UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C.
20549
FORM 10-Q
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(Mark One)
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x QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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For the quarterly
period ended June 30, 2011
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OR
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o TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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For the transition period
from
to
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Commission File Number:
33-59650
REVLON CONSUMER PRODUCTS
CORPORATION
(Exact name of registrant as specified in its charter)
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Delaware
(State or other jurisdiction of
incorporation or organization)
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13-3662953
(I.R.S. Employer
Identification No.)
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237 Park Avenue, New York, New York
(Address of principal executive offices)
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10017
(Zip Code)
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212-527-4000
(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 x 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):
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Large
accelerated
filer o
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Accelerated
filer o
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Non-accelerated
filer þ
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Smaller
reporting
company o
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(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Act).
Yes o No x
The number of shares outstanding of the registrants common
stock was 5,260 shares as of June 30, 2011, all of
which were held by one affiliate, Revlon, Inc.
REVLON
CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
INDEX
1
PART I
FINANCIAL INFORMATION
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Item 1.
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Financial
Statements
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REVLON
CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in millions, except share and per
share amounts)
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June 30,
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December 31,
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2011
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2010
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(Unaudited)
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ASSETS
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Current assets:
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Cash and cash equivalents
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$
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44.9
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$
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76.7
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Trade receivables, less allowance for doubtful accounts of $3.1
as of both June 30, 2011 and December 31, 2010,
respectively
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185.7
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197.5
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Inventories
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141.8
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115.0
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Deferred income taxes current
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41.4
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40.3
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Prepaid expenses and other
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109.5
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98.1
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Total current assets
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523.3
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527.6
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Property, plant and equipment, net
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101.5
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106.2
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Deferred income taxes noncurrent
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209.2
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216.6
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Goodwill, net
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194.1
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182.7
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Other assets
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112.1
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87.3
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Total assets
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$
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1,140.2
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$
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1,120.4
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LIABILITIES AND STOCKHOLDERS DEFICIENCY
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Current liabilities:
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Short-term borrowings
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$
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9.0
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$
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3.7
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Current portion of long-term debt
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18.0
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8.0
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Accounts payable
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101.1
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84.5
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Accrued expenses and other
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188.7
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216.2
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Total current liabilities
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316.8
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312.4
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Long-term debt
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1,110.1
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1,100.9
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Long-term debt affiliates
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107.0
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107.0
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Long-term pension and other post-retirement plan liabilities
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186.6
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201.5
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Other long-term liabilities
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53.7
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55.7
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Commitments and contingencies
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Stockholders deficiency:
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RCPC Preferred Stock par value $1.00 per share:
1,000 shares authorized; 546 shares issued and
outstanding as of June 30, 2011 and December 31, 2010,
respectively
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54.6
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54.6
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Common Stock, par value $1.00 per share: 10,000 shares
authorized; 5,260 shares issued and outstanding as of
June 30, 2011 and December 31, 2010, respectively
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Additional paid-in capital
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944.5
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943.2
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Accumulated deficit
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(1,484.8
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)
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(1,504.6
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)
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Accumulated other comprehensive loss
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(148.3
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)
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(150.3
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)
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Total stockholders deficiency
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(634.0
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)
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(657.1
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)
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Total liabilities and stockholders deficiency
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$
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1,140.2
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$
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1,120.4
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See Accompanying Notes to Unaudited Consolidated Financial
Statements
2
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Three Months Ended
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Six Months Ended
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June 30,
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June 30,
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2011
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2010
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2011
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2010
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Net sales
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$
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351.2
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$
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327.7
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$
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684.4
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$
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633.2
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Cost of sales
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121.9
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107.0
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235.2
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215.7
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Gross profit
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229.3
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220.7
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449.2
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417.5
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Selling, general and administrative expenses
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179.3
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171.4
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352.4
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321.1
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Operating income
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50.0
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49.3
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96.8
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96.4
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Other expenses, net:
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Interest expense
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23.3
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24.5
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47.4
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47.4
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Amortization of debt issuance costs
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1.0
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1.0
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2.1
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2.4
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Loss on early extinguishment of debt, net
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11.3
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11.3
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9.7
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Foreign currency losses, net
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3.0
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0.1
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3.3
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3.9
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Miscellaneous, net
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0.3
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0.5
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1.0
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0.6
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Other expenses, net
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38.9
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26.1
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65.1
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64.0
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Income from continuing operations before income taxes
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11.1
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23.2
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31.7
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32.4
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Provision for income taxes
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3.9
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4.8
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12.5
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9.8
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Income from continuing operations, net of taxes
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7.2
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18.4
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19.2
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22.6
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Income from discontinued operations, net of taxes
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0.6
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0.4
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0.6
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0.4
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Net income
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$
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7.8
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$
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18.8
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$
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19.8
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$
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23.0
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See Accompanying Notes to Unaudited Consolidated Financial
Statements
3
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Accumulated
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Additional
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Other
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Total
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Preferred
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Paid-In-
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Accumulated
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Comprehensive
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Stockholders
|
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Stock
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Capital
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Deficit
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Loss
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Deficiency
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Balance, January 1, 2011
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$
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54.6
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$
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943.2
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|
$
|
(1,504.6
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)
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$
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(150.3
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)
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$
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(657.1
|
)
|
Stock-based compensation amortization
|
|
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1.3
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1.3
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Comprehensive income:
|
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|
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Net income
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|
|
|
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19.8
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19.8
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Currency translation adjustment
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0.2
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0.2
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Amortization of pension related costs, net of
tax(a)
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1.8
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1.8
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Total comprehensive income
|
|
|
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|
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|
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|
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21.8
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|
|
|
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|
|
|
|
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Balance, June 30, 2011
|
|
$
|
54.6
|
|
|
$
|
944.5
|
|
|
$
|
(1,484.8
|
)
|
|
$
|
(148.3
|
)
|
|
$
|
(634.0
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)
|
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|
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(a) |
|
See Note 2, Pension and Post-retirement
Benefits, and Note 6, 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 six
months of 2011. |
See Accompanying Notes to Unaudited Consolidated Financial
Statements
4
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Six Months
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Ended
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June 30,
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2011
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|
2010
|
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CASH FLOWS FROM OPERATING ACTIVITIES:
|
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|
|
|
|
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|
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Net income
|
|
$
|
19.8
|
|
|
$
|
23.0
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
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Income from discontinued operations, net of taxes
|
|
|
(0.6
|
)
|
|
|
(0.4
|
)
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Depreciation and amortization
|
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|
30.2
|
|
|
|
28.1
|
|
Amortization of debt discount
|
|
|
1.4
|
|
|
|
0.9
|
|
Stock compensation amortization
|
|
|
1.3
|
|
|
|
2.0
|
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Provision for deferred income taxes
|
|
|
5.4
|
|
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|
0.4
|
|
Loss on early extinguishment of debt, net
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|
|
11.3
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|
|
|
9.7
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Amortization of debt issuance costs
|
|
|
2.1
|
|
|
|
2.4
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Pension and other post-retirement expense
|
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|
2.6
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|
|
|
4.7
|
|
Change in assets and liabilities:
|
|
|
|
|
|
|
|
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Decrease (increase) in trade receivables
|
|
|
15.4
|
|
|
|
(1.1
|
)
|
Increase in inventories
|
|
|
(22.4
|
)
|
|
|
(5.2
|
)
|
Increase in prepaid expenses and other current assets
|
|
|
(12.3
|
)
|
|
|
(15.9
|
)
|
Increase in accounts payable
|
|
|
17.1
|
|
|
|
16.1
|
|
(Decrease) increase in accrued expenses and other current
liabilities
|
|
|
(26.1
|
)
|
|
|
10.0
|
|
Pension and other post-retirement plan contributions
|
|
|
(15.0
|
)
|
|
|
(11.8
|
)
|
Purchases of permanent displays
|
|
|
(23.6
|
)
|
|
|
(17.7
|
)
|
Other, net
|
|
|
(3.3
|
)
|
|
|
(5.2
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
3.3
|
|
|
|
40.0
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(5.9
|
)
|
|
|
(7.2
|
)
|
Acquisitions
|
|
|
(39.0
|
)
|
|
|
|
|
Proceeds from the sale of certain assets
|
|
|
0.1
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(44.8
|
)
|
|
|
(7.0
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net increase (decrease) in short-term borrowings and overdraft
|
|
|
3.6
|
|
|
|
(0.3
|
)
|
Borrowings under the 2011 Revolving Credit Facility
|
|
|
10.0
|
|
|
|
|
|
Repayments under the 2006 Term Loan Facility
|
|
|
|
|
|
|
(815.0
|
)
|
Borrowings under the 2010 Term Loan Facility
|
|
|
|
|
|
|
786.0
|
|
Repayments under the 2010 Term Loan Facility
|
|
|
(794.0
|
)
|
|
|
(2.0
|
)
|
Borrowings under the 2011 Term Loan Facility
|
|
|
796.0
|
|
|
|
|
|
Payment of financing costs
|
|
|
(3.9
|
)
|
|
|
(16.6
|
)
|
Other financing activities
|
|
|
(0.7
|
)
|
|
|
(0.4
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
11.0
|
|
|
|
(48.3
|
)
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
(1.3
|
)
|
|
|
(0.6
|
)
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
|
(31.8
|
)
|
|
|
(15.9
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
76.7
|
|
|
|
54.5
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
44.9
|
|
|
$
|
38.6
|
|
|
|
|
|
|
|
|
|
|
Supplemental schedule of cash flow information:
|
|
|
|
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
57.1
|
|
|
$
|
38.5
|
|
Income taxes, net of refunds
|
|
$
|
12.3
|
|
|
$
|
9.5
|
|
See Accompanying Notes to Unaudited Consolidated Financial
Statements
5
|
|
(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
(U.S. GAAP) 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 Unaudited Consolidated
Financial Statements have been reclassified to conform to the
current periods presentation.
Fire
at Revlon Venezuela Facility
On June 5, 2011, the Companys manufacturing facility
in Venezuela was destroyed by fire. As of and for the year ended
December 31, 2010, the Companys subsidiary in
Venezuela (Revlon Venezuela) had net sales of
approximately 3% of the Companys consolidated net sales
and its net assets were
6
REVLON
CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in
millions)
approximately 3% of the Companys total net assets. The
Companys net sales in Venezuela are comprised of locally
manufactured product as well as product imported from the
Companys Oxford, North Carolina facility. The Company is
currently evaluating options to minimize disruption to Revlon
Venezuelas business as a result of such fire; however, it
is not currently able to estimate the full year impact of the
fire on its net sales or operating income.
In the second quarter of 2011, the Company recorded a
$4.9 million impairment loss related to Revlon
Venezuelas net book value of inventory, property, plant
and equipment destroyed by the fire. The Company maintains
comprehensive property insurance, as well as business
interruption insurance. An assessment of the extent of damage
and the impact on the Companys business in Venezuela is
ongoing, and therefore the final amount and timing of the
ultimate insurance recovery is currently unknown.
The Company believes that it is probable that the insurance
recovery will at least equal the net book value of Revlon
Venezuelas inventory, property, plant, and equipment
destroyed by the fire. Accordingly, in the second quarter of
2011, the Company recognized income of $4.9 million related
to the insurance receivable, which entirely offset the
impairment loss noted above.
For further discussion regarding the Fire in Venezuela, see
Note 12, Subsequent Event, in this
Form 10-Q.
Impact
of Foreign Currency Translation
Venezuela
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 Revlon 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 Restrictions: Currency restrictions
enacted by the Venezuelan government in 2003 have become more
restrictive and have impacted the ability of Revlon Venezuela to
obtain U.S. dollars in exchange for Venezuelan Bolivars
(Bolivars) at the official foreign exchange rates
from the Venezuelan government and its foreign exchange
commission, the Comisión de Administracion de Divisas
(CADIVI). In May 2010, the Venezuelan government
took control over the previously freely-traded foreign currency
exchange market and in June 2010, replaced it with a new foreign
currency exchange system, the Sistema de Transacciones en
Moneda Extranjera (SITME). SITME provides a
mechanism to exchange Bolivars into U.S. dollars. However,
SITME can only be used for product purchases and related
services, such as freight, and is not available for other
transactions, such as the payment of dividends. Also, SITME can
only be used for amounts of up to $50,000 per day, subject to a
monthly maximum of $350,000 per legal entity, and is generally
only available to the extent the applicant has not exchanged and
received U.S. dollars from CADIVI within the previous
90 days. The Company began using a SITME rate of 5.5
Bolivars per U.S. dollar to translate Revlon
Venezuelas financial statements as of and for the three
months ended June 30, 2011, which was the average rate at
which the Company accessed U.S. dollars in the SITME market
during the second quarter of 2011. The Company had previously
utilized Venezuelas official exchange rate of 4.3 Bolivars
per U.S. dollar to translate Revlon Venezuelas
financial statements from January 1, 2010 through
March 31, 2011.
In the second quarter of 2011, the change in the exchange rates
in Venezuela unfavorably impacted the Companys
consolidated net sales by $1.6 million. The impact on the
Companys consolidated operating income in the second
quarter of 2011 was de minimis. Additionally, to reflect the
impact of the change in exchange rates, a foreign currency loss
of $1.7 million was recorded as a result of the required
re-measurement of Revlon Venezuelas balance sheet at
June 30, 2011. As Venezuela was designated as a
7
REVLON
CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in
millions)
highly inflationary economy effective January 1, 2010, this
foreign currency loss was reflected in earnings in the second
quarter of 2011.
Recent
Accounting Pronouncements
In May 2011, the Financial Accounting Standards Board
(FASB) issued ASU
No. 2011-04,
Amendments to Achieve Common Fair Value Measurement and
Disclosure Requirements in U.S. GAAP and International
Financial Reporting Standards (IFRS), which amends
ASC 820, Fair Value Measurement. This ASU modifies the
existing standard to include disclosure of all transfers between
Level 1 and Level 2 asset and liability fair value
categories. In addition, the ASU provides guidance on measuring
the fair value of financial instruments managed within a
portfolio and the application of premiums and discounts on fair
value measurements. The ASU requires additional disclosure for
Level 3 measurements regarding the sensitivity of fair
value to changes in unobservable inputs and any
interrelationships between those inputs. This guidance is
effective for interim and annual reporting periods beginning
after December 15, 2011, with early adoption prohibited.
The Company does not expect such adoption will have a material
impact on the Companys results of operations, financial
condition or its disclosures.
