SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM 10-Q
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 1996
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 33-99558
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 November 1, 1996, 19,875,000 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 Revlon Worldwide Corporation, an indirectly wholly owned subsidiary of
Mafco Holdings Inc.
Total Pages - 13
REVLON, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(dollars in millions, except per share data)
September 30, December 31,
ASSETS 1996 1995
--------------- ----------------
(Unaudited)
Current assets:
Cash and cash equivalents............................................. $ 21.2 $ 36.3
Trade receivables, less allowances of $26.6
and $23.7, respectively.......................................... 413.3 363.1
Inventories........................................................... 318.1 277.8
Prepaid expenses and other............................................ 80.0 62.4
--------------- ----------------
Total current assets............................................. 832.6 739.6
Property, plant and equipment, net.......................................... 374.2 367.1
Other assets................................................................ 141.3 142.9
Intangible assets related to businesses acquired, net....................... 284.1 285.7
--------------- ----------------
Total assets..................................................... $ 1,632.2 $ 1,535.3
=============== ================
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Short-term borrowings - third parties................................. $ 26.8 $ 22.7
Current portion of long-term debt - third parties..................... 9.2 9.2
Accounts payable...................................................... 128.4 151.6
Accrued expenses and other............................................ 338.5 370.6
--------------- ----------------
Total current liabilities........................................ 502.9 554.1
Long-term debt - third parties ............................................. 1,417.3 1,426.2
Long-term debt - affiliates................................................. 30.4 41.3
Other long-term liabilities................................................. 214.4 215.7
Stockholders' deficiency:
Preferred stock, par value $.01 per share, 20,000,000
shares authorized, 546 shares of Series A Preferred Stock
issued and outstanding........................................... 54.6 54.6
Class A Common Stock, par value $.01 per share; 350,000,000
shares authorized, 19,875,000 and 11,250,000 issued and
outstanding, respectively........................................ 0.2 0.1
Class B Common Stock, par value $.01 per share; 200,000,000
shares authorized, 31,250,000 issued and outstanding............. 0.3 0.3
Capital deficiency.................................................... (233.2) (416.8)
Accumulated deficit since June 24, 1992............................... (331.3) (318.2)
Adjustment for minimum pension liability.............................. (17.0) (17.0)
Currency translation adjustment....................................... (6.4) (5.0)
--------------- ----------------
Total stockholders' deficiency................................... (532.8) (702.0)
--------------- ----------------
Total liabilities and stockholders' deficiency................... $ 1,632.2 $ 1,535.3
=============== ================
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 Nine Months Ended
September 30, September 30,
------------------------------------- ---------------------------------
1996 1995 1996 1995
--------------- ---------------- -------------- -------------
Net sales......................................... $ 571.1 $ 514.5 $ 1,553.3 $ 1,379.3
Cost of sales..................................... 193.0 167.7 516.6 462.9
--------------- -------------- ------------- -------------
Gross profit................................ 378.1 346.8 1,036.7 916.4
Selling, general and administrative expenses...... 313.1 299.1 912.8 829.5
--------------- -------------- ------------- -------------
Operating income ........................... 65.0 47.7 123.9 86.9
--------------- -------------- ------------- -------------
Other expenses (income):
Interest expense............................ 34.0 35.5 100.0 106.0
Interest and net investment income.......... (0.3) (1.2) (2.3) (3.6)
Amortization of debt issuance costs......... 2.0 2.6 6.5 8.2
Foreign currency losses, net................ 1.9 4.0 5.7 2.2
Miscellaneous, net.......................... 0.5 (0.6) 1.8 (1.3)
--------------- -------------- ------------- -------------
Other expenses, net..................... 38.1 40.3 111.7 111.5
--------------- -------------- ------------- -------------
Income (loss) before income taxes................. 26.9 7.4 12.2 (24.6)
Provision for income taxes........................ 5.8 4.0 18.7 19.4
--------------- -------------- ------------- -------------
Income (loss) before extraordinary item.......... 21.1 3.4 (6.5) (44.0)
Extraordinary item - early extinguishment of debt. - - (6.6) -
--------------- -------------- ------------- -------------
Net income (loss)................................. $ 21.1 $ 3.4 $ (13.1) $ (44.0)
=============== ============== ============= =============
Income (loss) per common share:
Income (loss) before extraordinary item .... $ 0.41 $ 0.08 $ (0.13) $ (1.04)
Extraordinary item ......................... - - (0.14) -
--------------- -------------- ------------- -------------
Net income (loss) .......................... $ 0.41 $ 0.08 $ (0.27) $ (1.04)
=============== ============== ============= =============
Weighted average common shares outstanding.. 51,125,000 42,500,000 49,208,333 42,500,000
=============== ============== ============= =============
See Notes to Unaudited Consolidated Condensed Financial Statements.
3
REVLON, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(dollars in millions)
Nine Months Ended
September 30,
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES: 1996 1995
--------- ---------
Net loss ................................................................. $ (13.1) $ (44.0)
Adjustments to reconcile net loss to net cash (used for)
provided by operating activities:
Depreciation and amortization .................................... 66.7 63.8
Extraordinary item ............................................... 6.6 --
Gain on sale of business interests and certain
fixed assets .............................................. -- (2.2)
Change in assets and liabilities:
Increase in current receivables ........................... (53.9) (60.0)
Increase in inventories ................................... (42.5) (51.2)
Increase in prepaid expenses and other current assets ..... (14.6) (11.8)
Decrease in accounts payable .............................. (23.0) (14.8)
Decrease in accrued expenses and other current liabilities (35.5) (36.3)
Other, net ................................................ (38.5) (33.5)
--------- ---------
Net cash used for operating activities ................................... (147.8) (190.0)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ..................................................... (39.8) (33.6)
Proceeds from the sale of business interests and certain fixed assets .... -- 2.7
Acquisition of businesses, net of cash acquired .......................... (4.1) --
--------- ---------
Net cash used for investing activities ................................... (43.9) (30.9)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in short-term borrowings - third parties ......... 5.2 (0.1)
Proceeds from the issuance of long-term debt - third parties ............. 240.0 348.0
Repayment of long-term debt - third parties .............................. (245.1) (115.1)
Net proceeds from initial public offering ................................ 187.8 --
Proceeds from the issuance of debt - affiliates .......................... 93.0 120.0
Repayment of debt - affiliates ........................................... (93.0) (117.7)
Payment of debt issuance costs ........................................... (10.9) (15.2)
--------- ---------
Net cash provided by financing activities ................................ 177.0 219.9
--------- ---------
Effect of exchange rate changes on cash and cash equivalents ............. (0.4) 2.4
--------- ---------
Net (decrease) increase in cash and cash equivalents ............. (15.1) 1.4
Cash and cash equivalents at beginning of period ................. 36.3 35.4
--------- ---------
Cash and cash equivalents at end of period ....................... $ 21.2 $ 36.8
========= =========
Supplemental schedule of cash flow information:
Cash paid during the period for:
Interest .................................................. $ 111.1 $ 111.8
Income taxes, net of refunds .............................. 13.6 14.7
Supplemental schedule of noncash investing activities:
In connection with business acquisitions, liabilities were assumed
as follows:
Fair value of assets acquired ............................. $ 6.7
Cash paid ................................................. (4.2)
---------
Liabilites assumed ....................................... $ 2.5
=========
See Notes to Unaudited Consolidated Condensed Financial Statements.
