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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
(MARK ONE)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
----- ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
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 333-23451
REV HOLDINGS INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 13-3933701
(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
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OR 12(G) OF THE ACT:
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<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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<S> <C>
SENIOR SECURED DISCOUNT NOTES DUE 2001 N/A
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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
--- ---
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO
ITEM 405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED,
TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION
STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY
AMENDMENT TO THIS FORM 10-K. [X]
THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON-AFFILIATES
OF THE REGISTRANT IS NOT APPLICABLE AS THERE IS NO PUBLIC MARKET THEREFOR. ALL
SHARES OF COMMON STOCK ARE HELD BY AN AFFILIATE OF MAFCO HOLDINGS INC. THE
NUMBER OF OUTSTANDING SHARES OF THE REGISTRANT'S COMMON STOCK, AS OF MARCH 17,
1998, WAS 1,000.
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ITEM 1. DESCRIPTION OF BUSINESS
BACKGROUND
This Form 10-K/A amends the Company's Annual Report on Form 10-K for
the year ended December 31, 1997 (the "Form 10-K"). On June 8, 1998, the
Company announced its intention to dispose of its approximately 85% interest in
its subsidiary, The Cosmetic Center, Inc., which operates retail stores.
Accordingly, all prior period financial information has been restated to
reflect the retail and outlet store business as a discontinued operation. The
purpose of this Form 10-K/A is to amend the Form 10-K to reflect Cosmetic
Center as a discontinued operation.
Effective August 5, 1997, Revlon Worldwide Corporation ("Revlon
Worldwide") was merged with and into Revlon Worldwide (Parent) Corporation
("Revlon Worldwide (Parent)") (the "Merger"), with Revlon Worldwide (Parent)
surviving the Merger and changing its name to REV Holdings Inc. (together with
its subsidiaries, "REV Holdings" or the "Company").
REV Holdings is a holding company formed in Delaware in February 1997
that conducts its business exclusively through its indirect subsidiary, Revlon
Consumer Products Corporation ("Products Corporation") and its subsidiaries.
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, personal care and professional products.
REVLON is one of the world's best known names in cosmetics and is a leading
mass market cosmetics brand. The Company's vision is to provide glamour,
excitement and innovation through quality products at affordable prices. To
pursue this vision, the Company's management team combines the creativity of a
cosmetics and fashion company with the marketing, sales and operating
discipline of a consumer packaged goods company. The Company believes that its
global brand name recognition, product quality and marketing experience have
enabled it to create one of the strongest consumer brand franchises in the
world, with products sold in approximately 175 countries and territories. The
Company's products are marketed under such well-known brand names as REVLON,
COLORSTAY, REVLON AGE DEFYING, ALMAY and ULTIMA II in cosmetics; MOON DROPS,
ETERNA 27, ALMAY TIME-OFF, ULTIMA II, JEANNE GATINEAU and NATURAL HONEY in skin
care; CHARLIE and FIRE & ICE, in fragrances; FLEX, OUTRAGEOUS, AQUAMARINE,
MITCHUM, COLORSTAY, COLORSILK, JEAN NATE, PLUSBELLE, BOZZANO and COLORAMA in
personal care products; and ROUX FANCI-FULL, REALISTIC, CREME OF NATURE,
CREATIVE NAIL and AMERICAN CREW in professional products. To further strengthen
its consumer brand franchises, the Company markets each core brand with a
distinct and uniform global image, including packaging and advertising, while
retaining the flexibility to tailor products to local and regional preferences.
The Company was founded by Charles Revson, who revolutionized the
cosmetics industry by introducing nail enamels matched to lipsticks in fashion
colors over 65 years ago. Today, the Company has leading market positions in
many of its principal product categories in the United States self-select
distribution channel. The Company's leading market positions for its REVLON
brand products include the number one positions in the United States
self-select distribution channel in lip makeup and nail enamel (which the
Company has occupied for the past 21 years) for 1997. The Company has the
number two position in face makeup in the United States self-select
distribution channel for 1997. Propelled by the success of its new product
launches and market share gains in its existing product lines, the Company
captured in 1996 and continued to hold in 1997 the number one position overall
in color cosmetics (consisting of lip, eye and face makeup and nail enamel) in
the United States self-select distribution channel, where its market share was
21.6% for 1997. The Company also has leading market positions in several
product categories in certain markets outside of the United States, including
in Argentina, Australia, Brazil, Canada, Mexico and South Africa.
In the United States, the self-select distribution channel, in which
consumers select their own purchases without the assistance of an in-store
demonstrator, includes independent drug stores and chain drug stores (such as
Walgreens, CVS, Eckerds and Rite Aid), mass volume retailers (such as Wal-Mart,
Target Stores and Kmart) and supermarkets and combination supermarket/drug
stores (such as Pathmark, Albertson's, Kroger's and Smith's). Internationally,
the self-select distribution channel includes retailers such as Boots in the
United Kingdom and Western Europe, Shoppers Drug Mart in Canada and Wal-Mart
worldwide. The foregoing retailers, among others, sell the Company's products.
2
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The Company operates in a single business segment with many different
products, which include cosmetics and skin care, fragrance and personal care
products ("consumer products"), and hair and nail care products principally for
use in and resale by professional salons ("professional products"). 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.
On February 2, 1998, Revlon Escrow Corp. ("Revlon Escrow"), an
affiliate of Products Corporation, issued and sold in a private placement $650
million aggregate principal amount of 8 5/8% Senior Subordinated Notes due 2008
(the "8 5/8% Notes") and $250 million 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 deposited into escrow. The proceeds from
the sale of the Notes were used to finance the redemption of Products
Corporation's $555 million aggregate principal amount of 10 1/2% Senior
Subordinated Notes due 2003 (the "Senior Subordinated Notes") and will be used
to finance the redemption of Products Corporation's $260 million aggregate
principal amount of 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 will assume 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"). 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 Exchange Offer is expected to occur on or before July 2,
1998.
On March 5, 1997, the Company issued and sold $770.0 million aggregate
principal amount at maturity of its Senior Secured Discount Notes due 2001 (the
"Old Notes"). The Old Notes were issued at a discount from their principal
amount at maturity representing a yield to maturity of 10 3/4% per annum
calculated from March 5, 1997. There are no periodic interest payments on the
Senior Secured Discount Notes (as defined herein). The Company filed a
registration statement under the Securities Act of 1933, as amended, relating
to an offer to exchange (the "Exchange Offer") the Old Notes for a like
principal amount of notes (the "New Notes") with substantially identical terms
(the New Notes, together with the Old Notes, being the "Senior Secured Discount
Notes"), which registration statement became effective on July 9, 1997. The
Exchange Offer expired on August 13, 1997, and substantially all of the Old
Notes were exchanged for the New Notes.
During March 1997, $778.4 million principal amount at maturity
(accreted value of $694.0 million) of Revlon Worldwide's Senior Secured
Discount Notes due 1998 (the "Revlon Worldwide Notes") was delivered to the
Trustee under the indenture governing the Revlon Worldwide Notes (the "Revlon
Worldwide Indenture") for cancellation. In connection with the Revlon Worldwide
Notes that were canceled, the Company recorded a capital contribution from its
indirect parent of $560.1 million and recorded an extraordinary loss of $43.8
million, which included the write-off of deferred financing costs, in the first
quarter of 1997. On April 2, 1997, funds were deposited in an irrevocable trust
to effect the covenant defeasance of the remaining balance of $337.4 million
principal amount at maturity of the Revlon Worldwide Notes. The covenant
defeasance of the Revlon Worldwide Notes was effected on August 4, 1997, the
124th day following the deposit. On March 16, 1998, $337.4 million of funds
held in the irrevocable trust were used to repay the remaining Revlon Worldwide
Notes upon their maturity.
On April 25, 1997, Prestige Fragrance & Cosmetics, Inc. ("PFC"), a
wholly owned subsidiary of Products Corporation, and The Cosmetic Center, Inc.
("CCI") completed the merger of PFC with and into CCI (the "Cosmetic Center
Merger") with CCI (subsequent to the Cosmetic Center Merger, "Cosmetic Center")
surviving the Cosmetic Center Merger. 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 85.0%
of Cosmetic Center's outstanding common stock. Accordingly, 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.
3
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In May 1997, Products Corporation entered into a credit agreement (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 credit
agreement in effect at that time (the "1996 Credit Agreement") and to redeem
Products Corporation's 10 7/8% Sinking Fund Debentures due 2010 (the "Sinking
Fund Debentures") and were and will be used for general corporate purposes or,
in the case of the Acquisition Facility (as defined herein), the financing of
acquisitions. The Credit Agreement provides up to $750.0 million and is
comprised of five senior secured facilities: $200.0 million in two term loan
facilities (the "Term Loan Facilities"), a $300.0 million multi-currency
facility (the "Multi-Currency Facility"), a $200.0 million revolving
acquisition facility, which may be increased to $400.0 million under certain
circumstances with the consent of a majority of the lenders (the "Acquisition
Facility"), and a $50.0 million special standby letter of credit facility (the
"Special LC Facility").
On March 5, 1996, Revlon, Inc., which up to that time had been a
wholly owned subsidiary of Revlon Worldwide, completed an initial public equity
offering (the "Revlon IPO") 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 underwriters'
discount and related fees and expenses, of $187.8 million were contributed to
Products Corporation and used to repay borrowings outstanding under the credit
agreement in effect at that time (the "1995 Credit Agreement") and to pay fees
and expenses related to entering into the 1996 Credit Agreement. The Company
recognized a gain of $187.8 million in 1996 in connection with the Revlon IPO.
On June 24, 1992, Revlon, Inc., through Products Corporation,
succeeded to assets and liabilities of the cosmetics and skin care, fragrance
and personal care products business of Revlon Holdings Inc. ("Holdings").
Holdings retained certain small brands that historically had not been
profitable (the "Retained Brands") and certain other assets and liabilities.
Unless the context otherwise requires, references to the Company or Revlon
relating to dates or periods prior to the formation of Revlon, Inc. and
Products Corporation mean the cosmetics and skin care, fragrance and personal
care products business of Holdings to which Revlon, Inc., through Products
Corporation, has succeeded. Unless the context otherwise requires, all
references in this Form 10-K/A to the Company or Revlon mean REV Holdings and
its subsidiaries.
REV Holdings is an indirect wholly owned subsidiary of Holdings and an
indirect wholly owned subsidiary of MacAndrews & Forbes Holdings Inc.
("MacAndrews Holdings"), a corporation wholly owned through Mafco Holdings Inc.
("Mafco Holdings" and, together with MacAndrews Holdings, "MacAndrews &
Forbes") by Ronald O. Perelman. As a result of the Revlon IPO, MacAndrews &
Forbes beneficially owns 11,250,000 shares of Revlon, Inc.'s Class A common
stock and all 31,250,000 shares of Revlon, Inc.'s Class B common stock
(representing 83.1% of the outstanding shares of Revlon, Inc.'s common stock,
which together have approximately 97.4% of the combined voting power of the
outstanding shares of Revlon common stock).
All United States market share and market position data herein for the
Company's brands are based upon retail dollar sales, which are derived from
A.C. Nielsen data. A.C. Nielsen measures retail sales volume of products sold
in the United States self-select distribution channel. Such data represent A.C.
Nielsen's estimates based upon data gathered by A.C. Nielsen from market
samples. Such data are therefore subject to some degree of variance. All
references to the Company for periods prior to the Merger are to Revlon
Worldwide and for periods subsequent to the Merger are to REV Holdings. REV
Holdings succeeded to the rights and obligations of Revlon Worldwide under its
various agreements, including those described in Item 13, Certain Relationships
and Related Transactions, by reason of the Merger.
4
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BUSINESS STRATEGY
The Company's business strategy, which implements its vision and is
intended to continue to improve operating performance, is to:
o Strengthen and broaden its core brands through globalization of marketing
and advertising, product development and manufacturing and through
increasing its emphasis on advertising and promotion.
o Lead the industry in the development and introduction of technologically
advanced innovative products that set new trends.
o Expand the Company's presence in all markets in which the Company
competes and enter new and emerging markets.
o Continue to reduce costs and improve operating efficiencies, customer
service and product quality by reducing overhead, rationalizing factory
operations, upgrading management information systems, globally sourcing
raw materials and components and carefully managing working capital.
o Continue to expand market share and product lines through possible
strategic acquisitions or joint ventures.
5
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PRODUCTS
The Company manufactures and markets a variety of products worldwide.
The following table sets forth the Company's principal brands.
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BRAND COSMETICS SKIN CARE FRAGRANCES PERSONAL CARE PROFESSIONAL
PRODUCTS PRODUCTS
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Revlon Revlon, ColorStay, Moon Drops, Charlie, Charlie Red, Flex, Outrageous, Revlon
Revlon Age Defying, Revlon Results, Charlie White, Aquamarine, Professional, Roux
StreetWear, Super Eterna 27, Charlie Sunshine, Mitchum, Lady Fanci-full,
Lustrous, Moon Revlon Age Fire & Ice, Fire & Mitchum, Hi & Dri, Realistic, Creme of
Drops, Velvet Touch, Defying Ice Cool, Jontue, ColorStay, Nature, Sensor
Line & Shine, New Ciara, Body Kisses Colorsilk, Frost & Perm, Perfect Perm,
Complexion, Overtime Glow, Revlon Fermodyl, Perfect
Eyes, Touch & Glow, Shadings, Jean Touch, Salon
Top Speed, Lashful, Nate, Roux Perfection,
Lengthwise, Fanci-full, Revlonissimo,
Naturally Glamorous, Realistic, Creme Voila, Young Color,
Custom Eyes, of Nature, Herba Creative Nail,
Timeliner, Revlon Rich, Fabu-laxer Contours, American
Implements Crew, R PRO, True
Cystem
Almay Almay, Time-Off, Sensitive Care, Almay
Almay Clear Oil Control,
Complexion Makeup, Time-Off,
Amazing, One Coat Moisture
Balance,
Moisture Renew,
Almay Clear
Complexion Skin
Care
Ultima II Ultima II, Beautiful Ultima II, Vital
Nutrient, Radiance,
Wonderwear, The Interactives, CHR
Nakeds
Significant Colorama(b), Jeanne Floid(b), Versace(a), Plusbelle(b), Colomer(b),
Regional Juvena(b), Gatineau(b), Charlie Gold Bozzano(b), Intercosmo(b),
Brands Jeanne Gatineau(b) Natural Honey Juvena(b), Personal Bio Point,
Geniol(b), Natural Wonder,
Colorama(b), Llongueras(b)
Llongueras(b),
Bain de Soleil(b),
ZP-11
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(a) License held for distribution in certain countries outside the United
States.
(b) Trademark owned in certain markets outside the United States.
Cosmetics and Skin Care. The Company sells a broad range of cosmetics
and skin care products designed to fulfill specifically identified consumer
needs, principally priced in the upper range of the self-select distribution
channel, including lip makeup, nail color and nail care products, eye and face
makeup and skin care products such as lotions, cleansers, creams, toners and
moisturizers. Many of the Company's products incorporate patented,
patent-pending or proprietary technology.
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The Company markets several different lines of REVLON lip makeup
(which includes lipstick, lip gloss and liner). The Company's breakthrough
COLORSTAY lipcolor, which uses patented transfer-resistant technology that
provides long wear, is produced in 40 shades. SUPER LUSTROUS lipstick is
produced in 60 shades. MOON DROPS, a moisturizing lipstick, is produced in 57
shades. LINE & SHINE, which was introduced in 1997, is a product that utilizes
an innovative product form, combining lipliner and lip gloss in one package,
and is produced in 8 shades.
The Company's nail color and nail care lines include enamels, cuticle
preparations and enamel removers. The Company's flagship REVLON nail enamel is
produced in 85 shades and uses a patented formula that provides consumers with
improved wear, application, shine and gloss in a toluene-free and
formaldehyde-free formula. TOP SPEED nail enamel, launched in 1997, is produced
in 52 shades and contains a patented speed drying polymer formula which sets in
90 seconds. STRONG WEAR, a patented strengthening nail enamel formula produced
in 27 shades, contains ingredients that provide protection against splitting,
chipping and breaking. Revlon has the number one position in nail enamel in the
United States self-select distribution channel. The Company also sells NAIL
BUILDERS, which includes nail strengtheners, hardeners and fortifiers.
The Company sells face makeup, including foundation, powder, blush and
concealers, under such REVLON brand names as REVLON AGE DEFYING, which is
targeted for women in the over 35 age bracket; COLORSTAY foundation, which uses
patent-pending transfer-resistant technology that provides long wear; and NEW
COMPLEXION, for consumers in the 25 to 49 age bracket.
The Company's eye makeup products include mascaras, eye shadows, brow
color and liners. COLORSTAY eyecolor, mascara and brow color, LASHFUL and
LENGTHWISE mascaras, SOFTSTROKE eyeliners and REVLON CUSTOM EYES and OVERTIME
SHADOW eye shadows are targeted for women in the 18 to 49 age bracket, and
REVLON AGE DEFYING eye color is targeted for women over 35.
The Company's ALMAY brand consists of a complete line of
hypo-allergenic, dermatologist-tested, fragrance-free cosmetics and skin care
products targeted for consumers who want "healthy looking skin." The Company
positions the ALMAY brand as the clean, natural-looking and healthy choice.
ALMAY products include lip makeup, nail color and nail care products, eye and
face makeup, skin care products, and sunscreen lotions and creams, including
TIME-OFF makeup and skin care and the ALMAY AMAZING collection, which includes
ALMAY AMAZING LASTING lip makeup, which includes the Company's proprietary
transfer-resistant technology developed for COLORSTAY, ALMAY AMAZING LASH
mascara, ALMAY AMAZING eye makeup, ALMAY AMAZING LASTING makeup, and ALMAY
CLEAR COMPLEXION SKIN CARE and MAKEUP and ALMAY EASY-TO-WEAR eyecolor and ALMAY
ONE COAT mascara. The Company targets ALMAY for value conscious consumers by
offering benefits comparable to higher priced products, such as Clinique, at
affordable prices. ALMAY is the leading brand in the hypo-allergenic market in
the United States self-select distribution channel.
The Company's STREETWEAR brand consists of a line of nail enamels,
mascaras, lip and eye liners and lip glosses which are targeted for the trend
conscious consumer. STREETWEAR was developed in response to the recent trend in
color and fashion coming from the street.
The Company sells implements, which include nail and eye grooming
tools such as clippers, scissors, files, tweezers and eye lash curlers. The
Company's implements are sold individually and in sets under the REVLON brand
name.
The Company also sells cosmetics in international markets under
regional brand names including COLORAMA in Brazil and JUVENA.
The Company's skin care products, including moisturizers, are sold
under brand names, including ETERNA 27, MOON DROPS, REVLON RESULTS, ALMAY
TIME-OFF REVITALIZER, CLEAR COMPLEXION and ULTIMA II VITAL RADIANCE, a skin
care collection introduced in 1997. In addition, the Company sells skin care
products in international markets under internationally recognized brand names
and under regional brands, including NATURAL HONEY.
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The Company's premium priced cosmetics and skin care products are sold
under the ULTIMA II brand name, which is the Company's flagship premium priced
brand sold throughout the world, and the JEANNE GATINEAU brand name, which is
sold outside the United States. The ULTIMA II line includes the WONDERWEAR
collection, which includes a long-wearing foundation that uses patent-pending
technology, cheek and eyecolor products that use proprietary technology that
provides long wear, and WONDERWEAR LIPSEXXXY lipstick, which uses patented
transfer-resistant technology that provides long wear, the BEAUTIFUL NUTRIENT
collection, a complete line of nourishing makeup that provides advanced
nutrient protection against dryness and THE NAKEDS makeup, a trend-setting line
of makeup emphasizing neutral colors.
Fragrances. The Company sells a selection of moderately priced and
premium priced fragrances, including perfumes, eau de toilettes and colognes.
The Company's portfolio includes fragrances such as CHARLIE and FIRE & ICE and
line extensions such as CHARLIE RED, CHARLIE WHITE, CHARLIE SUNSHINE and FIRE &
ICE COOL. The Company's CHARLIE fragrance has been a market leader since the
mid-1970's and, the Company believes, one of the top selling fragrances
worldwide. In international markets, the Company distributes under license
certain brands, including VERSACE and VAN GILS.
Personal Care Products. The Company sells a broad line of personal
care consumer products which complements its core cosmetics lines and enables
the Company to meet the consumer's broader beauty care needs. In the
self-select distribution channel, the Company sells haircare, anti-perspirant
and other personal care products, including the FLEX, OUTRAGEOUS and AQUAMARINE
haircare lines throughout the world and the COLORAMA, PLUSBELLE, JUVENA,
LLONGUERAS and NATURAL HONEY brands outside the United States; the
breakthrough, patent-pending COLORSTAY and the COLORSILK, REVLON SHADINGS,
FROST & GLOW and ROUX FANCI-FULL hair coloring lines throughout most of the
world; and the MITCHUM, LADY MITCHUM and HI & DRI anti-perspirant brands
throughout the world. Certain hair care products, including ROUX FANCI-FULL
hair coloring and PERFECT TOUCH and SALON PERFECTION home permanents, were
originally developed for professional use. The Company also markets
hypo-allergenic personal care products, including sunscreens, moisturizers and
anti-perspirants, under the ALMAY brand.
