Attached files
file | filename |
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EX-31.2 - EX-31.2 - REVLON CONSUMER PRODUCTS CORP | y04214exv31w2.htm |
EX-31.1 - EX-31.1 - REVLON CONSUMER PRODUCTS CORP | y04214exv31w1.htm |
EX-32.2 - EX-32.2 - REVLON CONSUMER PRODUCTS CORP | y04214exv32w2.htm |
EX-32.1 - EX-32.1 - REVLON CONSUMER PRODUCTS CORP | y04214exv32w1.htm |
UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C.
20549
FORM 10-Q
(Mark One) | ||
x QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 |
||
For the quarterly
period ended March 31, 2011
|
||
OR
|
||
o TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 |
||
For the transition period
from
to
|
Commission File Number:
33-59650
REVLON CONSUMER PRODUCTS
CORPORATION
(Exact name of registrant as specified in its charter)
Delaware (State or other jurisdiction of incorporation or organization) |
13-3662953 (I.R.S. Employer Identification No.) |
|
237 Park Avenue, New York, New York (Address of principal executive offices) |
10017 (Zip Code) |
212-527-4000
(Registrants telephone number, including area code)
(Registrants telephone number, including area code)
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 preceding
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 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):
Large accelerated filer o | Accelerated filer o | Non-accelerated filer þ | Smaller reporting company o |
(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 number of shares outstanding of the registrants common
stock was 5,260 shares as of March 31, 2011, all of
which were held by one affiliate, Revlon, Inc.
REVLON
CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
INDEX
PART I Financial Information
|
||||||
Item 1.
|
Financial Statements
|
|||||
Consolidated Balance Sheets as of March 31,
2011 (Unaudited) and December 31, 2010
|
2 | |||||
Unaudited Consolidated Statements of Operations for
the Three Months Ended March 31, 2011 and 2010
|
3 | |||||
Unaudited Consolidated Statement of
Stockholders Deficiency and Comprehensive Income (Loss)
for the Three Months Ended March 31, 2011
|
4 | |||||
Unaudited Consolidated Statements of Cash Flows for
the Three Months Ended March 31, 2011 and 2010
|
5 | |||||
Notes to Unaudited Consolidated Financial Statements
|
6 | |||||
Item 2.
|
Managements Discussion and Analysis of Financial Condition
and Results of Operations
|
22 | ||||
Item 3.
|
Quantitative and Qualitative Disclosures About Market Risk
|
33 | ||||
Item 4.
|
Controls and Procedures
|
34 | ||||
PART II Other Information
|
||||||
Item 1A.
|
Risk Factors
|
38 | ||||
Item 5.
|
Exhibits
|
39 | ||||
Signatures
|
||||||
40 |
1
PART I
FINANCIAL INFORMATION
Item 1. | Financial Statements |
CONSOLIDATED
BALANCE SHEETS
(dollars in millions, except share and per share amounts)
(dollars in millions, except share and per share amounts)
March 31, |
December 31, |
|||||||
2011 | 2010 | |||||||
(Unaudited) | ||||||||
ASSETS
|
||||||||
Current assets:
|
||||||||
Cash and cash equivalents
|
$ | 61.2 | $ | 76.7 | ||||
Trade receivables, less allowance for doubtful accounts of $3.1
as of both March 31, 2011 and December 31, 2010
|
182.4 | 197.5 | ||||||
Inventories
|
130.2 | 115.0 | ||||||
Deferred income taxes current
|
40.7 | 40.3 | ||||||
Prepaid expenses and other
|
110.4 | 98.1 | ||||||
Total current assets
|
524.9 | 527.6 | ||||||
Property, plant and equipment, net
|
104.0 | 106.2 | ||||||
Deferred income taxes noncurrent
|
212.4 | 216.6 | ||||||
Other assets
|
108.7 | 87.3 | ||||||
Goodwill, net
|
194.1 | 182.7 | ||||||
Total assets
|
$ | 1,144.1 | $ | 1,120.4 | ||||
LIABILITIES AND STOCKHOLDERS DEFICIENCY | ||||||||
Current liabilities:
|
||||||||
Short-term borrowings
|
$ | 6.4 | $ | 3.7 | ||||
Current portion of long-term debt
|
8.0 | 8.0 | ||||||
Accounts payable
|
96.0 | 84.5 | ||||||
Accrued expenses and other
|
221.8 | 216.2 | ||||||
Total current liabilities
|
332.2 | 312.4 | ||||||
Long-term debt
|
1,099.6 | 1,100.9 | ||||||
Long-term debt affiliates
|
107.0 | 107.0 | ||||||
Long-term pension and other post-retirement plan liabilities
|
192.9 | 201.5 | ||||||
Other long-term liabilities
|
56.7 | 55.7 | ||||||
Stockholders deficiency:
|
||||||||
RCPC Preferred Stock, par value $1.00 per share:
1,000 shares authorized; 546 shares issued and
outstanding as of March 31, 2011 and December 31,
2010, respectively
|
54.6 | 54.6 | ||||||
Common Stock, par value $1.00 per share: 10,000 shares
authorized; 5,260 shares issued as of March 31, 2011
and December 31, 2010, respectively
|
| | ||||||
Additional paid-in capital
|
944.0 | 943.2 | ||||||
Accumulated deficit
|
(1,492.6 | ) | (1,504.6 | ) | ||||
Accumulated other comprehensive loss
|
(150.3 | ) | (150.3 | ) | ||||
Total stockholders deficiency
|
(644.3 | ) | (657.1 | ) | ||||
Total liabilities and stockholders deficiency
|
$ | 1,144.1 | $ | 1,120.4 | ||||
See Accompanying Notes to Unaudited Consolidated Financial
Statements
2
REVLON
CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in millions)
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in millions)
Three Months Ended |
||||||||
March 31, | ||||||||
2011 | 2010 | |||||||
Net sales
|
$ | 333.2 | $ | 305.5 | ||||
Cost of sales
|
113.3 | 108.7 | ||||||
Gross profit
|
219.9 | 196.8 | ||||||
Selling, general and administrative expenses
|
173.1 | 149.7 | ||||||
Operating income
|
46.8 | 47.1 | ||||||
Other expenses (income):
|
||||||||
Interest expense
|
24.1 | 22.9 | ||||||
Interest income
|
(0.1 | ) | (0.2 | ) | ||||
Amortization of debt issuance costs
|
1.1 | 1.4 | ||||||
Loss on early extinguishment of debt, net
|
| 9.7 | ||||||
Foreign currency losses, net
|
0.3 | 3.8 | ||||||
Miscellaneous, net
|
0.8 | 0.3 | ||||||
Other expenses, net
|
26.2 | 37.9 | ||||||
Income before income taxes
|
20.6 | 9.2 | ||||||
Provision for income taxes
|
8.6 | 5.0 | ||||||
Net income
|
$ | 12.0 | $ | 4.2 | ||||
See Accompanying Notes to Unaudited Consolidated Financial
Statements
3
REVLON
CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF STOCKHOLDERS DEFICIENCY
AND COMPREHENSIVE INCOME (LOSS)
(dollars in millions)
UNAUDITED CONSOLIDATED STATEMENT OF STOCKHOLDERS DEFICIENCY
AND COMPREHENSIVE INCOME (LOSS)
(dollars in millions)
Accumulated |
||||||||||||||||||||
Additional |
Other |
Total |
||||||||||||||||||
Preferred |
Paid-In- |
Accumulated |
Comprehensive |
Stockholders |
||||||||||||||||
Stock | Capital | Deficit | Loss | Deficiency | ||||||||||||||||
Balance, January 1, 2011
|
$ | 54.6 | $ | 943.2 | $ | (1,504.6 | ) | $ | (150.3 | ) | $ | (657.1 | ) | |||||||
Stock-based compensation amortization
|
0.8 | 0.8 | ||||||||||||||||||
Comprehensive income:
|
||||||||||||||||||||
Net income
|
12.0 | 12.0 | ||||||||||||||||||
Currency translation adjustment
|
(0.9 | ) | (0.9 | ) | ||||||||||||||||
Amortization of pension related costs, net of
tax(a)
|
0.9 | 0.9 | ||||||||||||||||||
Total comprehensive income
|
12.0 | |||||||||||||||||||
Balance, March 31, 2011
|
$ | 54.6 | $ | 944.0 | $ | (1,492.6 | ) | $ | (150.3 | ) | $ | (644.3 | ) | |||||||
(a) | See Note 2, Pension and Post-retirement Benefits, and Note 5, Comprehensive Income, in this Form 10-Q for details on the change in Accumulated Other Comprehensive Loss as a result of the amortization of unrecognized prior service costs and actuarial losses arising during the first quarter of 2011. |
See Accompanying Notes to Unaudited Consolidated Financial
Statements
4
REVLON
CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in millions)
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in millions)
Three Months Ended |
||||||||
March 31, | ||||||||
2011 | 2010 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
Net income
|
$ | 12.0 | $ | 4.2 | ||||
Adjustments to reconcile net income to net cash provided by
operating activities:
|
||||||||
Depreciation and amortization
|
15.2 | 14.4 | ||||||
Amortization of debt discount
|
0.7 | 0.3 | ||||||
Stock compensation amortization
|
0.8 | 1.3 | ||||||
Provision for deferred income taxes
|
3.2 | 0.2 | ||||||
Loss on early extinguishment of debt, net
|
| 9.7 | ||||||
Amortization of debt issuance costs
|
1.1 | 1.4 | ||||||
Pension and other post-retirement expense
|
1.3 | 3.8 | ||||||
Change in assets and liabilities:
|
||||||||
Decrease in trade receivables
|
19.1 | 6.7 | ||||||
(Increase) decrease in inventories
|
(11.5 | ) | 3.5 | |||||
Increase in prepaid expenses and other current assets
|
(11.8 | ) | (14.4 | ) | ||||
Increase in accounts payable
|
8.6 | 8.8 | ||||||
Increase in accrued expenses and other current liabilities
|
3.2 | 11.2 | ||||||
Pension and other post-retirement plan contributions
|
(8.8 | ) | (5.8 | ) | ||||
Purchase of permanent displays
