis) and sales tax increases in Brazil (which factor
the Company estimates contributed to an approximately 3.3% increase in net sales
on a constant U.S. dollar basis), partially offset by the effect of political
and economic difficulties in Argentina and Venezuela (which factor the Company
estimates contributed to an approximately 1.7% reduction in net sales on a
constant U.S. dollar basis), increased competitive activity in Australia and
Italy (which factor the Company estimates contributed to an approximately 2.3%
reduction in net sales on a constant U.S. dollar basis), and disruption in
production at the Company's third party manufacturer in Maesteg, Wales, (which
factor
20
REVLON, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
the Company estimates contributed to an approximately 3.7% reduction in net
sales on a constant U.S. dollar basis).
The increase in net sales for the nine months ended September 30, 2002, as
compared to the comparable 2001 period, for Ongoing International Operations on
a comparable currency basis, was primarily due to new product sales and
distribution in the U.K., South Africa, China, Hong Kong, and distributor
markets in Latin America, the Far East and Europe (which factor the Company
estimates contributed to an approximately 7.2% increase in net sales on a
constant U.S. dollar basis), and sales tax increases in Brazil (which factor the
Company estimates contributed to an approximately 2.8% increase in net sales on
a constant U.S. dollar basis), partially offset by the effect of political and
economic difficulties in Argentina and Venezuela (which factor the Company
estimates contributed to an approximately 2.8% reduction in net sales on a
constant U.S. dollar basis), increased competitive activity in Mexico, Italy,
Australia and New Zealand (which factor the Company estimates contributed to an
approximately 2.3% reduction in net sales on a constant U.S. dollar basis),
conversion of the Company's Benelux and Israeli businesses to a distributor
(which factor the Company estimates contributed to an approximately 2.4%
reduction in net sales on a constant U.S. dollar basis), and disruption in
production at the Company's third party manufacturer in Maesteg, Wales, (which
the Company estimates contributed to an approximately 1.7% reduction in net
sales on a constant U.S. dollar basis).
Gross profit
Gross profit was $201.6 for the third quarter of 2002, compared with $190.4
for the third quarter of 2001 and was $556.4 for the nine months ended September
30, 2002, compared to $551.5 for the nine months ended September 30, 2001. As a
percentage of net sales, gross profit margins were 62.4% for the third quarter
of 2002, compared with 59.5% for the third quarter of 2001 and were 61.4% for
the nine months ended September 30, 2002, compared with 57.7% for the nine
months ended September 30, 2001. Gross profit and gross profit margin for
Ongoing Operations were $201.9 and 62.5%, respectively, in the third quarter of
2002, compared with gross profit and gross profit margin of $196.7 and 61.5% in
the third quarter of 2001 and were $557.7 and 61.5%, respectively, in the nine
months ended September 30, 2002, compared with gross profit and gross profit
margin of $575.6 and 61.3% in the nine months ended September 30, 2001. The
increase in gross profit margin on an ongoing basis in the third quarter and
nine months ended September 30, 2002 compared to the comparable 2001 periods is
due to $10.4 in licensing revenues stemming from the prepayment by a licensee of
certain minimum royalties, reduced overhead costs primarily as a result of the
shutdown of the Phoenix and Canada facilities in 2001, lower returns and $1.7 in
respect of an insurance claim for certain losses in Latin America, partially
offset by higher promotional spending activity, unfavorable product mix, as well
as higher costs for certain products produced in Europe. Gross profit from
Ongoing Operations for the three months and nine months ended September 30, 2002
and 2001 excludes $0.3 and $1.3, respectively, and $5.8 and $30.6, respectively
($6.1 of which represents increased depreciation recorded for the Phoenix
facility -- See Note 6) of additional consolidation costs associated with the
shutdown of the Phoenix and Canada facilities in 2001 and $(0.5) and $6.5,
respectively, of gross profit (loss) from the Colorama brand in Brazil.