Professional Products. The Company sells a comprehensive line of salon
products, including permanent wave preparations, hair relaxers, temporary and
permanent hair coloring products, shampoos, conditioners, styling products and
hair conditioners, to professional salons and beauty supply stores under the
REVLON brand as well as other brand names such as ROUX FANCI-FULL, REALISTIC,
REVLONISSIMO, CREME OF NATURE, FABU-LAXER, LOTTABODY, NATURAL WONDER, SENSOR
and INTERCOSMO. Most of the Company's salon products in the United States
currently are distributed in the non-exclusive distribution channels, in
contrast to those products that are distributed exclusively to professional
salons. Two recent acquisitions, Creative Nail Design, Inc. ("Creative Nail"),
acquired in November 1995, and American Crew, Inc., acquired in April 1996,
increase the Company's strength in the exclusive distribution channel. Through
Creative Nail, the Company sells nail enhancement systems and nail color and
treatment products and services for use by the professional salon industry
under the CREATIVE NAIL brand name. Through American Crew, Inc. the Company
sells men's shampoos, conditioners, gels, and other hair care products for use
by professional salons under the AMERICAN CREW brand name. The Company also
sells retail hair care products under the LLONGUERAS, PERSONAL BIO POINT,
GENIOL, FIXPRAY and LANOFIL brands outside the United States. The Company
markets in salons, beauty supply stores and the self-select distribution
channel several lines of hair relaxers, styling products, hair conditioners and
other hair care products under such names as FABU-LAXER and CREME OF NATURE
designed for the particular needs of ethnic consumers. The Company also
developed a new exclusive line of ethnic products, AROSCI, which was launched
in 1996. The Company also sells wigs and hair pieces to retail outlets and
certain professional salons under the REVLON brand and, pursuant to a license,
under the ADOLFO brand.
8
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MARKETING
The Company's vision is to provide glamour, excitement and innovation
through quality products at affordable prices. The Company's marketing efforts
are designed to implement this vision. The Company has formed Global Marketing
Committees, consisting of managers from the Company's marketing, research and
development, operations, advertising and finance departments from the United
States and abroad, which develop strategies for the Company's current and new
brands and products. The Global Marketing Committees coordinate the Company's
globalization efforts while allowing sufficient flexibility to tailor products
to local and regional preferences.
Consumer Products. The Company markets extensive consumer product
lines at a range of retail prices primarily through the self-select
distribution channel and markets select premium lines through
demonstrator-assisted channels. Each line is distinctively positioned and is
marketed globally with consistently recognizable logos, packaging and
advertising designed to differentiate it from other brands. The Company's
existing consumer product lines are carefully segmented, and new product lines
are developed, to target specific consumer needs as measured by focus groups
and other market research techniques.
The Company uses print and television advertising and point-of-sale
merchandising, including displays and samples. The Company has shifted a
significant portion of its marketing to appeal to a broader audience and has
increased media advertising, particularly national television advertising.
Advertising and consumer-directed promotion expenditures increased by 11.8% in
1997 over 1996 levels and by 17.4% in 1996 over 1995 levels. The Company's
marketing emphasizes a uniform global image and product for its portfolio of
core brands, including REVLON, COLORSTAY, REVLON AGE DEFYING, ALMAY, ULTIMA II,
FLEX, CHARLIE, OUTRAGEOUS and MITCHUM. The Company coordinates advertising
campaigns with in-store promotional and other marketing activities. The Company
develops jointly with retailers carefully tailored advertising,
point-of-purchase and other focused marketing programs. In the self-select
distribution channel, the Company uses network and spot television advertising,
national cable advertising and print advertising in major general interest,
women's fashion and women's service magazines, as well as coupons, magazine
inserts and point-of-sale testers. In the demonstrator-assisted distribution
channel, the Company principally uses cooperative advertising programs with
retailers, supported by Company-paid or Company-subsidized demonstrators, and
coordinated in-store promotions and displays.
The Company also has developed unique marketing materials such as the
"Revlon Report," a glossy, color pamphlet distributed in magazines and on
merchandising units, available in 34 countries and 18 languages, which
highlights seasonal and other fashion and color trends, describes the Company's
products that address those trends and contains coupons, rebate offers and
other promotional material to encourage consumers to try the Company's
products. The Company has created on-the-road beauty sampling and information
vehicles that travel to major retailers throughout the United States, at which
Company trainers educate consumers on the latest product and shade offerings.
These vehicles create consumer and retail excitement about the Company's new
and existing products and encourage trial and purchase by consumers. Other
marketing materials designed to introduce the Company's newest products to
consumers and encourage trial and purchase include point-of-sale testers on the
Company's display units that provide information about, and permit consumers to
test, the Company's products, thereby achieving the benefits of an in-store
demonstrator without the corresponding cost; magazine inserts containing
samples of the Company's newest products; trial size products and "shade
samplers," which are collections of trial size products in different shades.
Additionally, the Company's website at http://www.revlon.com features current
product and promotional information and was recently recognized by a major
national business magazine as one of the top corporate sites on the World Wide
Web. Revlon was the only cosmetics company to receive this recognition.
Professional Products. Professional products are marketed through
educational seminars on their application and benefits and through advertising,
displays and samples to communicate to professionals and consumers the quality
and performance characteristics of such products. The Company's shift to
exclusive line distributors is intended to significantly reinforce the
Company's marketing and educational efforts with salon professionals. The
Company believes that its presence in the professional markets benefits its
consumer products business since the Company is able to anticipate consumer
trends in hair, nail and skin care, which often appear first in salons.
9
<PAGE>
NEW PRODUCT DEVELOPMENT AND RESEARCH AND DEVELOPMENT
The Company believes that it is an industry leader in the development
of innovative and technologically-advanced consumer and professional products.
The Company's marketing and research and development groups identify consumer
needs and shifts in consumer preferences in order to develop new product
introductions, tailor line extensions and promotions and redesign or
reformulate existing products to satisfy such needs or preferences. The
Company's Advanced Concept Group consists of a select cross-functional group
that conducts research on a wide range of areas to develop new and innovative
technology. The Company independently develops substantially all of its new
products. The Company also has entered into joint research projects with major
universities and commercial laboratories to develop advanced technologies.
The Company believes that its Edison, New Jersey facility is one of
the most extensive cosmetics research and development facilities in the United
States. The researchers at the Edison facility are responsible for all of the
Company's new product research worldwide, performing research for new products,
ideas, concepts and packaging. The Company also has research facilities in
Brazil and California.
The research and development group at the Edison facility also
performs extensive safety and quality tests on the Company's products,
including toxicology, microbiology and package testing. Additionally, quality
control testing is performed at each manufacturing facility.
As of December 31, 1997, the Company employed approximately 200 people
in its research and development activities, including specialists in
pharmacology, toxicology, chemistry, microbiology, engineering, biology,
dermatology and quality control. In 1997, 1996 and 1995 the Company spent
approximately $29.7 million, $26.3 million and $22.3 million, respectively, on
research and development activities.
In certain instances, proprietary technology developed by the Company
for use in products and packaging is available for licensing to third parties
through the Company's Revlon Technologies division. In 1995, the Company
received the Innovation Award from the Coalition of NorthEast Governors
("CONEG") for its patented and patent-pending ENVIROGLUV glass decorating
technology (which resulted in significant cost reductions in decorating REVLON
AGE DEFYING and COLORSTAY makeup bottles and REVLON nail enamel bottles and
which is being offered for licensing to qualified glass decorators). The CONEG
challenge awards program is a nationwide competition to recognize companies
that make significant contributions to packaging and source reduction.
MANUFACTURING AND RELATED OPERATIONS AND RAW MATERIALS
The Company is continuing to rationalize its worldwide manufacturing
operations, which is intended to lower costs and improve customer service and
product quality. The globalization of the Company's core brands allows the
Company to centralize production of some product categories for sale throughout
the world within designated facilities and shift production of certain other
product categories to more cost effective manufacturing sites to reduce
production costs. Shifts of production may result in the closing of certain of
the Company's less significant manufacturing facilities, and the Company
continually reviews its needs in this regard. In addition, as part of its
continuing efforts to improve operating efficiencies, the Company attempts to
ensure that a significant portion of its capital expenditures is devoted to
improving operating efficiencies.
The Company manufactures REVLON brand color cosmetics, personal care
products and fragrances for sale in the United States, Japan and most of the
countries in Latin America and Southeast Asia at its Phoenix, Arizona facility
and its Canadian facility. The Company manufactures ULTIMA II cosmetics and
skin treatment products for sale in the United States and most of the countries
in Latin America and Southeast Asia, personal care products for sale in the
United States and ALMAY brand products for sale throughout the world at its
Oxford, North Carolina facility. Nail care products for sale through salons
worldwide are manufactured and distributed through the Vista, California
facility. Personal care implements for sale throughout the world are
manufactured at the Company's Irvington, New Jersey facility. The Company
manufactures salon and retail professional products and personal care consumer
products for sale in the United States and Canada at the Company's
Jacksonville, Florida facility. The Phoenix and Oxford facilities have been
ISO-9002 certified. An ISO-9002 certification is an internationally recognized
standard for manufacturing
10
<PAGE>
facilities, which signifies that the manufacturing facility has achieved and
maintains certain performance and quality commitment standards.
The Company manufactures its entire line of consumer products (except
implements) for sale in most of Europe at its Maesteg, South Wales facility.
Local production of cosmetics and personal care products takes place at the
Company's facilities in Spain, Canada, Venezuela, Mexico, New Zealand, Brazil,
Italy, Argentina, France and South Africa. The manufacture of professional
products for sale by retailers outside the United States has been centralized
principally at the Company's facilities in Ireland, Spain, Italy and Mexico.
Production of color cosmetics for Japan and Mexico has been shifted primarily
to the United States while production of REVLON brand personal care products
for Argentina has been centralized in Brazil. The Maesteg and Irish facilities
have been certified by the British equivalent of ISO-9002.
The Company purchases raw materials and components throughout the
world. The Company continuously pursues reductions in cost of goods through the
global sourcing of raw materials and components from qualified vendors,
utilizing its large purchasing capacity to maximize cost savings. The global
sourcing of raw materials and components from accredited vendors also ensures
the quality of the raw materials and components. The Company believes that
alternate sources of raw materials and components exist and does not anticipate
any significant shortages of, or difficulty in obtaining, such materials.
The Company's improvements in manufacturing, sourcing and related
operations have contributed to improved customer service, including an
improvement in the percentage of timely order fulfillment from most of the
Company's principal manufacturing facilities and the timeliness and accuracy of
new product and promotion deliveries. To promote the Company's understanding
of, and responsiveness to the needs of its retail customers, the Company
assigns members of senior operations management to lead inter-departmental
teams that visit significant accounts, and has provided retail accounts with a
designated customer service representative.
The Company emphasizes safety and increased training of employees
resulting in an improved safety record. The Company anticipates that the
globalization of, and continued improvement in, the quality of its
manufacturing operations will result in lower manufacturing costs.
BUSINESS PROCESS ENHANCEMENTS
The Company's management information systems have been substantially
upgraded to provide comprehensive order processing, production and accounting
support for the Company's business. The Company's expenditures to outside
vendors for improvements to its management information systems were
approximately $11 million for 1997, and the Company anticipates a similar level
of expenditure in 1998. Systems improvements have been and the Company
anticipates that they will continue to be instrumental in contributing to the
reduction of the time from order entry to shipment, improved forecasting of
demand and improved operating efficiencies.
The Company has made an evaluation of steps necessary to address
issues related to required changes in computer systems for the Year 2000. While
the Company has determined that it currently has computer systems that require
modification to be Year 2000 compliant, many of the modifications are being
accomplished as part of the systems improvements referred to above. As to its
systems which are not impacted by the improvements referred to above, the
Company is identifying those which require modification or replacement to
address the Year 2000 issue. Management believes that there is no material risk
that the Company will fail to address the Year 2000 issues in a timely manner.
Additionally, the Company believes that the Year 2000 issue will not have a
material effect on its financial condition.
11
<PAGE>
DISTRIBUTION
As a result of its improved customer service and consumer traffic
generated by its products and innovative marketing programs, the Company
believes that its relationships with self-select distribution cosmetic
retailers are the best in the cosmetics industry.
The Company's products are sold in approximately 175 countries and
territories. The Company's worldwide sales force had approximately 1,200 people
as of December 31, 1997, including a dedicated sales force for cosmetics, skin
care and fragrance products in the self-select distribution channel, for the
demonstrator-assisted distribution channel, for personal care products
distribution and for salon distribution. In addition, the Company utilizes
sales representatives and independent distributors to serve specialized markets
and related distribution channels.
United States. The United States operation's net sales accounted for
approximately 58.1% of the Company's 1997 net sales, a majority of which were
made in the self-select distribution channel. The Company also sells a broad
range of consumer and retail professional products to United States Government
military exchanges and commissaries. The Company licenses its trademarks to
select manufacturers for products that the Company believes have the potential
to extend the Company's brand names and image. As of December 31, 1997, 19
licenses were in effect relating to 21 product categories to be marketed in the
self-select distribution channel. Pursuant to the licenses, the Company retains
strict control over product design and development, product quality,
advertising and use of its trademarks. These licensing arrangements offer
opportunities for the Company to generate revenues and cash flow through earned
royalties, royalty advances and, in some cases, up-front licensing fees.
Products designed for professional use or resale by beauty salons are sold
through wholesale beauty supply distributors and directly to professional
salons. Various hair care products, such as ethnic hair relaxers, scalp
conditioners, shampoos and hair coloring products and wigs and hairpieces are
sold directly and through wholesalers to chain drug stores and mass volume
retailers. Wigs and hairpieces are also sold through mail order direct
marketing, retail outlet malls, salons and certain department stores.
The Company also operated retail stores through Cosmetic Center. As of
December 31, 1997, Cosmetic Center's retail (or Cosmetic Center) division
operated 66 specialty retail stores in the middle Atlantic region and in
Chicago and its outlet (or Prestige Fragrance & Cosmetics) division operated
201 retail outlet stores throughout the United States. The stores in the
Cosmetic Center division offer a broad range of brand name prestige and mass
merchandised cosmetics products at value prices. The stores in the Prestige
Fragrance & Cosmetics division operate in factory outlet malls, rural areas and
other similar locations that are not disruptive to the Company's principal
distribution channels. In these stores, Cosmetic Center sells the Company's
first quality, first quality excess, returned and refurbished, and discontinued
consumer products and retail professional products, as well as similar products
of other cosmetics companies.
International. The International operation's net sales accounted for
approximately 41.9% of the Company's 1997 net sales. The International
operation's ten largest countries in terms of these sales, which include, among
others, Brazil, Spain, the United Kingdom, Australia, South Africa, Canada and
Japan, accounted for approximately 30% of the Company's net sales in 1997, with
Brazil accounting for approximately 5.8% of the Company's net sales. The
International operation is increasing distribution through the expanding
self-select distribution channels outside the United States, such as drug
stores/chemists, hypermarkets/mass volume retailers and variety stores, as
these channels gain importance. The International operation also distributes
through department stores and specialty stores such as perfumeries. The
International operation's professional products are sold directly to beauty
salons by the Company's direct sales force in Spain, France, Germany, Portugal,
Italy, Mexico and Ireland and through distributors in other countries. As of
December 31, 1997, the Company actively sold its products through wholly owned
subsidiaries established in 26 countries outside of the United States, through
joint ventures in India and Indonesia, and through a large number of
distributors and licensees elsewhere around the world. The Company continues to
pursue strategies to establish its presence in new emerging markets. Such new
and emerging markets include Eastern Europe; Russia; and China, where in 1996
the Company established a subsidiary with a local minority partner. In
addition, the Company is building a franchise through local distributorships in
northern and central Africa, where the Company intends to expand the
distribution of its products by capitalizing on its market strengths in South
Africa.
12
<PAGE>
CUSTOMERS
The Company's principal customers include chain drug stores and large
mass volume retailers, including such well known retailers as Wal-Mart,
Walgreens, Kmart, Target, CVS, Drug Emporium, American Drug Stores, Eckerds,
and Rite Aid in the self-select distribution channel, J.C. Penney in the
demonstrator-assisted distribution channel, Sally's Beauty Company for
professional products, Boots in the United Kingdom and Western Europe and
Wal-Mart worldwide. The foregoing principal customers each accounted for 1% or
more of the Company's net sales in 1997 and are representative of the Company's
customers. Wal-Mart and its affiliates accounted for approximately 10.3% of the
Company's 1997 consolidated net sales. Although the loss of Wal-Mart as a
customer could have an adverse effect on the Company, the Company believes that
its relationship with Wal-Mart is satisfactory and the Company has no reason to
believe that Wal-Mart will not continue as a customer.
COMPETITION
The cosmetics and skin care, fragrance, personal care and professional
products business is characterized by vigorous competition throughout the
world. Brand recognition, together with product quality, performance and price
and the extent to which consumers are educated on product benefits, have a
marked influence on consumers' choices among competing products and brands.
Advertising, promotion, merchandising and packaging, and the timing of new
product introductions and line extensions, also have a significant impact on
buying decisions, and the structure and quality of the sales force affect
product reception, in-store position, permanent display space and inventory
levels in retail outlets. The Company competes in most of its product
categories against a number of companies, some of which have substantially
greater resources than the Company. In addition to products sold in the
self-select and demonstrator-assisted distribution channels, the Company's
products also compete with similar products sold door-to-door or through mail
order or telemarketing by representatives of direct sales companies. The
Company's principal competitors include L'Oreal S.A., The Procter & Gamble
Company, Helene Curtis Industries, Inc. and Joh A. Benckiser GmbH in the
self-select distribution channel; L'Oreal S.A., Unilever N.V., Estee Lauder,
Inc. and Joh A. Benckiser GmbH in the demonstrator-assisted distribution
channel; and L'Oreal S.A. and Matrix Essentials, Inc., which is owned by
Bristol-Myers Squibb Company, in professional products.
SEASONALITY
The Company's business is subject to certain seasonal fluctuations,
with net sales in the second half of the year generally benefiting from
increased retailer purchases in the United States for the back-to-school and
Christmas selling seasons.
PATENTS, TRADEMARKS AND PROPRIETARY TECHNOLOGY
The Company's major trademarks are registered in the United States and
in many other countries, and the Company considers trademark protection to be
very important to its business. Significant trademarks include REVLON,
COLORSTAY, REVLON AGE DEFYING, STREETWEAR, FLEX, PLUSBELLE, MITCHUM, ETERNA 27,
ULTIMA II, ALMAY, CHARLIE, JEAN NATE, REVLON RESULTS, COLORAMA, FIRE & ICE,
MOON DROPS, SUPER LUSTROUS and WONDERWEAR LIPSEXXXY for consumer products and
REVLON, ROUX FANCI-FULL, REALISTIC, FERMODYL, CREATIVE NAIL, AMERICAN CREW and
INTERCOSMO for professional products.
The Company utilizes certain proprietary or patented technologies in
the formulation or manufacture of a number of the Company's products, including
COLORSTAY lipcolor and cosmetics, COLORSTAY haircolor, FLEX & GO shampoo,
LENGTHWISE mascara, classic REVLON nail enamel, TOP SPEED nail enamel, REVLON
AGE DEFYING foundation and cosmetics, NEW COMPLEXION makeup, WONDERWEAR
foundation, WONDERWEAR LIPSEXXXY lipstick, ALMAY TIME-OFF skin care and makeup,
ALMAY AMAZING cosmetics, ALMAY ONE COAT eye makeup and cosmetics, ULTIMA II
VITAL RADIANCE skin care products, OUTRAGEOUS shampoo, FLEX hairspray and
various professional products, including FERMODYL shampoo and conditioners. The
Company also protects certain of its packaging and component concepts through
design patents. The Company considers its proprietary technology and patent
protection to be important to its business.
13
<PAGE>
GOVERNMENT REGULATION
The Company is subject to regulation by the Federal Trade Commission
and the Food and Drug Administration (the "FDA") in the United States, as well
as various other federal, state, local and foreign regulatory authorities. The
Phoenix, Arizona and Oxford, North Carolina manufacturing facilities are
registered with the FDA as drug manufacturing establishments, permitting the
manufacture of cosmetics that contain over-the-counter drug ingredients such as
sunscreens. Compliance with federal, state, local and foreign laws and
regulations pertaining to discharge of materials into the environment, or
otherwise relating to the protection of the environment, has not had, and is
not anticipated to have, a material effect upon the capital expenditures,
earnings or competitive position of the Company. State and local regulations in
the United States that are designed to protect consumers or the environment
have an increasing influence on product claims, contents and packaging.
INDUSTRY SEGMENTS, FOREIGN AND DOMESTIC OPERATIONS
The Company operates in a single business segment. Certain geographic,
financial and other information of the Company is set forth in Note 19 of the
Notes to Consolidated Financial Statements of the Company.
EMPLOYEES
As of December 31, 1997, the Company employed the equivalent of
approximately 14,000 full-time persons (which excludes approximately 2,000
employees of the discontinued operations). Approximately 2,100 of such
employees in the United States are covered by collective bargaining agreements.
The Company will be negotiating collective bargaining agreements or portions
thereof covering employees in eleven countries outside the United States during
1998 (namely, Australia, Brazil, England, France, Ireland, Israel, Italy,
Japan, Mexico, South Africa and Spain). Although there can be no assurance, the
Company expects that such agreements will be renewed in the ordinary course,
and further believes that its employee relations are satisfactory. Although the
Company has experienced minor work stoppages of limited duration in the past in
the ordinary course of business, such work stoppages have not had a material
effect on the Company's results of operations or financial condition.
14
<PAGE>
ITEM 2. PROPERTIES
The following table sets forth as of December 31, 1997 the Company's
major manufacturing, research and warehouse/distribution facilities, all of
which are owned except where otherwise noted.
<TABLE>
<CAPTION>
APPROXIMATE FLOOR SPACE
LOCATION USE SQ. FT.