In June 2011, the FASB issued ASU
No. 2011-05,
Presentation of Comprehensive Income. This standard eliminates
the current option to report other comprehensive income and its
components in the statement of changes in equity. Under this new
ASU, an entity can elect to present items of net income and
other comprehensive income in one continuous statement or in two
separate, but consecutive, statements. This guidance is
effective for publicly traded companies as of the beginning of a
fiscal year that begins after December 15, 2011 and interim
and annual periods thereafter. Early adoption is permitted, but
full retrospective application is required. As the Company
reports comprehensive income within its Statement of
Stockholders Deficiency, the adoption of this ASU will
impact the presentation of the Companys consolidated
financial statements beginning in the first quarter of 2012.
|
|
(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 second quarter
of 2011 and 2010 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
Post-retirement
|
|
|
|
Pension Plans
|
|
|
Benefit Plans
|
|
|
|
Three Months Ended
|
|
|
Three Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
Net periodic benefit costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
0.3
|
|
|
$
|
0.4
|
|
|
$
|
|
|
|
$
|
|
|
Interest cost
|
|
|
8.1
|
|
|
|
8.4
|
|
|
|
0.2
|
|
|
|
0.2
|
|
Expected return on plan assets
|
|
|
(8.8
|
)
|
|
|
(8.0
|
)
|
|
|
|
|
|
|
|
|
Amortization of actuarial (gain) loss
|
|
|
1.4
|
|
|
|
(0.1
|
)
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.0
|
|
|
|
0.7
|
|
|
|
0.3
|
|
|
|
0.2
|
|
Portion allocated to Revlon Holdings LLC
|
|
|
|
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1.0
|
|
|
$
|
0.6
|
|
|
$
|
0.3
|
|
|
$
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8
REVLON
CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in
millions)
The components of net periodic benefit cost for the pension and
the other post-retirement benefit plans for the first six months
of 2011 and 2010 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
Post-retirement
|
|
|
|
Pension Plans
|
|
|
Benefit Plans
|
|
|
|
Six Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
Net periodic benefit costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
0.6
|
|
|
$
|
0.8
|
|
|
$
|
|
|
|
$
|
|
|
Interest cost
|
|
|
16.2
|
|
|
|
16.9
|
|
|
|
0.4
|
|
|
|
0.4
|
|
Expected return on plan assets
|
|
|
(17.5
|
)
|
|
|
(16.1
|
)
|
|
|
|
|
|
|
|
|
Amortization of actuarial loss
|
|
|
2.7
|
|
|
|
2.6
|
|
|
|
0.2
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.0
|
|
|
|
4.2
|
|
|
|
0.6
|
|
|
|
0.5
|
|
Portion allocated to Revlon Holdings LLC
|
|
|
|
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2.0
|
|
|
$
|
4.1
|
|
|
$
|
0.6
|
|
|
$
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in net periodic benefit costs in the second quarter
of 2011, as compared to the prior year period, was primarily due
to lower amortization of actuarial losses in the second quarter
of 2010 as a result of the impact of a change in the
amortization period of actuarial (gains) losses from the
remaining service period to the remaining life expectancy of
plan participants in the second quarter of 2010.
In the first six months of 2011, compared to the prior year
period, the Company recognized lower net periodic benefit cost
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 second quarter of 2011, $6.0 million and
$0.2 million were contributed to the Companys pension
plans and other post-retirement benefit plans, respectively.
During the first six months of 2011, $14.5 million and
$0.5 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.
On March 17, 2011, the Company acquired certain 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 also assumed
certain liabilities of the acquired business. 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
the Sinful Colors Acquisition 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.
9
REVLON
CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in
millions)
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 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 intangible assets acquired by major
asset category are as follows:
|
|
|
|
|
|
|
|
|
|
|
Fair Values at
|
|
|
Weighted Average
|
|
|
|
March 17, 2011
|
|
|
Useful Life
|
|
|
Trademarks and Trade Names
|
|
$
|
7.3
|
|
|
|
10
|
|
Customer Relationships
|
|
|
15.5
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
22.8
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
The Company 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.
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
Raw materials and supplies
|
|
$
|
48.9
|
|
|
$
|
39.7
|
|
Work-in-process
|
|
|
9.7
|
|
|
|
9.9
|
|
Finished goods
|
|
|
83.2
|
|
|
|
65.4
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
141.8
|
|
|
$
|
115.0
|
|
|
|
|
|
|
|
|
|
|
10
REVLON
CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in
millions)
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011 Term Loan Facility due 2017, net of
discounts(a)
|
|
$
|
791.0
|
|
|
$
|
|
|
2010 Term Loan Facility due 2015, net of
discounts(a)(b)
|
|
|
|
|
|
|
782.0
|
|
2011 Revolving Credit Facility due
2016(a)
|
|
|
10.0
|
|
|
|
|
|
2010 Revolving Credit Facility due
2014(a)(b)
|
|
|
|
|
|
|
|
|
93/4% Senior
Secured Notes due 2015, net of
discounts(c)
|
|
|
327.1
|
|
|
|
326.9
|
|
Contributed Loan portion of the Senior Subordinated Term Loan
due
2013(d)
|
|
|
48.6
|
|
|
|
48.6
|
|
Non-Contributed Loan portion of the Senior Subordinated Term
Loan due
2014(e)
|
|
|
58.4
|
|
|
|
58.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,235.1
|
|
|
|
1,215.9
|
|
Less current portion
|
|
|
(18.0
|
)
|
|
|
(8.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,217.1
|
|
|
$
|
1,207.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
During the second quarter of 2011, Products Corporation
consummated the refinancing of the 2010 Term Loan Facility and
the 2010 Revolving Credit Facility (together referred to as the
2011 Refinancings). The 2011 Refinancings, among
other things, (i) reduced interest rates and extended the
maturity of Products Corporations 2010 Term Loan Facility,
due March 2015, by entering into the 2011 Term Loan Facility due
November 2017, and (ii) reduced interest rates and extended
the maturity of Products Corporations 2010 Revolving
Credit Facility, due March 2014, by entering into the 2011
Revolving Credit Facility due June 2016. See Recent Debt
Reduction Transactions below in this Note 5 for
further discussion of the 2011 Refinancings. |
|
(b) |
|
During March 2010, Products Corporation consummated the
refinancing of the 2006 Term Loan Facility and the 2006
Revolving Credit Facility (together referred to as 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 Products Corporations 2010
Credit Agreements. |
|
(c) |
|
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). |
|
(d) |
|
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. |
|
(e) |
|
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. |
Recent
Debt Reduction Transactions
Refinancing of the 2010 Term Loan and 2010 Revolving
Credit Facilities: During the second
quarter of 2011, Products Corporation consummated the 2011
Refinancings, reducing interest rates and extending maturities,
consisting of the following transactions:
|
|
|
|
|
In May 2011, Products Corporation consummated a refinancing of
the 2010 Term Loan Facility (the 2011 Term Loan Facility
Refinancing), which included replacing Products
Corporations 2010
|
11
REVLON
CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in
millions)
|
|
|
|
|
bank term loan facility, which was scheduled to mature on
March 11, 2015 and had $794.0 million aggregate
principal amount outstanding at December 31, 2010 (the
2010 Term Loan Facility), with a 6.5-year,
$800.0 million term loan facility due November 19,
2017 (the 2011 Term Loan Facility) under a third
amended and restated term loan agreement dated May 19, 2011
(the 2011 Term Loan Agreement), among Products
Corporation, as borrower, Citigroup Global Markets Inc.
(CGMI), J.P. Morgan Securities LLC (JPM
Securities), Merrill Lynch, Pierce, Fenner &
Smith Incorporated (Merrill Lynch), Credit Suisse
Securities (USA) LLC (Credit Suisse) and Wells Fargo
Securities, LLC (WFS) as the joint lead arrangers;
CGMI, JPM Securities, Merrill Lynch, Credit Suisse, WFS and
Natixis, New York Branch (Natixis), as joint
bookrunners; JPMorgan Chase Bank, N.A. and Bank of America, N.A.
as co-syndication agents; Credit Suisse, Wells Fargo Bank, N.A.
and Natixis as co-documentation agents; and Citicorp USA, Inc.
(CUSA) as administrative agent and collateral agent.
|
Products Corporation used $796 million of proceeds from the
2011 Term Loan Facility, which was drawn in full on the
May 19, 2011 closing date and issued to lenders at 99.5% of
par, to refinance in full the $792.0 million of outstanding
indebtedness under its 2010 Term Loan Facility and to pay
approximately $2 million of accrued interest. The Company
incurred approximately $3.9 million of fees in connection
with consummating the 2011 Term Loan Facility Refinancing in the
second quarter of 2011, of which approximately $2 million
was capitalized.
|
|
|
|
|
In June 2011, Products Corporation consummated a refinancing of
the 2010 Revolving Credit Facility (the 2011 Revolving
Credit Facility Refinancing), which included refinancing
Products Corporations 2010 revolving credit facility,
which was scheduled to mature on March 11, 2014 and had nil
outstanding borrowings at December 31, 2010 (the 2010
Revolving Credit Facility), with a
5-year,
$140.0 million asset-based, multi-currency revolving credit
facility due June 16, 2016 (the 2011 Revolving Credit
Facility) under a third amended and restated revolving
credit agreement dated June 16, 2011 (the 2011
Revolving Credit Agreement and together with the 2011 Term
Loan Agreement, the 2011 Credit Agreements), among
Products Corporation and certain of its foreign subsidiaries, as
borrowers, and CGMI and Wells Fargo Capital Finance, LLC
(WFCF) as the joint lead arrangers; CGMI, WFCF,
Merrill Lynch, JPMorgan Securities and Credit Suisse as joint
bookrunners; and CUSA as administrative agent and collateral
agent.
|
Products Corporation incurred approximately $0.7 million of
fees in connection with consummating the 2011 Revolving Credit
Facility Refinancing in the second quarter of 2011, all of which
were capitalized.
As a result of the 2011 Refinancings, the Company recognized a
loss on the early extinguishment of debt of $11.3 million
during the second quarter and first six months of 2011, due to
$1.9 million of fees which were expensed as incurred in
connection with the 2011 Refinancings, as well as the write-off
of $9.4 million of unamortized debt discount and deferred
financing fees as a result of such refinancings.
2011
Revolving Credit Facility
The following is a summary description of the 2011 Revolving
Credit Facility. Investors should refer to the principal
refinancing agreements (copies of which are included as exhibits
to this
Form 10-Q)
for complete terms and conditions. Unless otherwise indicated,
capitalized terms have the meanings given to them in the 2011
Revolving Credit Agreement.
Availability under the 2011 Revolving Credit Facility varies
based on a borrowing base that is determined by the value of
eligible accounts receivable and eligible inventory in the
U.S. and the U.K. and eligible real property and equipment
in the U.S. from time to time.
12
REVLON
CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in
millions)
In each case subject to borrowing base availability, the 2011
Revolving Credit Facility is available to:
(i) Products Corporation in revolving credit loans
denominated in U.S. dollars;
(ii) Products Corporation in swing line loans denominated
in U.S. dollars up to $30.0 million;
(iii) Products Corporation in standby and commercial
letters of credit denominated in U.S. dollars and other
currencies up to $60.0 million; and
(iv) Products Corporation and certain of its international
subsidiaries designated from time to time in revolving credit
loans and bankers acceptances denominated in
U.S. dollars and other currencies.
If the value of the eligible assets is not sufficient to support
the $140.0 million borrowing base under the 2011 Revolving
Credit Facility, Products Corporation will not have full access
to the 2011 Revolving Credit Facility. Products
Corporations ability to make borrowings under the 2011
Revolving Credit Facility is also conditioned upon the
satisfaction of certain conditions precedent and Products
Corporations compliance with other covenants in the 2011
Revolving Credit Agreement.
Under the 2011 Revolving Credit Facility, borrowings (other than
loans in foreign currencies) bear interest, if made as
Eurodollar Loans, at the Eurodollar Rate, plus the applicable
margin set forth in the grid below and, if made as Alternate
Base Rate loans, at the Alternate Base Rate, plus the applicable
margin set forth in the grid below:
|
|
|
|
|
|
|
|
|
|
|
|
|
Eurodollar
|
|
|
|
|
Loans,
|
|
|
|
|
Eurocurrency
|
|
|
Alternate Base
|
|
Loans or Local
|
Excess Availability
|
|
Rate Loans
|
|
Rate Loans
|
|
Greater than or equal to $92,000,000
|
|
|
1.00
|
%
|
|
|
2.00
|
%
|
Less than $92,000,000 but greater than or equal to $46,000,000
|
|
|
1.25
|
%
|
|
|
2.25
|
%
|
Less than $46,000,000
|
|
|
1.50
|
%
|
|
|
2.50
|
%
|
Local Loans (as defined in the 2011 Revolving Credit Agreement)
bear interest, if mutually acceptable to Products Corporation
and the relevant foreign lenders, at the Local Rate, and
otherwise (i) if in foreign currencies or in
U.S. dollars at the Eurodollar Rate or the Eurocurrency
Rate plus the applicable margin set forth in the grid above or
(ii) if in U.S. dollars at the Alternate Base Rate
plus the applicable margin set forth in the grid above.
Prior to the termination date of the 2011 Revolving Credit
Facility, revolving loans are required to be prepaid (without
any permanent reduction in commitment) with:
(i) the net cash proceeds from sales of Revolving Credit
First Lien Collateral (as defined below) by Products Corporation
or any of its subsidiary guarantors (other than dispositions in
the ordinary course of business and certain other
exceptions); and
(ii) the net proceeds from the issuance by Products
Corporation or any of its subsidiaries of certain additional
debt, to the extent there remains any such proceeds after
satisfying Products Corporations repayment obligations
under the 2011 Term Loan Facility.
13
REVLON
CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in
millions)
Products Corporation pays to the lenders under the 2011
Revolving Credit Facility a commitment fee of 0.375% of the
average daily unused portion of the 2011 Revolving Credit
Facility, which fee is payable quarterly in arrears. Under the
2011 Revolving Credit Facility, Products Corporation also pays:
(i) to foreign lenders a fronting fee of 0.25% per annum on
the aggregate principal amount of specified Local Loans (which
fee is retained by foreign lenders out of the portion of the
Applicable Margin payable to such foreign lender);
(ii) to foreign lenders an administrative fee of 0.25% per
annum on the aggregate principal amount of specified Local Loans;
(iii) to the multi-currency lenders a letter of credit
commission equal to the product of (a) the Applicable
Margin (as defined in the 2011 Revolving Credit Agreement) for
revolving credit loans that are Eurodollar Rate (as defined in
the 2011 Revolving Credit Agreement) loans (adjusted for the
term that the letter of credit is outstanding) and (b) the
aggregate undrawn face amount of letters of credit; and
(iv) to the issuing lender, a letter of credit fronting fee
of 0.25% per annum of the aggregate undrawn face amount of
letters of credit, which fee is a portion of the Applicable
Margin.
Under certain circumstances, Products Corporation has the right
to request that the 2011 Revolving Credit Facility be increased
by up to $60.0 million, provided that the lenders are not
committed to provide any such increase.
Under certain circumstances if and when the difference between
(i) the borrowing base under the 2011 Revolving Credit
Facility and (ii) the amounts outstanding under the 2011
Revolving Credit Facility is less than $20.0 million for a
period of two consecutive days or more, and until such
difference is equal to or greater than $20.0 million for a
period of 30 consecutive business days, the 2011 Revolving
Credit Facility requires Products Corporation to maintain a
consolidated fixed charge coverage ratio (the ratio of EBITDA
minus Capital Expenditures to Cash Interest Expense for such
period, as each such term is defined in the 2011 Revolving
Credit Facility) of a minimum of 1.0 to 1.0.
The 2011 Revolving Credit Facility matures on June 16,
2016; provided, however, it will mature on August 15, 2015,
if Products Corporations
93/4% Senior
Secured Notes have not been refinanced, redeemed, repurchased,
defeased or repaid in full on or before such date.
2011
Term Loan Facility
The following is a summary description of the 2011 Term Loan
Facility. Investors should refer to the principal refinancing
agreements (copies of which are included as exhibits to this
Form 10-Q)
for complete terms and conditions. Unless otherwise indicated,
capitalized terms have the meanings given to them in the 2011
Term Loan Agreement.
Under the 2011 Term Loan Facility, Eurodollar Loans (as defined
in the 2011 Term Loan Agreement) bear interest at the Eurodollar
Rate plus 3.50% per annum (with the Eurodollar Rate not to be
less than 1.25%) and Alternate Base Rate loans bear interest at
the Alternate Base Rate plus 2.50% (with the Alternate Base Rate
not to be less than 2.25%).
