SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission file number 1-11178
REVLON, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-3662955
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
625 MADISON AVENUE, NEW YORK, NEW YORK 10022
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 212-527-4000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
As of June 30, 1998, 19,983,237 shares of Class A Common Stock and 31,250,000
shares of Class B Common Stock were outstanding. 11,250,000 shares of Class A
Common Stock and all the shares of Class B Common Stock were held by REV
Holdings Inc., an indirect wholly owned subsidiary of Mafco Holdings Inc.
Total Pages - 17
REVLON, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
JUNE 30, DECEMBER 31,
ASSETS 1998 1997
--------- ------------
(Unaudited)
Current assets:
Cash and cash equivalents .............................................. $ 35.8 $ 37.4
Trade receivables, less allowances of $25.8
and $25.9, respectively .............................................. 458.6 492.5
Inventories ............................................................ 290.0 260.7
Prepaid expenses and other ............................................. 80.5 94.4
---------- ----------
Total current assets ................................................. 864.9 885.0
Property, plant and equipment, net ....................................... 360.4 364.0
Other assets ............................................................. 159.8 142.7
Intangible assets, net ................................................... 378.8 319.2
Net assets of discontinued operations .................................... 20.7 45.1
---------- ----------
Total assets ......................................................... $ 1,784.6 $ 1,756.0
========== ==========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Short-term borrowings - third parties .................................. $ 45.3 $ 42.7
Current portion of long-term debt - third parties ...................... 205.1 5.5
Accounts payable ....................................................... 183.0 178.8
Accrued expenses and other ............................................. 275.7 356.0
---------- ----------
Total current liabilities ............................................ 709.1 583.0
Long-term debt - third parties ........................................... 1,393.8 1,388.8
Long-term debt - affiliates .............................................. 26.2 30.9
Other long-term liabilities .............................................. 209.5 211.8
Stockholders' deficiency:
Preferred stock, par value $.01 per share; 20,000,000 shares authorized,
546 Series A Preferred Stock issued
and outstanding ...................................................... 54.6 54.6
Class B Common Stock, par value $.01 per share; 200,000,000
shares authorized, 31,250,000 issued and outstanding ................. 0.3 0.3
Class A Common Stock, par value $.01 per share; 350,000,000
shares authorized, 19,983,237 and 19,886,575, respectively,
issued and outstanding ............................................... 0.2 0.2
Capital deficiency ..................................................... (228.5) (231.1)
Accumulated deficit since June 24, 1992 ................................ (345.6) (258.8)
Accumulated other comprehensive loss ................................... (35.0) (23.7)
---------- ----------
Total stockholders' deficiency ..................................... (554.0) (458.5)
---------- ----------
Total liabilities and stockholders' deficiency ..................... $ 1,784.6 $ 1,756.0
========== ==========
See Notes to Unaudited Consolidated Condensed Financial Statements.
2
REVLON, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- -------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
Net sales ...................................................... $ 575.3 $ 537.7 $ 1,073.1 $ 1,017.7
Cost of sales .................................................. 194.0 181.2 357.3 341.6
----------- ----------- ----------- -----------
Gross profit. ............................................. 381.3 356.5 715.8 676.1
Selling, general and administrative expenses. .................. 329.8 308.0 635.6 602.5
Business consolidation costs and other, net .................... - - - 5.4
----------- ----------- ----------- -----------
Operating income .......................................... 51.5 48.5 80.2 68.2
----------- ----------- ----------- -----------
Other expenses (income):
Interest expense .......................................... 33.6 32.9 70.3 66.2
Interest and net investment income ........................ (1.1) (1.1) (2.4) (2.1)
Amortization of debt issuance costs. ...................... 1.2 1.8 2.8 3.8
Foreign currency losses, net .............................. 1.3 1.0 2.8 2.8
Miscellaneous, net ........................................ 1.4 2.0 3.2 2.7
----------- ----------- ----------- -----------
Other expenses, net .................................. 36.4 36.6 76.7 73.4
----------- ----------- ----------- -----------
Income (loss) from continuing operations
before income taxes ....................................... 15.1 11.9 3.5 (5.2)
Provision for income taxes ..................................... 3.4 3.5 7.1 9.0
----------- ----------- ----------- -----------
Income (loss) from continuing operations ....................... 11.7 8.4 (3.6) (14.2)
Discontinued operations:
(Loss) income from discontinued operations ................ (11.9) 1.0 (16.5) (1.8)
Loss on disposal of discontinued operations ............... (15.0) - (15.0) -
----------- ----------- ----------- -----------
(Loss) income from discontinued operations ................ (26.9) 1.0 (31.5) (1.8)
Extraordinary items - early extinguishments of debt ............ (13.5) (14.9) (51.7) (14.9)
----------- ----------- ----------- -----------
Net loss. ...................................................... $ (28.7) $ (5.5) $ (86.8) $ (30.9)
=========== =========== =========== ===========
Basic income (loss) per common share:
Income (loss) from continuing operations .................. $ 0.23 $ 0.16 $ (0.07) $ (0.28)
(Loss) income from discontinued operations ................ (0.53) 0.02 (0.62) (0.03)
Extraordinary items ....................................... (0.26) (0.29) (1.01) (0.29)
----------- ----------- ----------- -----------
Net loss per common share ................................. $ (0.56) $ (0.11) $ (1.70) $ (0.60)
=========== =========== =========== ===========
Diluted income (loss) per common share:
Income (loss) from continuing operations .................. $ 0.22 $ 0.16 $ (0.07) $ (0.28)
(Loss) income from discontinued operations ................ (0.51) 0.02 (0.62) (0.03)
Extraordinary items. ...................................... (0.26) (0.29) (1.01) (0.29)
----------- ----------- ----------- -----------
Net loss per common share ................................. $ (0.55) $ (0.11) $ (1.70) $ (0.60)
=========== =========== =========== ===========
Weighted average common shares outstanding:
Basic. .................................................... 51,218,076 51,129,778 51,199,226 51,127,731
=========== =========== =========== ===========
Dilutive .................................................. 52,596,798 51,522,938 51,199,226 51,127,731
=========== =========== =========== ===========
See Notes to Unaudited Consolidated Condensed Financial Statements.