4
REVLON, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
(1) BASIS OF PRESENTATION:
Revlon, Inc. (the "Company") is a holding company, formed in April
1992, that conducts its business exclusively through its direct subsidiary,
Revlon Consumer Products Corporation and its subsidiaries ("Products
Corporation"). The Company is an indirect subsidiary of MacAndrews & Forbes
Holdings Inc., a corporation wholly owned 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. Further, 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 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.
Certain amounts in the prior year financial statements have been
reclassified to conform with the current year's presentation.
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, for the nine months ended
September 30, 1996 and 1995, disbursements and commitments for advertising and
promotion exceeded advertising and promotion expenses by $25.5 and $14.4,
respectively, and such amounts were deferred.
(2) INVENTORIES
September 30, December 31,
1996 1995
--------------- ----------------
Raw materials and supplies...... $ 92.1 $ 84.8
Work-in-process................. 21.9 27.9
Finished goods.................. 204.1 165.1
--------------- ----------------
$ 318.1 $ 277.8
=============== ================
(3) INITIAL PUBLIC OFFERING
On March 5, 1996, the Company completed an initial public offering
(the "Offering") in which it issued and sold 8,625,000 shares of its Class A
Common Stock for $24.00 per share. The proceeds, net of underwriter's discount
and related fees and expenses, of $187.8 were used to repay borrowings
outstanding under the credit agreement in effect at that time (the "Former
Credit Agreement") and to pay fees and expenses related to the credit
agreement which became effective on March 5, 1996 (the "Credit Agreement").
5
REVLON, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
Contemporaneous with the Offering, each of the Company's then
outstanding shares of common stock was converted into approximately .1215 of a
share of the newly created Class A Common Stock (totaling 11,250,000 shares of
Class A Common Stock) and approximately .3376 of a share of the newly created
Class B Common Stock (totaling 31,250,000 shares of Class B Common Stock).
Prior periods have been restated to reflect this recapitalization.
(4) INCOME (LOSS) PER SHARE AND SUPPLEMENTAL FINANCIAL DATA
The income (loss) per share has been computed based upon the weighted
average of 42,500,000 shares of common stock outstanding prior to the Offering
and 51,125,000 shares of common stock outstanding after the Offering. The
effect of stock options has not been included as it is either immaterial or
anti-dilutive.
The following supplemental financial data give effect to 51,125,000
shares of common stock outstanding after the Offering and the application of
the net proceeds from the Offering to repay debt and reduce interest expense
by an estimated $2.6 as if such transactions had occurred at the beginning of
the period presented.
Nine Months Ended
September 30, 1996
---------------------
Supplemental financial data:
Loss before extraordinary item................. $ (3.9)
Loss before extraordinary item per share....... $ (0.08)
(5) EXTRAORDINARY ITEM
The extraordinary item in the first quarter of 1996 resulted from the
write-off of deferred financing costs associated with the extinguishment of
the Former Credit Agreement prior to maturity with the net proceeds from the
Offering and borrowings under the Credit Agreement.
(6) ACQUISITION
Effective January 1, 1996, Products Corporation acquired from Revlon
Holdings Inc. substantially all of the assets of the Tarlow Advertising
Division ("Tarlow") in consideration for the assumption of substantially all
of the liabilities and obligations of Tarlow and a promissory note in the
principal amount of $4.1 payable not later than November 30, 1996. Net
liabilities assumed were approximately $3.4. The assets acquired and
liabilities assumed were accounted for at historical cost in a manner similar
to that of a pooling of interests and, accordingly, all prior period financial
statements presented have been restated as if the acquisition took place at
the beginning of such periods. The $4.1 promissory note was accounted for as
an increase to capital deficiency. A nationally recognized investment banking
firm rendered its written opinion that the terms of the purchase are fair from
a financial standpoint to Products Corporation. The effect of this acquisition
was to increase operating income by $3.2 and $1.0 for the nine months ended
September 30, 1996 and 1995, respectively.
6
REVLON, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
OVERVIEW
The Company's products include an extensive array of glamorous,
exciting, innovative and quality products, consisting of cosmetics and skin
care, fragrance and personal care products, and professional products,
consisting of hair care products for use in and resale by professional salons.
In addition, the Company also operates retail outlet stores and has a
licensing division.
To reflect the integration of management reporting responsibilities
culminating in the third quarter of 1996, the Company determined to present
its business geographically as its United States operations, which comprise
the Company's business in the United States, and its International operations,
which comprise its business outside of the United States. The Company
previously presented its business as the Consumer Group, which comprised the
Company's consumer products operations throughout the world (except
principally Spain, Portugal and Italy) and professional products operations in
certain markets, principally in South Africa and Argentina, and the
Professional Group, which comprised the Company's professional products
operations throughout the world (except principally South Africa and
Argentina) and consumer products operations in Spain, Portugal and Italy. The
Company has restated the management's discussion and analysis data for prior
periods to conform to the presentation for 1996.
RESULTS OF OPERATIONS
The following table sets forth the Company's net sales by operation
for the three months and nine months ended September 30, 1996 and 1995,
respectively:
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -------------------
Net sales: 1996 1995 1996 1995
-------- -------- -------- --------
United States....... $ 344.7 $ 311.5 $ 897.7 $ 788.4
International....... 226.4 203.0 655.6 590.9
-------- -------- -------- --------
$ 571.1 $ 514.5 $1,553.3 $1,379.3
======== ======== ======== ========
The following sets forth certain statements of operations data as a
percentage of net sales for the three months and nine months ended September
30, 1996 and 1995, respectively:
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1996 1995 1996 1995
-------- -------- -------- -------
Cost of sales...................... 33.8% 32.6% 33.3% 33.6%
Gross profit....................... 66.2 67.4 66.7 66.4
Selling, general and administrative
expenses..................... 54.8 58.1 58.8 60.1
Operating income................... 11.4 9.3 8.0 6.3
Net sales
Net sales were $571.1 and $514.5 for the third quarter of 1996 and
1995, respectively, an increase of $56.6, or 11.0% and were $1,553.3 and
$1,379.3 for the nine months ended September 30, 1996 and 1995, respectively,
an increase of $174.0, or 12.6%, primarily as a result of successful new
product introductions worldwide, increased demand in the United States,
acquisitions of certain exclusive line professional product businesses,
increased distribution internationally into the expanding self-select
distribution channel and the further development of new international markets.