|
(8.9 | ) | (10.7 | ) | ||||
Other, net
|
(0.1 | ) | (3.8 | ) | ||||
Net cash provided by operating activities
|
24.1 | 30.8 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
Capital expenditures
|
(2.4 | ) | (3.1 | ) | ||||
Acquisitions
|
(39.0 | ) | | |||||
Proceeds from the sale of certain assets
|
| 0.1 | ||||||
Net cash used in investing activities
|
(41.4 | ) | (3.0 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
Net increase (decrease) in short-term borrowings and overdraft
|
4.3 | (13.0 | ) | |||||
Borrowings under the 2010 Revolving Credit Facility, net
|
| 10.5 | ||||||
Repayments under the 2006 Term Loan Facility
|
| (815.0 | ) | |||||
Borrowings under the 2010 Term Loan Facility
|
| 786.0 | ||||||
Repayment of long-term debt
|
(2.0 | ) | | |||||
Payment of financing costs
|
| (15.0 | ) | |||||
Other financing activities
|
(0.3 | ) | (0.2 | ) | ||||
Net cash provided by (used in) financing activities
|
2.0 | (46.7 | ) | |||||
Effect of exchange rate changes on cash and cash equivalents
|
(0.2 | ) | 0.2 | |||||
Net decrease in cash and cash equivalents
|
(15.5 | ) | (18.7 | ) | ||||
Cash and cash equivalents at beginning of period
|
76.7 | 54.5 | ||||||
Cash and cash equivalents at end of period
|
$ | 61.2 | $ | 35.8 | ||||
Supplemental schedule of cash flow information:
|
||||||||
Cash paid during the period for:
|
||||||||
Interest
|
$ | 16.1 | $ | 14.1 | ||||
Income taxes, net of refunds
|
2.2 | 2.5 |
See Accompanying Notes to Unaudited Consolidated Financial
Statements
5
REVLON
CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions)
(1) | Description of Business 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 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 Revlon, Inc. and the Company,
MacAndrews & Forbes), a corporation
wholly-owned by Ronald O. Perelman.
The accompanying Consolidated Financial Statements are
unaudited. In managements opinion, all adjustments
necessary for a fair presentation have been made. The Unaudited
Consolidated Financial Statements include the accounts of the
Company after the 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 Unaudited
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 pension
benefit obligations. The Unaudited Consolidated Financial
Statements should be read in conjunction with the consolidated
financial statements and related notes contained in the
Companys Annual Report on
Form 10-K
for the year ended December 31, 2010 filed with the
Securities and Exchange Commission (the SEC) on
February 17, 2011 (the 2010
Form 10-K).
The Companys results of operations and financial position
for interim periods are not necessarily indicative of those to
be expected for a full year.
Certain prior year amounts in the Consolidated Financial
Statements have been reclassified to conform to the current
periods presentation.
6
REVLON
CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions)
(2) | Pension and Post-retirement Benefits |
The components of net periodic benefit cost for the pension and
the other post-retirement benefit plans for the first quarter of
2011 and 2010, respectively, are as follows:
Other |
||||||||||||||||
Post-retirement |
||||||||||||||||
Pension Plans | Benefit Plans | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Net periodic benefit costs:
|
||||||||||||||||
Service cost
|
$ | 0.3 | $ | 0.4 | $ | | $ | | ||||||||
Interest cost
|
8.1 | 8.5 | 0.2 | 0.2 | ||||||||||||
Expected return on plan assets
|
(8.7 | ) | (8.1 | ) | | | ||||||||||
Amortization of prior service cost
|
| | | | ||||||||||||
Amortization of actuarial loss
|
1.3 | 2.7 | 0.1 | 0.1 | ||||||||||||
$ | 1.0 | $ | 3.5 | $ | 0.3 | $ | 0.3 | |||||||||
In the first quarter of 2011, the Company recognized lower net
periodic benefit costs, as compared to the first quarter of
2010, primarily due to the increase in the fair value of pension
plan assets at December 31, 2010, partially offset by a
decrease in the weighted-average discount rate. The Company
expects net periodic benefit costs for the pension and the other
post-retirement benefit plans to be approximately
$5 million for all of 2011, compared with $9.3 million
in 2010.
During the first quarter of 2011, $8.5 million and
$0.3 million were contributed to the Companys pension
plans and other post-retirement benefit plans, respectively. The
Company currently expects to contribute approximately
$30 million in the aggregate to its pension plans and other
post-retirement benefit plans in 2011.
Relevant aspects of the qualified defined benefit pension plans,
nonqualified pension plans and other post-retirement benefit
plans sponsored by Products Corporation are disclosed in the
Companys 2010
Form 10-K.
(3) | Business Acquisition |
On March 17, 2011, the Company acquired certain net assets,
including trademarks and other intellectual property, inventory,
certain receivables and manufacturing equipment, related to
Sinful Colors cosmetics, Wild and Crazy cosmetics, freshMinerals
cosmetics and freshcover cosmetics, which products are sold
principally in the U.S. mass retail channel (the
Sinful Colors Acquisition). The Company paid
$39.0 million of total consideration for the Sinful Colors
Acquisition in cash, which included the $38.0 million
purchase price and a $1.0 million adjustment based on
working capital at closing. The results of operations related to
such acquired assets are included in the Companys
consolidated financial statements commencing on the date of
acquisition. Pro forma results of operations have not been
presented, as the impact on the Companys consolidated
financial results would not have been material.
The Company accounted for the Sinful Colors Acquisition as a
business combination during the first quarter of 2011 and,
accordingly, the total consideration of $39.0 million has
been allocated on a
7
REVLON
CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions)
preliminary basis to the net assets acquired based on their
respective estimated fair values at March 17, 2011 as
follows:
Recognized amounts of assets acquired and liabilities assumed:
|
||||
Trade receivables
|
$ | 2.9 | ||
Inventories
|
3.3 | |||
Property, plant and equipment, net
|
0.4 | |||
Intangible assets
|
22.8 | |||
Accounts payable
|
(0.9 | ) | ||
Accrued expenses and other
|
(0.9 | ) | ||
Fair value of net assets acquired
|
27.6 | |||
Goodwill
|
11.4 | |||
Total consideration
|
$ | 39.0 | ||
The allocation of the total consideration of $39.0 million
includes intangible assets of $22.8 million and goodwill of
$11.4 million, all of which is expected to be deductible
for income tax purposes. The Company, however, is in the process
of completing its assessment of the fair value of assets
acquired and liabilities assumed in the Sinful Colors
Acquisition. As a result, the fair value of the net assets
acquired is provisional pending completion of the final
valuation of such net assets.
(4) | Inventories |
March 31, |
December 31, |
|||||||
2011 | 2010 | |||||||
Raw materials and supplies
|
$ | 45.7 | $ | 39.7 | ||||
Work-in-process
|
11.2 | 9.9 | ||||||
Finished goods
|
73.3 | 65.4 | ||||||
$ | 130.2 | $ | 115.0 | |||||
(5) | Comprehensive Income |
The components of comprehensive income for the first quarter of
2011 and 2010, respectively, are as follows:
Three Months |
||||||||
Ended |
||||||||
March 31, | ||||||||
2011 | 2010 | |||||||
Net income
|
$ | 12.0 | $ | 4.2 | ||||
Other comprehensive income:
|
||||||||
Revaluation of financial derivative
instruments(a)
|
| 1.7 | ||||||
Currency translation adjustment
|
(0.9 | ) | 0.8 | |||||
Amortization of pension-related costs, net of
tax(b)
|
0.9 | 2.8 | ||||||
Total other comprehensive income
|
| 5.3 | ||||||
Comprehensive income
|
$ | 12.0 | $ | 9.5 | ||||
(a) | The amount for the three months ended March 31, 2010 relates to (1) the reclassification of an unrecognized loss of $0.8 million on the 2008 Interest Rate Swap (as hereinafter defined) from |
8
REVLON
CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions)
Accumulated Other Comprehensive Loss into earnings due to the discontinuance of hedge accounting as a result of the 2010 Refinancing (See Note 9, Financial Instruments, in this Form 10-Q) and (2) the reversal of amounts recorded in Accumulated Other Comprehensive Loss pertaining to a net settlement payment of $0.9 million on the 2008 Interest Rate Swap. | ||
(b) | The amounts represent the change in Accumulated Other Comprehensive Loss as a result of the amortization of actuarial losses arising during the first quarter of 2011 and 2010, respectively, related to the Companys pension and other post-retirement benefit plans. |
(6) | 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.