3
REVLON, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS' DEFICIENCY
AND COMPREHENSIVE LOSS
(DOLLARS IN MILLIONS)
ACCUMULATED
OTHER
PREFERRED COMMON CAPITAL ACCUMULATED COMPREHENSIVE COMPREHENSIVE
STOCK STOCK DEFICIENCY DEFICIT LOSS (a) LOSS
----- ----- ---------- ------- -------- ----
Balance, January 1, 1997 .................... $ 54.6 $ 0.5 $ (231.6) $ (302.4) $ (18.2)
Net loss .............................. (30.9) $ (30.9)
Issuance of common stock. ............. 0.2
Net capital contribution. ............. 0.3(c)
Currency translation adjustment ....... (8.7) (8.7)
------- ------ -------- -------- ------- -------
Balance, June 30, 1997 ...................... $ 54.6 $ 0.5 $ (231.1) $ (333.3) $ (26.9) $ (39.6)
======= ====== ======== ======== ======= =======
Balance, January 1, 1998 .................... $ 54.6 $ 0.5 $ (231.1) $ (258.8) $ (23.7)
Net loss .............................. (86.8) $ (86.8)
Issuance of common stock. ............. 2.6
Revaluation of marketable securities .. (0.1) (0.1)
Currency translation adjustment ....... (11.2)(b) (11.2)(b)
------- ------ -------- -------- ------- -------
Balance, June 30, 1998 ...................... $ 54.6 $ 0.5 $ (228.5) $ (345.6) $ (35.0) $ (98.1)
======= ====== ======== ======== ======= =======
- --------------
(a) Accumulated other comprehensive loss principally includes the currency
translation adjustment of $30.4 and $14.5 and the adjustment for the minimum
pension liability of $4.5 and $12.4 as of June 30, 1998 and 1997, respectively.
(b) Accumulated other comprehensive loss and comprehensive loss each include a
reclassification adjustment of $2.2 for realized gains associated with the sale
of certain International operations assets.
(c) Represents changes in capital from the acquisition of the Bill Blass
business.
See Notes to Unaudited Consolidated Condensed Financial Statements.
4
REVLON, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(DOLLARS IN MILLIONS)
SIX MONTHS ENDED
JUNE 30,
-------------------------
CASH FLOWS FROM OPERATING ACTIVITIES: 1998 1997
-------- --------
Net loss .................................................................... $(86.8) $(30.9)
Adjustments to reconcile net loss to net cash (used for)
provided by operating activities:
Depreciation and amortization ........................................ 54.9 49.2
Loss from discontinued operations .................................... 31.5 1.8
Extraordinary items .................................................. 51.7 14.9
Change in assets and liabilities:
Decrease in trade receivables ................................... 33.1 26.4
Increase in inventories ......................................... (29.5) (38.8)
Decrease in prepaid expenses and other current assets ........... 10.6 0.9
Increase (decrease) in accounts payable ......................... 0.4 (1.0)
Decrease in accrued expenses and other current liabilities ...... (88.4) (72.5)
Other, net ...................................................... (40.6) (37.3)
-------- --------
Net cash used for operating activities ...................................... (63.1) (87.3)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ........................................................ (23.9) (21.4)
Proceeds from the sale of certain fixed assets .............................. 1.2 --
Acquisition of businesses, net of cash acquired ............................. (57.6) --
-------- --------
Net cash used for investing activities ...................................... (80.3) (21.4)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in short-term borrowings - third parties ............ 3.4 (3.8)
Proceeds from the issuance of long-term debt - third parties ................ 1,090.2 482.0
Repayment of long-term debt - third parties ................................. (920.0) (362.4)
Net proceeds from issuance of common stock .................................. 1.1 0.2
Proceeds from the issuance of debt - affiliates ............................. 77.0 62.3
Repayment of debt - affiliates .............................................. (81.7) (61.9)
Net contribution from parent ................................................ -- 0.3
Payment of debt issuance costs .............................................. (19.0) (4.1)
-------- --------
Net cash provided by financing activities ................................... 151.0 112.6
-------- --------
Effect of exchange rate changes on cash and cash equivalents ................ (1.8) (0.9)
Net cash used for discontinued operations ................................... (7.4) (0.9)
-------- --------
Net (decrease) increase in cash and cash equivalents ................. (1.6) 2.1
Cash and cash equivalents at beginning of period ..................... 37.4 35.1
-------- --------
Cash and cash equivalents at end of period ........................... $35.8 $37.2
======== ========
Supplemental schedule of cash flow information:
Cash paid for:
Interest ........................................................ $67.3 $68.2
Income taxes, net of refunds .................................... 7.6 7.2
Supplemental schedule of noncash investing activities:
Liabilities assumed in connection with business acquisitions:
Fair value of assets acquired ................................... $74.5 $ --
Cash paid ....................................................... (57.6) --
-------- --------
Liabilities assumed ............................................. $16.9 $ --
======== ========
See Notes to Unaudited Consolidated Condensed Financial Statements.
5
REVLON, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS)
(1) BASIS OF PRESENTATION
Revlon, Inc. (the "Company") is a holding company, formed in April
1992, that conducts its business exclusively through its direct subsidiary,
Revlon Consumer Products Corporation and its subsidiaries ("Products
Corporation"). The Company is an indirect majority owned subsidiary of
MacAndrews & Forbes Holdings Inc., a corporation wholly owned indirectly by
Mafco Holdings Inc.
The accompanying Consolidated Condensed Financial Statements are
unaudited. In management's opinion, all adjustments (consisting of only normal
recurring accruals) necessary for a fair presentation have been made.
The Unaudited Consolidated Condensed Financial Statements include the
accounts of the Company after elimination of all material intercompany balances
and transactions. The Company has made a number of estimates and assumptions
relating to the assets and liabilities, the disclosure of contingent assets and
liabilities and the reporting of revenues and expenses to prepare these
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates. The Unaudited
Consolidated Condensed Financial Statements should be read in conjunction with
the consolidated financial statements and related notes contained in the
Company's Annual Report on Form 10-K for the year ended December 31, 1997. (See
note 7).
The results of operations and financial position, including working
capital, for interim periods are not necessarily indicative of those to be
expected for a full year, due, in part, to seasonal fluctuations, which are
normal for the Company's business.
The Company matches advertising and promotion expenses with sales
revenues for interim reporting purposes. Advertising and promotion expenses
estimated for a full year are charged to earnings for interim reporting
purposes in proportion to the relationship that net sales for such period bear
to estimated full year net sales. As a result, in the first half of 1998 and
1997, disbursements and commitments for advertising and promotion exceeded
advertising and promotion expenses by $49.1 and $44.9, respectively, and such
amounts were deferred.
During the first quarter of 1998, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income," which establishes standards for reporting and displaying comprehensive
income (loss) and its components in a full set of general-purpose financial
statements. The components of comprehensive income (loss) are comprised of net
income (loss), changes in the currency translation adjustment, the adjustment
for minimum pension liability and changes in marketable securities.
During 1998, the Company adopted Statement of Position 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use," which requires capitalization of certain development costs of
software to be used internally. The adoption of this statement did not have a
material effect on the Company's financial condition or results of operations.