7
REVLON, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
United States. The United States operation's net sales increased to
$344.7 for the third quarter of 1996 from $311.5 for the third quarter of
1995, an increase of $33.2, or 10.7% and increased to $897.7 for the nine
months ended September 30, 1996 from $788.4 for the nine months ended
September 30, 1995, an increase of $109.3, or 13.9%. Net sales improved for
the third quarter and nine months ended September 30, 1996 primarily as a
result of continued consumer acceptance of new product offerings, general
improvement in consumer demand for the Company's color cosmetics in the United
States and acquisitions of certain exclusive line professional product
businesses, partially offset by overall softness in the fragrance industry and
lower sales of one of the Company's prestige brands. The Company improved the
dollar share of its Revlon branded cosmetics in the color cosmetics business
in the United States self-select distribution channel to 21.8% in the third
quarter of 1996 from 19.3% in the third quarter of 1995. New product
introductions (including, in 1996, certain products launched during 1995)
generated incremental net sales in the third quarter and nine months ended
September 30, 1996, principally as a result of launches of products in the
COLORSTAY collection, including COLORSTAY foundation, lip makeup, eye makeup
and COLORSTAY LASHCOLOR mascara, launches of products in the ALMAY AMAZING
collection, including lip makeup, eye makeup, face makeup and concealer, and
launches of CHERISH fragrance and MITCHUM CLEAR and ALMAY CLEAR COMPLEXION
line extensions.
International. The International operation's net sales increased to
$226.4 for the third quarter of 1996 from $203.0 for the third quarter of
1995, an increase of $23.4, or 11.5% and increased to $655.6 for the nine
months ended September 30, 1996 from $590.9 for the nine months ended
September 30, 1995, an increase of $64.7, or 10.9%. Net sales improved
principally as a result of successful new product introductions including, the
continued roll-out of the COLORSTAY cosmetics collection and AGE DEFYING
makeup, increased distribution into the expanding self-select distribution
channel, the further development of new international markets and fees
received for the grant of exclusive distribution rights to a small fragrance
brand outside the U.S. and Latin America, partially offset by the unfavorable
effect on sales of a stronger U.S. dollar against certain foreign currencies,
primarily the Japanese yen, South African rand and several European
currencies. The International operation's sales are divided into the following
geographic areas: Europe, which is comprised of Europe, the Middle East and
Africa (in which net sales increased to $98.0 for the third quarter of 1996
from $88.9 for the third quarter of 1995, an increase of $9.1, or 10.2%, and
increased to $292.7 for the nine months ended September 30, 1996 from $269.1
for the nine months ended September 30, 1995, an increase of $23.6, or 8.8%);
the Western Hemisphere, which is comprised of Canada, Mexico, Central America,
South America and Puerto Rico (in which net sales increased to $78.7 for the
third quarter of 1996 from $68.2 for the third quarter of 1995, an increase of
$10.5, or 15.4%, and increased to $220.1 for the nine months ended September
30, 1996 from $195.4 for the nine months ended September 30, 1995, an increase
of $24.7, or 12.6%); and the Far East (in which net sales increased to $49.7
for the third quarter of 1996 from $45.9 for the third quarter of 1995, an
increase of $3.8, or 8.3%, and increased to $142.8 for the nine months ended
September 30, 1996 from $126.4 for the nine months ended September 30, 1995,
an increase of $16.4, or 13.0%).
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, operating income and income before taxes were $31.9, $6.0 and $4.6,
respectively, for the third quarter of 1996 compared to $27.6, $6.4 and $5.3,
respectively, for the third quarter of 1995 and were $96.7, $19.7 and $15.9,
respectively, for the nine months ended September 30, 1996 compared to $86.0,
$16.4 and $13.4, respectively, for the nine months ended September 30, 1995.
In Mexico, net sales in the third quarter and nine months ended September 30,
1996 and 1995 were adversely affected by the December 1994 devaluation of the
Mexican peso and related economic weakness. In Venezuela, net sales and income
before taxes in the third quarter and nine months ended September 30, 1996 and
1995 were adversely affected by high inflation and in the 1996 periods by a
currency devaluation.
Cost of sales
As a percentage of net sales, cost of sales was 33.8% for the third
quarter of 1996 and 33.3% for the nine months ended September 30, 1996,
compared to 32.6% and 33.6% for the third quarter and nine months ended
8
REVLON, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
September 30, 1995, respectively. The improvement for the nine months ended
September 30, 1996 resulted principally from the benefits of relatively fixed
overhead absorption against higher production volumes and more efficient
global production and purchasing. This improvement was partially offset by,
and the slight increase in cost of sales as a percentage of net sales for the
third quarter of 1996 was due to, changes in product mix involving an increase
in sales of lower margin products in the third quarter and nine months ended
September 30, 1996 compared with the corresponding 1995 periods. The changes
in product mix were partially attributable to certain exclusive line
professional product businesses acquired subsequent to the third quarter of
1995. Additionally, cost of sales was adversely affected by a weaker local
currency on cost of imported purchases in certain markets.
Selling, general and administrative expenses
As a percentage of net sales, SG&A expenses were 54.8% for the third
quarter of 1996, an improvement from 58.1% for the third quarter of 1995, and
58.8% for the nine months ended September 30, 1996, an improvement from 60.1%
for the nine months ended September 30, 1995. SG&A expenses other than
advertising expense, as a percentage of net sales, was 37.9% for the third
quarter of 1996 compared with 40.9% for the third quarter of 1995 and improved
to 42.4% for the nine months ended September 30, 1996 compared with 45.2% for
the nine months ended September 30, 1995 primarily as a result of reduced
general and administrative expenses and improved productivity in the third
quarter and nine months ended September 30, 1996 compared with the
corresponding 1995 periods. In accordance with its business strategy, the
Company increased advertising and consumer directed promotion during the third
quarter and nine months ended September 30, 1996 compared with the
corresponding 1995 periods to support growth in existing product lines, new
product launches and increased distribution in the self-select distribution
channel in many of the Company's markets in the International operation.
Advertising expense increased by 8.5% to $96.6, or 16.9% of net sales, for the
third quarter of 1996 compared to $89.0, or 17.3% of net sales, for the third
quarter of 1995 and increased by 23.0% to $253.4, or 16.3% of net sales, for
the nine months ended September 30, 1996 from $206.1, or 14.9% of net sales,
for the nine months ended September 30, 1995.
Operating income
As a result of the foregoing, operating income increased by $17.3, or
36.3%, to $65.0 for the third quarter of 1996 from $47.7 for the third quarter
of 1995 and increased by $37.0, or 42.6%, to $123.9 for the nine months ended
September 30, 1996 from $86.9 for the nine months ended September 30, 1995.
