UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
FORM 10-K
(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended December 31, 2010
OR
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from
to
Commission file number
33-59650
REVLON CONSUMER PRODUCTS
CORPORATION
(Exact name of registrant as specified in its charter)
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DELAWARE
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13-3662953
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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237 Park Avenue, New York, New York
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10017
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(Address of principal executive offices)
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(Zip Code)
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Registrants telephone number, including area code:
(212) 527-4000
Securities
registered pursuant to Section 12(b) or 12(g) of the
Act:
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Title of each class
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Name of each exchange on which registered
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Class A Common Stock
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New York Stock Exchange
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Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes o No x
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act.
Yes x No o
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 o No x
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
(§ 232.405 of this chapter) during the preceeding
12 months (or for such shorter period that the registrant
was required to submit and post such files).
Yes o No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
(§ 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrants
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this
Form 10-K
or any amendment to this
Form 10-K.
x
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2 of the
Exchange Act. (Check one):
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Large
accelerated
filer o
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Accelerated
filer o
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Non-accelerated
filer x
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Smaller
reporting
company o
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(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Act).
Yes o No x
The aggregate market value of voting stock held by
non-affiliates of the registrant is not applicable as all 5,260
outstanding shares of the registrants common stock were
held by one affiliate, Revlon, Inc., at December 31, 2010.
The registrant meets the conditions set forth in General
Instructions I(1)(a) and (b) of Form
10-K as,
among other things, all of the registrants equity
securities are owned directly by Revlon, Inc., which is a
reporting company under the Securities Exchange Act of 1934 and
which has filed with the SEC on February 17, 2011 all of
the material required to be filed pursuant to Section 13,
14 or 15(d) thereof and the registrant is therefore filing this
Form 10-K
with a reduced disclosure format, which omits the information
otherwise required by Items 4, 10, 11, 12 and 13 as
permitted under General Instruction I(2)(c) on
Form 10-K.
Revlon
Consumer Products Corporation and Subsidiaries
Form 10-K
For the
Year Ended December 31, 2010
Table of
Contents
1
PART I
Background
Revlon Consumer Products Corporation (Products
Corporation and together with its subsidiaries, the
Company) is a wholly-owned operating subsidiary of
Revlon, Inc., which is a direct and indirect majority-owned
subsidiary of MacAndrews & Forbes Holdings Inc.
(MacAndrews & Forbes Holdings and together
with certain of its affiliates other than the Company,
MacAndrews & Forbes), a corporation
wholly-owned by Ronald O. Perelman.
The Companys vision is glamour, excitement and innovation
through high-quality products at affordable prices. The Company
operates in a single segment and manufactures, markets and sells
an extensive array of cosmetics, womens hair color, beauty
tools, anti-perspirant deodorants, fragrances, skincare and
other beauty care products. The Company is one of the
worlds leading cosmetics companies in the mass retail
channel (as hereinafter defined). The Company believes that its
global brand name recognition, product quality and marketing
experience have enabled it to create one of the strongest
consumer brand franchises in the world.
The Companys products are sold worldwide and marketed
under such brand names as Revlon, including the Revlon
ColorStay, Revlon Super Lustrous and Revlon
Age Defying franchises, as well as the Almay
brand, including the Almay Intense i-Color and
Almay Smart Shade franchises, in cosmetics; Revlon
ColorSilk womens hair color; Revlon in beauty
tools; Mitchum anti-perspirant deodorants; Charlie
and Jean Naté in fragrances; and
Ultima II and Gatineau in skincare.
The Companys principal customers include large mass volume
retailers and chain drug and food stores (collectively, the
mass retail channel) in the U.S., as well as certain
department stores and other specialty stores, such as
perfumeries, outside the U.S. The Company also sells beauty
products to U.S. military exchanges and commissaries and
has a licensing business pursuant to which the Company licenses
certain of its key brand names to third parties for
complementary beauty-related products and accessories in
exchange for royalties.
The Company was founded by Charles Revson, who revolutionized
the cosmetics industry by introducing nail enamels matched to
lipsticks in fashion colors over 75 years ago. Today, the
Company has leading market positions in a number of its
principal product categories in the U.S. mass retail
channel, including color cosmetics (face, lip, eye and nail
categories), womens hair color, beauty tools and
anti-perspirant deodorants. The Company also has leading market
positions in several product categories in certain foreign
countries, including Australia, Canada and South Africa.
The
Companys Business Strategy
The Companys strategic goal is to profitably grow our
business. The business strategies employed by the Company to
achieve this goal are:
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1.
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Building our strong brands. We continue to
build our strong brands by focusing on innovative, high-quality,
consumer-preferred brand offering; effective consumer brand
communication; appropriate levels of advertising and promotion;
and superb execution with our retail partners.
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Developing our organizational capability. We
continue to develop our organizational capability through
attracting, retaining and rewarding highly capable people and
through performance management, development planning, succession
planning and training.
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3.
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Driving our company to act globally. We
continue to drive common global processes which are designed to
provide the most efficient and effective allocation of our
resources.
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Increasing our operating profit and cash
flow. We continue to focus on increasing our
operating profit and cash flow.
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5.
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Improving our capital structure. We continue
to improve our capital structure by focusing on strengthening
our balance sheet and reducing debt.
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Recent
Debt Reduction Transactions
Refinancing of the 2006 Term Loan and Revolving Credit
Facilities: In March 2010, Products Corporation
consummated a credit agreement refinancing (the 2010
Refinancing) consisting of the following transactions:
The 2010 Refinancing included refinancing Products
Corporations term loan facility, which was scheduled to
mature on January 15, 2012 and had $815.0 million
aggregate principal amount outstanding at December 31, 2009
(the 2006 Term Loan Facility), with a
5-year,
$800.0 million term loan facility due March 11, 2015
(the 2010 Term Loan Facility) under a second amended
and restated term loan agreement dated March 11, 2010 (the
2010 Term Loan Agreement), among Products
Corporation, as borrower, the lenders party thereto, Citigroup
Global Markets Inc. (CGMI), J.P. Morgan
Securities Inc. (JPM Securities), Banc of America
Securities LLC (BAS) and Credit Suisse Securities
(USA) LLC (Credit Suisse), as joint lead arrangers,
CGMI, JPM Securities, BAS, Credit Suisse and Natixis, New York
Branch (Natixis), as joint bookrunners, JPMorgan
Chase Bank, N.A. and Bank of America, N.A. as co-syndication
agents, Credit Suisse and Natixis as co-documentation agents,
and Citicorp USA, Inc. (CUSA), as administrative
agent and collateral agent.
The 2010 Refinancing also included refinancing Products
Corporations 2006 revolving credit facility, which was
scheduled to mature on January 15, 2012 and had nil
outstanding borrowings at December 31, 2009 (the 2006
Revolving Credit Facility and together with the 2006 Term
Loan Facility, the 2006 Credit Facilities and such
agreements, the 2006 Credit Agreements), with a
4-year,
$140.0 million asset-based, multi-currency revolving credit
facility due March 11, 2014 (the 2010 Revolving
Credit Facility and, together with the 2010 Term Loan
Facility, the 2010 Credit Facilities) under a second
amended and restated revolving credit agreement dated
March 11, 2010 (the 2010 Revolving Credit
Agreement and, together with the 2010 Term Loan Agreement,
the 2010 Credit Agreements), among Products
Corporation, as borrower, the lenders party thereto, CGMI and
Wells Fargo Capital Finance, LLC (WFS), as joint
lead arrangers, CGMI, WFS, BAS, JPM Securities and Credit
Suisse, as joint bookrunners, and CUSA, as administrative agent
and collateral agent.
Products Corporation used the approximately $786 million of
proceeds from the 2010 Term Loan Facility, which was drawn in
full on the March 11, 2010 closing date and issued to
lenders at 98.25% of par, plus approximately $31 million of
available cash and approximately $20 million then drawn on
the 2010 Revolving Credit Facility to refinance in full the
$815.0 million of outstanding indebtedness under the 2006
Term Loan Facility and to pay approximately $7 million of
accrued interest and approximately $15 million of fees and
expenses incurred in connection with consummating the 2010
Refinancing, of which approximately $9 million was
capitalized.
Products
The Company manufactures and markets a variety of products
worldwide. The following table sets forth the Companys
principal brands.
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ANTI-
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BEAUTY
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PERSPIRANT
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COSMETICS
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HAIR
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TOOLS
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FRAGRANCE
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DEODORANTS
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SKINCARE
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Revlon
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Revlon ColorSilk
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Revlon
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Charlie
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Mitchum
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Gatineau
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Almay
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Jean Naté
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Ultima II
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Cosmetics Revlon: The Company
sells a broad range of cosmetics under its flagship
Revlon brand designed to fulfill consumer needs,
principally priced in the upper range of the mass retail
channel, including face, lip, eye and nail products. Certain of
the Companys products incorporate patented, patent-pending
or proprietary technology. (See New Product Development
and Research and Development).
The Company sells face makeup, including foundation, powder,
blush and concealers, under the Revlon brand name.
Revlon Age Defying, which is targeted for women in
the over-35 age bracket, incorporates the Companys
patented Botafirm ingredients to help reduce the
appearance of lines and wrinkles. Revlon Age Defying Spa
foundation and concealer instantly revitalize and brighten,
while protecting against the appearance of fine lines. The
Company also markets a complete range of Revlon ColorStay
liquid and powder face makeup with patented long-wearing
ingredients and SoftFlex technology for enhanced comfort.
The Revlon ColorStay Mineral collection
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includes Revlon ColorStay Mineral Mousse makeup, as well
as Revlon ColorStay Mineral pressed blush and bronzer.
Revlon ColorStay Aqua Mineral Makeup provides an instant
cooling burst of hydrating coconut water for a luminous look
that lasts all day. The Revlon PhotoReady franchise,
which includes makeup, powder and finisher, are designed with
innovative photochromatic pigments that bend and reflect light
to give a flawless, airbrushed appearance in any light.
Revlon PhotoReady Compact Makeup has an innovative screen
that transforms cream to liquid and dries down to a soft powder
finish. Revlon PhotoReady Concealer is an all-over face
concealer that helps erase imperfections and camouflage dark
under-eye circles.
The Company markets several different lines of Revlon lip
makeup, including lipstick, lip gloss and lip liner, under
several Revlon brand names. Revlon Super Lustrous
is the Companys flagship wax-based lipcolor, offered
in a wide variety of shades of lipstick and lip gloss, and has
LiquiSilk technology designed to boost moisturization
using silk dispersed in emollients. Revlon ColorStay
Soft & Smooth lip color, with patented
ingredients, offers long-wearing benefits while enhancing
comfort with SoftFlex technology, while Revlon
ColorStay Overtime is a two-step long-wear lipcolor that
uses patented transfer resistant technoloy and gives the
consumer up to 24 hours of color. Revlon ColorStay
Ultimate liquid lipstick is the first and only lipcolor that
has patented ColorStay long-wearing technology, which is
comfortable, food-proof and wears for up to 24 hours in one
simple step. Revlon ColorStay Mineral lipglaze is the
Companys first long-wearing lip gloss with up to eight
hours of wear. Revlon Just Bitten is a dual ended Lip
Stain and Lip Balm that provides kiss-proof color with soft
shine. Revlon ColorBurst lipgloss is a high-shine
luxurious lipgloss available in 15 shades that provides a pop of
weightless color and mirror-like shine.
The Companys eye makeup products include mascaras,
eyeliners, eye shadows and brow products, under several
Revlon brand names. In mascaras, key franchises include
Revlon Grow Luscious, a lengthening mascara with a
conditioning formula that complements lashes natural
growth cycle so lashes get stronger; Revlon DoubleTwist,
a mascara featuring a unique
two-in-one
brush for massive volume and remarkable definition; Revlon
Lash Fantasy Total Definition, a two-step primer and mascara
with lash-separating brushes for enhanced definition; and
Revlon CustomEyes, a mascara that provides two different
lash looks either length and drama or length and
definition with one revolutionary adjustable bristle brush. In
eyeliners, Revlon ColorStay eyeliners deliver beautiful
color that wears up to 16 hours and Revlon Luxurious
Color liners have a smooth formula that provides rich,
luxurious color. Revlon Luxurious Color smoky eye crayon
provides a smoky eye effect with creamy, rich color. In eye
shadow, Revlon ColorStay
12-hour
patented long-wearing eyeshadow has silky, smooth color that
does not crease, fade or smudge, while Revlon Luxurious Color
eyeshadows in satin, perle and matte finishes offer rich,
smooth and velvety application. Revlon CustomEyes shadow
and liner provides a coordinated eye look with four shadows and
a liner in each palette.
The Companys nail color and nail care lines include
enamels, treatments and cuticle preparations. The Companys
core Revlon nail enamel uses a patented formula that
provides consumers with improved wear, application, shine and
gloss in a toluene-free, formaldehyde-free and phthalate-free
formula. The Company offers eight nail care products including
the Companys topselling Revlon Quick Dry Top Coat
and Revlon Quick Dry Basecoat that help extend the
wear and quality of a manicure. Revlon Top Speed nail
enamel is a quick dry nail color that sets in 60 seconds and
comes in 32 on-trend shades. Revlon Scented nail enamel
is scented when dry and comes in 16 shades.
Hair Revlon: The Company sells
both hair color and haircare products throughout the world. In
womens hair color, the Company markets brands, including
Revlon ColorSilk, with patented ingredients which offer
radiant, rich color with conditioning. Revlon Colorsilk
Luminista, a line extension to Revlon Colorsilk, is
designed to add vibrant color and high shine to naturally dark
hair.
Beauty Tools Revlon: The Company
sells Revlon beauty tools, which include nail, eye and
pedicure grooming tools, such as clippers, scissors, files,
tweezers, eye lash curlers and a full line of makeup brushes
under the Revlon brand name. Revlon beauty tools
are sold individually and in sets.
Cosmetics Almay: The
Companys Almay brand consists of hypo-allergenic,
dermatologist-tested, fragrance-free cosmetics and skincare
products. Almay products include face and eye makeup and
makeup removers.
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Within the face category, Almay Smart Shade offers
patented ingredients for foundation and concealer that are
designed to match consumer skin tones. The Almay Smart Shade
franchise includes Almay Smart Shade Smart Balance
pressed powder, the first pressed powder launch for the
Almay Smart Shade franchise. Almay TLC Truly Lasting
Color makeup and pressed powder have long-wearing formulas
that help nourish and protect the skin for up to 16 hours
of coverage. Also, Almay
Wake-Up
foundation is an innovative powder formula that delivers a
radiant, well-rested look while offering a cooling sensation to
the skin.
In eye makeup, the flagship brand, Almay Intense i-Color,
enhances and intensifies eyes through color-coordinated shades
of shadow, liner and mascara for each eye color. The Almay
Intense i-Color Smoky-i kit helps consumers acheive the
smoky eye look with ease. The Almay One Coat mascara
franchise includes products for lash thickening and visible
lengthening, and the patented Almay Triple Effect mascara
offers a more dramatic look. Almay One Coat Get
Up & Grow mascara provides instant lengthening,
while conditioning to promote long-term lash health and growth.
Almay eye makeup removers are offered in a range of pads
and towelettes.
Anti-perspirant deodorants: In the
anti-perspirant deodorants product category, the Company markets
Mitchum anti-perspirant products, with patented
ingredients, in many countries. The Company plans to introduce
Mitchum Advanced Control, a line of stick/solid
antiperspriants offered in five fragrances. Mitchum Advanced
Control delivers a new formula featuring FreshDefense
technology which offers the highest level of active
ingredient for maximum protection against wetness and odor.
Fragrances: The Company sells a selection of
moderately-priced and premium-priced fragrances, including
perfumes, eau de toilettes, colognes and body sprays. The
Companys portfolio includes fragrances under
globally-recognized brand names such as Charlie and
Jean Naté.
Skincare: The Company sells skincare products
in the U.S. and in global markets under
internationally-recognized brand names, including Revlon
and Almay, and under various regional brands,
including the Companys premium-priced Gatineau
brand, as well as Ultima II.
Marketing
The Company markets extensive consumer product lines principally
priced in the upper range of the mass retail channel and certain
other channels outside of the U.S.
The Company uses print, television and internet advertising, as
well as
point-of-sale
merchandising, including displays and samples, coupons and other
trial incentives. The Companys marketing emphasizes a
uniform global image and product for its portfolio of core
brands. The Company coordinates advertising campaigns with
in-store promotional and other marketing activities. The Company
develops jointly with retailers carefully tailored advertising,
point-of-purchase
and other focused marketing programs.
The Company also uses cooperative advertising programs,
Company-paid or Company-subsidized demonstrators, and
coordinated in-store promotions and displays. Other marketing
materials designed to introduce the Companys newest
products to consumers and encourage trial and purchase in-store
include trial-size products and couponing. Additionally, the
Company maintains separate websites, www.revlon.com,
www.almay.com and www.mitchumman.com devoted to the
Revlon, Almay and Mitchum brands,
respectively. Each of these websites feature product and
promotional information for the brands and are updated regularly
to stay current with the Companys new product launches and
other advertising and promotional campaigns.
New
Product Development and Research and Development
The Company believes that it is an industry leader in the
development of innovative and technologically-advanced cosmetics
and beauty products. The Companys marketing and research
and development groups identify consumer needs and shifts in
consumer preferences in order to develop new products, introduce
line extensions and promotions and redesign or reformulate
existing products to satisfy such needs or preferences. The
Companys research and development group is comprised of
departments specialized in the technologies critical to the
Companys various product categories. The Company has a
global cross-functional product development process, including a
rigorous process for the continuous development and evaluation
of new product concepts, led by executives in marketing, sales,
research and development, operations, law and finance. This
process has improved
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the Companys new product commercialization process and
created a comprehensive, long-term portfolio strategy and is
intended to optimize the Companys ability to regularly
bring to market innovative new product offerings and to manage
the Companys product portfolio.
The Company operates an extensive cosmetics research and
development facility in Edison, New Jersey. The scientists at
the Edison facility are responsible for all of the
Companys new product research and development worldwide
and performing research for new products, ideas, concepts and
packaging. The research and development group at the Edison
facility also performs extensive safety and quality testing on
the Companys products, including toxicology, microbiology,
efficacy and package testing. Additionally, quality control
testing is performed at each of the Companys manufacturing
facilities.
As of December 31, 2010, the Company employed approximately
140 people in its research and development activities,
including specialists in pharmacology, toxicology, chemistry,
microbiology, engineering, biology, dermatology and quality
control. In 2010, 2009 and 2008, the Company spent
$24.0 million, $23.9 million and $24.3 million,
respectively, on research and development activities.
Manufacturing
and Related Operations and Raw Materials
During 2010, the Companys cosmetics
and/or
personal care products were produced at the Companys
facilities in North Carolina, Venezuela, France and South Africa
and at third-party facilities around the world.
The Company continually reviews its manufacturing needs against
its manufacturing capacities to identify opportunities to reduce
costs and operate more efficiently. The Company purchases raw
materials and components throughout the world, and continuously
pursues reductions in cost of goods through the global sourcing
of raw materials and components from qualified vendors,
utilizing its purchasing capacity to maximize cost savings. The
Companys global sourcing strategy for materials and
components from accredited vendors is also designed to ensure
the highest quality and the continuity of supply of the raw
materials and components. The Company believes that alternate
sources of raw materials and components exist and does not
anticipate any significant shortages of, or difficulty in
obtaining, such materials.
Distribution
The Companys products are sold in more than 100 countries
across six continents. The Companys worldwide sales force
had approximately 220 people as of December 31, 2010.
In addition, the Company utilizes sales representatives and
independent distributors to serve certain markets and related
distribution channels.
United States. Net sales in the
U.S. accounted for approximately 55% of the Companys
2010 net sales, more than a majority of which were made in
the mass retail channel. The Company also sells a broad range of
its products to U.S. Government military exchanges and
commissaries. The Company licenses its trademarks to select
manufacturers for complimentary beauty-related products and
accessories that the Company believes have the potential to
extend the Companys brand names and image. As of
December 31, 2010, twelve (12) of such complimentary
licenses were in effect relating to eighteen (18) product
categories, which are marketed principally in the mass-market
distribution channel. Pursuant to such licenses, the Company
retains strict control over product design and development,
product quality, advertising and the use of its trademarks.
These licensing arrangements offer opportunities for the Company
to generate revenues and cash flow through royalties and renewal
fees, some of which have been prepaid from time to time.
The Companys retail merchandisers stock and maintain the
Companys
point-of-sale
wall displays intended to ensure that high-selling SKUs are in
stock and to ensure the optimal presentation of the
Companys products in retail outlets.
Outside of the United States. Net sales
outside the U.S. accounted for approximately 45% of the
Companys 2010 net sales. The five largest countries
in terms of these sales were South Africa, Australia, Canada,
the U.K and Venezuela, which together accounted for
approximately 25% of the Companys 2010 consolidated net
sales. The Company distributes its products through drug stores
and chemist shops, hypermarkets, mass volume retailers, general
merchandise stores, department stores and specialty stores such
as perfumeries. At December 31, 2010, the
6
Company actively sold its products through wholly-owned
subsidiaries established in 14 countries outside of the
U.S. and through a large number of distributors and
licensees elsewhere around the world.
Customers
The Companys principal customers include large mass volume
retailers and chain drug stores, including such well-known
retailers as Walmart, Walgreens, CVS and Target in the U.S.,
Shoppers DrugMart in Canada, A.S. Watson & Co. retail
chains in Asia Pacific and Europe and Boots in the United
Kingdom. Walmart and its affiliates worldwide accounted for
approximately 22% of the Companys 2010 consolidated net
sales. As is customary in the consumer products industry, none
of the Companys customers is under an obligation to
continue purchasing products from the Company in the future. The
Company expects that Walmart and a small number of other
customers will, in the aggregate, continue to account for a
large portion of the Companys net sales. (See
Item 1A. Risk Factors The Company depends
on a limited number of customers for a large portion of its net
sales and the loss of one or more of these customers could
reduce the Companys net sales and have a material adverse
affect on the Companys business, financial condition
and/or
results of operations).
Competition
The consumer products business is highly competitive. The
Company competes primarily by:
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developing quality products with innovative performance
features, shades, finishes, components and packaging;
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educating consumers on the Companys product benefits;
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anticipating and responding to changing consumer demands in a
timely manner, including the timing of new product introductions
and line extensions;
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offering attractively priced products relative to the product
benefits provided;
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maintaining favorable brand recognition;
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generating competitive margins and inventory turns for its
retail customers by providing relevant products and executing
effective pricing, incentive and promotion programs;
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ensuring product availability through effective planning and
replenishment collaboration with retailers;
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providing strong and effective advertising, marketing, promotion
and merchandising support;
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maintaining an effective sales force; and
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obtaining and retaining sufficient retail floor space, optimal
in-store positioning and effective presentation of its products
at retail.
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The Company competes in selected product categories against a
number of multi-national manufacturers. In addition to products
sold in the mass retail channel and demonstrator-assisted
channels, the Companys products also compete with similar
products sold in prestige and department stores, television
shopping,
door-to-door,
specialty stores, the internet, perfumeries and other
distribution outlets. The Companys competitors include,
among others, LOréal S.A., The Procter &
Gamble Company, Avon Products, Inc. and The Estée Lauder
Companies Inc. (See Item 1A. Risk Factors
Competition in the consumer products business could have a
material adverse affect on the Companys business,
financial condition
and/or
results of operations).
Patents,
Trademarks and Proprietary Technology
The Companys major trademarks are registered in the
U.S. and in over 150 other countries, and the Company
considers trademark protection to be very important to its
business. Significant trademarks include Revlon,
Revlon ColorStay, Revlon Age Defying makeup
with Botafirm, Revlon Super Lustrous,
Almay, Almay Smart Shade, Mitchum,
Charlie, Jean Naté, Revlon ColorSilk
and, outside the U.S., Gatineau and Ultima II.
The Company regularly renews its trademark registrations in the
ordinary course of business.
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The Company utilizes certain proprietary, patent-pending or
patented technologies in the formulation, packaging or
manufacture of a number of the Companys products,
including, among others, Revlon ColorStay cosmetics,
including Revlon ColorStay Mineral blush and foundation,
Revlon ColorStay Ultimate liquid lipstick and Revlon
New Complexion makeup; Revlon Age Defying
cosmetics; the Revlon Beyond Natural collection;
Fabulash mascara; Almay Smart Shade makeup;
Almay Intense i-Color eye makeup; Revlon ColorSilk
hair color; Mitchum anti-perspirant; and the
Revlon Pedi-Expert pedicure tool. The Company also
protects certain of its packaging and component concepts through
patents. The Company considers its proprietary technology and
patent protection to be important to its business.
The Company files patents in the ordinary course of business on
certain of the Companys new technologies. Patents in the
U.S. are effective for up to 20 years and
international patents are generally effective for up to
20 years. The patents that the Company currently has in
place expire at various times between 2011 and 2031 and the
Company expects to continue to file patent applications on
certain of its technologies in the ordinary course of business
in the future.
Government
Regulation
The Company is subject to regulation by the Federal Trade
Commission (the FTC) and the Food and Drug
Administration (the FDA) in the U.S., as well as
various other federal, state, local and foreign regulatory
authorities, including those in the European Union (the
EU), Canada and other countries in which the Company
operates. The Companys Oxford, North Carolina
manufacturing facility is registered with the FDA as a drug
manufacturing establishment, permitting the manufacture of
cosmetics that contain
over-the-counter
drug ingredients, such as sunscreens and anti-perspirants.
Compliance with federal, state, local and foreign laws and
regulations pertaining to the discharge of materials into the
environment, or otherwise relating to the protection of the
environment, has not had, and is not anticipated to have, a
material effect on the Companys capital expenditures,
earnings or competitive position. Regulations in the U.S., the
EU, Canada and in other countries in which the Company operates
that are designed to protect consumers or the environment have
an increasing influence on the Companys product claims,
ingredients and packaging. (See Risk Factors
The Companys products are subject to federal, state and
international regulations that could adversely affect the
Companys business, financial condition
and/or
results of operations).
Industry
Segments, Foreign and Domestic Operations
The Company operates in a single segment. Certain geographic,
financial and other information of the Company is set forth in
the Consolidated Statements of Operations and Note 19,
Geographic, Financial and Other Information, to the
Companys Consolidated Financial Statements.
Employees
As of December 31, 2010, the Company employed approximately
4,900 people. As of December 31, 2010, approximately
20 of such employees in the U.S. were covered by collective
bargaining agreements. The Company believes that its employee
relations are satisfactory.
Available
Information
The public may read and copy any materials that the Company
files with the SEC, including, without limitation, its Annual
Reports on
Form 10-K,
Quarterly Reports on
Form 10-Q
and Current Reports on
Form 8-K,
at the SECs Public Reference Room at
100 F Street, NE, Washington, D.C. 20549.
Information in the Public Reference Room may be obtained by
calling the SEC at
1-800-SEC-0330.
In addition, the SEC maintains an internet site that contains
reports, proxy and information statements, and other information
regarding issuers that file with the SEC at
http://www.sec.gov.
In addition to the other information in this report, investors
should consider carefully the following risk factors when
evaluating the Companys business.
8
Products
Corporations substantial indebtedness could adversely
affect the Companys operations and flexibility and
Products Corporations ability to service its
debt.
Products Corporation has a substantial amount of outstanding
indebtedness. As of December 31, 2010, the Companys
total indebtedness was $1,219.6 million, primarily
including $794.0 million aggregate principal amount
outstanding under the 2010 Term Loan Facility,
$330.0 million in aggregate principal face amount
outstanding of Products Corporations
93/4% Senior
Secured Notes and $107.0 million aggregate principal amount
outstanding under the Senior Subordinated Term Loan (which is
comprised of $58.4 million of indebtedness due to
MacAndrews & Forbes under the Non-Contributed Loan (as
hereinafter defined) and $48.6 million of indebtedness due
to Revlon, Inc. under the Contributed Loan (as hereinafter
defined)). While Products Corporation achieved net income of
$324.3 million (with $324.0 million of income from
continuing operations (which included a one-time non-cash
benefit of $248.5 million related to a reduction of the
Companys deferred tax valuation allowance on its net
U.S. deferred tax assets at December 31, 2010 as a
result of the Company achieving three cumulative years, as well
as its third consecutive year, of positive U.S. GAAP
pre-tax income and taxable income in the U.S., and based upon
the Companys current expectations for the realization of
such deferred tax benefits in the U.S.)) and $58.8 million
(with $58.5 million of income from continuing operations)
for the years ended December 31, 2010 and 2009,
respectively, the Company has a history of net losses prior to
2008 and, in addition, if it is unable to achieve sustained
profitability and free cash flow in future periods, it could
adversely affect the Companys operations and Products
Corporations ability to service its debt.
The Company is subject to the risks normally associated with
substantial indebtedness, including the risk that the
Companys operating revenues will be insufficient to meet
required payments of principal and interest, and the risk that
Products Corporation will be unable to refinance existing
indebtedness when it becomes due or that the terms of any such
refinancing will be less favorable than the current terms of
such indebtedness. Products Corporations substantial
indebtedness could also have the effect of:
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limiting the Companys ability to fund (including by
obtaining additional financing) the costs and expenses of the
execution of the Companys business strategy, future
working capital, capital expenditures, advertising, promotional
or marketing expenses, new product development costs, purchases
and reconfigurations of wall displays, acquisitions,
investments, restructuring programs and other general corporate
requirements;
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requiring the Company to dedicate a substantial portion of its
cash flow from operations to payments on Products
Corporations indebtedness, thereby reducing the
availability of the Companys cash flow for the execution
of the Companys business strategy and for other general
corporate purposes;
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placing the Company at a competitive disadvantage compared to
its competitors that have less debt;
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limiting the Companys flexibility in responding to changes
in its business and the industry in which it operates; and
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making the Company more vulnerable in the event of adverse
economic conditions or a downturn in its business.
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Although agreements governing Products Corporations
indebtedness, including the 2010 Credit Agreements, the
indenture governing Products Corporations outstanding
93/4% Senior
Secured Notes and the Senior Subordinated Term Loan Agreement,
limit Products Corporations ability to borrow additional
money, under certain circumstances Products Corporation is
allowed to borrow a significant amount of additional money, some
of which, in certain circumstances and subject to certain
limitations, could be secured indebtedness. To the extent that
more debt is added to the Companys current debt levels,
the risks described above may increase.
Products
Corporations ability to pay the principal of its
indebtedness depends on many factors.
The 2010 Term Loan Facility matures in March 2015, the 2010
Revolving Credit Facility matures in March 2014, the Contributed
Loan under the Senior Subordinated Term Loan matures in October
2013, the Non-Contributed Loan under the Senior Subordinated
Term Loan matures in October 2014, and the
93/4% Senior
Secured Notes mature in November 2015. Products Corporation
currently anticipates that, in order to pay the principal
9
amount of its outstanding indebtedness upon the occurrence of
any event of default, to repurchase its
93/4% Senior
Secured Notes if a change of control occurs or in the event that
Products Corporations cash flows from operations are
insufficient to allow it to pay the principal amount of its
indebtedness at maturity, the Company may be required to
refinance Products Corporations indebtedness, seek to sell
assets or operations, seek to sell additional debt securities of
Products Corporation or seek additional capital contributions or
loans from MacAndrews & Forbes, Revlon, Inc. or from
the Companys other affiliates
and/or third
parties. The Company may be unable to take any of these actions,
because of a variety of commercial or market factors or
constraints in Products Corporations debt instruments,
including, for example, market conditions being unfavorable for
an equity or debt issuance, additional capital contributions or
loans not being available from affiliates
and/or third
parties, or that the transactions may not be permitted under the
terms of the various debt instruments then in effect, such as
due to restrictions on the incurrence of debt, incurrence of
liens, asset dispositions
and/or
related party transactions. Such actions, if ever taken, may not
enable the Company to satisfy its cash requirements or enable
the Company to comply with the financial covenants under the
2010 Credit Agreements if the actions do not result in
sufficient savings or generate a sufficient amount of additional
capital, as the case may be.
None of the Companys affiliates are required to make any
capital contributions, loans or other payments to Products
Corporation regarding its obligations on its indebtedness.
Products Corporation may not be able to pay the principal amount
of its indebtedness using any of the above actions because,
under certain circumstances, the indenture governing Products
Corporations outstanding
93/4% Senior
Secured Notes or any of its other debt instruments (including
the 2010 Credit Agreements and the Senior Subordinated Term Loan
Agreement) or the debt instruments of Products
Corporations subsidiaries then in effect may not permit
the Company to take such actions. (See Restrictions and
covenants in Products Corporations debt agreements limit
its ability to take certain actions and impose consequences in
the event of failure to comply).
The future state of the credit markets, including any volatility
and/or
tightening of the credit markets and reduction in credit
availability, could adversely impact the Companys ability
to refinance or replace Products Corporations outstanding
indebtedness at or prior to their respective maturity dates,
which would have a material adverse effect on the Companys
business, financial condition
and/or
results of operations.
Restrictions
and covenants in Products Corporations debt agreements
limit its ability to take certain actions and impose
consequences in the event of failure to comply.
Agreements governing Products Corporations outstanding
indebtedness, including the 2010 Credit Agreements, the
93/4% Senior
Secured Notes Indenture and the Senior Subordinated Term Loan
Agreement, contain a number of significant restrictions and
covenants that limit Products Corporations ability
(subject in each case to limited exceptions) to, among other
things:
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borrow money;
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use assets as security in other borrowings or transactions;
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pay dividends on stock or purchase stock;
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sell assets and use the proceeds from such sales;
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enter into certain transactions with affiliates;
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make certain investments;
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prepay, redeem or repurchase specified indebtedness; and
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permit restrictions on the payment of dividends by Products
Corporations subsidiaries.
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In addition, the 2010 Credit Agreements contain financial
covenants limiting Products Corporations senior secured
debt-to-EBITDA
ratio (in the case of the 2010 Term Loan Agreement) and, under
certain circumstances, requiring Products Corporation to
maintain a minimum consolidated fixed charge coverage ratio (in
the case of the 2010 Revolving Credit Agreement). These
covenants affect Products Corporations operating
flexibility by, among other things, restricting its ability to
incur expenses and indebtedness that could be used to fund the
costs of
10
executing the Companys business strategy and to grow the
Companys business, as well as to fund general corporate
purposes.
The breach of the 2010 Credit Agreements would permit Products
Corporations lenders to accelerate amounts outstanding
under the 2010 Credit Agreements, which would in turn constitute
an event of default under the Senior Subordinated Term Loan
Agreement and the
93/4% Senior
Secured Notes Indenture, if the amount accelerated exceeds
$25.0 million and such default remains uncured for
10 days following notice from MacAndrews & Forbes
with respect to the Non-Contributed Loan or the trustee or the
holders of at least 30% of the outstanding principal amount of
the notes under the
93/4% Senior
Secured Notes Indenture. In addition, holders of Products
Corporations outstanding
93/4% Senior
Secured Notes may require Products Corporation to repurchase
their respective notes in the event of a change of control under
the
93/4% Senior
Secured Notes Indenture. Upon a change of control, Products
Corporation would be required, after fulfilling its repayment
obligations under the
93/4% Senior
Secured Notes Indenture, to repay in full the Senior
Subordinated Term Loan, provided that Revlon, Inc. at such time
has redeemed or is then concurrently redeeming all of the shares
of Revlon, Inc.s Series A preferred stock, par value
$0.01 per share (the Preferred Stock). (See
Products Corporations ability to pay the principal
of its indebtedness depends on many factors). Products
Corporation may not have sufficient funds at the time of any
such breach of any such covenant or change of control to repay
in full the borrowings under the 2010 Credit Agreements or the
Senior Subordinated Term Loan Agreement or to repurchase or
redeem its outstanding
93/4% Senior
Secured Notes.
Events beyond the Companys control could impair the
Companys operating performance, which could affect
Products Corporations ability to comply with the terms of
Products Corporations debt instruments. Such events may
include decreased consumer spending in response to weak economic
conditions or weakness in the cosmetics category in the mass
retail channel; adverse changes in currency exchange rates;
decreased sales of the Companys products as a result of
increased competitive activities by the Companys
competitors; changes in consumer purchasing habits, including
with respect to shopping channels; retailer inventory
management; changes in retailer pricing or promotional
strategies; retailer space reconfigurations or reductions in
retailer display space; less than anticipated results from the
Companys existing or new products or from its advertising,
promotional
and/or
marketing plans; or if the Companys expenses, including,
without limitation, for pension expense under its benefit plans,
advertising, promotions
and/or
marketing activities or for sales returns related to any
reduction of retail space, product discontinuances or otherwise,
exceed the anticipated level of expenses.
Under such circumstances, Products Corporation may be unable to
comply with the provisions of Products Corporations debt
instruments, including the financial covenants in the 2010
Credit Agreements. If Products Corporation is unable to satisfy
such covenants or other provisions at any future time, Products
Corporation would need to seek an amendment or waiver of such
financial covenants or other provisions. The respective lenders
under the 2010 Credit Agreements may not consent to any
amendment or waiver requests that Products Corporation may make
in the future, and, if they do consent, they may not do so on
terms which are favorable to it
and/or
Revlon, Inc.
In the event that Products Corporation was unable to obtain any
such waiver or amendment, Products Corporations inability
to meet the financial covenants or other provisions of the 2010
Credit Agreements would constitute an event of default under the
2010 Credit Agreements, which would permit the bank lenders to
accelerate the 2010 Credit Agreements, which in turn would
constitute an event of default under the Senior Subordinated
Term Loan Agreement and the
93/4% Senior
Secured Notes Indenture, if the amount accelerated exceeds
$25.0 million and such default remains uncured for
10 days following notice from MacAndrews & Forbes
with respect to the Non-Contributed Loan or the trustee or the
holders of at least 30% of the outstanding principal amount of
the outstanding notes under the
93/4% Senior
Secured Notes Indenture.
Products Corporations assets
and/or cash
flow and/or
that of Products Corporations subsidiaries may not be
sufficient to fully repay borrowings under its outstanding debt
instruments, either upon maturity or if accelerated upon an
event of default, and if Products Corporation was required to
repurchase its outstanding
93/4% Senior
Secured Notes or repay the Senior Subordinated Term Loan or
repay the 2010 Credit Agreements upon a change of control,
Products Corporation may be unable to refinance or restructure
the payments on such debt. Further, if Products Corporation was
unable to repay, refinance or restructure its indebtedness under
the 2010 Credit Agreements
and/or the
93/4% Senior
Secured Notes, the lenders and the noteholders, as applicable,
subject to
11
certain conditions and limitations as set forth in the third
amended and restated intercreditor agreement, could proceed
against the collateral securing that indebtedness.
Limits on
Products Corporations borrowing capacity under the 2010
Revolving Credit Facility may affect the Companys ability
to finance its operations.
While the 2010 Revolving Credit Facility currently provides for
up to $140.0 million of commitments, Products
Corporations ability to borrow funds under this facility
is limited by a borrowing base determined relative to the value,
from time to time, of eligible accounts receivable and eligible
inventory in the U.S. and the U.K. and eligible real
property and equipment in the U.S.
If the value of these eligible assets is not sufficient to
support the full $140.0 million borrowing base, Products
Corporation will not have full access to the 2010 Revolving
Credit Facility, but rather could have access to a lesser amount
determined by the borrowing base. As Products Corporation
continues to manage its working capital, this could reduce the
borrowing base under the 2010 Revolving Credit Facility.
Further, if Products Corporation borrows funds under this
facility, subsequent changes in the value or eligibility of the
assets within the borrowing base could cause Products
Corporation to be required to pay down the amounts outstanding
so that there is no amount outstanding in excess of the
then-existing borrowing base.
Products Corporations ability to make borrowings under the
2010 Revolving Credit Facility is also conditioned upon its
compliance with other covenants in the 2010 Revolving Credit
Agreement, including a fixed charge coverage ratio that applies
when the difference between (1) the borrowing base under
the 2010 Revolving Credit Facility and (2) the amounts
outstanding under such facility is less than $20.0 million.
Because of these limitations, Products Corporation may not
always be able to meet its cash requirements with funds borrowed
under the 2010 Revolving Credit Facility, which could have a
material adverse effect on the Companys business,
financial condition
and/or
results of operations.
At December 31, 2010, the 2010 Term Loan Facility was fully
drawn, and the Company had a liquidity position of approximately
$185.0 million, consisting of cash and cash equivalents
(net of any outstanding checks) of approximately
$73.3 million, as well as approximately $111.7 million
in available borrowings under the 2010 Revolving Credit
Facility, based upon the calculated borrowing base less
$21.2 million outstanding letters of credit and nil then
drawn under the 2010 Revolving Credit Facility at such date.
The 2010 Revolving Credit Facility is syndicated to a group of
banks and financial institutions. Each bank is responsible to
lend its portion of the $140.0 million commitment if and
when Products Corporation seeks to draw under the 2010 Revolving
Credit Facility. The lenders may assign their commitments to
other banks and financial institutions in certain cases without
prior notice to Products Corporation. If a lender is unable to
meet its lending commitment, then the other lenders under the
2010 Revolving Credit Facility have the right, but not the
obligation, to lend additional funds to make up for the
defaulting lenders commitment, if any. While Products
Corporation has never had any of its lenders under the 2010
Revolving Credit Facility fail to fulfill their lending
commitment, economic conditions in late 2008 and 2009 and the
volatility in the financial markets during that time period have
impacted the liquidity and financial condition of certain banks
and financial institutions. Based on information available to
the Company, the Company has no reason to believe that any of
the lenders under Products Corporations 2010 Revolving
Credit Facility would be unable to fulfill their commitments to
lend as of December 31, 2010. However, if one or more
lenders under the 2010 Revolving Credit Facility were unable to
fulfill their commitment to lend, such inability would impact
the Companys liquidity and, depending upon the amount
involved and the Companys liquidity requirements, could
have an adverse affect on the Companys ability to fund its
operations, which could have a material adverse effect on the
Companys business, financial condition
and/or
results of operations.
A
substantial portion of Products Corporations indebtedness
is subject to floating interest rates.
A substantial portion of Products Corporations
indebtedness is subject to floating interest rates, which makes
the Company more vulnerable in the event of adverse economic
conditions, increases in prevailing interest rates or a downturn
in the Companys business. As of December 31, 2010,
$785.7 million of Products Corporations total
12
indebtedness, or approximately 65% of Products
Corporations total indebtedness, was subject to floating
interest rates.
Under the 2010 Term Loan Facility, loans bear interest, at
Products Corporations option, at either the Eurodollar
Rate (as defined in the 2010 Term Loan Agreement) plus 4.0% per
annum (provided that in no event shall the Eurodollar Rate be
less than 2.0% per annum), which is based upon LIBOR, or the
Alternate Base Rate (as defined in the 2010 Term Loan Agreement)
plus 3.0% per annum, which Alternate Base Rate is based on the
greater of Citibank, N.A.s announced base rate and the
U.S. federal funds rate plus 0.5% (provided that in no
event shall the Alternative Base Rate be less than 3.0% per
annum). At December 31, 2010, the Eurodollar Rate, LIBOR
and the Alternate Base Rate were 2.0% (as a result of the
Eurodollar Rate floor referred to above), 0.3% and 3.25%,
respectively. Borrowings under the 2010 Revolving Credit
Facility (other than loans in foreign currencies) bear interest
at a rate equal to, at Products Corporations option,
either (i) the Eurodollar Rate plus 3.0% per annum or
(ii) the Alternate Base Rate (as defined in the 2010
Revolving Credit Agreement) plus 2.0% per annum. Local Loans (as
defined in the 2010 Revolving Credit Agreement) bear interest,
if mutually acceptable to Products Corporation and the relevant
foreign lenders, at the Local Rate, and otherwise (i) if in
foreign currencies or in U.S. dollars at the Eurodollar
Rate or the Eurocurrency Rate plus 3.0% per annum or
(ii) if in U.S. dollars at the Alternate Base Rate
plus 2.0% per annum.
If any of LIBOR, the base rate, the U.S. federal funds rate
or such equivalent local currency rate increases, the
Companys debt service costs will increase to the extent
that Products Corporation has elected such rates for its
outstanding loans.
Based on the amounts outstanding under the 2010 Credit
Agreements and other short-term borrowings (which, in the
aggregate, are Products Corporations only debt currently
subject to floating interest rates) as of December 31,
2010, an increase in LIBOR of 1% would increase the
Companys annual interest expense by approximately
$8.1 million (assuming that the Eurodollar Rate is at least
2.0% per annum). Increased debt service costs would adversely
affect the Companys cash flow. While Products Corporation
may enter into other interest hedging contracts, Products
Corporation may not be able to do so on a cost-effective basis,
any additional hedging transactions it might enter into may not
achieve their intended purpose and shifts in interest rates may
have a material adverse effect on the Companys business,
financial condition
and/or
results of operations.
The
Company depends on its Oxford, North Carolina facility for
production of a substantial portion of its products. Disruptions
to this facility, or at other third party facilities at which
the Companys products are manufactured, could affect the
Companys business, financial condition and/or results of
operations.
The Company produces a substantial portion of its products at
its Oxford, North Carolina facility. Significant unscheduled
downtime at this facility, or at other third party facilities at
which the Companys products are manufactured, whether due
to equipment breakdowns, power failures, natural disasters,
weather conditions hampering delivery schedules or other
disruptions, including those caused by transitioning
manufacturing from other facilities to the Companys
Oxford, North Carolina facility, or any other cause could
adversely affect the Companys ability to provide products
to its customers, which could affect the Companys sales,
business, financial condition
and/or
results of operations. Additionally, if product sales exceed
forecasts or production, the Company could, from time to time,
not have an adequate supply of products to meet customer
demands, which could cause the Company to lose sales.
The
Companys new product introductions may not be as
successful as the Company anticipates, which could have a
material adverse effect on the Companys business,
financial condition and/or results of operations.
The Company has a rigorous process for the continuous
development and evaluation of new product concepts, led by
executives in marketing, sales, research and development,
product development, operations, law and finance.
13
Each new product launch, including those resulting from this new
product development process, carries risks, as well as the
possibility of unexpected consequences, including:
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the acceptance of the new product launches by, and sales of such
new products to, the Companys retail customers may not be
as high as the Company anticipates;
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the Companys advertising, promotional and marketing
strategies for its new products may be less effective than
planned and may fail to effectively reach the targeted consumer
base or engender the desired consumption;
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the rate of purchases by the Companys consumers may not be
as high as the Company anticipates;
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the Companys wall displays to showcase the new products
may fail to achieve their intended effects;
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the Company may experience
out-of-stocks
and/or
product returns exceeding its expectations as a result of its
new product launches or retailer space reconfigurations or
reductions in retail display space or the Companys net
sales may be impacted by retailer inventory management or
changes in retailer pricing or promotional strategies;
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the Company may incur costs exceeding its expectations as a
result of the continued development and launch of new products,
including, for example, advertising, promotional and marketing
expenses, sales return expenses or other costs related to
launching new products;
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the Company may experience a decrease in sales of certain of the
Companys existing products as a result of newly-launched
products;
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the Companys product pricing strategies for new product
launches may not be accepted by its retail customers
and/or its
consumers, which may result in the Companys sales being
less than it anticipates; and
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any delays or difficulties impacting the Companys ability,
or the ability of the Companys suppliers, to timely
manufacture, distribute and ship products, displays or display
walls in connection with launching new products, such as due to
inclement weather conditions or those delays or difficulties
discussed under The Company depends on its Oxford, North
Carolina facility for production of a substantial portion of its
products. Disruptions to this facility, or at other third party
facilities at which the Companys products are
manufactured, could affect the Companys business,
financial condition
and/or
results of operations could affect the Companys
ability to ship and deliver products to meet its retail
customers reset deadlines.
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Each of the risks referred to above could delay or impede the
Companys ability to achieve its sales objectives, which
could have a material adverse effect on the Companys
business, financial condition
and/or
results of operations.
The
Companys ability to service its debt and meet its cash
requirements depends on many factors, including achieving
anticipated levels of revenue and expenses. If such revenue or
expense levels prove to be other than as anticipated, the
Company may be unable to meet its cash requirements or Products
Corporation may be unable to meet the requirements of the
financial covenants under the 2010 Credit Agreements, which
could have a material adverse effect on the Companys
business, financial condition and/or results of
operations.
The Company currently expects that operating revenues, cash on
hand, and funds available for borrowing under the 2010 Revolving
Credit Agreement and other permitted lines of credit will be
sufficient to enable the Company to cover its operating expenses
for 2011, including cash requirements in connection with the
payment of expenses in connection with the continued execution
of the Companys business strategy, purchases of permanent
wall displays, capital expenditure requirements, payments in
connection with the Companys restructuring programs,
severance not otherwise included in the Companys
restructuring programs, debt service payments, debt repurchases
and costs and regularly scheduled pension and post-retirement
plan contributions and benefit payments.
If the Companys anticipated level of revenue is not
achieved, however, because of, for example, decreased consumer
spending in response to weak economic conditions or weakness in
the cosmetics category in the mass
14
retail channel; adverse changes in currency exchange rates;
decreased sales of the Companys products as a result of
increased competitive activities by the Companys
competitors; changes in consumer purchasing habits, including
with respect to shopping channels; retailer inventory
management; retailer space reconfigurations or reductions in
retailer display space; changes in retailer pricing or
promotional strategies; less than anticipated results from the
Companys existing or new products or from its advertising,
promotional
and/or
marketing plans; or if the Companys expenses, including,
without limitation, for pension expense under its benefit plans,
advertising, promotions or marketing activities or for sales
returns related to any reduction of retail space, product
discontinuances or otherwise, exceed the anticipated level of
expenses, the Companys current sources of funds may be
insufficient to meet its cash requirements. In addition, such
developments, if significant, could reduce the Companys
revenues and could adversely affect Products Corporations
ability to comply with certain financial covenants under the
2010 Credit Agreements.
If operating revenues, cash on hand and funds available for
borrowing are insufficient to cover the Companys expenses
or are insufficient to enable Products Corporation to comply
with the financial covenants under the 2010 Credit Agreements,
the Company could be required to adopt one or more of the
alternatives listed below:
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delaying the implementation of or revising certain aspects of
the Companys business strategy;
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reducing or delaying purchases of wall displays or advertising,
promotional or marketing expenses;
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reducing or delaying capital spending;
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implementing new or revising existing restructuring programs;
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|
refinancing Products Corporations indebtedness;
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|
|
selling assets or operations;
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|
|
seeking additional capital contributions
and/or loans
from MacAndrews & Forbes, Revlon, Inc., the
Companys other affiliates
and/or third
parties;
|
|
|
|
selling additional debt securities of Products
Corporation; or
|
|
|
|
reducing other discretionary spending.
|
If the Company is required to take any of these actions, it
could have a material adverse effect on its business, financial
condition
and/or
results of operations. In addition, the Company may be unable to
take any of these actions, because of a variety of commercial or
market factors or constraints in Products Corporations
debt instruments, including, for example, market conditions
being unfavorable for an equity or debt issuance, additional
capital contributions or loans not being available from
affiliates
and/or third
parties, or that the transactions may not be permitted under the
terms of the various debt instruments then in effect, such as
due to restrictions on the incurrence of debt, incurrence of
liens, asset dispositions
and/or
related party transactions.