(2) INVENTORIES
JUNE 30, DECEMBER 31,
1998 1997
-------- ------------
Raw materials and supplies .... $ 94.9 $ 82.6
Work-in-process ............... 21.6 14.9
Finished goods ................ 173.5 163.2
------- -------
$ 290.0 $ 260.7
======= =======
(3) BASIC AND DILUTED INCOME (LOSS) PER COMMON SHARE
The basic income (loss) per common share has been computed based upon
the weighted average number of shares of common stock outstanding. The diluted
income (loss) per common share is computed based upon the weighted average
number of shares of common stock outstanding and the dilutive effect of stock
options. The number of shares used in the calculation of
6
REVLON, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS)
diluted income (loss) per common share was greater than the number of shares
used in the calculation of basic income (loss) per common share by 1,378,722
and 393,160 for the three months ended June 30, 1998 and 1997, respectively.
The calculations of basic and diluted loss per common share were the same for
the six months ended June 30, 1998 and 1997, respectively; as diluted loss per
share does not include any incremental shares that would have been outstanding
assuming the exercise of any stock options because the effect of those
incremental shares would have been antidilutive.
(4) REFINANCING
On February 2, 1998, Revlon Escrow Corp. ("Revlon Escrow"), an
affiliate of Products Corporation, issued and sold in a private placement
$650.0 aggregate principal amount of 8 5/8% Senior Subordinated Notes due 2008
(the "8 5/8% Notes") and $250.0 aggregate principal amount of 8 1/8% Senior
Notes due 2006 (the "8 1/8% Notes" and, together with the 8 5/8% Notes, the
"Notes"), with the net proceeds of approximately $886 deposited into escrow.
The proceeds from the sale of the Notes were used to finance the redemption by
Products Corporation of $555.0 aggregate principal amount of its 10 1/2% Senior
Subordinated Notes due 2003 (the "Senior Subordinated Notes") and $260.0
aggregate principal amount of its 9 3/8% Senior Notes due 2001 (the "Senior
Notes"). Products Corporation delivered a redemption notice to the holders of
the Senior Subordinated Notes for the redemption of the Senior Subordinated
Notes on March 4, 1998, at which time Products Corporation assumed the
obligations under the 8 5/8% Notes and the related indenture (the "8 5/8% Notes
Assumption"), and to the holders of the Senior Notes for the redemption of the
Senior Notes on April 1, 1998, at which time Products Corporation assumed the
obligations under the 8 1/8% Notes and the related indenture (the "8 1/8% Notes
Assumption" and, together with the 8 5/8% Notes Assumption, the "Assumption").
In connection with the redemptions of the Senior Subordinated Notes on March 4,
1998 and the Senior Notes on April 1, 1998, the Company recorded an
extraordinary loss of $38.2 and $13.5 in the first and second quarters of 1998,
respectively, resulting primarily from the write-off of deferred financing
costs and payment of call premiums on the Senior Subordinated Notes and the
Senior Notes. On May 7, 1998, substantially all of the Notes were exchanged for
registered notes with substantially identical terms (the Notes and the
registered exchange notes shall each be referred to as the Notes).
The 8 5/8% Notes are general unsecured obligations of Products
Corporation and are (i) subordinate in right of payment to all existing and
future Senior Debt (as defined in the indenture relating to the 8 5/8% Notes
(the "8 5/8% Notes Indenture")) of Products Corporation, including the Senior
Notes due 1999 (the "1999 Notes"), the 8 1/8% Notes and the indebtedness under
the credit agreement which became effective in May 1997 (as subsequently
amended, the "Credit Agreement"), (ii) pari passu in right of payment with all
future senior subordinated debt, if any, of Products Corporation and (iii)
senior in right of payment to all future subordinated debt, if any, of Products
Corporation. The 8 5/8% Notes are effectively subordinated to the outstanding
indebtedness and other liabilities of Products Corporation's subsidiaries.
Interest is payable on February 1 and August 1.
The 8 5/8% Notes may be redeemed at the option of Products Corporation
in whole or from time to time in part at any time on or after February 1, 2003
at the redemption prices set forth in the 8 5/8% Notes Indenture. In addition,
at any time prior to February 1, 2001, Products Corporation may redeem up to
35% of the aggregate principal amount of the 8 5/8% Notes originally issued at
a redemption price of 108 5/8% of the principal amount thereof, plus accrued
and unpaid interest, if any, thereon to the date fixed for redemption, with,
and to the extent Products Corporation receives, the net cash proceeds of one
or more Public Equity Offerings (as defined in the 8 5/8% Notes Indenture),
provided that at least $422.5 aggregate principal amount of the 8 5/8% Notes
remains outstanding immediately after the occurrence of each such redemption.
Upon a Change of Control (as defined in the 8 5/8% Notes Indenture),
Products Corporation will have the option to redeem the 8 5/8% Notes in whole
at a redemption price equal to the principal amount thereof, plus accrued and
unpaid interest, if any, thereon to the date of redemption plus the Applicable
Premium (as defined in the 8 5/8% Notes Indenture) and, subject to certain
conditions, each holder of the 8 5/8% Notes will have the right to require
Products Corporation to repurchase all or a portion of such holder's 8 5/8%
Notes at a price equal to 101% of the principal amount thereof, plus accrued
and unpaid interest, if any, thereon to the date of repurchase.
The 8 5/8% Notes Indenture contains covenants that, among other
things, limit (i) the issuance of additional debt and redeemable stock by
Products Corporation, (ii) the incurrence of liens, (iii) the issuance of debt
and preferred stock by Products Corporation's subsidiaries, (iv) the payment of
dividends on capital stock of Products Corporation and its subsidiaries and the
redemption of capital stock of Products Corporation, (v) the sale of assets and
subsidiary stock, (vi) transactions with affiliates, (vii) consolidations,
mergers and transfers of all or substantially all Products Corporation's assets
and (viii) the issuance of additional subordinated debt that is senior in right
of payment to the 8 5/8% Notes. The 8 5/8% Notes Indenture also prohibits
7
REVLON, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS)
certain restrictions on distributions from subsidiaries. All of these
limitations and prohibitions, however, are subject to a number of important
qualifications.
The 8 1/8% Notes are senior unsecured obligations of Products
Corporation and rank pari passu in right of payment with all existing and
future Senior Debt (as defined in the indenture relating to the 8 1/8% Notes
(the "8 1/8% Notes Indenture")) of Products Corporation, including the 1999
Notes and the indebtedness under the Credit Agreement, and senior to the 8 5/8%
Notes and to all future subordinated indebtedness of Products Corporation. The
8 1/8% Notes are effectively subordinated to the outstanding indebtedness and
other liabilities of Products Corporation's subsidiaries. Interest is payable
on February 1 and August 1.