The $20.5 million of charges related to the May 2009
Program have been or are expected to be paid out as follows:
$11.0 million paid in 2009, $6.9 million paid in 2010,
$1.6 million expected to be paid in 2011 (of which
$0.5 million was paid during the first quarter of
2011) and the balance of $1.0 million expected to be
paid thereafter.
Details of the movements in the restructuring accrual for the
May 2009 Program during the first quarter of 2011 are as follows:
Balance |
Balance |
|||||||||||||||||||
as of |
(Income) |
as of |
||||||||||||||||||
January 1, |
Expenses, |
Utilized, Net |
March 31, |
|||||||||||||||||
2011 | Net | Cash | Noncash | 2011 | ||||||||||||||||
Employee severance and other personnel benefits:
|
||||||||||||||||||||
May 2009 Program | $ | 1.0 | $ | | $ | (0.4 | ) | $ | | $ | 0.6 | |||||||||
Lease exit
|
1.6 | | (0.1 | ) | | 1.5 | ||||||||||||||
Total restructuring costs and other, net
|
$ | 2.6 | $ | | $ | (0.5 | ) | $ | | $ | 2.1 | |||||||||
(7) | Geographic, Financial and Other Information |
The Company manages its business on the basis of one reportable
operating segment. As of March 31, 2011, 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.
In the tables below, certain prior year amounts have been
reclassified to conform to the current periods
presentation.
Three Months Ended |
||||||||||||||||
March 31, | ||||||||||||||||
2011 | 2010 | |||||||||||||||
Geographic area:
|
||||||||||||||||
Net sales:
|
||||||||||||||||
United States
|
$ | 186.2 | 56% | $ | 182.1 | 60% | ||||||||||
Outside of the United States
|
147.0 | 44% | 123.4 | 40% | ||||||||||||
$ | 333.2 | $ | 305.5 | |||||||||||||
9
REVLON
CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions)
March 31, | December 31, | |||||||||||||||
2011 | 2010 | |||||||||||||||
Long-lived assets net:
|
||||||||||||||||
United States
|
$ | 356.9 | 88% | $ | 326.5 | 87% | ||||||||||
Outside of the United States
|
49.9 | 12% | 49.7 | 13% | ||||||||||||
$ | 406.8 | $ | 376.2 | |||||||||||||
Three Months Ended |
||||||||||||||||
March 31, | ||||||||||||||||
2011 | 2010 | |||||||||||||||
Classes of similar products:
|
||||||||||||||||
Net sales:
|
||||||||||||||||
Color cosmetics
|
$ | 215.1 | 65% | $ | 193.7 | 63% | ||||||||||
Beauty care and fragrance
|
118.1 | 35% | 111.8 | 37% | ||||||||||||
$ | 333.2 | $ | 305.5 | |||||||||||||
(8) | 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 the 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. |
10
REVLON
CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions)
As of March 31, 2011, the fair values of the Companys
financial assets and liabilities, namely its FX Contracts (as
hereinafter defined), are categorized as presented in the table
below:
Total | Level 1 | Level 2 | Level 3 | |||||||||||||
Assets:
|
||||||||||||||||
FX
Contracts(a)
|
$ | 0.1 | $ | | $ | 0.1 | $ | | ||||||||
Total assets at fair value
|
$ | 0.1 | $ | | $ | 0.1 | $ | | ||||||||
Liabilities:
|
||||||||||||||||
FX
Contracts(a)
|
$ | 1.8 | $ | | $ | 1.8 | $ | | ||||||||
Total liabilities at fair value
|
$ | 1.8 | $ | | $ | 1.8 | $ | | ||||||||
(a) | The fair value of the Companys FX Contracts was measured based on observable market transactions of spot and forward rates at March 31, 2011. (See Note 9, Financial Instruments, in this Form 10-Q.) |
(9) | 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 estimated fair value of such
debt at March 31, 2011 was approximately
$1,262.5 million, which was more than the carrying value of
such debt at March 31, 2011 of $1,214.6 million. The
estimated fair value of such debt at December 31, 2010 was
approximately $1,259.6 million, which was more than the
carrying value of such debt at December 31, 2010 of
$1,215.9 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 (including amounts available under credit
agreements in effect at that time) were maintained at both
March 31, 2011 and December 31, 2010. Included in
these amounts is approximately $9.1 million at both
March 31, 2011 and December 31, 2010 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) 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 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 March 31, 2011 and December 31, 2010
was $48.6 million and $46.0 million, respectively.
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,
11
REVLON
CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions)
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.
Interest
Rate Swap Transaction
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 (as
hereinafter defined) (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 (as hereinafter defined in Note 10,
Long-Term Debt) (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 (as hereinafter defined in
Note 10, Long-term Debt), 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 as 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.
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
Consolidated Balance Sheet:
Fair Values of Derivative Instruments | ||||||||||||||||||||
Assets | Liabilities | |||||||||||||||||||
March 31, |
December 31, |
March 31, |
December 31, |
|||||||||||||||||
Balance Sheet |
2011 |
2010 |
Balance Sheet |
2011 |
2010 |
|||||||||||||||
Derivatives: | Classification | Fair Value | Fair Value | Classification | Fair Value | Fair Value | ||||||||||||||
Derivatives not designated as hedging instruments:
|
||||||||||||||||||||
FX
Contracts(a)
|
Prepaid expenses | $ | 0.1 | $ | 0.2 | Accrued expenses | $ | 1.8 | $ | 2.1 | ||||||||||
$ | 0.1 | $ | 0.2 | $ | 1.8 | $ | 2.1 | |||||||||||||
(a) | The fair values of the FX Contracts at March 31, 2011 and December 31, 2010 were determined by using observable market transactions of spot and forward rates at March 31, 2011 and December 31, 2010, respectively. |
12
REVLON
CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions)
(b) Effects of Derivative Financial Instruments on Income
and Other Comprehensive Income (Loss) (OCI):
Derivative Instruments Gain (Loss) Effect on Consolidated |
||||||||||||||||||
Statement of Operations as of March 31, | ||||||||||||||||||
Amount of |
||||||||||||||||||
Amount of |
Gain (Loss) |
|||||||||||||||||
Gain (Loss) |
Reclassified |
|||||||||||||||||
Recognized |
Income Statement |
from OCI |
||||||||||||||||
in OCI |
Classification of |
to Income |
||||||||||||||||
(Effective |
Gain (Loss) |
(Effective |
||||||||||||||||
Portion) |
Reclassified from |
Portion) | ||||||||||||||||
2011 | 2010 | OCI to Income | 2011 | 2010 | ||||||||||||||
Derivatives designated as hedging instruments:
|
||||||||||||||||||
2008 Interest Rate
Swap(a)
|
$ | | $ | | Interest expense | $ | | $ | (0.9 | ) | ||||||||
Amount of |
||||||||||||||||||
Amount of |
Gain (Loss) |
|||||||||||||||||
Gain (Loss) |
Recognized in |
|||||||||||||||||
Recognized in |
Income Statement |
Interest |
||||||||||||||||
Foreign |
Classification of |
Expense |
||||||||||||||||
Currency Gains |
Gain (Loss) |
(Ineffective |
||||||||||||||||
(Losses), Net |
Reclassified from |
Portion) | ||||||||||||||||
2011 | 2010 | OCI to Income | 2011 | 2010 | ||||||||||||||
Derivatives not designated as hedging instruments:
|
||||||||||||||||||
FX Contracts
|
$ | (0.6 | ) | $ | (0.5 | ) | Interest expense | $ | | $ | | |||||||
2008 Interest Rate
Swap(a)
|
| | Interest expense | | (0.8 | ) | ||||||||||||
$ | (0.6 | ) | $ | (0.5 | ) | $ | | $ | (0.8 | ) | ||||||||
(a) | Effective March 11, 2010 (the closing date of the 2010 Refinancing), the 2008 Interest Rate Swap was no longer designated as a cash flow hedge. (See Interest Rate Swap Transaction in this Note 9.) |
(10) | Long-term Debt |
March 31, |
December 31, |
|||||||
2011 | 2010 | |||||||
2010 Term Loan Facility due 2015, net of
discounts(a)
|
$ | 780.6 | $ | 782.0 | ||||
2010 Revolving Credit Facility due
2014(a)
|
| | ||||||
93/4% Senior
Secured Notes due 2015, net of
discounts(b)
|
327.0 | 326.9 | ||||||
Contributed Loan portion of the Senior Subordinated Term Loan
due
2013(c)
|
48.6 | 48.6 | ||||||
Non-Contributed Loan portion of the Senior Subordinated Term
Loan due
2014(d)
|
58.4 | 58.4 | ||||||
1,214.6 | 1,215.9 | |||||||
Less current portion
|
(8.0 | ) | (8.0 | ) | ||||
$ | 1,206.6 | $ | 1,207.9 | |||||
(a) | In March 2010 Products Corporation refinanced (i) its 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) and (ii) its 2006 revolving credit facility, which was scheduled to mature on January 15, 2012 and had nil outstanding borrowings at |
13
REVLON
CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions)
December 31, 2009, 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 and such refinancing transactions being the 2010 Refinancing). See Note 9, Long-Term Debt, to the Consolidated Financial Statements in the Companys 2010 Form 10-K for certain details regarding the 2010 Credit Agreements. | ||
(b) | See Note 9, Long-Term Debt, to the Consolidated Financial Statements in the Companys 2010 Form 10-K for certain details regarding Products Corporations 93/4% Senior Secured Notes which mature on November 15, 2015 (the 93/4% Senior Secured Notes). | |
(c) | See Note 9, Long-Term Debt to the Consolidated Financial Statements in the Companys 2010 Form 10-K for certain details regarding the $48.6 million principal amount of the $107.0 million aggregate outstanding principal amount of the Senior Subordinated Term Loan which MacAndrews & Forbes contributed to Revlon, Inc. (the Contributed Loan) which matures on October 8, 2014. | |
(d) | See Note 9, Long-Term Debt to the Consolidated Financial Statements in the Companys 2010 Form 10-K for certain details regarding 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), which matures on October 8, 2014. |
2010
Bank Credit Agreements
See Note 9, Long-Term Debt, to the Consolidated
Financial Statements in the Companys 2010
Form 10-K
for certain details regarding the 2010 Credit Agreements.