Such actions, if ever taken, may not enable the Company to
satisfy its cash requirements or enable Products Corporation to
comply with the financial covenants under the 2010 Credit
Agreements if the actions do not result in sufficient savings or
generate a sufficient amount of additional capital, as the case
may be. See also, Restrictions and covenants
in Products Corporations debt agreements limit its ability
to take certain actions and impose consequences in the event of
failure to comply which discusses, among other things, the
consequences of noncompliance with Products Corporations
credit agreement covenants.
Economic
conditions could have a material adverse effect on the
Companys business, financial condition and/or results of
operations or on the financial condition of its customers and
suppliers.
The economic conditions in late 2008, 2009 and 2010, both in the
U.S. and in many other countries where the Company
operates, have contributed and may continue to contribute to
high unemployment levels, lower consumer spending and reduced
credit availability, and have impacted business and consumer
confidence. Such conditions could have an impact on consumer
purchases
and/or
retail customer purchases of the Companys products, which
could result in a reduction of net sales, operating income
and/or cash
flows. Additionally, disruptions in the credit and other
financial markets and economic conditions could, among other
things, impair the financial condition of
15
one or more of the Companys customers or suppliers,
thereby increasing the risk of customer bad debts or
non-performance by suppliers. These conditions could have a
material adverse effect on the Companys business,
financial condition
and/or
results of operations.
The
Company depends on a limited number of customers for a large
portion of its net sales and the loss of one or more of these
customers could reduce the Companys net sales and have a
material adverse effect on the Companys business,
financial condition and/or results of operations.
For 2010, 2009 and 2008, Walmart, Inc. accounted for
approximately 22%, 23% and 23%, respectively, of the
Companys worldwide net sales. The Company expects that for
future periods, Walmart and a small number of other customers
will, in the aggregate, continue to account for a large portion
of the Companys net sales. These customers have demanded,
and may continue to demand, increased service and other
accommodations. The Company may be affected by changes in the
policies and demands of its retail customers relating to service
levels, inventory de-stocking, pricing and promotional
strategies or limitations on access to wall display space. As is
customary in the consumer products industry, none of the
Companys customers is under an obligation to continue
purchasing products from the Company in the future.
The loss of Walmart or one or more of the Companys other
customers that may account for a significant portion of the
Companys net sales, or any significant decrease in sales
to these customers, including as a result of retailer
consolidation, retailer inventory management, changes in
retailer pricing or promotional strategies or retailer space
configurations or any significant decrease in the Companys
retail display space in any of these customers stores,
could reduce the Companys net sales
and/or
operating income and therefore could have a material adverse
effect on the Companys business, financial condition
and/or
results of operations.
Declines
in the financial markets may result in increased pension expense
and increased cash contributions to the Companys pension
plans.
Declines in the U.S. and global financial markets in late
2008 resulted in significant declines on pension plan assets for
2008, which resulted in increased pension expense for 2009 and
increased cash contributions to the Companys pension plans
for 2010 and beyond. Future volatility in the financial markets
may further affect the Companys return on pension plan
assets for 2011 and in subsequent years. Interest rate levels
will affect the discount rate used to value the Companys
year-end pension benefit obligations. One or more of these
factors, individually or taken together, could further impact
required cash contributions to the Companys pension plans
and pension expense in 2011 and beyond. Any one or more of these
conditions could have a material adverse effect on the
Companys business, financial condition
and/or
results of operations.
The
Company may be unable to increase its sales through the
Companys primary distribution channels, which could have a
material adverse effect on the Companys business,
financial condition and/or results of operations.
In the U.S., mass volume retailers and chain drug and food
stores currently are the primary distribution channels for the
Companys products. Additionally, other channels, including
prestige and department stores, television shopping,
door-to-door,
specialty stores, the internet, perfumeries and other
distribution outlets, combine to account for a significant
amount of sales of cosmetics and beauty care products. A
decrease in consumer demand in the U.S. mass retail channel
for color cosmetics, retailer inventory management, changes in
retailer pricing or promotional strategies, a reduction in
retailer display space
and/or a
change in consumers purchasing habits, such as by buying
more cosmetics and beauty care products in channels in which the
Company does not currently compete, could impact the sales of
its products through these distribution channels, which could
reduce the Companys net sales and therefore have a
material adverse effect on the Companys business,
financial condition
and/or
results of operations.
16
Competition
in the cosmetics and beauty care products business could have a
material adverse effect on the Companys business,
financial condition and/or results of operations.
The cosmetics and beauty care products business is highly
competitive. The Company competes primarily by:
|
|
|
|
|
developing quality products with innovative performance
features, shades, finishes and packaging;
|
|
|
|
educating consumers on the Companys product benefits;
|
|
|
|
anticipating and responding to changing consumer demands in a
timely manner, including the timing of new product introductions
and line extensions;
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|
|
|
offering attractively priced products, relative to the product
benefits provided;
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|
maintaining favorable brand recognition;
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|
|
|
generating competitive margins and inventory turns for the
Companys retail customers by providing relevant products
and executing effective pricing, incentive and promotion
programs;
|
|
|
|
ensuring product availability through effective planning and
replenishment collaboration with retailers;
|
|
|
|
providing strong and effective advertising, promotion, marketing
and merchandising support;
|
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|
|
maintaining an effective sales force; and
|
|
|
|
obtaining and retaining sufficient retail display space, optimal
in-store positioning and effective presentation of the
Companys products at retail.
|
An increase in or change in the current level of competition
that the Company faces could have a material adverse effect on
our business, financial condition and results of operations.
In addition, the Company competes against a number of
multi-national manufacturers, some of which are larger and have
substantially greater resources than the Company, and which may
therefore have the ability to spend more aggressively on
advertising, promotions and marketing and have more flexibility
to respond to changing business and economic conditions than the
Company. In addition to products sold in the mass retail
channel, the Companys products also compete with similar
products sold through other channels, including prestige and
department stores, television shopping,
door-to-door,
specialty stores, the internet, perfumeries and other
distribution outlets.
Additionally, the Companys major retail customers
periodically assess the allocation of retail display space among
competitors and in the course of doing so could elect to reduce
the display space allocated to the Companys products, if,
for example, the Companys marketing strategies for its new
and/or
existing products are less effective than planned, fail to
effectively reach the targeted consumer base or engender the
desired consumption;
and/or the
rate of purchases by the Companys consumers are not as
high as the Company anticipates. Any significant loss of display
space could have an adverse effect on the Companys
business, financial condition
and/or
results of operations.
The
Companys foreign operations are subject to a variety of
social, political and economic risks and have been, and are
expected to continue to be, affected by foreign currency
fluctuations, which could adversely affect the results of the
Companys business, financial condition and/or results of
operations and the value of its foreign assets.
As of December 31, 2010, the Company had operations based
in 14 foreign countries and its products were sold throughout
the world. The Company is exposed to the risk of changes in
social, political and economic conditions, including inflation,
inherent in operating in foreign countries, including those in
Asia, Eastern Europe, Latin America (including Venezuela) and
South Africa, which could adversely affect the Companys
business, financial condition
and/or
results of operations. Such changes include changes in the laws
and policies that govern foreign investment in countries where
the Company has operations, hyperinflation, currency
devaluation, currency controls, changes in consumer purchasing
habits including as to shopping channels, as well as, to a
lesser extent, changes in U.S. laws and regulations
relating to foreign trade and investment.
17
The Companys subsidiary in Venezuela accounted for
approximately 3% and 2% of the Companys consolidated net
sales and operating income, respectively, as of
December 31, 2010. Effective January 1, 2010 Venezuela
has been designated as a highly inflationary economy under
U.S. GAAP and on January 8, 2010 the Venezuelan
government announced the devaluation of its local currency. As a
result of the hyperinflationary designation and devaluation of
the local currency in Venezuela, the Companys results of
operations in 2010 were adversely impacted. (See Financial
Condition, Liquidity and Capital Resources Impact of
Foreign Currency Translation Venezuela for
details regarding the designation of Venezuela as a highly
inflationary economy in 2010 and the Venezuelan
governments announcement of the devaluation of its local
currency on January 8, 2010).
The Companys net sales outside of the U.S. for the
years ended December 31, 2010, 2009 and 2008 were
approximately 45%, 42% and 42% of the Companys total
consolidated net sales, respectively. Fluctuations in foreign
currency exchange rates have affected and may continue to affect
the Companys results of operations and the value of its
foreign assets in 2010, which in turn may adversely affect the
Companys reported net sales and earnings and the
comparability of
period-to-period
results of operations.
Products Corporation enters into foreign currency forward
exchange contracts to hedge certain net cash flows denominated
in foreign currencies. The foreign currency forward exchange
contracts are entered into primarily for the purpose of hedging
anticipated inventory purchases and certain intercompany
payments denominated in foreign currencies and generally have
maturities of less than one year. At December 31, 2010, the
notional amount of Products Corporations foreign currency
forward exchange contracts was $46.0 million. The foreign
currency forward exchange contracts that Products Corporation
enters into may not adequately protect against foreign currency
fluctuations.
Terrorist
attacks, acts of war or military actions may adversely affect
the markets in which the Company operates and the Companys
business, financial condition and/or results of
operations.
On September 11, 2001, the U.S. was the target of
terrorist attacks of unprecedented scope. These attacks
contributed to major instability in the U.S. and other
financial markets and reduced consumer confidence. These
terrorist attacks, as well as terrorist attacks such as those
that have occurred in Madrid, Spain and London, England,
attempted attacks, military responses to terrorist attacks and
future developments, or other military actions, such as the
military actions in Iraq and Afghanistan, may adversely affect
prevailing economic conditions, resulting in reduced consumer
spending and reduced demand for the Companys products.
These developments subject the Companys worldwide
operations to increased risks and, depending on their magnitude,
could reduce net sales and therefore could have a material
adverse effect on the Companys business, financial
condition
and/or
results of operations.
The
Companys products are subject to federal, state and
international regulations that could adversely affect the
Companys business, financial condition and/or results of
operations.
The Company is subject to regulation by the FTC and the FDA in
the U.S., as well as various other federal, state, local and
foreign regulatory authorities, including those in the EU,
Canada and other countries in which the Company operates. The
Companys Oxford, North Carolina manufacturing facility is
registered with the FDA as a drug manufacturing establishment,
permitting the manufacture of cosmetics that contain
over-the-counter
drug ingredients, such as sunscreens and anti-perspirants.
Regulations in the U.S., the EU, Canada and other countries in
which the Company operates that are designed to protect
consumers or the environment have an increasing influence on the
Companys product claims, ingredients and packaging. To the
extent federal, state, local
and/or
foreign regulatory changes occur in the future, they could
require the Company to reformulate or discontinue certain of its
products or revise its product packaging or labeling, any of
which could result in, among other things, increased costs to
the Company, delays in product launches, product returns or
recalls and lower net sales, and therefore could have a material
adverse effect on the Companys business, financial
condition
and/or
results of operations.
18
Shares of
Revlon, Inc. Class A Common Stock and Products
Corporations capital stock are pledged to secure various
of Revlon, Inc.s and/or other of the Companys
affiliates obligations and foreclosure upon these shares
or dispositions of shares could result in the acceleration of
debt under the 2010 Credit Agreements and the
93/4% Senior
Secured Notes Indenture and could have other
consequences.
All of Products Corporations shares of common stock are
pledged to secure Revlon, Inc.s guarantee under the 2010
Credit Agreements and the
93/4% Senior
Secured Notes. MacAndrews & Forbes has advised the
Company that it has pledged shares of Revlon, Inc.s
Class A Common Stock to secure certain obligations of
MacAndrews & Forbes. Additional shares of Revlon, Inc.
and shares of common stock of intermediate holding companies
between Revlon, Inc. and MacAndrews & Forbes may from
time to time be pledged to secure obligations of
MacAndrews & Forbes. A default under any of these
obligations that are secured by the pledged shares could cause a
foreclosure with respect to such shares of Revlon, Inc.s
Class A Common Stock, Products Corporations common
stock or stock of intermediate holding companies between Revlon,
Inc. and MacAndrews & Forbes.
A foreclosure upon any such shares of common stock or
dispositions of shares of Revlon, Inc.s Class A
Common Stock, Products Corporations common stock or stock
of intermediate holding companies between Revlon, Inc. and
MacAndrews & Forbes which are beneficially owned by
MacAndrews & Forbes could, in a sufficient amount,
constitute a change of control under the 2010 Credit
Agreements, the Senior Subordinated Term Loan Agreement and the
93/4% Senior
Secured Notes Indenture. A change of control constitutes an
event of default under the 2010 Credit Agreements, which would
permit Products Corporations lenders to accelerate amounts
outstanding under the 2010 Credit Facilities. In addition,
holders of the
93/4% Senior
Secured Notes may require Products Corporation to repurchase
their respective notes under those circumstances. Upon a change
of control, Products Corporation would also be required, after
fulfilling its repayment obligations under the
93/4% Senior
Secured Notes Indenture, to repay in full the Senior
Subordinated Term Loan, provided that Revlon, Inc. at such time
has redeemed or is then concurrently redeeming the Preferred
Stock.
Products Corporation may not have sufficient funds at the time
of any such change of control to repay in full the borrowings
under the 2010 Credit Facilities or to repurchase or redeem the
93/4% Senior
Secured Notes
and/or to
repay the Contributed Loan that Revlon, Inc. expects to use to
redeem the Preferred Stock
and/or repay
the Non-Contributed Loan. (See The Companys ability
to service its debt and meet its cash requirements depends on
many factors, including achieving anticipated levels of revenue
and expenses. If such revenue or expense levels prove to be
other than as anticipated, the Company may be unable to meet its
cash requirements or Products Corporation may be unable to meet
the requirements of the financial covenants under the 2010
Credit Agreements, which could have a material adverse effect on
the Companys business, financial condition
and/or
results of operations).
MacAndrews &
Forbes has the power to direct and control the Companys
business.
MacAndrews & Forbes is wholly-owned by Ronald O.
Perelman. Mr. Perelman, through MacAndrews &
Forbes, beneficially owned, at December 31, 2010,
approximately 78% of Revlon, Inc.s outstanding
Class A and Class B Common Stock (representing
approximately 77% of the combined voting power of Revlon,
Inc.s Class A Common Stock, Class B Common Stock
and Preferred Stock). As a result, MacAndrews & Forbes
is able to control the election of the entire Board of Directors
of Revlon, Inc. and Products Corporation (as it is a wholly
owned subsidiary of Revlon, Inc.) and controls the vote on all
matters submitted to a vote of Revlon, Inc.s and Products
Corporations stockholders, including the approval of
mergers, consolidations, sales of some, all or substantially all
of the Companys assets, issuances of capital stock and
similar transactions.
19
|
|
Item 1B.
|
Unresolved
Staff Comments
|
None.
The following table sets forth, as of December 31, 2010,
the Companys major manufacturing, research and
warehouse/distribution facilities, all of which are owned except
where otherwise noted.
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Approximate
|
|
|
|
|
|
Floor Space
|
|
Location
|
|
Use
|
|
Sq. Ft.
|
|
|
Oxford, North Carolina
|
|
Manufacturing, warehousing, distribution and
office(a)
|
|
|
1,012,000
|
|
Mississauga, Canada
|
|
Warehousing, distribution and office (leased)
|
|
|
195,000
|
|
Caracas, Venezuela
|
|
Manufacturing, distribution and office
|
|
|
145,000
|
|
Canberra, Australia
|
|
Warehousing, distribution and office (leased)
|
|
|
125,000
|
|
Edison, New Jersey
|
|
Research and office (leased)
|
|
|
123,000
|
|
Rietfontein, South Africa
|
|
Warehousing, distribution and office (leased)
|
|
|
120,000
|
|
Isando, South Africa
|
|
Manufacturing, warehousing, distribution and office
|
|
|
94,000
|
|
Stone, United Kingdom
|
|
Warehousing and distribution (leased)
|
|
|
92,000
|
|
|
|
|
(a) |
|
Property subject to liens under the 2010 Credit Agreements. |
In addition to the facilities described above, the Company owns
and leases additional facilities in various areas throughout the
world, including the lease for the Companys executive
offices in New York, New York (approximately 76,500 square
feet as of December 31, 2010). Management considers the
Companys facilities to be well-maintained and satisfactory
for the Companys operations, and believes that the
Companys facilities and third party contractual supplier
arrangements provide sufficient capacity for its current and
expected production requirements.
|
|
Item 3.
|
Legal
Proceedings
|
The Company is involved in various routine legal proceedings
incident to the ordinary course of its business. The Company
believes that the outcome of all pending legal proceedings in
the aggregate is unlikely to have a material adverse effect on
the Companys business, financial condition
and/or its
results of operations.
|
|
Item 4.
|
[Removed
and Reserved by SEC Release Nos.
33-9089A and
34-61175A]
|
20
PART II
|
|
Item 5.
|
Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
|
Revlon, Inc. beneficially owns all of the 5,260 outstanding
shares of Products Corporations common stock, par value
$1.00 per share. MacAndrews & Forbes, which is
wholly-owned by Ronald O. Perelman, at December 31, 2010
beneficially owned (i) 37,544,640 shares of Revlon,
Inc.s Class A Common Stock, with a par value of $0.01
per share (the Class A Common Stock)
(25,264,938 shares of which were beneficially owned by
MacAndrews & Forbes, 7,718,092 shares of which
were owned by a holding company, RCH Holdings One, Inc. (of
which each of Mr. Perelman and The Ronald O. Perelman 2008
Trust owns 50% of the shares) and 4,561,610 shares of which
were beneficially owned by a family member of Mr. Perelman
with respect to which shares MacAndrews & Forbes holds
a voting proxy), and (ii) all of the outstanding
3,125,000 shares of Revlon, Inc.s Class B Common
Stock, with a par value of $0.01 per share (the
Class B Common Stock and together with the
Class A Common Stock, the Common Stock).
Based on the shares referenced in clauses (i) and
(ii) above, and including Mr. Perelmans vested
stock options, Mr. Perelman, directly and indirectly,
through MacAndrews & Forbes, at December 31,
2010, beneficially owned approximately 77% of Revlon,
Inc.s Class A Common Stock, 100% of Revlon,
Inc.s Class B Common Stock, together representing
approximately 78% of the combined Revlon, Inc. Class A and
Class B Common Stock (representing approximately 77% of the
combined voting power of Revlon, Inc.s Class A and
Class B Common Stock and Preferred Stock), and beneficially
owned approximately 66% of the combined Revlon, Inc.
Class A and Class B Common Stock and Preferred Stock.
The remaining 11,232,330 shares of Class A Common
Stock and 9,336,905 shares of Preferred Stock, in each case
as outstanding at December 31, 2010, were owned by the
public.
There is no established market for Products Corporations
common stock, as all 5,260 outstanding shares of Products
Corporations common stock were held by Revlon, Inc. as of
December 31, 2010. No cash dividends were declared or paid
during 2010 by Products Corporation to Revlon, Inc. or by
Revlon, Inc. on its Common Stock. The terms of the 2010 Credit
Agreements, the
93/4% Senior
Secured Notes indenture and the Senior Subordinated Term Loan
Agreement currently restrict Products Corporations ability
to pay dividends or make distributions to Revlon, Inc., except
in limited circumstances.
21
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Item 6.
|
Selected
Financial Data
|
The Consolidated Statements of Operations Data for each of the
years in the five-year period ended December 31, 2010 and
the Balance Sheet Data as of December 31, 2010, 2009, 2008,
2007 and 2006 are derived from the Companys Consolidated
Financial Statements, which have been audited by an independent
registered public accounting firm. The Selected Consolidated
Financial Data should be read in conjunction with the
Companys Consolidated Financial Statements and the Notes
to the Consolidated Financial Statements and
Managements Discussion and Analysis of Financial
Condition and Results of Operations.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
(In millions, except per share amounts)
|
|
|
|
2010(a)
|
|
|
2009(b)
|
|
|
2008(c)
|
|
|
2007(d)
|
|
|
2006(e)
|
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
1,321.4
|
|
|
$
|
1,295.9
|
|
|
$
|
1,346.8
|
|
|
$
|
1,367.1
|
|
|
$
|
1,298.7
|
|
Gross profit
|
|
|
866.1
|
|
|
|
821.2
|
|
|
|
855.9
|
|
|
|
861.4
|
|
|
|
771.0
|
|
Selling, general and administrative expenses
|
|
|
659.3
|
|
|
|
619.6
|
|
|
|
701.6
|
|
|
|
728.7
|
|
|
|
789.0
|
|
Restructuring costs and other, net
|
|
|
(0.3
|
)
|
|
|
21.3
|
|
|
|
(8.4
|
)
|
|
|
7.3
|
|
|
|
27.4
|
|
Operating income (loss)
|
|
|
207.1
|
|
|
|
180.3
|
|
|
|
162.7
|
|
|
|
125.4
|
|
|
|
(45.4
|
)
|
Interest expense
|
|
|
96.7
|
|
|
|
93.0
|
|
|
|
119.7
|
|
|
|
135.6
|
|
|
|
147.7
|
|
Amortization of debt issuance costs
|
|
|
4.5
|
|
|
|
5.5
|
|
|
|
5.6
|
|
|
|
3.3
|
|
|
|
7.5
|
|
Loss on early extinguishment of debt, net
|
|
|
9.7
|
|
|
|
5.8
|
|
|
|
0.7
|
|
|
|
0.1
|
|
|
|
23.5
|
|
Foreign currency losses (gains), net
|
|
|
6.3
|
|
|
|
8.9
|
|
|
|
0.1
|
|
|
|
(6.8
|
)
|
|
|
(1.5
|
)
|
(Benefit from) provision for income taxes
|
|
|
(235.3
|
)
|
|
|
8.1
|
|
|
|
15.9
|
|
|
|
7.4
|
|
|
|
19.9
|
|
Income (loss) from continuing operations, net of taxes
|
|
|
324.0
|
|
|
|
58.5
|
|
|
|
21.0
|
|
|
|
(11.9
|
)
|
|
|
(245.3
|
)
|
Income from discontinued operations, net of taxes
|
|
|
0.3
|
|
|
|
0.3
|
|
|
|
44.8
|
|
|
|
2.9
|
|
|
|
0.8
|
|
Net income (loss)
|
|
|
324.3
|
|
|
|
58.8
|
|
|
|
65.8
|
|
|
|
(9.0
|
)
|
|
|
(244.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
(In millions)
|
|
|
|
2010(a)
|
|
|
2009(b)
|
|
|
2008(c)
|
|
|
2007(d)
|
|
|
2006(e)
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
$
|
527.6
|
|
|
$
|
446.3
|
|
|
$
|
457.4
|
|
|
$
|
496.4
|
|
|
$
|
500.1
|
|
Total non-current assets
|
|
|
592.8
|
|
|
|
384.2
|
|
|
|
384.9
|
|
|
|
413.3
|
|
|
|
443.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,120.4
|
|
|
$
|
830.5
|
|
|
$
|
842.3
|
|
|
$
|
909.7
|
|
|
$
|
944.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
$
|
312.4
|
|
|
$
|
305.2
|
|
|
$
|
322.9
|
|
|
$
|
348.7
|
|
|
$
|
377.1
|
|
Total other non-current liabilities
|
|
|
1,465.1
|
|
|
|
1,519.1
|
|
|
|
1,602.8
|
|
|
|
1,622.6
|
|
|
|
1,784.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
1,777.5
|
|
|
$
|
1,824.3
|
|
|
$
|
1,925.7
|
|
|
$
|
1,971.3
|
|
|
$
|
2,161.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total indebtedness
|
|
$
|
1,219.6
|
|
|
$
|
1,248.7
|
|
|
$
|
1,329.6
|
|
|
$
|
1,440.6
|
|
|
$
|
1,506.9
|
|
Total stockholders deficiency
|
|
|
(657.1
|
)
|
|
|
(993.8
|
)
|
|
|
(1,083.4
|
)
|
|
|
(1,061.6
|
)
|
|
|
(1,217.6
|
)
|
|
|
|
(a) |
|
Results for 2010 include:
(1) an increase in net income driven by a one-time non-cash
benefit of $248.5 million related to the reduction of the
Companys deferred tax valuation allowance on its net U.S.
deferred tax assets at December 31, 2010 as a result of the
Company achieving three cumulative years, as well as its third
consecutive year, of positive U.S. GAAP pre-tax income and
taxable income in the U.S., and based upon the Companys
current expectations for the realization of such deferred tax
benefits in the U.S. The Company reflected this benefit in the
provision for income taxes; (2) a $9.7 million loss on
the early extinguishment of debt in connection with the 2010
Refinancing; and (3) a $2.8 million one-time foreign
currency loss related to the required re-measurement of the
balance sheet of the Companys subsidiary in Venezuela to
reflect the impact of the devaluation of Venezuelas local
currency relative to the U.S. dollar, as Venezuela was
designated as a highly inflationary economy effective
January 1, 2010.
|
22
|
|
|
(b) |
|
Results for 2009 include:
(1) a $20.8 million charge related to the worldwide
organizational restructuring announced in May 2009 (the
May 2009 Program), which involved consolidating
certain functions; reducing layers of management, where
appropriate, to increase accountability and effectiveness;
streamlining support functions to reflect the new organizational
structure; and further consolidating the Companys office
facilities in New Jersey; and (2) a $5.8 million net
loss on early extingishment of debt in 2009 primarily due to a
$13.5 million loss resulting from applicable redemption and
tender premiums and the net write-off of unamortized debt
discounts and deferred financing fees in connection with the
refinancing of the
91/2% Senior
Notes in November 2009, partially offset by a $7.7 million
gain on repurchases of an aggregate principal amount of
$49.5 million of the
91/2% Senior
Notes prior to their complete refinancing in November 2009 at an
aggregate purchase price of $41.0 million, which is net of
the write-off of the ratable portion of unamortized debt
discounts and deferred financing fees resulting from such
repurchases.
|
|
(c) |
|
Results for 2008 include a
$5.9 million gain from the sale of a non-core trademark
during the first quarter of 2008, and a net $4.3 million
gain related to the sale of the Mexico facility (which is
comprised of a $7.0 million gain on the sale, partially
offset by related restructuring charges of $1.1 million,
$1.2 million of SG&A and cost of sales and
$0.4 million of taxes). In addition, results for 2008 also
include various other restructuring charges of approximately
$3.8 million. The results of discontinued operations for
2008 included a one-time gain from the disposition of the
non-core Bozzano business and certain other non-core brands,
including Juvena and Aquamarine, which were sold in the
Brazilian market, of $45.2 million.
|
|
(d) |
|
Results for 2007 include
restructuring charges of approximately $4.4 million and
$2.9 million in connection with restructurings announced in
2006 (the 2006 Programs) and in 2007 (the 2007
Programs), respectively. The $4.4 million of
restructuring charges associated with the 2006 Programs were
primarily for employee severance and other employee-related
termination costs principally relating to a broad organizational
streamlining. The $2.9 million of restructuring charges
associated with the 2007 Programs were primarily for employee
severance and other employee-related termination costs relating
principally to the closure of the Companys facility in
Irvington, New Jersey and other employee-related termination
costs relating to personnel reductions in the Companys
information management function and its sales force in Canada.
|
|
(e) |
|
Results for 2006 include charges of
$9.4 million in connection with the departure of
Mr. Jack Stahl, the Companys former President and
Chief Executive Officer, in September 2006 (including
$6.2 million for severance and related costs and
$3.2 million for the accelerated amortization of
Mr. Stahls unvested options and unvested restricted
stock), $60.4 million in connection with the discontinuance
of the Vital Radiance brand and restructuring charges of
approximately $27.6 million in connection with the 2006
Programs.
|
23
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
Managements Discussion and Analysis of Financial Condition
and Results of Operations (MD&A) is intended to
provide a reader of our financial statements with a narrative
from the perspective of our management on our financial
condition, results of operations, liquidity and certain other
factors that may affect our future results. Our MD&A is
presented as follows:
|
|
|
|
|
Overview;
|
|
|
|
Results of Operations;
|
|
|
|
Financial Condition, Liquidity and Capital Resources;
|
|
|
|
Disclosures about Contractual Obligations and Commercial
Commitments;
|
|
|
|
Off-Balance Sheet Transactions (there are none);
|
|
|
|
Discussion of Critical Accounting Policies;
|
|
|
|
Recent Accounting Pronouncements; and
|
|
|
|
Inflation.
|
The Company is providing this overview in accordance with the
SECs December 2003 interpretive guidance regarding
MD&A.
Overview
Overview
of the Business
Revlon Consumer Products Corporation (Products
Corporation and together with its subsidiaries, the
Company) is a wholly-owned operating subsidiary of
Revlon, Inc., which is a direct and indirect majority-owned
subsidiary of MacAndrews & Forbes Holdings Inc.
(MacAndrews & Forbes Holdings and together
with certain of its affiliates other than the Company,
MacAndrews & Forbes), a corporation
wholly-owned by Ronald O. Perelman.
The Companys vision is glamour, excitement and innovation
through high-quality products at affordable prices. The Company
operates in a single segment and manufactures, markets and sells
an extensive array of cosmetics, womens hair color, beauty
tools, anti-perspirant deodorants, fragrances, skincare and
other beauty care products. The Company is one of the
worlds leading cosmetics companies in the mass retail
channel. The Company believes that its global brand name
recognition, product quality and marketing experience have
enabled it to create one of the strongest consumer brand
franchises in the world.
Effective for periods beginning January 1, 2010, the
Company is reporting Canada separately (previously Canada was
included in the Europe region) and is reporting South Africa as
part of the Europe, Middle East and Africa region (previously
South Africa was included in the Asia Pacific region). As a
result, prior year amounts have been reclassified to conform to
this presentation.
For additional information regarding our business, see
Part 1 Business of this Annual
Report on
Form 10-K.
Overview
of Net Sales and Earnings Results
Consolidated net sales in 2010 were $1,321.4 million, an
increase of $25.5 million, or 2.0%, compared to
$1,295.9 million in 2009. Excluding the unfavorable impact
of foreign currency fluctuations of $3.8 million,
consolidated net sales increased by 2.3% in 2010, as compared to
2009, as higher net sales in the Companys Latin America,
Europe, Middle East and Africa, Asia Pacific and Canada regions
were partially offset by lower net sales in the U.S. region.
24
Consolidated net income in 2010 was $324.3 million, as
compared to $58.8 million in 2009. The increase in
consolidated net income in 2010, compared to 2009, was primarily
due to:
|
|
|
|
|
a $235.3 million benefit for income taxes in 2010 was
primarily attributable to the one-time non-cash benefit of
$248.5 million related to a reduction of the Companys
deferred tax valuation allowance on its net U.S. deferred
tax assets at December 31, 2010 (see Note 12,
Income Taxes, to the Consolidated Financial
Statements);
|
|
|
|
$44.9 million of higher gross profit due to
$25.5 million of higher net sales and a $19.4 million
improvement in cost of sales; and
|
|
|
|
$21.6 million of lower restructuring costs and other, net;
|
with the foregoing partially offset by:
|
|
|
|
|
$39.7 million of higher SG&A expenses, driven
primarily by $33.8 million of higher advertising expenses
to support the Companys brands.
|
Overview
of Financing Activities
Refinancing of the 2006 Term Loan and Revolving Credit
Facilities: In March 2010, Products Corporation
consummated a credit agreement refinancing (the 2010
Refinancing) consisting of the following transactions:
The 2010 Refinancing included refinancing Products
Corporations term loan facility, which was scheduled to
mature on January 15, 2012 and had $815.0 million
aggregate principal amount outstanding at December 31, 2009
(the 2006 Term Loan Facility), with a
5-year,
$800.0 million term loan facility due March 11, 2015
(the 2010 Term Loan Facility) under a second amended
and restated term loan agreement dated March 11, 2010 (the
2010 Term Loan Agreement), among Products
Corporation, as borrower, the lenders party thereto, Citigroup
Global Markets Inc. (CGMI), J.P. Morgan
Securities Inc. (JPM Securities), Banc of America
Securities LLC (BAS) and Credit Suisse Securities
(USA) LLC (Credit Suisse), as joint lead arrangers,
CGMI, JPM Securities, BAS, Credit Suisse and Natixis, New York
Branch (Natixis), as joint bookrunners, JPMorgan
Chase Bank, N.A. and Bank of America, N.A. as co-syndication
agents, Credit Suisse and Natixis as co-documentation agents,
and Citicorp USA, Inc. (CUSA), as administrative
agent and collateral agent.
The 2010 Refinancing also included refinancing Products
Corporations 2006 revolving credit facility, which was
scheduled to mature on January 15, 2012 and had nil
outstanding borrowings at December 31, 2009 (the 2006
Revolving Credit Facility and together with the 2006 Term
Loan Facility, the 2006 Credit Facilities and such
agreements, the 2006 Credit Agreements), with a
4-year,
$140.0 million asset-based, multi-currency revolving credit
facility due March 11, 2014 (the 2010 Revolving
Credit Facility and, together with the 2010 Term Loan
Facility, the 2010 Credit Facilities) under a second
amended and restated revolving credit agreement dated
March 11, 2010 (the 2010 Revolving Credit
Agreement and, together with the 2010 Term Loan Agreement,
the 2010 Credit Agreements), among Products
Corporation, as borrower, the lenders party thereto, CGMI and
Wells Fargo Capital Finance, LLC (WFS), as joint
lead arrangers, CGMI, WFS, BAS, JPM Securities and Credit
Suisse, as joint bookrunners, and CUSA, as administrative agent
and collateral agent.
Products Corporation used the approximately $786 million of
proceeds from the 2010 Term Loan Facility, which was drawn in
full on the March 11, 2010 closing date and issued to
lenders at 98.25% of par, plus approximately $31 million of
available cash and approximately $20 million then drawn on
the 2010 Revolving Credit Facility to refinance in full the
$815.0 million of outstanding indebtedness under the 2006
Term Loan Facility and to pay approximately $7 million of
accrued interest and approximately $15 million of fees and
expenses incurred in connection with consummating the 2010
Refinancing, of which approximately $9 million was
capitalized.
(See further discussion in 2010 Refinancing
Transactions within Financial Condition, Liquidity
and Capital Resources 2010 Refinancing
Transactions and in Note 9, Long-Term
Debt, to the Consolidated Financial Statements).
25
Results
of Operations
Year
ended December 31, 2010 compared with the year ended
December 31, 2009
In the tables, all dollar amounts are in millions and numbers in
parenthesis ( ) denote unfavorable variances.
Net
sales:
Consolidated net sales in 2010 were $1,321.4 million, an
increase of $25.5 million, or 2.0%, compared to
$1,295.9 million in 2009. Excluding the unfavorable impact
of foreign currency fluctuations of $3.8 million,
consolidated net sales increased by 2.3% in 2010, primarily
driven by higher net sales of Revlon color cosmetics and
Revlon ColorSilk hair color, partially offset by lower
net sales of Almay color cosmetics and Mitchum
anti-perspirant deodorant.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Change
|
|
|
XFX
Change(a)
|
|
|
|
2010
|
|
|
2009
|
|
|
$
|
|
|
%
|
|
|
$
|
|
|
%
|
|
|
United States
|
|
$
|
729.1
|
|
|
$
|
747.9
|
|
|
$
|
(18.8
|
)
|
|
|
(2.5
|
)%
|
|
$
|
(18.8
|
)
|
|
|
(2.5
|
)%
|
Asia Pacific
|
|
|
209.9
|
|
|
|
189.1
|
|
|
|
20.8
|
|
|
|
11.0
|
|
|
|
6.0
|
|
|
|
3.2
|
|
Europe, Middle East and Africa
|
|
|
200.4
|
|
|
|
183.8
|
|
|
|
16.6
|
|
|
|
9.0
|
|
|
|
8.6
|
|
|
|
4.7
|
|
Latin America
|
|
|
107.9
|
|
|
|
108.9
|
|
|
|
(1.0
|
)
|
|
|
(0.9
|
)
|
|
|
32.1
|
|
|
|
29.5
|
|
Canada
|
|
|
74.1
|
|
|
|
66.2
|
|
|
|
7.9
|
|
|
|
11.9
|
|
|
|
1.4
|
|
|
|
2.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Net Sales
|
|
$
|
1,321.4
|
|
|
$
|
1,295.9
|
|
|
$
|
25.5
|
|
|
|
2.0
|
%
|
|
$
|
29.3
|
|
|
|
2.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
XFX excludes the impact of foreign
currency fluctuations.
|
United
States
In the U.S., net sales in 2010 were $729.1 million, a
decrease of $18.8 million, or 2.5%, compared to
$747.9 million in 2009, primarily driven by lower net sales
of Almay color cosmetics, Revlon ColorSilk hair
color and Mitchum anti-perspirant deodorant, partially
offset by higher net sales of Revlon color cosmetics. Net
sales of color cosmetics benefitted from lower promotional
allowances as the Company continued to optimize its brand
support mix, and also benefitted from lower returns.
Asia
Pacific
In Asia Pacific, net sales in 2010 increased 11.0% to
$209.9 million, compared to $189.1 million in the
2009. Excluding the favorable impact of foreign currency
fluctuations, net sales increased $6.0 million, or 3.2%, in
2010, primarily driven by higher net sales of Revlon
color cosmetics, certain beauty care products and Revlon
ColorSilk hair color. From a country perspective, higher net
sales in the Companys travel retail businesses, certain
distributor markets, China and Hong Kong (which together
contributed approximately 4.6 percentage points to the
increase in the regions net sales in 2010, as compared to
2009) were partially offset by lower net sales in Australia
and Japan (which offset by approximately 2.0 percentage
points the increase in the regions net sales in 2010, as
compared to 2009).
Europe,
Middle East and Africa
In Europe, the Middle East and Africa, net sales in 2010
increased 9.0% to $200.4 million, compared to
$183.8 million in 2009. Excluding the favorable impact of
foreign currency fluctuations, net sales increased
$8.6 million, or 4.7%, in 2010, primarily driven by higher
net sales of fragrances. From a country perspective, net sales
increased in South Africa, Italy, the U.K. and France (which
together contributed approximately 5.0 percentage points to
the increase in the regions net sales in 2010, as compared
to 2009).
26
Latin
America
In Latin America, net sales in 2010 decreased 0.9% to
$107.9 million, compared to $108.9 million in the
2009. Excluding the unfavorable impact of foreign currency
fluctuations (which includes the unfavorable impact of the
January 2010 devaluation of Venezuelas local currency
relative to the U.S. dollar), net sales increased
$32.1 million, or 29.5%, in 2010, primarily driven by
higher net sales of Revlon ColorSilk hair color,
Revlon color cosmetics and other beauty care products.
From a country perspective, higher net sales in Venezuela and
certain distributor markets contributed approximately
23.8 percentage points to the increase in the regions
net sales in 2010, as compared to 2009. Higher selling prices in
Venezuela, reflecting market conditions and inflation, accounted
for approximately half of the $32.1 million increase in net
sales in the region.
Canada
In Canada, net sales in 2010 were $74.1 million, an
increase of $7.9 million, or 11.9%, compared to
$66.2 million in 2009. Excluding the favorable impact of
foreign currency fluctuations, net sales increased
$1.4 million, or 2.1%, in 2010, primarily driven by higher
net sales of Revlon color cosmetics, partially offset by
lower net sales of Revlon beauty tools.
Gross
profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
Gross profit
|
|
$
|
866.1
|
|
|
$
|
821.2
|
|
|
$
|
44.9
|
|
Percentage of net sales
|
|
|
65.5
|
%
|
|
|
63.4
|
%
|
|
|
2.1
|
%
|
The 2.1 percentage point increase in gross profit as a
percentage of net sales for 2010, compared to 2009, was
primarily due to:
|
|
|
|
|
lower costs related to inventory obsolescence and sales returns,
which increased gross profit as a percentage of net sales by
1.1 percentage points;
|
|
|
|
lower material costs as a result of purchasing initiatives and
savings as a result of the May 2009 Program, which increased
gross profit as a percentage of net sales by 1.0 percentage
points;
|
|
|
|
lower allowances, which increased gross profit as a percentage
of net sales by 0.5 percentage points; and
|
|
|
|
favorable foreign currency fluctuations which resulted in lower
cost of goods in most international markets on goods purchased
from the Companys facility in Oxford, North Carolina,
which increased gross profit as a percentage of net sales by
0.4 percentage points;
|
with the foregoing partially offset by:
|
|
|
|
|
the impact of product mix, which reduced gross profit as a
percentage of net sales by 0.9 percentage points.
|
SG&A
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
SG&A expenses
|
|
$
|
659.3
|
|
|
$
|
619.6
|
|
|
$
|
(39.7
|
)
|
The $39.7 million increase in SG&A expenses for 2010,
as compared to 2009, was driven primarily by:
|
|
|
|
|
$33.8 million of higher advertising expenses to support the
Companys brands as the Company continued to optimize its
brand support mix. The Company increased media pressure while
benefitting from lower advertising rates in 2010, as compared to
2009; and
|
|
|
|
$19.4 million of higher general and administrative expenses
primarily due to higher compensation expenses including an
increase in the accrual for incentive compensation, partially
offset by savings as a result of the May 2009 Program;
|
27
with the foregoing partially offset by:
|
|
|
|
|
$9.1 million of lower pension expenses, primarily due to
the May 2009 Plan Amendments which ceased future benefit
accruals under the Revlon Employees Retirement Plan and
the Revlon Pension Equalization Plan after December 31,
2009 and which resulted in a change in the amortization period
of actuarial gains (losses) from the remaining service period to
the remaining life expectancy of plan participants; and
|
|
|
|
$6.3 million of lower permanent display amortization.
|
Consistent with the Companys strategy to build its strong
brands, in the first quarter of 2011, the Company currently
intends to support its brands with increased advertising
spending (as defined in Note 1, Summary of
Significant Accounting Policies Advertising,
to the Consolidated Financial Statements), as compared to the
first quarter of 2010, due to increased media pressure and
higher advertising rates.
Restructuring
costs and other, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
Restructuring costs and other, net
|
|
$
|
(0.3
|
)
|
|
$
|
21.3
|
|
|
$
|
21.6
|
|
In May 2009, the Company announced a worldwide restructuring
(the May 2009 Program), which involved consolidating
certain functions; reducing layers of management, where
appropriate, to increase accountability and effectiveness;
streamlining support functions to reflect the new organizational
structure; and further consolidating the Companys office
facilities in New Jersey.
During 2009, the Company recorded charges of $21.3 million
in restructuring costs and other, net, which were comprised of:
|
|
|
|
|
a $20.8 million charge related to the May 2009 Program;
|
|
|
|
$1.3 million of charges related to employee severance and
other employee-related termination costs related to
restructuring actions in the U.K., Mexico and Argentina
announced in the first quarter of 2009; and
|
|
|
|
a $0.8 million charge related to restructuring programs
initiated in 2008 (the 2008 Programs);
|
with the foregoing partially offset by:
|
|
|
|
|
income of $1.6 million related to the sale of a facility in
Argentina in the first quarter of 2009.
|
During 2010 a $0.3 million adjustment was recorded to
restructuring costs and other, net to reflect lower than
originally anticipated expenses associated with the May 2009
Program.
The $20.5 million of net charges related to the May 2009
Program have been or will be paid out as follows:
$11.0 million paid in 2009, $6.9 million paid in 2010
and the balance of $2.6 million is expected to be paid
thereafter. The May 2009 Program generated the
previously-disclosed expected savings of approximately
$15 million in 2009 and annualized savings of approximately
$30 million in 2010.
Interest
expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
Interest expense
|
|
$
|
96.7
|
|
|
$
|
93.0
|
|
|
$
|
3.7
|
|
The $3.7 million increase in interest expense for 2010, as
compared to 2009, was primarily due to higher weighted average
borrowing rates, partially offset by lower debt levels. (See
Note 9, Long-Term Debt, to the Consolidated
Financial Statements).
28
Loss
on early extinguishment of debt, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
Loss on early extinguishment of debt, net
|
|
$
|
9.7
|
|
|
$
|
5.8
|
|
|
$
|
(3.9
|
)
|
As a result of the 2010 Refinancing, the Company recognized a
loss on the extinguishment of debt of $9.7 million during
the first half of 2010, primarily due to $5.9 million of
fees and expenses which were expensed as incurred in connection
with the 2010 Refinancing, as well as the write-off of
$3.8 million of unamortized deferred financing fees in
connection with such refinancing.
In 2009, the Company recognized a loss on the early
extinguishment of debt of $13.5 million resulting from the
applicable redemption and tender premiums and the net write-off
of unamortized debt discounts and deferred financing fees in
connection with the refinancing of the
91/2% Senior
Notes, which was partially offset by a $7.7 million gain on
the repurchases of an aggregate principal amount of
$49.5 million of the
91/2% Senior
Notes prior to their complete refinancing in November 2009 at an
aggregate purchase price of $41.0 million, which is net of
the write-off of the ratable portion of unamortized debt
discounts and deferred financing fees resulting from such
repurchases. (See Note 9, Long-Term Debt, to
the Consolidated Financial Statements).
Foreign
currency losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
Foreign currency losses
|
|
$
|
6.3
|
|
|
$
|
8.9
|
|
|
$
|
2.6
|
|
The $6.3 million of foreign currency losses during 2010
included a $2.8 million one-time foreign currency loss
related to the required re-measurement of the balance sheet of
the Companys subsidiary in Venezuela (Revlon
Venezuela) during the first quarter of 2010 to reflect the
impact of the devaluation of Venezuelas local currency
relative to the U.S. dollar, as Venezuela has been
designated as a highly inflationary economy effective
January 1, 2010 (see Financial Condition, Liquidity
and Capital Resources Impact of Foreign Currency
Translation Venezuela). In addition, foreign
currency losses during 2010 were driven by $3.1 million of
foreign currency losses related to the Companys
outstanding foreign currency forward exchange contracts
(FX Contracts).
The $8.9 million of foreign currency losses during 2009
were primarily driven by $5.9 million of foreign currency
losses related to the Companys outstanding FX Contracts
and an exchange loss of $2.8 million related to Revlon
Venezuela. Due to currency restrictions in Venezuela, Revlon
Venezuela exchanged local currency for U.S. dollars through
a parallel market exchange transaction in order to pay for
certain U.S. dollar-denominated liabilities, which resulted
in the $2.8 million exchange loss in 2009.
(Benefit
from) provision for income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
(Benefit from) provision for income taxes
|
|
$
|
(235.3
|
)
|
|
$
|
8.1
|
|
|
$
|
243.4
|
|
The $235.3 million benefit from income taxes in 2010, as
compared to the $8.1 million provision for income taxes in
2009, was primarily attributable to the one-time non-cash
benefit of $248.5 million related to a reduction of the
Companys deferred tax valuation allowance on its net
U.S. deferred tax assets at December 31, 2010.
As previously disclosed, in assessing the recoverability of its
deferred tax assets, management regularly considers whether some
portion or all of the deferred tax assets will not be realized
based on the recognition threshold and measurement of a tax
position in accordance with the Income Taxes Topic of the FASB
Accounting Standards Codification (the Income Taxes
Topic). The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during
the periods in which those temporary differences become
deductible. Management considers the scheduled reduction of
deferred tax liabilities, projected future taxable income and
tax planning strategies in making this assessment.
29
In accordance with the Income Taxes Topic, based upon the level
of historical taxable losses for the U.S., the Company had
maintained a deferred tax valuation allowance against its
deferred tax assets in the U.S. As of December 31,
2010, the Company achieved three cumulative years, as well as
its third consecutive year, of positive U.S. GAAP pre-tax
income and taxable income in the U.S. As a result of such
earnings trends and the Companys tax position, and based
upon the Companys projections for future taxable income
over the periods in which the deferred tax assets are
recoverable, management believes that it is more likely than not
that the Company will realize the benefits of the net deferred
tax assets existing at December 31, 2010 based on the
recognition threshold and measurement of a tax position in
accordance with the Income Taxes Topic. Therefore, at
December 31, 2010, the Company realized a one-time non-cash
benefit of $248.5 million related to a reduction of the
Companys deferred tax valuation allowance on its net
U.S. deferred tax assets at December 31, 2010. The
Company has reflected this benefit in the tax provision and this
one-time non-cash benefit has increased net income at
December 31, 2010. (See Note 12, Income
Taxes, to the Consolidated Financial Statements).
As a result of such reduction during 2010, the Company expects
that, beginning with the first quarter of 2011, the tax
provision will reflect a higher effective tax rate. However, any
such increase in the effective tax rate will not affect the
Companys cash taxes paid until the domestic tax loss
carryforwards are fully utilized.
Year
ended December 31, 2009 compared with the year ended
December 31, 2008
In the tables, all dollar amounts are in millions and numbers in
parenthesis ( ) denote unfavorable variances.