Other expenses/income
Interest expense was $34.0 for the third quarter of 1996 compared to
$35.5 for the third quarter of 1995 and $100.0 for the nine months ended
September 30, 1996 compared to $106.0 for the nine months ended September 30,
1995. The reduction in interest expense is attributable to lower average
outstanding borrowings under the Credit Agreement and under the Former Credit
Agreement and lower interest rates under the Credit Agreement than under the
Former Credit Agreement.
Foreign currency losses, net, were $1.9 for the third quarter of 1996
compared to $4.0 for the third quarter of 1995 and $5.7 for the nine months
ended September 30, 1996 compared to $2.2 for the nine months ended September
30, 1995. The reduction in the foreign currency loss in the third quarter of
1996 as compared to the third quarter of 1995 was primarily due to the
Company's reduced exposure against the Japanese yen. The increase in the
foreign currency loss for the nine months ended September 30, 1996 as compared
to the corresponding 1995 period was due primarily to the currency devaluation
in Venezuela and strengthening of the U.S. dollar against the Spanish peseta
and several European currencies, partially offset by lower foreign currency
losses in Mexico.
9
REVLON, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
Provision for income taxes
The provision for income taxes was $5.8 and $4.0 for the third
quarter of 1996 and 1995, respectively, and $18.7 and $19.4 for the nine
months ended September 30, 1996 and 1995, respectively. The increase in the
third quarter of 1996 as compared to the third quarter of 1995 is due
primarily to higher taxable earnings of certain foreign operations. The
decrease for the nine months ended September 30, 1996 as compared to the
corresponding 1995 period is primarily attributable to the utilization of net
operating loss carryforwards in certain foreign operations and a lower
statutory tax rate in Brazil, partially offset by higher taxable earnings of
certain foreign operations.
Extraordinary item
The extraordinary item in the first quarter of 1996 resulted from the
write-off of deferred financing costs associated with the extinguishment of
the Former Credit Agreement prior to maturity with the net proceeds from the
Offering and borrowings under the Credit Agreement.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Net cash used for operating activities was $147.8 and $190.0 for the
nine months ended September 30, 1996 and 1995, respectively. The decrease in
net cash used for operating activities for the nine months ended September 30,
1996 compared with the nine months ended September 30, 1995 resulted primarily
from higher operating income, lower restructuring payments ($9.5 for the nine
months ended September 30, 1996 compared with $20.6 for the nine months ended
September 30, 1995) and the management of working capital levels relative to
business growth.
Net cash used for investing activities was $43.9 and $30.9 for the
nine months ended September 30, 1996 and 1995, respectively, and in the 1996
period consisted of capital expenditures and acquisitions of exclusive line
professional product businesses. The increase in capital expenditures was
primarily attributable to significant information system enhancements.
Net cash provided by financing activities was $177.0 and $219.9 for
the nine months ended September 30, 1996 and 1995, respectively. Net cash
provided by financing activities for the nine months ended September 30, 1996
included the net proceeds from the Offering, cash drawn under the Former
Credit Agreement and under the Credit Agreement, partially offset by the
repayment of borrowings under the Former Credit Agreement, the payment of fees
and expenses related to the Credit Agreement and repayment of approximately
$5.2 under the Yen Credit Agreement. Net cash provided by financing activities
for the nine months ended September 30, 1995 consisted primarily of borrowings
under the credit agreement of Products Corporation in effect at that time and
borrowings under the Former Credit Agreement, partially offset by repayments
of cash drawn under those credit agreements, repayment of $26.9 under the Yen
Credit Agreement and payment of debt issuance costs under the Former Credit
Agreement.
In February 1995, Products Corporation entered into the Former Credit
Agreement, which provided up to $500.0 comprised of three senior secured
facilities: a $100.0 term loan facility, a $225.0 revolving credit facility
and a $175.0 multi currency facility. Borrowings under the Former Credit
Agreement were used to refinance Products Corporation's previous $150.0 credit
agreement, refinance then existing lines of credit outside of the United
States and refinance approximately $26.9 paid under the Yen Credit Agreement
in January 1995. The Former Credit Agreement was scheduled to terminate on
June 30, 1997. The net proceeds of $187.8 from the Offering were contributed
to Products Corporation and were used to repay borrowings under the Former
Credit Agreement and to pay fees and expenses related to the Credit Agreement.
10
REVLON, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
In January 1996, Products Corporation entered into the Credit
Agreement, which became effective upon consummation of the Offering on March
5, 1996. The Credit Agreement provides, among other things, (i) an extension
of the term of the facilities from June 30, 1997 to December 31, 2000, subject
to earlier termination in certain circumstances, (ii) a reduction of the
interest rates, (iii) an increase in the aggregate amount of the credit
facilities from $500 to $600 and (iv) the release of security interests in
assets of certain foreign subsidiaries of Products Corporation which were then
pledged. The Credit Agreement is comprised of four senior secured facilities:
a $130.0 term loan facility, a $220.0 multi currency facility, a $200.0
revolving acquisition facility and a $50.0 standby letter of credit facility.
As of September 30, 1996, Products Corporation had approximately $130.0
outstanding under the term loan facility, $150.7 outstanding under the multi
currency facility, nothing outstanding under the revolving acquisition
facility and $33.5 outstanding under the standby letter of credit facility.
A subsidiary of Products Corporation is the borrower under the Yen
Credit Agreement, which had a principal balance of approximately [yen]4.8
billion as of September 30, 1996 (approximately $43.8 U.S. dollar equivalent
as of September 30, 1996). In accordance with the terms of the Yen Credit
Agreement, approximately [yen]2.7 billion (approximately $26.9 U.S. dollar
equivalent) was paid in January 1995 and approximately [yen]539 million
(approximately $5.2 U.S. dollar equivalent) was paid in January 1996. A
payment of approximately [yen]539 million (approximately $4.9 U.S. dollar
equivalent as of September 30, 1996) is due in January 1997 and the balance of
the Yen Credit Agreement of approximately [yen]4.3 billion (approximately
$38.9 U.S. dollar equivalent as of September 30, 1996) is due on December 31,
1997.
The $70.0 aggregate principal amount of Products Corporation's
10 7/8% Sinking Fund Debentures due 2010 previously purchased on the open
market and no longer outstanding will be used to meet future sinking fund
requirements of such issue. $9.0 of such principal amount was used for the
sinking fund payment due July 15, 1996.
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 September 30, 1996.
In June 1996, $10.9 in notes due to Products Corporation under the
Financing Reimbursement Agreement from Revlon Holdings Inc. was offset against
the $11.7 demand note payable by Products Corporation to Revlon Holdings Inc.
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 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.
The Company estimates that capital expenditures for 1996 will be
approximately $60, including approximately $12 for upgrades to the Company's
management information systems. In addition, cash payments related to the 1991
and 1992 restructuring charges are estimated to be approximately $15 for 1996.