Prior to the November 2017 termination date of the 2011 Term
Loan Facility, on September 30, December 31, March 31
and June 30 of each year (commencing September 30, 2011),
Products Corporation is required to repay $2 million of the
principal amount of the term loans outstanding under the 2011
Term
14
REVLON
CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in
millions)
Loan Facility on each respective date. In addition, the term
loans under the 2011 Term Loan Facility are required to be
prepaid with:
(i) the net cash proceeds in excess of $10 million for
each
12-month
period ending on March 31 received during such period from sales
of Term Loan First Lien Collateral (as defined below) by
Products Corporation or any of its subsidiary guarantors with
carryover of unused annual basket amounts up to a maximum of
$25 million and subject, with respect to certain specified
dispositions, up to an additional $25 million in the
aggregate (subject to a reinvestment right for 365 days, or
545 days if Products Corporation has within such
365-day
period entered into a legally binding commitment to invest such
funds);
(ii) the net proceeds from the issuance by Products
Corporation or any of its subsidiaries of certain additional
debt; and
(iii) 50% of Products Corporations excess cash
flow (as defined under the 2011 Term Loan Agreement),
commencing with excess cash flow for the 2012 fiscal year
payable in the first 100 days of 2013, which prepayments
are applied to reduce Products Corporations future
regularly scheduled term loan amortization payments in the
direct order of maturities.
The 2011 Term Loan Facility contains a financial covenant
limiting Products Corporations first lien senior secured
leverage ratio (the ratio of Products Corporations Senior
Secured Debt that has a lien on the collateral which secures the
2011 Term Loan Facility that is not junior or subordinated to
the liens securing the 2011 Term Loan Facility (excluding debt
outstanding under the Existing 2010 Revolving Credit Facility))
to EBITDA, as each such term is defined in the 2011 Term Loan
Facility), to no more than 4.0 to 1.0 for each period of four
consecutive fiscal quarters ending during the period from
June 30, 2011 to the November 2017 maturity date of the
2011 Term Loan Facility.
Under certain circumstances, Products Corporation has the right
to request the 2011 Term Loan Facility to be increased by up to
$300 million, provided that the lenders are not committed
to provide any such increase.
The 2011 Term Loan Facility matures on November 19, 2017;
provided, however, it will mature on August 15, 2015, if
Products Corporations
93/4% Senior
Secured Notes have not been refinanced, redeemed, repurchased,
defeased or repaid in full on or before such date.
Provisions
Applicable to the 2011 Revolving Credit Facility and the 2011
Term Loan Facility
The 2011 Revolving Credit Facility and 2011 Term Loan Facility
(herein referred to as the 2011 Credit Facilities)
are supported by, among other things, guarantees from Revlon,
Inc. and, subject to certain limited exceptions, Products
Corporations domestic subsidiaries. The obligations of
Products Corporation under the 2011 Credit Facilities and the
obligations under such guarantees are secured by, subject to
certain limited exceptions, substantially all of the assets of
Products Corporation and the guarantors, including:
(i) mortgages on owned real property, including Products
Corporations facility in Oxford, North Carolina;
(ii) the capital stock of Products Corporation and the
subsidiary guarantors and 66% of the voting capital stock and
100% of the non-voting capital stock of Products
Corporations and the subsidiary guarantors
first-tier,
non-U.S. subsidiaries;
(iii) intellectual property and other intangible property
of Products Corporation and the subsidiary guarantors; and
15
REVLON
CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in
millions)
(iv) inventory, accounts receivable, equipment, investment
property and deposit accounts of Products Corporation and the
subsidiary guarantors.
The liens on, among other things, inventory, accounts
receivable, deposit accounts, investment property (other than
the capital stock of Products Corporation and its subsidiaries),
real property, equipment, fixtures and certain intangible
property (the Revolving Credit First Lien
Collateral) secure the 2011 Revolving Credit Facility on a
first priority basis, the 2011 Term Loan Facility on a second
priority basis and Products Corporations
93/4% Senior
Secured Notes and the related guarantees on a third priority
basis. The liens on the capital stock of Products Corporation
and its subsidiaries and intellectual property and certain other
intangible property (the Term Loan First Lien
Collateral) secure the 2011 Term Loan Facility on a first
priority basis and the 2011 Revolving Credit Facility and the
93/4% Senior
Secured Notes and the related guarantees on a second priority
basis. Such arrangements are set forth in the Third Amended and
Restated Intercreditor and Collateral Agency Agreement, dated as
of March 11, 2010, by and among Products Corporation and
CUSA, as administrative agent and as collateral agent for the
benefit of the secured parties for the 2011 Term Loan Facility,
2011 Revolving Credit Facility and the
93/4% Senior
Secured Notes (the 2010 Intercreditor Agreement).
The 2010 Intercreditor Agreement also provides that the liens
referred to above may be shared from time to time, subject to
certain limitations, with specified types of other obligations
incurred or guaranteed by Products Corporation, such as foreign
exchange and interest rate hedging obligations and foreign
working capital lines.
The 2011 Credit Facilities contain various restrictive covenants
prohibiting Products Corporation and its subsidiaries from:
(i) incurring additional indebtedness or guarantees, with
certain exceptions;
(ii) making dividend and other payments or loans to Revlon,
Inc. or other affiliates, with certain exceptions, including
among others:
(a) exceptions permitting Products Corporation to pay
dividends or make other payments to Revlon, Inc. to enable it
to, among other things, pay expenses incidental to being a
public holding company, including, among other things,
professional fees such as legal, accounting and insurance fees,
regulatory fees, such as SEC filing fees and NYSE listing fees,
and other expenses related to being a public holding company;
(b) subject to certain circumstances, to finance the
purchase by Revlon, Inc. of its Class A Common Stock in
connection with the delivery of such Class A Common Stock
to grantees under the Third Amended and Restated Revlon, Inc.
Stock Plan
and/or the
payment of withholding taxes in connection with the vesting of
restricted stock awards under such plan;
(c) subject to certain limitations, to pay dividends or
make other payments to finance the purchase, redemption or other
retirement for value by Revlon, Inc. of stock or other equity
interests or equivalents in Revlon, Inc. held by any current or
former director, employee or consultant in his or her capacity
as such; and
(d) subject to certain limitations, to make other
restricted payments to affiliates of Products Corporation in an
amount up to $10 million per year (plus $10 million
for each calendar year commencing with 2011), other restricted
payments in an aggregate amount not to exceed $35 million
and other restricted payments based upon certain financial tests.
(iii) creating liens or other encumbrances on Products
Corporations or its subsidiaries assets or revenues,
granting negative pledges or selling or transferring any of
Products Corporations or its subsidiaries assets,
all subject to certain limited exceptions;
(iv) with certain exceptions, engaging in merger or
acquisition transactions;
16
REVLON
CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in
millions)
(v) prepaying indebtedness and modifying the terms of
certain indebtedness and specified material contractual
obligations, subject to certain exceptions;
(vi) making investments, subject to certain
exceptions; and
(vii) entering into transactions with affiliates of
Products Corporation involving aggregate payments or
consideration in excess of $10 million other than upon
terms that are not materially less favorable when taken as a
whole to Products Corporation or its subsidiaries as terms that
would be obtainable at the time for a comparable transaction or
series of similar transactions in arms length dealings
with an unrelated third person and where such payments or
consideration exceed $20 million, unless such transaction
has been approved by all of the independent directors of
Products Corporation, subject to certain exceptions.
The events of default under the 2011 Credit Facilities include
customary events of default for such types of agreements,
including, among others:
(i) nonpayment of any principal, interest or other fees
when due, subject in the case of interest and fees to a grace
period;
(ii) non-compliance with the covenants in such 2011 Credit
Facilities or the ancillary security documents, subject in
certain instances to grace periods;
(iii) the institution of any bankruptcy, insolvency or
similar proceedings by or against Products Corporation, any of
Products Corporations subsidiaries or Revlon, Inc.,
subject in certain instances to grace periods;
(iv) default by Revlon, Inc. or any of its subsidiaries
(A) in the payment of certain indebtedness when due
(whether at maturity or by acceleration) in excess of
$25.0 million in aggregate principal amount or (B) in
the observance or performance of any other agreement or
condition relating to such debt, provided that the amount of
debt involved is in excess of $25.0 million in aggregate
principal amount, or the occurrence of any other event, the
effect of which default referred to in this subclause (iv)
is to cause or permit the holders of such debt to cause the
acceleration of payment of such debt;
(v) in the case of the 2011 Term Loan Facility, a cross
default under the 2011 Revolving Credit Facility, and in the
case of the 2011 Revolving Credit Facility, a cross default
under the 2011 Term Loan Facility;
(vi) the failure by Products Corporation, certain of
Products Corporations subsidiaries or Revlon, Inc. to pay
certain material judgments;
(vii) a change of control such that (A) Revlon, Inc.
shall cease to be the beneficial and record owner of 100% of
Products Corporations capital stock, (B) Ronald O.
Perelman (or his estate, heirs, executors, administrator or
other personal representative) and his or their controlled
affiliates shall cease to control Products
Corporation, and any other person or group of persons owns,
directly or indirectly, more than 35% of the total voting power
of Products Corporation, (C) any person or group of persons
other than Ronald O. Perelman (or his estate, heirs, executors,
administrator or other personal representative) and his or their
controlled affiliates shall control Products
Corporation or (D) during any period of two consecutive
years, the directors serving on Products Corporations
Board of Directors at the beginning of such period (or other
directors nominated by at least a majority of such continuing
directors) shall cease to be a majority of the directors;
(viii) Revlon, Inc. shall have any meaningful assets or
indebtedness or shall conduct any meaningful business other than
its ownership of Products Corporation and such activities as are
customary
17
REVLON
CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in
millions)
for a publicly traded holding company which is not itself an
operating company, in each case subject to limited
exceptions; and
(ix) the failure of certain of Products Corporations
affiliates which hold Products Corporations or its
subsidiaries indebtedness to be party to a valid and
enforceable agreement prohibiting such affiliate from demanding
or retaining payments in respect of such indebtedness, subject
to certain exceptions, including as to Products
Corporations Senior Subordinated Term Loan.
If Products Corporation is in default under the senior secured
leverage ratio under the 2011 Term Loan Facility or the
consolidated fixed charge coverage ratio under the 2011
Revolving Credit Agreement, Products Corporation may cure such
default by issuing certain equity securities to, or receiving
capital contributions from, Revlon, Inc. and applying such cash
which is deemed to increase EBITDA for the purpose of
calculating the applicable ratio. Products Corporation may
exercise this cure right two times in any four-quarter period.
Products Corporation was in compliance with all applicable
covenants under the 2011 Term Loan Agreement and 2011 Revolving
Credit Agreement upon closing the respective 2011 Refinancings
and as of June 30, 2011. At June 30, 2011, the
aggregate principal amount outstanding under the 2011 Term Loan
Facility was $800.0 million and availability under the
$140.0 million 2011 Revolving Credit Facility, based upon
the calculated borrowing base less $21.6 million of
outstanding undrawn letters of credit and $10 million then
drawn on the 2011 Revolving Credit Facility, was
$101.1 million.
The components of comprehensive income for the three months
ended June 30, 2011 and 2010 and the six months ended
June 30, 2011 and 2010 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
Net income
|
|
$
|
7.8
|
|
|
$
|
18.8
|
|
|
$
|
19.8
|
|
|
$
|
23.0
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revaluation of financial derivative
instruments(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.7
|
|
Currency translation adjustment
|
|
|
1.1
|
|
|
|
(1.6
|
)
|
|
|
0.2
|
|
|
|
(0.8
|
)
|
Amortization of pension related costs, net of
tax(b)
|
|
|
0.9
|
|
|
|
(0.1
|
)
|
|
|
1.8
|
|
|
|
2.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income (loss)
|
|
|
2.0
|
|
|
|
(1.7
|
)
|
|
|
2.0
|
|
|
|
3.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$
|
9.8
|
|
|
$
|
17.1
|
|
|
$
|
21.8
|
|
|
$
|
26.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The amount for the six months ended June 30, 2010 relates
to (1) the reclassification of an unrecognized loss of
$0.8 million on the 2008 Interest Rate Swap (as hereinafter
defined) prior to its expiration in April 2010 from Accumulated
Other Comprehensive Loss into earnings due to the discontinuance
of hedge accounting as a result of the 2010 Refinancing (See
Note 9, 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 second quarter of 2011 and 2010 and
the first six months of 2011 and 2010 related to the
Companys pension and other post-retirement benefit plans. |
18
REVLON
CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in
millions)
|
|
(7)
|
Geographic,
Financial and Other Information
|
The Company manages its business on the basis of one reportable
operating segment. As of June 30, 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
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
Geographic area:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
194.9
|
|
|
|
55%
|
|
|
$
|
179.3
|
|
|
|
55%
|
|
|
$
|
381.1
|
|
|
|
56%
|
|
|
$
|
361.4
|
|
|
|
57%
|
|
Outside of the United States
|
|
|
156.3
|
|
|
|
45%
|
|
|
|
148.4
|
|
|
|
45%
|
|
|
|
303.3
|
|
|
|
44%
|
|
|
|
271.8
|
|
|
|
43%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
351.2
|
|
|
|
|
|
|
$
|
327.7
|
|
|
|
|
|
|
$
|
684.4
|
|
|
|
|
|
|
$
|
633.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
Long-lived assets, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
353.7
|
|
|
|
87%
|
|
|
$
|
326.5
|
|
|
|
87%
|
|
Outside of the United States
|
|
|
54.0
|
|
|
|
13%
|
|
|
|
49.7
|
|
|
|
13%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
407.7
|
|
|
|
|
|
|
$
|
376.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
Classes of similar products:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Color cosmetics
|
|
$
|
218.0
|
|
|
|
62%
|
|
|
$
|
206.2
|
|
|
|
63%
|
|
|
$
|
433.1
|
|
|
|
63%
|
|
|
$
|
399.9
|
|
|
|
63%
|
|
Beauty care and fragrance
|
|
|
133.2
|
|
|
|
38%
|
|
|
|
121.5
|
|
|
|
37%
|
|
|
|
251.3
|
|
|
|
37%
|
|
|
|
233.3
|
|
|
|
37%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
351.2
|
|
|
|
|
|
|
$
|
327.7
|
|
|
|
|
|
|
$
|
684.4
|
|
|
|
|
|
|
$
|
633.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8)
|
Fair
Value Measurements
|
Assets and liabilities are required to be categorized into three
levels of fair value 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 the fair value
measurement of assets and liabilities 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
|
19
REVLON
CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in
millions)
|
|
|
|
|
Level 3: Fair valuing the asset or liability using
unobservable inputs that reflect the Companys own
assumptions regarding the applicable asset or liability.
|
As of June 30, 2011, the fair values of the Companys
financial assets and liabilities, namely its FX Contracts (as
hereinafter defined) are categorized in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FX
Contracts(a)
|
|
$
|
0.1
|
|
|
$
|
|
|
|
$
|
0.1
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair value
|
|
$
|
0.1
|
|
|
$
|
|
|
|
$
|
0.1
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FX
Contracts(a)
|
|
$
|
2.0
|
|
|
$
|
|
|
|
$
|
2.0
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities at fair value
|
|
$
|
2.0
|
|
|
$
|
|
|
|
$
|
2.0
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2010, the fair values of the
Companys financial assets and liabilities, namely its FX
Contracts (as hereinafter defined), are categorized in the table
below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FX
Contracts(a)
|
|
$
|
0.2
|
|
|
$
|
|
|
|
$
|
0.2
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair value
|
|
$
|
0.2
|
|
|
$
|
|
|
|
$
|
0.2
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FX
Contracts(a)
|
|
$
|
2.1
|
|
|
$
|
|
|
|
$
|
2.1
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities at fair value
|
|
$
|
2.1
|
|
|
$
|
|
|
|
$
|
2.1
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The fair value of the Companys FX Contracts (as
hereinafter defined) was measured based on observable market
transactions of spot and forward rates at June 30, 2011 and
December 31, 2010. (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 June 30, 2011 was approximately
$1,277.2 million, which was more than the carrying value of
such debt at June 30, 2011 of $1,235.1 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
$21.6 million and $21.2 million (including amounts
available under credit agreements in effect at that time) were
maintained at June 30,
20
REVLON
CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in
millions)
2011 and December 31, 2010, respectively. Included in these
amounts is approximately $9.1 million at both June 30,
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 June 30, 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, 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 Transactions
Prior to its expiration in April 2010, the Companys
floating-to-fixed
interest rate swap had a notional amount of $150.0 million
initially relating to indebtedness under Products
Corporations former 2006 Term Loan Facility (prior to its
complete refinancing in March 2010) and which also related,
through its expiration in April 2010, to a notional amount of
$150.0 million relating to indebtedness under Products
Corporations 2010 Term Loan Facility (the 2008
Interest Rate Swap). Under the terms of the 2008 Interest
Rate Swap, Products Corporation was required to pay to the
counterparty a quarterly fixed interest rate of 2.66% on the
$150.0 million notional amount under the 2008 Interest Rate
Swap (which, based upon the 4.0% applicable margin, effectively
fixed the interest rate on such notional amounts at 6.66% for
the 2-year
term of such swap), commencing in July 2008, while receiving a
variable interest rate payment from the counterparty equal to
three-month U.S. dollar LIBOR.