Net
sales:
Consolidated net sales in 2009 were $1,295.9 million, a
decrease of $50.9 million, or 3.8%, compared to
$1,346.8 million in 2008. Excluding the unfavorable impact
of foreign currency fluctuations of $26.0 million,
consolidated net sales decreased by 1.8% in 2009. The decline in
consolidated net sales was driven by lower net sales of
Revlon and Almay color cosmetics and certain
beauty care products, partially offset by higher net sales of
Revlon ColorSilk hair color.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Change
|
|
|
XFX
Change(a)
|
|
|
|
2009
|
|
|
2008
|
|
|
$
|
|
|
%
|
|
|
$
|
|
|
%
|
|
|
United States
|
|
$
|
747.9
|
|
|
$
|
782.6
|
|
|
$
|
(34.7
|
)
|
|
|
(4.4
|
)%
|
|
$
|
(34.7
|
)
|
|
|
(4.4
|
)%
|
Asia Pacific
|
|
|
189.1
|
|
|
|
190.1
|
|
|
|
(1.0
|
)
|
|
|
(0.5
|
)
|
|
|
3.0
|
|
|
|
1.6
|
|
Europe, Middle East and Africa
|
|
|
183.8
|
|
|
|
200.2
|
|
|
|
(16.4
|
)
|
|
|
(8.2
|
)
|
|
|
(3.7
|
)
|
|
|
(1.8
|
)
|
Latin America
|
|
|
108.9
|
|
|
|
98.4
|
|
|
|
10.5
|
|
|
|
10.7
|
|
|
|
15.7
|
|
|
|
16.0
|
|
Canada
|
|
|
66.2
|
|
|
|
75.5
|
|
|
|
(9.3
|
)
|
|
|
(12.3
|
)
|
|
|
(5.2
|
)
|
|
|
(6.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Net Sales
|
|
$
|
1,295.9
|
|
|
$
|
1,346.8
|
|
|
$
|
(50.9
|
)
|
|
|
(3.8
|
)%
|
|
$
|
(24.9
|
)
|
|
|
(1.8
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
XFX excludes the impact of foreign
currency fluctuations.
|
United
States
In the United States, net sales in 2009 were
$747.9 million, a decrease of $34.7 million, or 4.4%,
compared to $782.6 million in 2008, primarily driven by
lower net sales of Revlon and Almay color
cosmetics and Mitchum anti-perspirant deodorant,
partially offset by higher net sales of Revlon ColorSilk
hair color.
Asia
Pacific
In Asia Pacific, net sales in 2009 decreased by
$1.0 million, or 0.5%, to $189.1 million, compared to
$190.1 million in 2008 (while net sales increased 1.6%
excluding the unfavorable impact of foreign currency
fluctuations). The growth in net sales, excluding the
unfavorable impact of foreign currency fluctuations, was due
primarily to higher shipments of Revlon color cosmetics
in Australia and China (which together contributed approximately
3.6 percentage points to the increase in the regions
net sales in 2009, compared with 2008), partially offset by
lower shipments of Revlon color cosmetics in Japan (which
offset by approximately 2.1 percentage points the
regions net sales in 2009, compared to 2008).
30
Europe,
Middle East and Africa
In Europe, the Middle East and Africa, net sales in 2009
decreased 8.2%, or 1.8% excluding the unfavorable impact of
foreign currency fluctuations, to $183.8 million, compared
to $200.2 million in 2008. This decline in net sales,
excluding the unfavorable impact of foreign currency
fluctuations, was due to higher allowances for Revlon
color cosmetics in the U.K., as well as lower shipments of
certain beauty care products in France (which together
contributed approximately 3.3 percentage points to the
decrease in the regions net sales in 2009, compared with
2008), partially offset by higher shipments of Revlon
skincare in certain distributor markets and higher shipments
of certain beauty care products in South Africa (which offset by
approximately 3.1 percentage points the decrease in the
regions net sales in 2009, compared to 2008).
Latin
America
In Latin America, net sales in 2009 increased 10.7%, or 16.0%
excluding the unfavorable impact of foreign currency
fluctuations, to $108.9 million, compared to
$98.4 million in 2008. The growth in net sales, excluding
the unfavorable impact of foreign currency fluctuations, was
driven primarily by the impact of inflation on selling prices in
Venezuela, as well as higher shipments of Revlon ColorSilk
hair color in Venezuela, Argentina and certain distributor
markets (which contributed approximately 19.4 percentage
points to the increase in the regions net sales in 2009,
compared to 2008), partially offset by lower shipments of
fragrances and beauty care products in Mexico (which offset by
approximately 2.0 percentage points the regions net
sales in 2009, compared to 2008). (See Financial
Condition, Liquidity and Capital Resources Impact of
Foreign Currency Translation Venezuela for
details regarding the designation of Venezuela as a highly
inflationary economy effective January 1, 2010 and the
Venezuelan governments announcement of the devaluaton of
its local currency on January 8, 2010).
Canada
In Canada, net sales in 2009 decreased 12.3%, or 6.9% excluding
the unfavorable impact of foreign currency fluctuations, to
$66.2 million, compared to $75.5 million in 2008. This
decline in net sales, excluding the unfavorable impact of
foreign currency fluctuations, was due to lower shipments of
Revlon and Almay color cosmetics.
Gross
profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
Gross profit
|
|
$
|
821.2
|
|
|
$
|
855.9
|
|
|
$
|
(34.7
|
)
|
Percentage of net sales
|
|
|
63.4
|
%
|
|
|
63.5
|
%
|
|
|
(0.1
|
)%
|
The 0.1 percentage point decrease in gross profit as a
percentage of net sales for 2009, compared to 2008, was
primarily due to:
|
|
|
|
|
unfavorable foreign currency fluctuations (primarily due to the
strengthening of the U.S. dollar against currencies in
certain markets in which the Company operates) which resulted in
higher cost of goods in most international markets on goods
purchased from the Companys facility in Oxford, North
Carolina, which reduced gross profit as a percentage of net
sales by 0.6 percentage points;
|
|
|
|
higher pension expenses within cost of goods of
$8.1 million, which reduced gross profit as a percentage of
net sales by 0.6 percentage points; and
|
|
|
|
higher returns and allowances, which reduced gross profit as a
percentage of net sales by 0.3 percentage points; with the
foregoing partially offset by:
|
|
|
|
favorable manufacturing efficiencies and lower material and
freight costs, which increased gross profit as a percentage of
net sales by 0.8 percentage points;
|
|
|
|
favorable changes in sales mix, which increased gross profit as
a percentage of net sales by 0.4 percentage points; and
|
31
|
|
|
|
|
decreased inventory obsolescence charges on lower disposal of
discontinued products, which increased gross profit as a
percentage of net sales by 0.1 percentage points.
|
SG&A
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
SG&A expenses
|
|
$
|
619.6
|
|
|
$
|
701.6
|
|
|
$
|
82.0
|
|
The $82.0 million decrease in SG&A expenses for 2009,
as compared to 2008, was driven primarily by:
|
|
|
|
|
$24.8 million of lower advertising expenses as a result of
achieving lower advertising rates, while increasing the level of
media support;
|
|
|
|
$22.9 million of lower permanent display amortization
expenses;
|
|
|
|
$22.7 million of lower general and administrative expenses
primarily due to lower compensation expenses as a result of the
May 2009 Program and a decrease in the accrual for incentive
compensation; and
|
|
|
|
$13.2 million of favorable impact of foreign currency
fluctuations;
|
with the foregoing partially offset by:
|
|
|
|
|
$9.3 million of higher pension expenses.
|
Restructuring
costs and other, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
Restructuring costs and other, net
|
|
$
|
21.3
|
|
|
$
|
(8.4
|
)
|
|
$
|
(29.7
|
)
|
During 2009, the Company recorded charges of $21.3 million
in restructuring costs and other, net, which were comprised of:
|
|
|
|
|
a $20.8 million charge related to the May 2009 Program,
which involved consolidating certain functions; reducing layers
of management, where appropriate, to increase accountability and
effectiveness; streamlining support functions to reflect the new
organizational structure; and further consolidating the
Companys office facilities in New Jersey;
|
|
|
|
$1.3 million of charges related to employee severance and
other employee-related termination costs related to
restructuring actions in the U.K., Mexico and Argentina
announced in the first quarter of 2009; and
|
|
|
|
a $0.8 million charge related to restructuring programs
initiated in 2008 (the 2008 Programs);
|
with the foregoing partially offset by:
|
|
|
|
|
income of $1.6 million related to the sale of a facility in
Argentina in the first quarter of 2009.
|
Of the $20.8 million of charges related to the May 2009
Program, $11.0 million was paid in 2009 and
$6.9 million was paid in 2010. In addition, the May 2009
Program generated savings of approximately $15 million in
2009.
During 2008, the Company recorded income of $8.4 million
included in restructuring costs and other, net, primarily due to
a gain of $7.0 million related to the sale of its facility
in Mexico and a net gain of $5.9 million related to the
sale of a non-core trademark. In addition, during 2008 a
$0.4 million favorable adjustment was recorded to
restructuring costs associated with restructuring programs
initiated in 2006 (the 2006 Programs), primarily due
to the charges for severance and other employee-related
termination costs being slightly lower than originally
estimated. These were partially offset by a restructuring charge
of $4.9 million for the 2008 Programs, of which
$0.8 million related to a restructuring in Canada,
$1.1 million related to the Companys decision to
close and sell its facility in Mexico, $2.9 million related
to the Companys realignment of certain functions within
customer
32
business development, information management and administrative
services in the U.S. and $0.1 million related to other
various restructurings.
In addition to the $3.0 million of remaining net charges
related to the 2008 Programs as of December 31, 2008, the
Company incurred an additional $0.8 million in expenses
related to the 2008 Programs during 2009 for a total of
$3.8 million. $3.5 million of such $3.8 million
of remaining charges were paid in 2009 and the remaining
$0.3 million was paid in 2010.
Interest
expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
Interest expense
|
|
$
|
93.0
|
|
|
$
|
119.7
|
|
|
$
|
26.7
|
|
The decrease in interest expense was due to lower debt levels
and lower weighted average borrowing rates during 2009, compared
to 2008. (See Note 9, Long-Term Debt, to the
Consolidated Financial Statements).
Loss
on extinguishment of debt, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
Loss on extinguishment of debt, net
|
|
$
|
5.8
|
|
|
$
|
0.7
|
|
|
$
|
(5.1
|
)
|
In 2009, the Company recognized a loss on the early
extinguishment of debt of $13.5 million resulting from the
applicable redemption and tender premiums and the net write-off
of unamortized debt discounts and deferred financing fees in
connection with the refinancing of the
91/2% Senior
Notes, which was partially offset by a $7.7 million gain on
the repurchases of an aggregate principal amount of
$49.5 million of the
91/2% Senior
Notes prior to their complete refinancing in November 2009 at an
aggregate purchase price of $41.0 million, which is net of
the write-off of the ratable portion of unamortized debt
discounts and deferred financing fees resulting from such
repurchases. (See Note 9, Long-Term Debt, to
the Consolidated Financial Statements).
Foreign
currency losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
Foreign currency losses
|
|
$
|
8.9
|
|
|
$
|
0.1
|
|
|
$
|
(8.8
|
)
|
The increase in foreign currency losses for 2009, as compared to
2008, was primarily driven by higher foreign currency losses
related to the Companys outstanding FX Contracts and the
revaluation of certain U.S. dollar-denominated intercompany
payables from the Companys foreign subsidiaries during
2009. In addition, during 2009 the Company recognized an
exchange loss of $2.8 million related to the Companys
operations in Venezuela. Due to currency restrictions in
Venezuela, the Companys Venezuelan entity exchanged local
currency for U.S. dollars through a parallel market
exchange transaction in order to pay for certain
U.S. dollar-denominated liabilities, which resulted in the
$2.8 million exchange loss.
Provision
for income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
Provision for income taxes
|
|
$
|
8.1
|
|
|
$
|
15.9
|
|
|
$
|
7.8
|
|
The decrease in the tax provision in 2009, as compared to 2008,
was primarily attributable to the favorable resolution of tax
contingencies and matters in the U.S. and certain foreign
jurisdictions during 2009, as well as lower pre-tax income for
taxable subsidiaries in certain foreign jurisdictions.
33
Financial
Condition, Liquidity and Capital Resources
At December 31, 2010, the Company had a liquidity position
of $185.0 million, consisting of cash and cash equivalents
(net of any outstanding checks) of $73.3 million, as well
as approximately $111.7 million in available borrowings
under the 2010 Revolving Credit Facility, based upon the
calculated borrowing base less $21.2 million of undrawn
outstanding letters of credit and nil then drawn under the 2010
Revolving Credit Facility at such date.
Cash
Flows
At December 31, 2010, the Company had cash and cash
equivalents of $76.7 million, compared with
$54.5 million at December 31, 2009. The following
table summarizes the Companys cash flows from operating,
investing and financing activities for 2010, 2009 and 2008,
respectively (all amounts are in millions):
|
|
|
|
|
|
|
|
|
|
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Year Ended December 31,
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2010
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|
|
2009
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2008
|
|
|
Net cash provided by operating activities
|
|
$
|
96.7
|
|
|
$
|
103.3
|
|
|
$
|
33.1
|
|
Net cash (used in) provided by investing activities
|
|
|
(14.9
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)
|
|
|
(11.8
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)
|
|
|
101.6
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|
Net cash used in financing activities
|
|
|
62.3
|
|
|
|
92.3
|
|
|
|
113.0
|
|
Net cash provided by operating activities was
$96.7 million, $103.3 million and $33.1 million
for 2010, 2009 and 2008, respectively. As compared to 2009, cash
provided by operating activities in 2010 was impacted by
unfavorable changes in working capital, primarily inventory,
partially offset by higher operating income and lower interest
payments during 2010. The improvement in cash provided by
operating activities in 2009, compared to 2008, was primarily
driven by lower interest payments, improved operating income,
working capital efficiency and lower permanent display purchases.
Net cash (used in) provided by investing activities was
$(14.9) million, $(11.8) million and
$101.6 million for 2010, 2009 and 2008, respectively. Net
cash used in investing activities in 2010 included
$15.2 million of cash used for capital expenditures. Net
cash used in investing activities in 2009 included
$14.3 million of capital expenditures, partially offset by
$2.5 million from the net proceeds from the sale of certain
assets. Net cash provided by investing activities in 2008
included $107.6 million in gross proceeds from the Bozzano
Sale Transaction (see Note 2, Discontinued
Operations, to the Consolidated Financial Statements) and
$13.6 million in proceeds from the sale of a non-core
trademark and certain other assets (which included net proceeds
from the sale of the Mexico facility), partially offset by
$20.7 million of capital expenditures.
Net cash used in financing activities was $62.3 million,
$92.3 million and $113.0 million for 2010, 2009 and
2008, respectively. Net cash used in financing activities for
2010 included:
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cash used for repayment of the $815.0 million remaining
aggregate principal amount of Products Corporations 2006
Term Loan Facility, partially offset by cash provided by
Products Corporations issuance of the $800.0 million
aggregate principal amount of the 2010 Term Loan Facility, or
$786.0 million, net of discounts;
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|
|
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an aggregate $6.0 million of scheduled amortization
payments on the 2010 Term Loan Facility in 2010; and
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|
|
|
payment of financing costs of $17.0 million, which was
comprised of (i) the payment of $15.3 million of fees
incurred in connection with the 2010 Refinancing and
(ii) the payment of the remaining balance of
$1.7 million of the $25.1 million of fees incurred in
connection with the refinancing of Product Corporations
91/2% Senior
Notes in November 2009 with the
93/4% Senior
Secured Notes due November 2015.
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Net cash used in financing activities for 2009 included a net
debt reduction of $74.0 million, primarily comprised of:
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|
|
|
|
the repayment or redemption of all of the $340.5 million
aggregate principal amount outstanding of Products
Corporations
91/2% Senior
Notes in connection with Products Corporations complete
refinancing of the
91/2% Senior
Notes in November 2009;
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34
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|
|
|
|
the repurchases of $49.5 million in aggregate principal
amount of Products Corporations
91/2% Senior
Notes prior to their complete refinancing in November 2009 at an
aggregate purchase price of $41.0 million; and
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|
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the repayment of $18.7 million in principal amount of
Products Corporations 2006 Term Loan Facility (prior to
its complete refinancing in March 2010);
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with the foregoing partially offset by:
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|
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Products Corporations issuance of the $330.0 million
aggregate principal amount of the
93/4% Senior
Secured Notes, or $326.4 million net of discounts.
|
Net cash used in financing activities for 2009 also included
payment of $23.4 million of the $24.9 million of fees
incurred in connection with the refinancing of the
91/2% Senior
Notes.
Net cash used in financing activities for 2008 included the full
repayment on February 1, 2008 of the $167.4 million
remaining aggregate principal amount of Products
Corporations
85/8% Senior
Subordinated Notes, which matured on February 1, 2008, and
$43.5 million of repayments under the 2006 Revolving Credit
Facility (prior to its complete refinancing in March 2010),
offset by proceeds of $170.0 million from the Senior
Subordinated Term Loan Agreement, which Products Corporation
used to repay in full such
85/8% Senior
Subordinated Notes on their February 1, 2008 maturity date,
and to pay $2.55 million of related fees and expenses. In
addition, in September 2008, the Company used $63.0 million
of the net proceeds from the Bozzano Sale Transaction to repay
$63.0 million in aggregate principal amount of the Senior
Subordinated Term Loan.
2010
Bank Credit Agreements
In March 2010, Products Corporation consummated the 2010
Refinancing, which included refinancing: (1) its 2006 Term
Loan Facility with the 2010 Term Loan Facility and
(2) Products Corporations 2006 Revolving Credit
Facility with the 2010 Revolving Credit Facility.
2010 Revolving Credit Facility
Availability under the 2010 Revolving Credit Facility varies
based on a borrowing base that is determined by the value of
eligible accounts receivable and eligible inventory in the
U.S. and the U.K. and eligible real property and equipment
in the U.S. from time to time.
In each case subject to borrowing base availability, the 2010
Revolving Credit Facility is available to:
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(i)
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Products Corporation in revolving credit loans denominated in
U.S. dollars;
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(ii)
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Products Corporation in swing line loans denominated in
U.S. dollars up to $30.0 million;
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(iii)
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Products Corporation in standby and commercial letters of credit
denominated in U.S. dollars and other currencies up to
$60.0 million; and
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|
(iv)
|
Products Corporation and certain of its international
subsidiaries designated from time to time in revolving credit
loans and bankers acceptances denominated in
U.S. dollars and other currencies.
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If the value of the eligible assets is not sufficient to support
the $140.0 million borrowing base under the 2010 Revolving
Credit Facility, Products Corporation will not have full access
to the 2010 Revolving Credit Facility. Products
Corporations ability to make borrowings under the 2010
Revolving Credit Facility is also conditioned upon the
satisfaction of certain conditions precedent and Products
Corporations compliance with other covenants in the 2010
Revolving Credit Agreement.
Borrowings under the 2010 Revolving Credit Facility (other than
loans in foreign currencies) bear interest at a rate equal to,
at Products Corporations option, either (i) the
Eurodollar Rate plus 3.00% per annum or (ii) the Alternate
Base Rate plus 2.00% per annum. Local Loans (as defined in the
2010 Revolving Credit Agreement) bear interest, if mutually
acceptable to Products Corporation and the relevant foreign
lenders, at the Local Rate, and otherwise (i) if in foreign
currencies or in U.S. dollars at the Eurodollar Rate or the
Eurocurrency Rate plus 3.0% per annum or (ii) if in
U.S. dollars at the Alternate Base Rate plus 2.0% per annum.
35
Prior to the termination date of the 2010 Revolving Credit
Facility, revolving loans are required to be prepaid (without
any permanent reduction in commitment) with:
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(i)
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the net cash proceeds from sales of Revolving Credit First Lien
Collateral (as defined below) by Products Corporation or any of
its subsidiary guarantors (other than dispositions in the
ordinary course of business and certain other
exceptions); and
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(ii)
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the net proceeds from the issuance by Products Corporation or
any of its subsidiaries of certain additional debt, to the
extent there remains any such proceeds after satisfying Products
Corporations repayment obligations under the 2010 Term
Loan Facility.
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Products Corporation pays to the lenders under the 2010
Revolving Credit Facility a commitment fee of 0.75% of the
average daily unused portion of the 2010 Revolving Credit
Facility, which fee is payable quarterly in arrears. Under the
2010 Revolving Credit Facility, Products Corporation also pays:
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(i)
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to foreign lenders a fronting fee of 0.25% per annum on the
aggregate principal amount of specified Local Loans (which fee
is retained by foreign lenders out of the portion of the
Applicable Margin payable to such foreign lender);
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(ii)
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to foreign lenders an administrative fee of 0.25% per annum on
the aggregate principal amount of specified Local Loans;
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(iii)
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to the multi-currency lenders a letter of credit commission
equal to the product of (a) the Applicable Margin (as
defined in the 2010 Revolving Credit Agreement) for revolving
credit loans that are Eurodollar Rate (as defined in the 2010
Revolving Credit Agreement) loans (adjusted for the term that
the letter of credit is outstanding) and (b) the aggregate
undrawn face amount of letters of credit; and
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(iv)
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to the issuing lender, a letter of credit fronting fee of 0.25%
per annum of the aggregate undrawn face amount of letters of
credit, which fee is a portion of the Applicable Margin.
|
Under certain circumstances, Products Corporation will have the
right to request that the 2010 Revolving Credit Facility be
increased by up to $60.0 million, provided that the lenders
are not committed to provide any such increase.
Under certain circumstances if and when the difference between
(i) the borrowing base under the 2010 Revolving Credit
Facility and (ii) the amounts outstanding under the 2010
Revolving Credit Facility is less than $20.0 million for a
period of two consecutive days or more, and until such
difference is equal to or greater than $20.0 million for a
period of 30 consecutive business days, the 2010 Revolving
Credit Facility requires Products Corporation to maintain a
consolidated fixed charge coverage ratio (the ratio of EBITDA
minus Capital Expenditures to Cash Interest Expense for such
period, as each such term is defined in the 2010 Revolving
Credit Facility) of 1.0 to 1.0.
The 2010 Revolving Credit Facility matures on March 11,
2014.
2010
Term Loan Facility
Under the 2010 Term Loan Facility, Eurodollar Loans (as defined
in the 2010 Term Loan Agreement) bear interest at the Eurodollar
Rate (as defined in the 2010 Term Loan Agreement) plus 4.00% per
annum (provided that in no event shall the Eurodollar Rate be
less than 2.00% per annum) and Alternate Base Rate (as defined
in the 2010 Term Loan Agreement) loans bear interest at the
Alternate Base Rate plus 3.00% per annum (provided that in no
event shall the Alternate Base Rate be less than 3.00% per
annum).
Prior to the termination date of the 2010 Term Loan Facility, on
June 30, September 30, December 31 and March 31 of
each year (commencing June 30, 2010), Products Corporation
is required to repay $2.0 million of the principal amount
of the term loans outstanding under the 2010 Term Loan Facility
on each respective date. In addition, the term loans under the
2010 Term Loan Facility are required to be prepaid with:
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(i)
|
the net cash proceeds in excess of $10.0 million for each
12-month
period ending on March 31 received during such period from sales
of Term Loan First Lien Collateral (as defined below) by
Products
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36
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Corporation or any of its subsidiary guarantors (subject to a
reinvestment right for 365 days and carryover of unused
annual basket amounts up to a maximum of $25.0 million and
subject to certain specified dispositions of up to an additional
$25.0 million in the aggregate);
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(ii)
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the net proceeds from the issuance by Products Corporation or
any of its subsidiaries of certain additional debt; and
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(iii)
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50% of Products Corporations excess cash flow
(as defined under the 2010 Term Loan Agreement), commencing with
excess cash flow for the 2011 fiscal year payable in the first
quarter of 2012.
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Any such prepayments are applied to reduce Products
Corporations future regularly scheduled term loan
amortization payments, to be applied in the direct order of
maturity to the remaining installments thereof or as otherwise
directed by Products Corporation.
The 2010 Term Loan Facility contains a financial covenant
limiting Products Corporations first lien senior secured
leverage ratio (the ratio of Products Corporations Senior
Secured Debt that has a lien on the collateral which secures the
2010 Term Loan Facility that is not junior or subordinated to
the liens securing the 2010 Term Loan Facility (excluding debt
outstanding under the 2010 Revolving Credit Facility) to EBITDA,
as each such term is defined in the 2010 Term Loan Facility), to
4.0 to 1.0 for each period of four consecutive fiscal quarters
ending during the period from March 31, 2010 to the March
2015 maturity date of the 2010 Term Loan Facility.
Under certain circumstances, Products Corporation will have the
right to request the 2010 Term Loan Facility to be increased by
up to $300.0 million, provided that the lenders are not
committed to provide any such increase.
The 2010 Term Loan Facility matures on March 11, 2015.
Provisions Applicable to the 2010 Revolving Credit
Facility and the 2010 Term Loan Facility
The 2010 Credit Facilities are supported by, among other things,
guarantees from Revlon, Inc. and, subject to certain limited
exceptions, Products Corporations domestic subsidiaries.
The obligations of Products Corporation under the 2010 Credit
Facilities and the obligations under such guarantees are secured
by, subject to certain limited exceptions, substantially all of
the assets of Products Corporation and the guarantors. (See
Note 9, Long-Term Debt, to the Consolidated
Financial Statements).
Each of the 2010 Credit Facilities contains various restrictive
covenants prohibiting Products Corporation and its subsidiaries
from:
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(i)
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incurring additional indebtedness or guarantees, with certain
exceptions;
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(ii)
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making dividend and other payments or loans to Revlon, Inc. or
other affiliates, with certain exceptions, including among
others:
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(a)
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exceptions permitting Products Corporation to pay dividends or
make other payments to Revlon, Inc. to enable it to, among other
things, pay expenses incidental to being a public holding
company, including, among other things, professional fees such
as legal, accounting and insurance fees, regulatory fees, such
as SEC filing fees and NYSE listing fees, and other expenses
related to being a public holding company;
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(b)
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subject to 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 Third Amended and Restated Revlon, Inc. Stock Plan
and/or the
payment of withholding taxes in connection with the vesting of
restricted stock awards under such plan;
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(c)
|
subject to certain limitations, to pay dividends or make other
payments to finance the purchase, redemption or other retirement
for value by Revlon, Inc. of stock or other equity interests or
equivalents in Revlon, Inc. held by any current or former
director, employee or consultant in his or her capacity as
such; and
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(d)
|
subject to certain limitations, to make other restricted
payments to affiliates of Products Corporation in amounts up to
$5.0 million per year ($10.0 million in 2010), other
restricted payments in
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37
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|
|
an aggregate amount not to exceed $20.0 million and other
restricted payments based upon certain financial tests;
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|
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|
|
(iii)
|
creating liens or other encumbrances on Products
Corporations or its subsidiaries assets or revenues,
granting negative pledges or selling or transferring any of
Products Corporations or its subsidiaries assets,
all subject to certain limited exceptions;
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|
|
(iv)
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with certain exceptions, engaging in merger or acquisition
transactions;
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|
|
(v)
|
prepaying indebtedness and modifying the terms of certain
indebtedness and specified material contractual obligations,
subject to certain exceptions;
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|
|
(vi)
|
making investments, subject to certain exceptions; and
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|
|
(vii)
|
entering into transactions with affiliates of Products
Corporation involving aggregate payments or consideration in
excess of $10.0 million other than upon terms that are not
materially less favorable when taken as a whole to Products
Corporation or its subsidiaries as terms that would be
obtainable at the time for a comparable transaction or series of
similar transactions in arms length dealings with an
unrelated third person and where such payments or consideration
exceed $20.0 million, unless such transaction has been
approved by all of the independent directors of Products
Corporation, subject to certain exceptions.
|
The events of default under each of the 2010 Credit Facilities
include customary events of default for such types of
agreements, including, among others:
|
|
|
|
(i)
|
nonpayment of any principal, interest or other fees when due,
subject in the case of interest and fees to a grace period;
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|
|
(ii)
|
non-compliance with the covenants in such 2010 Credit Facilities
or the ancillary security documents, subject in certain
instances to grace periods;
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|
|
(iii)
|
the institution of any bankruptcy, insolvency or similar
proceedings by or against Products Corporation, any of Products
Corporations subsidiaries or Revlon, Inc., subject in
certain instances to grace periods;
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|
|
(iv)
|
default by Revlon, Inc. or any of its subsidiaries (A) in
the payment of certain indebtedness when due (whether at
maturity or by acceleration) in excess of $25.0 million in
aggregate principal amount or (B) in the observance or
performance of any other agreement or condition relating to such
debt, provided that the amount of debt involved is in excess of
$25.0 million in aggregate principal amount, or the
occurrence of any other event, the effect of which default
referred to in this subclause (iv) is to cause or permit
the holders of such debt to cause the acceleration of payment of
such debt;
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|
|
(v)
|
in the case of the 2010 Term Loan Facility, a cross default
under the 2010 Revolving Credit Facility, and in the case of the
2010 Revolving Credit Facility, a cross default under the 2010
Term Loan Facility;
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|
|
(vi)
|
the failure by Products Corporation, certain of Products
Corporations subsidiaries or Revlon, Inc. to pay certain
material judgments;
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|
|
(vii)
|
a change of control such that (A) Revlon, Inc. shall cease
to be the beneficial and record owner of 100% of Products
Corporations capital stock, (B) Ronald O. Perelman
(or his estate, heirs, executors, administrator or other
personal representative) and his or their controlled affiliates
shall cease to control Products Corporation, and any
other person or group of persons owns, directly or indirectly,
more than 35% of the total voting power of Products Corporation,
(C) any person or group of persons other than Ronald O.
Perelman (or his estate, heirs, executors, administrator or
other personal representative) and his or their controlled
affiliates shall control Products Corporation or
(D) during any period of two consecutive years, the
directors serving on Products Corporations Board of
Directors at the beginning of such period (or other directors
nominated by at least a majority of such continuing directors)
shall cease to be a majority of the directors;
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|
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(viii)
|
Revlon, Inc. shall have any meaningful assets or indebtedness or
shall conduct any meaningful business other than its ownership
of Products Corporation and such activities as are customary for
a publicly
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38
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|
|
|
|
traded holding company which is not itself an operating company,
in each case subject to limited exceptions; and
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|
|
|
|
(ix)
|
the failure of certain of Products Corporations affiliates
which hold Products Corporations or its subsidiaries
indebtedness to be party to a valid and enforceable agreement
prohibiting such affiliate from demanding or retaining payments
in respect of such indebtedness, subject to certain exceptions,
including exceptions as to Products Corporations Senior
Subordinated Term Loan.
|
If Products Corporation is in default under the senior secured
leverage ratio under the 2010 Term Loan Facility or the
consolidated fixed charge coverage ratio under the 2010
Revolving Credit Facility, Products Corporation may cure such
default by issuing certain equity securities to, or receiving
capital contributions from, Revlon, Inc. and applying such cash
which is deemed to increase EBITDA for the purpose of
calculating the applicable ratio. This cure right may be
exercised by Products Corporation two times in any four-quarter
period.
Products Corporation was in compliance with all applicable
covenants under the 2010 Credit Agreements upon closing the 2010
Refinancing and as of December 31, 2010. At
December 31, 2010, the aggregate principal amount
outstanding under the 2010 Term Loan Facility was
$794.0 million and availability under the
$140.0 million 2010 Revolving Credit Facility, based upon
the calculated borrowing base less $21.2 million of
outstanding undrawn letters of credit and nil then drawn on the
2010 Revolving Credit Facility, was $111.7 million.
93/4% Senior
Secured Notes due 2015
In November 2009, Products Corporation issued and sold
$330.0 million in aggregate principal amount of
93/4% Senior
Secured Notes due November 15, 2015 (the
93/4% Senior
Secured Notes) in a private placement, which was priced at
98.9% of par, receiving net proceeds (net of the original issue
discount and underwriters fees) of $319.8 million.
Including the amortization of the original issue discount, the
effective interest rate on the
93/4% Senior
Secured Notes is 10%. In connection with and prior to the
issuance of the
93/4% Senior
Secured Notes, Products Corporation entered into amendments to
the 2006 Credit Agreements (prior to their complete refinancing
in March 2010) to permit the issuance of the
93/4% Senior
Secured Notes on a secured basis and incurred $4.7 million
of related fees and expenses. The Company capitalized
$4.5 million of such fees and expenses which was expensed
upon the refinancing of the 2006 Credit Agreements in March
2010. In addition, the Company incurred $10.5 million of
fees and expenses related to the issuance of the
93/4% Senior
Secured Notes, all of which the Company capitalized and which
will be amortized over the remaining life of the
93/4% Senior
Secured Notes.
The $319.8 million of net proceeds, together with
$42.6 million of other cash and borrowings under the 2006
Revolving Credit Facility (prior to its complete refinancing in
March 2010), were used to repay or redeem all of the
$340.5 million aggregate principal amount outstanding of
Products Corporations
91/2% Senior
Notes due April 1, 2011, plus an aggregate of
$21.9 million for accrued interest, applicable redemption
and tender premiums and fees and expenses related to refinancing
the
91/2% Senior
Notes, as well as the amendments to the 2006 Credit Agreements
(prior to their complete refinancing in March
2010) required to permit such refinancing to be conducted
on a secured basis. Pursuant to a registration rights agreement,
on June 1, 2010, Products Corporation commenced an offer to
exchange the original
93/4% Senior
Secured Notes for up to $330 million in aggregate principal
amount of its
93/4% Senior
Secured Notes due 2015 that have been registered under the
Securities Act of 1933, as amended (the Securities
Act). On July 16, 2010, all of the old notes were
exchanged for new notes which have substantially identical terms
as the old notes, except that the new notes are registered with
the SEC under the Securities Act and the transfer restrictions
and registration rights applicable to the old notes do not apply
to the new notes. (See Note 9, Long-Term Debt,
to the Consolidated Financial Statements).
Pursuant to the terms of the
93/4% Senior
Secured Notes indenture, the
93/4% Senior
Secured Notes are senior secured obligations of Products
Corporation ranking equally in right of payment with any present
and future senior indebtedness of Products Corporation. The
93/4% Senior
Secured Notes bear interest at an annual rate of
93/4%,
which is payable on May 15 and November 15 of each year,
commencing on May 15, 2010, requiring bi-annual interest
payments of approximately $15.4 million on May 15,
2010, and thereafter approximately $16.1 million on each
interest payment date, based on the $330.0 million
aggregate principal face amount of the
93/4% Senior
Secured Notes outstanding as of December 31, 2010.
39
The
93/4% Senior
Secured Notes are supported by, among other things, guarantees
from Revlon, Inc. and, subject to certain limited exceptions,
Products Corporations domestic subsidiaries. The
obligations of Products Corporation under the
93/4% Senior
Secured Notes and the obligations under the guarantees are
secured by, subject to certain limited exceptions, substantially
all of the assets of Products Corporation and the guarantors,
including second-priority liens on the collateral securing the
2010 Term Loan Facility and third-priority liens on the
collateral securing the 2010 Revolving Credit Facility, subject
to certain exceptions. (See Note 9, Long-Term
Debt, to the Consolidated Financial Statements).
The
93/4% Senior
Secured Notes indenture contains covenants that, among other
things, limit (i) the issuance of additional debt and
redeemable stock by Products Corporation; (ii) the
incurrence of liens; (iii) the issuance of debt and
preferred stock by Products Corporations subsidiaries;
(iv) the payment of dividends on capital stock of Products
Corporation and its subsidiaries and the redemption of capital
stock of Products Corporation and certain subordinated
obligations; (v) the sale of assets and subsidiary stock by
Products Corporation; (vi) transactions with affiliates of
Products Corporation; (vii) consolidations, mergers and
transfers of all or substantially all of Products
Corporations assets; and (viii) certain restrictions
on transfers of assets by or distributions from subsidiaries of
Products Corporation. All of these limitations and prohibitions,
however, are subject to a number of qualifications and
exceptions, which are specified in the
93/4% Senior
Secured Notes indenture. Products Corporation was in compliance
with all applicable covenants under its
93/4% Senior
Secured Notes as of December 31, 2010.
Senior
Subordinated Term Loan
In October 2009, Revlon, Inc. consummated its Exchange Offer in
which each issued and outstanding share of Revlon, Inc.s
Class A Common Stock was exchangeable on a
one-for-one
basis for a newly-issued series of Revlon, Inc. Preferred Stock.
Revlon, Inc. issued to stockholders (other than
MacAndrews & Forbes and its affiliates)
9,336,905 shares of Preferred Stock in exchange for the
same number of shares of Class A Common Stock tendered for
exchange in the Exchange Offer.
Upon consummation of the Exchange Offer, MacAndrews &
Forbes contributed to Revlon, Inc. the $48.6 million of the
$107.0 million aggregate outstanding principal amount of
the Senior Subordinated Term Loan that was contributed to
Revlon, Inc. by MacAndrews & Forbes (the
Contributed Loan), representing $5.21 of outstanding
principal amount for each of the 9,336,905 shares of
Revlon, Inc.s Class A Common Stock exchanged in the
Exchange Offer, and Revlon, Inc. issued to
MacAndrews & Forbes 9,336,905 shares of
Class A Common Stock at a ratio of one share of
Class A Common Stock for each $5.21 of outstanding
principal amount of the Senior Subordinated Term Loan
contributed to Revlon. Also upon consummation of the Exchange
Offer, the terms of the Senior Subordinated Term Loan Agreement
were amended to extend the maturity date on the Contributed Loan
which remains owing from Products Corporation to Revlon, Inc.
from August 2010 to October 8, 2013, to change the annual
interest rate on the Contributed Loan from 11% to 12.75%, to
extend the maturity date on the $58.4 million principal
amount of the Senior Subordinated Term Loan which remains owing
from Products Corporation to MacAndrews & Forbes (the
Non-Contributed Loan) from August 2010 to
October 8, 2014 and to change the annual interest rate on
the Non-Contributed Loan from 11% to 12%.
Interest under the Senior Subordinated Term Loan is payable in
arrears in cash on January 8, April 8, July 8 and
October 8 of each year. Products Corporation may, at its option,
prepay such loan, in whole or in part (together with accrued and
unpaid interest), at any time prior to its respective maturity
dates without premium or penalty, provided that prior to such
loans respective maturity dates all shares of Revlon,
Inc.s Preferred Stock have been or are being concurrently
redeemed and all payments due thereon are paid in full or are
concurrently being paid in full.
Interest
Rate Swap Transactions
In September 2007 and April 2008, Products Corporation executed
two
floating-to-fixed
Interest Rate Swaps each with a notional amount of
$150.0 million over a period of two years relating to
indebtedness under Products Corporations former 2006 Term
Loan Facility (prior to its complete refinancing in March 2010).
In September 2009, one of the Companys two
floating-to-fixed
interest rate swaps, with a notional amount of
$150.0 million, expired.
40
Prior to its expiration in April 2010, the Companys other
floating-to-fixed
interest rate swap had a notional amount of $150.0 million
initially relating to indebtedness under Products
Corporations former 2006 Term Loan Facility (prior to its
complete refinancing in March 2010) and which also related,
through its expiration in April 2010, to a notional amount of
$150.0 million relating to indebtedness under Products
Corporations 2010 Term Loan Facility (the 2008
Interest Rate Swap). Under the terms of the 2008 Interest
Rate Swap, Products Corporation was required to pay to the
counterparty a quarterly fixed interest rate of 2.66% on the
$150.0 million notional amount under the 2008 Interest Rate
Swap (which, based upon the 4.0% applicable margin, effectively
fixed the interest rate on such notional amounts at 6.66% for
the 2-year
term of such swap), commencing in July 2008, while receiving a
variable interest rate payment from the counterparty equal to
three-month U.S. dollar LIBOR.
The 2008 Interest Rate Swap was initially designated as a cash
flow hedge of the variable interest rate payments on Products
Corporations former 2006 Term Loan Facility (prior to its
complete refinancing in March 2010) under the Derivatives
and Hedging Topic of the FASB Accounting Standards Codification
(the Derivatives and Hedging Topic). However, as a
result of the 2010 Refinancing, effective March 11, 2010
(the closing date of the 2010 Refinancing), the 2008 Interest
Rate Swap no longer met the criteria specified under the
Derivatives and Hedging Topic to allow for the deferral of the
effective portion of unrecognized hedging gains or losses in
other comprehensive income since the scheduled variable interest
payment specified on the date originally documented at the
inception of the hedge will not occur. As a result, as of
March 11, 2010, the Company reclassified an unrecognized
loss of $0.8 million from Accumulated Other Comprehensive
Loss into earnings.
Impact
of Foreign Currency Translation
Venezuela
During 2010 and 2009, the Companys subsidiary in Venezuela
had net sales of approximately 3% and 4%, respectively, of the
Companys consolidated net sales. At December 31, 2010
and 2009, total assets in the Companys subsidiary in
Venezuela were approximately 3% and 5%, respectively, of the
Companys total assets.
Highly-Inflationary Economy: Effective
January 1, 2010, Venezuela has been designated as a highly
inflationary economy under U.S. GAAP. As a result,
beginning January 1, 2010, the U.S. dollar is the
functional currency for the Companys subsidiary in
Venezuela. Through December 31, 2009, prior to being
designated as highly inflationary, currency translation
adjustments of Revlon Venezuelas balance sheet were
reflected in shareholders equity as part of Other
Comprehensive Income; however subsequent to January 1,
2010, such adjustments are reflected in earnings.
Currency Devaluation: On January 8, 2010,
the Venezuelan government announced the devaluation of its local
currency (Bolivars) relative to the U.S. dollar
and the official exchange rate for non-essential goods changed
from 2.15 to 4.30. The Company uses Venezuelas official
rate to translate the financial statements of Revlon Venezuela.
In 2010, the devaluation had the impact of reducing reported net
sales and operating income by $33.4 million and
$8.4 million, respectively. Additionally, to reflect the
impact of the currency devaluation, a one-time foreign currency
loss of $2.8 million was recorded in January 2010 as a
result of the required re-measurement of Revlon Venezuelas
balance sheet. As Venezuela has been designated as a highly
inflationary economy effective January 1, 2010, this
foreign currency loss was reflected in earnings in the first
quarter of 2010.
In December 2010, the Venezuelan government announced a further
devaluation of Bolivars relative to the U.S. dollar for
essential goods from 2.60 to 4.30. Given that the Company has
immaterial transactions at the official rate for essential
goods, the further devaluation will not have a material impact
on the Companys results of operations or financial
condition.
Separately, during the fourth quarter of 2009, due to currency
restrictions in Venezuela, Revlon Venezuela exchanged Bolivars
for U.S. dollars through a parallel market exchange
transaction in order to pay for certain
U.S. dollar-denominated liabilities, which resulted in a
$2.8 million foreign exchange loss. (See Results of
Operations Year ended December 31, 2009
compared with the year ended December 31, 2008
Foreign Currency Losses).
41
Sources
and Uses
The Companys principal sources of funds are expected to be
operating revenues, cash on hand and funds available for
borrowing under the 2010 Revolving Credit Facility and other
permitted lines of credit. The 2010 Credit Agreements, the
indenture governing Products Corporations
93/4% Senior
Notes and the Senior Subordinated Term Loan Agreement contain
certain provisions that by their terms limit Products
Corporation and its subsidiaries ability to, among other
things, incur additional debt.
The Companys principal uses of funds are expected to be
the payment of operating expenses, including expenses in
connection with the continued execution of the Companys
business strategy, purchases of permanent wall displays, capital
expenditure requirements, payments in connection with the
Companys restructuring programs, severance not otherwise
included in the Companys restructuring programs, debt
service payments and costs, debt repurchases and regularly
scheduled pension and post-retirement benefit plan contributions
and benefit payments. The Companys cash contributions to
its pension and post-retirement benefit plans in 2010 were
$25.8 million. In accordance with the minimum pension
contributions required under the Employee Retirement Income
Security Act of 1974, as amended by the Pension Protection Act
of 2006 and as amended by the Worker, Retiree and Employer
Recovery Act of 2008, the Company expects cash contributions to
its pension and post-retirement benefit plans to be
approximately $30 million in the aggregate for 2011. The
Companys purchases of permanent wall displays and capital
expenditures in 2010 were $33.7 million and
$15.2 million, respectively. The Company expects purchases
of permanent wall displays and capital expenditures in the
aggregate for 2011 to be approximately $40 million and
$20 million, respectively. (See Restructuring Costs
and Other, Net above in this
Form 10-K
for discussion of the Companys expected uses of funds in
connection with its various restructuring programs).
The Company has undertaken, and continues to assess, refine and
implement, a number of programs to efficiently manage its cash
and working capital, including, among other things, programs
intended to reduce inventory levels over time; centralized
purchasing to secure discounts and efficiencies in procurement;
providing discounts to U.S. customers for more timely
payment of receivables; prudent management of accounts payable;
and targeted controls on general and administrative spending.
Continuing to execute the Companys business strategy could
include taking advantage of additional opportunities to
reposition, repackage or reformulate one or more brands or
product lines, launching additional new products, acquiring
businesses or brands, further refining the Companys
approach to retail merchandising
and/or
taking further actions to optimize its manufacturing, sourcing
and organizational size and structure. Any of these actions,
whose intended purpose would be to create value through
profitable growth, could result in the Company making
investments
and/or
recognizing charges related to executing against such
opportunities.
The Company may also, from time to time, seek to retire or
purchase its outstanding debt obligations in open market
purchases, in privately negotiated transactions or otherwise and
may seek to refinance some or all of its indebtedness based upon
market conditions. Any retirement or purchase of debt may be
funded with operating cash flows of the business or other
sources and will depend upon prevailing market conditions,
liquidity requirements, contractual restrictions and other
factors, and the amounts involved may be material.
The Company expects that operating revenues, cash on hand and
funds available for borrowing under the 2010 Revolving Credit
Facility and other permitted lines of credit will be sufficient
to enable the Company to cover its operating expenses for 2011,
including cash requirements in connection with the payment of
operating expenses, including expenses in connection with the
execution of the Companys business strategy, purchases of
permanent wall displays, capital expenditure requirements,
payments in connection with the Companys restructuring
programs (including, without limitation, the 2009 Programs),
severance not otherwise included in the Companys
restructuring programs, debt service payments and costs, debt
repurchases and regularly scheduled pension and post-retirement
plan contributions and benefit payments.
There can be no assurance that available funds will be
sufficient to meet the Companys cash requirements on a
consolidated basis. If the Companys anticipated level of
revenues is not achieved because of, among other things,
decreased consumer spending in response to weak economic
conditions or weakness in the cosmetics category in the mass
retail channel; adverse changes in currency exchange rates
and/or
currency controls; decreased sales of the
42
Companys products as a result of increased competitive
activities by the Companys competitors; changes in
consumer purchasing habits, including with respect to shopping
channels; retailer inventory management, retailer space
reconfigurations or reductions in retailer display space;
changes in retailer pricing or promotional strategies; or less
than anticipated results from the Companys existing or new
products or from its advertising, promotional
and/or
marketing plans; or if the Companys expenses, including,
without limitation, for pension expense under its benefit plans,
advertising, promotional and marketing activities or for sales
returns related to any reduction of retail space, product
discontinuances or otherwise, exceed the anticipated level of
expenses, the Companys current sources of funds may be
insufficient to meet the Companys cash requirements.
Any such developments, if significant, could reduce the
Companys revenues and could adversely affect Products
Corporations ability to comply with certain financial
covenants under the 2010 Credit Agreements and in such event the
Company could be required to take measures, including, among
other things, reducing discretionary spending. (See also
Item 1A. Risk Factors for further discussion of
certain risks associated with the Companys business and
indebtedness).
If the Company is unable to satisfy its cash requirements from
the sources identified above or comply with its debt covenants,
the Company could be required to adopt one or more of the
following alternatives:
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delaying the implementation of or revising certain aspects of
the Companys business strategy;
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reducing or delaying purchases of wall displays or advertising,
promotional or marketing expenses;
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reducing or delaying capital spending;
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implementing new or revising existing restructuring programs;
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refinancing Products Corporations indebtedness;
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selling assets or operations;
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seeking additional capital contributions
and/or loans
from MacAndrews & Forbes, Revlon, Inc., the
Companys other affiliates
and/or third
parties;
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selling additional debt securities of Products
Corporation; or
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reducing other discretionary spending.
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There can be no assurance that the Company would be able to take
any of the actions referred to above because of a variety of
commercial or market factors or constraints in Products
Corporations debt instruments, including, without
limitation, market conditions being unfavorable for an equity or
debt issuance, additional capital contributions
and/or loans
not being available from affiliates
and/or third
parties, or that the transactions may not be permitted under the
terms of Products Corporations various debt instruments
then in effect, such as due to restrictions on the incurrence of
debt, incurrence of liens, asset dispositions and related party
transactions. In addition, such actions, if taken, may not
enable the Company to satisfy its cash requirements or enable
Products Corporation to comply with its debt covenants if the
actions do not generate a sufficient amount of additional
capital. (See also Item 1A. Risk Factors for
further discussion of certain risks associated with the
Companys business and indebtedness).
Products Corporation enters into foreign currency forward
exchange contracts and option contracts from time to time to
hedge certain net cash flows denominated in currencies other
than the local currencies of the Companys foreign and
domestic operations. The foreign currency forward exchange
contracts are entered into primarily for the purpose of hedging
anticipated inventory purchases and certain intercompany
payments denominated in currencies other than the local
currencies of the Companys foreign and domestic operations
and generally have maturities of less than one year. At
December 31, 2010, the notional amount of FX Contracts
outstanding was $46.0 million. The fair value of FX
Contracts outstanding at December 31, 2010 was
$(1.9) million.
43
Disclosures
about Contractual Obligations and Commercial
Commitments
The following table aggregates all contractual commitments and
commercial obligations that affect the Companys financial
condition and liquidity position as of December 31, 2010:
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Payments Due by Period
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(Dollars in millions)
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Less than
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After
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Contractual Obligations
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Total
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1 year
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1-3 years
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3-5 years
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5 years
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Long-term debt, including current portion
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$
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1,124.0
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$
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8.0
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$
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16.0
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$
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1,100.0
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$
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Long-term debt
affiliates(a)
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107.0
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107.0
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Interest on long-term
debt(b)
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370.7
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92.2
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158.9
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119.6
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Interest on long-term debt
affiliates(c)
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46.6
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13.2
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26.4
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7.0
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Capital lease obligations
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2.4
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1.3
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1.0
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0.1
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Operating leases
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76.8
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15.6
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26.6
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14.6
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20.0
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Purchase
obligations(d)
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65.7
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65.2
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0.5
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Other long-term
obligations(e)
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53.0
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43.3
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7.6
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1.9
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0.2
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Total contractual obligations
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$
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1,846.2
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$
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238.8
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$
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237.0
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$
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1,350.2
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$
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20.2
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(a) |
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Amount refers to the
$107.0 million aggregate principal amount outstanding under
the Senior Subordinated Term Loan, which is comprised of
(1) the Contributed Loan as a result of
MacAndrews & Forbes contributing to Revlon, Inc.