Products Corporation was in compliance with all applicable
covenants under the 2010 Credit Agreements upon closing the 2010
Refinancing and as of March 31, 2011. At March 31,
2011, the aggregate principal amount outstanding under the 2010
Term Loan Facility was $792.0 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 $106.4 million.
(11) | Income Taxes |
The provision for income taxes represents federal, foreign,
state and local income taxes. The effective rate differs from
the applicable federal statutory rate due to the effect of state
and local income taxes, tax rates and income in foreign
jurisdictions, utilization of tax loss carryforwards, dividends
among affiliates, certain nondeductible expenses and certain
other items. The Companys tax provision (benefit) changes
quarterly based on recurring and non-recurring factors
including, but not limited to, the geographical mix of earnings,
enacted tax legislation, foreign, state and local income taxes,
tax audit settlements, the ultimate disposition of deferred tax
assets relating to stock-based compensation and the interaction
of various global tax strategies. In addition, changes in
judgment from the evaluation of new information resulting in the
recognition, derecognition
and/or
re-measurement of a tax position taken in a prior annual period
are recognized in the quarter in which any such change occurs.
For the first quarter of 2011 and 2010, the Company recorded a
provision for income taxes of $8.6 million and
$5.0 million, respectively. The $3.6 million increase
in the provision for income taxes for the first quarter of 2011,
as compared to the first quarter of 2010, was primarily
attributable to the reduction of the Companys deferred tax
valuation allowance on its net U.S. deferred income tax
assets at December 31, 2010, which resulted in a higher
effective tax rate in the U.S. for the first quarter of
2011, as well as higher taxable income for taxable subsidiaries
in certain foreign jurisdictions and the U.S. in the first
quarter of
14
REVLON
CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions)
2011. (See Note 12, Income Taxes, to the
Consolidated Financial Statements in the Companys 2010
Form 10-K.)
The Company remains subject to examination of its income tax
returns in various jurisdictions including, without limitation,
the U.S. (federal), for tax years ended December 31,
2007 through December 31, 2009, and Australia and South
Africa, for tax years ended December 31, 2006 through
December 31, 2009.
(12) | 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 Products
Corporations obligations under its 2010 Credit Agreements
(the Guarantor Subsidiaries).
The following Condensed Consolidating Financial Statements
present the financial information as of March 31, 2011 and
December 31, 2010, and for the three months ended
March 31, 2011 and 2010 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.
15
REVLON
CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions)
Consolidating
Condensed Balance Sheets
As of March 31, 2011
As of March 31, 2011
Non- |
||||||||||||||||||||
Products |
Guarantor |
Guarantor |
||||||||||||||||||
Corporation | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
ASSETS
|
||||||||||||||||||||
Cash and cash equivalents
|
$ | 9.2 | $ | 0.3 | $ | 51.7 | $ | | $ | 61.2 | ||||||||||
Trade receivables, less allowances for doubtful accounts
|
76.7 | 17.0 | 88.7 | | 182.4 | |||||||||||||||
Inventories
|
79.5 | 7.0 | 43.7 | | 130.2 | |||||||||||||||
Deferred income taxes current
|
35.0 | | 5.7 | | 40.7 | |||||||||||||||
Prepaid expenses and other
|
77.8 | 5.7 | 26.9 | | 110.4 | |||||||||||||||
Intercompany receivables
|
889.6 | 440.8 | 333.7 | (1,664.1 | ) | | ||||||||||||||
Investment in subsidiaries
|
(180.9 | ) | (186.3 | ) | | 367.2 | | |||||||||||||
Property, plant and equipment, net
|
87.3 | 0.9 | 15.8 | | 104.0 | |||||||||||||||
Deferred income taxes noncurrent
|
209.9 | | 2.5 | | 212.4 | |||||||||||||||
Other assets
|
53.8 | 27.0 | 27.9 | | 108.7 | |||||||||||||||
Goodwill, net
|
150.6 | 41.4 | 2.1 | | 194.1 | |||||||||||||||
Total assets
|
$ | 1,488.5 | $ | 353.8 | $ | 598.7 | $ | (1,296.9 | ) | $ | 1,144.1 | |||||||||
LIABILITIES AND STOCKHOLDERS DEFICIENCY | ||||||||||||||||||||
Short-term borrowings
|
$ | | $ | 4.3 | $ | 2.1 | $ | | $ | 6.4 | ||||||||||
Current portion of long-term debt
|
8.0 | | | | 8.0 | |||||||||||||||
Accounts payable
|
55.4 | 8.1 | 32.5 | | 96.0 | |||||||||||||||
Accrued expenses and other
|
148.6 | 8.6 | 64.6 | | 221.8 | |||||||||||||||
Intercompany payables
|
522.3 | 612.0 | 529.8 | (1,664.1 | ) | | ||||||||||||||
Long-term debt
|
1,099.6 | | | | 1,099.6 | |||||||||||||||
Long-term debt affiliates
|
107.0 | | | | 107.0 | |||||||||||||||
Other long-term liabilities
|
191.9 | 8.6 | 49.1 | | 249.6 | |||||||||||||||
Total liabilities
|
2,132.8 | 641.6 | 678.1 | (1,664.1 | ) | 1,788.4 | ||||||||||||||
Stockholders deficiency
|
(644.3 | ) | (287.8 | ) | (79.4 | ) | 367.2 | (644.3 | ) | |||||||||||
Total liabilities and stockholders deficiency
|
$ | 1,488.5 | $ | 353.8 | $ | 598.7 | $ | (1,296.9 | ) | $ | 1,144.1 | |||||||||
16
REVLON
CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions)
Consolidating
Condensed Balance Sheets
As of December 31, 2010
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 | |||||||||
17
REVLON
CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions)
Consolidating
Condensed Statement of Operations
For the Three Months Ended March 31, 2011
For the Three Months Ended March 31, 2011
Non- |
||||||||||||||||||||
Products |
Guarantor |
Guarantor |
||||||||||||||||||
Corporation | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
Net sales
|
$ | 219.2 | $ | 17.9 | $ | 136.5 | $ | (40.4 | ) | $ | 333.2 | |||||||||
Cost of sales
|
94.4 | 8.1 | 51.2 | (40.4 | ) | 113.3 | ||||||||||||||
Gross profit
|
124.8 | 9.8 | 85.3 | | 219.9 | |||||||||||||||
Selling, general and administrative expenses
|
103.8 | 9.0 | 60.3 | | 173.1 | |||||||||||||||
Operating income
|
21.0 | 0.8 | 25.0 | | 46.8 | |||||||||||||||
Other expenses (income):
|
||||||||||||||||||||
Intercompany interest, net
|
| (0.3 | ) | 1.8 | | 1.5 | ||||||||||||||
Interest expense
|
22.4 | 0.1 | 0.1 | | 22.6 | |||||||||||||||
Interest income
|
| | (0.1 | ) | | (0.1 | ) | |||||||||||||
Amortization of debt issuance costs
|
1.1 | | | | 1.1 | |||||||||||||||
Foreign currency (gains) losses, net
|
0.3 | 0.3 | (0.3 | ) | | 0.3 | ||||||||||||||
Miscellaneous, net
|
(9.3 | ) | (4.6 | ) | 14.7 | | 0.8 | |||||||||||||
Other expenses, net
|
14.5 | (4.5 | ) | 16.2 | | 26.2 | ||||||||||||||
Income from continuing operations before income taxes
|
6.5 | 5.3 | 8.8 | | 20.6 | |||||||||||||||
Provision for income taxes
|
2.8 | 1.4 | 4.4 | | 8.6 | |||||||||||||||
Income from continuing operations
|
3.7 | 3.9 | 4.4 | | 12.0 | |||||||||||||||
Equity in income (loss) of subsidiaries
|
8.3 | 2.1 | | (10.4 | ) | | ||||||||||||||
Net income (loss)
|
$ | 12.0 | $ | 6.0 | $ | 4.4 | $ | (10.4 | ) | $ | 12.0 | |||||||||
18
REVLON
CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions)
Consolidating
Condensed Statement of Operations
For the Three Months Ended March 31, 2010
For the Three Months Ended March 31, 2010
Non- |
||||||||||||||||||||
Products |
Guarantor |
Guarantor |
||||||||||||||||||
Corporation | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
Net sales
|
$ | 208.5 | $ | 13.3 | $ | 115.8 | $ | (32.1 | ) | $ | 305.5 | |||||||||
Cost of sales
|
90.6 | 6.0 | 44.2 | (32.1 | ) | 108.7 | ||||||||||||||
Gross profit
|
117.9 | 7.3 | 71.6 | | 196.8 | |||||||||||||||