Pursuant to a tax sharing agreement, the Company may be required to make tax
sharing payments to Mafco Holdings Inc. as if the Company were filing separate
income tax returns, except that no payments are required by the Company if and
to the extent that Products Corporation is prohibited under the Credit
Agreement from making tax sharing payments to the Company. The Credit
Agreement prohibits Products Corporation from making any cash tax sharing
payments other than in respect of state and local income taxes. The Company
anticipates that, as a result of net operating tax losses and prohibitions
under the Credit Agreement, no federal tax payments or payments in lieu of
taxes pursuant to the tax sharing agreement will be required for 1996.
As of September 30, 1996, Products Corporation was party to a series
of interest rate swap agreements (which expire at various dates through
December 2001) totaling a notional amount of $225.0 in which Products
11
REVLON, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
Corporation agreed to pay on such notional amount a variable interest rate
equal to the six month London Inter-Bank Offered Rate (5.625% per annum at
October 22, 1996) 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 $125.0 notional
amount through December 2001) to convert the interest rate on $225.0 of
fixed-rate indebtedness to a variable rate. If Products Corporation had
terminated these agreements, which Products Corporation considers to be held
for other than trading purposes, on September 30, 1996, a loss of
approximately $7.2 would have been realized. Certain other swap agreements
were terminated in 1993 for a gain of $14.0. The amortization of the realized
gain on these agreements for the nine months ended September 30, 1996 and full
year 1995 was approximately $2.4 and $3.2, respectively. The remaining
unamortized gain, which is being amortized over the original lives of the
agreements, is $3.9 as of September 30, 1996. Although cash flow from the
presently outstanding agreements was positive for the nine months ended
September 30, 1996, future positive or negative cash flows from these
agreements will depend upon the trend of short-term interest rates during the
remaining lives of such agreements. Based on current interest rate levels,
Products Corporation expects to have a positive cash flow of $0.5 from these
agreements in 1996. In the event of nonperformance by the counterparties at
any time during the remaining lives of the agreements, Products Corporation
could lose some or all of any possible future positive cash flows from these
agreements. However, Products Corporation does not anticipate nonperformance
by such counterparties, although no assurances can be given.
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. 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, seeking capital contributions or loans from affiliates of the
Company or issuing additional shares of capital stock of the Company. The
Company, as a holding company, will be dependent on the earnings and cash flow
of, and dividends and distributions from, Products Corporation to pay its
expenses and to pay any cash dividends or distributions on the Class A Common
Stock that may be authorized by the Board of Directors of the Company. The
terms of the Credit Agreement, the Senior Subordinated Notes, the 1999 Senior
Notes and the Senior Notes generally restrict Products Corporation from paying
dividends or making distributions, except that Products Corporation is
permitted to pay dividends and make distributions to the Company, among other
things, to enable the Company 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 up to $5.0 per annum in certain circumstances
to finance the purchase by the Company of its Class A Common Stock in
connection with the delivery of such Class A Common Stock to grantees under
the Revlon, Inc. 1996 Stock Plan. 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.
FORWARD-LOOKING STATEMENTS
This quarterly report on Form 10-Q for the quarter ended September
30, 1996 as well as other public documents of the Company may 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 expectation and estimates as to future financial performance,
including growth in net sales and earnings, cash flows from operations,
capital expenditures and the availability of funds from refinancings of
indebtedness. 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
12
REVLON, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
cosmetics and other current products; (iii) difficulties or delays in
the Company's continued expansion into the self-select distribution channel
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)
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;
(vi) actions by competitors, including business combinations, technological
breakthroughs, new product offerings and marketing and promotional successes;
and (vii) combinations among significant customers or the loss, insolvency or
failure to pay its debts by a significant customer or customers. In addition
to statements which explicitly describe such risks and uncertainties, readers
are urged to consider statements which use the terms "believes," "expects,"
"plans," "anticipated" or "anticipates" to be uncertain and forward-looking.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
Exhibit No.
10.8 Second Amended and Restated Operating Services Agreement, by and among
Revlon Holdings Inc., Revlon, Inc. and Revlon Consumer Products Corporation,
effective as of January 1, 1996.
(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,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
REVLON, INC.
------------
Registrant
By:/s/William J. Fox By:/s/Lawrence E. Kreider
------------------------------- -------------------------------
William J. Fox Lawrence E. Kreider
Executive Vice President Senior Vice President, Controller
and Chief Financial Officer and Chief Accounting Officer
Dated: November 6, 1996
13
Exhibit 10.8
- -------------------------------------------------------------------------------
SECOND AMENDED AND RESTATED
OPERATING SERVICES AGREEMENT
by and among
REVLON HOLDINGS INC.,
REVLON, INC.
and
REVLON CONSUMER PRODUCTS CORPORATION
June 24, 1992
(Amended and Restated as of January 1, 1996)
- ----------------------------------------------------------------------------
SECOND AMENDED AND RESTATED
OPERATING SERVICES AGREEMENT
OPERATING SERVICES AGREEMENT dated as of June 24, 1992, as
amended as of January 1, 1993, amended and restated as of September 1, 1993,
amended as of January 1, 1994 and amended and restated as of January 1, 1996
(this "Agreement"), by and among Revlon Holdings Inc., a Delaware corporation
("Holdings"), Revlon, Inc., a Delaware corporation and a wholly owned
subsidiary of Holdings ("Public Co."), and Revlon Consumer Products
Corporation, a Delaware corporation and a wholly owned subsidiary of Public
Co. ("Operating Co.").
W I T N E S S E T H:
WHEREAS, pursuant to an Asset Transfer Agreement, dated June
24, 1992 (the "Transfer Agreement"), by and among Holdings, National Health
Care Group, Inc., a Delaware corporation and a wholly owned subsidiary of
Holdings, Charles of the Ritz Group Ltd., a Delaware corporation and a wholly
owned subsidiary of Holdings, Public Co. and Operating Co., Public Co. has
acquired from Holdings and Operating Co. has acquired from Public Co., among
other things, the Contributed Assets (as defined in the Transfer Agreement,
capitalized terms used and not defined herein shall have the meanings ascribed
to them in the Transfer Agreement); and
WHEREAS, Holdings owns certain assets relating to the
Charles of the Ritz, Visage Beaute, Bill Blass, Ellen Tracy, Norell, Alexandra
de Markoff, Guess and New Essentials businesses (such brands and any brands
hereinafter transferred from Operating Co. to Holdings, in each case, to the
extent retained by Holdings (and not sold, licensed, sublicensed or otherwise
disposed of to Operating Co. or any third party) are collectively referred to
herein as the "Retained Brands").