SG&A expenses
SG&A expenses were $177.7 for the third quarter of 2002, compared with
$162.9 for the third quarter of 2001 and $525.2 for the nine months ended
September 30, 2002 compared with $522.3 for the nine months ended September 30,
2001. SG&A expenses for Ongoing Operations were $175.9 for the third quarter of
2002, which excludes $1.8 of executive separation costs, compared with $159.4
for the third quarter of 2001, which excludes $1.2 of additional consolidation
costs associated with the shutdown of the Phoenix and Canada facilities in 2001
and $2.3 of SG&A expenses of the Colorama brand in Brazil in 2001. SG&A expenses
for Ongoing Operations were $516.8 for the nine months ended September 30,
21
REVLON, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
2002, which excludes $8.4 ($8.3 of which are executive separation costs),
compared with $506.3 for the nine months ended September 30, 2001, which
excludes $6.9 of additional consolidation costs associated with the shutdown of
the Phoenix and Canada facilities in 2001 and $9.1 of SG&A expenses of the
Colorama brand in Brazil in 2001. The increase in SG&A expenses for Ongoing
Operations for the third quarter of 2002, as compared to the third quarter of
2001, is due primarily to higher departmental and other general and
administrative expenses of $10.4, which was primarily due to higher professional
fees, increased brand support expenses of $7.4, higher permanent display
amortization of $2.2, which includes $1.4 of accelerated amortization associated
with the roll-out of the Company's new permanent display units in the U.S. (See
Financial Condition, Liquidity and Capital Resources) and accelerated
amortization charges of $1.3 for certain information systems related to the
Company's decision to upgrade its information systems (See Financial Condition,
Liquidity and Capital Resources). These increases were partially offset by the
elimination of goodwill amortization of $1.9, as well as lower distribution
costs of $2.2 and $0.7 in respect of an insurance claim for certain losses in
Latin America. The increase in SG&A expenses for Ongoing Operations for the nine
months ended September 30, 2002, as compared to the nine months ended September
30, 2001 is primarily due to higher departmental and other general and
administrative expenses of $11.7, which was primarily due to higher professional
fees and compensation, higher permanent display amortization of $9.7, due to the
accelerated amortization associated with the roll-out of the Company's new
permanent display units in the U.S., accelerated amortization charges of $2.7
and a write-off of $2.2 in connection with the Company's decision to upgrade
certain of its information systems, partially offset by the elimination of
goodwill amortization of $5.7, as well as lower distribution costs of $6.2, a
reduction of $3.2 for certain brand support expenses and $0.7 in respect of an
insurance claim for certain losses in Latin America.
Restructuring costs
During the third quarter of 2000, 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 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. During the third quarter of
2001 and the nine months ended September 30, 2001, the Company continued to
implement the 2000 restructuring program and recorded a charge of $3.0 and
$25.5, respectively, principally for additional employee severance and other
personnel benefits and relocation.
During the third quarter of 2002 and the nine months ended September 30,
2002, the Company continued to implement the 2000 restructuring program, as well
as other restructuring actions, and recorded a charge of $2.1 and $9.3,
respectively, principally for additional employee severance and other personnel
benefits, primarily resulting from reductions in the Company's worldwide sales
force, relocation and other costs related to the consolidation of worldwide
operations.
The Company anticipates annualized savings of approximately $9 to $11
relating to the restructuring charges recorded during the nine months ended
September 30, 2002.
22
REVLON, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
Other expenses (income)
Interest expense was $40.1 for the third quarter of 2002 compared with
$34.1 for the third quarter of 2001, and $118.4 for the nine months ended
September 30, 2002, compared to $104.8 for the nine months ended September 30,
2001. The increase in interest expense for the third quarter and nine months
ended September 30, 2002, as compared to the third quarter and nine months ended
September 30, 2001, is primarily due to the interest on the 12% Notes (which
were issued in late November 2001), partially offset by lower average
outstanding borrowings and lower interest rates under the Credit Agreement.
Sale of assets and brand, net
In February 2002, Products Corporation completed the disposition of its
Benelux business. As part of this sale, Products Corporation entered into a
long-term distribution agreement with the purchaser pursuant to which the
purchaser distributes the Company's products in Benelux. The purchase price
consisted principally of the assumption of certain liabilities and a deferred
purchase price contingent upon future results of up to approximately $4.7, which
could be received over approximately a seven-year period. In connection with the
disposition, the Company recognized a pre-tax and after-tax loss of $1.0 in the
first quarter of 2002.