Selling, general and administrative expenses
|
91.0 | 9.2 | 49.5 | | 149.7 | |||||||||||||||
Operating income (loss)
|
26.9 | (1.9 | ) | 22.1 | | 47.1 | ||||||||||||||
Other expenses (income):
|
||||||||||||||||||||
Intercompany interest, net
|
0.8 | (0.4 | ) | 1.1 | | 1.5 | ||||||||||||||
Interest expense
|
21.3 | 0.1 | | | 21.4 | |||||||||||||||
Interest income
|
| | (0.2 | ) | | (0.2 | ) | |||||||||||||
Amortization of debt issuance costs
|
1.4 | | | | 1.4 | |||||||||||||||
Loss on early extinguishment of debt, net
|
9.7 | | | | 9.7 | |||||||||||||||
Foreign currency (gains) losses, net
|
(4.5 | ) | (0.4 | ) | 8.7 | | 3.8 | |||||||||||||
Miscellaneous, net
|
(7.0 | ) | (3.5 | ) | 10.8 | | 0.3 | |||||||||||||
Other expenses, net
|
21.7 | (4.2 | ) | 20.4 | | 37.9 | ||||||||||||||
Income from continuing operations before income taxes
|
5.2 | 2.3 | 1.7 | | 9.2 | |||||||||||||||
Provision for income taxes
|
| 0.7 | 4.3 | | 5.0 | |||||||||||||||
Income (loss) from continuing operations
|
5.2 | 1.6 | (2.6 | ) | | 4.2 | ||||||||||||||
Equity in (loss) income of subsidiaries
|
(1.0 | ) | (4.0 | ) | | 5.0 | | |||||||||||||
Net income (loss)
|
$ | 4.2 | $ | (2.4 | ) | $ | (2.6 | ) | $ | 5.0 | $ | 4.2 | ||||||||
19
REVLON
CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions)
Consolidating
Condensed Statement of Cash Flow
For the Three Months Ended March 31, 2011
For the Three Months Ended March 31, 2011
Products |
Guarantor |
Non-Guarantor |
||||||||||||||||||
Corporation | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES:
|
||||||||||||||||||||
Net cash (used in) provided by operating activities
|
$ | (8.5 | ) | $ | 36.7 | $ | (4.1 | ) | $ | | $ | 24.1 | ||||||||
CASH FLOWS FROM INVESTING ACTIVITIES:
|
||||||||||||||||||||
Capital expenditures
|
(2.3 | ) | | (0.1 | ) | | (2.4 | ) | ||||||||||||
Acquisitions
|
| (39.0 | ) | | | (39.0 | ) | |||||||||||||
Net cash used in investing activities
|
(2.3 | ) | (39.0 | ) | (0.1 | ) | | (41.4 | ) | |||||||||||
CASH FLOWS FROM FINANCING ACTIVITIES:
|
||||||||||||||||||||
Net increase in short-term borrowings and overdraft
|
1.6 | 2.5 | 0.2 | | 4.3 | |||||||||||||||
Repayment of long-term debt
|
(2.0 | ) | | | | (2.0 | ) | |||||||||||||
Other financing activities
|
(0.1 | ) | | (0.2 | ) | | (0.3 | ) | ||||||||||||
Net cash (used in) provided by financing activities
|
(0.5 | ) | 2.5 | | | 2.0 | ||||||||||||||
Effect of exchange rate changes on cash and cash equivalents
|
| | (0.2 | ) | | (0.2 | ) | |||||||||||||
Net (decrease) increase in cash and cash equivalents
|
(11.3 | ) | 0.2 | (4.4 | ) | | (15.5 | ) | ||||||||||||
Cash and cash equivalents at beginning of period
|
20.5 | 0.1 | 56.1 | | 76.7 | |||||||||||||||
Cash and cash equivalents at end of period
|
$ | 9.2 | $ | 0.3 | $ | 51.7 | $ | | $ | 61.2 | ||||||||||
20
REVLON
CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions)
Consolidating
Condensed Statement of Cash Flow
For the Three Months Ended March 31, 2010
For the Three Months Ended March 31, 2010
Products |
Guarantor |
Non-Guarantor |
||||||||||||||||||
Corporation | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES:
|
||||||||||||||||||||
Net cash provided by (used in) operating activities
|
$ | 24.5 | $ | (0.7 | ) | $ | 7.0 | $ | | $ | 30.8 | |||||||||
CASH FLOWS FROM INVESTING ACTIVITIES:
|
||||||||||||||||||||
Capital expenditures
|
(2.8 | ) | | (0.3 | ) | | (3.1 | ) | ||||||||||||
Proceeds from the sale of certain assets
|
| | 0.1 | | 0.1 | |||||||||||||||
Net cash used in investing activities
|
(2.8 | ) | | (0.2 | ) | | (3.0 | ) | ||||||||||||
CASH FLOWS FROM FINANCING ACTIVITIES:
|
||||||||||||||||||||
Net (decrease) increase in short-term borrowings
and overdraft
|
(13.8 | ) | 0.6 | 0.2 | | (13.0 | ) | |||||||||||||
Borrowings under the 2010 Revolving Credit Facility, net
|
10.5 | | | | 10.5 | |||||||||||||||
Repayments under the 2006 Term Loan Facility
|
(815.0 | ) | | | (815.0 | ) | ||||||||||||||
Borrowings under the 2010 Term Loan Facility
|
786.0 | | | 786.0 | ||||||||||||||||
Payment of financing costs
|
(15.0 | ) | | | | (15.0 | ) | |||||||||||||
Other financing activities
|
(0.1 | ) | | (0.1 | ) | (0.2 | ) | |||||||||||||
Net cash (used in) provided by financing activities
|
(47.4 | ) | 0.6 | 0.1 | | (46.7 | ) | |||||||||||||
Effect of exchange rate changes on cash and cash equivalents
|
| | 0.2 | | 0.2 | |||||||||||||||
Net (decrease) increase in cash and cash equivalents
|
(25.7 | ) | (0.1 | ) | 7.1 | | (18.7 | ) | ||||||||||||
Cash and cash equivalents at beginning of period
|
27.4 | 0.4 | 26.7 | | 54.5 | |||||||||||||||
Cash and cash equivalents at end of period
|
$ | 1.7 | $ | 0.3 | $ | 33.8 | $ | | $ | 35.8 | ||||||||||
21
REVLON
CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
(all tabular amounts in millions)
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
(all tabular amounts in millions)
Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations |
Overview
Overview
of the Business
The Company is providing this overview in accordance with the
SECs December 2003 interpretive guidance regarding
Managements Discussion and Analysis of Financial Condition
and Results of Operations.
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 Revlon, Inc. and 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 in womens hair color; Revlon in
beauty tools; Mitchum in 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.
Overview
of 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:
1. 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.
22
REVLON
CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
(all tabular amounts in millions)
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
(all tabular amounts in millions)
2. 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.
3. 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.
4. Increasing our operating profit and cash
flow. We continue to focus on increasing our
operating profit and cash flow.
5. Improving our capital
structure. We continue to improve our capital
structure by focusing on strengthening our balance sheet and
reducing debt.
Overview
of Net Sales and Earnings Results
Consolidated net sales in the first quarter of 2011 were
$333.2 million, an increase of $27.7 million, or 9.1%,
compared to $305.5 million in the first quarter of 2010.
Excluding the favorable impact of foreign currency fluctuations
of $6.2 million, consolidated net sales increased by 7.0%
in the first quarter of 2011. Higher net sales were realized
throughout all of the Companys regions.
Consolidated net income for the first quarter of 2011 was
$12.0 million, compared to $4.2 million in the first
quarter of 2010. The increase in consolidated net income in the
first quarter of 2011, compared to the first quarter of 2010,
was primarily due to:
| $23.1 million of higher gross profit due to $27.7 million of higher net sales, partially offset by $4.6 million of higher cost of sales; and | |
| a $9.7 million loss on the early extinguishment of debt in the first quarter of 2010; |
with the foregoing partially offset by:
| $23.4 million of higher SG&A expense, primarily driven by $15.5 million of higher advertising expenses to support the Companys brands. |
Impact
of the March 2011 Disaster in Japan
The Company is currently assessing the potential impact of the
March 2011 disaster in Japan and its aftermath on the
Companys supply chain and its operations in Japan for the
remainder of 2011. These events did not have a material impact
on the Companys net sales, operating profit and supply
chain in the first quarter of 2011. (See Item IA.