- -------- --- -------
<S> <C> <C>
United States:
- --------------
Oxford, North Carolina.............. Manufacturing, warehousing, distribution and office 1,012,000
Phoenix, Arizona.................... Manufacturing, warehousing, distribution and office 706,000
(partially leased)
Jacksonville, Florida .............. Manufacturing, warehousing, distribution, research and 526,000
office
Edison, New Jersey.................. Research and office (leased) 133,000
Irvington, New Jersey............... Manufacturing, warehouse and office 96,000
International:
- --------------
Sao Paulo, Brazil................... Manufacturing, warehousing, distribution, office and 435,000
research
Maesteg, South
Wales............................... Manufacturing, distribution and office 316,000
Mississauga, Canada................. Manufacturing, warehousing, distribution and office 245,000
Santa Maria, Spain.................. Manufacturing and warehousing 173,000
Caracas, Venezuela.................. Manufacturing, distribution and office 145,000
Kempton Park, South Africa.......... Warehousing, distribution and office (leased) 127,000
Canberra, Australia................ Warehousing, distribution and office 125,000
Isando, South Africa................ Manufacturing, warehousing, distribution and office 94,000
Escobar, Argentina.................. Manufacturing, warehousing, distribution and office 75,000
Argenteuil, France.................. Warehousing and distribution (leased) 73,000
Bologna, Italy...................... Manufacturing, warehousing, distribution and office 60,000
Dublin, Ireland..................... Manufacturing, warehousing, distribution and office 32,500
</TABLE>
In addition to the facilities described above, additional facilities
are owned and leased in various areas throughout the world, including the lease
for the Company's executive offices in New York, New York (345,000 square feet,
of which approximately 57,000 square feet are currently sublet to affiliates of
the Company and approximately 27,000 square feet are sublet to an unaffiliated
third party). Management considers the Company's facilities to be
well-maintained and satisfactory for the Company's operations, and believes
that the Company's facilities provide sufficient capacity for its current and
expected production requirements. Products Corporation leases from Holdings on
arms' length terms its research and development facility located in Edison, New
Jersey.
15
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in various routine legal proceedings incident
to the ordinary course of its business. The Company believes that the outcome
of all pending legal proceedings in the aggregate is unlikely to have a
material adverse effect on the business or consolidated financial condition of
the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the
fourth quarter of the fiscal year covered by this report.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
All of the equity securities of REV Holdings are beneficially owned by
MacAndrews & Forbes, which is indirectly wholly owned by Ronald O. Perelman,
and there is no public market therefor. No dividends were declared or paid
during 1997 or 1996. The terms of the Credit Agreement, the 8 5/8% Notes, the
Senior Notes and the 9 1/2% Senior Notes Due 1999 (the "1999 Notes") currently
restrict, and, after the 8 1/8% Notes Assumption, the terms of the 8 1/8% Notes
will restrict, the ability of Products Corporation to pay dividends or make
distributions to Revlon, Inc. The terms of the Senior Secured Discount Notes
currently restrict the ability of REV Holdings to pay dividends or make
distributions. See the Consolidated Financial Statements of the Company and the
Notes thereto.
ITEM 6. SELECTED FINANCIAL DATA
The Consolidated Statements of Operations Data for each of the years
in the three-year period ended December 31, 1997 and the Balance Sheet Data as
of December 31, 1997 and 1996 are derived from the Consolidated Financial
Statements of the Company, which have been audited by KPMG Peat Marwick LLP,
independent certified public accountants. The Consolidated Statements of
Operations Data for each of the years in the two-year period ended December 31,
1994 and the Balance Sheet Data as of December 31, 1995, 1994 and 1993 are
derived from unaudited consolidated financial statements for such periods,
which have been restated to reflect the Company's retail and outlet store
business as discontinued operations. The Selected Consolidated Financial Data
should be read in conjunction with the Consolidated Financial Statements of the
Company and the Notes to the Consolidated Financial Statements and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------------
1997 (a) 1996 (a) 1995 (a) 1994 (a) 1993 (a)
------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
(DOLLARS IN MILLIONS)
STATEMENTS OF OPERATIONS DATA:
Net sales $2,238.6 $2,092.1 $1,867.3 $1,674.0 $1,540.5
============= ============ ============ ============ ============
Operating income $ 214.9(b) $ 199.2 $ 147.5 $ 108.1 $ 51.1
============= ============ ============ ============ ============
(Loss) income from continuing operations $ (30.1) $ 101.2(c) $ (136.3) $ (161.9) $ (189.2)
Income (loss) from discontinued operations 0.7 0.4 (4.0) (2.0) (1.5)
Extraordinary items - early extinguishments of debt (58.7) (6.6) - - (9.5)
Cumulative effect of accounting changes - - - (28.8)(d) (6.0)(e)
------------- ------------ ------------ ------------ ------------
Net (loss) income $ (88.1) $ 95.0 $ (140.3) $ (192.7) $ (206.2)
============= ============ ============ ============ ============
DECEMBER 31,
--------------------------------------------------------------------------------
1997 (a) 1996 (a) 1995 (a) 1994 (a) 1993 (a)
------------- ------------ ------------ ------------ ------------
(DOLLARS IN MILLIONS)
BALANCE SHEET DATA:
Total assets $2,099.6 $1,622.3 $1,541.8 $1,427.7 $1,565.4
Long-term debt, including current portion 2,305.0 2,330.6 2,339.6 2,098.4 1,974.8
Total stockholder's deficiency (994.7) (1,461.7) (1,556.0) (1,410.8) (1,220.1)
</TABLE>
16
<PAGE>
(a) On June 8, 1998, the Company announced its intention to dispose of its
approximately 85% ownership interest in Cosmetic Center. The results of
operations of Cosmetic Center have been reported as a discontinued operation
and, accordingly, all prior periods have been restated.
(b) In 1997, the Company incurred business consolidation costs and other, net,
of approximately $3.6 million in connection with the implementation of its
business strategy to rationalize factory and warehouse operations, including
primarily severance and other related costs in certain operations, partially
offset by a settlement of a claim of $12.7 million and gains associated with
the sale of certain facilities related to the rationalizations.
(c) Includes the gain on the sale of subsidiary stock of $187.8 million that
was recognized in connection with the Revlon IPO.
(d) Effective January 1, 1994, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 112, "Employers' Accounting for
Postemployment Benefits." The Company recognized a charge of $28.8 million in
the first quarter of 1994 to reflect the cumulative effect of the accounting
change, net of income tax benefit.
(e) Effective January 1, 1993, the Company adopted SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions," for its retiree
benefit plan in the United States. Accordingly, the Company recognized a charge
of $6.0 million in the first quarter of 1993 to reflect the cumulative effect
of the accounting change.
ITEM 7. 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 has a
licensing group.
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.
On June 8, 1998, the Company announced its intention to dispose of its
approximately 85% ownership interest in Cosmetic Center. Accordingly, all prior
period financial information has been restated to reflect the retail and outlet
store business as a discontinued operation.
RESULTS OF OPERATIONS
The following table sets forth the Company's net sales by operation
for each of the last three years:
YEAR ENDED DECEMBER 31,
-----------------------------------------------
Net sales: 1997 1996 1995
------------ ------------ ------------
United States $1,300.2 $1,182.3 $1,042.7
International 938.4 909.8 824.6
------------ ------------ ------------
$2,238.6 $2,092.1 $1,867.3
============ ============ ============
17
<PAGE>
The following table sets forth certain statements of operations data
as a percentage of net sales for each of the last three years:
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1997 1996 1995
------------ ------------ ------------
Cost of sales 33.2% 32.9% 32.9%
Gross profit 66.8 67.1 67.1
Selling, general and
administrative
expenses 57.1 57.6 59.2
Business condolidation
costs and other, net 0.1 - -
Operating income 9.6 9.5 7.9
YEAR ENDED DECEMBER 31, 1997 COMPARED WITH YEAR ENDED DECEMBER 31, 1996
NET SALES
Net sales were $2,238.6 and $2,092.1 for 1997 and 1996, respectively,
an increase of $146.5, or 7.0% or 9.5% on a constant U.S. dollar basis,
primarily as a result of successful new product introductions worldwide,
increased demand in the United States, increased distribution internationally
into the expanding self-select distribution channel and the further development
of new international markets.
United States. The United States operation's net sales increased to
$1,300.2 for 1997 from $1,182.3 for 1996, an increase of $117.9, or 10.0%. Net
sales improved for 1997, primarily as a result of continued consumer acceptance
of new product offerings and general improvement in consumer demand for the
Company's color cosmetics. These results were partially offset by a decline in
the Company's fragrance business caused by downward trends in the mass
fragrance industry and the Company's strategy to de-emphasize new fragrance
products. Even though consumer sell-through for the REVLON and ALMAY brands, as
described below in more detail, has increased significantly, the Company's
sales to its customers have been during 1997 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 with a share of
21.6% for 1997 versus 21.4% for 1996. Market share, which is subject to a
number of conditions, can vary from quarter to quarter as a result of such
things as timing of new product introductions and advertising and promotional
spending. New product introductions (including, in 1997, certain products
launched during 1996) generated incremental net sales in 1997, principally as a
result of launches of products in the COLORSTAY collection, including COLORSTAY
eye makeup and face products such as powder and blush, COLORSTAY haircolor,
launched in the third quarter of 1997, TOP SPEED nail enamel, launched in the
third quarter of 1997, and launches of REVLON AGE DEFYING line extensions, the
STREETWEAR collection, NEW COMPLEXION face makeup, LINE & SHINE lip makeup and
launches of products in the ALMAY AMAZING collection, including lip makeup, eye
makeup, face makeup and concealer, ALMAY ONE COAT, and ALMAY TIME-OFF
REVITALIZER.
International. The International operation's net sales increased to
$938.4 for 1997 from $909.8 for 1996, an increase of $28.6, or 3.1% on a
reported basis or 8.8% on a constant U.S. dollar basis. Net sales improved for
1997, principally as a result of increased distribution into the expanding
self-select distribution channel, successful new product introductions,
including the continued roll-out of the COLORSTAY cosmetics collection and the
further development of new international markets. This was partially offset by
the Company's decision to exit the unprofitable demonstrator-assisted channel
in Japan in the second half of 1996, unfavorable economic conditions in several
international markets, and, on a reported basis, the unfavorable effect on
sales of a stronger U.S. dollar against certain foreign currencies, primarily
the Spanish peseta, the Italian lira and several other European currencies, the
Australian dollar, the South African rand and the Japanese yen. New products
such as COLORSTAY haircolor and STREETWEAR were introduced in select
international markets in the second half of 1997. During 1997, the
International operation's sales were divided into the following geographic
areas: Europe, which is comprised of Europe, the Middle East and Africa (in
which net sales increased by 3.4% on a reported basis to $417.9 for 1997 as
compared to 1996 or an increase of 11.3% 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
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11.1% on a reported basis to $346.6 for 1997 as compared to 1996 or an increase
of 14.5% on a constant U.S. dollar basis); and the Far East (in which net sales
decreased by 10.3% on a reported basis to $173.9 for 1997 as compared to 1996
or a decrease of 5.5% on a constant U.S. dollar basis). Excluding in both
periods the effect of the Company's strategy of exiting the
demonstrator-assisted distribution channel in Japan, Far East net sales on a
constant U.S. dollar basis for 1997 would have been at approximately the same
level as those in 1996.
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 $130.9, $16.0 and
$7.7, respectively, for 1997 compared to $132.7, $25.1 and $20.0, respectively,
for 1996. Results of operations in Brazil for 1997 were adversely impacted by
competitive activity affecting the Company's toiletries business.
Cost of sales
As a percentage of net sales, cost of sales was 33.2% for 1997
compared to 32.9% for 1996. The increase in cost of sales as a percentage of
net sales included factors which enhanced overall operating income, including
increased sales of the Company's higher cost, enhanced-performance,
technology-based products and increased export sales and other factors
including the effect of weaker local currencies on the cost of imported
purchases and competitive pressures on the Company's toiletries business in
certain International markets. These factors were partially offset by the
benefits of improved overhead absorption against higher production volumes and
more efficient global production and purchasing.
S,G&A expenses
As a percentage of net sales, S,G&A expenses were 57.1% for 1997, an
improvement from 57.6% for 1996. S,G&A expenses other than advertising and
consumer-directed promotion expenses, as a percentage of net sales, improved to
39.3% for 1997 compared with 40.6% for 1996, primarily as a result of reduced
general and administrative expenses, improved productivity and lower
distribution costs in 1997 compared with those in 1996. In accordance with its
business strategy, the Company increased advertising and consumer-directed
promotion expenditures in 1997 compared with 1996 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 and consumer-directed promotion expenses
increased by 11.8% to $397.4, or 17.8% of net sales, for 1997 from $355.5, or
17.0% of net sales, for 1996.
Business consolidation costs and other, net
Business consolidation costs and other, net, in 1997 include
severance, writedowns of certain assets to their estimated net realizable value
and other related costs to rationalize factory operations in certain operations
in accordance with the Company's business strategy, partially offset by related
gains from the sales of certain factory operations and an approximately $12.7
settlement of a claim in the second quarter of 1997. These business
consolidations are intended to lower the Company's operating costs and increase
efficiency in the future.
Operating income
As a result of the foregoing, operating income increased by $15.7, or
7.9%, to $214.9 for 1997 from $199.2 for 1996.
Other expenses/income
Interest expense was $232.9 for 1997 compared to $240.1 for 1996. The
decrease in interest expense in 1997 is primarily due to the cancellation in
March 1997 of a portion of the Revlon Worldwide Notes, lower interest rates
under the Credit Agreement and lower interest expense under the Senior Secured
Discount Notes partially offset by higher average outstanding borrowings under
the Credit Agreement.
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Interest and net investment income was $20.4 for 1997 compared to $4.4
for 1996. The increase in interest and net investment income was primarily due
to the interest income recognized on marketable securities that were purchased
by the Company and deposited in an irrevocable trust to effect the covenant
defeasance of the remaining Revlon Worldwide Notes not previously delivered to
the Trustee for cancellation.
A gain on sale of subsidiary stock of $187.8 was recognized in the
first quarter of 1996 as a result of the Revlon IPO.
Foreign currency losses, net, were $6.4 for 1997 compared to $5.7 for
1996. The increase in foreign currency losses for 1997 as compared to 1996
resulted primarily from a non recurring gain recognized in 1996 in connection
with the Company's simplification of its international corporate structure and
from the strengthening of the U.S. dollar versus currencies in the Far East and
most European currencies, partially offset by the stabilization of the
Venezuelan bolivar and Mexican peso versus the devaluations which occurred
during 1996.
Provision for income taxes
The provision for income taxes was $9.3 and $25.5 for 1997 and 1996,
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, and benefits from net
operating loss carryforwards domestically.
Discontinued operations
Income from discontinued operations was $0.7 and $0.4 for 1997 and
1996, respectively. The 1997 period includes a $6.0 non-recurring gain
resulting from the merger of Prestige Fragrance & Cosmetics, Inc., then a
wholly owned subsidiary of Products Corporation, with and into CCI on April 25,
1997, partially offset by related business consolidation costs of $4.0 and
operating losses of Cosmetic Center.
Extraordinary item
The extraordinary item in 1997 resulted from the write-off in the
second quarter of 1997 of deferred financing costs of approximately $8.6
associated with the early extinguishment of borrowings under the 1996 Credit
Agreement prior to maturity with proceeds from the Credit Agreement, and costs
of approximately $6.3 in connection with the redemption of Products
Corporation's Sinking Fund Debentures and $43.8 from the cancellation in the
first quarter of 1997 of a portion of the Revlon Worldwide Notes and the
write-off of the deferred financing costs associated with such cancellation.
The extraordinary item in 1996 resulted from the write-off in the first quarter
of 1996 of deferred financing costs associated with the early extinguishment of
borrowings under the 1995 Credit Agreement prior to maturity with the net
proceeds from the Revlon IPO and proceeds from the 1996 Credit Agreement.
YEAR ENDED DECEMBER 31, 1996 COMPARED WITH YEAR ENDED DECEMBER 31, 1995
Net sales
Net sales were $2,092.1 and $1,867.3 for 1996 and 1995, respectively,
an increase of $224.8, or 12.0%, 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.
United States. The United States operation's net sales increased to
$1,182.3 for 1996 from $1,042.7 for 1995, an increase of $139.6, or 13.4%. Net
sales improved for 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 brand
cosmetics in the color cosmetics business in the United States self-select
distribution channel
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to 21.4% for 1996 from 19.5% for 1995, moving into the leading position in
market share. Market share, which is subject to a number of conditions, can
vary from quarter to quarter as a result of such things as timing of new
product introductions and advertising and promotional spending. New product
introductions (including, in 1996, certain products launched during 1995)
generated incremental net sales in 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
$909.8 for 1996 from $824.6 for 1995, an increase of $85.2, or 10.3% on a
reported basis or 12.6% on a constant U.S. dollar basis. Net sales improved
principally as a result of successful new product introductions, including the
continued roll-out of the COLORSTAY cosmetics collection and REVLON AGE DEFYING
makeup, increased distribution into the expanding self-select distribution
channel, the further development of new international markets, partially
offset, on a reported basis, by the unfavorable effect on sales of a stronger
U.S. dollar against certain foreign currencies, primarily the South African
rand, Japanese yen, and several European currencies. During 1996, the
International operation's sales were divided into the following geographic
areas: Europe, which is comprised of Europe, the Middle East and Africa (in
which net sales increased to $404.0 for 1996 from $374.6 for 1995, an increase
of $29.4, or 7.8%); the Western Hemisphere, which is comprised of Canada,
Mexico, Central America, South America and Puerto Rico (in which net sales
increased to $311.9 for 1996 from $275.4 for 1995, an increase of $36.5, or
13.3%); and the Far East (in which net sales increased to $193.9 for 1996 from
$174.6 for 1995, an increase of $19.3, or 11.1%).
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 $132.7, $25.1 and
$20.0, respectively, for 1996 compared to $118.6, $22.8 and $19.8,
respectively, for 1995. In Mexico, net sales for 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 for 1996 and
1995 were adversely affected by high inflation and in the 1996 period by a
currency devaluation.
Cost of sales
As a percentage of net sales, cost of sales was 32.9% for 1996 and
1995, respectively. Cost of sales as a percentage of net sales for 1996
compared to 1995 reflects the benefits of improved overhead absorption against
higher production volumes and more efficient global production and purchasing.
These improvements were offset by changes in product mix involving an increase
in sales of the Company's higher cost technology-based products, an increase in
export sales, lower margin products (such as those products sold in Brazil),
the effect of weaker local currencies on the cost of imported purchases and
competitive pressures on the Company's toiletries business in certain
international markets in Europe and the Far East. The aforementioned increases
in sales that negatively impacted cost of sales were, however, more profitable
to the Company's overall operating results.
S,G&A expenses
As a percentage of net sales, S,G&A expenses were 57.6% for 1996, an
improvement from 59.2% for 1995. S,G&A expenses other than advertising and
consumer-directed promotion expenses, as a percentage of net sales, improved to
40.6% for 1996 compared with 43.0% for 1995 primarily as a result of reduced
general and administrative expenses, improved productivity and lower
distribution costs in 1996 compared with 1995, partially offset by additional
costs incurred in Japan in 1996 in connection with the Company's strategy of
exiting the demonstrator-assisted distribution channel. In accordance with its
business strategy, the Company increased advertising and consumer-directed
promotion expenditures in 1996 compared with 1995 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 and consumer-directed promotion expenses
increased by 17.4% to $355.5, or 17.0% of net sales, for 1996 compared to
$302.9, or 16.2% of net sales, for 1995.
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Operating income
As a result of the foregoing, operating income increased by $51.7, or
35.1%, to $199.2 for 1996 from $147.5 for 1995.
Other expenses/income
Interest expense was $240.1 for 1996 compared to $237.5 for 1995. The
increase was attributable to the higher accretion of the Revlon Worldwide
Notes, partially offset by lower average outstanding borrowings as a result of
the paydown of debt under the 1996 Credit Agreement and under the 1995 Credit
Agreement with the use of proceeds from the Revlon IPO in the 1996 period and
lower interest rates under the 1996 Credit Agreement than under the 1995 Credit
Agreement.
Foreign currency losses, net, were $5.7 for 1996 compared to $10.9 for
1995. The reduction in the foreign currency loss in 1996 as compared to 1995
was due to lower foreign currency losses primarily in Mexico and Venezuela and
the Company's simplification of its international corporate structure, which
resulted in $2.1 of gains, previously deferred in the currency translation
account, partially offset by the strengthening of the U.S. dollar against the
Spanish peseta and the strengthening of the U.K. pound against several European
currencies.
Miscellaneous, net, was $6.4 for 1996 compared to $1.8 for 1995. The
increase relates primarily to the Company's continued investment in certain
emerging markets.
Gain on sale of subsidiary stock of $187.8 was recognized in the first
quarter of 1996 as a result of the Revlon IPO.
Discontinued operations
Income (loss) from discontinued operations was $0.4 and $(4.0) for
1996 and 1995, respectively. The improvement was primarily due to an increase
in net sales as a result of new store openings and increased fragrance sales
during the Christmas season.
Extraordinary item
The extraordinary item resulted from the write-off recorded in the
first quarter of 1996 of deferred financing costs associated with the early
extinguishment of the 1995 Credit Agreement prior to its maturity with the net
proceeds from the Revlon IPO and borrowings under the 1996 Credit Agreement.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by (used for) operating activities was $10.2,
($10.4) and ($45.9) for 1997, 1996 and 1995, respectively. The increase in net
cash provided by operating activities for 1997 compared with net cash used in
1996 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. The decrease in net cash used for operating
activities for 1996 compared with 1995 resulted primarily from higher operating
income, lower restructuring payments ($13.3 for 1996 compared with $24.2 for
1995) and improved management of inventory relative to business growth,
partially offset by higher trade receivable balances as a result of higher net
sales and 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 $403.9, $61.8 and $69.5 for
1997, 1996 and 1995, respectively. In 1997, net cash used for investing
activities included $319.6 used for the purchase of marketable securities that
were deposited in an irrevocable trust to effect the covenant defeasance of the
remaining Revlon Worldwide Notes not previously delivered to the Trustee for
cancellation. Additionally, net cash used for investing activities for 1997,
1996 and 1995 included capital expenditures of $52.3, $54.7 and $51.3,
respectively, and $40.5, $7.1 and $21.2, respectively,
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used for acquisitions. Net cash used for acquisitions in 1997 consisted
primarily of cash paid for the acquisition of a South American hair care
manufacturer and its distributor.