In July 2001, Products Corporation completed the disposition of the
Colorama brand in Brazil. In connection with the disposition the Company
recognized a pre-tax and after-tax loss of $6.5, $6.3 of which was recorded in
the second quarter of 2001. Additionally, the Company recognized a pre-tax and
after-tax loss on the disposition of land in Minami Aoyama near Tokyo, Japan
(the "Aoyama Property") and related rights for the construction of a building on
such land of $0.8 during the second quarter of 2001.
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. In
connection with such disposition, the Company recognized a pre-tax and
after-tax loss of $7.7 during the third quarter of 2001. The supply agreement
was subsequently terminated and certain aspects of the purchase agreement were
revised. (See Note 11).
Provision for income taxes
The provision for income taxes was $1.0 for the third quarter of 2002,
compared with $1.5 for the third quarter of 2001, and $2.1 for the nine months
ended September 30, 2002, compared to $3.3 for the nine months ended September
30, 2001. The decrease in the provision for income taxes for the third quarter
of 2002, as compared to the third quarter of 2001, was primarily attributable to
lower taxable income in certain international markets. The decrease in the
provision for income taxes for the nine months ended September 30, 2002, as
compared to the nine months ended September 30, 2001, was primarily attributable
to the recognition of tax benefits of approximately $0.9 relating to the
carryback of alternative minimum tax losses resulting from tax legislation
enacted in the first quarter of 2002.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Net cash used for operating activities was $110.9 and $89.0 for the nine
months ended September 30, 2002 and 2001, respectively. The increase in net cash
used for operating activities is due to increased purchases of permanent
displays and a net use of working capital, which was partially offset by a lower
net loss.
23
REVLON, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
Net cash (used for) provided by investing activities was $(7.6) and $87.1
for the nine months ended September 30, 2002 and 2001, respectively. Net cash
used for investing activities for the nine months ended September 30, 2002
consisted of capital expenditures, partially offset by the sale of marketable
securities. Net cash provided by investing activities for the nine months ended
September 30, 2001 consisted of proceeds from the sale of the Company's Aoyama
Property and Phoenix facility, partially offset by capital expenditures. The
reduction in capital expenditures for the nine months ended September 30, 2002,
as compared to the nine months ended September 30, 2001, is due to the timing of
such expenditures.
Net cash provided by (used for) financing activities was $78.5 and $(15.6)
for the nine months ended September 30, 2002 and 2001, respectively. Net cash
provided by financing activities for the nine months ended September 30, 2002
included cash drawn under the 2001 Credit Agreement, partially offset by the
repayment of borrowings under the 2001 Credit Agreement. Net cash used for
financing activities for the nine months ended September 30, 2001 included
repayments of borrowings under the 1997 Credit Agreement and payment of debt
issuance costs, partially offset by borrowings under the 1997 Credit Agreement.
On November 26, 2001, Products Corporation issued and sold $363 in
aggregate principal amount of Original 12% Notes in a private placement,
receiving gross proceeds of $350.5. Products Corporation used the proceeds from
the Original 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 entering into the 2001
Credit Agreement and the issuance of the Original 12% Notes, and the balance was
available for general corporate purposes. On June 21, 2002, the Original 12%
Notes were exchanged for the 12% Notes which have substantially identical terms
as the Original 12% Notes, except that the 12% Notes are registered with the
Commission under the Securities Act and the transfer restrictions and
registration rights applicable to the Original 12% Notes do not apply to the 12%
Notes.
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
September 30, 2002, 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
September 30, 2002, the Term Loan Facility was fully drawn and $32.4 was
available under the Multi-Currency Facility, including the letters of credit.
The Company's principal sources of funds are expected to be cash flow
generated from operations, cash on hand and available borrowings under the
Multi-Currency Facility of the Credit Agreement. 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
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, including the ERP System (as hereinafter defined),
expenses in connection with the Company's restructuring programs referred to
above and debt service payments.