$48.6 million of the $107.0 million aggregate
outstanding principal amount of the Senior Subordinated Term
Loan made by MacAndrews & Forbes to Products
Corporation in connection with the consummation of the Exchange
Offer and (2) the Non-Contributed Loan. Pursuant to the
terms of the Exchange Offer, the maturity date on the
Contributed Loan which remains owing from Products Corporation
to Revlon, Inc. was extended from August 2010 to October 8,
2013, and the maturity date on the Non-Contributed Loan which
remains owing from Products Corporation to
MacAndrews & Forbes was extended from August 2010 to
October 8, 2014.
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(b) |
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Consists of interest primarily on
the $330.0 million in aggregate principal amount of the
93/4% Senior
Secured Notes and on the 2010 Term Loan Facility through the
respective maturity dates based upon assumptions regarding the
amount of debt outstanding under the 2010 Credit Facilities and
assumed interest rates.
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(c) |
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Includes 12.75% interest on the
aggregate principal amount outstanding under the Contributed
Loan, which has a maturity date on October 8, 2013, as well
as 12% interest on the aggregate principal amount outstanding
under the Non-Contributed Loan, which has a maturity date on
October 8, 2014.
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(d) |
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Consists of purchase commitments
for finished goods, raw materials, components and services
pursuant to enforceable and legally binding obligations which
include all significant terms, including fixed or minimum
quantities to be purchased; fixed, minimum or variable price
provisions; and the approximate timing of the transactions.
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(e) |
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Consists primarily of obligations
related to third-party warehousing services, pension funding
obligations (amount due within one year only, as subsequent
pension funding obligation amounts cannot be reasonably
estimated since the return on pension assets in future periods,
as well as future pension assumptions, are not known) and
advertising contracts. Such amounts exclude employment
agreements, severance and other contractual commitments, which
severance and other contractual commitments related to
restructuring are discussed under Restructuring
Costs.
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Off-Balance
Sheet Transactions
The Company does not maintain any off-balance sheet
transactions, arrangements, obligations or other relationships
with unconsolidated entities or others that are reasonably
likely to have a material current or future effect on the
Companys financial condition, changes in financial
condition, revenues or expenses, results of operations,
liquidity, capital expenditures or capital resources.
Discussion
of Critical Accounting Policies
In the ordinary course of its 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 U.S. Actual results
could differ significantly from those estimates and assumptions.
The Company believes that the following discussion addresses the
Companys
44
most critical accounting policies, which are those that are most
important to the portrayal of the Companys financial
condition and results and require managements 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 Companys trade terms. The Company regularly reviews
and revises, when deemed necessary, the Companys 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 Companys
trade terms. The Company records estimated sales returns as a
reduction to sales and cost of sales, and an increase in accrued
liabilities and inventories.
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 the
Company considers in estimating realizable value. Cost of sales
includes the cost of refurbishment of returned products. Actual
returns, as well as realized values on returned products, may
differ significantly, either favorably or unfavorably, from the
Companys estimates if factors such as product
discontinuances, customer inventory levels or competitive
conditions differ from the Companys estimates and
expectations and, in the case of actual returns, if economic
conditions differ significantly from the Companys
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 Companys 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, as well as retailer
participation levels, differ from the Companys 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, as well as planned discontinuances. 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,
return levels or competitive conditions differ from the
Companys estimates and expectations.
Pension
Benefits:
The Company sponsors both funded and unfunded pension and other
retirement plans in various forms covering employees who meet
the applicable eligibility requirements. The Company uses
several statistical and other factors in an attempt to estimate
future events in calculating the liability and expense related
to these plans. These factors include assumptions about the
discount rate, expected long-term return on plan assets and rate
of future compensation increases as determined annually by the
Company, within certain guidelines, which assumptions would be
subject to revisions if significant events occur during the
year. The Company uses December 31st as its
measurement date for defined benefit pension plan obligations
and assets.
The Company selected a weighted-average discount rate of 5.17%
in 2010, representing a decrease from the 5.68% weighted-average
discount rate selected in 2009 for the Companys
U.S. defined benefit pension plans. The Company selected an
average discount rate for the Companys international
defined benefit pension plans of 5.32% in 2010, representing a
decrease from the 5.63% average discount rate selected in 2009.
The discount rates are used to measure the benefit obligations
at the measurement date and the net periodic benefit cost for
the subsequent
45
calendar year and are reset annually using data available at the
measurement date. The changes in the discount rates used for
2010 were primarily due to decreasing long-term interest yields
on high-quality corporate bonds during 2010. At
December 31, 2010, the decrease in the discount rates from
December 31, 2009 had the effect of increasing the
Companys projected pension benefit obligation by
approximately $33.4 million. For 2011, the Company expects
that the aforementioned decrease in the discount rate will have
the effect of increasing the net periodic benefit cost for its
U.S. and international defined benefit pension plans by
approximately $0.3 million, as compared to the net periodic
benefit cost for 2010. However, for 2011, the Company expects an
overall decline in net periodic benefit cost primarily due to
the increase in the fair value of pension plan assets at
December 31, 2010.
Each year during the first quarter, the Company selects an
expected long-term rate of return on its pension plan assets.
For the Companys U.S. defined benefit pension plans,
the expected long-term rate of return on the pension plan assets
used in both 2010 and 2009 was 8.25%. The average expected
long-term rate of return used for the Companys
international plans in both 2010 and 2009 was 6.50%.
The table below reflects the Companys estimates of the
possible effects of changes in the discount rates and expected
long-term rates of return on its 2010 net periodic benefit
costs and its projected benefit obligation at December 31,
2010 for the Companys principal defined benefit pension
plans, with all other assumptions remaining constant:
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Effect of
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Effect of
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25 basis points increase
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25 basis points decrease
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Projected
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Projected
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Net periodic
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pension benefit
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Net periodic
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pension benefit
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benefit costs
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obligation
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benefit costs
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obligation
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Discount rate
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$
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(0.2
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)
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$
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(17.3
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)
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$
|
0.3
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$
|
17.8
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Expected long-term rate of return
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(1.0
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)
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1.1
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The rate of future compensation increases is another assumption
used by the Companys third party actuarial consultants for
pension accounting. The rate of future compensation increases
used in both 2010 and 2009 was 3.5%, for the U.S. defined
benefit pension plans excluding the Revlon Employees
Retirement Plan and the Revlon Pension Equalization Plan, as the
rate of future compensation increases is no longer relevant to
such plans due to the plan amendments made in May 2009.
In addition, the Companys actuarial consultants also use
other factors such as withdrawal and mortality rates. 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.
Differences from these assumptions could significantly impact
the actual amount of net periodic benefit cost and liability
recorded by the Company.
Goodwill:
The Company reviews its goodwill for impairment at least
annually, or whenever events or changes in circumstances would
indicate possible impairment. The Company performs its annual
impairment test of goodwill as of September 30th. The
Company compared its estimated fair value of the enterprise to
its net assets and the fair value of the enterprise was
substantially greater than the enterprises net assets.
Based on the annual tests performed by the Company as of
September 30, 2010 and 2009, the Company concluded that no
impairment of goodwill existed at either date. The Company
operates in one reportable segment, which is also the only
reporting unit for purposes of accounting for goodwill. Since
the Company currently only has one reporting unit, all of the
goodwill has been assigned to the enterprise as a whole. The
amount outstanding for goodwill, net, was $182.7 and
$182.6 million at December 31, 2010 and 2009,
respectively.
Income
Taxes:
The Company records income taxes based on amounts payable with
respect to the current year and includes the effect of deferred
taxes. The effective tax rate reflects statutory tax rates,
tax-planning opportunities available in various jurisdictions in
which the Company operates, and the Companys estimate of
the ultimate outcome of
46
various tax audits and issues. Determining the Companys
effective tax rate and evaluating tax positions requires
significant judgment.
The Company recognizes deferred tax assets and liabilities for
the future impact of differences between the financial statement
carrying amounts of assets and liabilities and their respective
tax bases, as well as for operating loss and tax credit
carryforwards. The Company measures deferred tax assets and
liabilities using enacted tax rates expected to apply to taxable
income in the years in which management expects that the Company
will recover or settle those differences. The Company has
established valuation allowances for deferred tax assets when
management has determined that it is not more likely than not
that the Company will realize a tax benefit. (See
Managements Discussion and Analysis of Financial
Condition and Results of Operations (Benefit from)
provision for income taxes, for a discussion of the
benefit from income taxes in 2010 primarily attributable to the
one-time non-cash benefit of $248.5 million related to a
reduction of the Companys deferred tax valuation allowance
on its net U.S. deferred tax assets at December 31,
2010).
The Company recognizes a tax position in its financial
statements when it is more likely than not that the position
will be sustained upon examination, based on the merits of such
position.
Recent
Accounting Pronouncements
In December 2010, the FASB issued Accounting Standards Update
No. 2010-28,
When to Perform Step 2 of the Goodwill Impairment Test for
Reporting Units with Zero or Negative Carrying Amounts, which
amends ASC Topic 350, Intangibles Goodwill and
Other (ASU
2010-28).
ASU 2010-28
amends the criteria for performing Step 2 of the goodwill
impairment test for reporting units with zero or negative
carrying amounts. For such reporting units, Step 2 of the
goodwill impairment test will be required if qualitative factors
exist that indicate it is more likely than not that a goodwill
impairment exists. The provisions of ASU
2010-28 are
effective for fiscal years, and interim periods within those
years, beginning after December 15, 2010. The Company will
adopt the provisions of ASU
2010-28 in
2011 and does not expect that its adoption will have a material
impact on the Companys results of operations, financial
condition or its disclosures.
Inflation
The Companys costs are affected by inflation and the
effects of inflation may be experienced by the Company in future
periods. Management believes, however, that such effects have
not been material to the Company during the past three years in
the U.S. and in foreign non-hyperinflationary countries.
The Company operates in certain countries around the world, such
as Argentina and Venezuela, which have in the past experienced
hyperinflation. In hyperinflationary foreign countries, the
Company attempts to mitigate the effects of inflation by
increasing prices in line with inflation, where possible, and
efficiently managing its costs and working capital levels.
The Company determined that the Venezuelan economy should be
considered a highly inflationary economy under U.S. GAAP
based upon a blended inflation index of the Venezuelan National
Consumer Price Index (NCPI) and the Venezuelan
Consumer Price Index (CPI). (See Financial
Condition, Liquidity and Capital Resources Impact of
Foreign Currency Translation Venezuela for
details regarding the designation of Venezuela as a highly
inflationary economy effective January 1, 2010 and the
Venezuelan governments announcement of the devaluation of
its local currency on January 8, 2010).
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
Interest
Rate Sensitivity
The Company has exposure to changing interest rates primarily
under the 2010 Term Loan Facility and 2010 Revolving Credit
Facility. The Company manages interest rate risk through the use
of a combination of fixed and floating rate debt. The Company
from time to time makes use of derivative financial instruments
to adjust its fixed and floating rate ratio. In September 2007
and April 2008, Products Corporation executed the two
floating-to-fixed
Interest Rate Swaps, each with a notional amount of
$150.0 million over a period of two years relating to
indebtedness under Products Corporations 2006 Term Loan
Facility (prior to its complete refinancing in March 2010). In
September 2009 and April 2010, respectively, the Companys
two
floating-to-fixed
interest rate swaps, each with a notional amount of
47
$150.0 million, expired. (See Financial Condition,
Liquidity and Capital Resources Interest Rate Swap
Transactions).
The table below provides information about the Companys
indebtedness that is sensitive to changes in interest rates. The
table presents cash flows with respect to principal on
indebtedness and related weighted average interest rates by
expected maturity dates. Weighted average variable rates are
based on implied forward rates in the U.S. Dollar LIBOR
yield curve at December 31, 2010. The information is
presented in U.S. dollar equivalents, which is the
Companys reporting currency.
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|
|
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|
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|
|
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|
Expected maturity date for the year ended
December 31,
|
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Fair Value
|
|
|
|
(Dollars in millions, except for rate information)
|
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|
|
|
|
December 31,
|
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Debt
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
2015
|
|
|
Thereafter
|
|
|
Total
|
|
|
2010
|
|
|
Short-term variable rate (various currencies)
|
|
$
|
3.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3.7
|
|
|
$
|
3.7
|
|
Average interest
rate(a)
|
|
|
6.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term fixed rate third party ($US)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
330.0
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|
|
|
|
|
|
|
330.0
|
|
|
|
350.6
|
|
Average interest
rate(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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9.75
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term fixed rate affiliates ($US)
|
|
|
|
|
|
|
|
|
|
$
|
48.6
|
(b)
|
|
$
|
58.4
|
(b)
|
|
|
|
|
|
|
|
|
|
|
107.0
|
|
|
|
111.0
|
|
Average interest
rate(a)
|
|
|
|
|
|
|
|
|
|
|
12.75
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%
|
|
|
12.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term variable rate third party ($US)
|
|
|
8.0
|
|
|
$
|
8.0
|
|
|
|
8.0
|
|
|
|
8.0
|
|
|
|
762.0
|
|
|
|
|
|
|
|
794.0
|
|
|
|
798.0
|
|
Average interest
rate(a)(c)
|
|
|
6.0
|
%
|
|
|
6.0
|
%
|
|
|
6.1
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%
|
|
|
6.4
|
%
|
|
|
6.4
|
%
|
|
|
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|
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Total debt
|
|
$
|
11.7
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|
|
$
|
8.0
|
|
|
$
|
56.6
|
|
|
$
|
66.4
|
|
|
$
|
1,092.0
|
|
|
$
|
|
|
|
$
|
1,234.7
|
|
|
$
|
1,263.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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(a) |
|
Weighted average variable rates are
based upon implied forward rates from the U.S. Dollar LIBOR
yield curves at December 31, 2010.
|
|
(b) |
|
Represents $107.0 million
aggregate principal amount outstanding of the Senior
Subordinated Term Loan as of December 31, 2009, of which
the Contributed Loan ($48.6 million) matures on
October 8, 2013 and bears interest at an annual rate of
12.75% and of which the Non-Contributed Loan
($58.4 million) loan matures on October 8, 2014 and
bears interest at an annual rate of 12%. Interest on the Senior
Subordinated Term Loan is payable in arrears in cash on
January 8, April 8, July 8, and October 8 of each
year. (See Financial Condition, Liquidity and Capital
Resources Senior Subordinated Term Loan).
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(c) |
|
The 2010 Term Loan Facility bears
interest at the Eurodollar Rate (as defined in the 2010 Term
Loan Agreement) plus 4.00% per annum (provided that in no event
shall the Eurodollar Rate be less than 2.00% per annum).
|
Exchange
Rate Sensitivity
The Company manufactures and sells its products in a number of
countries throughout the world and, as a result, is exposed to
movements in foreign currency exchange rates. In addition, a
portion of the Companys borrowings are denominated in
foreign currencies, which are also subject to market risk
associated with exchange rate movement. The Company from time to
time hedges major foreign currency cash exposures through
foreign exchange forward and option contracts. Products
Corporation enters into these contracts with major financial
institutions in an attempt to minimize counterparty risk. These
contracts generally have a duration of less than twelve months
and are primarily against the U.S. dollar. In addition,
Products Corporation enters into foreign
48
currency swaps to hedge intercompany financing transactions. The
Company does not hold or issue financial instruments for trading
purposes.
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|
|
|
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Average
|
|
|
Original
|
|
|
Contract
|
|
|
|
|
|
|
Contractual
|
|
|
US Dollar
|
|
|
Value
|
|
|
Fair Value
|
|
|
|
Rate
|
|
|
Notional
|
|
|
December 31,
|
|
|
December 31,
|
|
Forward Contracts
|
|
$/FC
|
|
|
Amount
|
|
|
2010
|
|
|
2010
|
|
|
Sell Canadian Dollars/Buy USD
|
|
|
0.9742
|
|
|
$
|
17.3
|
|
|
$
|
16.9
|
|
|
$
|
(0.4
|
)
|
Sell Australian Dollars/Buy USD
|
|
|
0.9339
|
|
|
|
12.1
|
|
|
|
11.1
|
|
|
|
(1.0
|
)
|
Sell British Pounds/Buy USD
|
|
|
1.5447
|
|
|
|
7.4
|
|
|
|
7.3
|
|
|
|
(0.1
|
)
|
Sell South African Rand/Buy USD
|
|
|
0.1372
|
|
|
|
5.4
|
|
|
|
5.0
|
|
|
|
(0.4
|
)
|
Buy Australian Dollars/Sell New Zealand Dollars
|
|
|
1.3169
|
|
|
|
3.4
|
|
|
|
3.4
|
|
|
|
|
|
Sell New Zealand Dollars/Buy USD
|
|
|
0.7142
|
|
|
|
0.3
|
|
|
|
0.3
|
|
|
|
|
|
Sell Hong Kong Dollars/Buy USD
|
|
|
0.1286
|
|
|
|
0.1
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total forward contracts
|
|
|
|
|
|
$
|
46.0
|
|
|
$
|
44.1
|
|
|
$
|
(1.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Item 8.
|
Financial
Statements and Supplementary Data
|
Reference is made to the Index on
page F-1
of the Companys Consolidated Financial Statements and the
Notes thereto.
|
|
Item 9.
|
Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosures
|
None.
|
|
Item 9A(T).
|
Controls
and Procedures
|
(a) Disclosure Controls and
Procedures. The Company maintains
disclosure controls and procedures that are designed to ensure
that information required to be disclosed in the Companys
reports under the Securities Exchange Act of 1934, as amended,
is recorded, processed, summarized and reported within the time
periods specified in the SECs rules and forms, and that
such information is accumulated and communicated to management,
including the Companys Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow timely decisions
regarding required disclosure. The Companys management,
with the participation of the Companys Chief Executive
Officer and Chief Financial Officer, has evaluated the
effectiveness of the Companys disclosure controls and
procedures as of the end of the fiscal year covered by this
Annual Report on
Form 10-K.
The Companys Chief Executive Officer and Chief Financial
Officer have concluded that, as of the end of the period covered
by this Annual Report on
Form 10-K,
the Companys disclosure controls and procedures were
effective.
(b) Managements Annual Report on Internal
Control over Financial Reporting. The
Companys management is responsible for establishing and
maintaining adequate internal control over financial reporting.
The Companys internal control system was designed to
provide reasonable assurance regarding the reliability of
financial reporting and the preparation and fair presentation of
published financial statements in accordance with generally
accepted accounting principles and includes those policies and
procedures that:
|
|
|
|
|
pertain to the maintenance of records that in reasonable detail
accurately and fairly reflect the transactions and dispositions
of its assets;
|
|
|
|
provide reasonable assurance that transactions are recorded as
necessary to permit preparation of its financial statements in
accordance with generally accepted accounting principles, and
that its receipts and expenditures are being made only in
accordance with authorizations of its management and
directors; and
|
|
|
|
provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of the
Companys assets that could have a material effect on its
financial statements.
|
Internal control over financial reporting may not prevent or
detect misstatements due to its inherent limitations.
Managements projections of any evaluation of the
effectiveness of internal control over financial reporting as to
49
future periods are subject to the risks that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
The Companys management assessed the effectiveness of the
Companys internal control over financial reporting as of
December 31, 2010 and in making this assessment used the
criteria set forth by the Committee of Sponsoring Organizations
of the Treadway Commission in Internal Control-Integrated
Framework in accordance with the standards of the Public Company
Accounting Oversight Board (United States).
Products Corporations management determined that as of
December 31, 2010, the Companys internal control over
financial reporting was effective.
As Products Corporation is a non-accelerated filer, this Annual
Report on
Form 10-K
does not include an attestation report of the Companys
independent registered public accounting firm regarding internal
control over financial reporting. Managements report was
not subject to attestation by the Companys independent
registered public accounting firm pursuant to the Dodd-Frank
Wall Street Reform and Consumer Protection Act, which
permanently exempts companies other than accelerated filers and
large accelerated filers from providing such attestation.
(c) Changes in Internal Control Over Financial
Reporting. There have not been any
changes in the Companys internal control over financial
reporting during the fiscal quarter ended December 31, 2010
that have materially affected, or are reasonably likely to
materially affect, the Companys internal control over
financial reporting.
|
|
Item 9B.
|
Other
Information
|
None.
Forward
Looking Statements
This Annual Report on
Form 10-K
for the year ended December 31, 2010, as well as other
public documents and statements of the Company, contain
forward-looking statements that involve risks and uncertainties,
which are based on the beliefs, expectations, estimates,
projections, assumptions, forecasts, plans, anticipations,
targets, outlooks, initiatives, visions, objectives, strategies,
opportunities, drivers, focus and intents of the Companys
management. While the Company believes that its estimates and
assumptions are reasonable, the Company cautions that it is very
difficult to predict the impact of known factors, and, of
course, it is impossible for the Company to anticipate all
factors that could affect its results. The Companys actual
results may differ materially from those discussed in such
forward-looking statements. Such statements include, without
limitation, the Companys expectations and estimates
(whether qualitative or quantitative) as to:
|
|
|
|
(i)
|
the Companys future financial performance;
|
|
|
(ii)
|
the effect on sales of decreased consumer spending in response
to weak economic conditions or weakness in the cosmetics
category in the mass retail channel; adverse changes in currency
exchange rates
and/or
currency controls; decreased sales of the Companys
products as a result of increased competitive activities by the
Companys competitors, changes in consumer purchasing
habits, including with respect to shopping channels; retailer
inventory management; retailer space reconfigurations or
reductions in retailer display space; changes in retailer
pricing or promotional strategies; less than anticipated results
from the Companys existing or new products or from its
advertising, promotional
and/or
marketing plans; or if the Companys expenses, including,
without limitation, for pension expense under its benefit plans,
advertising, promotional and marketing activities or for sales
returns related to any reduction of retail space, product
discontinuances or otherwise, exceed the anticipated level of
expenses;
|
|
|
(iii)
|
the Companys belief that the continued execution of its
business strategy could include taking advantage of additional
opportunities to reposition, repackage or reformulate one or
more brands or product lines, launching additional new products,
acquiring businesses or brands, further refining its approach to
retail merchandising
and/or
taking further actions to optimize its manufacturing, sourcing
and organizational size and structure, any of which, whose
intended purpose would be to create value
|
50
|
|
|
|
|
through profitable growth, could result in the Company making
investments
and/or
recognizing charges related to executing against such
opportunities;
|
|
|
|
|
(iv)
|
our expectations regarding our strategic goal to profitably grow
our business and as to the business strategies employed to
achieve this goal, which are: (a) continuing to build our
strong brands by focusing on innovative, high-quality,
consumer-preferred brand offering; effective consumer brand
communication; appropriate levels of advertising and promotion;
and superb execution with our retail partners;
(b) continuing to develop our organizational capability
through attracting, retaining and rewarding highly capable
people and through performance management, development planning,
succession planning and training; (c) continuing to drive
common global processes which are designed to provide the most
efficient and effective allocation of our resources;
(d) continuing to focus on increasing our operating profit
and cash flow; and (e) continuing to improve our capital
structure by focusing on strengthening our balance sheet and
reducing debt;
|
|
|
(v)
|
restructuring activities, restructuring costs and charges, the
timing of restructuring payments and the benefits from such
activities;
|
|
|
(vi)
|
the Companys expectation that operating revenues, cash on
hand and funds available for borrowing under Products
Corporations 2010 Revolving Credit Facility and other
permitted lines of credit will be sufficient to enable the
Company to cover its operating expenses for 2011, including the
cash requirements referred to in item (viii) below;
|
|
|
(vii)
|
the Companys expected principal sources of funds,
including operating revenues, cash on hand and funds available
for borrowing under Products Corporations 2010 Revolving
Credit Facility and other permitted lines of credit, as well as
the availability of funds from refinancing Products
Corporations indebtedness, selling assets or operations,
capital contributions
and/or loans
from MacAndrews & Forbes, Revlon, Inc., the
Companys other affiliates
and/or third
parties
and/or the
sale of additional debt securities of Products Corporation;
|
|
|
(viii)
|
the Companys expected principal uses of funds, including
amounts required for the payment of operating expenses,
including expenses in connection with the continued execution of
the Companys business strategy, payments in connection
with the Companys purchases of permanent wall displays,
capital expenditure requirements, restructuring programs,
severance not otherwise included in the Companys
restructuring programs, debt service payments and costs, debt
repurchases (including, without limitation, that the Company may
also, from time to time, seek to retire or purchase its
outstanding debt obligations in open market purchases, in
privately negotiated transactions or otherwise and may seek to
refinance some or all of its indebtedness based upon market
conditions) and regularly scheduled pension and post-retirement
benefit plan contributions and benefit payments, and its
estimates of the amount and timing of its operating expenses,
restructuring costs and payments, severance costs and payments,
debt service payments (including payments required under
Products Corporations debt instruments), debt repurchases,
cash contributions to the Companys pension plans and its
other post-retirement benefit plans and benefit payments in
2011, purchases of permanent wall displays and capital
expenditures;
|
|
|
(ix)
|
matters concerning the Companys market-risk sensitive
instruments, as well as the Companys expectations as to
the counterpartys performance, including that any loss
arising from the non-performance by the counterparty would not
be material;
|
|
|
(x)
|
the Companys plan to efficiently manage its cash and
working capital, including, among other things, programs to
reduce inventory levels over time; centralized purchasing to
secure discounts and efficiencies in procurement; providing
discounts to U.S. customers for more timely payment of
receivables; prudent management of accounts payable; and
targeted controls on general and administrative spending;
|
|
|
(xi)
|
the Companys expectations regarding its future pension
expense, cash contributions and benefit payments under its
benefit plans;
|
51
|
|
|
|
(xii)
|
the Companys expectations that consistent with the
Companys strategy to build its strong brands, in the first
quarter of 2011, the Company currently intends to support its
brands with increased advertising spending, as compared to the
first quarter of 2010, due to increased media pressure and
higher advertising rates; and
|
|
|
(xiii)
|
the Companys expectation and belief that as a result of
the Company having achieved three cumulative years, as well as
its third consecutive year, of positive U.S. GAAP pre-tax
income and taxable income in the U.S as of December 31,
2010 and the Companys tax position, and based upon the
Companys projections for future taxable income over the
periods in which its deferred tax assets are recoverable, it is
more likely than not that the Company will realize the benefits
of the net deferred tax assets existing at December 31,
2010 based on the recognition threshold and measurement of a tax
position in accordance with the Income Taxes Topic and that as a
result of the reduction of the Companys deferred tax
valuation allowance on its net U.S. deferred tax assets at
December 31, 2010, the Company expects that, beginning with
the first quarter of 2011, the tax provision will reflect a
higher effective tax rate and that any such increase in the
effective tax rate will not affect the Companys cash taxes
paid until the domestic tax loss carryforwards are fully
utilized.
|
Statements that are not historical facts, including statements
about the Companys 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 estimates, objectives,
visions, projects,
forecasts, focus, drive
towards, plans, targets,
strategies, opportunities,
assumptions, drivers,
believes, intends, outlooks,
initiatives, expects, scheduled
to, anticipates, seeks,
may, will or should or the
negative of those terms, or other variations of those terms or
comparable language, or by discussions of strategies, targets,
long-range plans, models or intentions. Forward-looking
statements speak only as of the date they are made, and except
for the Companys 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 made or may make in its Quarterly
Reports on
Form 10-Q
and Current Reports on
Form 8-K,
in each case filed with the SEC in 2011 and 2010 (which, among
other places, can be found on the SECs website at
http://www.sec.gov).
Except as expressly set forth in this
Form 10-K,
the information available from time to time on such website
shall not be deemed incorporated by reference into this Annual
Report on
Form 10-K.
A number of important factors could cause actual results to
differ materially from those contained in any forward-looking
statement. In addition to factors that may be described in the
Companys filings with the SEC, including this filing, the
following factors, among others, could cause the Companys
actual results to differ materially from those expressed in any
forward-looking statements made by the Company:
|
|
|
|
(i)
|
unanticipated circumstances or results affecting the
Companys financial performance, including decreased
consumer spending in response to weak economic conditions or
weakness in the cosmetics category in the mass retail channel;
changes in consumer preferences, such as reduced consumer demand
for the Companys color cosmetics and other current
products, including new product launches; changes in consumer
purchasing habits, including with respect to shopping channels;
lower than expected retail customer acceptance or consumer
acceptance of, or less than anticipated results from, the
Companys existing or new products; higher than expected
pension expense
and/or cash
contributions under its benefit plans
and/or
benefit payments, advertising, promotional
and/or
marketing expenses or lower than expected results from the
Companys advertising, promotional
and/or
marketing plans; higher than expected sales returns or decreased
sales of the Companys existing or new products; actions by
the Companys customers, such as retailer inventory
management and greater than anticipated retailer space
reconfigurations or reductions in retail space
and/or
product discontinuances or a greater than expected impact from
retailer pricing or promotional strategies; and changes in the
competitive environment and actions by the Companys
competitors, including business combinations, technological
breakthroughs, new products offerings, increased advertising,
promotional and marketing spending and advertising, promotional
and/or
marketing successes by competitors, including increases in share
in the mass retail channel;
|
52
|
|
|
|
(ii)
|
in addition to the items discussed in (i) above, the
effects of and changes in economic conditions (such as continued
volatility in the financial markets, inflation, monetary
conditions and foreign currency fluctuations and currency
controls, as well as in trade, monetary, fiscal and tax policies
in international markets) and political conditions (such as
military actions and terrorist activities);
|
|
|
(iii)
|
unanticipated costs or difficulties or delays in completing
projects associated with the continued execution of the
Companys business strategy or lower than expected revenues
or the inability to create value through profitable growth as a
result of such strategy, including lower than expected sales, or
higher than expected costs, including as may arise from any
additional repositioning, repackaging or reformulating of one or
more brands or product lines, launching of new product lines,
including difficulties or delays, or higher than expected
expenses, including for sales returns, in launching its new
products, acquiring businesses or brands, further refining its
approach to retail merchandising,
and/or
difficulties, delays or increased costs in connection with
taking further actions to optimize the Companys
manufacturing, sourcing, supply chain or organizational size and
structure;
|
|
|
(iv)
|
difficulties, delays or unanticipated costs in achieving our
strategic goal to profitably grow our business and as to the
business strategies employed to achieve this goal, such as
(a) difficulties, delays or our inability to build our
strong brands, such as due to less than effective product
development, less than expected acceptance of our new or
existing products by consumers
and/or
retail customers, less than expected acceptance of our
advertising, promotional
and/or
marketing plans by our consumers
and/or
retail customers, less than expected investment in advertising,
promotional
and/or
marketing activities or greater than expected competitive
investment, less than expected acceptance of our brand
communication by consumers
and/or
retail partners, less than expected levels of advertising,
promotional
and/or
marketing activities for our new product launches
and/or less
than expected levels of execution with our retail partners or
higher than expected costs and expenses; (b) difficulties,
delays or the inability to develop our organizational
capability; (c) difficulties, delays or unanticipated costs
in connection with our plans to drive our company to act
globally, such as due to higher than anticipated levels of
investment required to support and build our brands globally or
less than anticipated results from our national and
multi-national brands; (d) difficulties, delays or
unanticipated costs in connection with our plans to improve our
operating profit and cash flow, such as difficulties, delays or
the inability to take actions intended to improve results in
sales returns, cost of goods sold, general and administrative
expenses, working capital management
and/or sales
growth;
and/or
(e) difficulties, delays or unanticipated costs in
consummating, or our inability to consummate, transactions to
improve our capital structure, strengthen our balance sheet
and/or
reduce debt, including higher than expected costs (including
interest rates);
|
|
|
(v)
|
difficulties, delays or unanticipated costs or less than
expected savings and other benefits resulting from the
Companys restructuring activities, such as less than
anticipated cost reductions or other benefits from the 2009
Programs, 2008 Programs, 2007 Programs
and/or 2006
Programs and the risk that the 2009 Programs, 2008 Programs,
2007 Programs
and/or the
2006 Programs may not satisfy the Companys objectives;
|
|
|
(vi)
|
lower than expected operating revenues, cash on hand
and/or funds
available under the 2010 Revolving Credit Facility
and/or other
permitted lines of credit or higher than anticipated operating
expenses, such as referred to in clause (viii) below;
|
|
|
(vii)
|
the unavailability of funds under Products Corporations
2010 Revolving Credit Facility or other permitted lines of
credit, or from refinancing indebtedness, or from capital
contributions or loans from MacAndrews & Forbes,
Revlon, Inc., the Companys other affiliates
and/or third
parties
and/or the
sale of additional debt securities of Products Corporation;
|
|
|
(viii)
|
higher than expected operating expenses, sales returns, working
capital expenses, permanent wall display costs, capital
expenditures, restructuring costs, severance not otherwise
included in the Companys restructuring programs, debt
service payments, debt repurchases, regularly scheduled cash
pension plan contributions
and/or
post-retirement benefit plan contributions
and/or
benefit payments;
|
53
|
|
|
|
(ix)
|
interest rate or foreign exchange rate changes affecting the
Company and its market-risk sensitive financial instruments
and/or
difficulties, delays or the inability of the counterparty to
perform such transactions;
|
|
|
(x)
|
difficulties, delays or the inability of the Company to
efficiently manage its cash and working capital;
|
|
|
(xi)
|
lower than expected returns on pension plan assets
and/or lower
discount rates, which could result in higher than expected cash
contributions
and/or
pension expense;
|
|
|
(xii)
|
lower than expected, or other unanticipated changes in,
advertising spending to support the Companys brands in the
first quarter of 2011, as compared to the first quarter of 2010;
and/or
|
|
|
(xiii)
|
changes in the Companys earnings trends, tax position or
future taxable income in the U.S. that may impact the
amount or timing of the Companys realization of the
benefits of the net deferred tax assets existing at
December 31, 2010 and changes in or unexpected
circumstances impacting the Companys effective tax rate
and cash taxes paid.
|
Factors other than those listed above could also cause the
Companys results to differ materially from expected
results. This discussion is provided as permitted by the Private
Securities Litigation Reform Act of 1995.
54
Part III
|
|
Item 10.
|
Directors,
Executive Officers and Corporate Governance
|
Intentionally omitted in accordance with General
Instruction I(2)(c) of
Form 10-K.
|
|
Item 11.
|
Executive
Compensation
|
Intentionally omitted in accordance with General
Instruction I(2)(c) of
Form 10-K.
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
|
Intentionally omitted in accordance with General
Instruction I(2)(c) of
Form 10-K.
|
|
Item 13.
|
Certain
Relationships and Related Transactions, and Director
Independence
|
Intentionally omitted in accordance with General
Instruction I(2)(c) of
Form 10-K.
|
|
Item 14.
|
Principal
Accountant Fees and Services
|
The Board of Directors of Revlon, Inc. (Revlon, Inc. owns 100%
of Products Corporations common stock) maintains an Audit
Committee in accordance with applicable SEC rules and the
NYSEs listing standards. In accordance with the charter of
Revlon, Inc.s Audit Committee, a printable and current
copy of which is available at www.revloninc.com, Revlon,
Inc.s Audit Committee is directly responsible for the
appointment, compensation, retention and oversight of the work
of Revlon, Inc.s and Products Corporations
independent auditors for the purpose of preparing and issuing
its audit report or performing other audit, review or attest
services for Revlon, Inc. and Products Corporation. The
independent auditors, KPMG LLP, report directly to Revlon,
Inc.s Audit Committee, and Revlon, Inc.s Audit
Committee is directly responsible for, among other things,
reviewing in advance, and granting any appropriate pre-approvals
of, (a) all auditing services to be provided by the
independent auditor and (b) all non-audit services to be
provided by the independent auditor (as permitted by the
Exchange Act), and in connection therewith to approve all fees
and other terms of engagement, as required by the applicable
rules of the Exchange Act and subject to the exemptions provided
for in such rules. Revlon, Inc.s Audit Committee has an
Audit Committee Pre-Approval Policy for pre-approving all
permissible audit and non-audit services performed by KPMG LLP.
In 2008, the Audit Committee approved the Audit Committee
Pre-Approval Policy for 2009; in 2009, the Audit Committee
approved the Audit Committee Pre-Approval Policy for 2010; and
in 2010 the Audit Committee pre-approved the Audit Committee
Pre-Approval Policy for 2011, a printable and current copy of
which is available at www.revloninc.com.
The aggregate fees billed for professional services by KPMG LLP
in 2010 and 2009 for these various services for Revlon, Inc. and
Products Corporation in the aggregate were (in millions):
|
|
|
|
|
|
|
|
|
Types of Fees
|
|
2010
|
|
|
2009
|
|
|
Audit Fees
|
|
$
|
3.6
|
|
|
$
|
3.7
|
|
Audit-Related Fees
|
|
|
0.2
|
|
|
|
0.7
|
|
Tax Fees
|
|
|
0.2
|
|
|
|
0.2
|
|
All Other Fees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fees
|
|
$
|
4.0
|
|
|
$
|
4.6
|
|
|
|
|
|
|
|
|
|
|
In the above table, in accordance with the SEC definitions and
rules, (a) audit fees are fees the Company paid
KPMG LLP for professional services rendered for the audits of
(i) Revlon, Inc.s and Products Corporations
annual financial statements, (ii) the effectiveness of
Revlon, Inc.s internal control over financial reporting
and (iii) the review of financial statements included in
Revlon, Inc.s and Products Corporations Quarterly
Reports on
Form 10-Q,
and for services that are normally provided by the auditor in
connection with statutory and regulatory filings or engagements;
(b) audit-related fees are fees billed by KPMG
LLP for assurance and related services that
55
are traditionally performed by the auditor, including services
performed by KPMG LLP related to employee benefit plan audits
and certain transactions, including the Exchange Offer
consummated by Revlon, Inc. in October 2009 and Products
Corporations refinancing of the
91/2% Senior
Notes in November 2009, as well as attestation services not
required by statute or regulation; (c) tax fees
are fees for permissible tax compliance, tax advice and tax
planning; and (d) all other fees are fees
billed by KPMG LLP to the Company for any permissible services
not included in the first three categories.
All of the services performed by KPMG LLP for the Company during
2010 and 2009 were either expressly pre-approved by Revlon,
Inc.s Audit Committee or were pre-approved in accordance
with Revlon, Inc.s Audit Committee Pre-Approval Policy,
and Revlon, Inc.s Audit Committee was provided with
regular updates as to the nature of such services and fees paid
for such services.
Website
Availability of Reports and Other Corporate Governance
Information
Revlon, Inc., which owns 100% of Products Corporations
common stock, maintains a comprehensive corporate governance
program, including Corporate Governance Guidelines for Revlon,
Inc.s Board of Directors, Revlon, Inc.s Board
Guidelines for Assessing Director Independence and charters for
Revlon, Inc.s Audit Committee, Nominating and Corporate
Governance Committee and Compensation Committee. Revlon, Inc.
maintains a corporate investor relations website,
www.revloninc.com, where stockholders and other interested
persons may review, without charge, among other things, Revlon,
Inc.s corporate governance materials and certain SEC
filings (such as Revlon, Inc.s annual reports on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K,
proxy statements, annual reports, Section 16 reports
reflecting certain changes in the stock ownership of Revlon,
Inc.s directors and Section 16 officers, and certain
other documents filed with the SEC), each of which are generally
available on the same business day as the filing date with the
SEC on the SECs website
http://www.sec.gov,
as well as on Revlon, Inc.s website
http://www.revloninc.com.
In addition, under the section of the website entitled,
Corporate Governance, Revlon, Inc. posts printable
copies of the latest versions of its Corporate Governance
Guidelines, Board Guidelines for Assessing Director
Independence, charters for Revlon, Inc.s Audit Committee,
Nominating and Corporate Governance Committee and Compensation
Committee, as well as Revlon, Inc.s and the Companys
Code of Business Conduct, which includes Revlon, Inc.s and
the Companys Code of Ethics for Senior Financial Officers
and the Audit Committee Pre-Approval Policy. If the Company
changes the Senior Financial Officer Code of Ethics in any
material respect or waives any provision of the Code of Business
Conduct for its executive officers or Directors, including
waivers of the Senior Financial Officer Code of Ethics for any
of its Senior Financial Officers, the Company expects to provide
the public with notice of any such change or waiver by
publishing an appropriate description of such event on Revlon,
Inc.s corporate website, www.revloninc.com, or by other
appropriate means as required or permitted under applicable
rules of the SEC. The Company does not currently expect to make
any such waivers. The business and financial materials and any
other statement or disclosure on, or made available through, the
websites referenced herein shall not be deemed incorporated by
reference into this report.
56
PART IV
|
|
Item 15.
|
Exhibits,
Financial Statement Schedules
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
|
List of documents filed as part of this Report:
|
|
|
|
|
|
|
|
|
|
(1) Consolidated
Financial Statements and Independent Auditors Report
included herein: See Index on
page F-1.
|
|
|
|
|
|
|
|
|
|
(2) Financial Statement
Schedule: See Index on
page F-1.
|
|
|
|
|
|
|
|
|
|
All
other schedules are omitted as they are inapplicable or the
required information is furnished in the Companys
Consolidated Financial Statements or the Notes thereto.
|
|
|
|
|
|
|
|
|
|
(3) List of Exhibits:
|
|
|
|
|
|
|
3
|
.
|
|
Certificate of Incorporation and By-laws.
|
|
|
|
|
|
|
3
|
.1
|
|
Restated Certificate of Incorporation of Products Corporation,
dated May 13, 2004 (incorporated by reference to
Exhibit 3.1 to Products Corporations Quarterly Report
on
Form 10-Q
for the quarter ended March 31, 2004 filed with the SEC on
May 17, 2004).
|
|
|
|
|
|
|
3
|
.2
|
|
Amended and Restated By-Laws of Products Corporation, dated as
of May 1, 2009 (incorporated by reference to
Exhibit 3.1 to Products Corporations Current Report
on
Form 8-K
filed with the SEC on April 29, 2009).
|
|
|
|
|
|
|
4
|
.
|
|
Instruments Defining the Rights of Security Holders,
Including Indentures.
|
|
|
|
|
|
|
4
|
.1
|
|
Second Amended and Restated Term Loan Agreement dated as of
March 11, 2010 (the 2010 Term Loan Agreement),
among Products Corporation as borrower, the lenders party
thereto, Citicorp USA, Inc. (CUSA) as administrative
agent and collateral agent, JPMorgan Chase Bank, N.A. and Bank
of America, N.A. as co-syndication agents, Credit Suisse
Securities (USA) LLC (Credit Suisse) and Natixis,
New York Branch (Natixis) as co-documentation
agents, Citigroup Global Markets Inc. (CGMI),
J.P. Morgan Securities Inc. (JPM Securities),
Banc of America Securities LLC (BAS) and Credit
Suisse as joint lead arrangers, and CGMI, JPM Securities, BAS,
Credit Suisse and Natixis as joint bookrunners (incorporated by
reference to Exhibit 4.1 to the Current Report on
Form 8-K
of Products Corporation filed with the SEC on March 16,
2010 (the Products Corporation March 16, 2010
Form 8-K).
|
|
|
|
|
|
|
4
|
.2
|
|
Second Amended and Restated Revolving Credit Agreement dated as
of March 11, 2010 (the 2010 Revolving Credit
Agreement and together with the 2010 Term Loan Agreement,
the 2010 Credit Agreements), among Products
Corporation as borrower, certain subsidiaries of Products
Corporation from time to time party thereto as local borrowing
subsidiaries, the lenders party thereto, CUSA as administrative
agent and collateral agent, CGMI and Wells Fargo Capital
Finance, LLC (Wells Fargo) as joint lead arrangers,
and CGMI, Wells Fargo, BAS, JPM Securities and Credit Suisse as
joint bookrunners (incorporated by reference to Exhibit 4.2
to the Products Corporation March 16, 2010
Form 8-K).
|
|
|
|
|
|
|
4
|
.3
|
|
Third Amended and Restated Pledge and Security Agreement dated
as of March 11, 2010 among Revlon, Inc., Products
Corporation and certain domestic subsidiaries of Products
Corporation in favor of CUSA, as collateral agent for the
secured parties (incorporated by reference to Exhibit 4.3
to the Products Corporation March 16, 2010
Form 8-K).
|
|
|
|
|
|
|
4
|
.4
|
|
Third Amended and Restated Intercreditor and Collateral Agency
Agreement, dated as of March 11, 2010, among CUSA, as
administrative agent for the lenders under the 2010 Credit
Agreements, U.S. Bank National Association, as trustee for
certain noteholders, CUSA, as collateral agent for the secured
parties, Revlon, Inc., Products Corporation and certain domestic
subsidiaries of Products Corporation (incorporated by reference
to Exhibit 4.4 to the Products Corporation March 16,
2010
Form 8-K).
|
|
|
|
|
|
|
4
|
.5
|
|
Amended and Restated Guaranty, dated as of March 11, 2010,
by and among Revlon, Inc., Products Corporation and certain
domestic subsidiaries of Products Corporation, in favor of CUSA,
as collateral agent for the secured parties (incorporated by
reference to Exhibit 4.5 to the Products Corporation
March 16, 2010
Form 8-K).
|
57
|
|
|
|
|
|
|
|
|
|
|
4
|
.6
|
|
Schedule of Borrowers; Denomination Currencies; Currency
Sublimits; Maximum Sublimits; and Local Fronting Lenders under
the 2010 Revolving Credit Agreement (incorporated by reference
to Exhibit 4.6 to the Products Corporation March 16,
2010
Form 8-K).
|
|
|
|
|
|
|
4
|
.7
|
|
Form of Revolving Credit Note under the 2010 Revolving Credit
Agreement (incorporated by reference to Exhibit 4.7 to the
Products Corporation March 16, 2010
Form 8-K).
|
|
|
|
|
|
|
4
|
.8
|
|
Third Amended and Restated Copyright Security Agreement, dated
as of March 11, 2010, among Products Corporation and CUSA,
as collateral agent for the secured parties (incorporated by
reference to Exhibit 4.8 to the Products Corporation
March 16, 2010
Form 8-K).
|
|
|
|
|
|
|
4
|
.9
|
|
Third Amended and Restated Copyright Security Agreement, dated
as of March 11, 2010, among Almay, Inc. and CUSA, as
collateral agent for the secured parties (incorporated by
reference to Exhibit 4.9 to the Products Corporation
March 16, 2010
Form 8-K).
|
|
|
|
|
|
|
4
|
.10
|
|
Third Amended and Restated Patent Security Agreement, dated as
of March 11, 2010, among Products Corporation and CUSA, as
collateral agent for the secured parties (incorporated by
reference to Exhibit 4.10 to the Products Corporation
March 16, 2010
Form 8-K).
|
|
|
|
|
|
|
4
|
.11
|
|
Third Amended and Restated Trademark Security Agreement, dated
as of March 11, 2010, among Products Corporation and CUSA,
as collateral agent for the secured parties (incorporated by
reference to Exhibit 4.11 to the Products Corporation
March 16, 2010
Form 8-K).
|
|
|
|
|
|
|
4
|
.12
|
|
Third Amended and Restated Trademark Security Agreement, dated
as of March 11, 2010, among Charles Revson Inc. and CUSA,
as collateral agent for the secured parties (incorporated by
reference to Exhibit 4.12 to the Products Corporation
March 16, 2010
Form 8-K).
|
|
|
|
|
|
|
4
|
.13
|
|
Form of Term Loan Note under the 2010 Term Loan Agreement
(incorporated by reference to Exhibit 4.13 to the Products
Corporation March 16, 2010
Form 8-K).
|
|
|
|
|
|
|
4
|
.14
|
|
Amended and Restated Term Loan Guaranty, dated as of
March 11, 2010, by Revlon, Inc., Products Corporation and
certain domestic subsidiaries of Products Corporation in favor
of CUSA, as collateral agent for the secured parties
(incorporated by reference to Exhibit 4.14 to the Products
Corporation March 16, 2010
Form 8-K).
|
|
|
|
|
|
|
4
|
.15
|
|
Indenture, dated as of November 23, 2009, between Products
Corporation and U.S. Bank National Association, as trustee,
relating to Products Corporations
93/4% Senior
Secured Notes due November 15, 2015 (incorporated by
reference to Exhibit 4.22 to Products Corporations
Annual Report on
Form 10-K
for the fiscal year ended December 31, 2009 filed with the
SEC on February 25, 2010 (the Products Corporation
2009
Form 10-K).
|
|
|
|
|
|
|
10
|
.
|
|
Material Contracts.
|
|
|
|
|
|
|
10
|
.1
|
|
Tax Sharing Agreement, dated as of June 24, 1992, among
MacAndrews & Forbes Holdings, Revlon, Inc., Products
Corporation and certain subsidiaries of Products Corporation, as
amended and restated as of January 1, 2001 (incorporated by
reference to Exhibit 10.2 to Products Corporations
Annual Report on
Form 10-K
for the year ended December 31, 2001 filed with the SEC on
February 25, 2002).
|
|
|
|
|
|
|
10
|
.2
|
|
Tax Sharing Agreement, dated as of March 26, 2004, by and
among Revlon, Inc., Products Corporation and certain
subsidiaries of Products Corporation (incorporated by reference
to Exhibit 10.25 to Products Corporations Quarterly
Report on
Form 10-Q
for the quarter ended March 31, 2004 filed with the SEC on
May 17, 2004).
|
|
|
|
|
|
|
10
|
.3
|
|
Amended and Restated Employment Agreement, dated as of
November 29, 2010, between Products Corporation and David
L. Kennedy (incorporated by reference to Exhibit 10.3 to
Revlon, Inc.s Annual Report on
Form 10-K
for the year ended December 31, 2010 filed with the SEC on
February 17, 2011 (Revlon, Inc.s 2010
Form 10-K)).