Net cash provided by financing activities was $403.0, $78.0 and $125.6
for 1997, 1996 and 1995, respectively. Net cash provided by financing
activities for 1997 included cash drawn under the 1996 Credit Agreement, the
Credit Agreement and net proceeds from the issuance of the Senior Secured
Discount Notes, partially offset by cash used for the purchase of the Revlon
Worldwide Notes delivered to the Trustee for cancellation, repayment of
borrowings under the 1996 Credit Agreement, the payment of fees and expenses
related to entering into the Credit Agreement, the repayment of borrowings
under the Company's Japanese yen-denominated credit agreement (the "Yen Credit
Agreement") and the redemption of the Sinking Fund Debentures. Net cash
provided by financing activities for 1996 included the net proceeds from the
Revlon IPO, cash drawn under the 1995 Credit Agreement and under the 1996
Credit Agreement, partially offset by the repayment of borrowings under the
1995 Credit Agreement, the payment of fees and expenses related to the 1996
Credit Agreement and the repayment of borrowings under the Yen Credit
Agreement. Net cash provided by financing activities for 1995 consisted
primarily of borrowings under the credit agreement of Products Corporation in
effect prior to the 1995 Credit Agreement and borrowings under the 1995 Credit
Agreement, partially offset by repayments of cash drawn under those credit
agreements, repayments under the Yen Credit Agreement and payment of debt
issuance costs under the 1995 Credit Agreement.
During 1997, the Company issued and sold $770.0 aggregate principal
amount at maturity of its Senior Secured Discount Notes. The Senior Secured
Discount Notes were issued at a discount from their principal amount at
maturity representing a yield to maturity of 10 3/4% per annum calculated from
March 5, 1997. There are no periodic interest payments on the Senior Secured
Discount Notes. The indenture governing the Senior Secured Discount Notes (the
"Indenture") requires the Company to hold at all times a minimum percentage of
common stock of Revlon, Inc. pledged to secure the Senior Secured Discount
Notes. In addition, the Indenture contains covenants that, among other things,
limit (i) the issuance of additional debt and redeemable stock by the Company
or Revlon, Inc. and the issuance of preferred stock by Revlon, Inc., (ii) the
issuance of debt and preferred stock by Products Corporation and its
subsidiaries, (iii) the payments of dividends on capital stock of the Company
and its subsidiaries and the redemption of capital stock of the Company, (iv)
the sale of assets and subsidiary stock, (v) transactions with affiliates and
(vi) consolidations, mergers and transfers of all or substantially all of the
Company's assets. The Indenture also prohibits certain restrictions on
distributions from subsidiaries. All of these limitations and prohibitions,
however, are subject to a number of qualifications which are set forth in the
Indenture.
During March 1997, $778.4 principal amount at maturity (accreted value
of $694.0) of the Revlon Worldwide Notes was delivered to the Trustee under the
Revlon Worldwide Indenture for cancellation. In connection with the Revlon
Worldwide Notes that were canceled, the Company recorded a capital contribution
from its indirect parent of $560.1 and recorded an extraordinary loss of $43.8,
which included the write-off of deferred financing costs, in the first quarter
of 1997. On April 2, 1997, funds were deposited in an irrevocable trust to
effect the covenant defeasance of the remaining balance of $337.4 principal
amount at maturity of the Revlon Worldwide Notes. The covenant defeasance of
the Revlon Worldwide Notes was effected on August 4, 1997, the 124th day
following the deposit. On March 16, 1998, $337.4 of funds held in the
irrevocable trust were used to repay the remaining Revlon Worldwide Notes upon
their maturity.
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
the Sinking Fund Debentures and were and will be used for general corporate
purposes or, in the case of the Acquisition Facility, the financing of
acquisitions. See Note 11(a) to the Consolidated Financial Statements. At
December 31, 1997 Products Corporation had approximately $200.0 outstanding
under the Term Loan Facilities, $102.7 outstanding under the Multi-Currency
Facility, $41.9 outstanding under the Acquisition Facility and $34.8 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)4.3
billion as of December 31, 1997 (approximately $33.3 U.S. dollar equivalent as
of December 31, 1997). In accordance with the terms of the Yen Credit
Agreement, approximately (Yen)539 million (approximately $5.2 U.S. dollar
equivalent) was paid in January 1996 and approximately (Yen)539 million
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(approximately $4.6 U.S. dollar equivalent) was paid in January 1997. In June
1997, Products Corporation amended and restated the Yen Credit Agreement to
extend the term to December 31, 2000 subject to earlier termination under
certain circumstances. In accordance with the terms of the Yen Credit
Agreement, as amended and restated, approximately (Yen)539 million
(approximately $4.2 U.S. dollar equivalent as of December 31, 1997) is due in
each of March 1998, 1999 and 2000 and (Yen)2.7 billion (approximately $20.7
U.S. dollar equivalent as of December 31, 1997) is due on December 31, 2000.
Products Corporation made an optional sinking fund payment of $13.5
and redeemed all of the outstanding $85.0 principal amount Sinking Fund
Debentures during 1997 with the proceeds of borrowings under the Credit
Agreement. $9.0 aggregate principal amount of previously purchased Sinking Fund
Debentures were used for the mandatory sinking fund payment due July 15, 1997.
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 December 31, 1997.
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 redemption of the Senior
Subordinated Notes and will be used to finance the redemption of 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 will
consummate the 8 1/8% Notes Assumption. On March 12, 1998, Products Corporation
filed a registration statement with the Commission with respect to the Exchange
Offer, which is expected to occur on or before July 2, 1998. In connection with
the early redemption of the Senior Subordinated Notes and the Senior Notes, the
Company expects to record an extraordinary loss of up to $52 in 1998. The
indentures governing the 8 5/8% Notes (the "8 5/8% Notes Indenture") and the
8 1/8% Notes (the "8 1/8% Notes Indenture" and, together with the 8 5/8% Notes
Indenture, the "Notes Indentures") contain covenants that, after the Assumption
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, (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.
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 Senior Notes, the
1999 Notes and the 8 5/8% Notes currently contain, and, following the 8 1/8%
Notes Assumption, the 8 1/8% Notes will contain, certain provisions that by
their terms limit Products Corporation's and/or its subsidiaries' ability to,
among other things, incur additional debt. The Senior Secured Discount Notes
contain certain provisions that by their terms limit REV Holdings' 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 tax sharing agreements (see "Certain Relationships and
Related Transactions-Tax Sharing Agreements"), REV Holdings and Revlon, Inc.
may be required to make tax sharing payments to Mafco Holdings as if REV
Holdings or Revlon, Inc., as the case may be, 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. REV Holdings anticipates that with respect to
Revlon, Inc. as a result of net operating tax losses and prohibitions under the
Credit Agreement, and with respect to REV Holdings as a result of
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the absence of business operations or a source of income of its own, no cash
federal tax payments or cash payments in lieu of taxes pursuant to the tax
sharing agreements will be required for 1998.
As of December 31, 1997, 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. If
Products Corporation had terminated these agreements, which Products
Corporation considered to be held for other than trading purposes, on December
31, 1997 and 1996, a loss of approximately $0.1 and $3.5, respectively, would
have been realized. Certain other swap agreements were terminated in 1993 for a
gain of $14.0 and were amortized over the original lives of the agreements
through 1997. The amortization of the 1993 realized gain in 1997, 1996, and
1995 was approximately $3.1, $3.2 and $3.2, respectively. Cash flow from the
agreements outstanding at December 31, 1997 was approximately break even for
1997. Products Corporation terminated these agreements in January 1998 and
realized a gain of approximately $1.6, which will be recognized upon repayment
of the hedged indebtedness.
Products Corporation enters into forward foreign exchange contracts
and option contracts from time to time to hedge certain cash flows denominated
in foreign currencies. At December 31, 1997 and 1996, Products Corporation had
forward foreign exchange contracts denominated in various currencies of
approximately $90.1 and $62.0, respectively, and option contracts of
approximately $94.9 outstanding at December 31, 1997. Such contracts are
entered into to hedge transactions predominantly occurring within twelve
months. If Products Corporation had terminated these contracts on December 31,
1997 and 1996, 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 subsidiary credit facilities and refinancings of existing subsidiary
indebtedness will be sufficient to enable the Company to meet its anticipated
cash requirements for the foreseeable future, including debt service of its
subsidiaries. However, there can be no assurance that cash flow will be
sufficient to meet the Company's cash requirements on a consolidated basis. If
the Company is unable to satisfy such cash requirements from these sources, the
Company could be required to adopt one or more alternatives, such as reducing
or delaying capital expenditures, restructuring subsidiary indebtedness,
selling assets or operations, selling its equity securities, seeking capital
contributions or loans from affiliates of the Company or selling additional
shares of capital stock of Revlon, Inc. There can be no assurance that any of
such actions could be effected, that they would enable the Company's
subsidiaries to continue to satisfy its capital requirements or that they would
be permitted under the terms of the Company's and its subsidiaries various debt
instruments then in effect. The Company, as a holding company, will be
dependent on distributions with respect to its approximately 83.1% ownership
interest in Revlon, Inc. from the net earnings generated by Products
Corporation to pay its expenses and to pay the principal amount at maturity of
the Senior Secured Discount Notes. The terms of the Credit Agreement, the
8 5/8% Notes, the 1999 Notes and the Senior Notes generally restrict and, after
the 8 1/8% Notes Assumption, the terms of the 8 1/8% Notes generally will
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.
The Company currently anticipates that cash flow generated from
operations will be insufficient to pay the principal amount at maturity of the
Senior Secured Discount Notes. Accordingly, the Company currently anticipates
that it will be required to adopt one or more alternatives to pay the principal
amount at maturity of the Senior Secured Discount Notes, such as refinancing
its indebtedness, selling its equity securities or the equity
25
<PAGE>
securities or assets of Revlon, Inc. or seeking capital contributions or loans
from its affiliates. There can be no assurance that any of the foregoing
actions could be effected on satisfactory terms, that any of the foregoing
actions would enable the Company to pay the principal amount at maturity of the
Senior Secured Discount Notes or that any of such actions would be permitted by
the terms of the Indenture or any other debt instruments of the Company and the
Company's subsidiaries then in effect.
FORWARD-LOOKING STATEMENTS
This annual report on Form 10-K/A for the year ended December 31, 1997
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, improved results from
business consolidations, 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, the sale of
assets of the Company or additional shares of Revlon, Inc., the sale of equity
securities of REV Holdings and the cost and timely implementation of the
Company's Year 2000 compliance modifications. 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 of the Company or
additional shares of Revlon, Inc. or equity securities of REV Holdings; (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; (ix)
difficulties or delays in realizing improved results from business
consolidations; (x) lower than expected sales as a result of inventory
balancing and consolidation in the chain drugstore industry in the U.S.; (xi)
difficulties, delays, unanticipated costs or greater than expected losses in
connection with the disposition of Cosmetic Center; and (xii) unanticipated
costs or difficulties or delays in implementing the Company's Year 2000
compliance modifications. The Company assumes no responsibility to update
forward-looking information contained herein.
EFFECT OF NEW ACCOUNTING STANDARD
In June 1997, the Financial Accounting Standards Board issued SFAS 130
"Reporting Comprehensive Income," which establishes standards for reporting and
displaying comprehensive income and its components in a full set of
general-purpose financial statements. The Company will adopt SFAS 130 in fiscal
1998.
26
<PAGE>
INFLATION
In general, costs are affected by inflation and the effects of
inflation may be experienced by the Company in future periods. Management
believes, however, that such effects have not been material to the Company
during the past three years in the United States or foreign
non-hyperinflationary countries. The Company operates in certain countries
around the world, such as Brazil, Venezuela and Mexico, that have experienced
hyperinflation in the past three years. The Company's operations in Brazil were
accounted for as operating in a hyperinflationary economy until June 30, 1997.
Effective July 1, 1997, Brazil was considered a non-hyperinflationary economy.
The impact of accounting for Brazil as a non-hyperinflationary economy was not
material to the Company's operating results. Effective January 1997, Mexico was
considered a hyperinflationary economy for accounting purposes. In
hyperinflationary foreign countries, the Company attempts to mitigate the
effects of inflation by increasing prices in line with inflation, where
possible, and efficiently managing its working capital levels.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to the Index on page F-1 of the Consolidated
Financial Statements of the Company and the Notes thereto contained herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
27
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information concerning the
Directors and executive officers of the Company as of February 13, 1998. Each
Director holds office until his successor is duly elected and qualified or
until his resignation or removal, if earlier.
NAME POSITION
- ---- --------
Ronald O. Perelman Chairman of the Board, Chief Executive Officer and Director
Howard Gittis Vice Chairman of the Board and Director
Irwin Engelman Executive Vice President and Chief Financial Officer
Barry F. Schwartz Executive Vice President and General Counsel
The name, age, principal occupation for the last five years and
selected biographical information for each of the Directors and executive
officers of the Company are set forth below. Information is as of February 13,
1998.
Mr. Perelman (55) has been Chairman of the Board and a Director of the
Company since its formation in February 1997 and Chief Executive Officer of the
Company since March 1997. Mr. Perelman was Chairman of the Board and a Director
of Revlon Worldwide from its formation in 1993 and Chief Executive Officer of
Revlon Worldwide from March 1997 until August 1997 when Revlon Worldwide was
merged into the Company. Mr. Perelman has been Chairman of the Executive
Committee of the Board of Revlon, Inc. and of Products Corporation since
November 1995, and a Director of Revlon, Inc. and of Products Corporation since
their respective formations in 1992. Mr. Perelman was Chairman of the Board of
Revlon, Inc. and of Products Corporation from their respective formations in
1992 until November 1995. Mr. Perelman has been Chairman of the Board and Chief
Executive Officer of Mafco Holdings and MacAndrews Holdings and various of its
affiliates for more than the past five years. Mr. Perelman also is Chairman of
the Executive Committees of the Boards of The Coleman Company, Inc.
("Coleman"), Consolidated Cigar Holdings Inc. ("Cigar Holdings") and M&F
Worldwide Corp. ("M&F Worldwide") and Chairman of the Board of Meridian Sports
Incorporated ("Meridian"). Mr. Perelman is a Director of the following
corporations which file reports pursuant to the Securities Exchange Act of
1934, as amended (the "Exchange Act"): California Federal Bank, a Federal
Savings Bank ("Cal Fed"), Cigar Holdings, CLN Holdings Inc. ("CLN"), Coleman,
Coleman Worldwide Corporation ("Coleman Worldwide"), First Nationwide Holdings
Inc. ("FN Holdings"), First Nationwide (Parent) Holdings Inc. ("First
Nationwide Parent"), M&F Worldwide, Meridian, Products Corporation and Revlon,
Inc. (On December 27, 1996, Marvel Entertainment Group, Inc. ("Marvel"), Marvel
Holdings Inc. ("Marvel Holdings"), Marvel (Parent) Holdings Inc. ("Marvel
Parent") and Marvel III Holdings Inc. ("Marvel III"), of which Mr. Perelman was
a Director on such date, and several subsidiaries of Marvel filed voluntary
petitions for reorganization under Chapter 11 of the United States Bankruptcy
Code.)
Mr. Gittis (63) has been a Director of the Company since its formation
in February 1997 and Vice Chairman of the Board of the Company since March
1997. Mr. Gittis was a Director of Revlon Worldwide from its formation in 1993
and Vice Chairman of the Board of Revlon Worldwide from March 1997 until August
1997 when Revlon Worldwide was merged into the Company. Mr. Gittis has been a
Director of Revlon, Inc. and of Products since their respective formations in
1992. He has been Vice Chairman of the Board of MacAndrews Holdings and various
of its affiliates for more than five years. Mr. Gittis is a Director of the
following corporations which file reports pursuant to the Exchange Act: Cal
Fed, Cigar Holdings, CLN, First Nationwide Parent, FN Holdings, Jones Apparel
Group, Inc., Loral Space & Communications Ltd., M&F Worldwide, Products
Corporation, Revlon, Inc., and Rutherford-Moran Oil Corporation.
28
<PAGE>
Mr. Engelman (63) has been Executive Vice President and Chief
Financial Officer of the Company since March 1997. He was Executive Vice
President and Chief Financial Officer of Revlon Worldwide from March 1997 until
August 1997 when Revlon Worldwide was merged into the Company. Mr. Engelman has
been a Director of Products Corporation since 1993. Mr. Engelman has been
Executive Vice President, Chief Financial Officer and Director of MacAndrews
Holdings and various of its affiliates since 1992. He was Executive Vice
President, Chief Financial Officer and Director of GAF Corporation from 1990 to
1992, Director, President and Chief Operating Officer of Citytrust Bancorp Inc.
from 1988 to 1990, Executive Vice President of the Blackstone Group LP from
1987 to 1988 and Director, Executive Vice President and Chief Financial Officer
of General Foods Corporation for more than five years prior to 1987. Mr.
Engelman is a Director of the following corporations which file reports
pursuant to the Exchange Act: Cal Fed and Products Corporation. (On December
27, 1996, Marvel Holdings, Marvel Parent and Marvel III, of which Mr. Engelman
was an executive officer on such date, and several subsidiaries of Marvel filed
voluntary petitions for reorganization under Chapter 11 of the United States
Bankruptcy Code.)
Mr. Schwartz (48) has been Executive Vice President and General
Counsel of the Company since March 1997. He was Executive Vice President and
General Counsel of Revlon Worldwide from March 1997 until August 1997 when
Revlon Worldwide was merged into the Company. He has been Executive Vice
President and General Counsel of MacAndrews Holdings and various of its
affiliates since 1993. Mr. Schwartz was Senior Vice President of MacAndrews &
Forbes from 1989 to 1993. (On December 27, 1996, Marvel Holdings, Marvel Parent
and Marvel III, of which Mr. Schwartz was an executive officer on such date,
filed voluntary petitions for reorganization under Chapter 11 of the United
States Bankruptcy Code.)
EXECUTIVE OFFICERS OF REVLON, INC. AND PRODUCTS CORPORATION
The Company engages in its business through Revlon, Inc., Products
Corporation and Products Corporation's subsidiaries. The following table sets
forth information as of February 13, 1998 concerning the executive officers of
Revlon, Inc. and Products Corporation who do not also serve as executive
officers of the Company.
Name Position
- ---- --------
George Fellows President and Chief Executive Officer
Jerry W. Levin Chairman of the Board and Director
William J. Fox Senior Executive Vice President and Director
Frank J. Gehrmann Executive Vice President and Chief Financial Officer
Wade H. Nichols III Executive Vice President and General Counsel
M. Katherine Dwyer Senior Vice President
Ronald H. Dunbar Senior Vice President, Human Resources
Mr. Fellows (55) has been President and Chief Executive Officer of
Revlon, Inc. and of Products Corporation since January 1997. He was President
and Chief Operating Officer of Revlon, Inc. and of Products Corporation from
November 1995 until January 1997, and has been a Director of Products
Corporation since September 1994 and a Director of Revlon, Inc. since November
1995. Mr. Fellows was Senior Executive Vice President of Revlon, Inc. and of
Products Corporation and President and Chief Operating Officer of Products
Corporation's Consumer Group from February 1993 until November 1995. From 1989
through January 1993, he was a senior executive officer of Mennen Corporation
and then Colgate-Palmolive Company, which acquired Mennen Corporation in 1992.
From 1986 to 1989 he was Senior Vice President of Holdings. Mr. Fellows is a
Director of Cosmetic Center, Products Corporation, Revlon, Inc. and VF
Corporation, each of which files reports pursuant to the Exchange Act.
Mr. Levin (53) was President, Chief Executive Officer and a Director
of the Company from its formation in February 1997 until March 1997. He was
President, Chief Executive Officer and a Director of Revlon Worldwide from its
formation in 1993 until March 1997. He has been Chairman of the Board of
Revlon, Inc. and of Products Corporation since November 1995 and a Director of
Revlon, Inc. and of Products Corporation since their respective formations in
1992. Mr. Levin was Chief Executive Officer of Revlon, Inc. and of Products
29
<PAGE>
Corporation from their respective formations in 1992 to January 1997 and
President of Revlon, Inc. and Products Corporation from their respective
formations in 1992 to November 1995. Mr. Levin has been Executive Vice
President of MacAndrews Holdings since March 1989. Mr. Levin has been Chairman
of the Board and Chief Executive Officer of Coleman since February 1997 and has
been Chairman of the Board of Cosmetic Center since April 1997. For 15 years
prior to joining MacAndrews Holdings, he held various senior executive
positions with The Pillsbury Company. Mr. Levin is a Director of the following
corporations which file reports pursuant to the Exchange Act: Coleman, Coleman
Worldwide, Cosmetic Center, Ecolab, Inc., Meridian, Products Corporation,
Revlon, Inc. and U.S. Bancorp, Inc.
Mr. Fox (41) was Executive Vice President and Chief Financial Officer
of the Company from its formation in February 1997 until March 1997. He was
Executive Vice President and Chief Financial Officer of Revlon Worldwide from
its formation in 1993 until March 1997. He was appointed President, Strategic
and Corporate Development, of Revlon, Inc. and of Products Corporation and
Chief Executive Officer, Revlon Technologies in January 1998. He has been
Senior Executive Vice President of Revlon, Inc. and of Products Corporation
since January 1997. Mr. Fox was Chief Financial Officer of Revlon, Inc. and of
Products Corporation from their respective formations in 1992 until January
1998 and was also Executive Vice President of Revlon, Inc. and of Products
Corporation from their respective formations in 1992 until January 1997. Mr.