Risk Factors).
Results
of Operations
In the tables, all amounts are in millions and numbers in
parentheses ( ) denote unfavorable variances.
Net
sales:
Consolidated net sales in the first quarter of 2011 were
$333.2 million, an increase of $27.7 million, or 9.1%,
compared to $305.5 million in the first quarter of 2010.
Excluding the favorable impact of foreign currency fluctuations
of $6.2 million, consolidated net sales increased by 7.0%
in the first quarter of 2011. The increase in consolidated net
sales, excluding the favorable impact of foreign currency
fluctuations, was primarily driven by higher net sales of
Revlon color cosmetics, as well as fragrances and
Almay color cosmetics, partially offset by lower net
sales of Revlon ColorSilk hair color.
23
REVLON
CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
(all tabular amounts in millions)
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
(all tabular amounts in millions)
Three Months Ended |
||||||||||||||||||||||||
March 31, | Change | XFX Change(a) | ||||||||||||||||||||||
2011 | 2010 | $ | % | $ | % | |||||||||||||||||||
United States
|
$ | 186.2 | $ | 182.1 | $ | 4.1 | 2.3 | % | $ | 4.1 | 2.3 | % | ||||||||||||
Asia Pacific
|
53.1 | 45.9 | 7.2 | 15.7 | 4.1 | 8.9 | ||||||||||||||||||
Europe, Middle East and Africa
|
49.7 | 42.9 | 6.8 | 15.9 | 4.8 | 11.2 | ||||||||||||||||||
Latin America
|
27.0 | 20.0 | 7.0 | 35.0 | 6.9 | 34.5 | ||||||||||||||||||
Canada
|
17.2 | 14.6 | 2.6 | 17.8 | 1.6 | 11.0 | ||||||||||||||||||
Total Net Sales
|
$ | 333.2 | $ | 305.5 | $ | 27.7 | 9.1 | % | $ | 21.5 | 7.0 | % | ||||||||||||
(a) | XFX excludes the impact of foreign currency fluctuations. |
United
States
In the U.S., net sales in the first quarter of 2011 were
$186.2 million, an increase of $4.1 million, or 2.3%,
compared to $182.1 million in the first quarter of 2010,
primarily driven by higher net sales of Revlon and
Almay color cosmetics, partially offset by lower net
sales of Revlon ColorSilk hair color. Net sales of
Revlon color cosmetics increased in part due to lower
promotional allowances in the first quarter of 2011, as compared
to the first quarter of 2010.
Asia
Pacific
In Asia Pacific, net sales in the first quarter of 2011
increased 15.7% to $53.1 million, compared to
$45.9 million in the first quarter of 2010. Excluding the
favorable impact of foreign currency fluctuations, net sales
increased $4.1 million, or 8.9%, primarily driven by higher
net sales of Revlon color cosmetics. From a country
perspective, net sales increased in certain distributor markets
and China (which together contributed approximately
6.9 percentage points to the increase in the regions
net sales in the first quarter of 2011, as compared with the
first quarter of 2010).
Europe,
Middle East and Africa
In Europe, the Middle East and Africa, net sales in the first
quarter of 2011 increased 15.9% to $49.7 million, compared
to $42.9 million in the first quarter of 2010. Excluding
the favorable impact of foreign currency fluctuations, net sales
increased $4.8 million, or 11.2%, primarily driven by
higher net sales of fragrances, Revlon color cosmetics
and Mitchum anti-perspirant deodorant. From a country
perspective, net sales increased in the U.K. and South Africa
(which together contributed approximately 8.6 percentage
points to the increase in the regions net sales in the
first quarter of 2011, as compared with the first quarter of
2010).
Latin
America
In Latin America, net sales in the first quarter of 2011
increased 35.0% to $27.0 million, compared to
$20.0 million in the first quarter of 2010. Excluding the
favorable impact of foreign currency fluctuations, net sales
increased $6.9 million, or 34.5%, primarily driven by
higher net sales of Revlon color cosmetics, other beauty
care products, Almay color cosmetics and Revlon
ColorSilk hair color. From a country perspective, net sales
increased throughout the region. Higher net sales in Venezuela,
including the impact of higher selling prices given market
conditions and inflation, accounted for approximately half of
the $6.9 million increase in net sales in the region.
24
REVLON
CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
(all tabular amounts in millions)
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
(all tabular amounts in millions)
Canada
In Canada, net sales in the first quarter of 2011 increased
17.8% to $17.2 million, compared to $14.6 million in
the first quarter of 2010. Excluding the favorable impact of
foreign currency fluctuations, net sales increased
$1.6 million, or 11.0%, primarily driven by higher net
sales of Revlon color cosmetics, partially offset by
lower net sales of Almay color cosmetics.
Gross
profit:
Three Months Ended |
||||||||||||
March 31, | ||||||||||||
2011 | 2010 | Change | ||||||||||
Gross profit
|
$ | 219.9 | $ | 196.8 | $ | 23.1 | ||||||
Percentage of net sales
|
66.0 | % | 64.4 | % | 1.6 | % |
The 1.6 percentage point increase in gross profit as a
percentage of net sales for the first quarter of 2011, compared
to the first quarter of 2010, was primarily due to:
| lower material costs, which increased gross profit as a percentage of net sales by 0.9 percentage points; | |
| the adjustment to cost of goods in the first quarter of 2010 resulting from the devaluation of Venezuelas local currency relative to the U.S. dollar, which adjustment did not re-occur in 2011 and, therefore, impacted gross profit in the first quarter of 2011 as a percentage of net sales by 0.6 percentage points, as compared to the first quarter of 2010; | |
| favorable fixed overhead absorption, which increased gross profit as a percentage of net sales by 0.5 percentage points; | |
| lower pension expenses within cost of goods of $1.8 million, which increased gross profit as a percentage of net sales by 0.5 percentage points; and | |
| lower costs related to inventory obsolescence and sales returns, which increased gross profit as a percentage of net sales by 0.5 percentage points; |
with the foregoing partially offset by:
| the impact of product mix, which reduced gross profit as a percentage of net sales by 1.6 percentage points. |
SG&A
expenses:
Three Months Ended |
||||||||||||
March 31, | ||||||||||||
2011 | 2010 | Change | ||||||||||
SG&A expenses
|
$ | 173.1 | $ | 149.7 | $ | (23.4 | ) |
The $23.4 million increase in SG&A expenses for the
first quarter of 2011, as compared to the first quarter of 2010,
was driven primarily by:
| $15.5 million of higher advertising expenses to support the Companys brands as the Company continued to optimize its brand support mix; and | |
| $2.9 million of unfavorable impact of foreign currency fluctuations. |
25
REVLON
CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
(all tabular amounts in millions)
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
(all tabular amounts in millions)
Interest
expense:
Three Months Ended |
||||||||||||
March 31, | ||||||||||||
2011 | 2010 | Change | ||||||||||
Interest expense
|
$ | 24.1 | $ | 22.9 | $ | (1.2 | ) |
The $1.2 million increase in interest expense for the first
quarter of 2011, as compared to the first quarter of 2010, was
due to higher weighted average borrowing rates, primarily as a
result of the 2010 Refinancing (as hereinafter defined),
partially offset by lower debt levels.
Loss
on early extinguishment of debt, net:
Three Months Ended |
||||||||||||
March 31, | ||||||||||||
2011 | 2010 | Change | ||||||||||
Loss on early extinguishment of debt, net
|
$ | | $ | 9.7 | $ | 9.7 |
As a result of the 2010 Refinancing, the Company recognized a
loss on the extinguishment of debt of $9.7 million during
the first quarter 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.
Foreign
currency losses:
Three Months Ended |
||||||||||||
March 31, | ||||||||||||
2011 | 2010 | Change | ||||||||||
Foreign currency losses
|
$ | 0.3 | $ | 3.8 | $ | 3.5 |
Foreign currency losses during the first quarter of 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 was designated as
a highly inflationary economy effective January 1, 2010.
(See Financial Condition, Liquidity and Capital
Resources Impact of Foreign Currency
Translation Venezuela in this
Form 10-Q).
Provision
for income taxes:
Three Months Ended |
||||||||||||
March 31, | ||||||||||||
2011 | 2010 | Change | ||||||||||
Provision for income taxes
|
$ | 8.6 | $ | 5.0 | $ | (3.6 | ) |
The $3.6 million increase in provision for income taxes for
the first quarter of 2011, as compared to the first quarter of
2010, was primarily attributable to a the reduction of the
Companys deferred tax valuation allowance on its net
U.S. deferred income tax assets at December 31, 2010,
which resulted in a higher effective tax rate in the
U.S. for the first quarter of 2011, as well as higher
taxable income for taxable subsidiaries in certain foreign
jurisdictions and the U.S. in the first quarter of 2011.