WHEREAS, in connection with and as part of the Transfer
Agreement, Operating Co. is willing to perform, or cause its subsidiaries to
perform, for Holdings or subsidiaries of Holdings those services for the
Retained Brands as set forth herein, for the consideration and upon and
subject to the other terms and conditions hereinafter set forth.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
SERVICES
Section 1.1 Services. Operating Co. hereby agrees to
provide, or cause its subcontractors, subsidiaries or subsidiaries'
subcontractors to provide, such services (the "Services"), including but not
limited to manufacturing, warehousing, invoicing, collection (taking into
account adjustments for returns, allowances and related items), accounting,
management information services, research and development, advertising, sales,
promotional, marketing, management, licensing, tax, treasury (including making
payments on Holdings' behalf), legal and distribution services, for the
Retained Brands as had been provided by Holdings, or subsidiaries of Holdings,
for the Retained Brands prior to the date hereof or as are reasonably
necessary or desirable in order to operate the Retained Brands.
Section 1.2 Retained Brands Inventory. (a) At such time as a
third party shall order inventory transferred to Operating Co. pursuant to the
Transfer Agreement which relates to the Retained Brands (other than New
Essentials), Operating Co. shall sell to Holdings, and Holdings shall purchase
from Operating Co., such inventory at a price equal to the value of such
inventory as reflected on the books of Operating Co. Such sale to a third
party shall be satisfied using such inventory.
(b) At such time as any raw materials, packaging,
bulks and componentry ("basic inventory") transferred to Operating Co.
pursuant to the Transfer Agreement which is exclusively related to the
Retained Brands is converted into finished goods inventory of the Retained
Brands, Operating Co. shall sell to Holdings, and Holdings shall purchase from
Operating Co., such inventory at a price equal to the cost of goods of such
inventory, as reflected on the books of Operating Co. Sales to third parties
of such inventory shall be for the account of Holdings.
Section 1.3 Manufactured Goods. At such time as any finished
goods inventory of the Retained Brands is manufactured by Operating Co.
pursuant to this Agreement, Operating Co. shall sell to Holdings, and Holdings
shall purchase from Operating Co., such inventory at a price equal to the cost
of goods of such inventory, as reflected on the books of Operating Co.
ARTICLE II
PAYMENT FOR SERVICES
Section 2.1 Payment for Services. Holdings shall pay
Operating Co. a fee in cash (the "Service Fee") for the Services provided
hereunder which shall be equal to (i) all of Operating Co.'s (and its
subsidiaries') and Public Co.'s direct and indirect costs (including an
allocable portion of corporate overhead) in connection with providing the
Services, all as allocated by Operating Co., and (ii) a fee equal to five
percent of the net sales (determined on a basis consistent with Operating
Co.'s published financial statements) of the products of the Retained Brands
(other than sales of products of the Retained Brands by Operating Co. to
Holdings pursuant to Section 1.2 hereof).
Section 2.2 Payment of Charges. Operating Co. shall provide
a schedule to Holdings on or before the 30th day following each calendar month
calculating the Service Fee
2
and the payments due pursuant to Section 1.2 hereof, annexing schedules in
reasonable detail itemizing the charges so scheduled and the calculations
thereof. Payment (net of Holdings' accounts receivables collected by Operating
Co. on behalf of Holdings which shall be applied by Operating Co. for payments
due Operating Co. hereunder) shall be due on or before the 45th day following
each calendar quarter.
ARTICLE III
TERM
Section 3.1 Termination. (a) Subject to Section 6.3 hereof,
each of Holdings or Public Co. may terminate this Agreement effective at the
end of any calendar month upon 90-days written notice provided, however, that
Public Co. may not terminate this Agreement with respect to any Rights owed to
a third party arising out of, related to or due to ("related to") the Retained
Brands existing on the date hereof or entered into with the consent of Public
Co. or Operating Co. for so long as such Rights remain in effect.
(b) Upon the termination of this agreement in
accordance with its terms, Operating Co. shall sell to Holdings, and Holdings
shall purchase from Operating Co., any finished goods or basic inventory
related to the Retained Brands (other than New Essentials) at a price equal to
the value of such inventory, as reflected on the books of Operating Co.
ARTICLE IV
INDEMNIFICATION
Section 4.1 Indemnification. (a) Holdings shall indemnify
and hold harmless Public Co., Operating Co., their respective subsidiaries and
their respective directors, officers, employees, representatives and agents
(collectively, the "Public Co. Indemnified Parties") from and against any and
all Losses of any kind whatsoever that may be incurred by, imposed upon or
asserted or awarded against a Public Co. Indemnified Party related to Public
Co.'s, Operating Co.'s or Operating Co.'s subsidiaries performance of the
Services, except to the extent the same are related to a Public Co.
Indemnified Party's gross negligence or willful misconduct.
(b) Public Co. and Operating Co. shall jointly and
severally indemnify and hold harmless Holdings, its subsidiaries and
affiliates (other than Public Co. and its subsidiaries) and their respective
directors, officers, employees, representatives and agents (collectively, the
"Holdings Indemnified Parties") from and against any and all Losses of any
kind whatsoever that may be incurred by, imposed upon or asserted or awarded
against a Holdings Indemnified Party to the extent related to the gross
negligence or willful misconduct of Public Co.'s or Operating Co.'s
performance of the Services.
3
(c) Notwithstanding anything in subsection (a) or
(b) to the contrary, Public Co. and Operating Co. shall jointly and severally
indemnify and hold harmless a Holdings Indemnified Party for all Losses on
account of pollution or the violation of any environmental law, regulations,
rules or orders of any federal, state, local or foreign government to the
extent directly related to the provision of the Services hereunder, other than
Losses attributable to the period prior to the date hereof.
Section 4.2 Insurance. The amount of any claim by a party
entitled to indemnification under this Agreement (an "Indemnitee") shall be
reduced by any insurance or other benefits which the Indemnitee receives in
respect of such Loss. If any Loss for which indemnification has been provided
is subsequently reduced by any reimbursement from insurance coverage or other
sources, the amount of such reduction shall be remitted to the indemnifying
party. The Indemnitee shall use its reasonable efforts to obtain such benefit
or reimbursement.
ARTICLE V
ADDITIONAL COVENANTS
Section 5.1 Confidentiality. Holdings and Public Co. and
Operating Co. acknowledge that in connection with the performance of Services
hereunder, each of (i) Holdings and (ii) Public Co. and Operating Co., as the
case may be, will gain access to highly confidential and proprietary
information regarding the other and its financial and business affairs, and
each of (i) Holdings and (ii) Public Co. and Operating Co., as the case may
be, hereby agrees to keep such information confidential and further agrees not
to disclose such information to a third party (other than for the purposes of
this Agreement and the transactions contemplated hereby), without the prior
written consent of the other party except (i) as required by law or the rules
of any stock exchange on which any of its securities are listed, (ii) in
respect of information to the extent publicly available through no fault or
breach hereof by either Holdings or Public Co. or Operating Co., as the case
may be, (iii) in respect of information obtained from a third party not, to
the knowledge of the party obtaining such information, under any obligation to
either Holdings or Public Co. or Operating Co., as the case may be, or (iv) in
respect of disclosure made in connection with the $500,000,000 Credit
Agreement dated as of June 24, 1992 by and among Operating Co., the lenders
parties thereto, The Chase Manhattan Bank, N.A., Chemical Bank and Citibank,
N.A., as Managing Agents, and Chemical Bank, as Administrative Agent or any
amendment thereto or credit agreement resulting from the refinancing thereof
or any successor credit agreement.