|
|
|
|
|
|
|
10
|
.4
|
|
Amended and Restated Employment Agreement, dated as of
May 1, 2009, between Products Corporation and Alan T. Ennis
(incorporated by reference to Exhibit 10.2 to the Revlon,
Inc. 2009 Second Quarter
Form 10-Q).
|
58
|
|
|
|
|
|
|
|
|
|
|
10
|
.5
|
|
Amended and Restated Employment Agreement, dated as of
February 14, 2011, between Products Corporation and Robert
K. Kretzman (incorporated by reference to Exhibit 10.5 to
Revlon, Inc.s 2010
Form 10-K).
|
|
|
|
|
|
|
10
|
.6
|
|
Employment Agreement, dated as of April 29, 2009, between
Products Corporation and Steven Berns (incorporated by reference
to Exhibit 10.4 to the Revlon, Inc.s Quarterly Report
on
Form 10-Q
for the quarter ended June 30, 2009 filed with the SEC on
July 30, 2009).
|
|
|
|
|
|
|
10
|
.7
|
|
Amended and Restated Employment Agreement, dated as of
May 1, 2009, between Products Corporation and Chris Elshaw
(incorporated by reference to Exhibit 10.7 to Revlon,
Inc.s Annual Report on
Form 10-K
filed with the SEC on February 25, 2010 (the Revlon,
Inc. 2009
10-K).
|
|
|
|
|
|
|
10
|
.8
|
|
Third Amended and Restated Revlon, Inc. Stock Plan (as amended,
the Stock Plan) (incorporated by reference to
Exhibit 4.1 to Revlon, Inc.s Registration Statement
on
Form S-8
filed with the SEC on December 10, 2007).
|
|
|
|
|
|
|
10
|
.9
|
|
Form of Nonqualified Stock Option Agreement under the Stock Plan
(incorporated by reference to Exhibit 10.7 to Revlon,
Inc.s Annual Report on
Form 10-K
for the fiscal year ended December 31, 2008 filed with the
SEC on February 25, 2009 (Revlon, Inc.s 2008
10-K)).
|
|
|
|
|
|
|
10
|
.10
|
|
Form of Restricted Stock Agreement under the Stock Plan
(incorporated by reference to Exhibit 10.8 to Revlon,
Inc.s 2008
10-K).
|
|
|
|
|
|
|
10
|
.11
|
|
Revlon Executive Incentive Compensation Plan (incorporated by
reference to Annex C to Revlon, Inc.s Annual Proxy
Statement on Schedule 14A filed with the SEC on
April 21, 2010).
|
|
|
|
|
|
|
10
|
.12
|
|
Amended and Restated Revlon Pension Equalization Plan, amended
and restated as of December 14, 1998 (the PEP)
(incorporated by reference to Exhibit 10.15 to Revlon,
Inc.s Annual Report on
Form 10-K
for the year ended December 31, 1998 filed with the SEC on
March 3, 1999).
|
|
|
|
|
|
|
10
|
.13
|
|
Amendment to the PEP, dated as of May 28, 2009
(incorporated by reference to Exhibit 10.13 to the Revlon,
Inc. 2009
Form 10-K).
|
|
|
|
|
|
|
10
|
.14
|
|
Executive Supplemental Medical Expense Plan Summary, dated July
2000 (incorporated by reference to Exhibit 10.10 to Revlon,
Inc.s Annual Report on
Form 10-K
for the year ended December 31, 2002 filed with the SEC on
March 21, 2003).
|
|
|
|
|
|
|
10
|
.15
|
|
Benefit Plans Assumption Agreement, dated as of July 1,
1992, by and among Revlon Holdings, Revlon, Inc. and Products
Corporation (incorporated by reference to Exhibit 10.25 to
Products Corporations Annual Report on
Form 10-K
for the year ended December 31, 1992 filed with the SEC on
March 12, 1993).
|
|
|
|
|
|
|
10
|
.16
|
|
Revlon Executive Severance Pay Plan (incorporated by reference
to Exhibit 10.2 to Revlon, Inc.s Quarterly Report on
Form 10-Q
for the quarter ended March 31, 2009 filed with the SEC on
April 30, 2009).
|
|
|
|
|
|
|
10
|
.17
|
|
Senior Subordinated Term Loan Agreement, dated as of
January 30, 2008, between Products Corporation and
MacAndrews & Forbes (incorporated by reference to
Exhibit 10.1 to Products Corporations Current Report
on
Form 8-K
filed with the SEC on February 1, 2008).
|
|
|
|
|
|
|
10
|
.18
|
|
Amendment No. 1 to Senior Subordinated Term Loan Agreement,
dated as of November 14, 2008, between Products Corporation
and MacAndrews & Forbes (incorporated by reference to
Exhibit 10.1 to the Current Report on
Form 8-K
of Products Corporation filed with the SEC on November 14,
2008).
|
|
|
|
|
|
|
10
|
.19
|
|
Amended and Restated Amendment No. 2 to the Senior
Subordinated Term Loan Agreement, dated as of September 23,
2009, by and between Products Corporation and
MacAndrews & Forbes (incorporated by reference to
Annex C of Exhibit (a)(1)(J) of Revlon Inc.s
Schedule TO/Schedule 13E-3
filed with the SEC on September 24, 2009).
|
|
|
|
|
|
|
21
|
.
|
|
Subsidiaries.
|
|
|
|
|
|
|
*21
|
.1
|
|
Subsidiaries of Revlon Consumer Products Corporation
|
59
|
|
|
|
|
|
|
|
|
|
|
24
|
.
|
|
Powers of Attorney.
|
|
|
|
|
|
|
*24
|
.1
|
|
Power of Attorney executed by Ronald O. Perelman.
|
|
|
|
|
|
|
*24
|
.2
|
|
Power of Attorney executed by Barry F. Schwartz.
|
|
|
|
|
|
|
*24
|
.3
|
|
Power of Attorney executed by Alan S. Bernikow.
|
|
|
|
|
|
|
*24
|
.4
|
|
Power of Attorney executed by Paul J. Bohan.
|
|
|
|
|
|
|
*24
|
.5
|
|
Power of Attorney executed by David L. Kennedy.
|
|
|
|
|
|
|
*31
|
.1
|
|
Certification of Alan T. Ennis, Chief Executive Officer, dated
February 17, 2011, pursuant to
Rule 13a-14(a)/15d-14(a)
of the Exchange Act.
|
|
|
|
|
|
|
*31
|
.2
|
|
Certification of Steven Berns, Chief Financial Officer, dated
February 17, 2011, pursuant to
Rule 13a-14(a)/15d-14(a)
of the Exchange Act.
|
|
|
|
|
|
|
32
|
.1
(furnished
herewith)
|
|
Certification of Alan T. Ennis, Chief Executive Officer, dated
February 17, 2011, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
|
32
|
.2
(furnished
herewith)
|
|
Certification of Steven Berns, Chief Financial Officer, dated
February 17, 2011, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
|
60
|
|
|
|
|
|
|
Page
|
|
|
|
|
F-2
|
|
Audited Financial Statements:
|
|
|
|
|
|
|
|
F-3
|
|
|
|
|
F-4
|
|
|
|
|
F-5
|
|
|
|
|
F-6
|
|
|
|
|
F-7
|
|
Financial Statement Schedule:
|
|
|
|
|
|
|
|
F-58
|
|
F-1
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Revlon Consumer Products Corporation:
We have audited the accompanying consolidated balance sheets of
Revlon Consumer Products Corporation and subsidiaries as of
December 31, 2010 and 2009, and the related consolidated
statements of operations, stockholders deficiency and
comprehensive income (loss), and cash flows for each of the
years in the three-year period ended December 31, 2010. In
connection with our audits of the consolidated financial
statements, we also have audited the financial statement
schedule as listed on the index on
page F-1.
These consolidated financial statements and the financial
statement schedule are the responsibility of the Companys
management. Our responsibility is to express an opinion on these
consolidated financial statements and the financial statement
schedule based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Revlon, Inc. and subsidiaries as of
December 31, 2010 and 2009, and the results of their
operations and their cash flows for each of the years in the
three-year period ended December 31, 2010, in conformity
with U.S. generally accepted accounting principles. Also in
our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
/s/ KPMG LLP
New York, New York
February 17, 2011
F-2
REVLON
CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
(dollars in millions, except share and per
share amounts)
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
76.7
|
|
|
$
|
54.5
|
|
Trade receivables, less allowance for doubtful accounts of $3.1
and $3.8 as of December 31, 2010 and 2009, respectively
|
|
|
197.5
|
|
|
|
181.7
|
|
Inventories
|
|
|
115.0
|
|
|
|
119.2
|
|
Deferred income taxes current
|
|
|
40.3
|
|
|
|
3.9
|
|
Prepaid expenses and other
|
|
|
98.1
|
|
|
|
87.0
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
527.6
|
|
|
|
446.3
|
|
Property, plant and equipment, net
|
|
|
106.2
|
|
|
|
111.7
|
|
Deferred income taxes noncurrent
|
|
|
216.6
|
|
|
|
4.8
|
|
Other assets
|
|
|
87.3
|
|
|
|
85.1
|
|
Goodwill, net
|
|
|
182.7
|
|
|
|
182.6
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,120.4
|
|
|
$
|
830.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS DEFICIENCY
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Short-term borrowings
|
|
$
|
3.7
|
|
|
$
|
0.3
|
|
Current portion of long-term debt
|
|
|
8.0
|
|
|
|
13.6
|
|
Accounts payable
|
|
|
84.5
|
|
|
|
82.4
|
|
Accrued expenses and other
|
|
|
216.2
|
|
|
|
208.9
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
312.4
|
|
|
|
305.2
|
|
Long-term debt
|
|
|
1,100.9
|
|
|
|
1,127.8
|
|
Long-term debt affiliates
|
|
|
107.0
|
|
|
|
107.0
|
|
Long-term pension and other post-retirement plan liabilities
|
|
|
201.5
|
|
|
|
216.3
|
|
Other long-term liabilities
|
|
|
55.7
|
|
|
|
68.0
|
|
|
|
|
|
|
|
|
|
|
Stockholders deficiency:
|
|
|
|
|
|
|
|
|
RCPC Preferred Stock, par value $1.00 per share;
1,000 shares authorized, 546 shares issued and
outstanding as of December 31, 2010 and 2009, respectively
|
|
|
54.6
|
|
|
|
54.6
|
|
Common Stock, par value $1.00 per share 10,000 shares
authorized and 5,260 shares issued as of December 31,
2010 and 2009, respectively
|
|
|
|
|
|
|
|
|
Additional paid-in capital
|
|
|
943.2
|
|
|
|
938.4
|
|
Accumulated deficit
|
|
|
(1,504.6
|
)
|
|
|
(1,828.9
|
)
|
Accumulated other comprehensive loss
|
|
|
(150.3
|
)
|
|
|
(157.9
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders deficiency
|
|
|
(657.1
|
)
|
|
|
(993.8
|
)
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders deficiency
|
|
$
|
1,120.4
|
|
|
$
|
830.5
|
|
|
|
|
|
|
|
|
|
|
See Accompanying Notes to Consolidated Financial Statements
F-3
REVLON
CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
(dollars in millions, except share and per
share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Net sales
|
|
$
|
1,321.4
|
|
|
$
|
1,295.9
|
|
|
$
|
1,346.8
|
|
Cost of sales
|
|
|
455.3
|
|
|
|
474.7
|
|
|
|
490.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
866.1
|
|
|
|
821.2
|
|
|
|
855.9
|
|
Selling, general and administrative expenses
|
|
|
659.3
|
|
|
|
619.6
|
|
|
|
701.6
|
|
Restructuring costs and other, net
|
|
|
(0.3
|
)
|
|
|
21.3
|
|
|
|
(8.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
207.1
|
|
|
|
180.3
|
|
|
|
162.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expenses (income):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
96.7
|
|
|
|
93.0
|
|
|
|
119.7
|
|
Interest income
|
|
|
(0.5
|
)
|
|
|
(0.5
|
)
|
|
|
(0.7
|
)
|
Amortization of debt issuance costs
|
|
|
4.5
|
|
|
|
5.5
|
|
|
|
5.6
|
|
Loss on early extinguishment of debt, net
|
|
|
9.7
|
|
|
|
5.8
|
|
|
|
0.7
|
|
Foreign currency losses, net
|
|
|
6.3
|
|
|
|
8.9
|
|
|
|
0.1
|
|
Miscellaneous, net
|
|
|
1.7
|
|
|
|
1.0
|
|
|
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expenses, net
|
|
|
118.4
|
|
|
|
113.7
|
|
|
|
125.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes
|
|
|
88.7
|
|
|
|
66.6
|
|
|
|
36.9
|
|
(Benefit from) provision for income taxes
|
|
|
(235.3
|
)
|
|
|
8.1
|
|
|
|
15.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations, net of taxes
|
|
|
324.0
|
|
|
|
58.5
|
|
|
|
21.0
|
|
Income (loss) from discontinued operations, net of taxes
|
|
|
0.3
|
|
|
|
0.3
|
|
|
|
(0.4
|
)
|
Gain on disposal of discontinued operations
|
|
|
|
|
|
|
|
|
|
|
45.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations, including gain
on disposal, net of taxes
|
|
|
0.3
|
|
|
|
0.3
|
|
|
|
44.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
324.3
|
|
|
$
|
58.8
|
|
|
$
|
65.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Accompanying Notes to Consolidated Financial Statements
F-4
REVLON
CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
AND COMPREHENSIVE INCOME (LOSS)
(dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
RCPC
|
|
|
Paid-In-Capital
|
|
|
|
|
|
Other
|
|
|
Total
|
|
|
|
Preferred
|
|
|
(Capital
|
|
|
Accumulated
|
|
|
Comprehensive
|
|
|
Stockholders
|
|
|
|
Stock
|
|
|
Deficiency)
|
|
|
Deficit
|
|
|
Loss
|
|
|
Deficiency
|
|
|
Balance, January 1, 2008
|
|
$
|
54.6
|
|
|
$
|
926.0
|
|
|
$
|
(1,953.5
|
)
|
|
$
|
(88.7
|
)
|
|
$
|
(1,061.6
|
)
|
Stock-based compensation amortization
|
|
|
|
|
|
|
6.8
|
|
|
|
|
|
|
|
|
|
|
|
6.8
|
|
Comprehensive (loss) income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
65.8
|
|
|
|
|
|
|
|
65.8
|
|
Revaluation of financial derivative
instruments(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3.3
|
)
|
|
|
(3.3
|
)
|
Elimination of currency translation adjustment related to
Bozzano Sale
Transaction(b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37.3
|
|
|
|
37.3
|
|
Currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8.2
|
)
|
|
|
(8.2
|
)
|
Amortization of pension related
costs(c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.1
|
|
|
|
1.1
|
|
Pension re-measurement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(121.3
|
)
|
|
|
(121.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(28.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2008
|
|
|
54.6
|
|
|
|
932.8
|
|
|
|
(1,887.7
|
)
|
|
|
(183.1
|
)
|
|
|
(1,083.4
|
)
|
Stock-based compensation amortization
|
|
|
|
|
|
|
5.6
|
|
|
|
|
|
|
|
|
|
|
|
5.6
|
|
Comprehensive (loss) income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
58.8
|
|
|
|
|
|
|
|
58.8
|
|
Revaluation of financial derivative
instruments(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.7
|
|
|
|
3.7
|
|
Currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9.8
|
|
|
|
9.8
|
|
Amortization of pension related
costs(c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12.0
|
|
|
|
12.0
|
|
Pension re-measurement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9.5
|
)
|
|
|
(9.5
|
)
|
Pension curtailment
gain(d)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9.2
|
|
|
|
9.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
84.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2009
|
|
|
54.6
|
|
|
|
938.4
|
|
|
|
(1,828.9
|
)
|
|
|
(157.9
|
)
|
|
|
(993.8
|
)
|
Stock-based compensation amortization
|
|
|
|
|
|
|
3.6
|
|
|
|
|
|
|
|
|
|
|
|
3.6
|
|
Excess tax benefits from stock-based compensation
|
|
|
|
|
|
|
1.2
|
|
|
|
|
|
|
|
|
|
|
|
1.2
|
|
Comprehensive (loss) income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
324.3
|
|
|
|
|
|
|
|
324.3
|
|
Revaluation of financial derivative
instruments(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.7
|
|
|
|
1.7
|
|
Currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.4
|
|
|
|
7.4
|
|
Amortization of pension related
costs(c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.4
|
|
|
|
5.4
|
|
Pension
re-measurement(d)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8.4
|
)
|
|
|
(8.4
|
)
|
Pension curtailment
gain(d)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.5
|
|
|
|
1.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
331.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2010
|
|
$
|
54.6
|
|
|
$
|
943.2
|
|
|
$
|
(1,504.6
|
)
|
|
$
|
(150.3
|
)
|
|
$
|
(657.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
See Note 11, Financial
Instruments, Note 15, Accumulated Other
Comprehensive Loss, and the discussion of Critical
Accounting Policies in this
Form 10-K
for details regarding the net amount of hedge accounting
derivative losses recognized due to the Companys use of
derivative financial instruments.
|
(b) |
|
For details on the Bozzano Sale
Transaction (as hereinafter defined), see Note 2,
Discontinued Operations.
|
(c) |
|
See Note 13, Savings
Plan, Pension and Post-retirement Benefits, and
Note 15, Accumulated Other Comprehensive Loss,
for details on the change in Accumulated Other Comprehensive
Loss as a result of the amortization of unrecognized prior
service costs and actuarial losses (gains) arising during 2010,
2009 and 2008 related to the Companys pension and other
post-retirement plans.
|
(d) |
|
See Note 13, Savings
Plan, Pension and Post-retirement Benefits, and
Note 15, Accumulated Other Comprehensive Loss,
for details on the increase in pension liabilities recorded
within Accumulated Other Comprehensive Loss as the result of the
re-measurement of the pension liabilities, as well as the
curtailment gain recognized by the Company in connection with
the May 2009 Pension Plan Amendments (as hereinafter defined) in
2009 and the curtailment gain recognized by the Company in
connection with the amendments to the Canadian defined benefit
pension plan in 2010, which both reduced its pension liability
and were recorded as an offset against the net actuarial losses
previously reported within Accumulated Other Comprehensive Loss
in the respective years.
|
See Accompanying Notes to Consolidated Financial Statements
F-5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
324.3
|
|
|
$
|
58.8
|
|
|
$
|
65.8
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Income) loss from discontinued operations, net of taxes
|
|
|
(0.3
|
)
|
|
|
(0.3
|
)
|
|
|
0.4
|
|
Depreciation and amortization
|
|
|
57.0
|
|
|
|
60.1
|
|
|
|
86.3
|
|
Amortization of debt discount
|
|
|
2.5
|
|
|
|
0.6
|
|
|
|
0.7
|
|
Stock compensation amortization
|
|
|
3.6
|
|
|
|
5.6
|
|
|
|
6.8
|
|
(Benefit from) provision for deferred income taxes
|
|
|
(247.3
|
)
|
|
|
(1.2
|
)
|
|
|
2.8
|
|
Loss on early extinguishment of debt, net
|
|
|
9.7
|
|
|
|
5.8
|
|
|
|
0.7
|
|
Amortization of debt issuance costs
|
|
|
4.5
|
|
|
|
5.5
|
|
|
|
5.6
|
|
Gain on disposal of discontinued operations
|
|
|
|
|
|
|
|
|
|
|
(45.2
|
)
|
Gain on sale of certain assets
|
|
|
|
|
|
|
(1.7
|
)
|
|
|
(12.7
|
)
|
Pension and other post-retirement expense
|
|
|
9.5
|
|
|
|
27.5
|
|
|
|
7.5
|
|
Change in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Increase) decrease in trade receivables
|
|
|
(19.2
|
)
|
|
|
(4.0
|
)
|
|
|
13.0
|
|
Decrease in inventories
|
|
|
7.0
|
|
|
|
41.5
|
|
|
|
1.8
|
|
Increase in prepaid expenses and other current assets
|
|
|
(15.4
|
)
|
|
|
(8.6
|
)
|
|
|
(14.2
|
)
|
Increase (decrease) in accounts payable
|
|
|
17.0
|
|
|
|
(5.9
|
)
|
|
|
(10.4
|
)
|
Increase (decrease) in accrued expenses and other current
liabilities
|
|
|
16.4
|
|
|
|
(19.2
|
)
|
|
|
(6.5
|
)
|
Pension and other post-retirement plan contributions
|
|
|
(25.8
|
)
|
|
|
(24.3
|
)
|
|
|
(12.8
|
)
|
Purchase of permanent displays
|
|
|
(33.7
|
)
|
|
|
(32.9
|
)
|
|
|
(47.2
|
)
|
Other, net
|
|
|
(13.1
|
)
|
|
|
(4.0
|
)
|
|
|
(9.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
96.7
|
|
|
|
103.3
|
|
|
|
33.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(15.2
|
)
|
|
|
(14.3
|
)
|
|
|
(19.6
|
)
|
Proceeds from the sale of assets of discontinued operations
|
|
|
|
|
|
|
|
|
|
|
107.6
|
|
Proceeds from the sale of certain assets
|
|
|
0.3
|
|
|
|
2.5
|
|
|
|
13.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities
|
|
|
(14.9
|
)
|
|
|
(11.8
|
)
|
|
|
101.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in short-term borrowings and overdraft
|
|
|
(10.6
|
)
|
|
|
6.0
|
|
|
|
3.1
|
|
Repayment under the 2006 Revolving Credit Facility, net
|
|
|
|
|
|
|
|
|
|
|
(43.5
|
)
|
Repayments under the 2006 Term Loan Facility
|
|
|
(815.0
|
)
|
|
|
(18.7
|
)
|
|
|
(6.3
|
)
|
Borrowings under the 2010 Term Loan Facility
|
|
|
786.0
|
|
|
|
|
|
|
|
|
|
Proceeds from the issuance of long-term debt, net
|
|
|
|
|
|
|
326.4
|
|
|
|
|
|
Proceeds from the issuance of long-term debt
affiliates
|
|
|
|
|
|
|
|
|
|
|
170.0
|
|
Repayment of long-term debt
|
|
|
(6.0
|
)
|
|
|
(381.7
|
)
|
|
|
(167.6
|
)
|
Repayment of long-term debt affiliates
|
|
|
|
|
|
|
|
|
|
|
(63.0
|
)
|
Payment of financing costs
|
|
|
(17.0
|
)
|
|
|
(23.4
|
)
|
|
|
(4.6
|
)
|
Other financing activities
|
|
|
0.3
|
|
|
|
(0.9
|
)
|
|
|
(1.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(62.3
|
)
|
|
|
(92.3
|
)
|
|
|
(113.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM DISCONTINUED OPERATIONS ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) discontinued operating activities
|
|
|
|
|
|
|
0.2
|
|
|
|
(10.8
|
)
|
Net cash used in discontinued financing activities
|
|
|
|
|
|
|
|
|
|
|
(0.4
|
)
|
Change in cash from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
(1.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) discontinued operations
|
|
|
|
|
|
|
0.2
|
|
|
|
(12.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
2.7
|
|
|
|
2.3
|
|
|
|
(1.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
22.2
|
|
|
|
1.7
|
|
|
|
7.7
|
|
Cash and cash equivalents at beginning of period
|
|
|
54.5
|
|
|
|
52.8
|
|
|
|
45.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
76.7
|
|
|
$
|
54.5
|
|
|
$
|
52.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
83.5
|
|
|
$
|
97.9
|
|
|
$
|
123.0
|
|
Income taxes, net of refunds
|
|
$
|
16.0
|
|
|
$
|
14.7
|
|
|
$
|
24.7
|
|
See Accompanying Notes to
Consolidated Financial Statements
F-6
|
|
1.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
|
Principles
of Consolidation and Basis of Presentation:
Revlon Consumer Products Corporation (Products
Corporation and together with its subsidiaries, the
Company) operates in a single segment and
manufactures, markets and sells an extensive array of cosmetics,
womens hair color, beauty tools, anti-perspirant
deodorants, fragrances, skincare and other beauty care products.
The Companys vision is glamour, excitement and innovation
through high-quality products at affordable prices. The
Companys principal customers include large mass volume
retailers and chain drug and food stores in the U.S., as well as
certain department stores and other specialty stores, such as
perfumeries, outside the U.S. The Company also sells beauty
products to U.S. military exchanges and commissaries and
has a licensing business pursuant to which the Company licenses
certain of its key brand names to third parties for the
manufacture and sale of complementary beauty-related products
and accessories in exchange for royalties.
Products Corporation is a direct wholly-owned subsidiary of
Revlon, Inc., which is a direct and indirect majority-owned
subsidiary of MacAndrews & Forbes Holdings Inc.
(MacAndrews & Forbes Holdings and,
together with certain of its affiliates other than Revlon, Inc.
and the Company, MacAndrews & Forbes), a
corporation wholly-owned by Ronald O. Perelman.
The accompanying Consolidated Financial Statements include the
accounts of the Company after elimination of all material
intercompany balances and transactions.
The preparation of financial statements in conformity with
U.S. generally accepted accounting principles requires
management to make estimates and assumptions that affect amounts
of assets and liabilities and disclosures of contingent assets
and liabilities as of the date of the financial statements and
reported amounts of revenues and expenses during the periods
presented. Actual results could differ from these estimates.
Estimates and assumptions are reviewed periodically and the
effects of revisions are reflected in the consolidated financial
statements in the period they are determined to be necessary.
Significant estimates made in the accompanying Consolidated
Financial Statements include, but are not limited to, allowances
for doubtful accounts, inventory valuation reserves, expected
sales returns and allowances, certain assumptions related to the
recoverability of intangible and long-lived assets, deferred tax
valuation allowances, reserves for estimated tax liabilities,
restructuring costs, certain estimates and assumptions used in
the calculation of the net periodic benefit costs and the
projected benefit obligations for the Companys pension and
other post-retirement plans, including the expected long term
return on pension plan assets and the discount rate used to
value the Companys year-end pension benefit obligations.
Effective for periods beginning January 1, 2010, the
Company is reporting Canada separately (previously Canada was
included in the Europe region) and is reporting South Africa as
part of the Europe, Middle East and Africa region (previously
South Africa was included in the Asia Pacific region). As a
result, prior year amounts have been reclassified to conform to
this presentation.
Certain prior year amounts in the Consolidated Financial
Statements have been reclassified to conform to the current
years presentation.
Cash and
Cash Equivalents:
Cash equivalents are primarily investments in high-quality,
short-term money market instruments with original maturities of
three months or less and are carried at cost, which approximates
fair value. Cash equivalents were $4.7 million and
$31.0 million as of December 31, 2010 and 2009,
respectively. Accounts payable includes $3.4 million and
$17.2 million of outstanding checks not yet presented for
payment at December 31, 2010 and 2009, respectively.
F-7
Accounts
Receivable:
Accounts receivable represent payments due to the Company for
previously recognized net sales, reduced by an allowance for
doubtful accounts for balances which are estimated to be
uncollectible at December 31, 2010 and 2009, respectively.
The Company grants credit terms in the normal course of business
to its customers. Trade credit is extended based upon
periodically updated evaluations of each customers ability
to perform its obligations. The Company does not normally
require collateral or other security to support credit sales.
The allowance for doubtful accounts is determined based on
historical experience and ongoing evaluations of the
Companys receivables and evaluations of the risks of
payment. The allowance for doubtful accounts is recorded against
accounts receivable balances when they are deemed uncollectible.
Recoveries of accounts receivable previously reserved are
recorded in the Consolidated Statements of Operations when
received. At December 31, 2010 and 2009, the Companys
three largest customers accounted for an aggregate of
approximately 31% and 30%, respectively, of outstanding accounts
receivable.
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, as well as planned product discontinuances. The
physical condition (e.g., age and quality) of the inventories is
also considered in establishing the valuation.
Property,
Plant and Equipment and Other Assets:
Property, plant and equipment is recorded at cost and is
depreciated on a straight-line basis over the estimated useful
lives of such assets as follows: land improvements, 20 to
30 years; buildings, 20 to 45 years; machinery and
equipment, 3 to 15 years; office furniture and fixtures, 2
to 15 years and capitalized software, 2 to 5 years.
Leasehold improvements and building improvements are amortized
over their estimated useful lives or the terms of the leases or
remaining life of the original structure, respectively,
whichever is shorter. Repairs and maintenance are charged to
operations as incurred, and expenditures for additions and
improvements are capitalized.
Long-lived assets, including fixed assets and intangibles other
than goodwill, are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. If events or changes in
circumstances indicate that the carrying amount of an asset may
not be recoverable, the Company estimates the undiscounted
future cash flows (excluding interest) resulting from the use of
the asset and its ultimate disposition. If the sum of the
undiscounted cash flows (excluding interest) is less than the
carrying value, the Company recognizes an impairment loss,
measured as the amount by which the carrying value exceeds the
fair value of the asset.
Included in other assets are permanent wall displays amounting
to approximately $48.7 million and $49.8 million as of
December 31, 2010 and 2009, respectively, which are
amortized generally over a period of 1 to 3 years. In the
event of product discontinuances, from time to time the Company
may accelerate the amortization of related permanent wall
displays based on the estimated remaining useful life of the
asset. Amortization expense for permanent wall displays for
2010, 2009 and 2008 was $35.2 million, $40.2 million
and $65.8 million, respectively. The Company has included,
in other assets, net costs related to the issuance of the
Companys debt instruments amounting to approximately
$29.6 million and $27.7 million as of
December 31, 2010 and 2009, respectively, which are
amortized over the terms of the related debt instruments. In
addition, the Company has included, in other assets, trademarks,
net, of $6.7 million and $6.9 million as of
December 31, 2010 and 2009, respectively, and patents, net,
of $1.0 million as of both December 31, 2010 and 2009.
Patents and trademarks are recorded at cost and amortized
ratably over approximately 10 years. Amortization expense
for patents and trademarks for 2010, 2009 and 2008 was
$1.4 million, $1.4 million and $1.9 million,
respectively.
Intangible
Assets Related to Businesses Acquired:
Intangible assets related to businesses acquired principally
consist of goodwill, which represents the excess purchase price
over the fair value of assets acquired. The Company accounts for
its goodwill and intangible assets in accordance with the
Intangibles Goodwill and Other Topic of the FASB
Accounting Standards Codification
F-8
(Intangibles Goodwill and Other Topic),
and does not amortize its goodwill. The Company reviews its
goodwill for impairment at least annually, or whenever events or
changes in circumstances would indicate possible impairment. The
Company performs its annual impairment test of goodwill as of
September 30th. The Company compared its estimated fair
value of the enterprise to its net assets and the fair value of
the enterprise was substantially greater than the
enterprises net assets. Based on the annual tests
performed by the Company as of September 30, 2010 and 2009,
the Company concluded that no impairment of goodwill existed at
either date. The Company operates in one reportable segment,
which is also the only reporting unit for purposes of accounting
for goodwill. Since the Company currently only has one reporting
unit, all of the goodwill has been assigned to the enterprise as
a whole.
The amount outstanding of goodwill, net, was $182.7 million
and $182.6 million at December 31, 2010 and 2009,
respectively. Accumulated amortization of goodwill aggregated
$117.5 million and $117.4 million at December 31,
2010 and 2009, respectively. Amortization of goodwill ceased as
of January 1, 2002 upon the Companys adoption of the
guidance set forth under the Intangibles Goodwill
and Other Topic of the FASB Accounting Standards Codification
(the Intangibles Goodwill and Other
Topic).
In accordance with the Intangibles Goodwill and
Other Topic, the Companys intangible assets with finite
useful lives are amortized over their respective estimated
useful lives to their estimated residual values, and reviewed
for impairment whenever events or changes in circumstances would
indicate possible impairment.
Revenue
Recognition:
Sales are recognized when revenue is realized or realizable and
has been earned. The Companys policy is to recognize
revenue when risk of loss and title to the product transfers to
the customer. Net sales is comprised of gross revenues less
expected returns, trade discounts and customer allowances, which
include costs associated with off-invoice mark-downs and other
price reductions, as well as trade promotions and coupons. These
incentive costs are recognized at the later of the date on which
the Company recognizes the related revenue or the date on which
the Company offers the incentive. The Company allows customers
to return their unsold products if and when they meet certain
Company-established criteria as outlined in the Companys
trade terms. The Company regularly reviews and revises, when
deemed necessary, its estimates of sales returns based primarily
upon the historical rate of actual product returns, planned
product discontinuances, new product launches and estimates of
customer inventory and promotional sales. The Company records
sales returns as a reduction to sales and cost of sales, and an
increase to accrued liabilities and inventories. 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. Revenues derived from
licensing arrangements, including any pre-payments, are
recognized in the period in which they become due and payable,
but not before the initial license term commences.
Cost of
Sales:
Cost of sales includes all of the costs to manufacture the
Companys products. For products manufactured in the
Companys own facilities, such costs include raw materials
and supplies, direct labor and factory overhead. For products
manufactured for the Company by third-party contractors, such
costs represent the amounts invoiced by the contractors. Cost of
sales also includes the cost of refurbishing products returned
by customers that will be offered for resale and the cost of
inventory write-downs associated with adjustments of held
inventories to net realizable value. These costs are reflected
in the statement of operations when the product is sold and net
sales revenues are recognized or, in the case of inventory
write-downs, when circumstances indicate that the carrying value
of inventories is in excess of its recoverable value.
Additionally, cost of sales reflects the costs associated with
any free products included as sales and promotional incentives.
These incentive costs are recognized on the later of the date
that the Company recognizes the related revenue or the date on
which the Company offers the incentive.
Selling,
General and Administrative Expenses:
Selling, general and administrative expenses
(SG&A) include expenses to advertise the
Companys products, such as television advertising
production costs and air-time costs, print advertising costs,
promotional
F-9
displays and consumer promotions. SG&A also includes the
amortization of permanent wall displays and intangible assets,
distribution costs (such as freight and handling),
non-manufacturing overhead, principally personnel and related
expenses, insurance and professional fees.
Advertising:
Advertising within SG&A includes television, print and
other advertising production costs which are expensed the first
time the advertising takes place. The costs of promotional
displays are expensed in the period in which they are shipped to
customers. Advertising expenses were $265.2 million,
$230.5 million and $260.2 million for 2010, 2009 and
2008, respectively, and were included in SG&A in the
Companys Consolidated Statements of Operations. The
Company also has various arrangements with customers pursuant to
its trade terms to reimburse them for a portion of their
advertising costs, which provide advertising benefits to the
Company. Additionally, from time to time the Company may pay
fees to customers in order to expand or maintain shelf space for
its products. The costs that the Company incurs for
cooperative advertising programs, end cap placement,
shelf placement costs, slotting fees and marketing development
funds, if any, are expensed as incurred and are netted against
revenues on the Companys Consolidated Statements of
Operations.
Distribution
Costs:
Costs, such as freight and handling costs, associated with
product distribution are expensed within SG&A when
incurred. Distribution costs were $58.7 million,
$58.7 million and $65.5 million for 2010, 2009 and
2008, respectively.
Income
Taxes:
Income taxes are calculated using the asset and liability method
in accordance with the provisions of the Income Taxes Topic of
the FASB Accounting Standards Codification (the Income
Taxes Topic). Under this method, deferred tax assets and
liabilities are recognized for the estimated future tax
consequences attributable to differences between the financial
statement carrying amounts of assets and liabilities and their
respective tax bases, as well as for operating loss and tax
credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are
expected to be recovered or settled. The effect of a change in
income tax rates on deferred tax assets and liabilities is
recognized in income in the period that includes the enactment
date. Valuation allowances are recorded to reduce deferred tax
assets when it is more likely than not that a tax benefit will
not be realized.
In addition, the Income Taxes Topic prescribes a recognition
threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected
to be taken in a tax return. The Income Taxes Topic also
provides guidance on derecognition, classification, interest and
penalties, accounting in interim periods, disclosure and
transition. (See Note 12, Income Taxes).
Research
and Development:
Research and development expenditures are expensed as incurred.
The amounts charged against earnings in 2010, 2009 and 2008 for
research and development expenditures were $24.0 million,
$23.9 million and $24.3 million, respectively.
Foreign
Currency Translation:
Assets and liabilities of foreign operations are translated into
U.S. dollars at the rates of exchange in effect at the
balance sheet date. Income and expense items are translated at
the weighted average exchange rates prevailing during each
period presented. Gains and losses resulting from foreign
currency transactions are included in the results of operations.
Gains and losses resulting from translation of financial
statements of foreign subsidiaries and branches operating in
non-hyperinflationary economies are recorded as a component of
accumulated other comprehensive loss until either sale or upon
complete or substantially complete liquidation by the Company of
its investment in a foreign entity. To the extent that foreign
subsidiaries and branches operate in hyperinflationary
F-10
economies, non-monetary assets and liabilities are translated at
historical rates and translation adjustments are included in the
results of operations.
Venezuela
Effective January 1, 2010, the Company determined that the
Venezuelan economy was considered a highly inflationary economy
under U.S. GAAP based upon a blended inflation index of the
Venezuelan National Consumer Price Index (NCPI) and
the Venezuelan Consumer Price Index (CPI). The
Company uses Venezuelas official exchange rate to
translate the financial statements of its Venezuelan subsidiary.
Classes
of Stock:
Products Corporation designated 1,000 shares of preferred
stock as the RCPC Preferred Stock, of which
546 shares are outstanding and all of which are held by
Revlon, Inc. The holder of the RCPC Preferred Stock is not
entitled to receive any dividends. The RCPC Preferred Stock is
entitled to a liquidation preference of $100,000 per share
before any distribution is made to the holder of Products
Corporations common stock. The holder of the RCPC
Preferred Stock does not have any voting rights, except as
required by law. The RCPC Preferred Stock may be redeemed at any
time by Products Corporation, at its option, for $100,000 per
share. However, the terms of Products Corporations various
debt agreements currently restrict Products Corporations
ability to effect such redemption.
Stock-Based
Compensation:
The Company recognizes stock-based compensation costs for its
stock options and restricted stock, measured at the fair value
of each award at the time of grant, as an expense over the
vesting period of the instrument. Upon the exercise of stock
options or the vesting of restricted stock, any resulting tax
benefits are recognized in additional
paid-in-capital.
Any resulting tax deficiencies are recognized in the
consolidated income statement as tax expense to the extent that
the tax deficiency amount exceeds any existing additional
paid-in-capital
resulting from previously realized excess tax benefits from
previous awards. The Company reflects such excess tax benefits
as cash flows from financing activities in the consolidated
statements of cash flows.
Derivative
Financial Instruments:
The Company is exposed to certain risks relating to its ongoing
business operations. The primary risks managed by using
derivative financial instruments are foreign currency exchange
rate risk and interest rate risk. The Company uses derivative
financial instruments, primarily (1) foreign currency
forward exchange contracts (FX Contracts) intended
for the purpose of managing foreign currency exchange risk by
reducing the effects of fluctuations in foreign currency
exchange rates on the Companys net cash flows and
(2) interest rate hedging transactions intended for the
purpose of managing interest rate risk associated with Products
Corporations variable rate indebtedness.
Foreign
Currency Forward Exchange Contracts
The Company enters into FX Contracts primarily to hedge the
anticipated net cash flows resulting from inventory purchases
and intercompany payments denominated in currencies other than
the local currencies of the Companys foreign and domestic
operations and generally have maturities of less than one year.
The Company does not apply hedge accounting to its FX Contracts.
The Company records FX Contracts in its consolidated balance
sheet at fair value and changes in fair value are immediately
recognized in earnings. Fair value of the Companys FX
Contracts is determined by using observable market transactions
of spot and forward rates.
Interest
Rate Swap Transactions
Products Corporations 2008 Interest Rate Swap (as
hereinafter defined) expired in April 2010. At December 31,
2010, the Company did not have any outstanding interest rate
swaps.
F-11
Recent
Accounting Pronouncements:
In December 2010, the FASB issued Accounting Standards Update
No. 2010-28,
When to Perform Step 2 of the Goodwill Impairment Test for
Reporting Units with Zero or Negative Carrying Amounts, which
amends ASC Topic 350, Intangibles Goodwill and
Other (ASU
2010-28).
ASU 2010-28
amends the criteria for performing Step 2 of the goodwill
impairment test for reporting units with zero or negative
carrying amounts. For such reporting units, Step 2 of the
goodwill impairment test will be required if qualitative factors
exist that indicate it is more likely than not that a goodwill
impairment exists. The provisions of ASU
2010-28 are
effective for fiscal years, and interim periods within those
years, beginning after December 15, 2010. The Company will
adopt the provisions of ASU
2010-28 in
2011 and does not expect that its adoption will have a material
impact on the Companys results of operations, financial
condition or its disclosures.
|
|
2.
|
DISCONTINUED
OPERATIONS
|
In July 2008, the Company disposed of the non-core Bozzano
business, a mens hair care and shaving line of products,
and certain other non-core brands, including Juvena and
Aquamarine, which were sold only in the Brazilian market (the
Bozzano Sale Transaction). The transaction was
effected through the sale of the Companys indirect
Brazilian subsidiary, Ceil Comércio E Distribuidora Ltda.
(Ceil), to Hypermarcas S.A., a Brazilian
publicly-traded, consumer products corporation. The purchase
price was approximately $107 million in cash, including
approximately $3 million in cash on Ceils balance
sheet on the closing date. Net proceeds, after the payment of
taxes and transaction costs, were approximately $95 million.
(See Note 9, Long-Term Debt, regarding Products
Corporations use of the $63 million of the net
proceeds from the Bozzano Sale Transaction to repay
$63 million in aggregate principal amount of the Senior
Subordinated Term Loan.)
The consolidated balance sheets at December 31, 2010 and
2009, respectively, were updated to reflect the assets and
liabilities of the Ceil subsidiary as a discontinued operation.
The following table summarizes the assets and liabilities of the
discontinued operation, excluding intercompany balances
eliminated in consolidation, at December 31, 2010 and 2009,
respectively:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
Prepaid expenses and other
|
|
$
|
0.1
|
|
|
$
|
0.1
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
0.1
|
|
|
$
|
0.1
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Accrued expenses and other
|
|
$
|
1.0
|
|
|
$
|
1.0
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
1.0
|
|
|
|
1.0
|
|
Other long-term liabilities
|
|
|
1.6
|
|
|
|
1.9
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
2.6
|
|
|
$
|
2.9
|
|
|
|
|
|
|
|
|
|
|
The income statements for the year ended December 31, 2010,
2009 and 2008, respectively, were adjusted to reflect the Ceil
subsidiary as a discontinued operation (which was previously
reported in the Latin America region). The following table
summarizes the results of the Ceil discontinued operations for
each of the respective periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Net sales
|
|
$
|
|
|
|
$
|
|
|
|
$
|
20.6
|
|
Operating income
|
|
|
|
|
|
|
|
|
|
|
0.1
|
|
Income before income taxes
|
|
|
|
|
|
|
|
|
|
|
0.1
|
|
(Benefit) provision for income taxes
|
|
|
(0.3
|
)
|
|
|
(0.3
|
)
|
|
|
0.5
|
|
Net income (loss)
|
|
|
0.3
|
|
|
|
0.3
|
|
|
|
(0.4
|
)
|
F-12
During 2008, the Company recorded a one-time gain from the
Bozzano Sale Transaction of $45.2 million, net of taxes of
$10.4 million. Included in this gain calculation is a
$37.3 million elimination of currency translation
adjustments.
|
|
3.
|
RESTRUCTURING
COSTS AND OTHER, NET
|
In May 2009, the Company announced a worldwide restructuring
(the May 2009 Program), which involved consolidating
certain functions; reducing layers of management, where
appropriate, to increase accountability and effectiveness;
streamlining support functions to reflect the new organizational
structure; and further consolidating the Companys office
facilities in New Jersey.
During 2009, the Company recorded charges of $21.3 million
in restructuring costs and other, net, which were comprised of:
|
|
|
|
|
a $20.8 million charge related to the May 2009 Program;
|
|
|
|
$1.3 million of charges related to employee severance and
other employee-related termination costs related to
restructuring actions in the U.K., Mexico and Argentina
announced in the first quarter of 2009 (together with the May
2009 Program, the 2009 Programs); and
|
|
|
|
a $0.8 million charge related to the 2008 Programs (as
hereinafter defined);
|
with the foregoing partially offset by
|
|
|
|
|
income of $1.6 million related to the sale of a facility in
Argentina in the first quarter of 2009.
|
During 2010, a $0.3 million adjustment was recorded to
restructuring costs and other, net, to reflect lower than
originally anticipated expenses associated with the May 2009
Program.
The $20.5 million of net charges related to the May 2009
Program has been or is expected to be paid out as follows:
$11.0 million paid in 2009, $6.9 million paid in 2010
and the balance of $2.6 million expected to be paid
thereafter.
During 2008, the Company recorded income of $8.4 million to
restructuring costs and other, net, primarily due to a gain of
$7.0 million related to the sale of a facility in Mexico
and a net gain of $5.9 million related to the sale of a
non-core trademark. In addition, during 2008 the Company reduced
by $0.4 million restructuring costs that were associated
with certain restructurings announced in 2006 (the 2006
Programs), primarily due to the charges for employee
severance and other employee-related termination costs being
slightly lower than originally estimated. These gains were
partially offset by a charge of $4.9 million for certain
restructuring activities in 2008, of which $0.8 million
related to a restructuring in Canada, $1.1 million related
to the Companys decision to close and sell its facility in
Mexico, $2.9 million related to the Companys
realignment of certain functions within customer business
development, information management and administrative services
in the U.S. and $0.1 million related other various
restructurings (together the 2008 Programs).
Restructuring programs implemented in 2007 (the 2007
Programs) primarily related to the closure of the
Companys facility in Irvington, New Jersey and personnel
reductions in the Companys information management function
and its sales force in Canada.
F-13
Details of the activity described above during 2010, 2009 and
2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of
|
|
|
(Income)
|
|
|
Utilized, Net
|
|
|
Balance
|
|
|
|
Year
|
|
|
Expenses, Net
|
|
|
Cash
|
|
|
Noncash
|
|
|
End of Year
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee severance and other personnel benefits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 Programs
|
|
$
|
0.3
|
|
|
$
|
|
|
|
$
|
(0.3
|
)
|
|
$
|
|
|
|
$
|
|
|
2009 Programs
|
|
|
7.6
|
|
|
|
(0.2
|
)
|
|
|
(6.4
|
)
|
|
|
|
|
|
|
1.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.9
|
|
|
|
(0.2
|
)
|
|
|
(6.7
|
)
|
|
|
|
|
|
|
1.0
|
|
Lease exit
|
|
|
2.3
|
|
|
|
(0.1
|
)
|
|
|
(0.6
|
)
|
|
|
|
|
|
|
1.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restructuring costs and other, net
|
|
$
|
10.2
|
|
|
$
|
(0.3
|
)
|
|
$
|
(7.3
|
)
|
|
$
|
|
|
|
$
|
2.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee severance and other personnel benefits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 Programs
|
|
$
|
0.3
|
|
|
$
|
|
|
|
$
|
(0.3
|
)
|
|
$
|
|
|
|
$
|
|
|
2007 Programs
|
|
|
0.1
|
|
|
|
|
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
2008 Programs
|
|
|
3.0
|
|
|
|
0.8
|
|
|
|
(3.5
|
)
|
|
|
|
|
|
|
0.3
|
|
2009 Programs
|
|
|
|
|
|
|
19.5
|
|
|
|
(11.9
|
)
|
|
|
|
|
|
|
7.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.4
|
|
|
|
20.3
|
|
|
|
(15.8
|
)
|
|
|
|
|
|
|
7.9
|
|
Leases and equipment write-offs
|
|
|
|
|
|
|
2.6
|
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
2.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restructuring accrual
|
|
$
|
3.4
|
|
|
|
22.9
|
|
|
$
|
(16.1
|
)
|
|
$
|
|
|
|
$
|
10.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on sale of Argentina facility
|
|
|
|
|
|
|
(1.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restructuring costs and other, net
|
|
|
|
|
|
$
|
21.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee severance and other personnel benefits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 Programs
|
|
$
|
4.1
|
|
|
$
|
(0.4
|
)
|
|
$
|
(3.4
|
)
|
|
$
|
|
|
|
$
|
0.3
|
|
2007 Programs
|
|
|
0.6
|
|
|
|
|
|
|
|
(0.5
|
)
|
|
|
|
|
|
|
0.1
|
|
2008 Programs
|
|
|
|
|
|
|
4.9
|
|
|
|
(1.7
|
)
|
|
|
(0.2
|
)
|
|
|
3.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.7
|
|
|
|
4.5
|
|
|
|
(5.6
|
)
|
|
|
(0.2
|
)
|
|
|
3.4
|
|
Leases and equipment write-offs
|
|
|
0.2
|
|
|
|
|
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restructuring accrual
|
|
$
|
4.9
|
|
|
|
4.5
|
|
|
$
|
(5.8
|
)
|
|
$
|
(0.2
|
)
|
|
$
|
3.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on sale of Mexico facility
|
|
|
|
|
|
|
(7.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on sale of non-core trademark
|
|
|
|
|
|
|
(5.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restructuring costs and other, net
|
|
|
|
|
|
$
|
(8.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2010, 2009 and 2008, the unpaid balance
of the restructuring costs and other, net for reserves, was
included in Accrued expenses and other and
Other long-term liabilities in the Companys
Consolidated Balance Sheets. The remaining balance at
December 31, 2010 for employee severance and other
personnel benefits is $2.6 million, of which
$1.6 million is expected to be paid by the end of 2011 and
the balance of $1.0 million is expected to be paid
thereafter.
