SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: March 31, 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 April 25, 1998, 19,949,712 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 indirectly wholly owned subsidiary of Mafco Holdings Inc.
Total Pages - 16
REVLON, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
MARCH 31, DECEMBER 31,
ASSETS 1998 1997
------------- --------------
(Unaudited)
Current assets:
Cash and cash equivalents................................................. $ 37.0 $ 42.8
Trade receivables, less allowances of $22.2
and $25.9, respectively.............................................. 420.8 493.9
Inventories............................................................... 372.9 349.3
Prepaid expenses and other................................................ 86.1 97.5
Due from Revlon Escrow Corp............................................... 53.8 -
------------- --------------
Total current assets................................................. 970.6 983.5
Property, plant and equipment, net.............................................. 371.1 378.2
Other assets.................................................................... 155.5 143.7
Intangible assets, net.......................................................... 327.7 329.2
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Total assets......................................................... $ 1,824.9 $ 1,834.6
============= ==============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Short-term borrowings - third parties..................................... $ 39.0 $ 42.7
Current portion of long-term debt - third parties......................... 5.3 5.5
Accounts payable.......................................................... 204.9 195.5
Accrued expenses and other................................................ 297.1 366.1
------------- --------------
Total current liabilities............................................ 546.3 609.8
Long-term debt - third parties ................................................. 1,556.8 1,427.8
Long-term debt - affiliates..................................................... 26.2 30.9
Other long-term liabilities..................................................... 218.5 224.6
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, 19,943,812 and 19,886,575, respectively,
issued and outstanding............................................... 0.2 0.2
Capital deficiency........................................................ (229.6) (231.1)
Accumulated deficit since June 24, 1992................................... (316.9) (258.8)
Accumulated other comprehensive loss ..................................... (31.5) (23.7)
------------- --------------
Total stockholders' deficiency........................... (522.9) (458.5)
------------- --------------
Total liabilities and stockholders' deficiency........... $ 1,824.9 $ 1,834.6
============= ==============
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
MARCH 31,
----------------------------------
1998 1997
-------------- ---------------
Net sales................................................. $ 534.3 $ 492.9
Cost of sales............................................. 185.6 166.3
-------------- ---------------
Gross profit......................................... 348.7 326.6
Selling, general and administrative expenses.............. 324.2 304.0
Business consolidation costs and other, net............... - 5.4
-------------- ---------------
Operating income .................................... 24.5 17.2
-------------- ---------------
Other expenses (income):
Interest expense..................................... 37.7 33.3
Interest and net investment income................... (1.0) (0.7)
Amortization of debt issuance costs.................. 1.6 2.0
Foreign currency losses, net......................... 1.5 1.8
Miscellaneous, net................................... 0.9 0.7
-------------- ---------------
Other expenses, net............................. 40.7 37.1
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Loss before income taxes.................................. (16.2) (19.9)
Provision for income taxes................................ 3.7 5.5
-------------- ---------------
Loss before extraordinary item........................... (19.9) (25.4)
Extraordinary item - early extinguishment of debt......... (38.2) -
-------------- ---------------
Net loss.................................................. $ (58.1) $ (25.4)
============== ===============
Basic loss per common share:
Loss before extraordinary item....................... $ (0.39) $ (0.50)
Extraordinary item................................... (0.75) -
-------------- ---------------
Net loss per common share............................ $ (1.14) $ (0.50)
============== ===============
Diluted loss per common share:
Loss before extraordinary item....................... $ (0.39) $ (0.50)
Extraordinary item................................... (0.75) -
-------------- ---------------
Net loss per common share............................ $ (1.14) $ (0.50)
============== ===============
Weighted average common shares outstanding:
Basic................................................ 51,179,923 51,125,673
============== ===============
Dilutive............................................. 51,179,923 51,125,673
============== ===============
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............................ (25.4) $ (25.4)
Issuance of common stock............ 0.1
Currency translation adjustment..... (3.1) (3.1)
--------- ---------- ----------- ----------- ------------- -------------
Balance, March 31, 1997.................. $ 54.6 $ 0.5 $ (231.5) $ (327.8) $ (21.3) $ (28.5)
========= ========== =========== =========== ============= =============
Balance, January 1, 1998................. $ 54.6 $ 0.5 $ (231.1) $ (258.8) $ (23.7)
Net loss............................ (58.1) $ (58.1)
Issuance of common stock............ 1.5
Currency translation adjustment..... (7.8)(b) (7.8)(b)
--------- ---------- ----------- ----------- ------------- -------------
Balance, March 31, 1998.................. $ 54.6 $ 0.5 $ (229.6) $ (316.9) $ (31.5) $ (65.9)
========= ========== =========== =========== ============= =============
- ------------------------------------------------------
(a) Accumulated other comprehensive loss includes the currency translation
adjustment of $27.0 and $8.9 as of March 31, 1998 and 1997, respectively, and
the adjustment for the minimum pension liability of $4.5 and $12.4 as of March
31, 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 foreign entities.