Fox was elected as a Director of Products Corporation in September 1994 and of
Revlon, Inc. in November 1995. He has been Senior Vice President of MacAndrews
Holdings since August 1990. He was Vice President of MacAndrews Holdings from
February 1987 to August 1990 and was Treasurer of MacAndrews Holdings from
February 1987 to September 1992. Prior to February 1987, he was Vice President
and Assistant Treasurer of MacAndrews Holdings. Mr. Fox joined MacAndrews &
Forbes Group, Incorporated in 1983 as Assistant Controller, prior to which time
he was a certified public accountant at the international auditing firm of
Coopers & Lybrand. Mr. Fox is Vice Chairman of the Board and a Director of
Cosmetic Center, and a Director of The Hain Food Group, Inc., Products
Corporation and Revlon, Inc., each of which files reports pursuant to the
Exchange Act.
Mr. Gehrmann (43) was elected as Executive Vice President and Chief
Financial Officer of Revlon, Inc. and of Products Corporation in January 1998.
From January 1997 until January 1998 he had been Vice President of Revlon, Inc.
and of Products Corporation. Inc. Prior to January 1997 he served in various
appointed senior executive positions for Revlon, Inc. and Products Corporation,
including Executive Vice President and Chief Financial Officer of Products
Corporation's operating groups from August 1996 to January 1998, Executive Vice
President and Chief Financial Officer of Products Corporation's worldwide
Consumer Products business from January 1995 to August 1996, and Executive Vice
President and Chief Financial Officer of Products Corporation's Revlon North
America unit from September 1993 to January 1994. From 1983 through September
1993, Mr. Gehrmann held positions of increasing responsibility in the financial
organizations of Mennen Corporation and the Colgate-Palmolive Company, which
acquired Mennen Corporation in 1992. Prior to 1983, Mr. Gehrmann served as a
certified public accountant at the international accounting firm of Ernst &
Young.
Mr. Nichols (55) was Senior Vice President and General Counsel of the
Company from its formation in February 1997 until March 1997. He was Senior
Vice President and General Counsel of Revlon Worldwide from its formation in
1993 until March 1997. He has been Executive Vice President and General Counsel
of Revlon, Inc. and of Products Corporation since January 1998 and served as
Senior Vice President and General Counsel of Revlon, Inc. and of Products
Corporation from their respective formations in 1992 until January 1998. Mr.
Nichols has been Vice President of MacAndrews Holdings since 1988. Mr. Nichols
is a Director of Cosmetic Center, which files reports pursuant to the Exchange
Act.
Ms. Dwyer (48) was appointed President of Products Corporation's
United States Consumer Products business in January 1998. Ms. Dwyer was elected
Senior Vice President of Revlon, Inc. and of Products Corporation in December
1996. Prior to December 1996 she served in various appointed senior executive
positions for Products Corporation and Revlon, Inc., including President of
Products Corporation's United States Cosmetics unit from November 1995 to
December 1996 and Executive Vice President and General Manager of Products
Corporation's Mass Cosmetics unit from June 1993 to November 1995. From 1991 to
1993, Ms. Dwyer was Vice President, Marketing, of Clairol, a division of
Bristol-Myers Squibb Company. Prior to 1991, she served in various senior
positions for Victoria Creations, Avon Products Inc., Cosmair, Inc. and The
Gillette Company. Ms. Dwyer is
30
<PAGE>
a Director of WestPoint Stevens Inc. and, as of February 24, 1998, Reebok
International Ltd., each of which files reports pursuant to the Exchange Act.
Mr. Dunbar (60) has been Senior Vice President, Human Resources of
Revlon, Inc. and of Products Corporation since their respective formations in
1992. He was elected Senior Vice President, Human Resources of Holdings in July
1991. Mr. Dunbar was Vice President and General Manager of Arnold Menn and
Associates, a New York City career management consulting and executive
outplacement firm, from 1989 to 1991 and Executive Vice President and Chief
Human Resources Officer of Ryder System, Inc., a highway transportation firm,
from 1978 to 1989. Prior to that, Mr. Dunbar served in senior executive human
resources positions at Xerox Corporation and Ford Motor Company.
ITEM 11. EXECUTIVE COMPENSATION
The Company conducts its business through Revlon, Inc., Products
Corporation and Products Corporation's subsidiaries. For 1997, the Company's
executive officers did not receive compensation from the Company. The following
table sets forth information for the years indicated concerning the
compensation awarded to, earned by or paid to the person who served as Chief
Executive Officer and the four most highly paid executive officers, other than
the Chief Executive Officer, who served as executive officers of Revlon, Inc.
as of December 31, 1997 (collectively, the "Named Executive Officers"), for
services rendered in all capacities to Revlon, Inc. and Products Corporation
and its subsidiaries during such periods.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
- ----------------------------------- ---------- ---------------------------------------- ------------------ -------------
ANNUAL COMPENSATION (A) LONG-TERM
COMPENSATION
-------------- ------------- -----------
AWARDS
------------------
OTHER
ANNUAL SECURITIES ALL OTHER
COMPEN- UNDER- COMPEN-
NAME AND SALARY BONUS SATION LYING SATION
PRINCIPAL POSITION YEAR ($) ($) ($) OPTIONS ($)
- ----------------------------------- ---------- -------------- ------------- ----------- ------------------ -------------
<S> <C> <C> <C> <C> <C> <C>
George Fellows 1997 1,250,000 1,250,000 22,191 170,000 30,917
President and Chief Executive 1996 1,025,000 870,000 15,242 120,000 4,500
Officer (b) 1995 841,667 531,700 68,559 0 4,500
- ----------------------------------- ---------- -------------- ------------- ----------- ------------------ -------------
Jerry W. Levin 1997 825,000 0 20,811 170,000 160,871
Chairman of the Board (c) 1996 1,500,000 1,500,000 93,801 170,000 307,213
1995 1,450,000 1,450,000 42,651 0 308,002
- ----------------------------------- ---------- -------------- ------------- ----------- ------------------ -------------
William J. Fox 1997 825,000 772,300 55,159 50,000 71,590
Senior Executive Vice President 1996 750,000 598,600 50,143 50,000 56,290
and Chief Financial Officer (d) 1995 660,000 455,000 54,731 0 56,290
- ----------------------------------- ---------- -------------- ------------- ----------- ------------------ -------------
M. Katherine Dwyer 1997 500,000 800,000 5,948 125,000 18,377
Senior Vice President (e) 1996 500,000 326,100 90,029 45,000 4,500
- ----------------------------------- ---------- -------------- ------------- ----------- ------------------ -------------
Carlos Colomer 1997 700,000 330,700 0 37,000 62,645
Executive Vice President (f) 1996 700,000 192,600 0 37,000 3,062
1995 600,000 135,200 0 0 0
- ----------------------------------- ---------- -------------- ------------- ----------- ------------------ -------------
</TABLE>
31
<PAGE>
(a) The amounts shown in Annual Compensation for 1997, 1996 and 1995
reflect salary, bonus and other annual compensation awarded to, earned
by or paid to the persons listed for services rendered to Revlon, Inc.
and Products Corporation and its subsidiaries. Products Corporation
has a bonus plan (the "Executive Bonus Plan") in which executives
participate (including the Chief Executive Officer and the other Named
Executive Officers). The Executive Bonus Plan provides for payment of
cash compensation upon the achievement of predetermined corporate
and/or business unit and individual performance goals during the
calendar year.
(b) Mr. Fellows became Chief Executive Officer of Revlon, Inc. in January
1997. The amount shown for Mr. Fellows under Other Annual Compensation
for 1997 reflects payments in respect of gross ups for taxes on
imputed income arising out of personal use of a company-provided
automobile and for taxes on imputed income arising out of premiums
paid or reimbursed by Products Corporation in respect of life
insurance. The amount shown for Mr. Fellows under All Other
Compensation for 1997 reflects $11,117 in respect of life insurance
premiums, $4,800 in respect of matching contributions under the Revlon
Employees' Savings, Profit Sharing and Investment Plan (the "401(k)
Plan") and $15,000 in respect of matching contributions under the
Revlon Excess Savings Plan for Key Employees (the "Excess Plan"). The
amount shown for Mr. Fellows under Other Annual Compensation for 1996
reflects payments in respect of gross ups for taxes on imputed income
arising out of personal use of a company-provided automobile and for
taxes on imputed income arising out of premiums paid or reimbursed by
Products Corporation in respect of life insurance. The amount shown
for Mr. Fellows under All Other Compensation for 1996 reflects
matching contributions under the 401(k) Plan. The amount shown for Mr.
Fellows under Other Annual Compensation for 1995 includes $43,251 in
respect of membership fees and related expenses for personal use of a
health and country club and $9,458 in respect of gross ups for taxes
on imputed income arising out of personal use of a company-provided
automobile. The amount shown for Mr. Fellows under All Other
Compensation for 1995 reflects matching contributions under the 401(k)
Plan.
(c) Mr. Levin was Chief Executive Officer of Revlon, Inc. during 1995,
1996 and January 1997 and Chairman of the Board during the remainder
of 1997. The amount shown for Mr. Levin under Other Annual
Compensation for 1997 reflects payments in respect of gross ups for
taxes on imputed income arising out of personal use of a
company-provided automobile. The amount shown for Mr. Levin under All
Other Compensation for 1997 reflects $150,971 in respect of
split-dollar life insurance premiums (under which Products Corporation
is entitled to reimbursement of such premiums or the cash surrender
value of such insurance, whichever is less), $2,400 in respect of
matching contributions under the 401(k) Plan and $7,500 in respect of
matching contributions under the Excess Plan. The amount shown for Mr.
Levin under Other Annual Compensation for 1996 includes $26,400 in
respect of personal use of a company-provided automobile, payments in
respect of gross ups for taxes on imputed income arising out of
personal use of such company-provided automobile and payments for
taxes on imputed income arising out of premiums paid or reimbursed by
Products Corporation in respect of life insurance. The amount shown
for Mr. Levin under All Other Compensation for 1996 reflects $302,713
in respect of life insurance premiums and $4,500 in respect of
matching contributions under the 401(k) Plan. The amount shown for Mr.
Levin under Other Annual Compensation for 1995 reflects payments in
respect of gross ups for taxes on imputed income arising out of
personal use of a company-provided automobile and for taxes on imputed
income arising out of premiums paid or reimbursed by Products
Corporation in respect of life insurance. The amount shown for Mr.
Levin under All Other Compensation for 1995 reflects $303,502 in
respect of life insurance premiums and $4,500 in respect of matching
contributions under the 401(k) Plan.
(d) Mr. Fox became Senior Executive Vice President of Revlon, Inc. in
January 1997. Mr. Fox served as Chief Financial Officer of Revlon,
Inc. during 1995, 1996 and 1997. In January 1998 Mr. Fox was appointed
President, Strategic and Corporate Development, of Revlon, Inc., and
Mr. Gehrmann was elected Chief Financial Officer of Revlon, Inc. The
amount shown for Mr. Fox under Bonus for 1997 includes an additional
payment of $125,000 based upon Mr. Fox's performance. The amount shown
for Mr. Fox under Other Annual Compensation for 1997 reflects payments
in respect of gross ups for taxes on imputed income arising out of
personal use of a company-provided automobile and payments for taxes
on imputed income arising out of premiums paid or reimbursed by
Products Corporation in respect of life insurance.
32
<PAGE>
The amount shown for Mr. Fox under All Other Compensation for 1997
reflects $51,790 in respect of life insurance premiums, $4,800 in
respect of matching contributions under the 401(k) Plan and $15,000 in
respect of matching contributions under the Excess Plan. The amount
shown for Mr. Fox under Other Annual Compensation for 1996 reflects
payments in respect of gross ups for taxes on imputed income arising
out of personal use of a company-provided automobile and for taxes on
imputed income arising out of premiums paid or reimbursed by Products
Corporation in respect of life insurance. The amount shown for Mr. Fox
under All Other Compensation for 1996 reflects $51,790 in respect of
life insurance premiums and $4,500 in respect of matching
contributions under the 401(k) Plan. The amount shown for Mr. Fox
under Other Annual Compensation for 1995 reflects payments in respect
of gross ups for taxes on imputed income arising out of personal use
of a company-provided automobile and for taxes on imputed income
arising out of premiums paid or reimbursed by Products Corporation in
respect of life insurance. The amount shown for Mr. Fox under All
Other Compensation for 1995 reflects $51,790 in respect of life
insurance premiums and $4,500 in respect of matching contributions
under the 401(k) Plan.
(e) Ms. Dwyer became an executive officer of Revlon, Inc. in December
1996. The amount shown for Ms. Dwyer under Bonus for 1997 includes an
additional payment of $300,000 pursuant to her employment agreement.
The amount shown for Ms. Dwyer under Other Annual Compensation for
1997 reflects payments in respect of gross ups for taxes on imputed
income arising out of personal use of a company-provided automobile
and payments for taxes on imputed income arising out of premiums paid
or reimbursed by Products Corporation in respect of life insurance.
The amount shown for Ms. Dwyer under All Other Compensation for 1997
reflects $4,800 in respect of matching contributions under the 401(k)
Plan, $10,857 in respect of matching contributions under the Excess
Plan and $2,720 in respect of life insurance premiums. The amount
shown for Ms. Dwyer under Other Annual Compensation for 1996 reflects
$57,264 in expense reimbursements and payments in respect of gross ups
for taxes on imputed income arising out of personal use of a
company-provided automobile. The amount shown for Ms. Dwyer under All
Other Compensation for 1996 reflects matching contributions under the
401(k) Plan.
(f) Mr. Colomer was an executive officer of Revlon, Inc. during 1995, 1996
and 1997. The amount shown for Mr. Colomer under Bonus for 1997
includes $148,815 which is being deferred at Mr. Colomer's election.
The amount shown for Mr. Colomer under All Other Compensation for 1997
reflects $59,583 in respect of an expatriate travel and hardship
allowance and $3,062 in respect of life insurance premiums. The amount
shown for Mr. Colomer under All Other Compensation for 1996 reflects
life insurance premiums.
33
<PAGE>
OPTION GRANTS IN THE LAST FISCAL YEAR
During 1997, the following grants of stock options were made
pursuant to the Revlon, Inc. Amended and Restated 1996 Stock Plan (the "Stock
Plan") to the executive officers named in the Summary Compensation Table:
<TABLE>
<CAPTION>
GRANT
DATE
INDIVIDUAL GRANTS VALUE (A)
-------------------------------------------------------------------------------- ------------------
PERCENT OF
NUMBER OF TOTAL OPTIONS GRANT
SECURITIES UNDERLYING GRANTED TO EXERCISE OR DATE
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION PRESENT
NAME GRANTED (#) FISCAL YEAR ($/SH) DATE VALUE $
---- ----------- ----------- ------ ---- -------
<S> <C> <C> <C> <C> <C>
George Fellows........ 170,000 11% $31.375 1/08/07 $2,703,255
President and Chief
Executive Officer
(b)
Jerry W. Levin........ 170,000 11% $31.375 1/08/07 $2,703,255
Chairman of the
Board (b)
William J. Fox........ 50,000 3% $31.375 1/08/07 $795,075
Senior Executive
Vice President and
Chief Financial
Officer (b)
M. Katherine Dwyer.... 125,000 8% $31.375 1/08/07 $1,987,688
Senior Vice
President
Carlos Colomer........ 37,000 2% $31.375 1/08/07 $588,356
Executive Vice
President
</TABLE>
The grants made during 1997 under the Stock Plan to Messrs. Fellows,
Levin, Fox and Colomer and Ms. Dwyer were made on January 9, 1997 and consist
of non-qualified options having a term of 10 years. The options vest 25% each
year beginning on the first anniversary of the grant date and will become 100%
vested on the fourth anniversary of the grant date and have an exercise price
equal to the New York Stock Exchange ("NYSE") closing price per share of
Revlon, Inc.'s Class A Common Stock on the grant date, as indicated in the
table above. During 1997, Revlon, Inc. also granted an option to purchase
300,000 shares of the Class A Common Stock pursuant to the Stock Plan to Mr.
Perelman, Chairman of the Board of Directors, Chief Executive Officer and a
Director of the Company. The option will vest in full on the fifth anniversary
of the grant date and has an exercise price of $34.875, the NYSE closing price
per share of Revlon, Inc.'s Class A Common Stock on April 4, 1997, the date of
the grant.
(a) Present values were calculated using the Black-Scholes option pricing
model. The model as applied used the grant date of January 9, 1997.
The model also assumes (i) a risk-free rate of return of 6.41%, which
was the rate as of the grant date for the U.S. Treasury Zero Coupon
Bond issues with a remaining term similar to the expected term of the
options, (ii) stock price volatility of 39.34% based upon the
volatility of the stock price of Revlon, Inc.'s Class A Common Stock,
(iii) a constant dividend rate of zero percent and (iv) that the
options normally would be exercised on the final day of their seventh
year after grant. No adjustments to the theoretical value were made to
reflect the waiting period, if any, prior to vesting of the stock
options or the transferability (or restrictions related thereto) of
the stock options.
(b) Mr. Fellows served as President of Revlon, Inc. during all of 1997 and
became Chief Executive Officer in January 1997. Mr. Levin served as
Chairman of the Board of Revlon, Inc. during all of 1997 and as Chief
Executive Officer of Revlon, Inc. during January 1997. Mr. Fox was
appointed President, Strategic and Corporate Development, of Revlon,
Inc. in January 1998.
34
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST
FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
The following chart shows the number of stock options exercised during
1997 and the 1997 year-end value of the stock options held by the executive
officers named in the Summary Compensation Table:
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF SECURITIES UNEXERCISED IN-THE-
UNDERLYING UNEXERCISED MONEY OPTIONS
OPTIONS AT FISCAL AT FISCAL YEAR-END
SHARES ACQUIRED VALUE YEAR-END (#) EXERCISABLE/
NAME ON EXERCISE (#) REALIZED ($) EXERCISABLE/UNEXERCISABLE UNEXERCISABLE (A) ($)
- ---- ----------------- ------------ ------------------------- ---------------------
<S> <C> <C> <C> <C>
George Fellows...... 0 0 0/290,000 0/2,026,875
President and
Chief Executive
Officer
Jerry W. Levin...... 0 0 0/340,000 0/2,592,500
Chairman of the
Board
William J. Fox...... 0 0 0/100,000 0/762,500
Senior Executive
Vice President
and
Chief Financial
Officer
M. Katherine Dwyer.. 0 0 0/170,000 0/1,001,250
Senior Vice
President
Carlos Colomer...... 0 0 0/74,000 0/564,250
Executive Vice
President
</TABLE>
(a) Amounts shown represent the market value of the underlying shares of
Revlon, Inc.'s Class A Common Stock at year-end calculated using the
December 31, 1997 NYSE closing price per share of Class A Common Stock
of $35 5/16 minus the exercise price of the stock option. The actual
value, if any, an executive may realize is dependent upon the amount
by which the market price of shares of Revlon, Inc.'s Class A Common
Stock exceeds the exercise price per share when the stock options are
exercised. The actual value realized may be greater or less than the
value shown in the table.
EMPLOYMENT AGREEMENTS AND TERMINATION OF EMPLOYMENT ARRANGEMENTS
Each of the Chief Executive Officer and the other Named Executive
Officers entered into an executive employment agreement with Products
Corporation (except Mr. Colomer, who entered into an executive employment
agreement with a subsidiary of Products Corporation), which became effective
upon consummation of the Revlon IPO, providing for their continued employment.
Effective January 1, 1997, Mr. Fellows' employment agreement was amended to
provide that he will serve as the President and Chief Executive Officer of
Products Corporation at a base salary of $1,250,000 for 1997; $1,350,000 for
1998; $1,450,000 for 1999; $1,550,000 for 2000 and $1,700,000 for 2001 and
thereafter, and that management recommend to Revlon, Inc.'s Compensation
Committee (the "Compensation Committee") that he be granted options to purchase
170,000 shares of Revlon, Inc.'s Class A Common Stock each year during the term
of the agreement. At any time after January 1, 2001, Products Corporation may
terminate the term of Mr. Fellows' agreement by 12 months' prior notice of
non-renewal. In connection with his assumption of management responsibility for
an affiliate, Mr. Levin and Products Corporation agreed to terminate his
employment agreement as of June 30, 1997, with Mr. Levin continuing as Chairman
of the Board of Products Corporation (the "Levin Amendment"). Pursuant to the
Levin Amendment, Mr. Levin received a base salary of $825,000 for services
provided to Products Corporation in 1997. Effective January 1, 1998, Mr.
Colomer's employment agreement was amended to provide that he will serve as
Chairman, Revlon Professional Worldwide Strategic Committee and Chairman,
Revlon Professional International at a base salary of not less than $700,000
for 1998 and thereafter, and that management recommend to the
35
<PAGE>
Compensation Committee that he be granted options to purchase 37,000 shares of
Revlon, Inc.'s Class A Common Stock each year during the term of the agreement.
Mr. Colomer's agreement further provides that at any time on or after the
second anniversary of the effective date of his agreement, Products Corporation
may terminate the term by 12 months' prior notice of non-renewal. Mr. Fox's
agreement provides for a base salary of not less than $750,000 and that
management recommend to the Compensation Committee that Mr. Fox be granted
options to purchase 50,000 shares of Revlon, Inc.'s Class A Common Stock each
year during the term of the agreement, and further provides that at any time on
or after the second anniversary of the effective date of his agreement,
Products Corporation may terminate the term by 12 months' prior notice of
non-renewal. Effective January 1, 1998, Mr. Fox was appointed President,
Strategic and Corporate Development, of Revlon, Inc. and Chief Executive
Officer, Revlon Technologies. Effective January 1, 1998, Ms. Dwyer's employment
agreement was amended to provide that she will serve as President of Products
Corporation's United States Consumer Products business at a base salary of
$875,000 per annum for 1998 to be increased as of January 1 of each year by not
less than $75,000, and that management recommend to the Compensation Committee
that she be granted options to purchase 75,000 shares of Revlon, Inc.'s Class A
Common Stock each year during the term of the agreement. At any time on or
after the fourth anniversary of the effective date of her agreement, Products
Corporation may terminate Ms. Dwyer's agreement by 12 months' prior notice of
non-renewal. All of the agreements currently in effect provide for
participation in the Executive Bonus Plan, continuation of life insurance and
executive medical insurance coverage in the event of permanent disability and
participation in other executive benefit plans on a basis equivalent to senior
executives of the Company generally. Pursuant to the Levin Amendment, Mr. Levin
is entitled to continued disability insurance and life insurance as well as
certain other benefits. The agreements with Messrs. Fellows and Colomer and Ms.