The 2008 Interest Rate Swap was initially designated as a cash
flow hedge of the variable interest rate payments on Products
Corporations former 2006 Term Loan Facility (prior to its
complete refinancing in March 2010). 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 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.
21
REVLON
CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in
millions)
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
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
|
June 30,
|
|
|
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 and other
|
|
$
|
0.1
|
|
|
$
|
0.2
|
|
|
Accrued expenses
|
|
$
|
2.0
|
|
|
$
|
2.1
|
|
|
|
|
(a) |
|
The fair values of the FX Contracts
at June 30, 2011 and December 31, 2010 were determined
by using observable market transactions of spot and forward
rates at June 30, 2011 and December 31, 2010.
|
(b) Effects of Derivative Financial Instruments on Income
for the three months ended June 30, 2011 and 2010:
|
|
|
|
|
|
|
|
|
|
|
Amount of
|
|
|
Gain (Loss)
|
|
|
Recognized in
|
|
|
Foreign
|
|
|
Currency Losses,
|
|
|
Net
|
|
|
Three Months Ended, June 30,
|
|
|
2011
|
|
2010
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
FX Contracts
|
|
$
|
(1.2
|
)
|
|
$
|
1.1
|
|
Effects of Derivative Financial Instruments on Income and Other
Comprehensive Income (Loss) (OCI) for the six months
ended June 30, 2011 and 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Instruments Gain (Loss) Effect on Consolidated
|
|
|
|
Statement of Operations and OCI for the Six Months Ended
June 30,
|
|
|
|
|
|
|
|
|
|
|
|
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
|
)
|
22
REVLON
CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of
|
|
|
|
|
Amount of
|
|
|
|
Gain (Loss)
|
|
|
Income Statement
|
|
Gain (Loss)
|
|
|
|
Recognized in
|
|
|
Classification of
|
|
Recognized in Interest
|
|
|
|
Foreign
|
|
|
Gain (Loss)
|
|
Expense (Ineffective
|
|
|
|
Currency Losses, Net
|
|
|
Reclassified from
|
|
Portion)
|
|
|
|
2011
|
|
|
2010
|
|
|
OCI to Income
|
|
2011
|
|
|
2010
|
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FX Contracts
|
|
$
|
(1.8
|
)
|
|
$
|
0.6
|
|
|
|
|
|
|
|
|
|
|
|
2008 Interest Rate
Swap(a)
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
|
|
|
|
(0.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(1.8
|
)
|
|
$
|
0.6
|
|
|
|
|
$
|
|
|
|
$
|
(0.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Effective March 11, 2010 (the
closing date of the 2010 Refinancing), the 2008 Interest Rate
Swap, which expired in April 2010, was no longer designated as a
cash flow hedge. (See Interest Rate Swap
Transactions in this Note 9.)
|
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 carry-forwards, dividends
among affiliates, certain nondeductible expenses and certain
other items. The Companys tax provision 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 period are
recognized in the quarter in which any such change occurs.
For the second quarter of 2011 and 2010, the Company recorded a
provision for income taxes for continuing operations of
$3.9 million and $4.8 million, respectively. The
$3.9 million provision for income taxes for the second
quarter of 2011, as compared to the $4.8 million provision
for income taxes for the second quarter of 2010, was primarily
attributable to lower taxable income in the U.S. and
certain foreign jurisdictions, offset in part by higher deferred
tax expense for the U.S. in 2011 due to the reduction of
the valuation allowance in the U.S. on December 31,
2010.
For the first six months of 2011 and 2010, the Company recorded
a provision for income taxes for continuing operations of
$12.5 million and $9.8 million, respectively. The
$12.5 million provision for income taxes for the first six
months of 2011, as compared to the $9.8 million provision
from income taxes for the first six months of 2010, was
primarily attributable to higher deferred tax expense for the
U.S. in 2011 due to the reduction of the valuation
allowance in the U.S. on December 31, 2010, offset in
part by lower taxable income in the U.S. and certain
foreign jurisdictions.
The Company remains subject to examination of its income tax
returns in various jurisdictions including, without limitation,
the U.S. (federal) and South Africa, for tax years ended
December 31, 2007 through December 31, 2009, and
Australia for tax years ended December 31, 2006 through
December 31, 2009.
|
|
(11)
|
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
23
REVLON
CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in
millions)
immaterial subsidiaries) that guarantee Products
Corporations obligations under its 2011 Credit Agreements
(the Guarantor Subsidiaries).
The following Condensed Consolidating Financial Statements
present the financial information as of June 30, 2011 and
December 31, 2010, and for the three and six months ended
June 30, 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.
24
REVLON
CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in
millions)
Consolidating
Condensed Balance Sheets
As of June 30, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Products
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
|
|
|
|
|
|
|
Corporation
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
0.7
|
|
|
$
|
0.9
|
|
|
$
|
43.3
|
|
|
$
|
|
|
|
$
|
44.9
|
|
Trade receivables, less allowances for doubtful accounts
|
|
|
77.8
|
|
|
|
20.2
|
|
|
|
87.7
|
|
|
|
|
|
|
|
185.7
|
|
Inventories
|
|
|
86.0
|
|
|
|
9.0
|
|
|
|
46.8
|
|
|
|
|
|
|
|
141.8
|
|
Deferred income taxes current
|
|
|
35.7
|
|
|
|
|
|
|
|
5.7
|
|
|
|
|
|
|
|
41.4
|
|
Prepaid expenses and other
|
|
|
75.4
|
|
|
|
5.3
|
|
|
|
28.8
|
|
|
|
|
|
|
|
109.5
|
|
Intercompany receivables
|
|
|
916.1
|
|
|
|
447.3
|
|
|
|
339.8
|
|
|
|
(1,703.2
|
)
|
|
|
|
|
Investment in subsidiaries
|
|
|
(196.7
|
)
|
|
|
(195.8
|
)
|
|
|
|
|
|
|
392.5
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
86.0
|
|
|
|
0.8
|
|
|
|
14.7
|
|
|
|
|
|
|
|
101.5
|
|
Deferred income taxes noncurrent
|
|
|
206.5
|
|
|
|
|
|
|
|
2.7
|
|
|
|
|
|
|
|
209.2
|
|
Goodwill, net
|
|
|
150.6
|
|
|
|
41.4
|
|
|
|
2.1
|
|
|
|
|
|
|
|
194.1
|
|
Other assets
|
|
|
52.6
|
|
|
|
25.8
|
|
|
|
33.7
|
|
|
|
|
|
|
|
112.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,490.7
|
|
|
$
|
354.9
|
|
|
$
|
605.3
|
|
|
$
|
(1,310.7
|
)
|
|
$
|
1,140.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS DEFICIENCY
|
Short-term borrowings
|
|
$
|
|
|
|
$
|
5.8
|
|
|
$
|
3.2
|
|
|
$
|
|
|
|
$
|
9.0
|
|
Current portion of long-term debt
|
|
|
18.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18.0
|
|
Accounts payable
|
|
|
56.5
|
|
|
|
9.0
|
|
|
|
35.6
|
|
|
|
|
|
|
|
101.1
|
|
Accrued expenses and other
|
|
|
117.6
|
|
|
|
9.0
|
|
|
|
62.1
|
|
|
|
|
|
|
|
188.7
|
|
Intercompany payables
|
|
|
529.7
|
|
|
|
625.1
|
|
|
|
548.4
|
|
|
|
(1,703.2
|
)
|
|
|
|
|
Long-term debt
|
|
|
1,110.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,110.1
|
|
Long-term debt affiliates
|
|
|
107.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
107.0
|
|
Other long-term liabilities
|
|
|
185.8
|
|
|
|
7.8
|
|
|
|
46.7
|
|
|
|
|
|
|
|
240.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
2,124.7
|
|
|
|
656.7
|
|
|
|
696.0
|
|
|
|
(1,703.2
|
)
|
|
|
1,774.2
|
|
Stockholders deficiency
|
|
|
(634.0
|
)
|
|
|
(301.8
|
)
|
|
|
(90.7
|
)
|
|
|
392.5
|
|
|
|
(634.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders deficiency
|
|
$
|
1,490.7
|
|
|
$
|
354.9
|
|
|
$
|
605.3
|
|
|
$
|
(1,310.7
|
)
|
|
$
|
1,140.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25
REVLON
CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in
millions)
Consolidating
Condensed Balance Sheets
As of December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Products
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
|
|
|
|
|
|
|
Corporation
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
20.5
|
|
|
$
|
0.1
|
|
|
$
|
56.1
|
|
|
$
|
|
|
|
$
|
76.7
|
|
Trade receivables, less allowances for doubtful accounts
|
|
|
91.0
|
|
|
|
14.9
|
|
|
|
91.6
|
|
|
|
|
|
|
|
197.5
|
|
Inventories
|
|
|
76.6
|
|
|
|
2.4
|
|
|
|
36.0
|
|
|
|
|
|
|
|
115.0
|
|
Deferred income taxes current
|
|
|
34.4
|
|
|
|
|
|
|
|
5.9
|
|
|
|
|
|
|
|
40.3
|
|
Prepaid expenses and other
|
|
|
72.5
|
|
|
|
3.2
|
|
|
|
22.4
|
|
|
|
|
|
|
|
98.1
|
|
Intercompany receivables
|
|
|
895.1
|
|
|
|
432.0
|
|
|
|
331.1
|
|
|
|
(1,658.2
|
)
|
|
|
|
|
Investment in subsidiaries
|
|
|
(229.8
|
)
|
|
|
(184.7
|
)
|
|
|
|
|
|
|
414.5
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
89.4
|
|
|
|
0.6
|
|
|
|
16.2
|
|
|
|
|
|
|
|
106.2
|
|
Deferred income taxes noncurrent
|
|
|
214.0
|
|
|
|
|
|
|
|
2.6
|
|
|
|
|
|
|
|
216.6
|
|
Goodwill, net
|
|
|
150.6
|
|
|
|
30.0
|
|
|
|
2.1
|
|
|
|
|
|
|
|
182.7
|
|
Other assets
|
|
|
55.8
|
|
|
|
4.2
|
|
|
|
27.3
|
|
|
|
|
|
|
|
87.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26
REVLON
CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
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 June 30, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Products
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
|
|
|
|
|
|
|
Corporation
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Net Sales
|
|
$
|
227.8
|
|
|
$
|
25.8
|
|
|
$
|
144.2
|
|
|
$
|
(46.6
|
)
|
|
$
|
351.2
|
|
Cost of Sales
|
|
|
102.3
|
|
|
|
11.8
|
|
|
|
54.4
|
|
|
|
(46.6
|
)
|
|
|
121.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
125.5
|
|
|
|
14.0
|
|
|
|
89.8
|
|
|
|
|
|
|
|
229.3
|
|
Selling, general and administrative expenses
|
|
|
100.1
|
|
|
|
10.6
|
|
|
|
68.6
|
|
|
|
|
|
|
|
179.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
25.4
|
|
|
|
3.4
|
|
|
|
21.2
|
|
|
|
|
|
|
|
50.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expenses (income):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany interest, net
|
|
|
(0.1
|
)
|
|
|
(0.2
|
)
|
|
|
1.9
|
|
|
|
|
|
|
|
1.6
|
|
Interest expense
|
|
|
21.6
|
|
|
|
|
|
|
|
0.1
|
|
|
|
|
|
|
|
21.7
|
|
Amortization of debt issuance costs
|
|
|
1.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.0
|
|
Loss on early extinguishment of debt
|
|
|
11.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11.3
|
|
Foreign currency losses(gains), net
|
|
|
(1.5
|
)
|
|
|
0.1
|
|
|
|
4.4
|
|
|
|
|
|
|
|
3.0
|
|
Miscellaneous, net
|
|
|
(25.3
|
)
|
|
|
11.8
|
|
|
|
13.8
|
|
|
|
|
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expenses, net
|
|
|
7.0
|
|
|
|
11.7
|
|
|
|
20.2
|
|
|
|
|
|
|
|
38.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes
|
|
|
18.4
|
|
|
|
(8.3
|
)
|
|
|
1.0
|
|
|
|
|
|
|
|
11.1
|
|
Provision for income taxes
|
|
|
1.3
|
|
|
|
1.0
|
|
|
|
1.6
|
|
|
|
|
|
|
|
3.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
17.1
|
|
|
|
(9.3
|
)
|
|
|
(0.6
|
)
|
|
|
|
|
|
|
7.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations, net of taxes
|
|
|
0.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.6
|
|
Equity in (loss) income of subsidiaries
|
|
|
(9.9
|
)
|
|
|
(3.2
|
)
|
|
|
|
|
|
|
13.1
|
|
|
|
0.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
7.8
|
|
|
$
|
(12.5
|
)
|
|
$
|
(0.6
|
)
|
|
$
|
13.1
|
|
|
$
|
7.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27
REVLON
CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
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 June 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Products
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
|
|
|
|
|
|
|
Corporation
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Net Sales
|
|
$
|
214.8
|
|
|
$
|
16.9
|
|
|
$
|
135.7
|
|
|
$
|
(39.7
|
)
|
|
$
|
327.7
|
|
Cost of Sales
|
|
|
89.0
|
|
|
|
7.1
|
|
|
|
50.6
|
|
|
|
(39.7
|
)
|
|
|
107.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
125.8
|
|
|
|
9.8
|
|
|
|
85.1
|
|
|
|
|
|
|
|
220.7
|
|
Selling, general and administrative expenses
|
|
|
104.9
|
|
|
|
7.2
|
|
|
|
59.3
|
|
|
|
|
|
|
|
171.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
20.9
|
|
|
|
2.6
|
|
|
|
25.8
|
|
|
|
|
|
|
|
49.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expenses (income):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany interest, net
|
|
|
0.7
|
|
|
|
(0.2
|
)
|
|
|
1.1
|
|
|
|
|
|
|
|
1.6
|
|
Interest expense
|
|
|
22.8
|
|
|
|
|
|
|
|
0.1
|
|
|
|
|
|
|
|
22.9
|
|
Amortization of debt issuance costs
|
|
|
1.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.0
|
|
Foreign currency (gains) losses, net
|
|
|
0.2
|
|
|
|
0.2
|
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
0.1
|
|
Miscellaneous, net
|
|
|
(21.9
|
)
|
|
|
10.9
|
|
|
|
11.5
|
|
|
|
|
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expenses (income), net
|
|
|
2.8
|
|
|
|
10.9
|
|
|
|
12.4
|
|
|
|
|
|
|
|
26.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes
|
|
|
18.1
|
|
|
|
(8.3
|
)
|
|
|
13.4
|
|
|
|
|
|
|
|
23.2
|
|
(Benefit from) provision for income taxes
|
|
|
(1.3
|
)
|
|
|
2.0
|
|
|
|
4.1
|
|
|
|
|
|
|
|
4.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
19.4
|
|
|
|
(10.3
|
)
|
|
|
9.3
|
|
|
|
|
|
|
|
18.4
|
|
Income from discontinued operations, net of taxes
|
|
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.4
|
|
Equity in income (loss) of subsidiaries
|
|
|
(1.0
|
)
|
|
|
2.6
|
|
|
|
|
|
|
|
(1.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
18.8
|
|
|
$
|
(7.7
|
)
|
|
$
|
9.3
|
|
|
$
|
(1.6
|
)
|
|
$
|
18.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28
REVLON
CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in
millions)
Consolidating
Condensed Statement of Operations
For the Six Months Ended June 30, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Products
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
|
|
|
|
|
|
|