See Notes to Unaudited Consolidated Condensed Financial Statements.
4
REVLON, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(DOLLARS IN MILLIONS)
THREE MONTHS ENDED
MARCH 31,
-------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES: 1998 1997
------------- -------------
Net loss...................................................................... $ (58.1) $ (25.4)
Adjustments to reconcile net loss to net cash (used for)
provided by operating activities:
Depreciation and amortization............................................ 28.3 24.6
Extraordinary item....................................................... 38.2 -
Business consolidation costs............................................. - 5.4
Change in assets and liabilities:
Decrease in trade receivables....................................... 70.1 26.4
Increase in inventories............................................. (25.2) (27.9)
Decrease (increase) in prepaid expenses and other current assets... 5.8 (7.9)
Increase (decrease) in accounts payable............................. 10.7 (12.4)
Decrease in accrued expenses and other current liabilities.......... (74.2) (44.9)
Other, net.......................................................... (20.3) (17.5)
------------- -------------
Net cash used for operating activities........................................ (24.7) (79.6)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.......................................................... (9.0) (8.0)
Proceeds from the sale of certain fixed assets................................ 1.2 -
------------- -------------
Net cash used for investing activities........................................ (7.8) (8.0)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in short-term borrowings - third parties ........................ (3.3) (2.4)
Proceeds from the issuance of long-term debt - third parties.................. 684.6 138.2
Repayment of long-term debt - third parties................................... (636.0) (50.4)
Net proceeds from issuance of common stock.................................... - 0.1
Proceeds from the issuance of debt - affiliates............................... 50.0 33.9
Repayment of debt - affiliates................................................ (54.7) (33.9)
Net distribution to parent.................................................... - (0.5)
Payment of debt issuance costs................................................ (13.2) -
------------- -------------
Net cash provided by financing activities..................................... 27.4 85.0
------------- -------------
Effect of exchange rate changes on cash and cash equivalents.................. (0.7) (0.4)
------------- -------------
Net decrease in cash and cash equivalents................................ (5.8) (3.0)
Cash and cash equivalents at beginning of period......................... 42.8 38.6
------------- -------------
Cash and cash equivalents at end of period............................... $ 37.0 $ 35.6
============= =============
Supplemental schedule of cash flow information:
Cash paid during the period for:
Interest ........................................................... $ 40.1 $ 39.6
Income taxes, net of refunds........................................ 2.4 2.9
Supplemental schedule of noncash financing activities:
Due from Revlon Escrow Corp. (See Note 4)................................ $ 53.8 $ -
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 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.
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 quarter of 1998 and
1997, disbursements and commitments for advertising and promotion exceeded
advertising and promotion expenses by $28.8 and $22.2, 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) and changes in the currency translation adjustment and the
adjustment for minimum pension liability.
(2) INVENTORIES
MARCH 31, DECEMBER 31,
1998 1997
------------- --------------
Raw materials and supplies......... $ 89.0 $ 82.6
Work-in-process.................... 20.7 14.9
Finished goods..................... 263.2 251.8
------------- --------------
$ 372.9 $ 349.3
============= ==============
(3) BASIC AND DILUTED LOSS PER SHARE
The basic and diluted loss per common share has been computed based
upon the weighted average number of shares of common stock outstanding. The
Company's outstanding stock options represent the only dilutive potential
common stock outstanding. The amount of loss and number of shares used in the
calculations of basic and diluted loss per common share were the same for the
periods presented, and 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.
6
REVLON, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS)
(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 were used to
finance the redemption by Products Corporation of $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 Assumption and the redemption of the Senior Subordinated Notes on
March 4, 1998, the Company recorded $53.8 due from Revlon Escrow, which was
satisfied on April 1, 1998. In connection with the redemption of the Senior
Subordinated Notes on March 4, 1998, the Company recorded an extraordinary loss
of $38.2 in the first quarter of 1998 resulting primarily from the write-off of
the deferred financing costs and payment of a call premium on the Senior
Subordinated Notes. In connection with the redemption of the Senior Notes on
April 1, 1998, the Company expects that it will record an extraordinary loss of
approximately $13.5 in the second quarter of 1998 resulting primarily from the
write-off of the deferred financing costs and payment of a call premium on the
Senior Notes.