The increase in the provision for income taxes resulting from
the reduction of the Companys deferred tax valuation
allowance on its net U.S. deferred income tax assets will
not affect the Companys cash taxes paid in 2011, and such
increase will not affect the Companys cash taxes paid
until the Company has fully used its U.S. tax loss
26
REVLON
CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
(all tabular amounts in millions)
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
(all tabular amounts in millions)
carryforwards. (See Note 12, Income Taxes, to
the Consolidated Financial Statements in the Companys 2010
Form 10-K).
Financial
Condition, Liquidity and Capital Resources
At March 31, 2011, the Company had a liquidity position of
$162.5 million, consisting of cash and cash equivalents
(net of any outstanding checks) of $56.1 million, as well
as approximately $106.4 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 March 31, 2011, the Company had cash and cash
equivalents of $61.2 million, compared with
$35.8 million at March 31, 2010. The following table
summarizes the Companys cash flows from operating,
investing and financing activities for March 31, 2011 and
March 31, 2010, respectively:
Three Months Ended March 31, | ||||||||
2011 | 2010 | |||||||
Net cash provided by operating activities
|
$ | 24.1 | $ | 30.8 | ||||
Net cash used in investing activities
|
41.4 | 3.0 | ||||||
Net cash provided by (used in) financing activities
|
2.0 | (46.7 | ) |
Operating
Activities
Net cash provided by operating activities in the first quarter
of 2011 was $24.1 million, as compared to
$30.8 million in the first quarter of 2010. As compared to
the first quarter of 2010, cash provided by operating activities
in the first quarter of 2011 was impacted by unfavorable changes
in working capital, higher pension contributions and higher
interest payments, partially offset by lower permanent display
purchases.
In the ordinary course of business, the Companys source or
use of cash from operating activities may vary on a quarterly
basis as a result of a number of factors, including the timing
of working capital flows.
Investing
Activities
Net cash used in investing activities was $41.4 million and
$3.0 million for the first quarters of 2011 and 2010,
respectively. Net cash used in investing activities for the
first quarter of 2011 included a cash payment of
$39.0 million for the Sinful Colors Acquisition (as
hereinafter defined) and $2.4 million of cash used for
capital expenditures. On March 17, 2011, the Company
acquired certain net assets, including trademarks and other
intellectual property, inventory, certain receivables and
manufacturing equipment, related to Sinful Colors cosmetics,
Wild and Crazy cosmetics, freshMinerals cosmetics and freshcover
cosmetics, which products are sold principally in the
U.S. mass retail channel (the Sinful Colors
Acquisition). Net cash used in investing activities for
the first quarter of 2010 included $3.1 million of cash
used for capital expenditures.
Financing
Activities
Net cash provided by (used in) financing activities was
$2.0 million and $(46.7) million for the first
quarters of 2011 and 2010, respectively. Net cash provided by
financing activities for the first quarter of 2011 included a
$2.0 million scheduled amortization payment on the 2010
Term Loan Facility.
27
REVLON
CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
(all tabular amounts in millions)
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
(all tabular amounts in millions)
Net cash used in financing activities for the first quarter of
2010 included the March 2010 refinancing of the
$815.0 million remaining aggregate principal amount of
Products Corporations 2006 bank Term Loan Facility (the
2010 Refinancing), partially offset 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, and net borrowings of
$10.5 million under the 2010 Revolving Credit Facility. Net
cash used in financing activities for the first quarter of 2010
also included payment of financing costs of $15.4 million,
which is comprised principally of (i) the payment of
$13.4 million of the $15.1 million of fees incurred in
connection with the 2010 Refinancing; and (ii) the payment
of $1.6 million of the $25.0 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.
Long-Term
Debt Instruments
For further detail regarding Products Corporations
long-term debt instruments, see Note 9, Long-Term
Debt, to the Consolidated Financial Statements in the
Companys 2010
Form 10-K,
as well as Managements Discussion and Analysis of
Financial Condition and Results of Operations
Financial Condition, Liquidity and Capital Resources in
the Companys 2010
Form 10-K.
2010
Bank Credit Agreements
For detail regarding the 2010 Bank Credit Agreements, see
Note 9, Long-Term Debt, to the Consolidated
Financial Statements in the Companys 2010
Form 10-K,
as well as Managements Discussion and Analysis of
Financial Condition and Results of Operations
Financial Condition, Liquidity and Capital Resources
2010 Bank Credit Agreements in the Companys 2010
Form 10-K.
Products Corporation was in compliance with all applicable
covenants under the 2010 Credit Agreements upon closing the 2010
Refinancing and as of March 31, 2011. At March 31,
2011, the aggregate principal amount outstanding under the 2010
Term Loan Facility was $792.0 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 $106.4 million.
93/4% Senior
Secured Notes due 2015
For detail regarding the
93/4% Senior
Secured Notes, due November 2015, see Note 9,
Long-Term Debt, to the Consolidated Financial
Statements in the Companys 2010
Form 10-K,
as well as Managements Discussion and Analysis of
Financial Condition and Results of Operations
Financial Condition, Liquidity and Capital Resources
93/4% Senior
Secured Notes due 2015 in the Companys
2010 Form 10-K.
Products Corporation was in compliance with all applicable
covenants under its
93/4% Senior
Secured Notes as of March 31, 2011.
Senior
Subordinated Term Loan
For detail regarding Products Corporations Senior
Subordinated Term Loan from MacAndrews & Forbes (the
Senior Subordinated Term Loan), consisting of
(i) 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), which is due from Products Corporation to Revlon,
Inc. and matures on October 8, 2013 and (ii) 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), which matures on October 8, 2014, see
Note 9, Long-Term Debt, to the
28
REVLON
CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
(all tabular amounts in millions)
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
(all tabular amounts in millions)
Consolidated Financial Statements in the Companys 2010
Form 10-K,
as well as Managements Discussion and Analysis of
Financial Condition and Results of Operations
Financial Condition, Liquidity and Capital Resources
Senior Subordinated Term Loan in the Companys 2010
Form 10-K.
Interest
Rate Swap Transaction
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 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 as 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 the first quarter of 2011 and 2010, the Companys
subsidiary in Venezuela had net sales of approximately 3% and
2%, respectively, of the Companys consolidated net sales.
At both March 31, 2011 and December 31, 2010, total
assets in the Companys subsidiary in Venezuela were
approximately 3% of the Companys total assets.
Highly-Inflationary Economy: Effective
January 1, 2010, Venezuela was 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 Venezuela
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 the first quarter of 2010 the devaluation had the impact of
reducing reported net sales and operating income by
$5.4 million and $1.9 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
29
REVLON
CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
(all tabular amounts in millions)
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
(all tabular amounts in millions)
Venezuela was 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, effective December 31,
2010. Given that the Company has immaterial transactions for
essential goods, the further devaluation has not had, nor does
the Company expect it to have, a material impact on the
Companys results of operations or financial condition.
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
Secured 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 the first
quarter of 2011 were $8.8 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
full year 2011. The Companys purchases of permanent wall
displays and capital expenditures in the first quarter of 2011
were $8.9 million and $2.4 million, respectively. The
Company expects purchases of permanent wall displays and capital
expenditures in the aggregate for full year 2011 to be
approximately $40 million and $20 million,
respectively, inclusive of amounts expended in the first quarter
of 2011. (See Note 6, Restructuring Costs and Other,
Net, in the Consolidated Financial Statements in this
Form 10-Q
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 improvements to efficiently manage its
cash and working capital, including, among other things,
programs intended to optimize inventory levels over time;
centralized procurement to secure discounts and efficiencies;
prudent management of accounts receivable and accounts payable;
and controls on general and administrative spending. In the
ordinary course of business, the Companys source or use of
cash from operating activities may vary on a quarterly basis as
a result of a number of factors, including the timing of working
capital flows.
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.
30
REVLON
CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
(all tabular amounts in millions)
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
(all tabular amounts in millions)
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 May 2009 Program),
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 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 in the Companys
2010
Form 10-K,
as supplemented in Item 1A of this
Form 10-Q,
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:
| delaying the implementation of or revising certain aspects of the Companys business strategy; | |
| reducing or delaying purchases of wall displays or advertising, promotional or marketing expenses; | |
| reducing or delaying capital spending; | |
| implementing new or revising existing restructuring programs; | |
| refinancing Products Corporations indebtedness; | |
| selling assets or operations; |
31
REVLON
CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
(all tabular amounts in millions)
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
(all tabular amounts in millions)
| seeking additional capital contributions and/or loans from MacAndrews & Forbes, Revlon, Inc., and/or the Companys other affiliates and/or third parties; | |
| selling additional debt securities of Products Corporation; or | |
| reducing other discretionary spending. |
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 in
the Companys 2010
Form 10-K,
as supplemented in Item 1A of this
Form 10-Q,
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
March 31, 2011, the notional amount and fair value of FX
Contracts outstanding was $48.6 million and
$(1.7) million, respectively.
Disclosures
about Contractual Obligations and Commercial
Commitments
As of March 31, 2011, there were no material changes to the
Companys total contractual cash obligations, as set forth
in the contractual obligations and commercial commitments table
included in the Companys 2010
Form 10-K.