The 8 1/8% Notes may be redeemed at the option of Products Corporation
in whole or from time to time in part at any time on or after February 1, 2002
at the redemption prices set forth in the 8 1/8% Notes Indenture. In addition,
at any time prior to February 1, 2001, Products Corporation may redeem up to
35% of the aggregate principal amount of the 8 1/8% Notes originally issued at
a redemption price of 108 1/8% of the principal amount thereof, plus accrued
and unpaid interest, if any, thereon to the date fixed for redemption, with,
and to the extent Products Corporation receives, the net cash proceeds of one
or more Public Equity Offerings (as defined in the 8 1/8% Notes Indenture),
provided that at least $162.5 aggregate principal amount of the 8 1/8% Notes
remains outstanding immediately after the occurrence of each such redemption.
Upon a Change of Control (as defined in the 8 1/8% Notes Indenture),
Products Corporation will have the option to redeem the 8 1/8% Notes in whole
at a redemption price equal to the principal amount thereof, plus accrued and
unpaid interest, if any, thereon to the date of redemption plus the Applicable
Premium (as defined in the 8 1/8% Notes Indenture) and, subject to certain
conditions, each holder of the 8 1/8% Notes will have the right to require
Products Corporation to repurchase all or a portion of such holder's 8 1/8%
Notes at a price equal to 101% of the principal amount thereof, plus accrued
and unpaid interest, if any, thereon to the date of repurchase.
The 8 1/8% Notes Indenture contains covenants that, among other
things, limit (i) the issuance of additional debt and redeemable stock by
Products Corporation, (ii) the incurrence of liens, (iii) the issuance of debt
and preferred stock by Products Corporation's subsidiaries, (iv) the payment of
dividends on capital stock of Products Corporation and its subsidiaries and the
redemption of capital stock of Products Corporation, (v) the sale of assets and
subsidiary stock, (vi) transactions with affiliates and (vii) consolidations,
mergers and transfers of all or substantially all Products Corporation's
assets. The 8 1/8% Notes Indenture also prohibits certain restrictions on
distributions from subsidiaries. All of these limitations and prohibitions,
however, are subject to a number of important qualifications.
(5) BUSINESS CONSOLIDATION COSTS AND OTHER, NET
In connection with the business consolidation costs and other, net,
recorded in 1997, the Company made cash payments for severance of $4.7 and cash
payments for other business consolidation costs of $0.5 during the first half
of 1998. As of June 30, 1998, the unpaid balance of the business consolidation
costs included in accrued expenses and other was $5.8.
(6) ACQUISITIONS
During the second quarter of 1998, the Company consummated
acquisitions for a combined purchase price of approximately $62.6, with
resulting goodwill recorded under the purchase method of $63.7.
8
REVLON, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS)
(7) DISCONTINUED OPERATIONS
In the second quarter of 1998, the Company determined to exit the
retail and outlet store business comprised of its 85% ownership interest in The
Cosmetic Center, Inc. ("CCI") and recorded an estimated loss on disposal of
$15.0. The results of operations of CCI have been reported as a discontinued
operation and, accordingly, all prior periods have been restated. The net
assets of CCI included in the accompanying unaudited consolidated condensed
balance sheets consist primarily of amounts due to Products Corporation and
inventory, offset by third party debt, minority interest and a reserve for
estimated loss on disposal.
(8) GEOGRAPHIC SEGMENTS
The Company manages its business on the basis of one reportable
segment. The Company is exposed to the risk of changes in social, political and
economic conditions inherent in foreign operations and the Company's results of
operations and the value of its foreign assets and liabilities are affected by
fluctuations in foreign currency exchange rates. The Company's operations in
Brazil have accounted for approximately 5.4% and 5.8% and 5.7% and 6.5% of the
Company's net sales for the second quarter and first half of 1998 and 1997,
respectively. Net sales by geographic area are presented by attributing
revenues from external customers on the basis of where the products are sold.
THREE MONTHS ENDED SIX MONTHS ENDED
GEOGRAPHIC AREAS: JUNE 30, JUNE 30,
------------------- -------------------
Net sales: 1998 1997 1998 1997
-------- -------- -------- --------
United States ............................ $ 339.1 $ 309.2 $ 621.8 $ 579.2
International ............................ 236.2 228.5 451.3 438.5
-------- -------- -------- --------
$ 575.3 $ 537.7 $1,073.1 $1,017.7
======== ======== ======== ========
JUNE 30, DECEMBER 31,
Long-lived assets: 1998 1997
-------- --------
United States ............................ $ 620.4 $ 545.4
International ............................ 278.6 280.5
-------- --------
$ 899.0 $ 825.9
======== ========
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -------------------
CLASSES OF SIMILAR PRODUCTS: 1998 1997 1998 1997
-------- -------- -------- --------
Net sales:
Cosmetics, skin care and fragrances ...... $ 346.4 $ 327.6 $ 658.5 $ 619.4
Personal care and professional ........... 228.9 210.1 414.6 398.3
-------- -------- -------- --------
$ 575.3 $ 537.7 $1,073.1 $1,017.7
======== ======== ======== ========
9
REVLON, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
OVERVIEW
The Company operates in a single business segment with many different
products, which include an extensive array of glamorous, exciting and
innovative cosmetics and skin care, fragrance and personal care products, and
professional products, consisting of hair and nail care products principally
for use in and resale by professional salons. In addition, the Company also
engages in licensing. In the second quarter of 1998, the Company determined to
exit the retail and outlet store business comprised of its 85% ownership
interest in CCI (See note 7).
The Company presents its business geographically as its United States
operation, which comprises the Company's business in the United States, and its
International operation, which comprises its business outside of the United
States.
RESULTS OF OPERATIONS
The following table sets forth the Company's net sales by operation
for the three months and six months ended June 30, 1998 and 1997, respectively:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- ---------------------
Net sales: 1998 1997 1998 1997
-------- -------- -------- --------
United States ........ $ 339.1 $ 309.2 $ 621.8 $ 579.2
International ........ 236.2 228.5 451.3 438.5
-------- -------- -------- --------
$ 575.3 $ 537.7 $1,073.1 $1,017.7
======== ======== ======== ========
The following sets forth certain statements of operations data as a
percentage of net sales for the three months and six months ended June 30, 1998
and 1997, respectively:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------- -----------------
1998 1997 1998 1997
---- ---- ---- ----
Cost of sales ...................................... 33.7% 33.7% 33.3% 33.6%
Gross profit ....................................... 66.3 66.3 66.7 66.4
Selling, general and administrative expenses ....... 57.3 57.3 59.2 59.2
Business consolidation costs and other, net ........ - - - 0.5
Operating income ................................... 9.0 9.0 7.5 6.7
NET SALES
Net sales were $575.3 and $537.7 for the second quarters of 1998 and
1997, respectively, an increase of $37.6, or 7.0% (or 9.8% on a constant U.S.
dollar basis), and were $1,073.1 and $1,017.7 for the first half of 1998 and
1997, respectively, an increase of $55.4, or 5.4% (or 8.3% on a constant U.S.
dollar basis), primarily as a result of successful new product introductions
worldwide, increased demand in the United States and increased distribution
internationally.