F-14
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Raw materials and supplies
|
|
$
|
39.7
|
|
|
$
|
42.7
|
|
Work-in-process
|
|
|
9.9
|
|
|
|
12.0
|
|
Finished goods
|
|
|
65.4
|
|
|
|
64.5
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
115.0
|
|
|
$
|
119.2
|
|
|
|
|
|
|
|
|
|
|
|
|
5.
|
PREPAID
EXPENSES AND OTHER
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Prepaid expenses
|
|
$
|
19.9
|
|
|
$
|
22.3
|
|
Receivable from Revlon, Inc.
|
|
|
54.8
|
|
|
|
42.7
|
|
Other
|
|
|
23.4
|
|
|
|
22.0
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
98.1
|
|
|
$
|
87.0
|
|
|
|
|
|
|
|
|
|
|
|
|
6.
|
PROPERTY,
PLANT AND EQUIPMENT, NET
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Land and improvements
|
|
$
|
1.9
|
|
|
$
|
1.9
|
|
Building and improvements
|
|
|
63.5
|
|
|
|
62.0
|
|
Machinery, equipment and capital leases
|
|
|
136.8
|
|
|
|
135.1
|
|
Office furniture, fixtures and capitalized software
|
|
|
79.7
|
|
|
|
102.6
|
|
Leasehold improvements
|
|
|
11.9
|
|
|
|
11.8
|
|
Construction-in-progress
|
|
|
7.2
|
|
|
|
11.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
301.0
|
|
|
|
324.8
|
|
Accumulated depreciation
|
|
|
(194.8
|
)
|
|
|
(213.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
106.2
|
|
|
$
|
111.7
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense for the years ended December 31, 2010,
2009 and 2008 was $19.5 million, $17.5 million and
$17.8 million, respectively.
|
|
7.
|
ACCRUED
EXPENSES AND OTHER
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Sales returns and allowances
|
|
$
|
76.2
|
|
|
$
|
83.3
|
|
Advertising and promotional costs
|
|
|
25.3
|
|
|
|
34.1
|
|
Compensation and related benefits
|
|
|
51.8
|
|
|
|
35.9
|
|
Interest
|
|
|
17.8
|
|
|
|
7.4
|
|
Taxes
|
|
|
18.7
|
|
|
|
16.1
|
|
Restructuring costs
|
|
|
1.6
|
|
|
|
7.6
|
|
Derivative financial instruments
|
|
|
2.1
|
|
|
|
3.5
|
|
Other
|
|
|
22.7
|
|
|
|
21.0
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
216.2
|
|
|
$
|
208.9
|
|
|
|
|
|
|
|
|
|
|
F-15
Products Corporation had outstanding short-term bank borrowings
(excluding borrowings under the 2006 Credit Agreements (prior to
its complete refinancing in March 2010) in 2009 and the
2010 Credit Agreements in 2010, which are reflected in
Note 9, Long-Term Debt), aggregating
$3.7 million and $0.3 million at December 31,
2010 and 2009, respectively. The weighted average interest rate
on these short-term borrowings outstanding at December 31,
2010 and 2009 was 5.9% and 6.0%, respectively.
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010 Term Loan Facility due 2015, net of discounts (See
(a) below)
|
|
$
|
782.0
|
|
|
$
|
|
|
2006 Term Loan Facility due 2012 (See 2010
Transactions below)
|
|
|
|
|
|
|
815.0
|
|
2010 Revolving Credit Facility due 2014 (See (a) below)
|
|
|
|
|
|
|
|
|
93/4% Senior
Secured Notes due 2015, net of discounts (See (b) below)
|
|
|
326.9
|
|
|
|
326.4
|
|
Contributed Loan portion of the Senior Subordinated Term Loan
due 2013
(See (c) below)
|
|
|
48.6
|
|
|
|
48.6
|
|
Non-Contributed Loan portion of the Senior Subordinated Term
Loan due 2014 (See (c) below)
|
|
|
58.4
|
|
|
|
58.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,215.9
|
|
|
|
1,248.4
|
|
Less current portion
|
|
|
(8.0
|
)
|
|
|
(13.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,207.9
|
|
|
$
|
1,234.8
|
|
|
|
|
|
|
|
|
|
|
The Company completed several debt reduction transactions during
2010 and 2009.
2010
Transactions
Refinancing
of the 2006 Term Loan and Revolving Credit
Facilities
In March 2010, Products Corporation consummated a credit
agreement refinancing (the 2010 Refinancing)
consisting of the following transactions:
|
|
|
|
|
The 2010 Refinancing included refinancing Products
Corporations term loan facility, which was scheduled to
mature on January 15, 2012 and had $815.0 million
aggregate principal amount outstanding at December 31, 2009
(the 2006 Term Loan Facility), with a
5-year,
$800.0 million term loan facility due March 11, 2015
(the 2010 Term Loan Facility) under a second amended
and restated term loan agreement dated March 11, 2010 (the
2010 Term Loan Agreement), among Products
Corporation, as borrower, the lenders party thereto, Citigroup
Global Markets Inc. (CGMI), J.P. Morgan
Securities Inc. (JPM Securities), Banc of America
Securities LLC (BAS) and Credit Suisse Securities
(USA) LLC (Credit Suisse), as joint lead arrangers,
CGMI, JPM Securities, BAS, Credit Suisse and Natixis, New York
Branch (Natixis), as joint bookrunners, JPMorgan
Chase Bank, N.A. and Bank of America, N.A. as co-syndication
agents, Credit Suisse and Natixis as co-documentation agents,
and Citicorp USA, Inc. (CUSA), as administrative
agent and collateral agent.
|
|
|
|
The 2010 Refinancing also included refinancing Products
Corporations 2006 revolving credit facility, which was
scheduled to mature on January 15, 2012 and had nil
outstanding borrowings at December 31, 2009 (the 2006
Revolving Credit Facility and together with the 2006 Term
Loan Facility, the 2006 Credit Facilities and such
agreements, the 2006 Credit Agreements), with a
4-year,
$140.0 million asset-based, multi-currency revolving credit
facility due March 11, 2014 (the 2010 Revolving
Credit Facility and, together with the 2010 Term Loan
Facility, the 2010 Credit Facilities) under a second
amended and restated revolving credit agreement dated
March 11, 2010 (the 2010 Revolving Credit
Agreement and, together with the 2010 Term Loan Agreement,
the 2010 Credit Agreements), among Products
Corporation, as borrower, the lenders party thereto, CGMI and
Wells Fargo Capital Finance, LLC
|
F-16
|
|
|
|
|
(WFS), as joint lead arrangers, CGMI, WFS, BAS, JPM
Securities and Credit Suisse, as joint bookrunners, and CUSA, as
administrative agent and collateral agent.
|
|
|
|
|
|
Products Corporation used the approximately $786 million of
proceeds from the 2010 Term Loan Facility, which was drawn in
full on the March 11, 2010 closing date and issued to
lenders at 98.25% of par, plus approximately $31 million of
available cash and approximately $20 million then drawn on
the 2010 Revolving Credit Facility to refinance in full the
$815.0 million of outstanding indebtedness under its 2006
Term Loan Facility and to pay approximately $7 million of
accrued interest and approximately $15 million of fees and
expenses incurred in connection with consummating the 2010
Refinancing, of which approximately $9 million was
capitalized.
|
2009
Transactions
Exchange
Offer and Extension of the Maturity of the Senior Subordinated
Term Loan
In October 2009, Revlon, Inc. consummated its voluntary exchange
offer (as amended, the Exchange Offer) in which
Revlon, Inc. issued to stockholders (other than
MacAndrews & Forbes and its affiliates)
9,336,905 shares of Series A preferred stock, par
value $0.01 per share (the Preferred Stock), in
exchange for the same number of shares of Class A Common
Stock tendered for exchange in the Exchange Offer. Upon
consummation of the Exchange Offer, MacAndrews &
Forbes contributed to Revlon, Inc. $48.6 million of the
$107.0 million aggregate outstanding principal amount of
the Senior Subordinated Term Loan made by MacAndrews &
Forbes to Products Corporation (the Contributed
Loan) and the terms of the Senior Subordinated Term Loan
Agreement were amended to extend the maturity date on the
Contributed Loan which remains owing from Products Corporation
to Revlon, Inc. from August 2010 to October 8, 2013, to
change the annual interest rate on the Contributed Loan from 11%
to 12.75%, to extend the maturity date on the $58.4 million
principal amount of the Senior Subordinated Term Loan which
remains owing from Products Corporation to
MacAndrews & Forbes (the Non-Contributed
Loan) from August 2010 to October 8, 2014 and to
change the annual interest rate on the Non-Contributed Loan from
11% to 12%. (See Senior Subordinated Term Loan
Agreement in this Note 9 for details regarding such
amended terms).
Refinancing
of the
91/2% Senior
Notes
In November 2009, Products Corporation issued and sold
$330.0 million in aggregate principal amount of
93/4% Senior
Secured Notes due November 15, 2015 (as hereinafter
defined) in a private placement which was priced at 98.9% of
par. (See 2006 Credit Agreements in this
Note 9).
Products Corporation used the $319.8 million of net
proceeds from the
93/4% Senior
Secured Notes (net of original issue discount and underwriters
fees), together with $42.6 million of other cash and
borrowings under the 2006 Revolving Credit Facility (prior to
its complete refinancing in March 2010), to repay or redeem all
of the $340.5 million aggregate principal amount
outstanding of Products Corporations
91/2% Senior
Notes due April 1, 2011 (the
91/2% Senior
Notes), plus an aggregate of $21.9 million for
accrued interest, applicable redemption and tender premiums and
fees and expenses related to refinancing the
91/2% Senior
Notes, as well as the amendments to the 2006 Credit Agreements
required to permit such refinancing to be conducted on a secured
basis. Pursuant to a registration rights agreement, on
June 1, 2010, Products Corporation commenced an offer to
exchange the original
93/4% Senior
Secured Notes for up to $330 million in aggregate principal
amount of its
93/4% Senior
Secured Notes due 2015 that have been registered under the
Securities Act of 1933, as amended (the Securities
Act). On July 16, 2010, all of the old notes were
exchanged for new notes which have substantially identical terms
as the old notes, except that the new notes are registered with
the SEC under the Securities Act and the transfer restrictions
and registration rights applicable to the old notes do not apply
to the new notes. In connection with this refinancing
transaction, the Company recognized a loss on the extinguishment
of debt of $13.5 million, which was partially offset by a
$7.7 million gain on the repurchases of an aggregate
principal amount of $49.5 million of the
91/2% Senior
Notes prior to their complete refinancing in November 2009 at an
aggregate purchase price of $41.0 million, which is net of
the write-off of the ratable portion of unamortized debt
discounts and deferred financing fees resulting from such
repurchases.
F-17
|
|
|
|
(a)
|
2010 Credit Agreements
|
2010
Revolving Credit Facility
Availability under the 2010 Revolving Credit Facility varies
based on a borrowing base that is determined by the value of
eligible accounts receivable and eligible inventory in the
U.S. and the U.K. and eligible real property and equipment
in the U.S. from time to time.
In each case subject to borrowing base availability, the 2010
Revolving Credit Facility is available to:
|
|
|
|
(i)
|
Products Corporation in revolving credit loans denominated in
U.S. dollars;
|
|
|
(ii)
|
Products Corporation in swing line loans denominated in
U.S. dollars up to $30.0 million;
|
|
|
(iii)
|
Products Corporation in standby and commercial letters of credit
denominated in U.S. dollars and other currencies up to
$60.0 million; and
|
|
|
(iv)
|
Products Corporation and certain of its international
subsidiaries designated from time to time in revolving credit
loans and bankers acceptances denominated in
U.S. dollars and other currencies.
|
If the value of the eligible assets is not sufficient to support
the $140.0 million borrowing base under the 2010 Revolving
Credit Facility, Products Corporation will not have full access
to the 2010 Revolving Credit Facility. Products
Corporations ability to make borrowings under the 2010
Revolving Credit Facility is also conditioned upon the
satisfaction of certain conditions precedent and Products
Corporations compliance with other covenants in the 2010
Revolving Credit Agreement.
Borrowings under the 2010 Revolving Credit Facility (other than
loans in foreign currencies) bear interest at a rate equal to,
at Products Corporations option, either (i) the
Eurodollar Rate plus 3.00% per annum or (ii) the Alternate
Base Rate plus 2.00% per annum. Local Loans (as defined in the
2010 Revolving Credit Agreement) bear interest, if mutually
acceptable to Products Corporation and the relevant foreign
lenders, at the Local Rate, and otherwise (i) if in foreign
currencies or in U.S. dollars at the Eurodollar Rate or the
Eurocurrency Rate plus 3.0% per annum or (ii) if in
U.S. dollars at the Alternate Base Rate plus 2.0% per annum.
Prior to the termination date of the 2010 Revolving Credit
Facility, revolving loans are required to be prepaid (without
any permanent reduction in commitment) with:
|
|
|
|
(i)
|
the net cash proceeds from sales of Revolving Credit First Lien
Collateral (as defined below) by Products Corporation or any of
its subsidiary guarantors (other than dispositions in the
ordinary course of business and certain other
exceptions); and
|
|
|
(ii)
|
the net proceeds from the issuance by Products Corporation or
any of its subsidiaries of certain additional debt, to the
extent there remains any such proceeds after satisfying Products
Corporations repayment obligations under the 2010 Term
Loan Facility.
|
Products Corporation pays to the lenders under the 2010
Revolving Credit Facility a commitment fee of 0.75% of the
average daily unused portion of the 2010 Revolving Credit
Facility, which fee is payable quarterly in arrears. Under the
2010 Revolving Credit Facility, Products Corporation also pays:
|
|
|
|
(i)
|
to foreign lenders a fronting fee of 0.25% per annum on the
aggregate principal amount of specified Local Loans (which fee
is retained by foreign lenders out of the portion of the
Applicable Margin payable to such foreign lender);
|
|
|
|
|
(ii)
|
to foreign lenders an administrative fee of 0.25% per annum on
the aggregate principal amount of specified Local Loans;
|
|
|
|
|
(iii)
|
to the multi-currency lenders a letter of credit commission
equal to the product of (a) the Applicable Margin (as
defined in the 2010 Revolving Credit Agreement) for revolving
credit loans that are Eurodollar Rate (as defined in the 2010
Revolving Credit Agreement) loans (adjusted for the term that
the letter of credit is outstanding) and (b) the aggregate
undrawn face amount of letters of credit; and
|
F-18
|
|
|
|
(iv)
|
to the issuing lender, a letter of credit fronting fee of 0.25%
per annum of the aggregate undrawn face amount of letters of
credit, which fee is a portion of the Applicable Margin.
|
Under certain circumstances, Products Corporation will have the
right to request that the 2010 Revolving Credit Facility be
increased by up to $60.0 million, provided that the lenders
are not committed to provide any such increase.
Under certain circumstances if and when the difference between
(i) the borrowing base under the 2010 Revolving Credit
Facility and (ii) the amounts outstanding under the 2010
Revolving Credit Facility is less than $20.0 million for a
period of two consecutive days or more, and until such
difference is equal to or greater than $20.0 million for a
period of 30 consecutive business days, the 2010 Revolving
Credit Facility requires Products Corporation to maintain a
consolidated fixed charge coverage ratio (the ratio of EBITDA
minus Capital Expenditures to Cash Interest Expense for such
period, as each such term is defined in the 2010 Revolving
Credit Facility) of 1.0 to 1.0.
The 2010 Revolving Credit Facility matures on March 11,
2014.
2010
Term Loan Facility
Under the 2010 Term Loan Facility, Eurodollar Loans (as defined
in the 2010 Term Loan Agreement) bear interest at the Eurodollar
Rate (as defined in the 2010 Term Loan Agreement) plus 4.00% per
annum (provided that in no event shall the Eurodollar Rate be
less than 2.00% per annum) and Alternate Base Rate (as defined
in the 2010 Term Loan Agreement) loans bear interest at the
Alternate Base Rate plus 3.00% per annum (provided that in no
event shall the Alternate Base Rate be less than 3.00% per
annum).
Prior to the termination date of the 2010 Term Loan Facility, on
June 30, September 30, December 31 and March 31 of
each year (commencing June 30, 2010), Products Corporation
is required to repay $2.0 million of the principal amount
of the term loans outstanding under the 2010 Term Loan Facility
on each respective date. In addition, the term loans under the
2010 Term Loan Facility are required to be prepaid with:
|
|
|
|
(i)
|
the net cash proceeds in excess of $10.0 million for each
12-month
period ending on March 31 received during such period from sales
of Term Loan First Lien Collateral (as defined below) by
Products Corporation or any of its subsidiary guarantors
(subject to a reinvestment right for 365 days and carryover
of unused annual basket amounts up to a maximum of
$25.0 million and subject to certain specified dispositions
of up to an additional $25.0 million in the aggregate);
|
|
|
(ii)
|
the net proceeds from the issuance by Products Corporation or
any of its subsidiaries of certain additional debt; and
|
|
|
(iii)
|
50% of Products Corporations excess cash flow
(as defined under the 2010 Term Loan Agreement), commencing with
excess cash flow for the 2011 fiscal year payable in the first
quarter of 2012.
|
Any such prepayments are applied to reduce Products
Corporations future regularly scheduled term loan
amortization payments, to be applied in the direct order of
maturity to the remaining installments thereof or as otherwise
directed by Products Corporation.
The 2010 Term Loan Facility contains a financial covenant
limiting Products Corporations first lien senior secured
leverage ratio (the ratio of Products Corporations Senior
Secured Debt that has a lien on the collateral which secures the
2010 Term Loan Facility that is not junior or subordinated to
the liens securing the 2010 Term Loan Facility (excluding debt
outstanding under the 2010 Revolving Credit Facility) to EBITDA,
as each such term is defined in the 2010 Term Loan Facility), to
4.0 to 1.0 for each period of four consecutive fiscal quarters
ending during the period from March 31, 2010 to the March
2015 maturity date of the 2010 Term Loan Facility.
Under certain circumstances, Products Corporation will have the
right to request the 2010 Term Loan Facility to be increased by
up to $300.0 million, provided that the lenders are not
committed to provide any such increase.
The 2010 Term Loan Facility matures on March 11, 2015.
F-19
Provisions
Applicable to the 2010 Revolving Credit Facility and the 2010
Term Loan Facility
The 2010 Credit Facilities are supported by, among other things,
guarantees from Revlon, Inc. and, subject to certain limited
exceptions, Products Corporations domestic subsidiaries.
The obligations of Products Corporation under the 2010 Credit
Facilities and the obligations under such guarantees are secured
by, subject to certain limited exceptions, substantially all of
the assets of Products Corporation and the guarantors, including:
|
|
|
|
(i)
|
mortgages on owned real property, including Products
Corporations facility in Oxford, North Carolina;
|
|
|
(ii)
|
the capital stock of Products Corporation and the subsidiary
guarantors and 66% of the voting capital stock and 100% of the
non-voting capital stock of Products Corporations and the
subsidiary guarantors first-tier,
non-U.S. subsidiaries;
|
|
|
(iii)
|
intellectual property and other intangible property of Products
Corporation and the subsidiary guarantors; and
|
|
|
(iv)
|
inventory, accounts receivable, equipment, investment property
and deposit accounts of Products Corporation and the subsidiary
guarantors.
|
The liens on inventory, accounts receivable, deposit accounts,
investment property (other than the capital stock of Products
Corporation and its subsidiaries), real property, equipment,
fixtures and certain intangible property related to the
foregoing (the Revolving Credit First Lien
Collateral) secure the 2010 Revolving Credit Facility on a
first priority basis, the 2010 Term Loan Facility on a second
priority basis and Products Corporations
93/4% Senior
Secured Notes due November 2015 (the
93/4% Senior
Secured Notes) and the related guarantees on a third
priority basis. The liens on the capital stock of Products
Corporation and its subsidiaries, intellectual property and
intangible property (other than intangible property included in
the Revolving Credit First Lien Collateral) (the Term Loan
First Lien Collateral) secure the 2010 Term Loan Facility
on a first priority basis and the 2010 Revolving Credit Facility
and the
93/4% Senior
Secured Notes and the related guarantees on a second priority
basis. Such arrangements are set forth in the Third Amended and
Restated Intercreditor and Collateral Agency Agreement, dated
March 11, 2010, by and among Products Corporation and CUSA,
as administrative agent and as collateral agent for the benefit
of the secured parties for the 2010 Term Loan Facility, 2010
Revolving Credit Facility and the
93/4% Senior
Secured Notes (the 2010 Intercreditor Agreement).
The 2010 Intercreditor Agreement also provides that the liens
referred to above may be shared from time to time, subject to
certain limitations, with specified types of other obligations
incurred or guaranteed by Products Corporation, such as foreign
exchange and interest rate hedging obligations and foreign
working capital lines.
Each of the 2010 Credit Facilities contains various restrictive
covenants prohibiting Products Corporation and its subsidiaries
from:
|
|
|
|
(i)
|
incurring additional indebtedness or guarantees, with certain
exceptions;
|
|
|
(ii)
|
making dividend and other payments or loans to Revlon, Inc. or
other affiliates, with certain exceptions, including among
others:
|
|
|
|
|
(a)
|
exceptions permitting Products Corporation to pay dividends or
make other payments to Revlon, Inc. to enable it to, among other
things, pay expenses incidental to being a public holding
company, including, among other things, professional fees such
as legal, accounting and insurance fees, regulatory fees, such
as SEC filing fees and NYSE listing fees, and other expenses
related to being a public holding company;
|
|
|
|
|
(b)
|
subject to 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 Third Amended and Restated Revlon, Inc. Stock Plan
and/or the
payment of withholding taxes in connection with the vesting of
restricted stock awards under such plan;
|
|
|
(c)
|
subject to certain limitations, to pay dividends or make other
payments to finance the purchase, redemption or other retirement
for value by Revlon, Inc. of stock or other equity
|
F-20
|
|
|
|
|
interests or equivalents in Revlon, Inc. held by any current or
former director, employee or consultant in his or her capacity
as such; and
|
|
|
|
|
(d)
|
subject to certain limitations, to make other restricted
payments to affiliates of Products Corporation in amounts up to
$5.0 million per year ($10.0 million in 2010), other
restricted payments in an aggregate amount not to exceed
$20.0 million and other restricted payments based upon
certain financial tests;
|
|
|
|
|
(iii)
|
creating liens or other encumbrances on Products
Corporations or its subsidiaries assets or revenues,
granting negative pledges or selling or transferring any of
Products Corporations or its subsidiaries assets,
all subject to certain limited exceptions;
|
|
|
(iv)
|
with certain exceptions, engaging in merger or acquisition
transactions;
|
|
|
(v)
|
prepaying indebtedness and modifying the terms of certain
indebtedness and specified material contractual obligations,
subject to certain exceptions;
|
|
|
(vi)
|
making investments, subject to certain exceptions; and
|
|
|
(vii)
|
entering into transactions with affiliates of Products
Corporation involving aggregate payments or consideration in
excess of $10.0 million other than upon terms that are not
materially less favorable when taken as a whole to Products
Corporation or its subsidiaries as terms that would be
obtainable at the time for a comparable transaction or series of
similar transactions in arms length dealings with an
unrelated third person and where such payments or consideration
exceed $20.0 million, unless such transaction has been
approved by all of the independent directors of Products
Corporation, subject to certain exceptions.
|
The events of default under each of the 2010 Credit Facilities
include customary events of default for such types of
agreements, including, among others:
|
|
|
|
(i)
|
nonpayment of any principal, interest or other fees when due,
subject in the case of interest and fees to a grace period;
|
|
|
(ii)
|
non-compliance with the covenants in such 2010 Credit Facilities
or the ancillary security documents, subject in certain
instances to grace periods;
|
|
|
(iii)
|
the institution of any bankruptcy, insolvency or similar
proceedings by or against Products Corporation, any of Products
Corporations subsidiaries or Revlon, Inc., subject in
certain instances to grace periods;
|
|
|
(iv)
|
default by Revlon, Inc. or any of its subsidiaries (A) in
the payment of certain indebtedness when due (whether at
maturity or by acceleration) in excess of $25.0 million in
aggregate principal amount or (B) in the observance or
performance of any other agreement or condition relating to such
debt, provided that the amount of debt involved is in excess of
$25.0 million in aggregate principal amount, or the
occurrence of any other event, the effect of which default
referred to in this subclause (iv) is to cause or permit
the holders of such debt to cause the acceleration of payment of
such debt;
|
|
|
(v)
|
in the case of the 2010 Term Loan Facility, a cross default
under the 2010 Revolving Credit Facility, and in the case of the
2010 Revolving Credit Facility, a cross default under the 2010
Term Loan Facility;
|
|
|
(vi)
|
the failure by Products Corporation, certain of Products
Corporations subsidiaries or Revlon, Inc. to pay certain
material judgments;
|
|
|
(vii)
|
a change of control such that (A) Revlon, Inc. shall cease
to be the beneficial and record owner of 100% of Products
Corporations capital stock, (B) Ronald O. Perelman
(or his estate, heirs, executors, administrator or other
personal representative) and his or their controlled affiliates
shall cease to control Products Corporation, and any
other person or group of persons owns, directly or indirectly,
more than 35% of the total voting power of Products Corporation,
(C) any person or
|
F-21
group of persons other than Ronald O. Perelman (or his estate,
heirs, executors, administrator or other personal
representative) and his or their controlled affiliates shall
control Products Corporation or (D) during any
period of two consecutive years, the directors serving on
Products Corporations Board of Directors at the beginning
of such period (or other directors nominated by at least a
majority of such continuing directors) shall cease to be a
majority of the directors;
|
|
|
|
(viii)
|
Revlon, Inc. shall have any meaningful assets or indebtedness or
shall conduct any meaningful business other than its ownership
of Products Corporation and such activities as are customary for
a publicly traded holding company which is not itself an
operating company, in each case subject to limited
exceptions; and
|
|
|
(ix)
|
the failure of certain of Products Corporations affiliates
which hold Products Corporations or its subsidiaries
indebtedness to be party to a valid and enforceable agreement
prohibiting such affiliate from demanding or retaining payments
in respect of such indebtedness, subject to certain exceptions,
including exceptions as to Products Corporations Senior
Subordinated Term Loan.
|
If Products Corporation is in default under the senior secured
leverage ratio under the 2010 Term Loan Facility or the
consolidated fixed charge coverage ratio under the 2010
Revolving Credit Facility, Products Corporation may cure such
default by issuing certain equity securities to, or receiving
capital contributions from, Revlon, Inc. and applying such cash
which is deemed to increase EBITDA for the purpose of
calculating the applicable ratio. This cure right may be
exercised by Products Corporation two times in any four-quarter
period.
Products Corporation was in compliance with all applicable
covenants under the 2010 Credit Agreements upon closing the 2010
Refinancing and as of December 31, 2010. At
December 31, 2010, the aggregate principal amount
outstanding under the 2010 Term Loan Facility was
$794.0 million and availability under the
$140.0 million 2010 Revolving Credit Facility, based upon
the calculated borrowing base less $21.2 million of
outstanding undrawn letters of credit and nil then drawn on the
2010 Revolving Credit Facility, was $111.7 million.
|
|
|
|
(b)
|
93/4% Senior
Secured Notes due 2015
|
In November 2009, Products Corporation issued and sold
$330.0 million in aggregate principal amount of the
93/4% Senior
Secured Notes due November 15, 2015 (the
93/4% Senior
Secured Notes) in a private placement which was priced at
98.9% of par, receiving net proceeds (net of original issue
discount and underwriters fees) of $319.8 million.
Including the amortization of the original issue discount, the
effective interest rate on the
93/4% Senior
Secured Notes is 10%. In connection with and prior to the
issuance of the
93/4% Senior
Secured Notes, Products Corporation entered into amendments to
the 2006 Credit Agreements to permit the issuance of the
93/4% Senior
Secured Notes on a secured basis and incurred $4.7 million
of related fees and expenses. The Company capitalized
$4.5 million of such fees and expenses which was expensed
upon the refinancing of the 2006 Credit Agreements in March
2010. In connection with consummating such refinancing, the
Company incurred $10.5 million of fees and expenses related
to the issuance of the
93/4% Senior
Secured Notes, all of which the Company capitalized and which
will be amortized over the remaining life of the
93/4% Senior
Secured Notes.
The $319.8 million of net proceeds, together with
$42.6 million of other cash and borrowings under the 2006
Revolving Credit Facility (prior to its complete refinancing in
March 2010), were used to repay or redeem all of the
$340.5 million aggregate principal amount outstanding of
Products Corporations
91/2% Senior
Notes due April 1, 2011, plus an aggregate of
$21.9 million for accrued interest, applicable redemption
and tender premiums and fees and expenses related to refinancing
the
91/2% Senior
Notes, as well as the amendments to the 2006 Credit Agreements
(prior to their complete refinancing in March
2010) required to permit such refinancing to be conducted
on a secured basis. Pursuant to a registration rights agreement,
on June 1, 2010, Products Corporation commenced an offer to
exchange the original
93/4% Senior
Secured Notes for up to $330 million in aggregate principal
amount of its
93/4% Senior
Secured Notes due 2015 that have been registered under the
Securities Act. On July 16, 2010, all of the old notes were
exchanged for new notes which have substantially identical terms
as the old notes, except that the new notes are registered with
the SEC under the Securities Act and the transfer restrictions
and registration rights applicable to the old notes do not apply
to the new notes.
F-22
The
93/4% Senior
Secured Notes were issued pursuant to an indenture, dated as of
November 23, 2009 (the
93/4% Senior
Secured Notes Indenture), among Products Corporation,
Revlon, Inc. and Products Corporations domestic
subsidiaries (subject to certain limited exceptions) (the
Subsidiary Guarantors and, collectively with Revlon,
Inc., the Guarantors), which Guarantors also
currently guarantee Products Corporations 2010 Credit
Agreements, and U.S. Bank National Association, as trustee.
The
93/4% Senior
Secured Notes are supported by guarantees from the Guarantors.
The
93/4% Senior
Secured Notes and the related guarantees are secured, subject to
certain permitted liens:
|
|
|
|
|
together with the obligations under the 2010 Revolving Credit
Agreement (on an equal and ratable basis), by a second-priority
lien on the collateral that is subject to a first-priority lien
securing Products Corporations obligations under the 2010
Term Loan Agreement (i.e., substantially all of Products
Corporations and the Subsidiary Guarantors
intellectual property and intangibles, all of the capital stock
of Products Corporation and the Subsidiary Guarantors and 66% of
the capital stock of Products Corporations and the
Subsidiary Guarantors first-tier foreign subsidiaries and
certain other assets of Products Corporation and the Subsidiary
Guarantors (excluding the assets described below)), subject to
certain limited exceptions; and
|
|
|
|
by a third-priority lien on the collateral that is subject to a
first-priority lien securing Products Corporations
obligations under the 2010 Revolving Credit Agreement and
subject to a second-priority lien securing Products
Corporations obligations under the 2010 Term Loan
Agreement (i.e., substantially all of Products
Corporations and the Subsidiary Guarantors
inventory, accounts receivable, equipment, investment property,
deposit accounts and certain real estate), subject to certain
limited exceptions.
|
The liens securing the
93/4% Senior
Secured Notes and the related guarantees are subject to the
provisions of an intercreditor agreement, which, among other
things, governs the priority of the liens on the collateral
securing the
93/4% Senior
Secured Notes and provides different rights as to enforcement,
procedural provisions and other similar matters for holders of
liens securing Products Corporations obligations under the
2010 Credit Agreements.
The
93/4% Senior
Secured Notes are senior secured obligations of Products
Corporation and rank pari passu in right of payment with all
existing and future senior indebtedness of Products Corporation
and the Guarantors, including the indebtedness under the 2010
Credit Agreements, and are senior in right of payment to all of
Products Corporations and the Guarantors present and
future indebtedness that is expressly subordinated in right of
payment (including the Contributed Loan and the Non-Contributed
Loan). The
93/4% Senior
Secured Notes are effectively subordinated to the outstanding
indebtedness and other liabilities of Products
Corporations non-guarantor subsidiaries. The
93/4% Senior
Secured Notes mature on November 15, 2015. Interest is
payable on May 15 and November 15 of each year, beginning
May 15, 2010.
The
93/4% Senior
Secured Notes may be redeemed at the option of Products
Corporation:
|
|
|
|
|
in an amount up to an aggregate of 35% of the original principal
amount issued under the
93/4% Senior
Secured Notes Indenture, from time to time prior to
November 15, 2012, with the proceeds of certain equity
offerings, at a purchase price equal to 109.75% of the principal
amount, plus accrued and unpaid interest, if any, to the date of
redemption;
|
|
|
|
in whole or in part at any time prior to November 15, 2012
at a redemption price equal to the principal amount, plus
accrued and unpaid interest, if any, to the date of redemption,
plus the applicable premium (as specified in the
93/4% Senior
Secured Notes Indenture); and
|
|
|
|
in whole or in part at any time after November 15, 2012 at
various fixed prices specified in the
93/4% Senior
Secured Notes Indenture.
|
Upon a Change in Control (as defined in the
93/4% Senior
Secured Notes Indenture), subject to certain conditions, each
holder of the
93/4% Senior
Secured Notes will have the right to require Products
Corporation to repurchase all or a portion of such holders
93/4% Senior
Secured Notes at a price equal to 101% of the principal amount,
plus accrued and unpaid interest, if any, to the date of
repurchase.
F-23
The
93/4% Senior
Secured Notes Indenture contains covenants that, among other
things, limit (i) the issuance of additional debt and
redeemable stock by Products Corporation; (ii) the
incurrence of liens; (iii) the issuance of debt and
preferred stock by Products Corporations subsidiaries;
(iv) the payment of dividends on capital stock of Products
Corporation and its subsidiaries and the redemption of capital
stock of Products Corporation and certain subordinated
obligations; (v) the sale of assets and subsidiary stock by
Products Corporation; (vi) transactions with affiliates of
Products Corporation; (vii) consolidations, mergers and
transfers of all or substantially all of Products
Corporations assets; and (viii) certain restrictions
on transfers of assets by or distributions from subsidiaries of
Products Corporation. All of these limitations and prohibitions,
however, are subject to a number of qualifications and
exceptions, which are specified in the
93/4% Senior
Secured Notes Indenture.
The
93/4% Senior
Secured Notes Indenture contains customary events of default for
debt instruments of such type and includes a cross acceleration
provision which provides that it shall be an event of default if
any debt (as defined in such indenture) of Products Corporation
or any of its significant subsidiaries (as defined in such
indenture) is not paid within any applicable grace period after
final maturity or is accelerated by the holders of such debt
because of a default and the total principal amount of the
portion of such debt that is unpaid or accelerated exceeds
$25.0 million and such default continues for 10 days
after notice from the trustee under such indenture. If any such
event of default occurs, the trustee under such indenture or the
holders of at least 30% in aggregate principal amount of the
outstanding notes under such indenture may declare all such
notes to be due and payable immediately, provided that the
holders of a majority in aggregate principal amount of the
outstanding notes under such indenture may, by notice to the
trustee, waive any such default or event of default and its
consequences under such indenture.
|
|
|
|
(c)
|
Senior Subordinated Term Loan Agreement
|
In January 2008, Products Corporation entered into the Senior
Subordinated Term Loan Agreement with MacAndrews &
Forbes and on February 1, 2008 used the $170.0 million
of proceeds from such loan to repay in full the
$167.4 million remaining aggregate principal amount of
Products Corporations
85/8% Senior
Subordinated Notes, which matured on February 1, 2008, and
to pay $2.55 million of related fees and expenses. In
connection with such repayment, Products Corporation also used
cash on hand to pay $7.2 million of accrued and unpaid
interest due on the
85/8% Senior
Subordinated Notes up to, but not including, the
February 1, 2008 maturity date.
In September 2008, Products Corporation used $63.0 million
of the net proceeds from the Bozzano Sale Transaction to
partially repay $63.0 million of the outstanding aggregate
principal amount of the Senior Subordinated Term Loan. Following
such partial repayment, there remained outstanding
$107.0 million in aggregate principal amount under such
loan. Upon consummation of the Exchange Offer,
MacAndrews & Forbes contributed to Revlon, Inc. the
$48.6 million Contributed Loan, representing $5.21 of
outstanding principal amount for each of the
9,336,905 shares of Class A Common Stock exchanged in
the Exchange Offer, and Revlon, Inc. issued to
MacAndrews & Forbes 9,336,905 shares of
Class A Common Stock at a ratio of one share of
Class A Common Stock for each $5.21 of outstanding
principal amount of the Senior Subordinated Term Loan
contributed to Revlon. Also, upon consummation of the Exhange
Offer, the terms of the Senior Subordinated Term Loan Agreement
were amended to extend the maturity date on the Contributed Loan
which remains owing from Products Corporation to Revlon, Inc.
from August 2010 to October 8, 2013, to change the annual
interest rate on the Contributed Loan from 11% to 12.75%, to
extend the maturity date on the Non-Contributed Loan from August
2010 to October 8, 2014 and to change the annual interest
rate on the Non-Contributed Loan from 11% to 12%.
Interest under the Senior Subordinated Term Loan is payable in
arrears in cash on January 8, April 8, July 8 and
October 8 of each year. Products Corporation may, at its option,
prepay such loan, in whole or in part (together with accrued and
unpaid interest), at any time prior to its respective maturity
dates without premium or penalty, provided that prior to such
loans respective maturity dates all shares of Revlon,
Inc.s Preferred Stock have been or are being concurrently
redeemed and all payments due thereon are paid in full or are
concurrently being paid in full.
The Senior Subordinated Term Loan is an unsecured obligation of
Products Corporation and is subordinated in right of payment to
all existing and future senior debt of Products Corporation,
currently including indebtedness under (i) Products
Corporations 2010 Credit Agreements, and
(ii) Products Corporations
93/4% Senior
Secured Notes. Prior to its respective maturity dates, the
Senior Subordinated Term Loan is also subordinated in right of
F-24
payment to Revlon, Inc.s Preferred Stock. The Senior
Subordinated Term Loan has the right to payment equal in right
of payment with any present and future senior subordinated
indebtedness of Products Corporation.
The Senior Subordinated Term Loan Agreement contains covenants
(other than the subordination provisions discussed above) that
limit the ability of Products Corporation and its subsidiaries
to, among other things, incur additional indebtedness, pay
dividends on or redeem or repurchase stock, engage in certain
asset sales, make certain types of investments and other
restricted payments, engage in certain transactions with
affiliates, restrict dividends or payments from subsidiaries and
create liens on their assets. All of these limitations and
prohibitions, however, are subject to a number of important
qualifications and exceptions.
The Senior Subordinated Term Loan Agreement includes a cross
acceleration provision which provides that it shall be an event
of default under such agreement if any debt (as defined in such
agreement) of Products Corporation or any of its significant
subsidiaries (as defined in such agreement) is not paid within
any applicable grace period after final maturity or is
accelerated by the holders of such debt because of a default and
the total principal amount of the portion of such debt that is
unpaid or accelerated exceeds $25.0 million and such
default continues for 10 days after notice from
MacAndrews & Forbes. If any such event of default
occurs, MacAndrews & Forbes may declare the Senior
Subordinated Term Loan to be due and payable immediately.
The Senior Subordinated Term Loan Agreement also contains other
customary events of default for loan agreements of such type,
including, subject to applicable grace periods, nonpayment of
any principal or interest when due under such agreement,
non-compliance with any of the material covenants in such
agreement, any representation or warranty being incorrect, false
or misleading in any material respect, or the occurrence of
certain bankruptcy, insolvency or similar proceedings by or
against Products Corporation or any of its significant
subsidiaries.
Upon any change of control (as defined in the Senior
Subordinated Term Loan Agreement), Products Corporation is
required to repay the Senior Subordinated Term Loan in full,
provided that prior to such loans respective maturity
dates all shares of Revlon, Inc.s Preferred Stock have
been or are being concurrently redeemed and all payments due
thereon are paid in full or are concurrently being paid in full,
after fulfilling an offer to repay Products Corporations
93/4% Senior
Secured Notes and to the extent permitted by Products
Corporations 2010 Credit Agreements.
Long-Term
Debt Maturities
The aggregate amounts of contractual long-term debt maturities
at December 31, 2010 in the years 2011 through 2015 and
thereafter are as follows:
|
|
|
|
|
|
|
Long-term
|
|
Years Ended December 31,
|
|
debt maturities
|
|
|
2011
|
|
$
|
8.0
|
(a)
|
2012
|
|
|
8.0
|
(a)
|
2013
|
|
|
56.6
|
(b)
|
2014
|
|
|
66.4
|
(c)
|
2015
|
|
|
1,092.0
|
(d)
|
Thereafter
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
$
|
1,231.0
|
|
|
|
|
|
|
Discounts
|
|
|
(15.1
|
)
|
|
|
|
|
|
Total long-term debt, net of discounts
|
|
$
|
1,215.9
|
|
|
|
|
|
|
|
|
|
(a) |
|
Amount refers to the quarterly amortization payments required
under the 2010 Term Loan Facility. |
|
(b) |
|
Amount refers to the quarterly amortization payments required
under the 2010 Term Loan Facility and the aggregate principal
amount outstanding under the Contributed Loan. Pursuant to the
terms of the Exchange Offer, the maturity date on the
Contributed Loan which remains owing from Products Corporation
to Revlon, Inc. was extended from August 2010 to October 8,
2013. |
F-25
|
|
|
(c) |
|
Amount refers to the quarterly amortization payments required
under the 2010 Term Loan Facility and the aggregate principal
amount outstanding under the Non-Contributed Loan. Pursuant to
the terms of the Exchange Offer, the maturity date on the
Non-Contributed Loan which remains owing from Products
Corporation to MacAndrews & Forbes was extended from
August 2010 to October 8, 2014. |
|
(d) |
|
Amount refers to the aggregate principal amount expected to be
outstanding under the 2010 Term Loan Facility on its
March 11, 2015 maturity date as well as the principal
balance due on the
93/4% Senior
Secured Notes which mature on November 15, 2015. The
difference between this amount and the carrying amounts of the
2010 Term Loan Facility and the
93/4% Senior
Secured Notes is due to the issuance of the $800.0 million
in aggregate principal amount of the 2010 Term Loan Facility and
the $330.0 million in aggregate principal amount of the
93/4% Senior
Secured Notes at a discount, which were priced at 98.25% and
98.9% of par, respectively. |
|
|
10.
|
FAIR
VALUE MEASUREMENTS
|
The Fair Value Measurements and Disclosures Topic of the FASB
Accounting Standards Codification (the Fair Value
Measurements and Disclosures Topic) clarifies the
definition of fair value of assets and liabilities, establishes
a framework for measuring fair value of assets and liabilities
and expands the disclosures on fair value measurements. The fair
value framework under the Fair Value Measurements and
Disclosures Topic requires the categorization of assets and
liabilities into three levels based upon the assumptions used to
price the assets or liabilities. Level 1 provides the most
reliable measure of fair value, whereas Level 3, if
applicable, generally would require significant management
judgment. The three levels for categorizing assets and
liabilities fair value measurement requirements are as follows:
|
|
|
|
|
Level 1: Fair valuing the asset or liability using
observable inputs, such as quoted prices in active markets for
identical assets or liabilities;
|
|
|
|
Level 2: Fair valuing the asset or liability using inputs
other than quoted prices that are observable for the applicable
asset or liability, either directly or indirectly, such as
quoted prices for similar (as opposed to identical) assets or
liabilities in active markets and quoted prices for identical or
similar assets or liabilities in markets that are not
active; and
|
|
|
|
Level 3: Fair valuing the asset or liability using
unobservable inputs that reflect the Companys own
assumptions regarding the applicable asset or liability.
|
As of December 31, 2010, the fair values of the
Companys financial assets and liabilities, namely its FX
Contracts, are categorized as presented in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FX
Contracts(a)
|
|
$
|
0.2
|
|
|
$
|
|
|
|
$
|
0.2
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair value
|
|
$
|
0.2
|
|
|
$
|
|
|
|
$
|
0.2
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FX
Contracts(a)
|
|
$
|
2.1
|
|
|
$
|
|
|
|
$
|
2.1
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities at fair value
|
|
$
|
2.1
|
|
|
$
|
|
|
|
$
|
2.1
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The fair value of the
Companys FX Contracts was measured based on observable
market transactions of spot and forward rates at
December 31, 2010. (See Note 11, Financial
Instruments.)
|
|
|
11.
|
FINANCIAL
INSTRUMENTS
|
The fair value of the Companys debt, including the current
portion of long-term debt, is based on the quoted market prices
for the same issues or on the current rates offered for debt of
similar remaining maturities. The
F-26
estimated fair value of such debt at December 31, 2010 was
approximately $1,259.6 million, which was more than the
carrying values of such debt at December 31, 2010 of
$1,215.9 million. The estimated fair value of such debt at
December 31, 2009 was approximately $1,241.4 million,
which was less than the carrying values of such debt at
December 31, 2009 of $1,248.4 million.
The carrying amounts of cash and cash equivalents, marketable
securities, trade receivables, notes receivable, accounts
payable and short-term borrowings approximate their fair values.
Products Corporation also maintains standby and trade letters of
credit for various corporate purposes under which Products
Corporation is obligated, of which approximately
$21.2 million and $12.2 million (including amounts
available under credit agreements in effect at that time) were
maintained at December 31, 2010 and 2009, respectively.
Included in these amounts is approximately $9.1 million and
$9.3 million at December 31, 2010 and 2009,
respectively, in standby letters of credit which support
Products Corporations self-insurance programs. The
estimated liability under such programs is accrued by Products
Corporation.
Derivative
Financial Instruments
The Company uses derivative financial instruments, primarily
(1) FX Contracts, intended for the purpose of managing
foreign currency exchange risk by reducing the effects of
fluctuations in foreign currency exchange rates on the
Companys net cash flows and (2) interest rate hedging
transactions intended for the purpose of managing interest rate
risk associated with Products Corporations variable rate
indebtedness.
While the Company may be exposed to credit loss in the event of
the counterpartys non-performance, the Companys
exposure is limited to the net amount that Products Corporation
would have received, if any, from the counterparty over the
remaining balance of the terms of the FX Contracts. The Company
does not anticipate any non-performance and, furthermore, even
in the case of any non-performance by the counterparty, the
Company expects that any such loss would not be material.
Foreign
Currency Forward Exchange Contracts
The FX Contracts are entered into primarily to hedge the
anticipated net cash flows resulting from inventory purchases
and intercompany payments denominated in currencies other than
the local currencies of the Companys foreign and domestic
operations and generally have maturities of less than one year.
The U.S. dollar notional amount of the FX Contracts
outstanding at December 31, 2010 and 2009 was
$46.0 million and $54.3 million, respectively.
Interest
Rate Swap Transactions
Prior to its expiration in April 2010, the Companys
floating-to-fixed
interest rate swap had a notional amount of $150.0 million
initially relating to indebtedness under Products
Corporations former 2006 Term Loan Facility (prior to its
complete refinancing in March 2010) and which also related,
through its expiration in April 2010, to a notional amount of
$150.0 million relating to indebtedness under Products
Corporations 2010 Term Loan Facility (the 2008
Interest Rate Swap). Under the terms of the 2008 Interest
Rate Swap, Products Corporation was required to pay to the
counterparty a quarterly fixed interest rate of 2.66% on the
$150.0 million notional amount under the 2008 Interest Rate
Swap (which, based upon the 4.0% applicable margin, effectively
fixed the interest rate on such notional amounts at 6.66% for
the 2-year
term of such swap), commencing in July 2008, while receiving a
variable interest rate payment from the counterparty equal to
three-month U.S. dollar LIBOR.
The 2008 Interest Rate Swap was initially designated as a cash
flow hedge of the variable interest rate payments on Products
Corporations former 2006 Term Loan Facility (prior to its
complete refinancing in March 2010) under the Derivatives
and Hedging Topic. However, as a result of the 2010 Refinancing,
effective March 11, 2010 (the closing date of the 2010
Refinancing), the 2008 Interest Rate Swap no longer met the
criteria specified under the Derivatives and Hedging Topic to
allow for the deferral of the effective portion of unrecognized
hedging gains or losses in other comprehensive income since the
scheduled variable interest payment specified on the date
originally documented at the inception of the hedge will not
occur. As a result, as of March 11, 2010, the Company
reclassified an unrecognized loss of $0.8 million from
Accumulated Other Comprehensive Loss into earnings.