Corporation
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Net Sales
|
|
$
|
447.0
|
|
|
$
|
43.7
|
|
|
$
|
280.7
|
|
|
$
|
(87.0
|
)
|
|
$
|
684.4
|
|
Cost of Sales
|
|
|
196.7
|
|
|
|
19.9
|
|
|
|
105.6
|
|
|
|
(87.0
|
)
|
|
|
235.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
250.3
|
|
|
|
23.8
|
|
|
|
175.1
|
|
|
|
|
|
|
|
449.2
|
|
Selling, general and administrative expenses
|
|
|
203.9
|
|
|
|
19.6
|
|
|
|
128.9
|
|
|
|
|
|
|
|
352.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
46.4
|
|
|
|
4.2
|
|
|
|
46.2
|
|
|
|
|
|
|
|
96.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expenses (income):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany interest, net
|
|
|
(0.1
|
)
|
|
|
(0.5
|
)
|
|
|
3.7
|
|
|
|
|
|
|
|
3.1
|
|
Interest expense
|
|
|
44.0
|
|
|
|
0.1
|
|
|
|
0.2
|
|
|
|
|
|
|
|
44.3
|
|
Amortization of debt issuance costs
|
|
|
2.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.1
|
|
Loss on early extinguishment of debt, net
|
|
|
11.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11.3
|
|
Foreign currency (gains) losses, net
|
|
|
(1.2
|
)
|
|
|
0.4
|
|
|
|
4.1
|
|
|
|
|
|
|
|
3.3
|
|
Miscellaneous, net
|
|
|
(34.6
|
)
|
|
|
7.2
|
|
|
|
28.4
|
|
|
|
|
|
|
|
1.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expenses, net
|
|
|
21.5
|
|
|
|
7.2
|
|
|
|
36.4
|
|
|
|
|
|
|
|
65.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes
|
|
|
24.9
|
|
|
|
(3.0
|
)
|
|
|
9.8
|
|
|
|
|
|
|
|
31.7
|
|
Provision for income taxes
|
|
|
4.1
|
|
|
|
2.4
|
|
|
|
6.0
|
|
|
|
|
|
|
|
12.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
20.8
|
|
|
|
(5.4
|
)
|
|
|
3.8
|
|
|
|
|
|
|
|
19.2
|
|
Income from discontinued operations, net of taxes
|
|
|
0.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.6
|
|
Equity in (loss) income of subsidiaries
|
|
|
(1.6
|
)
|
|
|
(1.1
|
)
|
|
|
|
|
|
|
2.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
19.8
|
|
|
$
|
(6.5
|
)
|
|
$
|
3.8
|
|
|
$
|
2.7
|
|
|
$
|
19.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29
REVLON
CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in
millions)
Consolidating
Condensed Statement of Operations
For the Six Months Ended June 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Products
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
|
|
|
|
|
|
|
Corporation
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Net Sales
|
|
$
|
423.3
|
|
|
$
|
30.2
|
|
|
$
|
251.5
|
|
|
$
|
(71.8
|
)
|
|
$
|
633.2
|
|
Cost of Sales
|
|
|
179.6
|
|
|
|
13.1
|
|
|
|
94.8
|
|
|
|
(71.8
|
)
|
|
|
215.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
243.7
|
|
|
|
17.1
|
|
|
|
156.7
|
|
|
|
|
|
|
|
417.5
|
|
Selling, general and administrative expenses
|
|
|
195.9
|
|
|
|
16.4
|
|
|
|
108.8
|
|
|
|
|
|
|
|
321.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
47.8
|
|
|
|
0.7
|
|
|
|
47.9
|
|
|
|
|
|
|
|
96.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expenses (income):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany interest, net
|
|
|
1.5
|
|
|
|
(0.6
|
)
|
|
|
2.2
|
|
|
|
|
|
|
|
3.1
|
|
Interest expense
|
|
|
44.1
|
|
|
|
0.1
|
|
|
|
0.1
|
|
|
|
|
|
|
|
44.3
|
|
Amortization of debt issuance costs
|
|
|
2.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.4
|
|
Loss on early extinguishment of debt, net
|
|
|
9.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9.7
|
|
Foreign currency (gains) losses, net
|
|
|
(4.3
|
)
|
|
|
(0.2
|
)
|
|
|
8.4
|
|
|
|
|
|
|
|
3.9
|
|
Miscellaneous, net
|
|
|
(28.9
|
)
|
|
|
7.4
|
|
|
|
22.1
|
|
|
|
|
|
|
|
0.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expenses, net
|
|
|
24.5
|
|
|
|
6.7
|
|
|
|
32.8
|
|
|
|
|
|
|
|
64.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes
|
|
|
23.3
|
|
|
|
(6.0
|
)
|
|
|
15.1
|
|
|
|
|
|
|
|
32.4
|
|
(Benefit from) provision for income taxes
|
|
|
(1.3
|
)
|
|
|
2.7
|
|
|
|
8.4
|
|
|
|
|
|
|
|
9.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
24.6
|
|
|
|
(8.7
|
)
|
|
|
6.7
|
|
|
|
|
|
|
|
22.6
|
|
Income from discontinued operations, net of taxes
|
|
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.4
|
|
Equity in (loss) income of subsidiaries
|
|
|
(2.0
|
)
|
|
|
(1.4
|
)
|
|
|
|
|
|
|
3.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
23.0
|
|
|
$
|
(10.1
|
)
|
|
$
|
6.7
|
|
|
$
|
3.4
|
|
|
$
|
23.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30
REVLON
CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in
millions)
Consolidating
Condensed Statement of Cash Flow
For the Six Months Ended June 30, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
Corporation
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities
|
|
$
|
(21.2
|
)
|
|
$
|
35.8
|
|
|
$
|
(11.3
|
)
|
|
$
|
|
|
|
$
|
3.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(4.8
|
)
|
|
|
(0.1
|
)
|
|
|
(1.0
|
)
|
|
|
|
|
|
|
(5.9
|
)
|
Acquisitions
|
|
|
|
|
|
|
(39.0
|
)
|
|
|
|
|
|
|
|
|
|
|
(39.0
|
)
|
Proceeds from sales of certain assets
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(4.7
|
)
|
|
|
(39.1
|
)
|
|
|
(1.0
|
)
|
|
|
|
|
|
|
(44.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in short-term borrowings and overdraft
|
|
|
(1.7
|
)
|
|
|
4.1
|
|
|
|
1.2
|
|
|
|
|
|
|
|
3.6
|
|
Borrowings under the 2011 Revolving Credit Facility
|
|
|
10.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.0
|
|
Repayments under the 2010 Term Loan Facility
|
|
|
(794.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(794.0
|
)
|
Borrowings under the 2011 Term Loan Facility
|
|
|
796.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
796.0
|
|
Payment of financing costs
|
|
|
(3.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3.9
|
)
|
Other financing activities
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
(0.4
|
)
|
|
|
|
|
|
|
(0.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
6.1
|
|
|
|
4.1
|
|
|
|
0.8
|
|
|
|
|
|
|
|
11.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
(1.3
|
)
|
|
|
|
|
|
|
(1.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(19.8
|
)
|
|
|
0.8
|
|
|
|
(12.8
|
)
|
|
|
|
|
|
|
(31.8
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
20.5
|
|
|
|
0.1
|
|
|
|
56.1
|
|
|
|
|
|
|
|
76.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
0.7
|
|
|
$
|
0.9
|
|
|
$
|
43.3
|
|
|
$
|
|
|
|
$
|
44.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31
REVLON,
INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions,
except share and per share amounts)
Consolidating
Condensed Statement of Cash Flow
For the Six Months Ended June 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
Corporation
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
$
|
37.2
|
|
|
$
|
(3.9
|
)
|
|
$
|
6.7
|
|
|
$
|
|
|
|
$
|
40.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(6.5
|
)
|
|
|
|
|
|
|
(0.7
|
)
|
|
|
|
|
|
|
(7.2
|
)
|
Proceeds from sales of certain assets
|
|
|
0.1
|
|
|
|
|
|
|
|
0.1
|
|
|
|
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities
|
|
|
(6.4
|
)
|
|
|
|
|
|
|
(0.6
|
)
|
|
|
|
|
|
|
(7.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in short-term borrowings and overdraft
|
|
|
(5.0
|
)
|
|
|
3.6
|
|
|
|
1.1
|
|
|
|
|
|
|
|
(0.3
|
)
|
Repayments under the 2006 Term Loan Facility
|
|
|
(815.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(815.0
|
)
|
Borrowings under the 2010 Term Loan Facility
|
|
|
786.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
786.0
|
|
Repayments under the 2010 Term Loan Facility
|
|
|
(2.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2.0
|
)
|
Payment of financing costs
|
|
|
(16.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16.6
|
)
|
Other financing activities
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
(0.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(52.8
|
)
|
|
|
3.6
|
|
|
|
0.9
|
|
|
|
|
|
|
|
(48.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
(0.6
|
)
|
|
|
|
|
|
|
(0.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(22.0
|
)
|
|
|
(0.3
|
)
|
|
|
6.4
|
|
|
|
|
|
|
|
(15.9
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
27.4
|
|
|
|
0.4
|
|
|
|
26.7
|
|
|
|
|
|
|
|
54.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
5.4
|
|
|
$
|
0.1
|
|
|
$
|
33.1
|
|
|
$
|
|
|
|
$
|
38.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On June 5, 2011, the Companys manufacturing facility
in Venezuela was destroyed by fire. On July 18, 2011, the
Company received confirmation that its insurers have agreed to
an interim advance payment of $15 million, which is
expected to be received in the third quarter of 2011. The final
amount and timing of the ultimate insurance recovery is still
currently unknown. As of June 30, 2011, the Company has not
recognized any insurance receivable in excess of the
$4.9 million impairment loss related to Revlon
Venezuelas net book value of inventory, property, plant
and equipment destroyed by the fire.
For further discussion, see Note 1, Description of
Business and Basis of Presentation Fire at Revlon
Venezuela Facility.
32
REVLON
CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(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 (as defined below) 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.
33
REVLON
CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(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 second quarter of 2011 were
$351.2 million, an increase of $23.5 million, or 7.2%,
compared to $327.7 million in the second quarter of 2010.
Excluding the favorable impact of foreign currency fluctuations
of $10.5 million, consolidated net sales increased by
$13.0 million, or 4.0%, in the second quarter of 2011,
driven by higher net sales in the Companys U.S. and
Asia Pacific regions, partially offset by lower net sales in the
Companys Europe, Middle East and Africa, Canada and Latin
America regions.
Consolidated net sales for the first six months of 2011 were
$684.4 million, an increase of $51.2 million, or 8.1%,
compared to $633.2 million for the first six months of
2010. Excluding the favorable impact of foreign currency
fluctuations of $16.7 million, consolidated net sales
increased by $34.5 million, or 5.4%, in the first six
months of 2011, driven by higher net sales in the Companys
U.S., Latin America, Asia Pacific and Europe, Middle East and
Africa regions, partially offset by lower net sales in the
Companys Canada region.
Consolidated net income for the second quarter of 2011 was
$7.8 million, compared to $18.8 million in the second
quarter of 2010. The decrease in consolidated net income in the
second quarter of 2011, compared to the second quarter of 2010,
was primarily due to:
|
|
|
|
|
a $11.3 million loss on the early extinguishment of debt in
the second quarter of 2011 as a result of the 2011 Refinancings
(as hereinafter defined);
|
|
|
|
$7.9 million of higher selling, general, and administrative
(SG&A) expenses, driven primarily by a
$4.6 million unfavorable impact of foreign currency
fluctuations, as well as $1.6 million of higher permanent
display expenses;
|
|
|
|
a $3.0 million foreign currency loss in the second quarter
of 2011, as compared to a $0.1 million foreign currency
loss in the second quarter of 2010; and
|
with the foregoing partially offset by:
|
|
|
|
|
$8.6 million of higher gross profit primarily due to a
$23.5 million improvement in consolidated net sales,
partially offset by a $14.9 million increase in cost of
sales.
|
34
REVLON
CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(all tabular amounts in millions)
Consolidated net income for the first six months of 2011 was
$19.8 million, compared to $23.0 million in the first
six months of 2010. The decrease in consolidated net income in
the first six months of 2011 compared to the first six months of
2010 was primarily due to:
|
|
|
|
|
$31.3 million of higher SG&A expense, primarily driven
by $15.9 million of higher advertising expenses to support
the Companys brands, as well as a $7.5 million
unfavorable impact of foreign currency fluctuations;
|
|
|
|
a $11.3 million loss on the early extinguishment of debt in
the first six months of 2011 compared with a $9.7 million
loss on the early extinguishment of debt in the first six months
of 2010; and
|
with the foregoing partially offset by:
|
|
|
|
|
$31.7 million of higher gross profit due to a
$51.2 million improvement in consolidated net sales,
partially offset by a $19.5 million increase in cost of
sales.
|
These current and prior period items are discussed in more
detail below.
Fire
at Revlon Venezuela Facility
On June 5, 2011, the Companys manufacturing facility
in Venezuela was destroyed by fire. As of and for the year ended
December 31, 2010, the Companys subsidiary in
Venezuela (Revlon Venezuela) had net sales of
approximately 3% of the Companys consolidated net sales
and its net assets were approximately 3% of the Companys
total net assets. The Companys net sales in Venezuela are
comprised of locally manufactured product as well as product
imported from the Companys Oxford, North Carolina
facility. The Company is currently evaluating options to
minimize disruption to Revlon Venezuelas business as a
result of such fire; however, it is not currently able to
estimate the full year impact of the fire on its net sales or
operating income.
In the second quarter of 2011, the Company recorded a
$4.9 million impairment loss related to Revlon
Venezuelas net book value of inventory, property, plant
and equipment destroyed by the fire. The Company maintains
comprehensive property insurance, as well as business
interruption insurance. An assessment of the extent of damage
and the impact on the Companys business in Venezuela is
ongoing, and therefore the final amount and timing of the
ultimate insurance recovery is currently unknown.