United States. The United States operation's net sales increased to
$339.1 for the second quarter of 1998 from $309.2 for the second quarter of
1997, an increase of $29.9, or 9.7% and increased to $621.8 for the first half
of 1998 from $579.2 for the first half of 1997, an increase of $42.6, or 7.4%.
Net sales improved for the second quarter and first half of 1998, primarily as
a result of continued consumer acceptance of new product offerings and general
improvement in consumer demand for the Company's color cosmetics. Even though
consumer sell-through for the REVLON and ALMAY brands, as described below in
more detail, has increased, the Company's sales to its customers have been and
may continue to be impacted by retail inventory balancing and reductions.
REVLON brand color cosmetics continued as the number one brand in
dollar market share in the self-select distribution channel. New product
introductions (including, in 1998, certain products launched during 1997)
generated incremental net sales in the
10
REVLON, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
second quarter and first half of 1998, principally as a result of launches of
TOP SPEED nail enamel, MOISTURESTAY lip makeup, products in the NEW COMPLEXION
line, COLORSTAY haircolor, ALMAY STAY SMOOTH ANTI-CHAP lip makeup, products in
the ALMAY ONE COAT collection and products in the ULTIMA II BEAUTIFUL NUTRIENT
line.
International. The International operation's net sales increased to
$236.2 for the second quarter of 1998 from $228.5 for the second quarter of
1997, an increase of $7.7, or 3.4%, on a reported basis (or 10.0% on a constant
U.S. dollar basis) and increased to $451.3 for the first half of 1998 from
$438.5 for the first half of 1997, an increase of $12.8, or 2.9%, on a reported
basis (or 9.6% on a constant U.S. dollar basis). Net sales improved for the
second quarter and first half of 1998 principally as a result of increased
distribution, including acquisitions, and successful new product introductions.
This was partially offset, on a reported basis, by the unfavorable effect on
sales of a stronger U.S. dollar against most foreign currencies and unfavorable
economic conditions in several international markets. New products such as
MOISTURESTAY lip makeup and TOP SPEED nail enamel were introduced during the
first half of 1998 in select international markets. The International
operation's sales are divided into three geographic areas. In Europe, which is
comprised of Europe, the Middle East and Africa, net sales increased by 2.1% on
a reported basis to $106.4 for the second quarter of 1998 as compared to the
second quarter of 1997 or an increase of 7.2% on a constant U.S. dollar basis,
and increased by 3.2% to $206.1 for the first half of 1998 as compared to the
first half of 1997 or an increase of 9.1% on a constant U.S. dollar basis. In
the Western Hemisphere, which is comprised of Canada, Mexico, Central America,
South America and Puerto Rico, net sales increased by 15.9% on a reported basis
to $91.3 for the second quarter of 1998 as compared to the second quarter of
1997 or an increase of 20.6% on a constant U.S. dollar basis, and increased by
13.2% to $173.7 for the first half of 1998 as compared to the first half of
1997 or an increase of 18.3% on a constant U.S. dollar basis. The Company's
operations in Brazil are significant and, along with operations in certain
other countries, have been subject to, and may continue to be subject to,
significant political and economic uncertainties. In Brazil, net sales were
$30.8 and $31.4 for the second quarter of 1998 and 1997, respectively, and were
$61.2 and $65.7 for the first half of 1998 and 1997, respectively. Net sales in
Brazil were adversely affected by the stronger U.S. dollar against the
Brazilian real and competitive activities. In the Far East, net sales decreased
by 15.4% on a reported basis to $38.5 for the second quarter of 1998 as
compared to the second quarter of 1997 or a decrease of 2.1% on a constant U.S.
dollar basis, and decreased by 16.3% to $71.5 for the first half of 1998 as
compared to the first half of 1997 or a decrease of 5.2% on a constant U.S.
dollar basis. Net sales in the Far East were, and may continue to be, adversely
impacted by general economic conditions and competitive activities in certain
markets.
Cost of sales
As a percentage of net sales, cost of sales was 33.7% for the second
quarter of 1998 and 1997, and 33.3% for the first half of 1998 compared to
33.6% for the first half of 1997. Cost of sales as a percentage of net sales
for the second quarter and first half of 1998 compared to the comparable 1997
periods reflects the benefits of improved overhead absorption against higher
production volumes and more efficient global production and purchasing. These
factors were partially offset by changes in product mix and the effect of
weaker local currencies on the cost of imported purchases.
S,G&A expenses
As a percentage of net sales, S,G&A expenses were 57.3% for the second
quarter of 1998 and 1997, and 59.2% for the first half of 1998 and 1997. S,G&A
expenses other than advertising and consumer-directed promotion expenses, as a
percentage of net sales, improved to 39.5% for the second quarter of 1998
compared with 40.3% for the second quarter of 1997, and improved to 41.5% for
the first half of 1998 as compared to 42.4% for the first half of 1997,
primarily as a result of reduced general and administrative expenses, improved
productivity and lower distribution costs. The Company increased advertising
and consumer-directed promotion expenditures in the second quarter and first
half of 1998 compared with the comparable 1997 periods to support growth in
existing product lines, new product launches and increased distribution in many
of the Company's markets in the International operation. Advertising and
consumer-directed promotion expenses increased by 12.5% to $102.6, or 17.8% of
net sales, for the second quarter of 1998 from $91.2, or 17.0% of net sales,
for the second quarter of 1997 and increased by 11.1% to $190.5, or 17.7% of
net sales, for the first half of 1998 from $171.4, or 16.8% of net sales, for
the first half of 1997.
11
REVLON, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
Business consolidation costs and other, net
In the first quarter of 1997 the Company incurred business
consolidation costs of approximately $5.4 in connection with the implementation
of its business strategy to rationalize factory operations. These costs
primarily included severance and other related costs in certain International
operations.
Operating income
As a result of the foregoing, operating income increased by $3.0, or
6.2%, to $51.5 for the second quarter of 1998 from $48.5 for the second quarter
of 1997 and increased by $12.0, or 17.6%, to $80.2 for the first half of 1998
from $68.2 for the first half of 1997.