F-27
Quantitative
Information Derivative Financial
Instruments
The effects of the Companys derivative instruments on its
consolidated financial statements were as follows:
|
|
|
|
(a)
|
Fair Value of Derivative Financial Instruments in the
Consolidated Balance Sheet at December 31, 2010 and 2009,
respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Values of Derivative Instruments as of
December 31,
|
|
|
|
Assets
|
|
|
Liabilities
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
Balance Sheet
|
|
Fair
|
|
|
Fair
|
|
|
Balance Sheet
|
|
Fair
|
|
|
Fair
|
|
|
|
Classification
|
|
Value
|
|
|
Value
|
|
|
Classification
|
|
Value
|
|
|
Value
|
|
|
Derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 Interest Rate
Swap(a)
|
|
Prepaid expenses
|
|
$
|
|
|
|
$
|
|
|
|
Accrued expenses
|
|
$
|
|
|
|
$
|
1.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FX
contracts(b)
|
|
Prepaid expenses
|
|
|
0.2
|
|
|
|
0.1
|
|
|
Accrued expenses
|
|
|
2.1
|
|
|
|
1.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.2
|
|
|
$
|
0.1
|
|
|
|
|
$
|
2.1
|
|
|
$
|
3.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
At December 31, 2009, the fair
value of the 2008 Interest Rate Swap, which expired in April
2010, was determined by using the three-month U.S. Dollar LIBOR
index at the latest receipt date, or October 16, 2009.
|
|
|
|
(b) |
|
The fair values of the FX Contracts
at December 31, 2010 and 2009 were determined by using
observable market transactions of spot and forward rates at
December 31, 2010 and 2009, respectively.
|
|
|
|
|
(b)
|
Effects of Derivative Financial Instruments on Income and Other
Comprehensive Income (Loss) (OCI) for 2010 and 2009,
respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Instruments Gain (Loss) Effect on
|
|
|
|
Consolidated Statement of Operations as of
December 31,
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain
|
|
|
|
|
|
|
|
|
|
|
|
(Loss)
|
|
|
|
|
|
|
|
|
|
|
|
Reclassified
|
|
|
|
|
|
|
|
|
|
|
|
from
|
|
|
|
Amount of Gain
|
|
|
Income Statement
|
|
OCI
|
|
|
|
(Loss)
|
|
|
Classification
|
|
to Income
|
|
|
|
Recognized in OCI
|
|
|
of Gain (Loss)
|
|
(Effective
|
|
|
|
(Effective Portion)
|
|
|
Reclassified from
|
|
Portion)
|
|
|
|
2010
|
|
|
2009
|
|
|
OCI to Income
|
|
2010
|
|
|
2009
|
|
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 Interest Rate
Swap(a)
|
|
$
|
|
|
|
$
|
(1.7
|
)
|
|
Interest expense
|
|
$
|
(0.9
|
)
|
|
$
|
(5.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of
|
|
|
|
Amount of Gain
|
|
|
|
|
Gain (Loss)
|
|
|
|
(Loss)
|
|
|
|
|
Recognized in
|
|
|
|
Recognized in
|
|
|
Income Statement
|
|
Interest
|
|
|
|
Foreign Currency
|
|
|
Classification
|
|
Expense
|
|
|
|
Gains (Losses),
|
|
|
of Gain (Loss)
|
|
(Ineffective
|
|
|
|
Net
|
|
|
Reclassified from
|
|
Portion)
|
|
|
|
2010
|
|
|
2009
|
|
|
OCI to Income
|
|
2010
|
|
|
2009
|
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FX Contracts
|
|
$
|
(3.1
|
)
|
|
$
|
(5.9
|
)
|
|
Interest expense
|
|
$
|
|
|
|
$
|
|
|
2008 Interest Rate
Swap(a)
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(0.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(3.1
|
)
|
|
$
|
(5.9
|
)
|
|
|
|
$
|
(0.8
|
)
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Effective March 11, 2010 (the
closing date of the 2010 Refinancing), the 2008 Interest Rate
Swap, which expired in April 2010, was no longer designated as a
cash flow hedge. (See Interest Rate Swap
Transactions in this Note 11.)
|
F-28
The Companys income before income taxes and the applicable
provision for (benefit from) income taxes are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Income from continuing operations before income taxes:
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
40.2
|
|
|
$
|
34.4
|
|
|
$
|
(14.3
|
)
|
Foreign
|
|
|
48.5
|
|
|
|
32.2
|
|
|
|
51.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
88.7
|
|
|
$
|
66.6
|
|
|
$
|
36.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for (benefit from) income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
United States federal
|
|
$
|
(209.2
|
)
|
|
$
|
0.3
|
|
|
$
|
0.6
|
|
State and local
|
|
|
(42.8
|
)
|
|
|
(2.3
|
)
|
|
|
(3.2
|
)
|
Foreign
|
|
|
16.7
|
|
|
|
10.1
|
|
|
|
18.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(235.3
|
)
|
|
$
|
8.1
|
|
|
$
|
15.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
United States federal
|
|
$
|
13.7
|
|
|
$
|
16.0
|
|
|
$
|
12.6
|
|
State and local
|
|
|
(2.0
|
)
|
|
|
0.2
|
|
|
|
(1.2
|
)
|
Foreign
|
|
|
18.7
|
|
|
|
13.3
|
|
|
|
22.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30.4
|
|
|
|
29.5
|
|
|
|
34.1
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
United States federal
|
|
|
(210.2
|
)
|
|
|
|
|
|
|
0.6
|
|
State and local
|
|
|
(38.3
|
)
|
|
|
|
|
|
|
|
|
Foreign
|
|
|
1.2
|
|
|
|
(1.2
|
)
|
|
|
2.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(247.3
|
)
|
|
|
(1.2
|
)
|
|
|
2.8
|
|
Benefits of operating loss carryforwards:
|
|
|
|
|
|
|
|
|
|
|
|
|
United States federal
|
|
|
(12.7
|
)
|
|
|
(15.7
|
)
|
|
|
(12.6
|
)
|
State and local
|
|
|
(2.5
|
)
|
|
|
(2.5
|
)
|
|
|
(2.0
|
)
|
Foreign
|
|
|
(3.2
|
)
|
|
|
(2.0
|
)
|
|
|
(6.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(18.4
|
)
|
|
|
(20.2
|
)
|
|
|
(21.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(235.3
|
)
|
|
$
|
8.1
|
|
|
$
|
15.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The actual tax on income before income taxes is reconciled to
the applicable statutory federal income tax rate as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Computed expected tax expense
|
|
$
|
31.0
|
|
|
$
|
23.3
|
|
|
$
|
12.9
|
|
State and local taxes, net of U.S. federal income tax benefit
|
|
|
0.1
|
|
|
|
(1.5
|
)
|
|
|
(2.1
|
)
|
Foreign and U.S. tax effects attributable to operations outside
the U.S.
|
|
|
(10.5
|
)
|
|
|
(4.0
|
)
|
|
|
0.5
|
|
Change in valuation allowance
|
|
|
(278.2
|
)
|
|
|
(28.4
|
)
|
|
|
(21.0
|
)
|
Foreign dividends subject to tax
|
|
|
14.5
|
|
|
|
14.4
|
|
|
|
26.7
|
|
Other
|
|
|
7.8
|
|
|
|
4.3
|
|
|
|
(1.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax expense
|
|
$
|
(235.3
|
)
|
|
$
|
8.1
|
|
|
$
|
15.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-29
Deferred taxes are the result of temporary differences between
the bases of assets and liabilities for financial reporting and
income tax purposes. Deferred tax assets and liabilities at
December 31, 2010 and 2009 were comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Inventories
|
|
$
|
3.5
|
|
|
$
|
5.8
|
|
Net operating loss carryforwards U.S.
|
|
|
174.5
|
|
|
|
179.7
|
|
Net operating loss carryforwards foreign
|
|
|
83.1
|
|
|
|
83.3
|
|
Employee benefits
|
|
|
76.0
|
|
|
|
91.0
|
|
State and local taxes
|
|
|
2.2
|
|
|
|
3.9
|
|
Sales related reserves
|
|
|
29.1
|
|
|
|
31.6
|
|
Other
|
|
|
28.8
|
|
|
|
37.9
|
|
|
|
|
|
|
|
|
|
|
Total gross deferred tax assets
|
|
|
397.2
|
|
|
|
433.2
|
|
Less valuation allowance
|
|
|
(112.9
|
)
|
|
|
(406.1
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets, net of valuation allowance
|
|
|
284.3
|
|
|
|
27.1
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Plant, equipment and other assets
|
|
|
(15.4
|
)
|
|
|
(18.1
|
)
|
Other
|
|
|
(12.3
|
)
|
|
|
(0.4
|
)
|
|
|
|
|
|
|
|
|
|
Total gross deferred tax liabilities
|
|
|
(27.7
|
)
|
|
|
(18.5
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
256.6
|
|
|
$
|
8.6
|
|
|
|
|
|
|
|
|
|
|
As previously disclosed, in assessing the recoverability of its
deferred tax assets, management regularly considers whether some
portion or all of the deferred tax assets will not be realized
based on the recognition threshold and measurement of a tax
position in accordance with the Income Taxes Topic. The ultimate
realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which
those temporary differences become deductible. Management
considers the scheduled reduction of deferred tax liabilities,
projected future taxable income and tax planning strategies in
making this assessment.
In accordance with the Income Taxes Topic, based upon the level
of historical taxable losses for the U.S., the Company had
maintained a deferred tax valuation allowance against its
deferred tax assets in the U.S. As of December 31,
2010, the Company achieved three cumulative years, as well as
three consecutive years, of positive U.S. GAAP pre-tax
income and taxable income in the U.S. As a result of such
earnings trends and the Companys tax position, and based
upon the Companys projections for future taxable income
over the periods in which the deferred tax assets are
recoverable, management believes that it is more likely than not
that the Company will realize the benefits of the net deferred
tax assets existing at December 31, 2010 based on the
recognition threshold and measurement of a tax position in
accordance with the Income Taxes Topic. Therefore, at
December 31, 2010, the Company realized a one-time non-cash
benefit of $248.5 million related to a reduction of the
Companys deferred tax valuation allowance on its net
U.S. deferred tax assets at December 31, 2010. The
Company has reflected this benefit in the tax provision and this
one-time non-cash benefit has increased net income at
December 31, 2010.
The valuation allowance decreased by $293.2 million during
2010 and increased by $22.5 million during 2009. The
primary driver of the decrease in the valuation allowance during
2010 was the reduction of the valuation allowance with respect
to the deferred tax assets in the U.S., as noted above. The
primary drivers of the increase in the valuation allowance
during 2009 were foreign exchange fluctuations and the impact of
the re-measurement of pension liabilities in 2009, partially
offset by use of tax loss carryforwards.
After December 31, 2010, the Company has tax loss
carryforwards of approximately $724.1 million, of which
$278.8 million are foreign and $445.3 million are
domestic (including $8.5 million of consolidated federal
net operating losses available from the MacAndrews &
Forbes Group (as hereinafter defined) from periods prior to the
March 25, 2004 deconsolidation). The losses expire in
future years as follows: 2011-$13.4 million; 2012-
F-30
$9.9 million; 2013-$12.2 million;
2014-$10.9 million; 2015 and beyond-$498.8 million;
and unlimited-$178.9 million. The Company could receive the
benefit of such tax loss carryforwards only to the extent it has
taxable income during the carryforward periods in the applicable
tax jurisdictions.
Revlon, Inc. and its subsidiaries, including Products
Corporation, remain subject to examination of their respective
income tax returns in various jurisdictions including, without
limitation, the U.S. (federal), for tax years ended
December 31, 2007 through December 31, 2010, and
Australia and South Africa, for tax years ended
December 31, 2006 through December 31, 2010. The
Company classifies interest and penalties recognized under the
Income Taxes Topic as a component of the provision for income
taxes in the consolidated statement of operations. During the
years ended December 31, 2010 and 2009, the Company
recognized through the consolidated statement of operations a
reduction of $5.6 million and $0.6 million,
respectively, in accrued interest and penalties.
At December 31, 2010 and 2009, Revlon, Inc. and its
subsidiaries, including Products Corporation, had tax reserves
of $44.1 million and $49.3 million, respectively,
including $12.3 million and $17.9 million,
respectively, of accrued interest and penalties. All of the tax
reserves, to the extent reduced and unutilized in future
periods, would affect the Companys effective tax rate. A
reconciliation of the beginning and ending amount of the tax
reserves is as follows:
|
|
|
|
|
Balance at January 1, 2009
|
|
$
|
50.9
|
|
Increase based on tax positions taken in a prior year
|
|
|
5.5
|
|
Decrease based on tax positions taken in a prior year
|
|
|
(0.1
|
)
|
Increase based on tax positions taken in the current year
|
|
|
7.2
|
|
Decrease related to settlements with taxing authorities and
changes in law
|
|
|
(5.8
|
)
|
Decrease resulting from the lapse of statutes of limitations
|
|
|
(8.4
|
)
|
|
|
|
|
|
Balance at December 31, 2009
|
|
$
|
49.3
|
|
Increase based on tax positions taken in a prior year
|
|
|
9.9
|
|
Decrease based on tax positions taken in a prior year
|
|
|
(16.1
|
)
|
Increase based on tax positions taken in the current year
|
|
|
7.4
|
|
Decrease related to settlements with taxing authorities and
changes in law
|
|
|
|
|
Decrease resulting from the lapse of statutes of limitations
|
|
|
(6.4
|
)
|
|
|
|
|
|
Balance at December 31, 2010
|
|
$
|
44.1
|
|
|
|
|
|
|
In addition, the Company believes that it is reasonably possible
that its tax reserves during 2011 will increase by approximately
$6.0 million as a result of changes in various tax
positions, each of which is individually insignificant.
The Company has not provided for U.S. federal income taxes
and foreign withholding taxes on $77.9 million of foreign
subsidiaries undistributed earnings as of
December 31, 2010 because such earnings are intended to be
indefinitely reinvested overseas. The amount of unrecognized
deferred tax liabilities for temporary differences related to
investments in undistributed earnings is not practicable to
determine at this time.
As a result of the closing of the 2004 Revlon Exchange
Transactions (as hereinafter defined in Note 16,
Related Party Transactions Transfer
Agreements), as of March 25, 2004, Revlon, Inc.,
Products Corporation and their U.S. subsidiaries were no
longer included in the affiliated group of which
MacAndrews & Forbes was the common parent (the
MacAndrews & Forbes Group) for federal
income tax purposes. Revlon Holdings (as hereinafter defined in
Note 16, Related Party Transactions
Transfer Agreements), Revlon, Inc., Products Corporation
and certain of its subsidiaries, and MacAndrews &
Forbes Holdings entered into a tax sharing agreement (as
subsequently amended and restated, the
MacAndrews & Forbes Tax Sharing
Agreement), for taxable periods beginning on or after
January 1, 1992 through and including March 25, 2004,
during which Revlon, Inc. and Products Corporation or a
subsidiary of Products Corporation was a member of the
MacAndrews & Forbes Group. In these taxable periods,
Revlon, Inc.s and Products Corporations federal
taxable income and loss were
F-31
included in such groups consolidated tax return filed by
MacAndrews & Forbes Holdings. Revlon, Inc. and
Products Corporation were also included in certain state and
local tax returns of MacAndrews & Forbes Holdings or
its subsidiaries. Revlon, Inc. and Products Corporation remain
liable under the MacAndrews & Forbes Tax Sharing
Agreement for all such taxable periods through and including
March 25, 2004 for amounts determined to be due as a result
of a redetermination arising from an audit or otherwise, equal
to the taxes that Revlon, Inc. or Products Corporation would
otherwise have had to pay if it were to have filed separate
federal, state or local income tax returns for such periods.
Following the closing of the 2004 Revlon Exchange Transactions,
Revlon, Inc. became the parent of a new consolidated group for
federal income tax purposes and Products Corporations
federal taxable income and loss are included in such
groups consolidated tax returns. Accordingly, Revlon, Inc.
and Products Corporation entered into a tax sharing agreement
(the Revlon Tax Sharing Agreement) pursuant to which
Products Corporation is required to pay to Revlon, Inc. amounts
equal to the taxes that Products Corporation would otherwise
have had to pay if Products Corporation were to file separate
federal, state or local income tax returns, limited to the
amount, and payable only at such times, as Revlon, Inc. will be
required to make payments to the applicable taxing authorities.
There were no federal tax payments or payments in lieu of taxes
from Revlon, Inc. to Revlon Holdings pursuant to the
MacAndrews & Forbes Tax Sharing Agreement in 2010 with
respect to periods covered by the MacAndrews & Forbes
Tax Sharing Agreement, and the Company expects that there will
not be any such payments in 2011. During 2010, there were no
federal tax payments from Products Corporation to Revlon, Inc.
pursuant to the Revlon Tax Sharing Agreement with respect to
2009 and $0.2 million with respect to 2010. The Company
expects that there will be no federal tax payment from Products
Corporation to Revlon, Inc. pursuant to the Revlon Tax Sharing
Agreement during 2011 with respect to 2010.
Pursuant to the asset transfer agreement referred to in
Note 16, Related Party Transactions
Transfer Agreements, Products Corporation
assumed all tax liabilities of Revlon Holdings other than
(i) certain income tax liabilities arising prior to
January 1, 1992 to the extent such liabilities exceeded the
reserves on Revlon Holdings books as of January 1,
1992 or were not of the nature reserved for and (ii) other
tax liabilities to the extent such liabilities are related to
the business and assets retained by Revlon Holdings.
|
|
13.
|
SAVINGS
PLAN, PENSION AND POST-RETIREMENT BENEFITS
|
Savings
Plan:
The Company offers a qualified defined contribution plan for its
U.S.-based
employees, the Revlon Employees Savings, Investment and
Profit Sharing Plan (as amended, the Savings Plan),
which allows eligible participants to contribute up to 25%, and
highly compensated participants to contribute up to 6%, of
eligible compensation through payroll deductions, subject to
certain annual dollar limitations imposed by the Code. The
Company matches employee contributions at fifty cents for each
dollar contributed up to the first 6% of eligible compensation
(i.e., for a total match of 3% of employee contributions). In
2010, 2009 and 2008, the Company made cash matching
contributions to the Savings Plan of approximately
$2.3 million, $2.4 million and $2.7 million,
respectively.
In May 2009, Products Corporation amended, effective
December 31, 2009, its qualified and non-qualified defined
contribution savings plans for its
U.S.-based
employees, creating a new discretionary profit sharing component
under such plans that will enable the Company, should it elect
to do so, to make discretionary profit sharing contributions.
The Company will determine in the fourth quarter of each year
whether and, if so, to what extent, discretionary profit sharing
contributions would be made for the following year. For 2010,
the Company made discretionary profit sharing contributions to
the Savings Plan of approximately $6.0 million (of which
$4.5 million was paid in 2010 and $1.5 million was
paid in January 2011), or 5% of eligible compensation, which was
credited on a quarterly basis. In December 2010, the Company
determined that the discretionary profit sharing contribution
during 2011 would be 3% of eligible compensation, to be credited
on a quarterly basis. (The savings plan amendments described
above in this Note 13 are hereinafter referred to as the
May 2009 Savings Plan Amendments).
F-32
Pension
Benefits:
The Company sponsors three qualified defined benefit pension
plans covering a substantial portion of the Companys
employees in the U.S. The Company also has non-qualified
pension plans which provide benefits for certain U.S. and
non-U.S. employees,
and for U.S. employees in excess of IRS limitations in the
U.S. and in certain limited cases contractual benefits for
designated officers of the Company. These non-qualified plans
are funded from the general assets of the Company.
In May 2009, and effective December 31, 2009, Products
Corporation amended its U.S. qualified defined benefit
pension plan (the Revlon Employees Retirement Plan),
covering a substantial portion of the Companys employees
in the U.S., to cease future benefit accruals under such plan
after December 31, 2009. Products Corporation also amended
its non-qualified pension plan (the Revlon Pension Equalization
Plan) to similarly cease future benefit accruals under such plan
after December 31, 2009. In connection with such
amendments, no additional benefits have accrued since
December 31, 2009, other than interest credits on
participant account balances under the cash balance program of
the Companys U.S. pension plans. Also, service
credits for vesting and early retirement eligibility will
continue to accrue in accordance with the terms of the
respective plans. (The plan amendments described above in this
Note 13 are hereinafter referred to as the May 2009
Pension Plan Amendments and, together with the May 2009
Savings Plan Amendments, as the May 2009 Plan
Amendments).
In 2009, the Company recorded an $8.6 million decrease in
its pension liabilities which was offset against accumulated
other comprehensive income (loss) as a result of the pension
curtailment and the re-measurement of the pension liabilities
performed in connection with the May 2009 Pension Plan
Amendments and the May 2009 Program (as defined in Note 3,
Restructuring Costs and Other, Net). The net
decrease in pension liabilities was comprised of a non-cash
curtailment gain of approximately $9.2 million which was
recorded as an offset against the net actuarial losses
previously reported within Accumulated Other Comprehensive Loss,
partially offset by a net increase in pension liabilities of
$0.6 million as a result of the re-measurements noted above.
Effective December 31, 2010, Products Corporation amended
its Canadian defined benefit pension plan (the Affiliated Revlon
Companies Employment Plan) to cease future benefit accruals
under such plan after December 31, 2010. In connection with
such amendment, in 2010, the Company recorded a
$1.1 million decrease in its pension liabilities, which was
comprised of a non-cash curtailment gain of $1.1 million
recorded as an offset against the net actuarial losses
previously reported within Accumulated Other Comprehensive Loss.
Other
Post-retirement Benefits:
The Company previously sponsored an unfunded retiree benefit
plan, which provides death benefits payable to beneficiaries of
a very limited number of former employees. Participation in this
plan was limited to participants enrolled as of
December 31, 1993. The Company also administers an unfunded
medical insurance plan on behalf of Revlon Holdings LLC, certain
costs of which have been apportioned to Revlon Holdings under
the transfer agreements among Revlon, Inc., Products Corporation
and MacAndrews & Forbes. (See Note 16,
Related Party Transactions Transfer
Agreements).
F-33
The following table provides an aggregate reconciliation of the
projected benefit obligations, plan assets, funded status and
amounts recognized in the Companys Consolidated Financial
Statements related to the Companys significant pension and
other post-retirement plans.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
Post-retirement
|
|
|
|
Pension Plans
|
|
|
Benefit Plans
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
Change in Benefit Obligation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation beginning of year
|
|
$
|
(614.5
|
)
|
|
$
|
(560.1
|
)
|
|
$
|
(14.8
|
)
|
|
$
|
(13.2
|
)
|
Service cost
|
|
|
(1.5
|
)
|
|
|
(7.6
|
)
|
|
|
|
|
|
|
|
|
Interest cost
|
|
|
(33.8
|
)
|
|
|
(34.8
|
)
|
|
|
(0.9
|
)
|
|
|
(0.9
|
)
|
Plan amendments
|
|
|
|
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
|
|
Actuarial loss
|
|
|
(31.3
|
)
|
|
|
(55.0
|
)
|
|
|
(1.1
|
)
|
|
|
(1.3
|
)
|
Curtailment gain
|
|
|
1.5
|
|
|
|
9.2
|
|
|
|
|
|
|
|
|
|
Settlement gain
|
|
|
|
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
Benefits paid
|
|
|
36.4
|
|
|
|
38.2
|
|
|
|
0.9
|
|
|
|
1.0
|
|
Currency translation adjustments
|
|
|
1.1
|
|
|
|
(4.5
|
)
|
|
|
(0.2
|
)
|
|
|
(0.4
|
)
|
Plan participant contributions
|
|
|
(0.2
|
)
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation end of year
|
|
$
|
(642.3
|
)
|
|
$
|
(614.5
|
)
|
|
$
|
(16.1
|
)
|
|
$
|
(14.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in Plan Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets beginning of year
|
|
$
|
405.6
|
|
|
$
|
342.3
|
|
|
$
|
|
|
|
$
|
|
|
Actual return on plan assets
|
|
|
56.0
|
|
|
|
74.6
|
|
|
|
|
|
|
|
|
|
Employer contributions
|
|
|
24.9
|
|
|
|
23.3
|
|
|
|
0.9
|
|
|
|
1.0
|
|
Plan participant contributions
|
|
|
0.2
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
Benefits paid
|
|
|
(36.4
|
)
|
|
|
(38.2
|
)
|
|
|
(0.9
|
)
|
|
|
(1.0
|
)
|
Settlement gain
|
|
|
|
|
|
|
(0.5
|
)
|
|
|
|
|
|
|
|
|
Currency translation adjustments
|
|
|
(0.8
|
)
|
|
|
3.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets end of year
|
|
$
|
449.5
|
|
|
$
|
405.6
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unfunded status of plans at December 31,
|
|
$
|
(192.8
|
)
|
|
$
|
(208.9
|
)
|
|
$
|
(16.1
|
)
|
|
$
|
(14.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In respect of the Companys pension plans and other
post-retirement benefit plans, amounts recognized in the
Companys Consolidated Balance Sheets at December 31,
2010 and 2009, respectively, consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
Post-retirement
|
|
|
|
Pension Plans
|
|
|
Benefit Plans
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
Accrued expenses and other
|
|
$
|
(6.4
|
)
|
|
$
|
(6.2
|
)
|
|
$
|
(1.0
|
)
|
|
$
|
(1.2
|
)
|
Pension and other post-retirement benefit liabilities
|
|
|
(186.4
|
)
|
|
|
(202.7
|
)
|
|
|
(15.1
|
)
|
|
|
(13.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(192.8
|
)
|
|
|
(208.9
|
)
|
|
|
(16.1
|
)
|
|
|
(14.8
|
)
|
Accumulated other comprehensive loss
|
|
|
180.1
|
|
|
|
179.3
|
|
|
|
4.1
|
|
|
|
3.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(12.7
|
)
|
|
$
|
(29.6
|
)
|
|
$
|
(12.0
|
)
|
|
$
|
(11.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With respect to the above accrued net periodic benefit costs,
the Company has recorded receivables from affiliates of
$2.9 million and $2.8 million at December 31,
2010 and 2009, respectively, relating to pension plan
liabilities retained by such affiliates.
F-34
The projected benefit obligation, accumulated benefit
obligation, and fair value of plan assets for the Companys
pension plans are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Projected benefit obligation
|
|
$
|
642.3
|
|
|
$
|
614.5
|
|
Accumulated benefit obligation
|
|
|
640.6
|
|
|
|
611.2
|
|
Fair value of plan assets
|
|
|
449.5
|
|
|
|
405.6
|
|
Net
Periodic Benefit Cost:
During 2010, the Company recognized $18.0 million of lower
net periodic benefit cost driven primarily by the impact of the
May 2009 Plan Amendments which ceased future benefit accruals
under the Revlon Employees Retirement Plan and the Revlon
Pension Equalization Plan after December 31, 2009 and which
resulted in a change in the amortization period of actuarial
gains (losses) from the remaining service period to the
remaining life expectancy of plan participants.
The net periodic benefit cost for the year ended
December 31, 2009 includes a non-cash curtailment gain of
$0.8 million related to the recognition of previously
unrecognized prior service costs that had been reported in
accumulated other comprehensive loss in the second quarter of
2009.
The components of net periodic benefit cost for the pension
plans and other post-retirement benefit plans are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
Post-retirement
|
|
|
|
Pension Plans
|
|
|
Benefit Plans
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Net periodic benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
1.5
|
|
|
$
|
7.6
|
|
|
$
|
8.3
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Interest cost
|
|
|
33.8
|
|
|
|
34.8
|
|
|
|
34.5
|
|
|
|
0.9
|
|
|
|
0.9
|
|
|
|
0.8
|
|
Expected return on plan assets
|
|
|
(32.1
|
)
|
|
|
(27.8
|
)
|
|
|
(37.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of prior service credit
|
|
|
0.1
|
|
|
|
(0.1
|
)
|
|
|
(0.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of actuarial loss
|
|
|
5.1
|
|
|
|
12.8
|
|
|
|
1.3
|
|
|
|
0.2
|
|
|
|
0.1
|
|
|
|
0.2
|
|
Curtailment gain
|
|
|
|
|
|
|
(0.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8.4
|
|
|
|
26.5
|
|
|
|
6.5
|
|
|
|
1.1
|
|
|
|
1.0
|
|
|
|
1.0
|
|
Portion allocated to Revlon Holdings LLC
|
|
|
(0.1
|
)
|
|
|
(0.1
|
)
|
|
|
(0.1
|
)
|
|
|
(0.1
|
)
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
8.3
|
|
|
$
|
26.4
|
|
|
$
|
6.4
|
|
|
$
|
1.0
|
|
|
$
|
0.9
|
|
|
$
|
1.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in accumulated other comprehensive loss at
December 31, 2010 in respect of the Companys pension
plans and other post-retirement plans, which have not yet been
recognized as a component of net periodic pension cost, are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Post-retirement
|
|
|
|
|
|
|
Pension Benefits
|
|
|
Benefits
|
|
|
Total
|
|
|
Net actuarial loss
|
|
$
|
179.9
|
|
|
$
|
4.1
|
|
|
$
|
184.0
|
|
Prior service cost
|
|
|
0.2
|
|
|
|
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
180.1
|
|
|
|
4.1
|
|
|
|
184.2
|
|
Portion allocated to Revlon Holdings LLC
|
|
|
(0.7
|
)
|
|
|
(0.1
|
)
|
|
|
(0.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
179.4
|
|
|
$
|
4.0
|
|
|
$
|
183.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The total actuarial losses and prior service costs in respect of
the Companys pension plans and other post-retirement plans
included in accumulated other comprehensive loss at
December 31, 2010 and expected to be
F-35
recognized in net periodic pension cost during the fiscal year
ended December 31, 2011 is $5.2 million and
$0.3 million, respectively.
Pension
Plan Assumptions:
The following weighted-average assumptions were used to
determine the Companys projected benefit obligation of the
Companys U.S. and International pension plans at the
end of the respective year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans
|
|
|
International Plans
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
Discount rate
|
|
|
5.17
|
%
|
|
|
5.68
|
%
|
|
|
5.32
|
%
|
|
|
5.63
|
%
|
Rate of future compensation increases
|
|
|
3.50
|
|
|
|
3.50
|
|
|
|
3.53
|
|
|
|
4.39
|
|
The following weighted-average assumptions were used to
determine the Companys net periodic benefit cost of the
Companys U.S. and International pension plans during
the respective year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans
|
|
|
International Plans
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Discount rate
|
|
|
5.68
|
%
|
|
|
6.35
|
%
|
|
|
6.24
|
%
|
|
|
5.63
|
%
|
|
|
6.40
|
%
|
|
|
5.70
|
%
|
Expected long-term return on plan assets
|
|
|
8.25
|
|
|
|
8.25
|
|
|
|
8.25
|
|
|
|
6.50
|
|
|
|
6.50
|
|
|
|
6.90
|
|
Rate of future compensation increases
|
|
|
3.50
|
|
|
|
4.00
|
|
|
|
4.00
|
|
|
|
4.39
|
|
|
|
4.00
|
|
|
|
4.30
|
|
The 5.17% weighted-average discount rate used to determine the
Companys projected benefit obligation of the
Companys U.S. plans at the end of 2010 was derived by
reference to appropriate benchmark yields on high quality
corporate bonds, with terms which approximate the duration of
the benefit payments and the relevant benchmark bond indices
considering the individual plans characteristics, such as
the Citigroup Pension Discount Curve, to select a rate at which
the Company believes the U.S. pension benefits could have
been effectively settled. The discount rates used to determine
the Companys projected benefit obligation of the
Companys primary international plans at the end of 2010
were derived from similar local studies, in conjunction with
local actuarial consultants and asset managers.
During the first quarter of each year, the Company selects an
expected long-term rate of return on its pension plan assets.
The Company considers a number of factors to determine its
expected long-term rate of return on plan assets assumption,
including, without limitation, recent and historical performance
of plan assets, asset allocation and other third-party studies
and surveys. The Company considered the pension plan
portfolios asset allocations over a variety of time
periods and compared them with third-party studies and reviewed
the performance of the capital markets in recent years and other
factors and advice from various third parties, such as the
pension plans advisors, investment managers and actuaries.
While the Company considered both the recent performance and the
historical performance of pension plan assets, the
Companys assumptions are based primarily on its estimates
of long-term, prospective rates of return. Using the
aforementioned methodologies, the Company selected the 8.25%
long-term rate of return on plan assets assumption used for the
U.S pension plans during 2010. Differences between actual and
expected asset returns are recognized in the net periodic
benefit cost over the remaining service period of the active
participating employees.
The rate of future compensation increases is an assumption used
by the actuarial consultants for pension accounting and is
determined based on the Companys current expectation for
such increases.
Investment
Policy:
The Investment Committee for the Companys
U.S. pension plans (the Investment Committee)
has adopted (and revises from time to time) an investment policy
for the U.S. pension plans with the objective of meeting or
exceeding, over time, the expected long-term rate of return on
plan assets assumption, weighed against a reasonable risk level.
In connection with this objective, the Investment Committee
retains professional investment managers that invest plan assets
in the following asset classes: common and preferred stock,
mutual funds, fixed income securities, common and collective
funds, hedge funds, group annuity contracts and cash and other
investments. The
F-36
Companys international plans follow a similar methodology
in conjunction with local actuarial consultants and asset
managers.
The investment policy adopted by the Investment Committee
provides for investments in a broad range of publicly-traded
securities, among other things. The investments are in domestic
and international stocks, ranging from small to large
capitalization stocks, debt securities ranging from domestic and
international treasury issues, corporate debt securities,
mortgages and asset-backed issues. Other investments may include
cash and cash equivalents and hedge funds. The investment policy
also allows for private equity, not covered in investments
described above, provided that such investment is approved by
the Investment Committee prior to their selection. Also global
balanced strategies are utilized to provide for investments in a
broad range of publicly traded stocks and bonds in both domestic
and international markets as described above. In addition, the
global balanced strategies can include commodities, provided
that such investments are approved by the Investment Committee
prior to their selection.
The Investment Committees investment policy does not allow
the use of derivatives for speculative purposes, but such policy
does allow its investment managers to use derivatives for the
purpose of reducing risk exposures or to replicate exposures of
a particular asset class.
The Companys U.S. and international pension plans
currently have the following target ranges for these asset
classes, which target ranges are intended to be flexible
guidelines for allocating the plans assets among various
classes of assets, and are reviewed periodically and considered
for readjustment when an asset class weighting is outside of its
target range (recognizing that these are flexible target ranges
that may vary from time to time) with the objective of achieving
the expected long-term rate of return on plan assets assumption,
weighed against a reasonable risk level, as follows:
|
|
|
|
|
|
|
Target Ranges
|
|
|
U.S. Plans
|
|
International Plans
|
|
Asset Class:
|
|
|
|
|
Common and preferred stock
|
|
0% - 10%
|
|
0%
|
Mutual funds
|
|
20% - 30%
|
|
0%
|
Fixed income securities
|
|
20% - 30%
|
|
0%
|
Common and collective funds
|
|
25% - 35%
|
|
0% - 100%
|
Hedge funds
|
|
0% - 15%
|
|
0%
|
Group annuity contract
|
|
0% - 5%
|
|
0%
|
Cash and other investments
|
|
0% - 10%
|
|
0%
|
Fair
Value of Pension Plan Assets:
The following table presents information on the fair value of
the U.S. and international pension plan assets at
December 31, 2010 and 2009, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans
|
|
|
International Plans
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
Fair value of plan assets
|
|
$
|
403.2
|
|
|
$
|
364.1
|
|
|
$
|
46.3
|
|
|
$
|
41.5
|
|
The Company determines the fair values of the Companys
U.S. and international pension plan assets as follows:
|
|
|
|
|
Common and preferred stock: The fair values of
the investments included in the common and preferred stock asset
class generally reflect the closing price reported on the major
market where the individual securities are traded. The Company
classifies common and preferred stock investments primarily
within Level 1 of the valuation hierarchy.
|
|
|
|
Mutual funds: The fair values of the
investments included in the mutual funds asset class are
determined using net asset value (NAV) provided by
the administrator of the funds. The NAV is based on the closing
|
F-37
price reported on the major market where the individual
securities are traded. The Company classifies mutual fund
investments primarily within Level 1 of the valuation
hierarchy.
|
|
|
|
|
Fixed income securities: The fair values of
the investments included in the fixed income securities asset
class are based on a compilation of primarily observable market
information
and/or
broker quotes. The Company classifies fixed income securities
investments primarily within Level 2 of the valuation
hierarchy.
|
|
|
|
Common and collective funds: The fair values
of the investments included in the common and collective funds
asset class are determined using NAV provided by the
administrator of the funds. The NAV is based on the value of the
underlying assest owned by the trust, minus its liabilities, and
then divided by the number of shares outstanding. The Company
classifies common and collective fund investments primarily
within Level 2 of the valuation hierarchy.
|
|
|
|
Hedge funds: The hedge fund asset class
includes hedge funds that primarily invest in a grouping of
equities, fixed income instruments, currencies, derivatives
and/or
commodities. The fair value of investments included in the hedge
funds class are determined using NAV provided by the
administrator of the funds. The NAV is based on securities
listed or quoted on a national securities exchange or market, or
traded in the
over-the-counter
market, and is valued at the closing quotation posted by that
exchange or trading system. Securities not listed or quoted on a
national securities exchange or market are valued primarily
through observable market information or broker quotes. The
hedge fund investments generally can be sold on a quarterly or
monthly basis and may employ leverage. The Company classifies
hedge fund investments primarily within Level 2 and
Level 3 of the valuation hierarchy.
|
|
|
|
Group annuity contract: The group annuity
contract asset class primarily invests in equities, corporate
bonds and government bonds. The fair value of securities listed
or quoted on a national securities exchange or market, or traded
in the
over-the-counter
market, are valued at the closing quotation posted by that
exchange or trading system. Securities not listed or quoted on a
national securities exchange or market are valued primarily
through observable market information or broker quotes. The
Company classifies group annuity contract investments primarily
within Level 2 of the valuation hierarchy.
|
F-38
The fair values of the U.S. and International pension plan
assets at December 31, 2010, by asset categories were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
|
|
|
|
|
|
|
|
|
|
Active Markets for
|
|
|
Significant
|
|
|
Significant
|
|
|
|
|
|
|
Identical Assets
|
|
|
Observable Inputs
|
|
|
Unobservable Inputs
|
|
|
|
Total
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Common and Preferred Stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. small/mid cap equity
|
|
$
|
20.4
|
|
|
$
|
20.4
|
|
|
$
|
|
|
|
$
|
|
|
Mutual
Funds(a):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds
|
|
|
23.1
|
|
|
|
23.1
|
|
|
|
|
|
|
|
|
|
Government bonds
|
|
|
2.8
|
|
|
|
2.8
|
|
|
|
|
|
|
|
|
|
U.S. large cap equity
|
|
|
64.9
|
|
|
|
64.9
|
|
|
|
|
|
|
|
|
|
International equities
|
|
|
0.8
|
|
|
|
0.8
|
|
|
|
|
|
|
|
|
|
Emerging markets international equity
|
|
|
2.8
|
|
|
|
2.8
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
4.9
|
|
|
|
4.9
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
2.8
|
|
|
|
2.8
|
|
|
|
|
|
|
|
|
|
Fixed Income Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds
|
|
|
84.3
|
|
|
|
|
|
|
|
84.2
|
|
|
|
0.1
|
|
Government bonds
|
|
|
12.7
|
|
|
|
|
|
|
|
12.7
|
|
|
|
|
|
Common and Collective
Funds(a):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds
|
|
|
32.8
|
|
|
|
|
|
|
|
32.8
|
|
|
|
|
|
Government bonds
|
|
|
19.6
|
|
|
|
|
|
|
|
19.6
|
|
|
|
|
|
U.S. large cap equity
|
|
|
16.9
|
|
|
|
|
|
|
|
16.9
|
|
|
|
|
|
U.S. small/mid cap equity
|
|
|
17.4
|
|
|
|
|
|
|
|
17.4
|
|
|
|
|
|
International equities
|
|
|
65.1
|
|
|
|
|
|
|
|
65.1
|
|
|
|
|
|
Emerging markets international equity
|
|
|
18.8
|
|
|
|
|
|
|
|
18.8
|
|
|
|
|
|
Other
|
|
|
1.8
|
|
|
|
|
|
|
|
1.8
|
|
|
|
|
|
Hedge
Funds(a):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government bonds
|
|
|
(2.8
|
)
|
|
|
|
|
|
|
(2.8
|
)
|
|
|
|
|
U.S. large cap equity
|
|
|
6.9
|
|
|
|
|
|
|
|
2.5
|
|
|
|
4.4
|
|
U.S. small/mid cap equity
|
|
|
5.4
|
|
|
|
|
|
|
|
|
|
|
|
5.4
|
|
International equities
|
|
|
5.0
|
|
|
|
|
|
|
|
1.9
|
|
|
|
3.1
|
|
Foreign exchange contracts
|
|
|
23.7
|
|
|
|
|
|
|
|
23.7
|
|
|
|
|
|
Other
|
|
|
6.8
|
|
|
|
|
|
|
|
6.3
|
|
|
|
0.5
|
|
Group Annuity Contract
|
|
|
2.1
|
|
|
|
|
|
|
|
2.1
|
|
|
|
|
|
Cash and Cash Equivalents
|
|
|
10.5
|
|
|
|
10.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at
December 31, 2010
|
|
$
|
449.5
|
|
|
$
|
133.0
|
|
|
$
|
303.0
|
|
|
$
|
13.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The investments in mutual funds, common and collective funds and
hedge funds are disclosed above within the respective underlying
investments class (i.e., various equities, corporate
bonds, government bonds, etc.) while the fair value hierarchy
levels of the investments are based on the Companys direct
ownership unit of account. |
F-39
The fair values of the U.S. and International pension plan
assets at December 31, 2009, by asset categories were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
|
|
|
|
|
|
|
|
|
|
Active Markets for
|
|
|
Significant
|
|
|
Significant
|
|
|
|
|
|
|
Identical Assets
|
|
|
Observable Inputs
|
|
|
Unobservable Inputs
|
|
|
|
Total
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Common and Preferred Stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. small/mid cap equity
|
|
$
|
16.3
|
|
|
$
|
16.3
|
|
|
$
|
|
|
|
$
|
|
|
Mutual
Funds(a):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds
|
|
|
14.5
|
|
|
|
14.5
|
|
|
|
|
|
|
|
|
|
Government bonds
|
|
|
19.5
|
|
|
|
19.5
|
|
|
|
|
|
|
|
|
|
U.S. large cap equity
|
|
|
52.0
|
|
|
|
52.0
|
|
|
|
|
|
|
|
|
|
International equities
|
|
|
1.3
|
|
|
|
1.3
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
2.5
|
|
|
|
2.5
|
|
|
|
|
|
|
|
|
|
Other(a)
|
|
|
2.6
|
|
|
|
2.6
|
|
|
|
|
|
|
|
|
|
Fixed Income Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds
|
|
|
76.6
|
|
|
|
|
|
|
|
76.6
|
|
|
|
|
|
Government bonds
|
|
|
10.3
|
|
|
|
|
|
|
|
10.3
|
|
|
|
|
|
Common and Collective
Funds(a):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds
|
|
|
32.8
|
|
|
|
|
|
|
|
32.8
|
|
|
|
|
|
Government bonds
|
|
|
17.5
|
|
|
|
|
|
|
|
17.5
|
|
|
|
|
|
U.S. large cap equity
|
|
|
12.6
|
|
|
|
|
|
|
|
12.6
|
|
|
|
|
|
U.S. small/mid cap equity
|
|
|
13.0
|
|
|
|
|
|
|
|
13.0
|
|
|
|
|
|
International equities
|
|
|
60.8
|
|
|
|
|
|
|
|
60.8
|
|
|
|
|
|
Emerging markets international equity
|
|
|
11.1
|
|
|
|
|
|
|
|
11.1
|
|
|
|
|
|
Other
|
|
|
1.2
|
|
|
|
|
|
|
|
1.2
|
|
|
|
|
|
Hedge
Funds(a):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government bonds
|
|
|
10.3
|
|
|
|
|
|
|
|
10.3
|
|
|
|
|
|
U.S. large cap equity
|
|
|
5.4
|
|
|
|
|
|
|
|
0.8
|
|
|
|
4.6
|
|
U.S. small/mid cap equity
|
|
|
5.7
|
|
|
|
|
|
|
|
|
|
|
|
5.7
|
|
International equities
|
|
|
3.4
|
|
|
|
|
|
|
|
0.5
|
|
|
|
2.9
|
|
Foreign exchange contracts
|
|
|
12.6
|
|
|
|
|
|
|
|
12.6
|
|
|
|
|
|
Other
|
|
|
2.4
|
|
|
|
|
|
|
|
2.1
|
|
|
|
0.3
|
|
Group Annuity Contract
|
|
|
2.0
|
|
|
|
|
|
|
|
2.0
|
|
|
|
|
|
Cash and Cash Equivalents
|
|
|
19.2
|
|
|
|
19.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at
December 31, 2009
|
|
$
|
405.6
|
|
|
$
|
127.9
|
|
|
$
|
264.2
|
|
|
$
|
13.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The investments in mutual funds, common and collective funds and
hedge funds are disclosed above within the respective underlying
investments class (i.e., various equities, corporate
bonds, government bonds, etc.) while the levels of the
investments are based on the Companys direct ownership
unit of account. |
F-40
The following table sets forth a summary of changes in the fair
values of the U.S. and International pension plans
Level 3 assets at December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Income
|
|
|
|
|
|
|
Total
|
|
|
Securities
|
|
|
Hedge Funds
|
|
|
Balance, January 1, 2009
|
|
$
|
12.4
|
|
|
$
|
|
|
|
$
|
12.4
|
|
Actual return on plan assets still held at end of year
|
|
|
1.1
|
|
|
|
|
|
|
|
1.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2009
|
|
|
13.5
|
|
|
|
|
|
|
|
13.5
|
|
Actual return on plan assets still held at end of year
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
(0.1
|
)
|
Purchases, sales, and settlements
|
|
|
0.1
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2010
|
|
$
|
13.5
|
|
|
$
|
0.1
|
|
|
$
|
13.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributions:
The Companys intent is to fund at least the minimum
contributions required to meet applicable federal employee
benefit and local laws, or to directly pay benefit payments
where appropriate. During 2010, the Company contributed
$24.9 million to its pension plans and $0.9 million to
its other post-retirement benefit plans. During 2011, the
Company expects to contribute approximately $30 million to
its pension and other post-retirement benefit plans.
Estimated
Future Benefit Payments:
The following benefit payments, which reflect expected future
service, as appropriate, are expected to be paid out of the
Companys pension and other post-retirement benefit plans:
|
|
|
|
|
|
|
|
|
|
|
Total Pension
|
|
|
Total Other
|
|
|
|
Benefits
|
|
|
Benefits
|
|
|
2011
|
|
$
|
38.6
|
|
|
$
|
1.2
|
|
2012
|
|
|
40.0
|
|
|
|
1.3
|
|
2013
|
|
|
40.8
|
|
|
|
1.3
|
|
2014
|
|
|
41.6
|
|
|
|
1.4
|
|
2015
|
|
|
42.0
|
|
|
|
1.3
|
|
Years 2016 to 2020
|
|
|
219.9
|
|
|
|
6.7
|
|
|
|
14.
|
STOCK
COMPENSATION PLAN
|
Revlon, Inc. maintains the Third Amended and Restated Revlon,
Inc. Stock Plan (the Stock Plan), which provides for
awards of stock options, stock appreciation rights, restricted
or unrestricted stock and restricted stock units to eligible
employees and directors of Revlon, Inc. and its affiliates,
including Products Corporation.
Stock
options:
Non-qualified stock options granted under the Stock Plan are
granted at prices that equal or exceed the fair market value of
Class A Common Stock on the grant date and have a term of
7 years (option grants under the Stock Plan prior to
June 4, 2004 have a term of 10 years). Option grants
generally vest over service periods that range from 1 year
to 4 years.
Total net stock option compensation expense includes amounts
attributable to the granting of, and the remaining requisite
service period of, stock options issued under the Stock Plan,
which awards were unvested at January 1, 2006 or granted on
or after such date. Net stock option compensation expense for
the years ended December 31, 2010, 2009 and 2008 was nil,
$0.2 million and $0.3 million, respectively. As of
December 31, 2009, there was no remaining unrecognized
stock option compensation expense as all stock options were
fully vested as of December 31, 2009.
F-41
At December 31, 2010, 2009 and 2008 there were 987,886;
1,231,337; and 1,336,871 stock options exercisable under the
Stock Plan, respectively.
A summary of the status of stock option grants under the Stock
Plan as of December 31, 2010, 2009 and 2008 and changes
during the years then ended is presented below:
|
|
|
|
|
|
|
|
|
|
|
Stock Options
|
|
|
Weighted Average
|
|
|
|
(000s)
|
|
|
Exercise Price
|
|
|
Outstanding at January 1, 2008
|
|
|
2,168.1
|
|
|
$
|
41.94
|
|
Granted
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
Forfeited and expired
|
|
|
(762.6
|
)
|
|
|
51.60
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2008
|
|
|
1,405.5
|
|
|
|
36.76
|
|
Granted
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
Forfeited and expired
|
|
|
(174.2
|
)
|
|
|
62.14
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2009
|
|
|
1,231.3
|
|
|
|
33.17
|
|
Granted
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
Forfeited and expired
|
|
|
(243.4
|
)
|
|
|
39.22
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2010
|
|
|
987.9
|
|
|
|
31.68
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes information about the Stock
Plans stock options outstanding at December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
|
|
|
Exerciseable
|
|
|
|
Number of
|
|
|
Weighted
|
|
|
Weighted
|
|
|
Aggregate
|
|
|
Number of
|
|
|
Weighted
|
|
|
Weighted
|
|
Range of
|
|
Options
|
|
|
Average Years
|
|
|
Average
|
|
|
Intrinsic
|
|
|
Options
|
|
|
Average
|
|
|
Average
|
|
Exercise Prices
|
|
(000s)
|
|
|
Remaining
|
|
|
Exercise Price
|
|
|
Value
|
|
|
(000s)
|
|
|
Years Remaining
|
|
|
Exercise Price
|
|
|
$23.10 to $30.00
|
|
|
189.5
|
|
|
|
1.29
|
|
|
$
|
25.58
|
|
|
|
|
|
|
|
189.5
|
|
|
|
1.29
|
|
|
$
|
25.58
|
|
30.01 to 37.60
|
|
|
647.8
|
|
|
|
0.36
|
|
|
|
30.39
|
|
|
|
|
|
|
|
647.8
|
|
|
|
0.36
|
|
|
|
30.39
|
|
37.61 to 72.60
|
|
|
150.6
|
|
|
|
1.31
|
|
|
|
44.90
|
|
|
|
|
|
|
|
150.6
|
|
|
|
1.31
|
|
|
|
44.90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23.10 to 72.60
|
|
|
987.9
|
|
|
|
0.69
|
|
|
|
31.68
|
|
|
|
|
|
|
|
987.9
|
|
|
|
0.69
|
|
|
|
31.68
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted
stock awards and restricted stock units:
The Stock Plan allows for awards of restricted stock and
restricted stock units to employees and directors of Revlon,
Inc. and its affiliates, including Products Corporation. The
restricted stock awards granted under the Stock Plan vest over
service periods that generally range from 1.5 years to
3 years. There were no restricted stock awards granted in
2010. In 2009 and 2008, Revlon, Inc. granted 33,500 and
939,925 shares, respectively, of restricted stock and
restricted stock units under the Stock Plan with weighted
average fair values, based on the market price of Revlon,
Inc.s Class A Common Stock on the dates of grant, of
$4.39 and $7.22, respectively. At December 31, 2010 and
2009, there were 690,689 and 1,141,428 shares,
respectively, of restricted stock and restricted stock units
outstanding and unvested under the Stock Plan.