Section 5.2 Limited License. (a) Holdings hereby grants to
Operating Co. (and its subsidiaries) during the term of this Agreement a
non-exclusive royalty-free license to those trademarks, patents and other
intellectual property rights owned by or licensed to Holdings on the date
hereof that are Excluded Assets under the Transfer Agreement, other than any
intellectual property rights which are the subject of the Sublicensing
Agreements, or that come into existence during the
4
term of this Agreement, and that would have been Excluded Assets had they
been in existence on the date hereof used in the manufacturing, marketing,
advertising, promotion, distribution or sale of, or research and development
in connection with, the Retained Brands (the "Holdings Intellectual Property")
subject to and on the condition that Operating Co. at all times adhere to the
methods, formulas, specifications and other quality standards of Holdings in
effect from time to time in order that the products and services identified by
the Retained Brands shall be of a standard and quality satisfactory to
Holdings.
(b) Operating Co. acknowledges the ownership (or
license rights, as the case may be) of the Holdings Intellectual Property in
Holdings and agrees that Operating Co. shall obtain no right of ownership or
any other right whatsoever over and in relation to the Holdings Intellectual
Property through any right herein permitted, and that all use of the Holdings
Intellectual Property shall inure to the benefit of Holdings. Operating Co.
agrees not to use the Holdings Intellectual Property after the termination of
this Agreement.
(c) Operating Co. hereby grants to Holdings during
the term of this Agreement a non-exclusive royalty-free license to continue to
use those trademarks, patents and other intellectual property owned by
Operating Co. on the date hereof that are Contributed Assets under the
Transfer Agreement used in the manufacture, marketing, advertising, promotion,
distribution or sale of, or research and development in connection with, the
Retained Brands (the "Operating Co. Intellectual Property") subject to and on
the condition that Holdings at all times adheres to the methods, formulas,
specifications and other quality standards of Operating Co. in effect from
time to time in order that the products and services identified by the
Retained Brands shall be of a standard and quality satisfactory to Operating
Co.
(d) Holdings acknowledges the ownership of the
Operating Co. Intellectual Property in Operating Co. and agrees that Holdings
shall obtain no right of ownership or any other right whatsoever over and in
relation to the Operating Co. Intellectual Property through any right herein
permitted, and that all use of the Operating Co. Intellectual Property shall
inure to the benefit of Operating Co. Holdings agrees not to use the Operating
Co. Intellectual Property after the termination of this Agreement.
Section 5.3 Force Majeure. (a) If performance by Operating
Co. of any of the Services is prevented or delayed by strikes, walkouts,
fires, embargoes, war or other outbreak of hostilities, acts of federal,
state, municipal or other government agencies, delays of carriers or
suppliers, public emergency, act of God, or any other cause (including the
foregoing) which is beyond Operating Co.'s reasonable control (each, a "Force
Majeure Event"), such delay or failure to perform shall not be deemed a breach
of this Agreement but any such duty or obligation, the performance or
satisfaction of which has been delayed thereby, shall remain in force and
shall be performed or satisfied pursuant to this Agreement as soon as said
performance or satisfaction becomes legally and commercially practicable. In
the event of such a failure or delay, Operating
5
Co. shall provide its full cooperation to Holdings to secure another party or
parties to provide the Services.
(b) Holdings shall have the right to terminate the
Services on five days written notice if a material interruption of the
provision of such Service is continuous for a period of 30 days unless such
interruption is cured prior to the end of the notice period.
ARTICLE VI
RIGHT OF FIRST REFUSAL
Section 6.1 Grant of Right of First Refusal. (a) If Holdings
receives a bona fide offer (the "Offer"), from an individual or entity other
than Public Co. or Operating Co. (a "Third Party") which Holdings desires to
accept, to purchase or otherwise acquire all or any part of the Retained
Brands, Holdings shall within 48 hours after it determines that it desires to
accept such Offer submit to Public Co. and Operating Co. a notice of such
Offer (the "Offer Notice") together with a complete copy of the contract,
letter of intent, term sheet, agreement in principle or similar document in
respect of such Offer if such has been submitted to Holdings or, if such has
not been submitted to Holdings, a reasonably detailed description of the terms
of such Offer, including, but not limited to, the name of the proposed
purchaser, the price and consideration offered, the duration of the Offer and
any other material terms and conditions of the Offer.
(b) Either of Public Co. or Operating Co. shall
have the right (the "Purchase Right") at any time during the 90-day period
(the "Exercise Period") commencing on the date of Public Co.'s and Operating
Co.'s receipt of the Offer Notice to notify Holdings that it intends to
purchase the Retained Brands on terms substantially the same as those
specified in the Offer Notice by delivering to Holdings a written notice (the
"Exercise Notice") to that effect prior to the expiration of the Exercise
Period. The Exercise Notice shall also specify a closing date (the "Closing
Date") which shall not be later than the later of (i) the closing date
specified in the Offer or (ii) 30 days after the date of the Exercise Notice.
(c) If the consideration proposed to be paid by
such Third Party consists of non-cash consideration, Public Co. or Operating
Co. may, at its election, pay the fair market value of such non-cash
consideration (or any part thereof) in cash. The fair market value of such
non-cash consideration shall be determined in good faith by Holdings and
Public Co. or Operating Co.
(d) The closing associated with the sale of all or
a portion of the Retained Brands (the "Closing") shall occur on the Closing
Date and at a place and at a time mutually agreed upon by Holdings and Public
Co.
(e) If Public Co. or Operating Co. fails to deliver
an Exercise Notice during the Exercise Period or the Closing shall not occur
by the Closing Date, Holdings shall be free to sell such portion of the
Retained Brands to the Third Party on terms no less favorable to Holdings
6
as those specified in the Offer Notice for a period of 180 days after the
earlier to occur of (i) the expiration of the Exercise Period and (ii) the
date Public Co. or Operating Co. declines to exercise its Purchase Right,
provided Holdings shall give Public Co. and Operating Co. notice of such sale
at least ten days prior to the closing therefor together with a copy of each
definitive agreement relating thereto. If the sale or transfer of the Retained
Brands is not so consummated within such period or if any of the terms or
conditions of the proposed sale or transfer are modified in any manner
materially adverse to Holdings, Holdings shall not have the right to sell,
dispose of or otherwise transfer such portion of the Retained Brands unless
and until it re-offers Public Co. and Operating Co. the Purchase Right
pursuant to the terms of this Article VI. Thereafter, Public Co. shall have
the rights set forth in this Section 6.1 with respect to such renewed or
modified offer as if the same were an original Offer as described above.