Other expenses/income
Interest expense was $33.6 for the second quarter of 1998 compared to
$32.9 for the second quarter of 1997 and $70.3 for the first half of 1998
compared to $66.2 for the first half of 1997. The increase in interest expense
for the second quarter of 1998 as compared to the second quarter of 1997 is due
to higher average outstanding borrowings, partially offset by lower interest
rates. The increase in interest expense for the first half of 1998 as compared
to the first half of 1997 is due to higher average outstanding borrowings and a
non-recurring interest charge associated with the refinancing (see Note 4),
partially offset by lower interest rates.
Foreign currency losses, net, were $1.3 for the second quarter of 1998
compared to $1.0 for the second quarter of 1997 and $2.8 for the first half of
1998 and 1997, respectively. The foreign currency losses for the second quarter
of 1998 as compared to the second quarter of 1997 primarily reflects a weaker
South African rand against the U.S. dollar.
Provision for income taxes
The provision for income taxes was $3.4 and $3.5 for the second
quarters of 1998 and 1997, respectively, and $7.1 and $9.0 for the first half
of 1998 and 1997, respectively. The decrease was primarily attributable to
lower taxable income in certain International operations.
Discontinued operations
In the second quarter of 1998, the Company determined to exit the
retail and outlet store business comprised of its 85% ownership interest in CCI
and recorded an estimated loss on disposal of $15.0. (Loss) income from
discontinued operations was $(11.9) and $1.0 for the second quarter of 1998 and
1997, respectively, and $(16.5) and $(1.8) for the six months ended June 30,
1998 and 1997, respectively. The 1997 periods include a $6.0 non-recurring gain
resulting from the merger of Prestige Fragrance & Cosmetics, Inc., a wholly
owned subsidiary of Products Corporation, with and into CCI on April 25, 1997,
partially offset by related business consolidation costs of $4.0. The 1998
period includes the Company's share of a non-recurring charge of $10.5 taken by
CCI primarily related to inventory and severance.
Extraordinary items
The extraordinary item of $13.5 in the second quarter of 1998 resulted
from the write-off of deferred financing costs and payment of a call
premium associated with the redemption of the Senior Notes. The extraordinary
item of $38.2 in the first quarter of 1998 resulted primarily from the
write-off of the deferred financing costs and the payment of a call premium
associated with the redemption of the Senior Subordinated Notes. The
extraordinary item in the second quarter of 1997 resulted from the write-off of
deferred financing costs associated with the extinguishment of borrowings under
the credit agreement in effect at that time (the "1996 Credit Agreement") prior
to maturity with proceeds from the Credit Agreement, and costs of approximately
$6.3 in connection with the redemption of Products Corporation's 10 7/8%
Sinking Fund Debentures due 2010 (the "Sinking Fund Debentures").
12
REVLON, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Net cash used for operating activities was $63.1 and $87.3 for the
first half of 1998 and 1997, respectively. The improvement in net cash used for
operating activities for the first half of 1998 compared with the first half of
1997 resulted primarily from higher operating income and improved working
capital management.
Net cash used for investing activities was $80.3 and $21.4 for the
first half of 1998 and 1997, respectively. Net cash used for investing
activities in the 1998 period included cash paid in connection with
acquisitions and for both periods included capital expenditures.
Net cash provided by financing activities was $151.0 and $112.6 for the
first half of 1998 and 1997, respectively. Net cash provided by financing
activities for the first half of 1998 included proceeds from the issuance of
the Notes and cash drawn under the Credit Agreement, partially offset by the
payment of fees and expenses related to the issuance of the Notes, the
redemption of the Senior Subordinated Notes and the Senior Notes, and the
repayment of borrowings under the Company's Japanese yen-denominated credit
agreement (the "Yen Credit Agreement"). During the second quarter of 1998, the
Company loaned $5.0 to CCI to assist it with liquidity needs and its new
business strategy. Net cash provided by financing activities for the first half
of 1997 included cash drawn under the 1996 Credit Agreement and the Credit
Agreement, partially offset by the repayment of borrowings under the 1996
Credit Agreement, the payment of fees and expenses related to the Credit
Agreement and the repayment of borrowings under the Yen Credit Agreement.
On February 2, 1998, Revlon Escrow issued and sold the Notes in a
private placement, with the net proceeds deposited into escrow. The proceeds
from the sale of the Notes were used to finance the redemptions of the Senior
Subordinated Notes and the Senior Notes. Products Corporation delivered a
redemption notice to the holders of the Senior Subordinated Notes for the
redemption of the Senior Subordinated Notes on March 4, 1998, at which time
Products Corporation consummated the 8 5/8% Notes Assumption, and to the
holders of the Senior Notes for the redemption of the Senior Notes on April 1,
1998, at which time Products Corporation consummated the 8 1/8% Notes
Assumption. On May 7, 1998, substantially all of the Notes were exchanged for
registered notes with substantially identical terms. The 8 5/8% Notes Indenture
and the 8 1/8% Notes Indenture (together, the "Notes Indentures") contain
covenants that among other things, limit (i) the issuance of additional debt
and redeemable stock by Products Corporation, (ii) the incurrence of liens,
(iii) the issuance of debt and preferred stock by Products Corporation's
subsidiaries, (iv) the payment of dividends on capital stock of Products
Corporation and its subsidiaries and the redemption of capital stock of
Products Corporation, (v) the sale of assets and subsidiary stock, (vi)
transactions with affiliates, (vii) consolidations, mergers and transfers of
all or substantially all Products Corporation assets and (viii) in the case of
the 8 5/8% Notes Indenture, the issuance of additional subordinated debt that
is senior in right of payment to the 8 5/8% Notes. The Notes Indentures also
prohibit certain restrictions on distributions from Products Corporation and
subsidiaries of Products Corporation. All of these limitations and
prohibitions, however, are subject to a number of important qualifications.
In May 1997, Products Corporation entered into the Credit Agreement
with a syndicate of lenders, whose individual members change from time to time.
The proceeds of loans made under the Credit Agreement were used for the purpose
of repaying the loans outstanding under the 1996 Credit Agreement and to redeem
Products Corporation's Sinking Fund Debentures and were and will be used for
general corporate purposes or, in the case of the Acquisition Facility, the
financing of acquisitions. At June 30, 1998, Products Corporation had
approximately $199.0 outstanding under the Term Loan Facilities, $173.4
outstanding under the Multi-Currency Facility, $99.2 outstanding under the
Acquisition Facility and $34.0 of issued but undrawn letters of credit under
the Special LC Facility.