F-42
A summary of the status of grants of restricted stock and
restricted stock units under the Stock Plan as of
December 31, 2010, 2009 and 2008 and changes during the
years then ended is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
Restricted Stock
|
|
|
Grant Date Fair
|
|
|
|
(000s)
|
|
|
Value
|
|
|
Outstanding at January 1, 2008
|
|
|
1,164.8
|
|
|
$
|
13.45
|
|
Granted
|
|
|
939.9
|
|
|
|
7.22
|
|
Vested(a)
|
|
|
(379.4
|
)
|
|
|
14.47
|
|
Forfeited
|
|
|
(81.6
|
)
|
|
|
13.46
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2008
|
|
|
1,643.7
|
|
|
|
9.65
|
|
Granted
|
|
|
33.5
|
|
|
|
4.39
|
|
Vested(a)
|
|
|
(373.0
|
)
|
|
|
13.13
|
|
Forfeited
|
|
|
(162.8
|
)
|
|
|
8.83
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2009
|
|
|
1,141.4
|
|
|
|
8.48
|
|
Granted
|
|
|
|
|
|
|
|
|
Vested(a)
|
|
|
(430.2
|
)
|
|
|
8.94
|
|
Forfeited
|
|
|
(20.5
|
)
|
|
|
8.13
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2010
|
|
|
690.7
|
|
|
|
8.20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Of the amounts vested during 2010, 2009 and 2008, 147,161;
129,224; and 125,874 shares, respectively, were withheld by
the Company to satisfy certain grantees minimum
withholding tax requirements, which withheld shares became
Revlon, Inc. treasury stock and are not sold on the open market. |
The Company recognizes non-cash compensation expense related to
restricted stock awards and restricted stock units under the
Stock Plan using the straight-line method over the remaining
service period. The Company recorded compensation expense
related to restricted stock awards under the Stock Plan of
$3.6 million, $5.4 million and $6.5 million
during 2010, 2009 and 2008, respectively. The deferred
stock-based compensation related to restricted stock awards is
$2.2 million and $5.9 million at December 31,
2010 and 2009, respectively. The deferred stock-based
compensation related to restricted stock awards is expected to
be recognized over a weighted-average period of 0.94 years.
The total fair value of restricted stock and restricted stock
units that vested during the years ended December 31, 2010
and 2009 was $7.2 million and $4.9 million,
respectively.
F-43
|
|
15.
|
ACCUMULATED
OTHER COMPREHENSIVE LOSS
|
The components of accumulated other comprehensive loss during
2010, 2009 and 2008, respectively, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial
|
|
|
Prior
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss)
|
|
|
Service
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on
|
|
|
Cost on
|
|
|
|
|
|
Accumulated
|
|
|
|
Foreign
|
|
|
Post-
|
|
|
Post-
|
|
|
Deferred
|
|
|
Other
|
|
|
|
Currency
|
|
|
retirement
|
|
|
retirement
|
|
|
Loss-
|
|
|
Comprehensive
|
|
|
|
Translation
|
|
|
Benefits
|
|
|
Benefits
|
|
|
Hedging
|
|
|
Loss
|
|
|
Balance January 1, 2008
|
|
$
|
(13.2
|
)
|
|
$
|
(74.9
|
)
|
|
$
|
1.5
|
|
|
$
|
(2.1
|
)
|
|
$
|
(88.7
|
)
|
Unrealized
losses(a)
|
|
|
(8.2
|
)
|
|
|
|
|
|
|
|
|
|
|
(5.3
|
)
|
|
|
(13.5
|
)
|
Reclassifications into net
income(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.0
|
|
|
|
2.0
|
|
Elimination of currency translation adjustment related to
Bozzano Sale Transaction
|
|
|
37.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37.3
|
|
Amortization of pension related
costs(b)
|
|
|
|
|
|
|
1.5
|
|
|
|
(0.4
|
)
|
|
|
|
|
|
|
1.1
|
|
Pension re-measurement
|
|
|
|
|
|
|
(121.0
|
)
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
(121.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2008
|
|
|
15.9
|
|
|
|
(194.4
|
)
|
|
|
0.8
|
|
|
|
(5.4
|
)
|
|
|
(183.1
|
)
|
Unrealized gains
(losses)(c)
|
|
|
9.8
|
|
|
|
|
|
|
|
|
|
|
|
(1.3
|
)
|
|
|
8.5
|
|
Reclassifications into net
income(c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.0
|
|
|
|
5.0
|
|
Amortization of pension related
costs(b)(d)
|
|
|
|
|
|
|
12.9
|
|
|
|
(0.9
|
)
|
|
|
|
|
|
|
12.0
|
|
Pension
re-measurement(e)
|
|
|
|
|
|
|
(9.3
|
)
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
(9.5
|
)
|
Pension curtailment
gain(e)
|
|
|
|
|
|
|
9.2
|
|
|
|
|
|
|
|
|
|
|
|
9.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2009
|
|
|
25.7
|
|
|
|
(181.6
|
)
|
|
|
(0.3
|
)
|
|
|
(1.7
|
)
|
|
|
(157.9
|
)
|
Unrealized gains (losses)
|
|
|
7.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.4
|
|
Reclassifications into net
income(f)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.7
|
|
|
|
1.7
|
|
Amortization of pension related
costs(b)
|
|
|
|
|
|
|
5.3
|
|
|
|
0.1
|
|
|
|
|
|
|
|
5.4
|
|
Pension re-measurement
|
|
|
|
|
|
|
(8.4
|
)
|
|
|
|
|
|
|
|
|
|
|
(8.4
|
)
|
Pension curtailment
gain(g)
|
|
|
|
|
|
|
1.5
|
|
|
|
|
|
|
|
|
|
|
|
1.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2010
|
|
$
|
33.1
|
|
|
$
|
(183.2
|
)
|
|
$
|
(0.2
|
)
|
|
$
|
|
|
|
$
|
(150.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Amounts related to Deferred Loss Hedging
represent (1) net unrealized losses of $5.3 million on
the Interest Rate Swaps (see Note 11, Financial
Instruments) and (2) the reversal of amounts recorded
in Accumulated Other Comprehensive Loss pertaining to net
settlement receipts of $0.2 million and net settlement
payments of $2.2 million on the Interest Rate Swaps. |
|
(b) |
|
Amounts represent the change in Accumulated Other Comprehensive
Loss as a result of the amortization of unrecognized prior
service costs and actuarial losses (gains) arising during 2008,
2009 and 2010 related to the Companys pension and other
post-retirement plans. (See Note 13, Savings Plan,
Pension and Post-retirement Benefits). |
|
(c) |
|
Amounts related to Deferred Loss Hedging
represent (1) the change in net unrealized losses of
$1.3 million on the Interest Rate Swaps (see Note 11,
Financial Instruments) and (2) the reversal of
amounts recorded in Accumulated Other Comprehensive Loss
pertaining to net settlement receipts of $0.8 million and
net settlement payments of $5.8 million on the Interest
Rate Swaps. |
F-44
|
|
|
(d) |
|
The amortization of pension related costs of $12.0 million
recorded in Accumulated Other Comprehensive Loss includes a
non-cash curtailment gain of $0.8 million recognized in
earnings related to the recognition of previously unrecognized
prior service costs resulting from the May 2009 Pension Plan
Amendments. |
|
(e) |
|
The $9.5 million increase in pension liabilities recorded
within Accumulated Other Comprehensive Loss is the result of the
re-measurement of the pension liabilities, primarily in
connection with the May 2009 Pension Plan Amendments and the May
2009 Program. In connection with the May 2009 Pension Plan
Amendments, the Company also recognized a curtailment gain of
$9.2 million, which reduced its pension liability and was
recorded as an offset against the net actuarial losses
previously reported within Accumulated Other Comprehensive Loss.
(See Note 13, Savings Plan, Pension and
Post-retirement Benefits). |
|
(f) |
|
Amounts related to Deferred Loss Hedging
represent (1) the reclassification of an unrecognized loss
of $0.8 million on the 2008 Interest Rate Swap prior to its
expiration in April 2010 from Accumulated Other Comprehensive
Loss into earnings due to the discontinuance of hedge accounting
as a result of the 2010 Refinancing (see Note 9,
Long-Term Debt) and (2) the reversal of amounts
recorded in Accumulated Other Comprehensive Loss pertaining to
the net settlement payment of $0.9 million on the 2008
Interest Rate Swap. |
|
(g) |
|
The Company recognized a $1.5 million curtailment gain,
primarily in connection with the amendments to its Canadian
defined benefit pension plan in 2010, which reduced pension
liability and was recorded as an offset against the net
actuarial losses previously reported within Accumulated Other
Comprehensive Loss. (See Note 13, Savings Plan,
Pension and Post-retirement Benefits). |
|
|
16.
|
RELATED
PARTY TRANSACTIONS
|
As of December 31, 2010, MacAndrews & Forbes
beneficially owned shares of Revlon, Inc.s Class A
Common Stock and Class B Common Stock having approximately
77% of the combined voting power of all of Revlon, Inc.s
outstanding shares of Common Stock and Preferred Stock. Revlon,
Inc. in turn directly owns all 5,260 outstanding shares of
Products Corporations common stock. As a result,
MacAndrews & Forbes is able to elect the entire Board
of Directors of Revlon, Inc. and Products Corporation and
control the vote on all matters submitted to a vote of Revlon,
Inc.s and Products Corporations stockholders.
MacAndrews & Forbes is wholly-owned by Ronald O.
Perelman, Chairman of Revlon, Inc.s and Products
Corporations Board of Directors.
Transfer
Agreements
In June 1992, Revlon, Inc. and Products Corporation entered into
an asset transfer agreement with Revlon Holdings LLC, a Delaware
limited liability company and formerly a Delaware corporation
known as Revlon Holdings Inc. (Revlon Holdings), and
which is an affiliate and an indirect wholly-owned subsidiary of
MacAndrews & Forbes, and certain of Revlon
Holdings wholly-owned subsidiaries. Revlon, Inc. and
Products Corporation also entered into a real property asset
transfer agreement with Revlon Holdings. Pursuant to such
agreements, on June 24, 1992 Revlon Holdings transferred
assets to Products Corporation and Products Corporation assumed
all of the liabilities of Revlon Holdings, other than certain
specifically excluded assets and liabilities (the liabilities
excluded are referred to as the Excluded
Liabilities). Certain consumer products lines sold in
demonstrator-assisted distribution channels considered not
integral to the Companys business and that historically
had not been profitable and certain other assets and liabilities
were retained by Revlon Holdings. Revlon Holdings agreed to
indemnify Revlon, Inc. and Products Corporation against losses
arising from the Excluded Liabilities, and Revlon, Inc. and
Products Corporation agreed to indemnify Revlon Holdings against
losses arising from the liabilities assumed by Products
Corporation. The amounts reimbursed by Revlon Holdings to
Products Corporation for the Excluded Liabilities was
$0.3 million for each of 2010, 2009 and 2008.
Reimbursement
Agreements
Revlon, Inc., Products Corporation and MacAndrews &
Forbes Inc. (a wholly-owned subsidiary of MacAndrews &
Forbes Holdings) have entered into reimbursement agreements (the
Reimbursement Agreements) pursuant to which
(i) MacAndrews & Forbes Inc. is obligated to
provide (directly or through affiliates) certain professional
and administrative services, including, without limitation,
employees, to Revlon, Inc. and its subsidiaries, including,
without limitation, Products Corporation, and purchase services
from third party providers, such as insurance, legal and
accounting services and air transportation services, on behalf
of Revlon, Inc. and its
F-45
subsidiaries, including Products Corporation, to the extent
requested by Products Corporation, and (ii) Products
Corporation is obligated to provide certain professional and
administrative services, including, without limitation,
employees, to MacAndrews & Forbes and purchase
services from third party providers, such as insurance, legal
and accounting services, on behalf of MacAndrews &
Forbes to the extent requested by MacAndrews & Forbes,
provided that in each case the performance of such services does
not cause an unreasonable burden to MacAndrews &
Forbes or Products Corporation, as the case may be.
Products Corporation reimburses MacAndrews & Forbes
for the allocable costs of the services purchased for or
provided to Products Corporation and its subsidiaries and for
the reasonable
out-of-pocket
expenses incurred in connection with the provision of such
services. MacAndrews & Forbes reimburses Products
Corporation for the allocable costs of the services purchased
for or provided to MacAndrews & Forbes and for the
reasonable
out-of-pocket
expenses incurred in connection with the purchase or provision
of such services. Each of Revlon, Inc. and Products Corporation,
on the one hand, and MacAndrews & Forbes Inc., on the
other, has agreed to indemnify the other party for losses
arising out of the provision of services by it under the
Reimbursement Agreements, other than losses resulting from its
willful misconduct or gross negligence.
The Reimbursement Agreements may be terminated by either party
on 90 days notice. Products Corporation does not
intend to request services under the Reimbursement Agreements
unless their costs would be at least as favorable to Products
Corporation as could be obtained from unaffiliated third parties.
Revlon, Inc. and Products Corporation participate in
MacAndrews & Forbes directors and officers
liability insurance program, which covers Revlon, Inc. and
Products Corporation, as well as MacAndrews & Forbes.
The limits of coverage are available on an aggregate basis for
losses to any or all of the participating companies and their
respective directors and officers. Revlon, Inc. and Products
Corporation reimburse MacAndrews & Forbes from time to
time for their allocable portion of the premiums for such
coverage or they pay the insurers directly, which premiums the
Company believes are more favorable than the premiums the
Company would pay were it to secure stand-alone coverage. Any
amounts paid by Revlon, Inc. and Products Corporation directly
to MacAndrews & Forbes in respect of premiums are
included in the amounts paid under the Reimbursement Agreements.
The net amounts reimbursable from (payable to)
MacAndrews & Forbes to (from) Products Corporation for
the services provided under the Reimbursement Agreements for
2010, 2009 and 2008 were $0.1 million, nil, and
$(1.4) million (primarily in respect of reimbursements for
insurance premiums in 2008), respectively.
Tax
Sharing Agreements
As a result of a
debt-for-equity
exchange transaction completed in March 2004 (the 2004
Revlon Exchange Transactions), as of March 25, 2004,
Revlon, Inc., Products Corporation and their
U.S. subsidiaries were no longer included in the
MacAndrews & Forbes Group for U.S. federal income
tax purposes. See Note 12, Income Taxes, for
further discussion on these agreements and related transactions
in 2010, 2009 and 2008.
Senior
Subordinated Term Loan
For a description of transactions with MacAndrews &
Forbes in 2009 in connection with the Senior Subordinated Term
Loan, including, without limitation, the extension of the
maturity date and the change in the annual interest rate on the
Contributed Loan and the Non-Contributed Loan portions of the
Senior Subordinated Term Loan and other related transactions in
connection with the closing of the 2009 Exchange Offer, see
Note 9, Long-Term Debt 2009
Transactions Exchange Offer and Extension of the
Maturity of the Senior Subordinated Term Loan.
Other
Pursuant to a lease dated April 2, 1993 (the Edison
Lease), Revlon Holdings leased to Products Corporation the
Edison, N.J. research and development facility for a term of up
to 10 years with an annual rent of $1.4 million and
certain shared operating expenses payable by Products
Corporation which, together with the annual rent, were not to
exceed $2.0 million per year. In August 1998, Revlon
Holdings sold the Edison facility to an unrelated third party,
which assumed substantially all liability for environmental
claims and compliance costs relating to the Edison facility, and
in connection with the sale Products Corporation terminated the
Edison Lease and entered into a new
F-46
lease with the new owner. Revlon Holdings agreed to indemnify
Products Corporation through September 1, 2013 (the term of
the new lease) to the extent that rent under the new lease
exceeds the rent that would have been payable under the
terminated Edison Lease had it not been terminated. Effective
October 2010, Products Corporation entered into a renewal of the
lease with the owner through September 2025. The Revlon Holdings
indemnification will terminate on September 1, 2013. The
net amounts reimbursed by Revlon Holdings to Products
Corporation with respect to the Edison facility for 2010, 2009
and 2008 were $0.3 million, $0.4 million and
$0.4 million, respectively.
Certain of Products Corporations debt obligations,
including the 2010 Credit Agreements and Products
Corporations
93/4% Senior
Secured Notes, have been, and may in the future be, supported
by, among other things, guaranties from Revlon, Inc. and,
subject to certain limited exceptions, all of the domestic
subsidiaries of Products Corporation. The obligations under such
guaranties are secured by, among other things, the capital stock
of Products Corporation and, subject to certain limited
exceptions, the capital stock of all of Products
Corporations domestic subsidiaries and 66% of the capital
stock of Products Corporations and its domestic
subsidiaries first-tier foreign subsidiaries.
During 2008, Products Corporation paid $0.4 million to a
nationally-recognized security services company, in which
MacAndrews & Forbes had a controlling interest, for
security officer services. Products Corporations decision
to engage such firm was based upon its expertise in the field of
security services, and the rates were competitive with industry
rates for similarly situated security firms. Effective in August
2008, MacAndrews & Forbes disposed of its interest in
such security services company and accordingly from and after
such date is no longer a related party.
During 2010, Fidelity Management Trust Company, a
wholly-owned subsidiary of FMR, acted as trustee of the 401(k)
Plan. During 2010 and 2009, the Company paid Fidelity Management
Trust Company approximately nil and $0.2 million,
respectively, to administer the Companys 2009 Exchange
Offer with respect to 401(k) Plan participants and to administer
the Companys 401(k) Plan. The fees for such services were
based on standard rates charged by Fidelity Management
Trust Company for similar services and are not material to
the Company or FMR.
|
|
17.
|
COMMITMENTS
AND CONTINGENCIES
|
Products Corporation currently leases manufacturing, executive,
research and development, and sales facilities and various types
of equipment under operating and capital lease agreements.
Rental expense was $18.2 million, $16.8 million and
$15.3 million for the years ended December 31, 2010,
2009 and 2008, respectively. Minimum rental commitments under
all noncancelable leases, including those pertaining to idled
facilities, with remaining lease terms in excess of one year
from December 31, 2010 aggregated $79.2 million. Such
commitments for each of the five years and thereafter subsequent
to December 31, 2010 are $16.9 million,
$14.8 million, $12.8 million, $10.0 million,
$4.7 million and $20.0 million, respectively.
The Company is involved in various routine legal proceedings
incident to the ordinary course of its business. The Company
believes that the outcome of all pending legal proceedings in
the aggregate is unlikely to have a material adverse effect on
the Companys business, financial condition
and/or its
results of operations.
|
|
18.
|
QUARTERLY
RESULTS OF OPERATIONS (UNAUDITED)
|
The following is a summary of the unaudited quarterly results of
operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2010
|
|
|
|
1st
|
|
|
2nd
|
|
|
3rd
|
|
|
4th
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Net sales
|
|
$
|
305.5
|
|
|
$
|
327.7
|
|
|
$
|
319.0
|
|
|
$
|
369.2
|
|
Gross profit
|
|
|
196.8
|
|
|
|
220.7
|
|
|
|
208.6
|
|
|
|
240.0
|
|
Income from continuing operations
|
|
|
4.2
|
|
|
|
18.4
|
|
|
|
14.3
|
|
|
|
287.1
|
|
Income (loss) from discontinued operations
|
|
|
|
|
|
|
0.4
|
|
|
|
(0.1
|
)
|
|
|
|
|
Net income
|
|
|
4.2
|
|
|
|
18.8
|
|
|
|
14.2
|
|
|
|
287.1
|
|
F-47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2009
|
|
|
|
1st
|
|
|
2nd
|
|
|
3rd
|
|
|
4th
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Net sales
|
|
$
|
303.3
|
|
|
$
|
321.8
|
|
|
$
|
326.2
|
|
|
$
|
344.6
|
|
Gross profit
|
|
|
192.3
|
|
|
|
201.2
|
|
|
|
208.3
|
|
|
|
219.4
|
|
Income from continuing operations
|
|
|
14.5
|
|
|
|
1.5
|
|
|
|
26.3
|
|
|
|
16.2
|
|
Income from discontinued operations
|
|
|
|
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
14.5
|
|
|
|
1.8
|
|
|
|
26.3
|
|
|
|
16.2
|
|
|
|
19.
|
GEOGRAPHIC,
FINANCIAL AND OTHER INFORMATION
|
The Company manages its business on the basis of one reportable
operating segment. (See Note 1, Summary of
Significant Accounting Policies, for a brief description
of the Companys business.) As of December 31, 2010,
the Company had operations established in 14 countries outside
of the U.S. and its products are sold throughout the world.
Generally, net sales by geographic area are presented by
attributing revenues from external customers on the basis of
where the products are sold. During 2010, 2009 and 2008, Walmart
and its affiliates worldwide accounted for approximately 22%,
23% and 23%, respectively, of the Companys net sales. The
Company expects that Walmart and a small number of other
customers will, in the aggregate, continue to account for a
large portion of the Companys net sales. As is customary
in the consumer products industry, none of the Companys
customers is under an obligation to continue purchasing products
from the Company in the future.
In the tables below, certain prior year amounts have been
reclassified to conform to the current periods
presentation.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
|
|
|
2009
|
|
|
|
|
|
2008
|
|
|
|
|
Geographic area:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
729.1
|
|
|
|
55%
|
|
|
$
|
747.9
|
|
|
|
58%
|
|
|
$
|
782.6
|
|
|
|
58%
|
|
Outside of the United States
|
|
|
592.3
|
|
|
|
45%
|
|
|
|
548.0
|
|
|
|
42%
|
|
|
|
564.2
|
|
|
|
42%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,321.4
|
|
|
|
|
|
|
$
|
1,295.9
|
|
|
|
|
|
|
$
|
1,346.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
|
|
|
2009
|
|
|
|
|
|
2008
|
|
|
|
|
Long-lived assets net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
540.6
|
|
|
|
91%
|
|
|
$
|
332.8
|
|
|
|
87%
|
|
|
$
|
339.0
|
|
|
|
88%
|
|
Outside of the United States
|
|
|
52.2
|
|
|
|
9%
|
|
|
|
51.4
|
|
|
|
13%
|
|
|
|
45.9
|
|
|
|
12%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
592.8
|
|
|
|
|
|
|
$
|
384.2
|
|
|
|
|
|
|
$
|
384.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
|
|
|
2009
|
|
|
|
|
|
2008
|
|
|
|
|
Classes of similar products:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Color cosmetics
|
|
$
|
816.1
|
|
|
|
62%
|
|
|
$
|
785.5
|
|
|
|
61%
|
|
|
$
|
831.0
|
|
|
|
62%
|
|
Beauty care and fragrance
|
|
|
505.3
|
|
|
|
38%
|
|
|
|
510.4
|
|
|
|
39%
|
|
|
|
515.8
|
|
|
|
38%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,321.4
|
|
|
|
|
|
|
$
|
1,295.9
|
|
|
|
|
|
|
$
|
1,346.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-48
|
|
20.
|
GUARANTOR
FINANCIAL INFORMATION
|
Products Corporations
93/4% Senior
Secured Notes are fully and unconditionally guaranteed on a
senior secured basis by Revlon, Inc. and Products
Corporations domestic subsidiaries (other than certain
immaterial subsidiaries) that guarantee the Products
Corporations obligations under its 2010 Credit Agreements
(the Guarantor Subsidiaries).
The following Condensed Consolidating Financial Statements
present the financial information as of December 31, 2010
and 2009, and for the years ended December 31, 2010, 2009
and 2008 for (i) Products Corporation on a stand-alone
basis; (ii) the Guarantor Subsidiaries on a stand-alone
basis; (iii) the subsidiaries of Products Corporation that
do not guarantee Products Corporations
93/4% Senior
Secured Notes (the Non-Guarantor Subsidiaries) on a
stand-alone basis; and (iv) Products Corporation, the
Guarantor Subsidiaries and the Non-Guarantor Subsidiaries on a
consolidated basis. The Condensed Consolidating Financial
Statements are presented on the equity method, under which the
investments in subsidiaries are recorded at cost and adjusted
for the applicable share of the subsidiarys cumulative
results of operations, capital contributions, distributions and
other equity changes. The principal elimination entries
eliminate investments in subsidiaries and intercompany balances
and transactions.
F-49
Consolidating
Condensed Balance Sheets
As of December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Products
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
|
|
|
|
|
|
|
Corporation
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
ASSETS
|
Cash and cash equivalents
|
|
$
|
20.5
|
|
|
$
|
0.1
|
|
|
$
|
56.1
|
|
|
$
|
|
|
|
$
|
76.7
|
|
Trade receivables, less allowances for
doubtful accounts
|
|
|
91.0
|
|
|
|
14.9
|
|
|
|
91.6
|
|
|
|
|
|
|
|
197.5
|
|
Inventories
|
|
|
76.6
|
|
|
|
2.4
|
|
|
|
36.0
|
|
|
|
|
|
|
|
115.0
|
|
Deferred income taxes current
|
|
|
34.4
|
|
|
|
|
|
|
|
5.9
|
|
|
|
|
|
|
|
40.3
|
|
Prepaid expenses and other
|
|
|
72.5
|
|
|
|
3.2
|
|
|
|
22.4
|
|
|
|
|
|
|
|
98.1
|
|
Intercompany receivables
|
|
|
895.1
|
|
|
|
432.0
|
|
|
|
331.1
|
|
|
|
(1,658.2
|
)
|
|
|
|
|
Investment in subsidiaries
|
|
|
(229.8
|
)
|
|
|
(184.7
|
)
|
|
|
|
|
|
|
414.5
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
89.4
|
|
|
|
0.6
|
|
|
|
16.2
|
|
|
|
|
|
|
|
106.2
|
|
Deferred income taxes noncurrent
|
|
|
214.0
|
|
|
|
|
|
|
|
2.6
|
|
|
|
|
|
|
|
216.6
|
|
Other assets
|
|
|
55.8
|
|
|
|
4.2
|
|
|
|
27.3
|
|
|
|
|
|
|
|
87.3
|
|
Goodwill, net
|
|
|
150.6
|
|
|
|
30.0
|
|
|
|
2.1
|
|
|
|
|
|
|
|
182.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,470.1
|
|
|
$
|
302.7
|
|
|
$
|
591.3
|
|
|
$
|
(1,243.7
|
)
|
|
$
|
1,120.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS DEFICIENCY
|
Short-term borrowings
|
|
$
|
|
|
|
$
|
1.8
|
|
|
$
|
1.9
|
|
|
$
|
|
|
|
$
|
3.7
|
|
Current portion of long-term debt
|
|
|
8.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8.0
|
|
Accounts payable
|
|
|
54.3
|
|
|
|
4.4
|
|
|
|
25.8
|
|
|
|
|
|
|
|
84.5
|
|
Accrued expenses and other
|
|
|
140.1
|
|
|
|
9.0
|
|
|
|
67.1
|
|
|
|
|
|
|
|
216.2
|
|
Intercompany payables
|
|
|
516.4
|
|
|
|
613.4
|
|
|
|
528.4
|
|
|
|
(1,658.2
|
)
|
|
|
|
|
Long-term debt
|
|
|
1,100.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,100.9
|
|
Long-term debt affiliates
|
|
|
107.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
107.0
|
|
Other long-term liabilities
|
|
|
200.5
|
|
|
|
9.1
|
|
|
|
47.6
|
|
|
|
|
|
|
|
257.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
2,127.2
|
|
|
|
637.7
|
|
|
|
670.8
|
|
|
|
(1,658.2
|
)
|
|
|
1,777.5
|
|
Stockholders deficiency
|
|
|
(657.1
|
)
|
|
|
(335.0
|
)
|
|
|
(79.5
|
)
|
|
|
414.5
|
|
|
|
(657.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders deficiency
|
|
$
|
1,470.1
|
|
|
$
|
302.7
|
|
|
$
|
591.3
|
|
|
$
|
(1,243.7
|
)
|
|
$
|
1,120.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-50
Consolidating
Condensed Balance Sheets
As of December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Products
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
|
|
|
|
|
|
|
Corporation
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
ASSETS
|
Cash and cash equivalents
|
|
$
|
27.4
|
|
|
$
|
0.4
|
|
|
$
|
26.7
|
|
|
$
|
|
|
|
$
|
54.5
|
|
Trade receivables, less allowances for
doubtful accounts
|
|
|
81.1
|
|
|
|
15.5
|
|
|
|
85.1
|
|
|
|
|
|
|
|
181.7
|
|
Inventories
|
|
|
76.2
|
|
|
|
3.5
|
|
|
|
39.5
|
|
|
|
|
|
|
|
119.2
|
|
Deferred income taxes current
|
|
|
|
|
|
|
|
|
|
|
3.9
|
|
|
|
|
|
|
|
3.9
|
|
Prepaid expenses and other
|
|
|
60.1
|
|
|
|
4.3
|
|
|
|
22.6
|
|
|
|
|
|
|
|
87.0
|
|
Intercompany receivables
|
|
|
855.1
|
|
|
|
443.7
|
|
|
|
299.8
|
|
|
|
(1,598.6
|
)
|
|
|
|
|
Investment in subsidiaries
|
|
|
(248.1
|
)
|
|
|
(215.1
|
)
|
|
|
|
|
|
|
463.2
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
94.3
|
|
|
|
1.1
|
|
|
|
16.3
|
|
|
|
|
|
|
|
111.7
|
|
Deferred income taxes noncurrent
|
|
|
|
|
|
|
|
|
|
|
4.8
|
|
|
|
|
|
|
|
4.8
|
|
Other assets
|
|
|
56.8
|
|
|
|
2.7
|
|
|
|
25.6
|
|
|
|
|
|
|
|
85.1
|
|
Goodwill, net
|
|
|
150.6
|
|
|
|
30.0
|
|
|
|
2.0
|
|
|
|
|
|
|
|
182.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,153.5
|
|
|
$
|
286.1
|
|
|
$
|
526.3
|
|
|
$
|
(1,135.4
|
)
|
|
$
|
830.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS DEFICIENCY
|
Short-term borrowings
|
|
$
|
|
|
|
$
|
|
|
|
$
|
0.3
|
|
|
$
|
|
|
|
$
|
0.3
|
|
Current portion of long-term debt
|
|
|
13.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13.6
|
|
Accounts payable
|
|
|
55.8
|
|
|
|
5.0
|
|
|
|
21.6
|
|
|
|
|
|
|
|
82.4
|
|
Accrued expenses and other
|
|
|
133.2
|
|
|
|
9.5
|
|
|
|
66.2
|
|
|
|
|
|
|
|
208.9
|
|
Intercompany payables
|
|
|
495.1
|
|
|
|
604.6
|
|
|
|
498.9
|
|
|
|
(1,598.6
|
)
|
|
|
|
|
Long-term debt
|
|
|
1,127.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,127.8
|
|
Long-term debt affiliates
|
|
|
107.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
107.0
|
|
Other long-term liabilities
|
|
|
214.8
|
|
|
|
15.7
|
|
|
|
53.8
|
|
|
|
|
|
|
|
284.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
2,147.3
|
|
|
|
634.8
|
|
|
|
640.8
|
|
|
|
(1,598.6
|
)
|
|
|
1,824.3
|
|
Stockholders deficiency
|
|
|
(993.8
|
)
|
|
|
(348.7
|
)
|
|
|
(114.5
|
)
|
|
|
463.2
|
|
|
|
(993.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders deficiency
|
|
$
|
1,153.5
|
|
|
$
|
286.1
|
|
|
$
|
526.3
|
|
|
$
|
(1,135.4
|
)
|
|
$
|
830.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-51
Consolidating
Condensed Statement of Operations
For the Year Ended December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Products
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
|
|
|
|
|
|
|
Corporation
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Net sales
|
|
$
|
854.2
|
|
|
$
|
69.4
|
|
|
$
|
546.1
|
|
|
$
|
(148.3
|
)
|
|
$
|
1,321.4
|
|
Cost of sales
|
|
|
367.8
|
|
|
|
32.0
|
|
|
|
203.8
|
|
|
|
(148.3
|
)
|
|
|
455.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
486.4
|
|
|
|
37.4
|
|
|
|
342.3
|
|
|
|
|
|
|
|
866.1
|
|
Selling, general and administrative expenses
|
|
|
399.6
|
|
|
|
32.5
|
|
|
|
227.2
|
|
|
|
|
|
|
|
659.3
|
|
Restructuring costs and other, net
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
87.0
|
|
|
|
4.9
|
|
|
|
115.2
|
|
|
|
|
|
|
|
207.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expenses (income):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany interest, net
|
|
|
(0.1
|
)
|
|
|
(1.1
|
)
|
|
|
7.4
|
|
|
|
|
|
|
|
6.2
|
|
Interest expense
|
|
|
89.9
|
|
|
|
0.3
|
|
|
|
0.3
|
|
|
|
|
|
|
|
90.5
|
|
Interest income
|
|
|
|
|
|
|
|
|
|
|
(0.5
|
)
|
|
|
|
|
|
|
(0.5
|
)
|
Amortization of debt issuance costs
|
|
|
4.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.5
|
|
Loss on early extinguishment of debt, net
|
|
|
9.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9.7
|
|
Foreign currency (gains) losses, net
|
|
|
(4.6
|
)
|
|
|
(0.3
|
)
|
|
|
11.2
|
|
|
|
|
|
|
|
6.3
|
|
Miscellaneous, net
|
|
|
(46.9
|
)
|
|
|
2.9
|
|
|
|
45.7
|
|
|
|
|
|
|
|
1.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expenses, net
|
|
|
52.5
|
|
|
|
1.8
|
|
|
|
64.1
|
|
|
|
|
|
|
|
118.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before
income taxes
|
|
|
34.5
|
|
|
|
3.1
|
|
|
|
51.1
|
|
|
|
|
|
|
|
88.7
|
|
(Benefit from) provision for income taxes
|
|
|
(255.8
|
)
|
|
|
4.1
|
|
|
|
16.4
|
|
|
|
|
|
|
|
(235.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
290.3
|
|
|
|
(1.0
|
)
|
|
|
34.7
|
|
|
|
|
|
|
|
324.0
|
|
Income from discontinued operations,
net of taxes
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.3
|
|
Equity in income of subsidiaries
|
|
|
33.7
|
|
|
|
18.5
|
|
|
|
|
|
|
|
(52.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
324.3
|
|
|
$
|
17.5
|
|
|
$
|
34.7
|
|
|
$
|
(52.2
|
)
|
|
$
|
324.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-52
Consolidating
Condensed Statement of Operations
For the Year Ended December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Products
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
|
|
|
|
|
|
|
Corporation
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Net sales
|
|
$
|
852.6
|
|
|
$
|
71.0
|
|
|
$
|
500.9
|
|
|
$
|
(128.6
|
)
|
|
$
|
1,295.9
|
|
Cost of sales
|
|
|
373.0
|
|
|
|
31.2
|
|
|
|
199.1
|
|
|
|
(128.6
|
)
|
|
|
474.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
479.6
|
|
|
|
39.8
|
|
|
|
301.8
|
|
|
|
|
|
|
|
821.2
|
|
Selling, general and administrative expenses
|
|
|
375.7
|
|
|
|
33.7
|
|
|
|
210.2
|
|
|
|
|
|
|
|
619.6
|
|
Restructuring costs and other, net
|
|
|
16.7
|
|
|
|
1.2
|
|
|
|
3.4
|
|
|
|
|
|
|
|
21.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
87.2
|
|
|
|
4.9
|
|
|
|
88.2
|
|
|
|
|
|
|
|
180.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expenses (income):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany interest, net
|
|
|
(2.0
|
)
|
|
|
(1.5
|
)
|
|
|
4.9
|
|
|
|
|
|
|
|
1.4
|
|
Interest expense
|
|
|
91.2
|
|
|
|
0.1
|
|
|
|
0.3
|
|
|
|
|
|
|
|
91.6
|
|
Interest income
|
|
|
|
|
|
|
|
|
|
|
(0.5
|
)
|
|
|
|
|
|
|
(0.5
|
)
|
Amortization of debt issuance costs
|
|
|
5.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.5
|
|
Loss on early extinguishment of debt, net
|
|
|
5.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.8
|
|
Foreign currency (gains) losses, net
|
|
|
(0.8
|
)
|
|
|
0.4
|
|
|
|
9.3
|
|
|
|
|
|
|
|
8.9
|
|
Miscellaneous, net
|
|
|
(36.6
|
)
|
|
|
(4.8
|
)
|
|
|
42.4
|
|
|
|
|
|
|
|
1.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expenses, net
|
|
|
63.1
|
|
|
|
(5.8
|
)
|
|
|
56.4
|
|
|
|
|
|
|
|
113.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before
income taxes
|
|
|
24.1
|
|
|
|
10.7
|
|
|
|
31.8
|
|
|
|
|
|
|
|
66.6
|
|
Provision for income taxes
|
|
|
(25.6
|
)
|
|
|
23.1
|
|
|
|
10.6
|
|
|
|
|
|
|
|
8.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
49.7
|
|
|
|
(12.4
|
)
|
|
|
21.2
|
|
|
|
|
|
|
|
58.5
|
|
Income from discontinued operations,
net of taxes
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.3
|
|
Equity in earnings of subsidiaries
|
|
|
8.8
|
|
|
|
12.5
|
|
|
|
|
|
|
|
(21.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
58.8
|
|
|
$
|
0.1
|
|
|
$
|
21.2
|
|
|
$
|
(21.3
|
)
|
|
$
|
58.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-53
Consolidating
Condensed Statement of Operations
For the Year Ended December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Products
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
|
|
|
|
|
|
|
Corporation
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Net sales
|
|
$
|
898.9
|
|
|
$
|
81.6
|
|
|
$
|
510.0
|
|
|
$
|
(143.7
|
)
|
|
$
|
1,346.8
|
|
Cost of sales
|
|
|
398.5
|
|
|
|
34.4
|
|
|
|
201.7
|
|
|
|
(143.7
|
)
|
|
|
490.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
500.4
|
|
|
|
47.2
|
|
|
|
308.3
|
|
|
|
|
|
|
|
855.9
|
|
Selling, general and administrative expenses
|
|
|
431.4
|
|
|
|
40.5
|
|
|
|
229.7
|
|
|
|
|
|
|
|
701.6
|
|
Restructuring costs and other, net
|
|
|
(3.4
|
)
|
|
|
|
|
|
|
(5.0
|
)
|
|
|
|
|
|
|
(8.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
72.4
|
|
|
|
6.7
|
|
|
|
83.6
|
|
|
|
|
|
|
|
162.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expenses (income):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany interest, net
|
|
|
(1.7
|
)
|
|
|
(1.6
|
)
|
|
|
3.3
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
119.1
|
|
|
|
0.1
|
|
|
|
0.5
|
|
|
|
|
|
|
|
119.7
|
|
Interest income
|
|
|
(0.4
|
)
|
|
|
|
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
(0.7
|
)
|
Amortization of debt issuance costs
|
|
|
5.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.6
|
|
Loss on early extinguishment of debt, net
|
|
|
0.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.7
|
|
Foreign currency (gains) losses, net
|
|
|
|
|
|
|
(1.4
|
)
|
|
|
1.5
|
|
|
|
|
|
|
|
0.1
|
|
Miscellaneous, net
|
|
|
(35.5
|
)
|
|
|
3.2
|
|
|
|
32.7
|
|
|
|
|
|
|
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expenses, net
|
|
|
87.8
|
|
|
|
0.3
|
|
|
|
37.7
|
|
|
|
|
|
|
|
125.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations
before income taxes
|
|
|
(15.4
|
)
|
|
|
6.4
|
|
|
|
45.9
|
|
|
|
|
|
|
|
36.9
|
|
Provision for income taxes
|
|
|
(0.4
|
)
|
|
|
(1.2
|
)
|
|
|
17.5
|
|
|
|
|
|
|
|
15.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations
|
|
|
(15.0
|
)
|
|
|
7.6
|
|
|
|
28.4
|
|
|
|
|
|
|
|
21.0
|
|
Income from discontinued operations,
net of taxes
|
|
|
|
|
|
|
|
|
|
|
44.8
|
|
|
|
|
|
|
|
44.8
|
|
Equity in earnings of subsidiaries
|
|
|
80.8
|
|
|
|
58.1
|
|
|
|
|
|
|
|
(138.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
65.8
|
|
|
$
|
65.7
|
|
|
$
|
73.2
|
|
|
$
|
(138.9
|
)
|
|
$
|
65.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-54
Consolidating
Condensed Statement of Cash Flow
For the Year Ended December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
Corporation
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
Net cash provided by (used in) operating activities
|
|
$
|
70.8
|
|
|
$
|
(0.9
|
)
|
|
$
|
26.8
|
|
|
$
|
|
|
|
$
|
96.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
Capital expenditures
|
|
|
(13.7
|
)
|
|
|
(0.1
|
)
|
|
|
(1.4
|
)
|
|
|
|
|
|
|
(15.2
|
)
|
Proceeds from sales of certain assets
|
|
|
|
|
|
|
|
|
|
|
0.3
|
|
|
|
|
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(13.7
|
)
|
|
|
(0.1
|
)
|
|
|
(1.1
|
)
|
|
|
|
|
|
|
(14.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
Net (decrease) increase in short-term borrowings and
overdraft
|
|
|
(12.8
|
)
|
|
|
0.7
|
|
|
|
1.5
|
|
|
|
|
|
|
|
(10.6
|
)
|
Repayments under the 2006 Term Loan Facility
|
|
|
(815.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(815.0
|
)
|
Borrowings under the 2010 Term Loan Facility
|
|
|
786.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
786.0
|
|
Repayments of long-term debt
|
|
|
(6.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6.0
|
)
|
Payment of financing costs
|
|
|
(17.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17.0
|
)
|
Other
|
|
|
0.8
|
|
|
|
|
|
|
|
(0.5
|
)
|
|
|
|
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(64.0
|
)
|
|
|
0.7
|
|
|
|
1.0
|
|
|
|
|
|
|
|
(62.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash
equivalents
|
|
|
|
|
|
|
|
|
|
|
2.7
|
|
|
|
|
|
|
|
2.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash
equivalents
|
|
|
(6.9
|
)
|
|
|
(0.3
|
)
|
|
|
29.4
|
|
|
|
|
|
|
|
22.2
|
|
Cash and cash equivalents at beginning of period
|
|
|
27.4
|
|
|
|
0.4
|
|
|
|
26.7
|
|
|
|
|
|
|
|
54.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
20.5
|
|
|
$
|
0.1
|
|
|
$
|
56.1
|
|
|
$
|
|
|
|
$
|
76.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-55
Consolidating
Condensed Statement of Cash Flow
For the Year Ended December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
Corporation
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
Net cash provided by (used in) operating activities
|
|
$
|
112.1
|
|
|
$
|
(1.5
|
)
|
|
$
|
(7.3
|
)
|
|
$
|
|
|
|
$
|
103.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
Capital expenditures
|
|
|
(11.1
|
)
|
|
|
(0.2
|
)
|
|
|
(3.0
|
)
|
|
|
|
|
|
|
(14.3
|
)
|
Proceeds from the sale of certain assets including a
non-core trademark
|
|
|
|
|
|
|
|
|
|
|
2.5
|
|
|
|
|
|
|
|
2.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(11.1
|
)
|
|
|
(0.2
|
)
|
|
|
(0.5
|
)
|
|
|
|
|
|
|
(11.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
Net increase (decrease) in short-term borrowings and
overdraft
|
|
|
5.2
|
|
|
|
1.0
|
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
6.0
|
|
Repayments under the 2006 Term Loan Facility
|
|
|
(18.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(18.7
|
)
|
Proceeds from the issuance of long-term debt, net
|
|
|
326.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
326.4
|
|
Repayment of long-term debt
|
|
|
(381.4
|
)
|
|
|
|
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
(381.7
|
)
|
Payment of financing costs
|
|
|
(23.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(23.4
|
)
|
Other
|
|
|
(0.6
|
)
|
|
|
|
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
(0.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(92.5
|
)
|
|
|
1.0
|
|
|
|
(0.8
|
)
|
|
|
|
|
|
|
(92.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by discontinued operations
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash
equivalents
|
|
|
|
|
|
|
0.1
|
|
|
|
2.2
|
|
|
|
|
|
|
|
2.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash
equivalents
|
|
|
8.7
|
|
|
|
(0.6
|
)
|
|
|
(6.4
|
)
|
|
|
|
|
|
|
1.7
|
|
Cash and cash equivalents at beginning of period
|
|
|
18.7
|
|
|
|
1.0
|
|
|
|
33.1
|
|
|
|
|
|
|
|
52.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
27.4
|
|
|
$
|
0.4
|
|
|
$
|
26.7
|
|
|
$
|
|
|
|
$
|
54.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-56
Consolidating
Condensed Statement of Cash Flow
For the Year Ended December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
Corporation
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
Net cash provided by (used in) operating activities
|
|
$
|
37.0
|
|
|
$
|
(3.7
|
)
|
|
$
|
(0.2
|
)
|
|
$
|
|
|
|
$
|
33.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
Capital expenditures
|
|
|
(14.6
|
)
|
|
|
(0.7
|
)
|
|
|
(4.3
|
)
|
|
|
|
|
|
|
(19.6
|
)
|
Proceeds from the sale of assets of discontinued
operations
|
|
|
107.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
107.6
|
|
Proceeds from the sale of certain assets including a
non-core trademark
|
|
|
6.1
|
|
|
|
|
|
|
|
7.5
|
|
|
|
|
|
|
|
13.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
99.1
|
|
|
|
(0.7
|
)
|
|
|
3.2
|
|
|
|
|
|
|
|
101.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
Net increase (decrease) in short-term borrowings and
overdraft
|
|
|
3.6
|
|
|
|
0.5
|
|
|
|
(1.0
|
)
|
|
|
|
|
|
|
3.1
|
|
Repayment under the 2006 Revolving Credit
Facility, net
|
|
|
(43.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(43.5
|
)
|
Repayments under the 2006 Term Loan Facility
|
|
|
(6.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6.3
|
)
|
Proceeds from the issuance of long-term debt
affiliates
|
|
|
170.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
170.0
|
|
Repayment of long-term debt
|
|
|
(167.4
|
)
|
|
|
|
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
(167.6
|
)
|
Repayment of long-term debt affiliates
|
|
|
(63.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(63.0
|
)
|
Payment of financing costs
|
|
|
(4.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4.6
|
)
|
Other
|
|
|
(0.8
|
)
|
|
|
|
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
(1.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(112.0
|
)
|
|
|
0.5
|
|
|
|
(1.5
|
)
|
|
|
|
|
|
|
(113.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by discontinued
operations
|
|
|
(12.7
|
)
|
|
|
|
|
|
|
0.5
|
|
|
|
|
|
|
|
(12.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash
equivalents
|
|
|
|
|
|
|
(0.1
|
)
|
|
|
(1.7
|
)
|
|
|
|
|
|
|
(1.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash
equivalents
|
|
|
11.4
|
|
|
|
(4.0
|
)
|
|
|
0.3
|
|
|
|
|
|
|
|
7.7
|
|
Cash and cash equivalents at beginning of period
|
|
|
7.3
|
|
|
|
5.0
|
|
|
|
32.8
|
|
|
|
|
|
|
|
45.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
18.7
|
|
|
$
|
1.0
|
|
|
$
|
33.1
|
|
|
$
|
|
|
|
$
|
52.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Schedule II
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
Charged to
|
|
|
|
|
|
Balance at
|
|
|
|
Beginning of
|
|
|
Cost and
|
|
|
Other
|
|
|
End of
|
|
|
|
Year
|
|
|
Expenses
|
|
|
Deductions
|
|
|
Year
|
|
|
Allowance for Doubtful
Accounts(a):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
$
|
3.8
|
|
|
$
|
(0.6
|
)
|
|
$
|
(0.1
|
)
|
|
$
|
3.1
|
|
2009
|
|
|
3.3
|
|
|
|
0.9
|
|
|
|
(0.4
|
)
|
|
|
3.8
|
|
2008
|
|
|
3.5
|
|
|
|
0.4
|
|
|
|
(0.6
|
)
|
|
|
3.3
|
|
Allowance for Volume and Early Payment
Discounts(b):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
$
|
14.4
|
|
|
$
|
60.9
|
|
|
$
|
(60.1
|
)
|
|
$
|
15.2
|
|
2009
|
|
|
13.5
|
|
|
|
56.2
|
|
|
|
(55.3
|
)
|
|
|
14.4
|
|
2008
|
|
|
15.2
|
|
|
|
56.0
|
|
|
|
(57.7
|
)
|
|
|
13.5
|
|
Allowance for Sales
Returns(c):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
$
|
65.5
|
|
|
$
|
75.4
|
|
|
$
|
(81.0
|
)
|
|
$
|
59.9
|
|
2009
|
|
|
70.2
|
|
|
|
86.0
|
|
|
|
(90.7
|
)
|
|
|
65.5
|
|
2008
|
|
|
80.4
|
|
|
|
84.7
|
|
|
|
(94.9
|
)
|
|
|
70.2
|
|
|
|
|
(a) |
|
Doubtful accounts written off, less recoveries,
reclassifications and foreign currency translation adjustments. |
|
(b) |
|
Discounts taken, reclassifications and foreign currency
translation adjustments. |
|
(c) |
|
Sales returns as a reduction to sales and cost of sales, and an
increase to accrued liabilities and inventories. |
F-58
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Revlon
Consumer Products Corporation
(Registrant)
|
|
|
|
|
By: /s/ Alan
T. Ennis
Alan
T. Ennis
President,
Chief Executive Officer and
Director
|
|
By: /s/ Steven
Berns
Steven
Berns
Executive Vice President
and
Chief Financial Officer
|
|
By: /s/ Gina
M. Mastantuono
Gina
M. Mastantuono
Senior Vice President,
Corporate Controller and
Chief Accounting Officer
|
Dated: February 17, 2011
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed by the following persons on
behalf of the Registrant on February 17, 2011 and in the
capacities indicated.
|
|
|
|
|
Signature
|
|
Title
|
|
|
|
Chairman of the Board and Director
|
|
|
Director
|
|
|
Vice Chairman and Director
|
|
|
Director
|
|
|
Director
|
|
|
|
* |
|
Robert K. Kretzman, by signing his name hereto, does hereby sign
this report on behalf of the directors of the registrant above
whose typed names asterisks appear, pursuant to powers of
attorney duly executed by such directors and filed with the
Securities and Exchange Commission. |
By:
/s/ Robert
K. Kretzman
Robert K. Kretzman
Attorney-in-fact