24
REVLON, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
The Company estimates that cash payments related to the restructuring
programs referred to in Note 6 to the Unaudited Consolidated Condensed Financial
Statements and executive separation costs will be $35 to $40 in 2002. Pursuant
to a tax sharing agreement, Revlon, Inc. may be required to make tax sharing
payments to Mafco Holdings as if Revlon, Inc. were filing separate income tax
returns, except that no payments are required by Revlon, Inc. if and to the
extent that Products Corporation is prohibited under the Credit Agreement from
making tax sharing payments to Revlon, Inc. The Credit Agreement prohibits
Products Corporation from making any tax sharing payments other than in respect
of state and local income taxes. Revlon, Inc. currently anticipates that, as a
result of net operating tax losses and prohibitions under the Credit Agreement,
no cash federal tax payments or cash payments in lieu of federal taxes pursuant
to the tax sharing agreement will be required for 2002.
Products Corporation enters into foreign currency forward exchange
contracts from time to time to hedge certain cash flows denominated in foreign
currencies. There were foreign currency forward exchange contracts with a
notional amount of $17.1 and a fair value of nil outstanding at September 30,
2002.
The Company expects that cash flows from operations, cash on hand and
available borrowings under the Multi-Currency Facility of the Credit Agreement
will be sufficient to enable the Company to meet its anticipated cash
requirements during 2002 on a consolidated basis, including the payment of
operating expenses, working capital, purchases of permanent displays and capital
expenditure requirements, including for the ERP System, expenses in connection
with the Company's restructuring programs referred to above and debt service
payments. However, there can be no assurance that the combination of cash flow
from operations, cash on hand and available borrowings under the Multi-Currency
Facility of the Credit 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 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, including with
respect to the ERP System, delaying or revising restructuring programs,
restructuring indebtedness, selling assets or operations, or seeking capital
contributions or loans from affiliates of the Company or issuing additional
shares of capital stock of Revlon, Inc. Products Corporation has 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 to continue to
satisfy its capital requirements or that they would be permitted under the terms
of the Company's various debt instruments then in effect. Products Corporation
is in compliance with the financial covenants under the Credit Agreement for the
period ended September 30, 2002. However, Products Corporation is uncertain
whether it will achieve the minimum EBITDA covenant for the period ending
December 31, 2002, principally due to its desire to continue to fund brand
support at levels which Products Corporation believes will support the long-term
growth of its business. If Products Corporation fails to achieve its minimum
EBITDA covenant for the period ending December 31, 2002, it would be required to
seek a waiver or an amendment of the covenant from its lenders. While Products
Corporation believes its bank lenders will cooperate in the event a waiver or
amendment is required, there can be no assurance that Products Corporation would
secure any such waiver or amendment. If Products Corporation is unable to secure
such waiver or amendment, Products Corporation would be required to adopt one or
more alternatives, such as restructuring its indebtedness (including refinancing
the Credit Agreement), selling assets or operations or seeking capital
contributions or loans from Revlon, Inc. or other affiliates of the Company.
There can be no assurance that any of such actions could be effected, that they
would enable Products Corporation to continue to satisfy its capital
requirements or that they would be
25
REVLON, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
permitted under the terms of Products Corporation's various debt instruments
then in effect. Revlon, Inc., as a holding company, will be dependent on the
earnings and cash flow of, and dividends and distributions from, Products
Corporation to pay its expenses and to pay any cash dividend or distribution on
Revlon, Inc.'s Class A Common Stock that may be authorized by the Board of
Directors of Revlon, Inc. The terms of the Credit Agreement, the 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 Company has developed a new design for its permanent display units and
has begun installing them at certain customers' retail stores during 2002.
Accordingly, the Company has accelerated the amortization of its existing
display units. The Company estimates the installation of these new displays will
result in accelerated amortization in 2002 through 2003. The accelerated
amortization will be approximately $12 during 2002, of which $11.1 has been
recorded during the nine months ended September 30, 2002. The Company estimates
that purchases of permanent displays for 2002 will be approximately $65 to $70.