A subsidiary of Products Corporation is the borrower under the Yen
Credit Agreement, which had a principal balance of approximately Yen 3.8 billion
as of June 30, 1998 (approximately $27.2 U.S. dollar equivalent as of June 30,
1998). In accordance with the terms of the Yen Credit Agreement, approximately
Yen 539 million (approximately $4.6 U.S. dollar equivalent) was paid in
January 1997. In June 1997, Products Corporation amended and restated the Yen
Credit Agreement to extend the term to December 31, 2000 subject to earlier
termination under certain circumstances. In accordance with the terms of the
Yen Credit Agreement, as so amended and restated, approximately Yen 539 million
(approximately $4.2 U.S. dollar equivalent) was paid in March 1998,
approximately Yen 539 million (approximately $3.9 U.S. dollar equivalent as of
June 30, 1998) is due in each of March 1999 and 2000 and Yen 2.7 billion
(approximately $19.4 U.S. dollar equivalent as of June 30, 1998) is due on
December 31, 2000.
13
REVLON, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
Products Corporation borrows funds from its affiliates from time to
time to supplement its working capital borrowings at interest rates more
favorable to Products Corporation than interest rates under the Credit
Agreement. No such borrowings were outstanding as of June 30, 1998.
In the second quarter of 1998, the Company reclassified to short-term
its $200.0 1999 Notes which the Company intends to refinance.
The Company's principal sources of funds are expected to be cash flow
generated from operations and borrowings under the Credit Agreement and other
existing working capital lines. The Credit Agreement, the 1999 Notes and the
Notes contain certain provisions that by their terms limit Products
Corporation's and/or its subsidiaries' ability to, among other things, incur
additional debt. The Company's principal uses of funds are expected to be the
payment of operating expenses, working capital and capital expenditure
requirements and debt service payments (including refinancing the 1999 Notes).
The Company estimates that capital expenditures for 1998 will be
approximately $65 including upgrades to the Company's management information
systems. Pursuant to a tax sharing agreement, Revlon, Inc. may be required to
make tax sharing payments to Mafco Holdings Inc. as if Revlon, Inc. were filing
separate income tax returns, except that no payments are required by Revlon,
Inc. if and to the extent that Products Corporation is prohibited under the
Credit Agreement from making tax sharing payments to Revlon, Inc. The Credit
Agreement prohibits Products Corporation from making any tax sharing payments
other than in respect of state and local income taxes. Revlon, Inc. currently
anticipates that, as a result of net operating tax losses and prohibitions
under the Credit Agreement, no cash federal tax payments or cash payments in
lieu of federal taxes pursuant to the tax sharing agreement will be required
for 1998.
Products Corporation was party to a series of interest rate swap
agreements totaling a notional amount of $225.0 in which Products Corporation
agreed to pay on such notional amount a variable interest rate equal to the six
month LIBOR to its counterparties and the counterparties agreed to pay on such
notional amounts fixed interest rates averaging approximately 6.03% per annum.
Products Corporation entered into these agreements in 1993 and 1994 (and in the
first quarter of 1996 extended a portion equal to a notional amount of $125.0
through December 2001) to convert the interest rate on $225.0 of fixed-rate
indebtedness to a variable rate. Products Corporation terminated these
agreements in January 1998 and realized a gain of approximately $1.6, which was
recognized upon repayment of the hedged indebtedness and is included in the
first quarter 1998 extraordinary item - early extinguishment of debt.
Products Corporation enters into forward foreign exchange contracts
and option contracts from time to time to hedge certain cash flows denominated
in foreign currencies. Products Corporation had forward foreign exchange
contracts denominated in various currencies of approximately $38.3 and $16.6
(U.S. dollar equivalent) at June 30, 1998 and 1997, respectively, and option
contracts of approximately $49.6 (U.S. dollar equivalent) outstanding at June
30, 1998. Such contracts are entered into to hedge transactions predominantly
occurring within twelve months. If Products Corporation had terminated these
contracts on June 30, 1998 and 1997, no material gain or loss would have been
realized.
Based upon the Company's current level of operations and anticipated
growth in net sales and earnings as a result of its business strategy, the
Company expects that cash flows from operations and funds from currently
available credit facilities and refinancings of existing indebtedness will be
sufficient to enable the Company to meet its anticipated cash requirements for
the foreseeable future on a consolidated basis, including for debt service
(including refinancing the 1999 Notes). However, there can be no assurance that
cash flow from operations and funds from existing credit facilities and
refinancing of existing indebtedness will be sufficient to meet the Company's
cash requirements on a consolidated basis. If the Company is unable to satisfy
such cash requirements, the Company could be required to adopt one or more
alternatives, such as reducing or delaying capital expenditures, restructuring
indebtedness, selling assets or operations, or seeking capital contributions or
loans from affiliates of the Company or issuing additional shares of capital
stock of Revlon, Inc. Revlon, Inc., as a holding company, is dependent on the
earnings and cash flow of, and dividends and distributions from, Products
Corporation to pay its expenses and to pay any cash dividends or distributions
on the Revlon Class A Common Stock that may be authorized by the Board of
Directors of Revlon, Inc. There can be no assurance that any of such actions
could be effected, that they would enable the Company to continue to satisfy
its capital requirements or that they would be permitted under the terms of the
Company's various debt instruments then in effect. The terms of the Credit
Agreement, the 1999 Notes and the Notes generally restrict Products Corporation
from paying dividends or making distributions,
14
REVLON, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
except that Products Corporation is permitted to pay dividends and make
distributions to Revlon, Inc., among other things, to enable Revlon, Inc. to
pay expenses incidental to being a public holding company, including, among
other things, professional fees such as legal and accounting, regulatory fees
such as Commission filing fees and other miscellaneous expenses related to
being a public holding company and to pay dividends or make distributions in
certain circumstances to finance the purchase by Revlon, Inc. of its Class A
Common Stock in connection with the delivery of such Class A Common Stock to
grantees under the Revlon, Inc. Amended and Restated 1996 Stock Plan, provided
that the aggregate amount of such dividends and distributions taken together
with any purchases of Revlon, Inc. common stock on the open market to satisfy
matching obligations under the excess savings plan may not exceed $6.0 per
annum.
FORWARD-LOOKING STATEMENTS
This quarterly report on Form 10-Q for the quarter ended June 30, 1998
as well as other public documents of the Company contain forward-looking
statements which involve risks and uncertainties. The Company's actual results
may differ materially from those discussed in such forward-looking statements.