On March 12, 1998, Products Corporation filed a registration statement
with the Securities and Exchange Commission (the "Commission") with respect to
an offer to exchange the Notes for registered notes with substantially
identical terms (the "Exchange Offer"). The registration statement became
effective on April 3, 1998. The Exchange Offer expired on May 7, 1998, and
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"), 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
7
REVLON, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS)
additional subordinated debt that is senior in right of payment to the 8 5/8%
Notes. The 8 5/8% 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.
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% Note 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 $2.3 and cash
payments for other business consolidation costs of $0.9 for the three months
ended March 31, 1998. As of March 31, 1998, the unpaid balance of the business
consolidation costs included in accrued expenses and other was $8.3.
(6) ACQUISITION
On April 25, 1997, Prestige Fragrance & Cosmetics, Inc. ("PFC"), a
wholly owned subsidiary of Products Corporation, merged with and into The
Cosmetic Center, Inc. ("CCI") (the "Cosmetic Center Merger") with CCI
(subsequent to the Cosmetic Center Merger, "Cosmetic Center") being the
surviving corporation. In the Cosmetic Center Merger, Products Corporation
received in exchange for all of the capital stock of PFC newly issued Class C
common stock of Cosmetic Center constituting approximately 85% of the
outstanding common stock for a purchase price of approximately $27.9. The
Cosmetic Center Merger was accounted for as a reverse acquisition using the
purchase method of accounting, so that PFC is considered the acquiring entity
for accounting purposes even though Cosmetic Center is the surviving legal
entity.
8
REVLON, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS)
(7) 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 5.7% and 7.0% of the Company's net
sales for the first quarter 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.
GEOGRAPHIC AREAS: QUARTER ENDED MARCH 31,
---------------------------------
Net sales: 1998 1997
-------------- --------------
United States........................ $ 319.2 $ 282.9
International........................ 215.1 210.0
-------------- --------------
$ 534.3 $ 492.9
============== ==============
MARCH 31, DECEMBER 31,
Long-lived assets: 1998 1997
-------------- --------------
United States........................ $ 575.5 $ 570.6
International........................ 278.8 280.5
-------------- --------------
$ 854.3 $ 851.1
============== ==============
QUARTER ENDED MARCH 31,
-------------- --------------
CLASSES OF SIMILAR PRODUCTS: 1998 1997
-------------- --------------
Net sales:
Cosmetics, skin care and fragrances.. $ 333.0 $ 299.4
Personal care and professional....... 201.3 193.5
-------------- --------------
$ 534.3 $ 492.9
============== ==============
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
operates retail and outlet stores and engages in licensing.
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 first quarters of 1998 and 1997, respectively:
QUARTER ENDED MARCH 31,
-------------------------------
1998* 1997*
------------- -------------
Net sales:
United States.................... $ 319.2 $ 282.9
International.................... 215.1 210.0
------------- -------------
$ 534.3 $ 492.9
============= =============
The following sets forth certain statements of operations data as a
percentage of net sales for the first quarters of 1998 and 1997, respectively:
QUARTER ENDED MARCH 31,
-------------------------------
1998** 1997**
------------- -------------
Cost of sales......................................... 34.7% 33.7%
Gross profit.......................................... 65.3 66.3
Selling, general and administrative
expenses......................................... 60.7 61.7
Business consolidation costs and other, net........... - 1.1
Operating income...................................... 4.6 3.5
* The results of Cosmetic Center, after giving effect to certain
intercompany adjustments for the first quarter of 1998 and 1997, were
as follows, respectively: Net sales of $36.5 and $12.9, cost of sales
of $22.3 and $5.9, S,G&A expenses of $18.4 and $9.5, and operating
loss of $4.2 and $2.5.
** Excluding the results of Cosmetic Center, after giving effect to
certain intercompany adjustments for the first quarter of 1998 and
1997, the above percentages would have been, respectively: cost of
sales of 32.8% and 33.4%, gross profit of 67.2%, and 66.6%, S,G&A
expenses of 61.4% and 61.4%, business consolidation costs and other,
net, of 0% and 1.1% and operating income of 5.8% and 4.1%.
10
REVLON, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(DOLLARS IN MILLIONS)
NET SALES
Net sales were $534.3 and $492.9 for the first quarters of 1998 and
1997, respectively, an increase of $41.4 or 8.4% (or 11.3% on a constant U.S.
dollar basis), primarily as a result of successful new product introductions
worldwide, increased demand in the United States, the impact of the Cosmetic
Center Merger and increased distribution internationally.