Additionally, the Company has evaluated its management information systems
and determined to upgrade to an Enterprise Resource Planning ("ERP") System,
which is intended to provide benefits to the Company in excess of the related
purchase and implementation costs. As a result of this decision, certain
existing information systems are being amortized on an accelerated basis. The
Company will continue to develop the ERP System in the last quarter of 2002, and
expects to complete installation by 2005. Based upon the estimated time required
to implement an ERP System, the Company currently estimates that it would record
additional amortization charges of its current information systems in 2002
through 2005. The additional amortization will be approximately $4 during 2002,
of which $2.7 has been recorded during the nine months ended September 30, 2002.
The Company estimates that capital expenditures for 2002 will be
approximately $15 to $20.
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. To respond to this, the Company has included a table in the Company's
Annual Report on Form 10-K for the year ended December 31, 2001. There have been
no material changes to the total contractual cash obligations in the table
setting forth the Company's contractual commitments and commercial obligations
that affect financial condition and liquidity, which was set forth in the
Company's Annual Report on Form 10-K for the year ended December 31, 2001.
However, during the third quarter of 2002, the Company continued to experience
production difficulties with its principal third party manufacturer for Europe
and certain other international markets which operates the Maesteg facility. To
rectify this situation, on October 31, 2002 the Company and such manufacturer
terminated the long-term supply agreement (which had approximately $145.5 of
fixed purchase commitments over the 8-year term of the original supply
agreement) and they entered into a new, more flexible agreement with
significantly reduced volume commitments and the Company will loan such supplier
approximately $2.0. To address the production difficulties, under the new
arrangement, the supplier can earn performance-based payments of approximately
$6.3 (less the unpaid balance of such loan) over a 4-year period contingent upon
the supplier achieving specific production service level goals. As part of
26
REVLON, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
terminating the long-term supply agreement the supplier released the Company
from the Company's minimum purchase commitments under the old supply agreement,
which were approximately $145.5 over the 8-year term of such agreement. In
exchange, the Company waived approximately $10.0 of deferred purchase price
which otherwise would have been payable by the supplier to the Company in
connection with the July 2001 sale of the Maesteg facility (a portion of which
was contingent on future events). Such deferred purchase price, absent such
waiver, would have been payable by the supplier to the Company over a 6-year
period.
EFFECT OF NEW ACCOUNTING STANDARDS
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 April 2002, the FASB issued Statement No. 145, "Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections". Statement No. 145, among other things, rescinds Statement No. 4,
Reporting Gains and Losses from Extinguishment of Debt, and an amendment of that
Statement, Statement No. 64, Extinguishments of Debt Made to Satisfy
Sinking-Fund Requirements. Statement 4 required that gains and losses from
extinguishment of debt be classified as extraordinary items, if material. Under
Statement No. 145, extinguishment of debt should usually not be considered
extraordinary under the criteria in APB Opinion No. 30, "Reporting the Results
of Operations -- Reporting the Effects of Disposal of a Segment of a Business,
and Extraordinary, Unusual and Infrequently Occurring Events and Transactions"
("APB No. 30"). The Company is required to adopt the provisions of Statement No.
145 effective January 1, 2003 although earlier adoption is permitted. Upon
adoption, the Company will reclassify the extraordinary item for early
extinguishment of debt of $3.6 incurred in the fourth quarter of 2001 to other
expenses on the consolidated statements of operations as it no longer will be
considered to meet the extraordinary item classification criteria in APB No. 30.
In July 2002, the FASB issued Statement No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities". This statement nullifies EITF
Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits
and Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)." Statement No. 146 requires that a liability for costs
associated with an exit or disposal activity be recognized when the liability is
incurred. The provisions of Statement No. 146 are effective for exit or disposal
activities initiated after December 31, 2002 and thus will become effective for
the Company on January 1, 2003. The Company will continue to apply the
provisions of EITF Issue 94-3 to any exit activities that have been initiated
under an exit plan that met the criteria of EITF Issue 94-3 before the adoption
of Statement 146. The adoption of Statement 146 is not currently expected to
have a material effect on the financial position, results of operations or cash
flows of the Company upon adoption.