Such statements include, without limitation, the Company's expectations and
estimates as to introduction of new products and expansion into markets, future
financial performance, including growth in net sales and earnings, and the
effect on sales of retail inventory balancing and reductions, the effect on
sales of economic conditions and competitive activities in the Far East, the
intent to dispose of CCI and the estimated loss on disposition of CCI, cash
flows from operations, information system upgrades, capital expenditures, the
availability of funds from currently available credit facilities and
refinancings of indebtedness (including the 1999 Notes), capital contributions
or loans from affiliates and the sale of assets, operations or additional
shares of Revlon, Inc. Readers are urged to consider that statements which use
the terms "believes," "does not believe," "no reason to believe," "expects,"
"plans," "intends," "estimates," "anticipated," "anticipates" and similar
expressions, as they relate to the Company or the Company's management, are
intended to identify forward-looking statements. Such statements reflect the
current views of the Company with respect to future events and are subject to
certain risks, uncertainties and assumptions. In addition to factors that may
be described in the Company's Commission filings, including this filing, the
following factors, among others, could cause the Company's actual results to
differ materially from those expressed in any forward-looking statements made
by the Company: (i) difficulties or delays in developing and introducing new
products or failure of customers to accept new product offerings; (ii) changes
in consumer preferences, including reduced consumer demand for the Company's
color cosmetics and other current products; (iii) difficulties or delays in the
Company's continued expansion into the self-select distribution channel and
into certain markets and development of new markets; (iv) unanticipated costs
or difficulties or delays in completing projects associated with the Company's
strategy to improve operating efficiencies, including information system
upgrades; (v) the inability to refinance indebtedness (including the 1999
Notes), secure capital contributions or loans from affiliates or sell assets,
operations or additional shares of Revlon, Inc.; (vi) effects of and changes in
economic conditions, including inflation and monetary conditions, and in trade,
monetary, fiscal and tax policies in countries outside of the U.S. in which the
Company operates, including Brazil and the effect of economic conditions and
competitive activities in the Far East; (vii) actions by competitors, including
business combinations, technological breakthroughs, new product offerings and
marketing and promotional successes; (viii) combinations among significant
customers or the loss, insolvency or failure to pay its debts by a significant
customer or customers; (ix) lower than expected sales as a result of retail
inventory balancing and reductions; and (x) difficulties, delays or
unanticipated costs or greater than expected losses in connection with the
disposition of CCI. The Company assumes no responsibility to update
forward-looking information contained herein.
15
REVLON, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
EFFECT OF NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. The effect of adopting
the statement and the date of such adoption by the Company has not yet been
determined.
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
The 1998 Annual Meeting of Stockholders was held on April 7, 1998.
Directors elected at the meeting were Ronald O. Perelman, Donald G. Drapkin,
Meyer Feldberg, George Fellows, William J. Fox, Howard Gittis, Morton L.
Janklow, Vernon E. Jordan, Henry A. Kissinger, Edward J. Landau, Jerry W.
Levin, Linda Gosden Robinson, Terry Semel and Martha Stewart, constituting the
entire Board of Directors. All of the directors were elected without
opposition. There were no broker nonvotes. The only other matter voted on was
the ratification of the appointment by the Board of Directors of KPMG Peat
Marwick LLP as the Company's independent certified public accountants for 1998.
The tabulation of votes for each matter is as follows:
1. Election of Directors:
Nominees for Director For Withheld Abstained
--------------------- --- -------- ---------
Ronald O. Perelman 330,826,006 13,218 ---
Donald G. Drapkin 330,828,141 11,083 ---
Meyer Feldberg 330,828,041 11,183 ---
George Fellows 330,828,041 11,183 ---
William J. Fox 330,828,070 11,154 ---
Howard Gittis 330,828,141 11,083 ---
Morton L. Janklow 330,828,041 11,183 ---
Vernon E. Jordan 330,823,898 15,326 ---
Henry A. Kissinger 330,827,537 11,687 ---
Edward J. Landau 330,827,424 11,800 ---
Jerry W. Levin 330,828,133 11,091 ---
Linda Gosden Robinson 330,828,041 11,183 ---
Terry Semel 330,828,099 11,125 ---
Martha Stewart 330,826,270 12,954 ---
2. Ratification of Independent Certified Public Accountants:
330,828,689 4,037 6,498
16
REVLON, INC. AND SUBSIDIARIES
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) EXHIBITS -
*10.28 Amendment, effective June 1, 1998, to the Employment Agreement dated as
of January 1, 1996 between Products Corporation and William J. Fox.
- --------------------
*Filed herewith.
(b) REPORTS ON FORM 8-K - NONE
S I G N A T U R E S
Pursuant to the requirements of the Securities Exchange Act of 1934,
as amended, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
REVLON, INC.
------------
Registrant
By: /s/ Frank J. Gehrmann By: /s/ Lawrence E. Kreider
------------------------------- -------------------------------
Frank J. Gehrmann Lawrence E. Kreider
Executive Vice President Senior Vice President, Controller
and Chief Financial Officer and Chief Accounting Officer
Dated: August 12, 1998
17
AMENDMENT TO
EMPLOYMENT AGREEMENT
AMENDMENT dated as of June 1, 1998 to Employment Agreement dated
January 1, 1996, between Revlon Consumer Products Corporation, a Delaware
corporation (the "Company") and William J. Fox (the "Executive").
WHEREAS, the parties entered into an Employment Agreement dated as of
January 1, 1996; and
WHEREAS, the parties wish to amend the Employment Agreement as
provided herein.
NOW THEREFORE, the parties agree as follows:
1. Section 1.1 is amended by deleting the last sentence thereof and
replacing it as follows:
"The Executive's titles shall be the titles held by him on the date of
this Amendment or such other title as may be agreed upon by the
Executive and the Company."
2. Section 2.2 is amended by deleting it in its entirety and replacing
it as follows:
"The term shall end on June 30, 2001."
3. Section 3.2 is hereby amended by deleting it in its entirety and
replacing it as follows:
"3.2. Bonus. In addition to the amounts to be paid to the Executive
pursuant to Section 3.1, the Executive shall receive an annual bonus, pro-rated
as appropriate, in an amount equal to $805,625."
4. Section 3.3 is hereby deleted in its entirety.
5. The Executive hereby waives all rights to the Revlon Executive
Severance Plan and to any other severance benefits under the Employment
Agreement.
6. The Company hereby agrees to waive, effective upon the Executive's
resignation or retirement from the Company, any requirement that the Executive
not be employed by a person or entity which is in a business which is
competitive with a business of the Company.
7. The parties agree that except as expressly amended hereby, the
Agreement as amended hereby shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
REVLON CONSUMER PRODUCTS CORPORATION
By:/s/ Wade H. Nichols
---------------------------------
Name:
Title: Executive Vice President
/s/ William J. Fox
------------------------------------
EXECUTIVE
2
5
1,000
6-MOS
DEC-31-1998
JAN-01-1998
JUN-30-1998
35,800
0
484,400
25,800
290,000
864,900
579,700
219,300
1,784,600
709,100
1,393,800
0
54,600
500
(609,100)
1,784,600
1,073,100
1,073,100
357,300
357,300
0
3,700
70,300
3,500
7,100
(3,600)
(31,500)
(51,700)
0
(86,800)
(1.70)
(1.70)