The Company believes that it is probable that the insurance
recovery will at least equal the net book value of Revlon
Venezuelas inventory, property, plant, and equipment
destroyed by the fire. Accordingly, in the second quarter of
2011, the Company recognized income of $4.9 million related
to the insurance receivable, which entirely offset the
impairment loss noted above.
For further discussion regarding the fire in Venezuela, see
Note 12, Subsequent Event, to the Unaudited
Consolidated Financial Statements in this
Form 10-Q.
Impact
of the March 2011 Disaster in Japan
The March 2011 disaster in Japan and its aftermath on the
Companys global supply chain and its operations in Japan
did not have a material impact on the Companys net sales,
operating profit or global supply chain in the second quarter or
first six months of 2011. (See Item IA. Risk
Factors). However, the situation is still uncertain
and the Company continues to take action to mitigate any further
disruption to the business.
35
REVLON
CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(all tabular amounts in millions)
Overview
of Financing Activities
Refinancing of the 2010 Term Loan and 2010 Revolving
Credit Facilities: During the second
quarter of 2011, Products Corporation consummated the
refinancing of the 2010 Term Loan Facility and the 2010
Revolving Credit Facility (together referred to as the
2011 Refinancings), reducing interest rates and
extending maturities, consisting of the following transactions:
In May 2011, Products Corporation consummated a refinancing of
the 2010 Term Loan Facility (the 2011 Term Loan Facility
Refinancing), which included replacing Products
Corporations 2010 bank term loan facility, which was
scheduled to mature on March 11, 2015 and had
$794.0 million aggregate principal amount outstanding at
December 31, 2010 (the 2010 Term Loan
Facility), with a 6.5-year, $800.0 million term loan
facility due November 19, 2017 (the 2011 Term Loan
Facility) under a third amended and restated term loan
agreement dated May 19, 2011 (the 2011 Term Loan
Agreement), among Products Corporation, as borrower,
Citigroup Global Markets Inc. (CGMI),
J.P. Morgan Securities LLC (JPM Securities),
Merrill Lynch, Pierce, Fenner & Smith Incorporated
(Merrill Lynch), Credit Suisse Securities (USA) LLC
(Credit Suisse) and Wells Fargo Securities, LLC
(WFS) as the joint lead arrangers; CGMI, JPM
Securities, Merrill Lynch, Credit Suisse, WFS and Natixis, New
York Branch (Natixis), as joint bookrunners;
JPMorgan Chase Bank, N.A. and Bank of America, N.A. as
co-syndication agents; Credit Suisse, Wells Fargo Bank, N.A. and
Natixis as co-documentation agents; and Citicorp USA, Inc.
(CUSA) as administrative agent and collateral agent.
Products Corporation used $796 million of proceeds from the
2011 Term Loan Facility, which was drawn in full on the
May 19, 2011 closing date and issued to lenders at 99.5% of
par, to refinance in full the $792.0 million of outstanding
indebtedness under its 2010 Term Loan Facility and to pay
approximately $2 million of accrued interest. The Company
incurred approximately $3.9 million of fees in connection
with consummating the 2011 Term Loan Facility Refinancing in the
second quarter of 2011, of which approximately $2 million
was capitalized.
In June 2011, Products Corporation consummated a refinancing of
the 2010 Revolving Credit Facility (the 2011 Revolving
Credit Facility Refinancing), which included refinancing
Products Corporations 2010 revolving credit facility,
which was scheduled to mature on March 11, 2014 and had nil
outstanding borrowings at December 31, 2010 (the 2010
Revolving Credit Facility), with a
5-year,
$140.0 million asset-based, multi-currency revolving credit
facility due June 16, 2016 (the 2011 Revolving Credit
Facility) under a third amended and restated revolving
credit agreement dated June 16, 2011 (the 2011
Revolving Credit Agreement and together with the 2011 Term
Loan Agreement, the 2011 Credit Agreements), among
Products Corporation and certain of its foreign subsidiaries, as
borrowers, and CGMI and Wells Fargo Capital Finance, LLC
(WFCF) as the joint lead arrangers; CGMI, WFCF,
Merrill Lynch, JPMorgan Securities and Credit Suisse as joint
bookrunners; and CUSA as administrative agent and collateral
agent.
Products Corporation incurred approximately $0.7 million of
fees in connection with consummating the 2011 Revolving Credit
Facility Refinancing in the second quarter of 2011, all of which
were capitalized.
For further detail regarding the 2011 Refinancings, see
Note 5, Long-Term Debt, to the Unaudited
Consolidated Financial Statements in this
Form 10-Q.
Results
of Operations
In the tables, all amounts are in millions and numbers in
parentheses ( ) denote unfavorable variances.
36
REVLON
CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(all tabular amounts in millions)
Net
sales:
Second
quarter results
Consolidated net sales in the second quarter of 2011 were
$351.2 million, an increase of $23.5 million, or 7.2%,
compared to $327.7 million in the second quarter of 2010.
Excluding the favorable impact of foreign currency fluctuations
of $10.5 million, consolidated net sales increased by
$13.0 million, or 4.0%, in the second quarter of 2011,
primarily driven by the inclusion of the net sales of Sinful
Colors in 2011 and higher net sales of Revlon color
cosmetics, partially offset by lower net sales of Almay
color cosmetics.
Year-to-date
results
Consolidated net sales for the first six months of 2011 were
$684.4 million, an increase of $51.2 million, or 8.1%,
compared to $633.2 million for the first six months of
2010. Excluding the favorable impact of foreign currency
fluctuations of $16.7 million, consolidated net sales
increased by $34.5 million, or 5.4%, in the first six
months of 2011, primarily driven by higher net sales of
Revlon color cosmetics, as well as the inclusion
of the net sales of Sinful Colors beginning in March 2011.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
Change
|
|
|
XFX
Change(a)
|
|
|
|
2011
|
|
|
2010
|
|
|
$
|
|
|
%
|
|
|
$
|
|
|
%
|
|
|
United States
|
|
$
|
194.9
|
|
|
$
|
179.3
|
|
|
$
|
15.6
|
|
|
|
8.7
|
%
|
|
$
|
15.6
|
|
|
|
8.7
|
%
|
Asia Pacific
|
|
|
58.5
|
|
|
|
48.7
|
|
|
|
9.8
|
|
|
|
20.1
|
|
|
|
4.2
|
|
|
|
8.6
|
|
Europe, Middle East and Africa
|
|
|
52.0
|
|
|
|
50.2
|
|
|
|
1.8
|
|
|
|
3.6
|
|
|
|
(3.4
|
)
|
|
|
(6.8
|
)
|
Latin America
|
|
|
26.3
|
|
|
|
28.7
|
|
|
|
(2.4
|
)
|
|
|
(8.4
|
)
|
|
|
(1.0
|
)
|
|
|
(3.5
|
)
|
Canada
|
|
|
19.5
|
|
|
|
20.8
|
|
|
|
(1.3
|
)
|
|
|
(6.3
|
)
|
|
|
(2.4
|
)
|
|
|
(11.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Net Sales
|
|
$
|
351.2
|
|
|
$
|
327.7
|
|
|
$
|
23.5
|
|
|
|
7.2
|
%
|
|
$
|
13.0
|
|
|
|
4.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
Change
|
|
|
XFX
Change(a)
|
|
|
|
2011
|
|
|
2010
|
|
|
$
|
|
|
%
|
|
|
$
|
|
|
%
|
|
|
United States
|
|
$
|
381.1
|
|
|
$
|
361.4
|
|
|
$
|
19.7
|
|
|
|
5.5
|
%
|
|
$
|
19.7
|
|
|
|
5.5
|
%
|
Asia Pacific
|
|
|
111.6
|
|
|
|
94.6
|
|
|
|
17.0
|
|
|
|
18.0
|
|
|
|
8.3
|
|
|
|
8.8
|
|
Europe, Middle East and Africa
|
|
|
101.7
|
|
|
|
93.1
|
|
|
|
8.6
|
|
|
|
9.2
|
|
|
|
1.4
|
|
|
|
1.5
|
|
Latin America
|
|
|
53.3
|
|
|
|
48.7
|
|
|
|
4.6
|
|
|
|
9.4
|
|
|
|
5.9
|
|
|
|
12.1
|
|
Canada
|
|
|
36.7
|
|
|
|
35.4
|
|
|
|
1.3
|
|
|
|
3.7
|
|
|
|
(0.8
|
)
|
|
|
(2.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Net Sales
|
|
$
|
684.4
|
|
|
$
|
633.2
|
|
|
$
|
51.2
|
|
|
|
8.1
|
%
|
|
$
|
34.5
|
|
|
|
5.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
XFX excludes the impact of foreign currency fluctuations. |
United
States
Second
quarter results
In the U.S., net sales in the second quarter of 2011 increased
8.7% to $194.9 million, compared to $179.3 million in
the second quarter of 2010, primarily driven by the inclusion of
the net sales of Sinful Colors in 2011 and higher net
sales of Revlon color cosmetics and Revlon ColorSilk
hair color. Excluding the results of the recently acquired
Sinful Colors, net sales in the U.S. increased in the
second quarter of 2011.
37
REVLON
CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(all tabular amounts in millions)
Year-to-date
results
In the U.S, net sales in the first six months of 2011 increased
5.5% to $381.1 million, compared to $361.4 million in
the first six months of 2010, primarily driven by higher net
sales of Revlon color cosmetics, as well as the inclusion
of the net sales of Sinful Colors beginning in March
2011. Excluding the results of the recently acquired Sinful
Colors, net sales in the U.S. increased in the first six
months of 2011.
Asia
Pacific
Second
quarter results
In Asia Pacific, net sales in the second quarter of 2011
increased 20.1% to $58.5 million, compared to
$48.7 million in the second quarter of 2010. Excluding the
favorable impact of foreign currency fluctuations, net sales
increased $4.2 million, or 8.6%, primarily driven by higher
net sales of Revlon color cosmetics. From a country
perspective, net sales increased in China, Australia and certain
distributor markets (which together contributed
9.4 percentage points to the increase in the regions
net sales in the second quarter of 2011, as compared to the
second quarter of 2010).
Year-to-date
results
In Asia Pacific, net sales in the first six months of 2011
increased 18.0% to $111.6 million, compared to
$94.6 million in the first six months of 2010. Excluding
the favorable impact of foreign currency fluctuations, net sales
increased $8.3 million, or 8.8%, primarily driven by higher
net sales of Revlon color cosmetics. From a country
perspective, net sales increased in China and certain
distributor markets (which together contributed
7.9 percentage points to the increase in the regions
net sales in the first six months of 2011, as compared with the
first six months of 2010).
Europe,
Middle East and Africa
Second
quarter results
In Europe, the Middle East and Africa, net sales in the second
quarter of 2011 increased 3.6% to $52.0 million, compared
to $50.2 million in the second quarter of 2010. Excluding
the favorable impact of foreign currency fluctuations, net sales
decreased $3.4 million, or 6.8%, primarily driven by lower
net sales of Revlon color cosmetics. From a country
perspective, net sales decreased in the U.K., Italy and certain
distributor markets (which together contributed
6.1 percentage points to the decrease in the regions
net sales in the second quarter of 2011, as compared to the
second quarter of 2010).
Year-to-date
results
In Europe, the Middle East and Africa, net sales in the first
six months of 2011 increased 9.2% to $101.7 million,
compared to $93.1 million in the first six months of 2010.
Excluding the favorable impact of foreign currency fluctuations,
net sales increased $1.4 million, or 1.5%, primarily driven
by higher net sales of fragrances. From a country perspective,
net sales increased in the U.K. and South Africa (which together
contributed 2.9 percentage points to the increase in the
regions net sales in the first six months of 2011, as
compared with the first six months of 2010), partially offset by
a decrease in net sales in certain distributor markets (which
contributed 1.2 percentage points to the decrease in the
regions net sales in the first six months of 2011, as
compared to the first six months of 2010).
38
REVLON
CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(all tabular amounts in millions)
Latin
America
Second
quarter results
In Latin America, net sales in the second quarter of 2011
decreased 8.4% to $26.3 million, compared to
$28.7 million in the second quarter of 2010. Excluding the
unfavorable impact of foreign currency fluctuations, net sales
decreased $1.0 million, or 3.5%, primarily driven by lower
net sales of Revlon ColorSilk hair color. From a country
perspective, lower net sales in Mexico, Venezuela and certain
distributor markets were partially offset by higher net sales in
Argentina. Venezuelas decline in net sales was primarily
due to the loss of sales during the month of June 2011 as a
result of the June 2011 fire at Revlon Venezuelas
facility, largely offset by an increase in net sales in
Venezuela during April and May 2011 as a result of higher
selling prices, given market conditions and inflation during
those months. The Company has not recorded any net sales in
Venezuela since June 5, 2011 as a result of such fire.
Year-to-date
results
In Latin America, net sales in the first six months of 2011
increased 9.4% to $53.3 million, compared to
$48.7 million in the first six months of 2010. Excluding
the unfavorable impact of foreign currency fluctuations, net
sales increased $5.9 million, or 12.1%, primarily driven by
higher net sales of Revlon color cosmetics and other
beauty care products. From a country perspective, net sales
increased in Venezuela and Argentina (which together contributed
10.9 percentage points to the increase in the regions
net sales in the first six months of 2011, as compared to the
first six months of 2010). Higher net sales in Venezuela during
the first six months of 2011 were primarily due to higher
selling prices in January through May 2011, given market
conditions and inflation, partially offset by the loss of sales
during the month of June 2011 as a result of the June 2011 fire
at Revlon Venezuelas facility referred to above.
Canada
Second
quarter results
In Canada, net sales in the second quarter of 2011 were
$19.5 million, a decrease of $1.3 million, or 6.3%,
compared to $20.8 million in the second quarter of 2010.
Excluding the favorable impact of foreign currency fluctuations,
net sales decreased $2.4 million, or 11.5%, primarily
driven by lower net sales of Revlon color cosmetics.
Year-to-date
results
In Canada, net sales in the first six months of 2011 were
$36.7 million, an increase of $1.3 million, or 3.7%,
compared to $35.4 million in the first six months of 2010.
Excluding the favorable impact of foreign currency fluctuations,
net sales decreased $0.8 million, or 2.3%, primarily driven
by lower net sales of Almay color cosmetics.