In December 2001, the American Institute of Certified Public Accountants
issued Statement of Position (SOP) 01-6, "Accounting by Certain Entities
(Including Entities with Trade Receivables) That Lend to or Finance the
Activities of Others". The SOP applies to any entity that lends to or finances
the activities of others, and specifies accounting and disclosure requirements
for entities that extend trade credit to customers and also provides specific
guidance for other types of transactions specific to certain financial
institutions. The SOP is effective for the Company beginning January 1, 2003 and
the Company does not believe the recognition and measurement provisions within
this SOP will result in a change in practice for its trade receivables or any
other activities of the Company. The SOP also provides certain presentation and
disclosure changes for entities with trade receivables as part of the objective
of requiring consistent accounting and reporting for like transactions, which
the Company intends to include in its disclosures upon adoption.
27
REVLON, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
SUBSEQUENT EVENT
In October 2002, the Company and its principal third party manufacturer for
Europe and certain other international markets terminated the long-term supply
agreement they had entered into in connection with the Company's disposition of
its Maesteg facility in July 2001, and they entered into a new, more flexible
arrangement with significantly reduced volume commitments. Under the new
arrangement, the Company will loan such supplier approximately $2.0 and the
supplier can earn performance-based payments of approximately $6.3 (less the
unpaid balance of such loan) over a 4-year period, contingent upon the supplier
achieving specific production service level goals. As part of terminating the
long-term supply agreement the supplier released the Company from the Company's
minimum purchase commitments under the old supply agreement, which were
approximately $145.5 over the 8-year term of such agreement. In exchange, the
Company waived approximately $10.0 of deferred purchase price which otherwise
would have been payable by the supplier to the Company in connection with the
July 2001 sale of the Maesteg facility (a portion of which was contingent on
future events). Such deferred purchase price, absent such waiver, would have
been payable by the supplier to the Company over a 6-year period.
28
REVLON, INC. AND SUBSIDIARIES
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has exposure to market risk both as a result of changing
interest rates and movements in foreign currency exchange rates. The Company's
policy is to manage market risk through a combination of fixed and floating rate
debt, the use of derivative financial instruments and foreign exchange forward
and option contracts. The Company does not hold or issue financial instruments
for trading purposes. The qualitative and quantitative information presented in
Item 7A of the Company's Annual Report on Form 10-K for the year ended December
31, 2001 describes significant aspects of the Company's financial instrument
programs that have material market risk as of December 31, 2001. The following
table presents the information required by Item 7A as of September 30, 2002.
EXPECTED MATURITY DATE FOR THE YEAR ENDED SEPTEMBER 30,
------------------------------------------------------------------------
2002 2003 2004 2005 2006 THEREAFTER
------------- -------- -------- ----------- ---------- ---------------
(DOLLARS IN MILLIONS)
DEBT
- ---------------
Short-term variable rate (various currencies).. $24.4
Average interest rate (a) ............... 8.1%
Long-term fixed rate ($US) .................... $352.7 $499.7 $649.9
Average interest rate ................... 12.0% 8.6% 8.6%
Long-term variable rate ($US).................. 177.8 *
Average interest rate (a)................ 7.9%
Long-term variable rate (various currencies)... 13.5 *
Average interest rate (a) ............... 9.3%
------------- -------- -------- ----------- ---------- --------------
Total debt .................................... $ 24.4 $ - $ - $ 544.0 $499.7 $649.9
============= ======== ======== =========== ========== ==============
FAIR VALUE
SEPT. 30,
TOTAL 2002
------------- ------------
(DOLLARS IN MILLIONS)
DEBT
- ---------------
Short-term variable rate (various currencies).. $24.4 $ 24.4
Average interest rate (a) ...............
Long-term fixed rate ($US) .................... 1,502.3 852.7
Average interest rate ...................
Long-term variable rate ($US).................. 177.8 177.8
Average interest rate (a)................
Long-term variable rate (various currencies)... 13.5 13.5
Average interest rate (a) ...............