Dwyer provide for Company-paid supplemental term life insurance during
employment in the amount of three times base salary, while the terms of the
agreements with Mr. Levin and Mr. Fox provide that, in lieu of any
participation in Company-paid pre-retirement life insurance coverage, Products
Corporation will pay premiums and gross ups for taxes thereon in respect of, in
the case of Mr. Levin, whole life insurance policies on his life in the amount
of $14,100,000 under a split dollar arrangement pursuant to which Products
Corporation would be repaid the amount of premiums it paid up to the cash
surrender value of the policies from insurance proceeds payable under the
policies and, in the case of Mr. Fox, a whole life insurance policy on his life
in the amount of $5,000,000 under an arrangement providing for all insurance
proceeds to be paid to the designated beneficiary under such policy. The
agreements currently in effect provide that in the event of termination of the
term of the relevant executive employment agreement by Products Corporation
(otherwise than for "cause" as defined in the employment agreements or
disability) or by the executive for failure of the Compensation Committee to
adopt and implement the recommendations of management with respect to stock
option grants, the executive would be entitled to severance pursuant to and
subject to the terms of Products Corporation's Executive Severance Policy as in
effect on January 1, 1997 (see "--Executive Severance Policy") (or, at his or
her election, to continued base salary payments throughout the term in the case
of Mr. Fellows and Ms. Dwyer). In addition, the employment agreement with Mr.
Fellows provides that if he remains continuously employed by Products
Corporation or its affiliates until age 60, then upon any subsequent retirement
he will be entitled to a supplemental pension benefit in a sufficient amount so
that his annual pension benefit from all qualified and non-qualified pension
plans of Products Corporation and its affiliates (expressed as a straight life
annuity) equals $500,000. Upon any earlier retirement with Products
Corporation's consent or any earlier termination of employment by Products
Corporation otherwise than for "good reason" (as defined in the Executive
Severance Policy), Mr. Fellows will be entitled to a reduced annual payment in
an amount equal to the product of multiplying $28,540 by the number of
anniversaries, as of the date of retirement or termination, of Mr. Fellows'
fifty-third birthday (but in no event more than would have been payable to Mr.
Fellows under the foregoing provision had he retired at age 60). In each case,
Products Corporation reserves the right to treat Mr. Fellows as having deferred
payment of pension for purposes of computing such supplemental payments.
As of December 31, 1997, 1996, and 1995, Mr. Colomer had a loan
outstanding from Products Corporation's subsidiary in Spain in the amount of
25.0 million Spanish pesetas (approximately $165,050 U.S. dollar equivalent as
of December 31, 1997) dating from 1991 pursuant to a management retention
program grandfathered under a 1992 change in the Spanish tax law which
currently covers certain executives of such subsidiary, including Mr. Colomer.
Pursuant to this management retention program, outstanding loans do not bear
interest but an amount equal to the one-year government bond interest rate in
effect at the beginning of the year is deducted from the executives' annual
compensation, and loans must be repaid in full upon termination of employment.
The amount deducted from Mr. Colomer's compensation was 1.4 million Spanish
pesetas
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<PAGE>
(approximately $9,210 U.S. dollar equivalent as of December 31, 1997) for 1997;
2.15 million Spanish pesetas (approximately $16,988 U.S. dollar equivalent as
of December 31, 1996) for 1996 and 2.25 million Spanish pesetas (approximately
$18,097 U.S. dollar equivalent as of December 31, 1995) for 1995.
EXECUTIVE SEVERANCE POLICY
Products Corporation's Executive Severance Policy, as amended
effective January 1, 1996, provides that upon termination of employment of
eligible executive employees, including the Chief Executive Officer and the
other Named Executive Officers, other than voluntary resignation or termination
by Products Corporation for good reason, in consideration for the execution of
a release and confidentiality agreement and Products Corporation's standard
Employee Agreement as to Confidentiality and Non-Competition (the
"Non-Competition Agreement"), the eligible executive will be entitled to
receive, in lieu of severance under any employment agreement then in effect or
under Products Corporation's basic severance plan, a number of months of
severance pay in semi-monthly installments based upon such executive's grade
level and years of service reduced by the amount of any compensation from
subsequent employment, unemployment compensation or statutory termination
payments received by such executive during the severance period, and, in
certain circumstances, by the actuarial value of enhanced pension benefits
received by the executive, as well as continued participation in medical and
certain other benefit plans for the severance period (or in lieu thereof, upon
commencement of subsequent employment, a lump sum payment equal to the then
present value of 50% of the amount of base salary then remaining payable
through the balance of the severance period). Pursuant to the Executive
Severance Policy, upon meeting the conditions set forth therein, Messrs.
Fellows, Levin, Fox and Colomer and Ms. Dwyer would be entitled to severance
pay equal to two years of base salary at the rate in effect on the date of
employment termination plus continued participation in the medical and dental
plans for two years on the same terms as active employees.
DEFINED BENEFIT PLANS
The following table shows the estimated annual retirement benefits
payable (as of December 31, 1997) at normal retirement age (65) to a person
retiring with the indicated average compensation and years of credited service,
on a straight life annuity basis, after Social Security offset, under the
Revlon Employees' Retirement Plan (the "Retirement Plan"), including amounts
attributable to the Pension Equalization Plan, each as described below:
<TABLE>
<CAPTION>
HIGHEST CONSECUTIVE ESTIMATED ANNUAL STRAIGHT LIFE ANNUITY BENEFITS AT RETIREMENT
FIVE-YEAR AVERAGE WITH INDICATED YEARS OF CREDITED SERVICE (A)
COMPENSATION DURING -------------------------------------------------------------------------------
FINAL 10 YEARS 15 20 25 30 35
- ---------------------------- -------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C>
600,000 $151,974 $202,632 $253,290 $303,948 $303,948
700,000 177,974 237,299 296,623 355,948 355,948
800,000 203,974 271,965 339,957 407,948 407,948
900,000 229,974 306,632 383,290 459,948 459,948
1,000,000 255,974 341,299 426,623 500,000 500,000
1,100,000 281,974 375,965 469,957 500,000 500,000
1,200,000 307,974 410,632 500,000 500,000 500,000
1,300,000 333,974 445,299 500,000 500,000 500,000
1,400,000 359,974 479,965 500,000 500,000 500,000
1,500,000 385,974 500,000 500,000 500,000 500,000
2,000,000 500,000 500,000 500,000 500,000 500,000
2,500,000 500,000 500,000 500,000 500,000 500,000
</TABLE>
(a) The normal form of benefit for the Retirement Plan and the Pension
Equalization Plan is a straight life annuity.
37
<PAGE>
The Retirement Plan is intended to be a tax qualified defined benefit
plan. Retirement Plan benefits are a function of service and final average
compensation. The Retirement Plan is designed to provide an employee having 30
years of credited service with an annuity generally equal to 52% of final
average compensation, less 50% of estimated individual Social Security
benefits. Final average compensation is defined as average annual base salary
and bonus (but not any part of bonuses in excess of 50% of base salary) during
the five consecutive calendar years in which base salary and bonus (but not any
part of bonuses in excess of 50% of base salary) were highest out of the last
10 years prior to retirement or earlier termination. Except as otherwise
indicated, credited service only includes all periods of employment with the
Company or a subsidiary prior to retirement. The base salaries and bonuses of
each of the Chief Executive Officer and the other Named Executive Officers are
set forth in the Summary Compensation Table under columns entitled "Salary" and
"Bonus," respectively.
The Employee Retirement Income Security Act of 1974, as amended,
places certain maximum limitations upon the annual benefit payable under all
qualified plans of an employer to any one individual. In addition, the Omnibus
Budget Reconciliation Act of 1993 limits the annual amount of compensation that
can be considered in determining the level of benefits under qualified plans.
The Pension Equalization Plan, as amended effective January 1, 1996, is a
non-qualified benefit arrangement designed to provide for the payment by the
Company of the difference, if any, between the amount of such maximum
limitations and the annual benefit that would be payable under the Retirement
Plan but for such limitations, up to a combined maximum annual straight life
annuity benefit at age 65 under the Retirement Plan and the Pension
Equalization Plan of $500,000. Benefits provided under the Pension Equalization
Plan are conditioned on the participant's compliance with his or her
Non-Competition Agreement and, in any case, on the participant not competing
with Products Corporation for one year after termination of employment.
The number of years of credited service under the Retirement Plan and
the Pension Equalization Plan as of January 1, 1998 (rounded to full years) for
Mr. Fellows is nine years (which includes credit for prior service with
Holdings), for Mr. Fox is 14 years (which includes credit for service with
MacAndrews Holdings) and for Ms. Dwyer is four years, and as of June 30, 1997
for Mr. Levin is eight years (which includes credit for service with MacAndrews
Holdings). Pursuant to the Levin Amendment, Mr. Levin retains all benefits
under the Retirement Plan and the Pension Equalization Plan accrued by him as
of June 30, 1997. Mr. Colomer does not participate in the Retirement Plan or
the Pension Equalization Plan. Mr. Colomer participates in the Revlon Foreign
Service Employees Pension Plan (the "Foreign Pension Plan"). The Foreign
Pension Plan is a non-qualified defined benefit plan. The Foreign Pension Plan
is designed to provide an employee with 2% of final average salary for each
year of credited service, up to a maximum of 30 years, reduced by the sum of
all other Company-provided retirement benefits and social security or other
government-provided retirement benefits. Credited service includes all periods
of employment with the Company or a subsidiary prior to retirement. Final
average salary is defined as average annual base salary during the five
consecutive calendar years in which base salary was highest out of the last 10
years prior to retirement. The normal form of payment under the Foreign Pension
Plan is a life annuity. Mr. Colomer's credited service as of January 1, 1998
(rounded to full years) under the Foreign Pension Plan is 18 years (which
includes credit for service with Holdings).
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
For 1997, the executive officers of the Company did not receive
compensation from the Company. For 1997, the executive officers of Products
Corporation were compensated for services rendered to Products Corporation and
its subsidiaries, participated in benefit plans sponsored by Products
Corporation and received grants of options under the Stock Plan. Revlon, Inc.'s
Compensation Committee (of which Messrs. Drapkin and Gittis are members)
performed the functions of a Compensation Committee for Products Corporation
with respect to determining compensation of executive officers of Products
Corporation.
Products Corporation has used an airplane which is owned by a
corporation of which Messrs. Gittis and Drapkin are the sole stockholders. See
"Certain Relationships and Related Transactions - Other."
38
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Ronald O. Perelman, 35 East 62nd Street, New York, New York 10021,
through MacAndrews & Forbes, beneficially owns all of the outstanding shares of
common stock of REV Holdings. No other director, executive officer or other
person beneficially owns any shares of common stock of REV Holdings. MacAndrews
& Forbes, through Mafco Holdings (which through REV Holdings) beneficially owns
11,250,000 shares of Class A Common Stock of Revlon, Inc. (representing 56.6%
of the outstanding shares of Class A Common Stock of Revlon, Inc.) and all of
the outstanding 31,250,000 shares of Class B Common Stock of Revlon, Inc.,
which together represent 83.1% of the outstanding shares of Revlon, Inc.'s
common stock and have approximately 97.4% of the combined voting power of the
outstanding shares of Revlon, Inc.'s common stock. All of the shares of Revlon,
Inc. common stock owned by REV Holdings are pledged by REV Holdings to secure
obligations under certain indebtedness. Shares of REV Holdings and shares of
intermediate holding companies are or may from time to time be pledged to
secure obligations of Mafco Holdings or its affiliates.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
MacAndrews & Forbes beneficially owns all of the outstanding shares of
REV Holdings' common stock. As a result, MacAndrews & Forbes is able to elect
the entire Board of Directors of REV Holdings and control the vote on all
matters submitted to a vote of REV Holdings' stockholder, including
extraordinary transactions such as mergers or sales of all or substantially all
of REV Holdings' assets. MacAndrews & Forbes is wholly owned by Ronald O.
Perelman, who is Chairman of the Board, Chief Executive Officer and a Director
of REV Holdings.
TRANSFER AGREEMENTS
In June 1992, Revlon, Inc. and Products Corporation entered into an
asset transfer agreement with Holdings and certain of its wholly owned
subsidiaries (the "Asset Transfer Agreement"), and Revlon, Inc. and Products
Corporation entered into a real property asset transfer agreement with Holdings
(the "Real Property Transfer Agreement" and, together with the Asset Transfer
Agreement, the "Transfer Agreements"), and pursuant to such agreements, on June
24, 1992 Holdings transferred assets to Products Corporation and Products
Corporation assumed all the liabilities of Holdings, other than certain
specifically excluded assets and liabilities (the liabilities excluded are
referred to as the "Excluded Liabilities"). Holdings retained the Retained
Brands. Holdings agreed to indemnify Revlon, Inc. and Products Corporation
against losses arising from the Excluded Liabilities, and Revlon, Inc. and
Products Corporation agreed to indemnify Holdings against losses arising from
the liabilities assumed by Products Corporation. The amount reimbursed by
Holdings to Products Corporation for the Excluded Liabilities for 1997 was $0.4
million.
OPERATING SERVICES AGREEMENT
In June 1992, Revlon, Inc., Products Corporation and Holdings entered
into an operating services agreement (as amended and restated, and as
subsequently amended, the "Operating Services Agreement") pursuant to which
Products Corporation manufactures, markets, distributes, warehouses and
administers, including the collection of accounts receivable, the Retained
Brands for Holdings. Pursuant to the Operating Services Agreement, Products
Corporation is reimbursed an amount equal to all of its and Revlon, Inc.'s
direct and indirect costs incurred in connection with furnishing such services,
net of the amounts collected by Products Corporation with respect to the
Retained Brands, payable quarterly. The net amount reimbursed by Holdings to
Products Corporation for such direct and indirect costs for 1997 was $1.4
million. Holdings also pays Products Corporation a fee equal to 5% of the net
sales of the Retained Brands, payable quarterly. The fees paid by Holdings to
Products Corporation pursuant to the Operating Services Agreement for services
with respect to the Retained Brands for 1997 was approximately $0.3 million.
REIMBURSEMENT AGREEMENTS
Revlon, Inc., Products Corporation and MacAndrews Holdings have
entered into reimbursement agreements (the "Reimbursement Agreements") pursuant
to which (i) MacAndrews Holdings is obligated to provide (directly or through
affiliates) certain professional and administrative services, including
employees, to Revlon, Inc.
39
<PAGE>
and its subsidiaries, including Products Corporation, and purchase services
from third party providers, such as insurance and legal and accounting
services, on behalf of Revlon, Inc. and its subsidiaries, including Products
Corporation, to the extent requested by Products Corporation, and (ii) Products
Corporation is obligated to provide certain professional and administrative
services, including employees, to MacAndrews Holdings (and its affiliates) and
purchase services from third party providers, such as insurance and legal and
accounting services, on behalf of MacAndrews Holdings (and its affiliates) to
the extent requested by MacAndrews Holdings, provided that in each case the
performance of such services does not cause an unreasonable burden to
MacAndrews Holdings or Products Corporation, as the case may be. Products
Corporation reimburses MacAndrews Holdings for the allocable costs of the
services purchased for or provided to Revlon, Inc. and its subsidiaries and for
reasonable out-of-pocket expenses incurred in connection with the provision of
such services. MacAndrews Holdings (or such affiliates) reimburses Products
Corporation for the allocable costs of the services purchased for or provided
to MacAndrews Holdings (or such affiliates) and for the reasonable
out-of-pocket expenses incurred in connection with the purchase or provision of
such services. In addition, in connection with certain insurance coverage
provided by MacAndrews Holdings, Products Corporation obtained letters of
credit (which aggregated approximately $27.7 million as of December 31, 1997)
to support certain self-funded risks of MacAndrews Holdings and its affiliates,
including Revlon, Inc., associated with such insurance coverage. The costs of
such letters of credit are allocated among, and paid by, the affiliates of
MacAndrews Holdings, including Revlon, Inc., which participate in the insurance
coverage to which the letters of credit relate. The Company expects that these
self-funded risks will be paid in the ordinary course and, therefore, it is
unlikely that such letters of credit will be drawn upon. MacAndrews Holdings
has agreed to indemnify Products Corporation to the extent amounts are drawn
under any of such letters of credit with respect to claims for which neither
Products Corporation nor Revlon, Inc. is responsible. The net amount reimbursed
by MacAndrews Holdings to Products Corporation for the services provided under
the Reimbursement Agreements for 1997 was $4.0 million. Each of Revlon, Inc.
and Products Corporation, on the one hand, and MacAndrews Holdings, on the
other, has agreed to indemnify the other party for losses arising out of the
provision of services by it under the Reimbursement Agreements other than
losses resulting from its willful misconduct or gross negligence. The
Reimbursement Agreements may be terminated by either party on 90 days' notice.
REV Holdings does not expect Revlon, Inc. or Products Corporation to request
services under the Reimbursement Agreements unless their costs would be at
least as favorable to Revlon, Inc. or Products Corporation, as the case may be,
as could be obtained from unaffiliated third parties.
In March 1993, Revlon Worldwide (now REV Holdings) and MacAndrews
Holdings entered into a reimbursement agreement pursuant to which MacAndrews
Holdings agreed to provide third party services to REV Holdings on the same
basis as it provides services to Revlon, Inc., and REV Holdings agreed to
indemnify MacAndrews Holdings on the same basis as Revlon, Inc. is obligated to
indemnify MacAndrews Holdings under the Reimbursement Agreements. There were no
services provided and no payments made pursuant to this agreement during 1997,
1996 or 1995.
TAX SHARING AGREEMENTS
REV Holdings, Holdings, Revlon, Inc. and Products Corporation, for
federal income tax purposes, are included in the affiliated group of which
Mafco Holdings is the common parent, and REV Holdings', Revlon, Inc.'s and
Products Corporation's federal taxable income and loss are included in such
group's consolidated tax return filed by Mafco Holdings. REV Holdings, Revlon,
Inc. and Products Corporation also may be included in certain state and local
tax returns of Mafco Holdings or its subsidiaries. In June 1992, Holdings,
Revlon, Inc., Products Corporation and certain of its subsidiaries and Mafco
Holdings entered into a tax sharing agreement (as subsequently amended, the
"1992 Tax Sharing Agreement"), pursuant to which Mafco Holdings has agreed to
indemnify Revlon, Inc. and Products Corporation against federal, state or local
income tax liabilities of the consolidated or combined group of which Mafco
Holdings (or a subsidiary of Mafco Holdings other than Revlon, Inc. and
Products Corporation or its subsidiaries) is the common parent for taxable
periods beginning on or after January 1, 1992 during which Revlon, Inc. and
Products Corporation or a subsidiary of Products Corporation is a member of
such group. Pursuant to the 1992 Tax Sharing Agreement, for all taxable periods
beginning on or after January 1, 1992, Revlon, Inc. will pay to Holdings
amounts equal to the taxes that Revlon, Inc. would otherwise have to pay if it
were to file separate federal, state or local income tax returns (including any
amounts determined to be due as a result of a redetermination arising from an
audit or otherwise of the consolidated or combined tax liability relating to
any such period which is attributable to Revlon, Inc.), except that Revlon,
Inc. will
40
<PAGE>
not be entitled to carry back any losses to taxable periods ending prior to
January 1, 1992. No payments are required by Revlon, Inc. if and to the extent
Products Corporation is prohibited under the Credit Agreement from making tax
sharing payments to Revlon, Inc. The Credit Agreement prohibits Products
Corporation from making such tax sharing payments other than in respect of
state and local income taxes.
In March 1993, Revlon Worldwide (now REV Holdings) and Mafco Holdings
entered into a tax sharing agreement (the "1993 Tax Sharing Agreement" and,
together with the 1992 Tax Sharing Agreement, the "Tax Sharing Agreements")
pursuant to which, for all taxable periods beginning on or after January 1,
1993, REV Holdings will pay to Mafco Holdings amounts equal to the taxes that
REV Holdings would otherwise have to pay if it were to file separate federal,
state and local income tax returns for itself, excluding Revlon, Inc. and its
subsidiaries (including any amounts determined to be due as a result of a
redetermination arising from an audit or otherwise of the tax liability
relating to any such period which is attributable to REV Holdings).
Since the payments to be made by Revlon, Inc. under the 1992 Tax
Sharing Agreement and by REV Holdings under the 1993 Tax Sharing Agreement will
be determined by the amount of taxes that Revlon, Inc. or REV Holdings, as the
case may be, would otherwise have to pay if it were to file separate federal,
state or local income tax returns, the Tax Sharing Agreements will benefit
Mafco Holdings to the extent Mafco Holdings can offset the taxable income
generated by Revlon, Inc. or REV Holdings against losses and tax credits
generated by Mafco Holdings and its other subsidiaries. With respect to REV
Holdings, as a result of the absence of business operations or a source of
income on its own, there were no cash payments in respect of federal taxes
pursuant to the 1993 Tax Sharing Agreement for 1997. With respect to Revlon,
Inc., as a result of net operating tax losses and prohibitions under the Credit
Agreement, there were no cash payments in respect of federal taxes pursuant to
the 1992 Tax Sharing Agreement for 1997. Revlon, Inc. has a liability of $0.9
million to Holdings in respect of federal taxes for 1997 under the 1992 Tax
Sharing Agreement.