Gross
profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Six Months Ended
|
|
|
|
|
June 30,
|
|
|
|
June 30,
|
|
|
|
|
2011
|
|
2010
|
|
Change
|
|
2011
|
|
2010
|
|
Change
|
|
Gross profit
|
|
$
|
229.3
|
|
|
$
|
220.7
|
|
|
$
|
8.6
|
|
|
$
|
449.2
|
|
|
$
|
417.5
|
|
|
$
|
31.7
|
|
Percentage of net sales
|
|
|
65.3
|
%
|
|
|
67.3
|
%
|
|
|
|
|
|
|
65.6
|
%
|
|
|
65.9
|
%
|
|
|
|
|
39
REVLON
CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(all tabular amounts in millions)
The 2.0 percentage point decrease in gross profit as a
percentage of net sales for the second quarter of 2011, compared
to the second quarter of 2010, was primarily due to:
|
|
|
|
|
the impact of product mix, which reduced gross profit as a
percentage of net sales by 1.4 percentage points;
|
|
|
|
higher allowances, which reduced gross profit as a percentage of
net sales by 1.1 percentage points;
|
|
|
|
higher costs related to inventory obsolescence and sales
returns, which reduced gross profit as a percentage of net sales
by 0.5 percentage points;
|
with the foregoing partially offset by:
|
|
|
|
|
favorable foreign currency fluctuations, which increased gross
profit as a percentage of net sales by 0.6 percentage
points; and
|
|
|
|
lower pension expenses within cost of goods, which increased
gross profit as a percentage of net sales by 0.3 percentage
points.
|
The 0.3 percentage point decrease in gross profit as a
percentage of net sales for the first six months of 2011,
compared to the first six months of 2010, was primarily due to:
|
|
|
|
|
the impact of product mix, which reduced gross profit as a
percentage of net sales by 1.4 percentage points;
|
|
|
|
higher allowances, which reduced gross profit as a percentage of
net sales by 0.5 percentage points;
|
with the foregoing partially offset by:
|
|
|
|
|
favorable foreign currency fluctuations, which increased gross
profit as a percentage of net sales by 0.6 percentage
points;
|
|
|
|
lower material costs, which increased gross profit as a
percentage of net sales by 0.4 percentage points; and
|
|
|
|
lower pension expenses within cost of goods, which increased
gross profit as a percentage of net sales by 0.4 percentage
points.
|
SG&A
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Six Months Ended
|
|
|
|
|
June 30,
|
|
|
|
June 30,
|
|
|
|
|
2011
|
|
2010
|
|
Change
|
|
2011
|
|
2010
|
|
Change
|
|
SG&A expenses
|
|
$
|
179.3
|
|
|
$
|
171.4
|
|
|
$
|
(7.9
|
)
|
|
$
|
352.4
|
|
|
$
|
321.1
|
|
|
$
|
(31.3
|
)
|
The $7.9 million increase in SG&A expenses for the
second quarter of 2011, as compared to the second quarter of
2010, was driven primarily by:
|
|
|
|
|
$4.6 million of unfavorable impact of foreign currency
fluctuations; and
|
|
|
|
$1.6 million of higher permanent display expenses,
primarily due to increased investment to support our brands in
China.
|
The $31.3 million increase in SG&A expenses for the
first six months of 2011, as compared to the first six months of
2010, was driven primarily by:
|
|
|
|
|
$15.9 million of higher advertising expenses to support the
Companys brands as the Company continued to optimize its
brand support mix;
|
40
REVLON
CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(all tabular amounts in millions)
|
|
|
|
|
$7.5 million of unfavorable impact of foreign currency
fluctuations; and
|
|
|
|
$5.1 million of higher general and administrative expenses
primarily due to (i) the inclusion of expenses as a result
of the Sinful Colors Acquisition (as hereinafter defined) in
March 2011, and (ii) higher professional fees.
|
Interest
expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
2011
|
|
2010
|
|
Change
|
|
2011
|
|
2010
|
|
Change
|
|
Interest expense
|
|
$
|
23.3
|
|
|
$
|
24.5
|
|
|
$
|
1.2
|
|
|
$
|
47.4
|
|
|
$
|
47.4
|
|
|
$
|
|
|
The $1.2 million decrease in interest expense for the
second quarter of 2011, as compared to the second quarter of
2010, was primarily due to lower weighted average borrowing
rates as a result of the 2011 Refinancings.
Interest expense was unchanged for the first six months of 2011,
as compared to the first six months of 2010, as higher weighted
average borrowing rates in 2011 were offset by slightly lower
average borrowings.
Loss
on early extinguishment of debt, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Six Months Ended
|
|
|
|
|
June 30,
|
|
|
|
June 30,
|
|
|
|
|
2011
|
|
2010
|
|
Change
|
|
2011
|
|
2010
|
|
Change
|
|
Loss on early extinguishment of debt, net
|
|
$
|
11.3
|
|
|
$
|
|
|
|
$
|
(11.3
|
)
|
|
$
|
11.3
|
|
|
$
|
9.7
|
|
|
$
|
(1.6
|
)
|
As a result of the 2011 Refinancings, the Company recognized a
loss on the early extinguishment of debt of $11.3 million
during the second quarter and first six months of 2011, due to
$1.9 million of fees which were expensed as incurred in
connection with the 2011 Refinancings, as well as the write-off
of $9.4 million of unamortized debt discount and deferred
financing fees as a result of such refinancings.
During March 2010, Products Corporation consummated the
refinancing of the 2006 Term Loan Facility and the 2006
Revolving Credit Facility (together referred to as the
2010 Refinancing). As a result of the 2010
Refinancing, the Company recognized a loss on the early
extinguishment of debt of $9.7 million during the first six
months 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 as a result of such
refinancing.
Foreign
currency losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Six Months Ended
|
|
|
|
|
June 30,
|
|
|
|
June 30,
|
|
|
|
|
2011
|
|
2010
|
|
Change
|
|
2011
|
|
2010
|
|
Change
|
|
Foreign currency losses
|
|
$
|
3.0
|
|
|
$
|
0.1
|
|
|
$
|
(2.9
|
)
|
|
$
|
3.3
|
|
|
$
|
3.9
|
|
|
$
|
0.6
|
|
The $2.9 million increase in foreign currency losses during
the second quarter of 2011, as compared to the second quarter of
2010, was primarily driven by:
|
|
|
|
|
a foreign currency loss of $1.7 million recorded as a
result of the required re-measurement of Revlon Venezuelas
balance sheet at June 30, 2011. Prior to the second quarter
of 2011, the Company utilized Venezuelas official exchange
rate to translate Revlon Venezuelas financial statements.
The Company began using the SITME (as hereinafter defined) rate
to translate the financial statements of Revlon Venezuela as of,
and for the three months ended June 30, 2011. See
|
41
REVLON
CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(all tabular amounts in millions)
Financial Condition, Liquidity, and Capital
Resources Impact of Foreign Currency Translation in
Venezuela in this
Form 10-Q
for further discussion. As Venezuela was designated as a highly
inflationary economy effective January 1, 2010, this
foreign currency loss was reflected in earnings;
|
|
|
|
|
foreign currency losses related to the Companys foreign
currency forward exchange contracts (FX Contracts)
for the second quarter of 2011, as compared to foreign currency
gains related to the Companys FX Contracts for the second
quarter of 2010; and
|
with the foregoing partially offset by:
|
|
|
|
|
the favorable impact of the revaluation of certain
U.S. dollar-denominated intercompany payables from the
Companys foreign subsidiaries during the second quarter of
2011 compared to the second quarter of 2010.
|
The $0.6 million decrease in foreign currency losses during
the first six months of 2011, as compared to the first six
months of 2010, was primarily driven by:
|
|
|
|
|
a $1.1 million lower foreign currency loss in the first six
months of 2011 compared to the first six months of 2010 related
to the re-measurement of Revlon Venezuelas balance sheet.
See Financial Condition, Liquidity and Capital
Resources Impact of Foreign Currency
Translation Venezuela in this
Form 10-Q
for further discussion;
|
|
|
|
the favorable impact of the revaluation of certain
U.S. dollar-denominated intercompany payables from the
Companys foreign subsidiaries during the first six months
of 2011 compared to the first six months of 2010; and
|
with the foregoing partially offset by:
|
|
|
|
|
foreign currency losses related to the Companys FX
Contracts for the first six months of 2011, as compared to
foreign currency gains related to the Companys FX
Contracts for the first six months of 2010.
|
Provision
for income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Six Months Ended
|
|
|
|
|
June 30,
|
|
|
|
June 30,
|
|
|
|
|
2011
|
|
2010
|
|
Change
|
|
2011
|
|
2010
|
|
Change
|
|
Provision for income taxes
|
|
$
|
3.9
|
|
|
$
|
4.8
|
|
|
$
|
0.9
|
|
|
$
|
12.5
|
|
|
$
|
9.8
|
|
|
$
|
2.7
|
|
The $0.9 million decrease in provision for income taxes for
the second quarter of 2011, as compared to the second quarter of
2010, was primarily attributable to lower taxable income in the
U.S. and certain foreign jurisdictions, offset in part by
higher deferred tax expense for the U.S. in 2011 due to the
reduction of the valuation allowance in the U.S. on
December 31, 2010.
The $2.7 million increase in provision for income taxes in
the first six months of 2011, as compared to the first six
months of 2010, was primarily attributable to higher deferred
tax expense for the U.S. in 2011 due to the reduction of
the valuation allowance in the U.S. on December 31,
2010, offset in part by lower taxable income in the
U.S. and certain foreign jurisdictions.
The reduction of the Companys valuation allowance on its
net U.S. deferred tax assets will not affect the
Companys cash taxes paid in 2011 and will not affect the
Companys cash taxes paid until the Company has fully used
its U.S. tax loss carryforwards. See Note 12,
Income Taxes, to the Consolidated Financial
Statements in the Companys 2010
Form 10-K.
The Companys expects that its tax provision and
42
REVLON
CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(all tabular amounts in millions)
effective tax rate in any individual quarter will vary and may
not be indicative of the Companys tax provision and
effective tax rate for the full year.
Financial
Condition, Liquidity and Capital Resources
At June 30, 2011, the Company had a liquidity position of
$144.2 million, consisting of cash and cash equivalents
(net of any outstanding checks) of $43.1 million, as well
as $101.1 million in available borrowings under the 2011
Revolving Credit Facility, based upon the borrowing base less
$21.6 million of undrawn outstanding letters of credit and
$10 million then drawn under the 2011 Revolving Credit
Facility at such date.
Cash
Flows
At June 30, 2011, the Company had cash and cash equivalents
of $44.9 million, compared with $76.7 million at
December 31, 2010. The following table summarizes the
Companys cash flows from operating, investing and
financing activities for the six months ended June 30, 2011
and June 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
June 30,
|
|
|
2011
|
|
2010
|
|
Net cash provided by operating activities
|
|
$
|
3.3
|
|
|
$
|
40.0
|
|
Net cash used in investing activities
|
|
|
(44.8
|
)
|
|
|
(7.0
|
)
|
Net cash provided by (used in) financing activities
|
|
|
11.0
|
|
|
|
(48.3
|
)
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
(1.3
|
)
|
|
|
(0.6
|
)
|
Operating
Activities
Net cash provided by operating activities in the first six
months of 2011 was $3.3 million, as compared to
$40.0 million in the first six months of 2010. As compared
to the first six months of 2010, cash provided by operating
activities in the first six months of 2011 was impacted by
unfavorable changes in working capital, primarily as a result of
higher interest payments and inventory, as well as higher
permanent display purchases.
Investing
Activities
Net cash used in investing activities was $44.8 million and
$7.0 million for the first six months of 2011 and 2010,
respectively. On March 17, 2011, the Company acquired
certain 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 six months of 2011
included a cash payment of $39.0 million for the Sinful
Colors Acquisition and $5.9 million of cash used for
capital expenditures. Net cash used in investing activities for
the first six months of 2010 included $7.2 million of cash
used for capital expenditures.
Financing
Activities
Net cash provided by financing activities was $11.0 million
for the first six months of 2011 and net cash used in financing
activities was $48.3 million for the first six months of
2010.
Net cash provided by financing activities for the first six
months of 2011 included Products Corporations issuance of
the $800.0 million aggregate principal amount of the 2011
Term Loan Facility, or
43
REVLON
CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(all tabular amounts in millions)
$796.0 million, net of discounts, and net borrowings of
$10.0 million under the 2011 Revolving Credit Facility,
partially offset by the 2011 Term Loan Refinancing of the
$794.0 million remaining aggregate principal amount of
Products Corporations 2010 Term Loan Facility. Net cash
provided by financing activities for the first six months of
2011 also included the payment of $3.9 million of the
$4.6 million of fees incurred in connection with the 2011
Refinancings.
Net cash used in financing activities for the first six months
of 2010 included the March 2010 refinancing of the
$815.0 million remaining aggregate principal amount of
Products Corporations 2006 Term Loan Facility, 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. Net
cash used in financing activities for the first six months of
2010 also included payment of financing costs of
$17.1 million, which is comprised of (i) the payment
of $15.0 million of the $15.3 million of fees incurred
in connection with the March 2010 refinancing of Products
Corporations 2006 Term Loan Facility and 2006 Revolving
Credit Facility; (ii) the payment of $1.6 million of
the $25.1 million of fees incurred in connection with the
refinancing of Products Corporations
91/2% Senior
Notes in November 2009 with the
93/4% Senior
Secured Notes due November 2015; and (iii) the payment of
the remaining balance of $0.5 million of the
$6.7 million of fees incurred in connection with Revlon,
Inc.s consummation of the voluntary exchange offer in
October 2009.
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.
2011
Refinancings
In the second quarter of 2011, Products Corporation consummated
the 2011 Refinancings, which included refinancing its 2010 Term
Loan Facility with the 2011 Term Loan Facility and Products
Corporations 2010 Revolving Credit Facility with the 2011
Revolving Credit Facility, reducing interest rates and extending
maturities.
For further detail regarding the 2011 Refinancings, see
Note 5, Long-Term Debt, to the Unaudited
Consolidated Financial Statements in this
Form 10-Q.
2010
Bank Credit Agreement
Prior to the 2011 Refinancings, under the 2010 Term Loan
Facility, Products Corporation made a required quarterly
amortization payment in the first quarter of 2011 of
$2 million. 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.
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,
44
REVLON
CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(all tabular amounts in millions)
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 June 30, 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 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.
Impact
of Foreign Currency Translation
Venezuela
During the second quarter of 2011 and 2010 and the first six
months of 2011 and 2010, Revlon Venezuela had net sales of
approximately 2% of the Companys consolidated net sales.
At June 30, 2011 and December 31, 2010, net assets in
Revlon Venezuela were approximately 2% and 3%, respectively, of
the Companys total net 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 Revlon 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, Venezuelan Bolivars (Bolivars), relative
to the U.S. dollar and the official exchange rate for
non-essential goods changed from 2.15 to 4.30. Throughout 2010,
the Company used Venezuelas official rate to translate
Revlon Venezuelas financial statements. To reflect the
impact of the currency devaluation, a one-time foreign currency
loss of $2.8 million was recorded in January 2010 as a
result of the required re-measurement of Revlon Venezuelas
balance sheet. As Venezuela 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 2.6 to 4.3, 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.
Currency Restrictions: Currency restrictions
enacted by the Venezuelan government in 2003 have become more
restrictive and have impacted the ability of Revlon Venezuela to
obtain U.S. dollars in exchange for Bolivars at the
official foreign exchange rates from the Venezuelan government
and its foreign exchange commission, the Comisión de
Administracion de Divisas (CADIVI). In May 2010,
the
45
REVLON
CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(all tabular amounts in millions)
Venezuelan government took control over the previously
freely-traded foreign currency exchange market and in June 2010,
replaced it with a new foreign currency exchange system, the
Sistema de Transacciones en Moneda Extranjera
(SITME). SITME provides a mechanism to exchange
Bolivars into U.S. dollars. However, SITME can only be used
for product purchases and related services, such as freight, and
is not available for other transactions, such as the payment of
dividends. Also, SITME can only be used for amounts of up to
$50,000 per day, subject to a monthly maximum of $350,000 per
legal entity, and is generally only available to the extent the
applicant has not exchanged and received U.S. dollars from
CADIVI within the previous 90 days. The Company began using
a SITME rate of 5.5 Bolivars per U.S. dollar to translate
Revlon Venezuelas financial statements as of and for the
three months ended June 30, 2011, which was the average
rate at which the Company accessed U.S. dollars in the
SITME market during the second quarter of 2011. The Company had
previously utilized Venezuelas official exchange rate of
4.3 Bolivars per U.S. dollar to translate Revlon
Venezuelas financial statements from January 1, 2010
through March 31, 2011.