------------ ------------
Total debt .................................... $ 1,718.0 $1,068.4
============ ============
AVERAGE ORIGINAL CONTRACT
CONTRACTUAL US DOLLAR VALUE FAIR VALUE
RATE NOTIONAL SEPT. 30, SEPT. 30,
FORWARD CONTRACTS $/FC AMOUNT 2002 2002
- ----------------- ----------- ---------------- ------------- ------------
Buy Euros/Sell USD ............................... 0.8713 $ 2.7 $ 3.1 $ 0.4
Sell British Pounds/Buy USD ...................... 1.4076 0.9 0.8 (0.1)
Sell Australian Dollars/Buy USD .................. 0.5170 2.3 2.2 (0.1)
Sell Canadian Dollars/Buy USD .................... 0.6254 5.8 5.7 (0.1)
Sell South African Rand/Buy USD .................. 0.0876 1.0 1.0 -
Buy South African Rand/Sell USD .................. 0.0928 0.6 0.6 -
Buy Australian Dollars/Sell New Zealand Dollars .. 1.2226 0.9 0.8 (0.1)
Buy British Pounds/Sell Euros .................... 0.6153 1.5 1.5 -
Sell British Pounds/Buy Euros .................... 0.6190 1.4 1.4 -
---------------- ------------- ------------
Total forward contracts .......................... $ 17.1 $ 17.1 $ -
================ ============= ============
____________________
(a) Weighted average variable rates are based upon implied forward rates from
the yield curves at September 30, 2002.
* Represents Products Corporation's Credit Agreement which matures in May
2005.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures:
The Company's Chief Executive Officer and Chief Financial Officer (who are its
principal executive officer and principal financial officer, respectively) have
within 90 days prior to the filing date of this report (the "Evaluation Date"),
evaluated the Company's disclosure controls and procedures (as defined in
Exchange Act Rule 13a-14(c) and 15d-14(c)). Based upon such evaluation we have
concluded that such disclosure controls and procedures are generally effective
to ensure that information required to be disclosed by the Company in the
reports filed or submitted by it under the Securities Exchange Act of 1934, as
amended, is recorded, processed, summarized and reported within the time periods
specified in the SEC's rules and that such information is accumulated and
communicated to management, including the Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow timely decisions regarding
disclosure.
29
REVLON, INC. AND SUBSIDIARIES
The Company's Chief Executive Officer and Chief Financial Officer have
determined that there were no significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the Evaluation Date.
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q for the quarter ended September 30,
2002, 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
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); its future
financial performance; the Company's estimates regarding the amount and timing
of capital expenditures; 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 timing, 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 effects
of the Company's trade terms for its U.S. customers; sources of funds, including
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 restructuring
indebtedness, selling assets or operations, capital contributions or loans from
affiliates of the Company and the sale of additional shares of Revlon, Inc.;
uses of funds, including for the payment of operating expenses, working capital,
purchases of permanent displays, capital expenditures (and the Company's
estimates of the amounts of such expenses), including for the ERP System,
restructuring costs (and the Company's estimates of the amounts and timing of
such costs) and debt service payments; the availability of raw materials and
components and, with respect to Europe, products; the Company's expectation that
the new supply arrangement with its principal third party manufacturer for
Europe will be flexible, and the Company's expectation that production
difficulties with such supplier will be resolved during the first half of 2003;
matters concerning market-risk sensitive instruments; the effects of the
assumptions and estimates underlying the Company's critical accounting policies;
the effects of the adoption of certain accounting principles; the receipt,
amount and timing of the payment of contingent deferred purchase price in
connection with the sale of certain assets; and Products Corporation's estimates
regarding achieving the minimum EBITDA covenant under the 2001 Credit Agreement
and Products Corporation's expectations that its lenders will cooperate to
negotiate a waiver or amendment of such covenant if it is not achieved.