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
For a discussion of the Companys critical accounting
policies, see the Companys 2010
Form 10-K.
Effect of
Recent Accounting Pronouncements
During the first quarter of 2011, there were no recent
accounting pronouncements applicable to the Company.
32
REVLON
CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
Item 3. | Quantitative and Qualitative Disclosures about Market Risk |
The Company has exposure to market risk both as a result of
changing interest rates and movements in foreign currency
exchange rates. The Companys policy is to manage market
risk through a combination of fixed and floating rate debt. The
Company from time to time makes use of derivative financial
instruments to adjust its fixed and floating rate ratio. The
Company does not hold or issue financial instruments for trading
purposes. The qualitative and quantitative information presented
in Item 7A of the Companys 2010
Form 10-K
(Item 7A) describes significant aspects of the
Companys financial instrument programs that have material
market risk as of December 31, 2010. The following table
presents the information required by Item 7A as of
March 31, 2011:
Expected maturity date for the Year Ended |
||||||||||||||||||||||||||||||||
December 31, |
Fair Value |
|||||||||||||||||||||||||||||||
(dollars in millions, except for rate information) |
March 31, |
|||||||||||||||||||||||||||||||
Debt | 2011 | 2012 | 2013 | 2014 | 2015 | Thereafter | Total | 2011 | ||||||||||||||||||||||||
Short-term variable rate (various currencies)
|
$ | 6.4 | $ | 6.4 | $ | 6.4 | ||||||||||||||||||||||||||
Average interest
rate(a)
|
6.2 | % | ||||||||||||||||||||||||||||||
Long-term fixed rate third party ($US)
|
$ | 330.0 | 330.0 | 358.1 | ||||||||||||||||||||||||||||
Average interest rate
|
9.75 | % | ||||||||||||||||||||||||||||||
Long-term fixed rate affiliates ($US)
|
$ | 48.6(b | ) | $ | 58.4(b | ) | 107.0 | 110.4 | ||||||||||||||||||||||||
Average interest rate
|
12.75 | % | 12.0 | % | ||||||||||||||||||||||||||||
Long-term variable rate third party ($US)
|
6.0 | $ | 8.0 | 8.0 | 8.0 | 762.0 | 792.0 | 794.0 | ||||||||||||||||||||||||
Average interest
rate(a)
|
6.0 | % | 6.0 | % | 6.1 | % | 6.4 | % | 6.5 | % | ||||||||||||||||||||||
Total debt
|
$ | 12.4 | $ | 8.0 | $ | 56.6 | $ | 66.4 | $ | 1,092.0 | $ | | $ | 1,235.4 | $ | 1,268.9 | ||||||||||||||||
(a) | Weighted average variable rates are based upon implied forward rates from the U.S. Dollar LIBOR yield curves at March 31, 2011. | |
(b) | Represents the $107.0 million aggregate principal amount outstanding of the Senior Subordinated Term Loan as of March 31, 2011, which Contributed Loan ($48.6 million) matures on October 8, 2013 and bears interest at an annual rate of 12.75% and which Non-Contributed Loan ($58.4 million) 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. | |
(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). |
Average |
Original |
Contract |
||||||||||||||
Contractual |
US Dollar |
Value |
Fair Value |
|||||||||||||
Rate |
Notional |
March 31, |
March 31, |
|||||||||||||
Forward Contracts | $/FC | Amount | 2011 | 2011 | ||||||||||||
Sell Canadian Dollars /Buy USD
|
0.9900 | $ | 17.0 | $ | 16.4 | $ | (0.6 | ) | ||||||||
Sell Australian Dollars/Buy USD
|
0.9655 | 12.9 | 12.2 | (0.7 | ) | |||||||||||
Sell British Pounds/Buy USD
|
1.5627 | 7.2 | 7.0 | (0.2 | ) | |||||||||||
Sell South African Rand/Buy USD
|
0.1392 | 5.4 | 5.2 | (0.2 | ) | |||||||||||
Buy Australian Dollars/Sell New Zealand Dollars
|
1.3442 | 4.4 | 4.4 | | ||||||||||||
Sell Japanese Yen/Buy USD
|
0.0121 | 1.2 | 1.2 | | ||||||||||||
Sell New Zealand Dollars/Buy USD
|
0.7245 | 0.3 | 0.3 | | ||||||||||||
Sell Hong Kong Dollars/Buy USD
|
0.1283 | 0.2 | 0.2 | | ||||||||||||
Total forward contracts
|
$ | 48.6 | $ | 46.9 | $ | (1.7 | ) | |||||||||
33
REVLON
CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
Item 4. | 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 three-month period covered by
this Quarterly Report on
Form 10-Q.
Based upon such evaluation, the Chief Executive Officer and
Chief Financial Officer have concluded that, as of the end of
such period, the Companys disclosure controls and
procedures were effective.
(b) Changes in Internal Control Over Financial
Reporting. There have not been any changes in
the Companys internal control over financial reporting
during the first quarter of 2011 that have materially affected,
or are reasonably likely to materially affect, the
Companys internal control over financial reporting.
Forward-Looking
Statements
This Quarterly Report on
Form 10-Q
for the quarter ended March 31, 2011, 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 through profitable growth, could result in the Company making investments and/or recognizing charges related to executing against such opportunities; |
34
REVLON
CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
(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 intended to optimize inventory levels over time; centralized procurement to secure discounts and efficiencies; prudent management of accounts receivable and accounts payable; controls on general and administrative spending; and the Companys belief that in the ordinary course of business, its source or use of cash from operating activities may vary on a quarterly basis as a result of a number of factors, including the timing of working capital flows; |
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REVLON
CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
(xi) | the Companys expectations regarding its future pension expense, cash contributions and benefit payments under its benefit plans; and | |
(xii) | the Companys expectations as to the future impact of the further devaluation of Venezuelan Bolivars, including, without limitation, that given that the Company has immaterial transactions for essential goods, the Companys expectations that it will not have a material impact on the Companys results of operations or financial condition. |
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 2010
Form 10-K,
and in its Quarterly Reports on
Form 10-Q
and Current Reports on
Form 8-K,
in each case filed with the SEC in 2011 (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-Q,
the information available from time to time on such website
shall not be deemed incorporated by reference into this
Quarterly Report on
Form 10-Q.
A number of important factors could cause actual results to
differ materially from those contained in any forward-looking
statement. (See also Item 1A. Risk Factors in
the Companys 2010
Form 10-K,
as supplemented in Item 1A of this
Form 10-Q,
for further discussion of risks associated with the
Companys business.) 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; | |
(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 |
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REVLON
CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
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; |
(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, selling assets or operations or from 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) | 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; |
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REVLON
CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
(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; and | |
(xii) | unexpected consequences related to the future impact of the further devaluation of Bolivars. |
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.
Website
Availability of Reports and Other Corporate Governance
Information
Revlon, Inc., which owns 100% of Product 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 corporate 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. 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.
PART II
OTHER INFORMATION
Item 1A. | Risk Factors |
In addition to the other information set forth in this report,
when evaluating the Companys business, investors should
carefully consider the risk factors discussed in Part I,
Item 1A. Risk Factors in the Companys
2010
Form 10-K.
Further, investors should consider the following supplemental
risk factor:
The March 2011 disaster in Japan and its aftermath could
impact our global supply chain from Japan and our operations
within Japan, which could adversely affect the Companys
business, financial condition
and/or
results of operations.
We are assessing the potential impact of these events on our
global supply chain and our operations in Japan. We purchase
materials from suppliers in Japan and from other suppliers who
source materials from suppliers in Japan. Any significant
interruption in the supply of materials from Japan could
adversely affect our global supply chain and our ability to
produce certain products, most of which are sold globally.
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REVLON
CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
Additionally, we are monitoring the potential impact on the
consumption of our products and our retail customers in Japan,
including the potential for reduced consumer traffic in retail
stores, reduced consumer purchases, reduced orders from retail
customers and the impact of store closures
and/or
shortened hours. The Companys subsidiary in Japan
accounted for approximately 2%, 2%, 2% and 5% of the
Companys consolidated net sales, operating income, total
assets and operating cash flow, respectively, for the year ended
December 31, 2010. Any significant adverse affect on our sales
in Japan could adversely affect the Companys business,
financial condition
and/or
results of operations.
Item 5. | Exhibits |
*31.1
|
Certification of Alan T. Ennis, Chief Executive Officer, dated April 28, 2011, pursuant to Rule 13a-14(a)/15d-14(a) of the Exchange Act. | |
*31.2
|
Certification of Steven Berns, Chief Financial Officer, dated April 28, 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 April 28, 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 April 28, 2011, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
* | Filed herewith. |
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REVLON
CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
S I G N A
T U R E S
Pursuant to the requirements of the Securities Exchange Act of
1934, as amended, the registrant has duly caused this report to
be signed on its behalf by the undersigned thereunto duly
authorized.
Dated: April 28, 2011
REVLON CONSUMER PRODUCTS CORPORATION | ||
Registrant | ||
By: /s/ Steven
Berns Steven Berns Executive Vice President and Chief Financial Officer |
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