United States. The United States operation's net sales increased to
$319.2 for the first quarter of 1998 from $282.9 for the first quarter of 1997,
an increase of $36.3, or 12.8%. Net sales improved for the first quarter of
1998, primarily as a result of continued consumer acceptance of new product
offerings, general improvement in consumer demand for the Company's color
cosmetics and the impact of the Cosmetic Center Merger. 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 resulting
from consolidation in the chain drugstore industry in the U.S.
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 first quarter of 1998, principally as a
result of launches of products in the COLORSTAY collection, COLORSTAY
haircolor, TOP SPEED nail enamel, MOISTURESTAY lip makeup, LINE & SHINE lip
makeup, launches of products in the ALMAY AMAZING collection, STAY SMOOTH
ANTI-CHAP lip makeup and launches of products in the ALMAY ONE COAT collection.
International. The International operation's net sales increased to
$215.1 for the first quarter of 1998 from $210.0 for the first quarter of 1997,
an increase of $5.1, or 2.4% on a reported basis or 9.0% on a constant U.S.
dollar basis. Net sales improved for the first quarter of 1998, principally as
a result of increased distribution 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 COLORSTAY haircolor and TOP SPEED nail enamel were introduced in select
international markets. 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 by 4.5% on a reported basis to
$99.7 for the first quarter of 1998 as compared to the first quarter of 1997 or
an increase of 11.1% on a constant U.S. dollar basis); the Western Hemisphere,
which is comprised of Canada, Mexico, Central America, South America and Puerto
Rico (in which net sales increased by 10.3% on a reported basis to $82.4 for
the first quarter of 1998 as compared to the first quarter of 1997 or an
increase of 15.6% on a constant U.S. dollar basis); and the Far East (in which
net sales decreased by 17.3% on a reported basis to $33.0 for the first quarter
of 1998 as compared to the first quarter of 1997 or a decrease of 8.6% on a
constant U.S. dollar basis). Net sales in the Far East were adversely impacted
by general economic conditions and competitive activities in certain markets.
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 (loss) before taxes were $30.4, $2.1 and
($0.1), respectively, for the first quarter of 1998 compared to $34.4, $6.8 and
$4.4, respectively, for the first quarter of 1997. In addition, results of
operations in Brazil for the first quarter of 1998 reflect increased
advertising and consumer-directed promotion expenditures to support the
Company's product lines, the effect of competitive activities and the adverse
impact of a stronger U.S. dollar against the Brazilian real.
11
REVLON, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(DOLLARS IN MILLIONS)
Cost of sales
As a percentage of net sales, cost of sales was 34.7% for the first
quarter of 1998 compared to 33.7% for the first quarter of 1997. The increase
in cost of sales as a percentage of net sales is due primarily to the impact of
the Cosmetic Center Merger. Excluding the results of Cosmetic Center, as a
percentage of net sales, cost of sales would have been 32.8% for the first
quarter of 1998 compared to 33.4% for the first quarter of 1997, due primarily
to 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 60.7% for the first
quarter of 1998, an improvement from 61.7% for the first quarter of 1997. S,G&A
expenses other than advertising and consumer-directed promotion expenses, as a
percentage of net sales, improved to 44.2% for the first quarter of 1998
compared with 45.4% for the first quarter of 1997, primarily as a result of
improved productivity, lower distribution costs and the impact of the Cosmetic
Center Merger. In accordance with its business strategy, the Company increased
advertising and consumer-directed promotion expenditures in the first quarter
of 1998 compared with the first quarter of 1997 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 9.6% to $87.9, or 16.5% of
net sales, for the first quarter of 1998 from $80.2, or 16.3% of net sales, for
the first quarter of 1997.
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 $7.3, or
42.4%, to $24.5 for the first quarter of 1998 from $17.2 for the first quarter
of 1997.
Other expenses/income
Interest expense was $37.7 for the first quarter of 1998 compared to
$33.3 for the first quarter of 1997. The increase in interest expense in the
first quarter of 1998 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 $1.5 for the first quarter of 1998
compared to $1.8 for the first quarter of 1997. The decrease in foreign
currency losses for the first quarter of 1998 as compared to the first quarter
of 1997 resulted primarily from lower intercompany balances among the Company's
International operations.
Provision for income taxes
The provision for income taxes was $3.7 and $5.5 for the first
quarters of 1998 and 1997, respectively. The decrease was primarily
attributable to lower taxable income in certain International operations,
partially as a result of the implementation of tax planning, including the
utilization of net operating loss carryforwards in certain International
operations.