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 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 websites shall not be deemed
incorporated by reference into this Quarterly Report on Form 10-Q. 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-
30
REVLON, INC. AND SUBSIDIARIES
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 implementation of new display walls; (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 achieving the intended results of the Company's trade
terms, including, without limitation, the possible effect of the trade terms on
sales; (ix) lower than expected cash flow from operations, the inability to
restructure indebtedness, sell assets or operations, secure capital
contributions or loans from affiliates of the Company or sell additional shares
of Revlon, Inc. or the unavailability of funds under the 2001 Credit Agreement;
(x) higher than expected operating expenses, working capital expenses, permanent
display costs, capital expenditures, including for the ERP System, restructuring
costs or debt service payments; (xi) difficulties, delays or unexpected costs in
sourcing raw materials or components, and with respect to Europe, products;
(xii) difficulties, delays or unanticipated costs or effects arising from the
Company's new supply arrangement with its principal European supplier and
resolving the production difficulties with such supplier; (xiii) interest rate
or foreign exchange rate changes affecting the Company and its market sensitive
financial instruments; (xiv) actual events varying from the assumptions and
estimates underlying the Company's critical accounting policies; (xv)
unanticipated effects of the Company's adoption of certain new accounting
standards; (xvi) combinations among significant customers or the loss,
insolvency or failure to pay debts by a significant customer or customers; and
(xvii) difficulties, delays or the inability of Products Corporation to achieve
the minimum EBITDA covenant under the 2001 Credit Agreement and, if such
covenant is not achieved, difficulties, delays or the inability of Products
Corporation to negotiate a waiver or amendment of such covenant. 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.
DISCLOSURE CONCERNING WEBSITE ACCESS TO COMPANY REPORTS
The Company's website address is www.revloninc.com. The Company makes
available, free of charge, on such website its Annual Report on Form 10-K,
Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments
to those reports as soon as reasonably practicable after such material is
electronically filed with or furnished to the Commission.
31
REVLON, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - NONE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS -
99.1 Certification of Jack L. Stahl, Chief Executive Officer, dated
November 14, 2002 pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
99.2 Certification of Douglas H. Greeff, Chief Financial Officer, dated
November 14, 2002 pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
(B) REPORTS ON FORM 8-K -
On August 14, 2002, the Company filed a current report on Form 8-K to
report that each of the Chief Executive Officer, Jack L. Stahl, and Chief
Financial Officer, Douglas H. Greeff, of Revlon, Inc., executed a Certification
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
On August 14, 2002, the Company filed a current report on Form 8-K to
report that each of the Principal Executive Officer, Jack L. Stahl, and
Principal Financial Officer, Douglas H. Greeff, of Revlon, Inc., submitted to
the Securities and Exchange Commission sworn statements pursuant to Securities
and Exchange Commission Order No. 4-460.
S I G N A T U R E S
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
REVLON, INC.
-----------
Registrant
By:/s/ Douglas H. Greeff By:/s/ Laurence Winoker
------------------------------------- -------------------------------------
Douglas H. Greeff Laurence Winoker
Executive Vice President Senior Vice President, Corporate
and Chief Financial Officer Controller and Treasurer
Dated: November 14, 2002
32
REVLON, INC. AND SUBSIDIARIES
CERTIFICATIONS
I, Jack L. Stahl, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Revlon, Inc. (the
"Registrant");
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the Registrant as of, and for, the periods presented in this
quarterly report;
4. The Registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the Registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the Registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The Registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the Registrant's auditors and the audit
committee of Registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Registrant's ability to
record, process, summarize and report financial data and have
identified for the Registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Registrant's internal
controls; and
6. The Registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
/s/ Jack L. Stahl
-----------------------
Jack L. Stahl
President and Chief Executive Officer
of Revlon, Inc.
Date: November 14, 2002
33
REVLON, INC. AND SUBSIDIARIES
CERTIFICATIONS
I, Douglas H. Greeff, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Revlon, Inc. (the
"Registrant");
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the Registrant as of, and for, the periods presented in this
quarterly report;
4. The Registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the Registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the Registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The Registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the Registrant's auditors and the audit
committee of Registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Registrant's ability to
record, process, summarize and report financial data and have
identified for the Registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Registrant's internal
controls; and
6. The Registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
/s/ Douglas H. Greeff
-----------------------
Douglas H. Greeff
Executive Vice President and Chief Financial Officer
of Revlon, Inc.
Date: November 14, 2002
34