(f) If the terms of an Offer are at any time
modified, amended or supplemented in any material respect, Holdings shall
promptly furnish Public Co. with a copy of such modification, amendment or
supplement.
Section 6.7 Notice of Intention to Sell the Retained Brands.
If at any time Holdings desires to actively seek offers to purchase all or a
portion of the Retained Brands, Holdings shall promptly give Public Co. and
Operating Co. a written notice to that effect and shall thereupon make
available to Public Co. and Operating Co. for immediate inspection the
Retained Brands and other relevant data with respect to the Retained Brands.
Holdings shall provide to Public Co. and Operating Co. all written
presentations made available to Third Parties in connection with a prospective
sale of the Retained Brands.
Section 6.8 Termination. (a) If, in accordance with the
terms of this Article VI, Public Co. and Operating Co. elect not to exercise a
Purchase Right with respect to all or a portion of the Retained Brands and
Holdings transfers the Retained Brands to a Third Party in accordance with the
terms of the Offer, Public Co.'s and Operating Co.'s Purchase Right with
respect to the Retained Brands so transferred shall terminate upon the
transfer of the Retained Brands to such Third Party. Notwithstanding the
foregoing, no failure of Public Co. to exercise its Purchase Right as to any
portion of the Retained Brands shall be deemed a waiver or limitation of any
rights of Public Co. as to any other portion of the Retained Brands.
(b) Upon any transfer of all or a portion of the
Retained Brands to a Third Party, this Agreement shall terminate with respect
to the Retained Brands so transferred.
ARTICLE VII
MISCELLANEOUS
Section 7.1 Amendment and Modification; Waiver. This
Agreement may be amended, modified or supplemented only by written agreement
of the parties hereto. The failure of
7
any of the parties hereto to comply with any obligation, covenant, agreement
or condition herein may be waived by the party entitled to the benefit thereof
only by a written instrument signed by the party granting such waiver, but
such waiver or failure to insist upon strict compliance with such obligation,
covenant, agreement or condition shall not operate as a waiver of, or estoppel
with respect to, any subsequent or other failure.
Section 7.2 Successors and Assigns; Parties in Interest;
Assignment. This Agreement shall be binding upon and inure solely to the
benefit of the parties hereto and their respective permitted successors and
assigns, and nothing in this Agreement, express or implied, is intended to or
shall confer upon any other person or persons any rights, benefits or remedies
of any nature whatsoever under or by reason of this Agreement. Neither this
Agreement nor any of the rights, interests or obligations hereunder shall be
assigned by any of the parties hereto without the prior written consent of the
other parties hereto, except that Public Co. or Operating Co. may transfer or
assign, in whole or from time to time in part, to one or more of their
respective affiliates, any or all of its rights and obligations hereunder, and
Public Co. or Operating Co. may assign its obligations hereunder with respect
to any Service to an entity which acquires the facility at which such Service
is performed, provided that such acquirer agrees to assume and perform the
same, but no such transfer or assignment to an affiliate or third party will
relieve the transferring party of its obligations hereunder.
Section 7.3 Notices. All notices and other communications
hereunder shall be in writing and shall be deemed to have been duly given upon
receipt by the respective parties at the following addresses (or at such other
address for a party as shall be specified by like notice):
(d) if to Holdings, to:
c/o MacAndrews & Forbes Holdings Inc.
38 East 63rd Street
New York, New York 10022
Attention: Glenn P. Dickes, Esq.
(e) if to Public Co., to:
Revlon, Inc.
625 Madison Avenue
New York, New York 10022
Attention: Wade H. Nichols III, Esq.
(f) if to Operating Co., to:
Revlon Consumer Products Corporation
625 Madison Avenue
8
New York, New York 10022
Attention: Wade H. Nichols III, Esq.
Section 7.4 Expenses. The payment of taxes incurred in
connection with this Agreement shall be governed by the Tax Sharing Agreement
(as defined in Section 7.7 hereof). Except as otherwise provided herein, all
costs and expenses incurred in connection with this Agreement shall be paid by
the party incurring such cost or expense.
Section 7.5 Governing Law. This Agreement shall be governed
by and construed in accordance with the laws of the State of Delaware,
regardless of the laws that might otherwise govern under applicable principles
of conflicts of laws thereof.
Section 7.6 Counterparts. This Agreement may be executed in
two or more counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument.
Section 7.7 Entire Agreement. This Agreement, the Transfer
Agreements, the Reimbursement Agreement, the Real Property Asset Transfer
Agreement, the Sublicensing Agreements and the Tax Sharing Agreement, and the
exhibits and schedules hereto and thereto, as such agreements may be amended
or modified, constitute the entire agreement among the parties hereto with
respect to the subject matter hereof and supersede all prior agreements,
understandings and negotiations, both written and oral, among the parties with
respect to the subject matter hereof.
Section 7.8 Captions. The captions herein are included for
convenience of reference only and are not intended to be part of or affect the
meaning or interpretation of this Agreement.
Section 7.9 Specific Performance. The parties hereto agree
that irreparable damage would occur in the event any of the provisions of this
Agreement were not performed in accordance with the terms hereof and that the
parties shall be entitled to specific performance of the terms hereof, in
addition to any other remedy at law or equity.
Section 7.10 Severability. This Agreement shall be deemed
severable; the invalidity or unenforceability of any term or provision of this
Agreement shall not affect the validity or enforceability of this Agreement or
of any other term hereof, which shall remain in full force and effect.
9
IN WITNESS WHEREOF, the parties hereto here caused this
Agreement to be duly executed by their respective authorized officers as of
the day and year first above written.
REVLON HOLDINGS INC.
By: /s/ Glenn P. Dickes
---------------------------
Glenn P. Dickes
Vice President
REVLON, INC.
By: /s/ Robert K. Kretzman
---------------------------
Robert K. Kretzman
Vice President
REVLON CONSUMER PRODUCTS
CORPORATION
By: /s/ Robert K. Kretzman
---------------------------
Robert K. Kretzman
Vice President
10
5
1,000
9-MOS
DEC-31-1996
JAN-01-1996
SEP-30-1996
21,200
0
439,900
26,600
318,100
832,600
574,000
199,800
1,632,200
502,900
0
0
54,600
500
(587,900)
1,632,200
1,553,300
1,553,300
516,600
516,600
0
5,800
100,000
12,200
18,700
(6,500)
0
(6,600)
0
(13,100)
(0.27)
0