Extraordinary item
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.
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 $24.7 and $79.6 for the
first quarter of 1998 and 1997, respectively. The decrease in net cash used for
operating activities for the first quarter of 1998 compared with the first
quarter of 1997 resulted primarily from higher operating income and improved
working capital management, partially offset by increased spending on
merchandise display units in connection with the Company's continued expansion
into the self-select distribution channel.
Net cash used for investing activities was $7.8 and $8.0 for the first
quarter of 1998 and 1997, respectively, and in both periods consisted primarily
of capital expenditures.
Net cash provided by financing activities was $27.4 and $85.0 for the
first quarter of 1998 and 1997, respectively. Net cash provided by financing
activities for the first quarter of 1998 included proceeds from the issuance of
the 8 5/8% Notes, cash drawn under the Credit Agreement and Cosmetic Center's
credit facility, partially offset by the payment of fees and expenses related
to the issuance of the 8 5/8% Notes, the redemption of the Senior Subordinated
Notes and the repayment of borrowings under the Company's Japanese
yen-denominated credit agreement (the "Yen Credit Agreement"). Net cash
provided by financing activities for the first quarter of 1997 included cash
drawn under the credit agreement in effect at that time (the "1996 Credit
Agreement"), partially offset by 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. In connection with the Assumption and the redemption of the Senior
Subordinated Notes on March 4, 1998, the Company recorded $53.8 due from Revlon
Escrow, which was satisfied on April 1, 1998. In connection with the redemption
of the Senior Notes on April 1, 1998, the Company expects that it will record
an extraordinary loss of approximately $13.5 in the second quarter of 1998
resulting primarily from the write-off of the deferred financing costs and
payment of a call premium on the Senior Notes. On March 12, 1998 Products
Corporation filed a registration statement with the Commission with respect to
the Exchange Offer, which registration statement became effective on April 3,
1998. The Exchange Offer expired on May 7, 1998, and 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 10 7/8% Sinking Fund Debentures due 2010 and were and
will be used for general corporate purposes or, in the case of the Acquisition
Facility, the financing of acquisitions. At March 31, 1998, Products
Corporation had approximately $200.0 outstanding under the Term Loan
Facilities, $137.1 outstanding under the Multi-Currency Facility, $42.5
outstanding under the Acquisition Facility and $34.1 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 March 31, 1998 (approximately $28.6 U.S. dollar equivalent as of
March 31, 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
13
REVLON, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(DOLLARS IN MILLIONS)
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 $4.1 U.S. dollar equivalent as of March 31, 1998) is due in each
of March 1999 and 2000 and yen 2.7 billion (approximately $20.4 U.S. dollar
equivalent as of March 31, 1998) is due on December 31, 2000.
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 March 31, 1998.
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.
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 $45.1 and $67.5
(U.S. dollar equivalent) at March 31, 1998 and 1997, respectively, and option
contracts of approximately $75.8 (U.S. dollar equivalent) outstanding at March
31, 1998. Such contracts are entered into to hedge transactions predominantly
occurring within twelve months. If Products Corporation had terminated these
contracts on March 31, 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.
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, 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 Revlon, Inc. There can be no
assurance that any of such actions could be effected, that they
14
REVLON, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(DOLLARS IN MILLIONS)
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, 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 March 31,
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 inventory balancing and consolidation in the chain drugstore
industry in the U.S., cash flows from operations, information system upgrades
and globalization of the Company's manufacturing operations, capital
expenditures, the availability of funds from currently available credit
facilities and refinancings of indebtedness, 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, and to globalize its manufacturing operations; (v) the inability to
refinance indebtedness, 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; (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; and (ix) lower
than expected sales as a result of inventory balancing and consolidation in the
chain drugstore industry in the U.S. The Company assumes no responsibility to
update forward-looking information contained herein.
EFFECT OF NEW ACCOUNTING STANDARD
In March 1998, the AICPA Accounting Standards Executive Committee
issued 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 effect of
adopting the statement and the date of such adoption by the Company has not yet
been determined.
15
REVLON, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
(a) EXHIBITS - NONE
(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: May 12, 1998
16
5
1,000
3-MOS
DEC-31-1998
JAN-01-1998
MAR-31-1998
37,000
0
443,000
22,200
372,900
970,600
596,600
225,500
1,824,900
546,300
1,556,800
0
54,600
500
(578,000)
1,824,900
534,300
534,300
185,600
185,600
0
1,800
37,700
(16,200)
3,700
(19,900)
0
(38,200)
0
(58,100)
(1.14)
(1.14)