REGISTRATION RIGHTS AGREEMENT
Prior to the consummation of the Revlon IPO, Revlon, Inc. and Revlon
Worldwide (now REV Holdings), the then direct parent of Revlon, Inc., entered
into the Registration Rights Agreement pursuant to which REV Holdings and
certain transferees of Revlon, Inc.'s common stock held by REV Holdings (the
"Holders") have the right to require Revlon, Inc. to register all or part of
the Class A Common Stock owned by such Holders and the Class A Common Stock
issuable upon conversion of Revlon, Inc.'s Class B Common Stock owned by such
Holders under the Securities Act of 1933, as amended (a "Demand Registration");
provided that Revlon, Inc. may postpone giving effect to a Demand Registration
up to a period of 30 days if Revlon, Inc. believes such registration might have
a material adverse effect on any plan or proposal by Revlon, Inc. with respect
to any financing, acquisition, recapitalization, reorganization or other
material transaction, or if Revlon, Inc. is in possession of material
non-public information that, if publicly disclosed, could result in a material
disruption of a major corporate development or transaction then pending or in
progress or in other material adverse consequences to Revlon, Inc. In addition,
the Holders have the right to participate in registrations by Revlon, Inc. of
its Class A Common Stock (a "Piggyback Registration"). The Holders will pay all
out-of-pocket expenses incurred in connection with any Demand Registration.
Revlon, Inc. will pay any expenses incurred in connection with a Piggyback
Registration, except for underwriting discounts, commissions and expenses
attributable to the shares of Class A Common Stock sold by such Holders.
OTHER
Pursuant to a lease dated April 2, 1993 (the "Edison Lease"), Holdings
leases to Products Corporation the Edison research and development facility for
a term of up to 10 years with an annual rent of $1.4 million and certain shared
operating expenses payable by Products Corporation which, together with the
annual rent, are not to exceed $2.0 million per year. Pursuant to an assumption
agreement dated February 18, 1993, Holdings agreed to assume all costs and
expenses of the ownership and operation of the Edison facility as of January 1,
1993, other than (i) the operating expenses for which Products Corporation is
responsible under the Edison Lease and (ii) environmental claims and compliance
costs relating to matters which occurred prior to January 1, 1993 up to an
amount not to exceed $8.0 million (the amount of such claims and costs for
which Products Corporation is responsible, the "Environmental Limit"). In
addition, pursuant to such assumption agreement, Products Corporation agreed to
41
<PAGE>
indemnify Holdings for environmental claims and compliance costs relating to
matters which occurred prior to January 1, 1993 up to an amount not to exceed
the Environmental Limit and Holdings agreed to indemnify Products Corporation
for environmental claims and compliance costs relating to matters which
occurred prior to January 1, 1993 in excess of the Environmental Limit and all
such claims and costs relating to matters occurring on or after January 1,
1993. Pursuant to an occupancy agreement, during 1997 Products Corporation
rented from Holdings a portion of the administration building located at the
Edison facility and space for a retail store for Products Corporation. Products
Corporation provides certain administrative services, including accounting, for
Holdings with respect to the Edison facility pursuant to which Products
Corporation pays on behalf of Holdings costs associated with the Edison
facility and is reimbursed by Holdings for such costs, less the amount owed by
Products Corporation to Holdings pursuant to the Edison Lease and the occupancy
agreement. The net amount reimbursed by Holdings to Products Corporation for
such costs with respect to the Edison facility for 1997 was $0.7 million.
During 1997, a subsidiary of Products Corporation sold an inactive
subsidiary to an affiliate for approximately $1.0 million.
Effective July 1, 1997, Holdings contributed to Products Corporation
substantially all of the assets and liabilities of the Bill Blass business not
already owned by Products Corporation. The contributed assets approximated the
contributed liabilities and were accounted for at historical cost in a manner
similar to that of a pooling of interests and, accordingly, prior period
financial statements were restated as if the contribution took place prior to
the beginning of the earliest period presented.
In June 1997, Products Corporation borrowed from Holdings
approximately $0.5 million, representing certain amounts received by Holdings
from the sale of a brand and inventory relating thereto. Such amount is
evidenced by a noninterest bearing promissory note. Holdings agreed not to
demand payment under such note so long as any indebtedness remains outstanding
under Products Corporation's 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 redemption of the Senior
Subordinated Notes and will be used to finance the redemption of 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 will
consummate the 8 1/8% Notes Assumption. On March 12, 1998 Products Corporation
filed a registration statement with the Commission with respect to the Exchange
Offer, which is expected to occur on or before July 2, 1998. In connection with
these matters, Products Corporation entered into a Purchase Agreement and a
Registration Agreement with Revlon Escrow and the initial purchasers of the
Notes and entered into an agreement with Revlon Escrow pursuant to which each
of Products Corporation and Revlon Escrow agree to take all actions required
under the Purchase Agreement, the Registration Agreement and the other
documents governing the sale of the Notes, the redemptions of the Senior
Subordinated Notes and the Senior Notes and the Assumption within the periods
prescribed in order to effect such transactions in accordance with their terms.
A nationally recognized investment banking firm rendered its written opinion
that the Assumption, upon consummation of the redemptions of the Senior
Subordinated Notes and the Senior Notes, and the subsequent release from escrow
to Products Corporation of any remaining net proceeds from the sale of the
Notes are fair from a financial standpoint to Products Corporation under the
indenture governing the 1999 Notes.
During 1997, Products Corporation leased certain facilities to
MacAndrews & Forbes or its affiliates pursuant to occupancy agreements and
leases. These included space at Products Corporation's New York headquarters
and at Products Corporation's offices in London and Hong Kong. The rent paid by
MacAndrews & Forbes or its affiliates to Products Corporation for such leases
and agreements for 1997 was $3.8 million.
Products Corporation's Credit Agreement is supported by, among other
things, guarantees from Holdings and certain of its subsidiaries. The
obligations under such guarantees are secured by, among other things, (i) the
capital stock and certain assets of certain subsidiaries of Holdings and (ii) a
mortgage on Holdings' Edison, New Jersey facility.
42
<PAGE>
Products Corporation borrows funds from its affiliates from time to
time to supplement its working capital borrowings. No such borrowings were
outstanding as of December 31, 1997. The interest rates for such borrowings are
more favorable to Products Corporation than interest rates under the Credit
Agreement and, for borrowings occurring prior to the execution of the Credit
Agreement, the credit facility in effect at the time of such borrowing. The
amount of interest paid by Products Corporation for such borrowings for 1997
was $0.6 million.
During 1997, Products Corporation used an airplane owned by a
corporation of which Messrs. Gittis and Drapkin are the sole stockholders, for
which Products Corporation paid approximately $0.2 million.
During 1997, Products Corporation purchased products from an
affiliate, for which it paid approximately $0.9 million.
During 1997, Products Corporation provided licensing services to an
affiliate, for which Products Corporation has been paid approximately $0.7
million.
An affiliate of Products Corporation assembles lipstick cases for
Products Corporation. Products Corporation paid approximately $0.9 million for
such services in 1997.
In connection with the cancellation of the Revlon Worldwide Notes, at
December 31, 1997 REV Holdings had an outstanding payable to an affiliate of
approximately $2.4 million.
REV Holdings has guaranteed, on a non-recourse basis, certain
obligations of an affiliate and has pledged certain shares of the Revlon, Inc.
common stock owned by REV Holdings to secure such guarantee.
The Company believes that the terms of the foregoing transactions are
at least as favorable to the Company, as applicable, as those that could be
obtained from unaffiliated third parties.
43
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) List of documents filed as part of this Report:
(1) Consolidated Financial Statements and Independent Auditors'
Report included herein: See Index on page F-1
(2) Financial Statement Schedule: See Index on page F-1
All other schedules are omitted as they are inapplicable or
the required information is furnished in the Consolidated
Financial Statements of the Company or the Notes thereto.
(3) List of Exhibits:
EXHIBIT NO. DESCRIPTION
- ----------- -----------
3. CERTIFICATE OF INCORPORATION AND BY-LAWS.
3.1 Certificate of Incorporation and Certificate of Ownership and
Merger dated as of August 5, 1997 merging Revlon Worldwide
into Revlon Worldwide (Parent) and changing the name of
Revlon Worldwide (Parent) to REV Holdings Inc. (Incorporated
by reference to Exhibit 3.1 to the Quarterly Report on Form
10-Q for the quarterly period ended June 30, 1997 of REV
Holdings (the "REV Holdings 1997 Second Quarter 10-Q"))
3.2 By-Laws of REV Holdings (formerly Revlon Worldwide (Parent)).
(Incorporated by reference to Exhibit 3.2 to the Registration
Statement on Form S-1 of Revlon Worldwide (Parent)
Corporation filed with the Securities and Exchange Commission
on March 17, 1997 (File No. 333-23451) (the "Worldwide 1997
Form S-1")).
INSTRUMENTS DEFINING THE RIGHT OF SECURITY HOLDERS,
INCLUDING INDENTURES.
4.1 Indenture, dated as of March 1, 1997, between REV Holdings
(formerly Revlon Worldwide (Parent)) and The Bank of New
York, as Trustee, relating to the Senior Secured Discount
Notes due 2001 and the Series B Senior B Senior Secured
Discount Notes due 2001. (Incorporated by reference to
Exhibit 4.1 to the Worldwide 1997 Form S-1).
4.2 First Supplemental Indenture, dated as of August 5, 1997,
among Revlon Worldwide (Parent), Revlon Worldwide and State
Street Bank and Trust Company, as Successor Trustee,
supplementing the Indenture dated as of March 15, 1993
between Revlon Worldwide and State Street Bank and Trust
Company, as Successor Trustee (the "1993 Discount Notes
Indenture"). (Incorporated by reference to Exhibit 4.24 to
the REV Holdings 1997 Second Quarter 10-Q).
4.3 Defeasance Trust Agreement, dated April 1, 1997, between
Revlon Worldwide and State Street Bank and Trust Company, as
Successor Trustee, under the 1993 Discount Notes Indenture.
(Incorporated by reference to Exhibit 4.24 to the REV
Holdings 1997 Second Quarter 10-Q).
4.4 Indenture, dated as of February 1, 1998, between Revlon
Escrow and First Trust National Association, as Trustee,
relating to Revlon Escrow's 8 5/8% Senior Subordinated Notes
due 2008 (the "8 5/8% Notes Indenture"). (Incorporated by
reference to Exhibit 4.3 to the Registration Statement on
Form S-1 of Products Corporation as filed with the Securities
and Exchange Commission on March 12, 1998 (File No.
333-47875) (the "1998 Exchange Offer Form S-1")).
4.5 First Supplemental Indenture, dated March 4, 1998, among
Revlon Escrow, Products Corporation and First Trust National
Association, as Trustee, amending the 8 5/8% Notes Indenture.
(Incorporated by reference to Exhibit 4.4 to the 1998
Exchange Offer Form S-1).
4.6 Indenture, dated as of April 1, 1993, between Products
Corporation and NationsBank of Georgia, National Association,
as Trustee, relating to the Products Corporation's 9 3/8%
Senior Notes Due
44
<PAGE>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
2001 and Products Corporation's 9 3/8% Series B Senior Notes
Due 2001. (Incorporated by reference to Exhibit 4.28 to the
Amendment No. 1 to the Registration Statement on Form S-1 of
Products Corporation as filed with the Securities and
Exchange Commission on April 13, 1993, File No. 33-59650).
4.7 Indenture dated as of June 1, 1993, between Products
Corporation and NationsBank of Georgia, National Association,
as Trustee, relating to Products Corporation's 9 1/2% Senior
Notes Due 1999. (Incorporated by reference to Exhibit 4.31 to
the Quarterly Report on Form 10-Q for the quarterly period
ended June 30, 1993 of Products Corporation).
4.8 Second Amended and Restated Credit Agreement dated as of
December 22, 1994, between Pacific Finance & Development
Corp. and the Long-Term Credit Bank of Japan, Ltd. (the "Yen
Credit Agreement") (Incorporated by reference to Exhibit 4.32
to the Annual Report on Form 10-K for the year ended December
31, 1994 of Products Corporation (the "Products Corporation
1994 10-K")).
4.9 First Amendment and Consent, dated as of March 10, 1997, with
respect to the Yen Credit Agreement. (Incorporated by
reference to Exhibit 4.8 to the Quarterly Report on Form 10-Q
for the quarterly period ended March 31, 1997 of Revlon, Inc.
(the "Revlon 1997 First Quarter 10-Q")).
4.10 Third Amended and Restated Credit Agreement, dated as of June
30, 1997, between Pacific Finance and Development Corporation
and the Long-Term Credit Bank, Ltd. (Incorporated by
reference to Exhibit 4.11 to the Quarterly Report on Form
10-Q for the quarterly period ended June 30, 1997 of Revlon,
Inc.).
4.11 Amended and Restated Credit Agreement, dated as of May 30,
1997, among Products Corporation, The Chase Manhattan Bank,
Citibank N.A., Lehman Commerical Paper Inc., Chase Securities
Inc. and the lenders party thereto (the "Credit Agreement").
(Incorporated by reference to Exhibit 4.23 to Amendment No. 2
to the Form S-1 of Revlon Worldwide (Parent) Corporation,
filed with the Securities and Exchange Commission on June 26,
1997, File No. 333-23451).
4.12 First Amendment, dated as of January 29, 1998, to the Credit
Agreement. (Incorporated by reference to Exhibit 4.8 to the
Annual Report for the year ended December 31, 1997 of Revlon,
Inc. (the "Revlon 1997 10-K")).
10. MATERIAL CONTRACTS.
10.1 Purchase and Sale Agreement and Amendment thereto by and
between Products Corporation and Holdings, each dated as of
February 18, 1993, relating to the Edison, New Jersey
facility. (Incorporated by reference to Exhibit 4.22 to the
Annual Report on Form 10-K for the year ended December 31,
1992 of Products Corporation (the "Products Corporation 1992
10-K").
10.2 Asset Transfer Agreement, dated as of June 24, 1992, among
Holdings, National Health Care Group, Inc., Charles of the
Ritz Group Ltd., Products Corporation and Revlon, Inc.
(Incorporated by reference to Exhibit 10.1 to the Amendment
No. 1 to the Revlon Form S-1 filed with the Securities and
Exchange Commission on June 29, 1992, File No. 33-47100 (the
"Revlon 1992 Amendment No. 1").
10.3 Real Property Asset Transfer Agreement, dated as of June 24,
1992, among Holdings, Revlon, Inc. and Products Corporation.
(Incorporated by reference to Exhibit 10.2 to the Revlon 1992
Amendment No. 1).
10.4 Assumption Agreement and Amendment thereto by and between
Products Corporation and Holdings, each dated as of February
18, 1993, relating to the Edison, New Jersey facility.
(Incorporated by reference to Exhibit 4.23 to the Products
Corporation 1992 10-K).
10.5 Tax Sharing Agreement, dated as of June 24, 1992, among Mafco
Holdings, Revlon, Inc., Products Corporation and certain
subsidiaries of Products Corporation (the "1992 Tax Sharing
Agreement").
45
<PAGE>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
Incorporated by reference to Exhibit 10.5 to the Revlon 1992
Amendment No. 1).
10.6 First Amendment, dated as of February 28, 1995, to the 1992
Tax Sharing Agreement. (Incorporated by reference to Exhibit
10.5 to the Products Corporation 1994 10-K).
10.7 Second Amendment, dated as of January 1, 1997, to the 1992
Tax Sharing Agreement. (Incorporated by reference to Exhibit
10.7 to the Annual Report on Form 10-K for the year ended
December 31, 1996 of Revlon, Inc. (the "Revlon 1996 10-K").)
10.8 Agreement by The Cosmetic Center, Inc. to be bound by the Tax
Sharing Agreement, dated April 25, 1997. (Incorporated by
reference to Exhibit 10.8 to the Revlon 1997 10-K).
10.9 Second Amended and Restated Operating Services Agreement by
and among Holdings, Revlon, Inc. and Products Corporation, as
of January 1, 1996 (the "Operating Services Agreement").
(Incorporated by reference to Exhibit 10.8 to the Revlon 1996
10-K).
10.10 Amendment to the Operating Services Agreement, dated as of
July 1, 1997. (Incorporated by reference to Exhibit 10.10 to
the Revlon 1997 10-K).
10.11 Employment Agreement dated as of January 1, 1996 between
Products Corporation and Jerry W. Levin (the "Levin
Employment Agreement") (Incorporated by reference to Exhibit
10.10 to the Annual Report on Form 10-K for the year ended
December 31, 1995 of Products Corporation (the "Products
Corporation 1995 10-K").
10.12 Amendment, effective June 30, 1997, to the Levin Employment
Agreement. (Incorporated by reference to Exhibit 10.12 to the
Revlon 1997 10-K).
10.13 Employment Agreement dated as of January 1, 1997 between
Products Corporation and George Fellows (Incorporated by
reference to Exhibit 10.10 to the Revlon 1997 First Quarter
10-Q).
10.14 Employment Agreement dated as of January 1, 1996 between
Products Corporation and William J. Fox (Incorporated by
reference to Exhibit 10.12 to the Products Corporation 1995
10-K).
10.15 Employment Agreement dated as of January 1, 1996 between
RIROS Corporation and Carlos Colomer Casellas (the "Colomer
Employment Agreement") (Incorporated by reference to Exhibit
10.13 to the Products Corporation 1995 10-K).
10.16 Amendment, effective January 1, 1998, to the Colomer
Employment Agreement. (Incorporated by reference to Exhibit
10.16 to the Revlon 1997 10-K).
10.17 Employment Agreement dated as of January 1, 1998 between
Products Corporation and M. Katherine Dwyer. (Incorporated by
reference to Exhibit 10.17 to the Revlon 1997 10-K).
10.18 Revlon Employees' Savings, Investment and Profit Sharing Plan
effective as of January 1, 1997. (Incorporated by reference
to Exhibit 10.18 to the Revlon 1997 10-K).
10.19 Revlon Employees' Retirement Plan as amended and restated
December 19, 1994. (Incorporated by reference to Exhibit
10.15 to the Products Corporation 1994 10-K).
10.20 Amended and Restated Revlon Pension Equalization Plan,
effective January 1, 1996. (Incorporated by reference to
Exhibit 10.17 to the Amendment No. 4 to the Revlon Form S-1
filed with the Securities and Exchange Commission on February
26, 1996, File No. 33-99558).
10.21 Executive Supplemental Medical Expense Plan Summary dated
July 1991. (Incorporated by reference to Exhibit 10.18 to the
Form S-1 of Revlon, Inc. filed with the Securities and
Exchange Commission on May 22, 1992, File No. 33-47100 (the
"Revlon 1992 Form S-1").
10.22 Description of Post Retirement Life Insurance Program for Key
Executives. (Incorporated by reference to Exhibit 10.19 to
the Revlon 1992 Form S-1).
46
<PAGE>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.23 Benefit Plans Assumption Agreement dated as of July 1, 1992,
by and among Holdings, Revlon, Inc. and Products Corporation.
(Incorporated by reference to Exhibit 10.25 to the Products
Corporation 1992 10-K).
10.24 Revlon Executive Bonus Plan effective January 1, 1997.
(Incorporated by reference to Exhibit 10.20 to the Revlon
1996 10-K).
10.25 Revlon Executive Deferred Compensation Plan, amended as of
October 15, 1993. (Incorporated by reference to Exhibit 10.25
to the Annual Report on Form 10-K for the year ended December
31, 1993 of Products Corporation).
10.26 Revlon Executive Severance Policy effective January 1, 1996.
(Incorporated by reference to Exhibit 10.23 to the Amendment
No. 3 to the Revlon 1995 Form S-1 filed with the Securities
and Exchange Commission on February 5, 1996).
10.27 Revlon, Inc. 1996 Stock Plan, amended and restated as of
December 17, 1996. (Incorporated by reference to Exhibit
10.23 to the Revlon 1996 10-K).
10.28 Tax Sharing Agreement, dated as of March 17, 1993, between
Revlon Worldwide and Mafco Holdings (Incorporated by
reference to Exhibit 10.30 to the Registration Statement on
Form S-1 of Revlon Worldwide Corporation filed with the
Securities and Exchange Commission on April 2, 1993 (File No.
33-60488) (the "Worldwide 1993 Form S-1")).
10.29 Indemnity Agreement, dated March 25, 1993, between Revlon
Worldwide and Holdings (Incorporated by reference to Exhibit
10.32 to the Worldwide 1993 Form S-1).
10.30 Form of Registration Rights Agreement. (Incorporated by
reference to Exhibit 10.1 to the Annual Report on Form 10-K
for the year ended December 31, 1995 of Revlon Worldwide).
21. SUBSIDIARIES.
*21.1 Subsidiaries of the Registrant.
24. POWERS OF ATTORNEY.
*24.1 Power of Attorney of Ronald O. Perelman.
*24.2 Power of Attorney of Howard Gittis.
27.1 Financial Data Schedule.
- --------------------
*Previously filed.
(b) Reports on Form 8-K
REV Holdings filed no reports on Form 8-K during the fourth quarter of
the fiscal year ended December 31, 1997.
47
<PAGE>
REV HOLDINGS INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report..............................................................................F-2
AUDITED FINANCIAL STATEMENTS:
Consolidated Balance Sheets as of December 31, 1997 and 1996..........................................F-3
Consolidated Statements of Operations for each of the years in the three-year
period ended December 31, 1997.....................................................................F-4
Consolidated Statements of Stockholder's Deficiency for each of the years in
the three-year period ended December 31, 1997.....................................................F-5
Consolidated Statements of Cash Flows for each of the years in the three-year
period ended December 31, 1997....................................................................F-6
Notes to Consolidated Financial Statements............................................................F-7
FINANCIAL STATEMENT SCHEDULE:
Schedule II--Valuation and Qualifying Accounts........................................................F-33
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholder
REV Holdings Inc.:
We have audited the accompanying consolidated balance sheets of REV Holdings
Inc. and its subsidiaries as of December 31, 1997 and 1996, and the related
consolidated statements of operations, stockholder's deficiency and cash flows
for each of the years in the three-year period ended December 31, 1997. In
connection with our audits of the consolidated financial statements we have
also audited the financial statement schedule as listed on the index on page
F-1. These consolidated financial statements and financial statement schedule
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements and financial
statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of REV Holdings Inc.
and its subsidiaries as of December 31, 1997 and 1996 and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1997, in conformity with generally accepted accounting
principles. Also in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as
a whole, presents fairly, in all material respects, the information set forth
therein.