In the second quarter of 2011, the change in the exchange rates
in Venezuela unfavorably impacted the Companys
consolidated net sales by $1.6 million. The impact on the
Companys consolidated operating income in the second
quarter of 2011 was de minimis. Additionally, to reflect the
impact of the change in exchange rates, a foreign currency loss
of $1.7 million was recorded as a result of the required
re-measurement of Revlon Venezuelas balance sheet at
June 30, 2011. As Venezuela was designated as a highly
inflationary economy effective January 1, 2010, this
foreign currency loss was reflected in earnings in the second
quarter of 2011.
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 2011 Revolving Credit Facility and other
permitted lines of credit. The 2011 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 six
months of 2011 were $15 million. The Company expects cash
contributions to its pension and post-retirement benefit plans
to be approximately $30 million for full year 2011. The
Companys purchases of permanent wall displays and capital
expenditures in the first six months of 2011 were
$23.6 million and $5.9 million, respectively. The
Company expects purchases of permanent wall displays and capital
expenditures for full year 2011 to be approximately
$40 million and $20 million, respectively, inclusive
of amounts expended in the first six months of 2011.
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.
46
REVLON
CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(all tabular amounts in millions)
Continuing to execute the Companys business strategy could
include taking advantage of additional opportunities to
reposition, repackage or reformulate one or more brands or
product lines, launching additional new products, acquiring
businesses or brands, further refining the Companys
approach to retail merchandising
and/or
taking further actions to optimize its manufacturing, sourcing
and organizational size and structure. Any of these actions,
whose intended purpose would be to create value through
profitable growth, could result in the Company making
investments
and/or
recognizing charges related to executing against such
opportunities.
The Company may also, from time to time, seek to retire or
purchase its outstanding debt obligations in open market
purchases, in privately negotiated transactions or otherwise and
may seek to refinance some or all of its indebtedness based upon
market conditions. Any retirement or purchase of debt may be
funded with operating cash flows of the business or other
sources and will depend upon prevailing market conditions,
liquidity requirements, contractual restrictions and other
factors, and the amounts involved may be material.
The Company expects that operating revenues, cash on hand and
funds available for borrowing under the 2011 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 2011 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;
|
47
REVLON
CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(all tabular amounts in millions)
|
|
|
|
|
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;
|
|
|
|
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
June 30, 2011, the notional amount and fair value of FX
Contracts outstanding was $48.6 million and
$(1.9) million, respectively.
Disclosures
about Contractual Obligations and Commercial
Commitments
As of June 30, 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,
other than those entered into in connection with consummating
the 2011 Refinancings.
The following reflects the impact of the 2011 Refinancings on
the Companys long-term debt obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
(dollars in millions)
|
Contractual Obligations
|
|
|
|
2011
|
|
|
|
|
|
|
As of June 30, 2011
|
|
Total
|
|
Q3-Q4
|
|
2012-2013
|
|
2014-2015
|
|
After 2015
|
|
Long-term debt, including current portion
|
|
$
|
1,140.0
|
|
|
$
|
14.0
|
|
|
$
|
16.0
|
|
|
$
|
346.0
|
|
|
$
|
764.0
|
|
Interest on long-term
debt(a)
|
|
|
383.9
|
|
|
|
36.2
|
|
|
|
140.2
|
|
|
|
138.5
|
|
|
|
69.0
|
|
48
REVLON
CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(all tabular amounts in millions)
|
|
|
(a) |
|
Consists of interest on the $330.0 million in aggregate
principal amount of the
93/4% Senior
Secured Notes and on the $800.0 million in aggregate
principal amount outstanding under the 2011 Term Loan Facility
through the respective maturity dates based upon assumptions
regarding the amount of debt outstanding under the 2011 Term
Loan Agreement and interest rates on the Companys debt
instruments as of June 30, 2011. |
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
See discussion of recent accounting pronouncements in
Note 1, Description of Business and Basis of
Presentation, to the Unaudited Consolidated Financial
Statements in this
Form 10-Q.
49
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
June 30, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected maturity date for the Year Ended
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
Fair Value
|
|
|
|
(dollars in millions, except for rate information)
|
|
|
|
|
|
June 30,
|
|
Debt
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
2015
|
|
|
Thereafter
|
|
|
Total
|
|
|
2011
|
|
|
Short-term variable rate (various currencies)
|
|
$
|
9.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
9.0
|
|
|
$
|
9.0
|
|
Average interest
rate(a)
|
|
|
5.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short term variable rate third party ($US)
|
|
|
10.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.0
|
|
|
|
10.0
|
|
Average interest rate
|
|
|
2.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term fixed rate third party ($US)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
330.0
|
|
|
|
|
|
|
|
330.0
|
|
|
|
356.4
|
|
Average interest rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9.75
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term fixed rate affiliates ($US)
|
|
|
|
|
|
|
|
|
|
$
|
48.6(b
|
)
|
|
$
|
58.4(c
|
)
|
|
|
|
|
|
|
|
|
|
|
107.0
|
|
|
|
110.8
|
|
Average interest rate
|
|
|
|
|
|
|
|
|
|
|
12.75
|
%
|
|
|
12.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term variable rate third party ($US)
|
|
|
4.0
|
|
|
$
|
8.0
|
|
|
$
|
8.0
|
|
|
|
8.0
|
|
|
|
8.0
|
|
|
|
764.0
|
|
|
|
800.0
|
|
|
|
800.0
|
|
Average interest
rate(a)(d)
|
|
|
4.8
|
%
|
|
|
4.8
|
%
|
|
|
4.8
|
%
|
|
|
5.1
|
%
|
|
|
5.4
|
%
|
|
|
6.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
$
|
23.0
|
|
|
$
|
8.0
|
|
|
$
|
56.6
|
|
|
$
|
66.4
|
|
|
$
|
338.0
|
|
|
$
|
764.0
|
|
|
$
|
1,256.0
|
|
|
$
|
1,286.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Weighted average variable rates are based upon implied forward
rates from the U.S. Dollar LIBOR yield curves at June 30,
2011. |
|
(b) |
|
Represents the $107.0 million aggregate principal amount
outstanding of the Senior Subordinated Term Loan as of
June 30, 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 2011 Term Loan Facility bears interest at the Eurodollar
Rate (as defined in the 2011 Term Loan Agreement) plus 3.50%
annum (with the Eurodollar Rate not to be less than 1.25%). |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Original
|
|
|
Contract
|
|
|
|
|
|
|
Contractual
|
|
|
US Dollar
|
|
|
Value
|
|
|
Fair Value
|
|
|
|
Rate
|
|
|
Notional
|
|
|
June 30,
|
|
|
June 30,
|
|
Forward Contracts
|
|
$/FC
|
|
|
Amount
|
|
|
2011
|
|
|
2011
|
|
|
Sell Canadian Dollars/Buy USD
|
|
|
1.0001
|
|
|
$
|
16.7
|
|
|
$
|
16.1
|
|
|
$
|
(0.6
|
)
|
Sell Australian Dollars/Buy USD
|
|
|
0.9979
|
|
|
|
13.8
|
|
|
|
13.0
|
|
|
|
(0.8
|
)
|
Sell British Pounds/Buy USD
|
|
|
1.5799
|
|
|
|
7.7
|
|
|
|
7.6
|
|
|
|
(0.1
|
)
|
Sell South African Rand/Buy USD
|
|
|
0.1409
|
|
|
|
5.6
|
|
|
|
5.4
|
|
|
|
(0.2
|
)
|
Buy Australian Dollars/Sell New Zealand Dollars
|
|
|
1.3308
|
|
|
|
4.4
|
|
|
|
4.2
|
|
|
|
(0.2
|
)
|
Sell New Zealand Dollars/Buy USD
|
|
|
0.7536
|
|
|
|
0.3
|
|
|
|
0.3
|
|
|
|
|
|
Sell Hong Kong Dollars/Buy USD
|
|
|
0.1284
|
|
|
|
0.1
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total forward contracts
|
|
|
|
|
|
$
|
48.6
|
|
|
$
|
46.7
|
|
|
$
|
(1.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50
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 second 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 second quarter and six months ended June 30, 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;
|
51
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 2011 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 2011 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, net periodic benefit costs for the pension and other
post-retirement benefit plans, 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 factors, including the timing of working
capital flows;
|
52
REVLON
CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
|
|
|
|
(xi)
|
the Companys expectations regarding its future pension
expense, cash contributions and benefit payments under its
benefit plans;
|
|
|
(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;
|
|
|
(xiii)
|
the Companys plans to evaluate options to minimize
disruption to Revlon Venezuelas business as a result of
the fire at its Venezuela facility; the Companys belief
that it is probable that the insurance recovery will at least
equal the net book value of Revlon Venezuelas inventory,
property, plant, and equipment destroyed by the fire; and the
Companys expectation that in the third quarter of 2011 it
will receive an interim advance payment of $15 million from
its insurers with respect to the fire in Venezuela;
|
|
|
(xiv)
|
the Companys plans to continue to take action to mitigate
any further disruption to the business as a result of the March
2011 disaster in Japan and its aftermath; and
|
|
|
(xv)
|
the Companys expectation that its tax provision and
effective tax rate in any individual quarter will vary and may
not be indicative of the Companys tax provision and
effective tax rate for the full year.
|
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:
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(i)
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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,
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REVLON
CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
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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;
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(ii)
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in addition to the items discussed in (i) above, the
effects of and changes in economic conditions (such as continued
volatility in the financial markets, inflation, monetary
conditions and foreign currency fluctuations and currency
controls, as well as in trade, monetary, fiscal and tax policies
in international markets) and political conditions (such as
military actions and terrorist activities);
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(iii)
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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;
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(iv)
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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);
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(v)
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difficulties, delays or unanticipated costs or less than
expected savings and other benefits resulting from the
Companys restructuring activities;
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54
REVLON
CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
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(vi)
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lower than expected operating revenues, cash on hand
and/or funds
available under the 2011 Revolving Credit Facility
and/or other
permitted lines of credit or higher than anticipated operating
expenses, such as referred to in clause (viii) below;
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(vii)
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the unavailability of funds under Products Corporations
2011 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;
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(viii)
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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, post-retirement benefit plan
contributions
and/or
benefit payments
and/or net
periodic benefit costs for the pension and other post-retirement
benefit plans;
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(ix)
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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;
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(x)
|
difficulties, delays or the inability of the Company to
efficiently manage its cash and working capital;
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(xi)
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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;
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(xii)
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unexpected consequences related to the future impact of the
further devaluation of Bolivars;
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(xiii)
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difficulties, delays, unanticipated costs or our inability to
minimize disruption to the Companys Venezuela business as
a result of the fire, less than expected insurance proceeds
related to the fire at Revlon Venezuelas facility and
unexpected changes in the final amount and/or timing of the
interim advance payment of $15 million from the insurers
with respect to the fire in Venezuela;
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(xiv)
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difficulties, delays, unanticipated costs or our inability to
continue to take action to mitigate any further disruption to
the business as a result of the March 2011 disaster in Japan and
its aftermath; and
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(xv)
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unexpected significant variances in the Companys tax
provision and effective tax rate.
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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
55
REVLON
CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
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
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.
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 continuing to assess 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.
Additionally, we are continuing to monitor 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% and 2% of the Companys
consolidated net sales and total assets, respectively, as of and
for the year ended December 31, 2010. Any significant
adverse effect on our sales in Japan could adversely affect the
Companys business, financial condition
and/or
results of operations.
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4.1
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Third Amended and Restated Revolving Credit Agreement, dated as
of June 16, 2011 (the 2011 Revolving Credit
Agreement), among Products Corporation and certain of its
foreign subsidiaries, as borrowers, and Citigroup Global Markets
Inc. (CGMI) and Wells Fargo Capital Finance, LLC
(WFCF) as the joint lead arrangers; CGMI, WFCF,
Merrill Lynch, Pierce, Fenner & Smith Incorporated,
J.P. Morgan Securities LLC and Credit Suisse Securities
(USA) LLC as joint bookrunners; and Citicorp USA, Inc.
(CUSA) as administrative agent and collateral agent
(incorporated by reference to Exhibit 4.1 to the Current
Report on
Form 8-K
of Products Corporation filed with the SEC on June 17, 2011
(the Products Corporation June 17, 2011
Form 8-K)).
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4.2
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Reaffirmation Agreement dated as of June 16, 2011 made by
Revlon, Inc., Products Corporation and certain of its domestic
subsidiaries and acknowledged by CUSA, as collateral agent for
the secured parties (incorporated by reference to
Exhibit 4.2 to the Products Corporation June 17, 2011
Form 8-K).
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4.3
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Form of Revolving Credit Note under the 2011 Revolving Credit
Agreement (incorporated by reference to Exhibit 4.3 to the
Products Corporation June 17, 2011
Form 8-K).
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56
REVLON
CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
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4.4
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Third Amended and Restated Term Loan Agreement dated as of
May 19, 2011 (the 2011 Term Loan Agreement),
among Products Corporation, as borrower, the lenders party
thereto, Citigroup Global Markets Inc. (CGMI),
J.P. Morgan Securities LLC (JPM Securities),
Merrill Lynch, Pierce, Fenner & Smith Incorporated
(Merrill Lynch), Credit Suisse Securities (USA) LLC
(Credit Suisse) and Wells Fargo Securities, LLC
(WFS) as the joint lead arrangers; CGMI, JPM
Securities, Merrill Lynch, Credit Suisse, WFS and Natixis, New
York Branch (Natixis), as joint bookrunners;
JPMorgan Chase Bank, N.A. and Bank of America, N.A. as
co-syndication agents; Credit Suisse, Wells Fargo Bank, N.A. and
Natixis as co-documentation agents; and Citicorp USA, Inc.
(CUSA) as administrative agent and collateral agent
(incorporated by reference to Exhibit 4.1 to the Current
Report on
Form 8-K
of Products Corporation filed with the SEC on May 20, 2011
(the Products Corporation May 20, 2011
Form 8-K)).
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4.5
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Reaffirmation Agreement dated as of May 19, 2011 made by
Revlon, Inc., Products Corporation and certain of its domestic
subsidiaries and acknowledged by CUSA, as collateral agent for
the secured parties (incorporated by reference to
Exhibit 4.2 to the Products Corporation May 20, 2011
Form 8-K).
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4.6
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Master Assignment and Acceptance dated as of May 19, 2011
among certain lenders and Citibank, N.A. (incorporated by
reference to Exhibit 4.3 to the Products Corporation
May 20, 2011
Form 8-K).
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4.7
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Form of Term Loan Note under the 2011 Term Loan Agreement
(incorporated by reference to Exhibit 4.4 to the Products
Corporation May 20, 2011
Form 8-K).
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*31.1
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Certification of Alan T. Ennis, Chief Executive Officer, dated
July 29, 2010, pursuant to
Rule 13a-14(a)/15d-14(a)
of the Exchange Act.
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*31.2
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Certification of Steven Berns, Chief Financial Officer, dated
July 29, 2010, pursuant to
Rule 13a-14(a)/15d-14(a)
of the Exchange Act.
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32.1
(furnished
herewith)
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Certification of Alan T. Ennis, Chief Executive Officer, dated
July 29, 2010, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
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32.2
(furnished
herewith)
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Certification of Steven Berns, Chief Financial Officer, dated
July 29, 2010, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
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57
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: July 28, 2011
REVLON
CONSUMER PRODUCTS CORPORATION
Registrant
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By: /s/ Steven
Berns
Steven
Berns
Executive Vice President and
Chief Financial Officer
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By: /s/ Gina
M. Mastantuono
Gina
M. Mastantuono
Senior Vice President,
Corporate Controller and
Chief Accounting Officer
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58