KPMG PEAT MARWICK LLP
New York, New York
January 23, 1998, except for Note 2
which is as of June 8, 1998
F-2
<PAGE>
REV HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in millions, except per share data)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
ASSETS 1997 1996
-------------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 37.4 $ 35.1
Trade receivables, less allowances of $25.9
and $24.9, respectively 492.5 426.8
Inventories 260.7 249.4
Prepaid expenses and other 92.0 73.7
Restricted marketable securities 334.0 -
--------- ---------
Total current assets 1,216.6 785.0
Property, plant and equipment, net 364.0 373.5
Other assets 154.7 143.6
Intangible assets, net 319.2 279.2
Net assets of discontinued operations 45.1 41.0
--------- ---------
Total assets $ 2,099.6 $ 1,622.3
========= =========
LIABILITIES AND STOCKHOLDER'S DEFICIENCY
Current liabilities:
Short-term borrowings - third parties $ 42.7 $ 27.1
Current portion of long-term debt - third parties 334.8 8.8
Accounts payable 178.8 159.7
Accrued expenses and other 356.0 363.8
--------- ---------
Total current liabilities 912.3 559.4
Long-term debt - third parties 1,939.3 2,291.4
Long-term debt - affiliates 30.9 30.4
Other long-term liabilities 211.8 202.8
Stockholder's deficiency:
Common stock, par value $1.00 per share, 1,000 shares
authorized, issued and outstanding - -
Capital deficiency (408.8) (969.4)
Accumulated deficit since June 24, 1992 (562.2) (474.1)
Adjustment for minimum pension liability (4.5) (12.4)
Currency translation adjustment (19.2) (5.8)
--------- ---------
Total stockholder's deficiency (994.7) (1,461.7)
--------- ---------
Total liabilities and stockholder's deficiency $ 2,099.6 $ 1,622.3
========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
REV HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in millions)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1997 1996 1995
-------------- -------------- --------------
<S> <C> <C> <C>
Net sales $ 2,238.6 $ 2,092.1 $ 1,867.3
Cost of sales 743.1 688.9 614.9
-------------- -------------- --------------
Gross profit 1,495.5 1,403.2 1,252.4
Selling, general and administrative expenses 1,277.0 1,204.0 1,104.9
Business consolidation costs and other, net 3.6 - -
-------------- -------------- --------------
Operating income 214.9 199.2 147.5
-------------- -------------- --------------
Other expenses (income):
Interest expense 232.9 240.1 237.5
Interest and net investment income (20.4) (4.4) (7.0)
Gain on sale of subsidiary stock (0.3) (187.8) -
Amortization of debt issuance costs 11.6 12.5 15.2
Foreign currency losses, net 6.4 5.7 10.9
Miscellaneous, net 5.5 6.4 1.8
-------------- -------------- --------------
Other expenses, net 235.7 72.5 258.4
-------------- -------------- --------------
(Loss) income from continuing operations before income taxes (20.8) 126.7 (110.9)
Provision for income taxes 9.3 25.5 25.4
-------------- -------------- --------------
(Loss) income from continuing operations (30.1) 101.2 (136.3)
Income (loss) from discontinued operations 0.7 0.4 (4.0)
Extraordinary items - early extinguishment of debt (58.7) (6.6) -
-------------- -------------- --------------
Net (loss) income $ (88.1) $ 95.0 $ (140.3)
============== ============== ==============
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
REV HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S DEFICIENCY
(dollars in millions)
<TABLE>
<CAPTION>
CURRENCY
CAPITAL ACCUMULATED OTHER TRANSLATION
DEFICIENCY DEFICIT (A) ADJUSTMENTS ADJUSTMENT
------------ ------------ --------------------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1995 $ (965.3) $ (428.8) $ (10.9) $ (5.8)
Net loss (140.3)
Net capital contribution 0.4(e)
Adjustment for minimum
pension liability (6.1)
Currency translation adjustment 0.8
------------ ------------ ------------ ------------
Balance, December 31, 1995 (964.9) (569.1) (17.0) (5.0)
Net income 95.0 (f)
Adjustment for minimum
pension liability 4.6
Net capital distribution (0.4)(e)
Currency translation adjustment (0.8)(c)
Acquisition of business (4.1)(b)
------------ ------------ ------------ ------------
Balance, December 31, 1996 (969.4) (474.1) (12.4) (5.8)
Net loss (88.1)
Capital contribution from indirect parent 560.1 (d
Adjustment for minimum
pension liability 7.9
Net capital contribution 0.5 (e)
Currency translation adjustment (13.4)
------------ ------------ ------------ ------------
Balance, December 31, 1997 $ (408.8) $ (562.2) $ (4.5) $ (19.2)
============ ============ ============ ============
</TABLE>
- --------------------
(a) Represents net loss since June 24, 1992, the effective date of the
transfer agreements referred to in Note 16.
(b) Represents amounts paid to Revlon Holdings Inc. for the Tarlow Advertising
Division ("Tarlow") (See Note 16).
(c) Includes 2.1 of gains related to the Company's simplification of its
international corporate structure.
(d) Represents a noncash capital contribution from the Company's indirect
parent to cancel Revlon Worldwide Corporation's Senior Secured Discount
Notes due 1998 (the "Revlon Worldwide Notes").
(e) Represents changes in capital primarily from the acquisition of the Bill
Blass business (See Note 16).
(f) Includes the gain on the sale of subsidiary stock of 187.8 in connection
with Revlon, Inc.'s public equity offering (the "Revlon IPO").
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
REV HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in millions)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES: 1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Net (loss) income $ (88.1) $ 95.0 $ (140.3)
Adjustments to reconcile net (loss) income to net cash
provided by (used for) operating activities:
Depreciation and amortization 104.7 92.9 90.6
Amortization of debt discount 99.2 106.7 94.9
(Income) loss from discontinued operations (0.7) (0.4) 4.0
Extraordinary item 58.7 6.6 -
Gain on sale of subsidiary stock (0.3) (187.8) -
Gain on sale of certain fixed assets, net (4.4) - (2.2)
Change in assets and liabilities:
Increase in trade receivables (70.0) (67.7) (44.1)
Increase in inventories (16.9) (2.7) (12.6)
Decrease (increase) in prepaid expenses and
other current assets 0.4 (7.2) 4.6
Increase in accounts payable 17.9 9.4 12.1
Decrease in accrued expenses and other
current liabilities (2.8) (10.0) (12.5)
Other, net (87.5) (45.2) (40.4)
------------ ------------ ------------
Net cash provided by (used for) operating activities 10.2 (10.4) (45.9)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (52.3) (54.7) (51.3)
Acquisition of businesses, net of cash acquired (40.5) (7.1) (21.2)
Purchase of marketable securities (319.6) - -
Proceeds from the sale of certain fixed assets 8.5 - 3.0
------------ ------------ ------------
Net cash used for investing activities (403.9) (61.8) (69.5)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in short-term borrowings - third parties 18.0 5.8 (122.9)
Proceeds from the issuance of long-term debt - third parties 1,265.2 266.4 493.7
Repayment of long-term debt - third parties (865.2) (366.6) (236.3)
Net proceeds from the sale of subsidiary common stock 0.3 187.8 -
Proceeds from the issuance of debt - affiliates 123.1 115.0 157.4
Repayment of debt - affiliates (120.2) (115.0) (151.0)
Acquisition of business from affiliate - (4.1) -
Net contribution from (distribution to) parent 0.5 (0.4) 0.4
Payment of debt issuance costs (18.7) (10.9) (15.7)
------------ ------------ ------------
Net cash provided by financing activities 403.0 78.0 125.6
------------ ------------ ------------
Effect of exchange rate changes on cash and cash equivalents (3.6) (0.9) (0.1)
------------ ------------ ------------
Net cash used by discontinued operations (3.4) (2.7) (9.2)
------------ ------------ ------------
Net increase in cash and cash equivalents 2.3 2.2 0.9
Cash and cash equivalents at beginning of period 35.1 32.9 32.0
------------ ------------ ------------
Cash and cash equivalents at end of period $ 37.4 $ 35.1 $ 32.9
============ ============ ============
Supplemental schedule of cash flow information:
Cash paid during the period for:
Interest $ 139.6 $ 139.0 $ 148.2
Income taxes, net of refunds 10.5 15.4 18.8
Supplemental schedule of noncash investing and financing activities:
Noncash contribution from indirect parent to cancel Revlon
Worldwide Notes $ 560.1 $ - $ -
In connection with business acquisitions, liabilities
were assumed (including minority interest and
discontinued operations) as follows:
Fair value of assets acquired............................... $ 132.7 $ 9.7 $ 27.3
Cash paid (64.5) (7.2) (21.6)
------------ ------------ ------------
Liabilities assumed $ 68.2 $ 2.5 $ 5.7
============ ============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE>
REV HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT SHARE DATA)
1. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION:
Effective August 5, 1997, Revlon Worldwide Corporation ("Revlon
Worldwide") was merged with and into Revlon Worldwide (Parent) Corporation
("Revlon Worldwide (Parent)") (the "Merger"), with Revlon Worldwide (Parent)
surviving the Merger and changing its name to REV Holdings Inc. (together with
its subsidiaries, "REV Holdings" or the "Company"). All references to the
Company for periods prior to the Merger are to Revlon Worldwide and for periods
subsequent to the Merger are to REV Holdings. REV Holdings succeeded to the
rights and obligations of Revlon Worldwide under its various agreements,
including those described in Note 16, Related Party Transactions, by reason of
the Merger.
REV Holdings is a holding company, formed in 1997, that conducts its
business exclusively through its indirect subsidiary, Revlon Consumer Products
Corporation and its subsidiaries ("Products Corporation"). The Company operates
in a single business segment with many different products, which include an
extensive array of glamorous, exciting and innovative cosmetic and skin care,
fragrance and personal care products, and professional products (products for
use in and resale by professional salons). In the United States and
increasingly in international markets, the Company's products are sold
principally in the self-select distribution channel. The Company also sells
certain products in the demonstrator-assisted distribution channel, sells
consumer and professional products to United States military exchanges and
commissaries and has a licensing group. Outside the United States, the Company
also sells such consumer products through department stores and specialty
stores, such as perfumeries.
Products Corporation was formed in April 1992 and, on June 24, 1992,
succeeded to assets and liabilities of the cosmetic and skin care, fragrance
and personal care products business of its then parent company whose name was
changed from Revlon, Inc. to Revlon Holdings Inc. ("Holdings"). Certain
consumer products lines sold in demonstrator-assisted distribution channels
considered not integral to the Company's business and which historically had
not been profitable (the "Retained Brands") and certain other assets and
liabilities were retained by Holdings. Through December 31, 1997, REV Holdings
has had no business operations of its own and its only material asset is its
ownership of 83.1% of the outstanding shares of capital stock of Revlon, Inc.
(which represents approximately 97.4% of the voting power of those outstanding
shares), which, in turn, owns all of the capital stock of Products Corporation.
As such its net income (loss) has historically consisted predominantly of its
equity in the net income (loss) of Revlon, Inc. and accretion of interest
expense and amortization of debt issuance costs related to the Revlon Worldwide
Notes and REV Holdings Senior Secured Discount Notes due 2001. For such years,
REV Holdings has had no cash flows of its own other than capital contributions
from its indirect parent in 1997 and 1996 and proceeds from the issuance of the
Senior Secured Discount Notes due 2001 and the repayment of a portion of the
Revlon Worldwide Notes in 1997.
The Consolidated Financial Statements of the Company presented herein
relate to the business to which the Company succeeded and include the assets,
liabilities and results of operations of such business. Assets, liabilities,
revenues, other income, costs and expenses which were identifiable specifically
to the Company are included herein and those identifiable specifically to the
retained and divested businesses of Holdings have been excluded. Amounts which
were not identifiable specifically to either the Company or Holdings are
included herein to the extent applicable to the Company pursuant to a method of
allocation generally based on the respective proportion of the business of the
Company to the applicable total of the businesses of the Company and Holdings.
The operating results of the Retained Brands and divested businesses of
Holdings have not been reflected in the Consolidated Financial Statements of
the Company. Management of the Company believes that the basis of allocation
and presentation is reasonable.
Although the Retained Brands were not transferred to Products
Corporation when the cosmetic and skin care, fragrance and personal care
products business of Holdings was transferred to Products Corporation, Products
Corporation's bank lenders required that all assets and liabilities relating to
such Retained Brands existing on the date of transfer (June 24, 1992), other
than the brand names themselves and certain other intangible assets, be
transferred to Products Corporation. Any assets and liabilities that had not
been disposed of or satisfied by December 31 of the
F-7
<PAGE>
applicable year have been reflected in the Company's consolidated financial
position as of such dates. However, any new assets or liabilities generated by
such Retained Brands since the transfer date and any income or loss associated
with inventory that has been transferred to Products Corporation relating to
such Retained Brands have been and will be for the account of Holdings. In
addition, certain assets and liabilities relating to divested businesses were
transferred to Products Corporation on the transfer date and any remaining
balances as of December 31 of the applicable year have been reflected in the
Company's Consolidated Balance Sheets as of such dates. At December 31, 1997
and 1996, the amounts reflected in the Company's Consolidated Balance Sheets
aggregated a net liability of $23.3 and $23.6, respectively, of which $4.9 and
$5.2, respectively, are included in accrued expenses and other and $18.4 as of
both dates is included in other long-term liabilities.
The Consolidated Financial Statements include the accounts of REV
Holdings and its subsidiaries after elimination of all material intercompany
balances and transactions. Further, the Company has made a number of estimates
and assumptions relating to the reporting of assets and liabilities, the
disclosure of 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 Company is an indirect wholly owned subsidiary of Holdings and an
indirect wholly owned subsidiary of MacAndrews & Forbes Holdings Inc.
("MacAndrews Holdings"), a corporation wholly owned indirectly through Mafco
Holdings Inc. ("Mafco Holdings" and, together with MacAndrews Holdings,
"MacAndrews & Forbes") by Ronald O. Perelman. All of the equity securities of
REV Holdings are beneficially owned by MacAndrews & Forbes.
CASH AND CASH EQUIVALENTS:
Cash equivalents (primarily investments in time deposits which have
original maturities of three months or less) are carried at cost, which
approximates fair value.
INVENTORIES:
Inventories are stated at the lower of cost or market value. Cost is
principally determined by the first-in, first-out method.
PROPERTY, PLANT AND EQUIPMENT AND OTHER ASSETS:
Property, plant and equipment is recorded at cost and is depreciated
on a straight-line basis over the estimated useful lives of such assets as
follows: land improvements, 20 to 40 years; buildings and improvements, 5 to 50
years; machinery and equipment, 3 to 17 years; and office furniture and
fixtures and capitalized software development costs, 2 to 12 years. Leasehold
improvements are amortized over their estimated useful lives or the terms of
the leases, whichever is shorter. Repairs and maintenance are charged to
operations as incurred, and expenditures for additions and improvements are
capitalized.
Included in other assets are permanent displays amounting to
approximately $107.7 and $81.8 (net of amortization) as of December 31, 1997
and 1996, respectively, which are amortized over 3 to 5 years.
INTANGIBLE ASSETS RELATED TO BUSINESSES ACQUIRED:
Intangible assets related to businesses acquired principally represent
goodwill, the majority of which is being amortized on a straight-line basis
over 40 years. The Company evaluates, when circumstances warrant, the
recoverability of its intangible assets on the basis of undiscounted cash flow
projections and through the use of various other measures, which include, among
other things, a review of its image, market share and business plans.
Accumulated amortization aggregated $104.2 and $94.1 at December 31, 1997 and
1996, respectively.
F-8
<PAGE>
REVENUE RECOGNITION:
The Company recognizes net sales upon shipment of merchandise. Net
sales comprise gross revenues less expected returns, trade discounts and
customer allowances. Cost of sales is reduced for the estimated net realizable
value of expected returns.
INCOME TAXES:
Income taxes are calculated using the liability method in accordance
with the provisions of Statement of Financial Accounting Standards ("SFAS") No.
109, "Accounting for Income Taxes."
The Company is included in the affiliated group of which Mafco
Holdings is the common parent, and the Company's federal taxable income and
loss will be included in such group's consolidated tax return filed by Mafco
Holdings. The Company also may be included in certain state and local tax
returns of Mafco Holdings or its subsidiaries. For all periods presented,
federal, state and local income taxes are provided as if REV Holdings filed its
own income tax returns (excluding Revlon, Inc. and its subsidiaries) and as if
Revlon, Inc. and its subsidiaries filed its own tax returns. On June 24, 1992,
Holdings, Products Corporation and certain of its subsidiaries, Revlon, Inc.
and Mafco Holdings entered into a tax sharing agreement and on March 17, 1993
Revlon Worldwide (now REV Holdings) and Mafco Holdings entered into a tax
sharing agreement, each of which is described in Notes 13 and 16.
PENSION AND OTHER POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS:
Products Corporation sponsors pension and other retirement plans in
various forms covering substantially all employees who meet eligibility
requirements. For plans in the United States, the minimum amount required
pursuant to the Employee Retirement Income Security Act, as amended, is
contributed annually. Various subsidiaries outside the United States have
retirement plans under which funds are deposited with trustees or reserves are
provided.
Products Corporation accounts for benefits such as severance,
disability and health insurance provided to former employees prior to their
retirement, if estimable, on a terminal basis in accordance with the provisions
of SFAS No. 5, "Accounting for Contingencies," as amended by SFAS No. 112,
"Employers' Accounting for Postemployment Benefits," which requires companies
to accrue for postemployment benefits when it is probable that a liability has
been incurred and the amount of such liability can be reasonably estimated,
which Products Corporation has concluded is generally when an employee is
terminated.
RESEARCH AND DEVELOPMENT:
Research and development expenditures are expensed as incurred. The
amounts charged against earnings in 1997, 1996 and 1995 were $29.7, $26.3 and
$22.3, respectively.
FOREIGN CURRENCY TRANSLATION:
Assets and liabilities of foreign operations are generally translated
into United States dollars at the rates of exchange in effect at the balance
sheet date. Income and expense items are generally translated at the weighted
average exchange rates prevailing during each period presented. Gains and
losses resulting from foreign currency transactions are included in the results
of operations. Gains and losses resulting from translation of financial
statements of foreign subsidiaries and branches operating in
non-hyperinflationary economies are recorded as a component of stockholder's
deficiency. Foreign subsidiaries and branches operating in hyperinflationary
economies translate nonmonetary assets and liabilities at historical rates and
include translation adjustments in the results of operations.
Effective January 1997, the Company's operations in Mexico have been
accounted for as operating in a hyperinflationary economy. Effective July 1997,
the Company's operations in Brazil have been accounted for as is required for a
non-hyperinflationary economy. The impact of the changes in accounting for
Brazil and Mexico were not material to the Company's operating results in 1997.
F-9
<PAGE>
SALE OF SUBSIDIARY STOCK:
The Company recognizes gains and losses on sales of subsidiary stock
in its Consolidated Statements of Operations.
STOCK-BASED COMPENSATION:
SFAS No. 123, "Accounting for Stock-Based Compensation," encourages,
but does not require companies to record compensation cost for stock-based
employee compensation plans at fair value. The Company has chosen to account
for stock-based compensation plans using the intrinsic value method prescribed
in Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock
Issued to Employees," and related Interpretations. Accordingly, compensation
cost for stock options is measured as the excess, if any, of the quoted market
price of Revlon, Inc.'s stock at the date of the grant over the amount an
employee must pay to acquire the stock (See Note 15).
DERIVATIVE FINANCIAL INSTRUMENTS:
Derivative financial instruments are utilized by the Company to reduce
interest rate and foreign exchange risks. The Company maintains a control
environment which includes policies and procedures for risk assessment and the
approval, reporting and monitoring of derivative financial instrument
activities. The Company does not hold or issue derivative financial instruments
for trading purposes.
The differentials to be received or paid under interest rate contracts
designated as hedges are recognized in income over the life of the contracts as
adjustments to interest expense. Gains and losses on terminations of interest
rate contracts designated as hedges are deferred and amortized into interest
expense over the remaining life of the original contracts or until repayment of
the hedged indebtedness. Unrealized gains and losses on outstanding contracts
designated as hedges are not recognized.
Gains and losses on contracts designated to hedge identifiable foreign
currency commitments are deferred and accounted for as part of the related
foreign currency transaction. Gains and losses on all other foreign currency
contracts are included in income currently. Transaction gains and losses have
not been material.
2. DISCONTINUED OPERATIONS
On June 8, 1998, the Company announced its intention to dispose of its
retail and outlet store business and recorded an estimated loss on disposal of
$15.0 in the second quarter of 1998. Accordingly, all prior periods have been
restated to reflect the results of operations of the retail and outlet store
business as discontinued operations. The net assets of the discontinued
operations consist primarily of inventory and intangible assets, offset by
liabilities, including third party debt and minority interest.
3. EXTRAORDINARY ITEMS
The extraordinary item in 1997 resulted from the write-off in the
second quarter of 1997 of deferred financing costs of approximately $8.6
associated with the early extinguishment of borrowings under a prior credit
agreement and costs of approximately $6.3 in connection with the redemption of
Products Corporation's 10 7/8% Sinking Fund Debentures due 2010 (the "Sinking
Fund Debentures") and $43.8 from the cancellation in the first quarter of 1997
of a portion of the Revlon Worldwide Notes (See Note 11(h)) and the write-off
of the deferred financing costs associated with such cancellation. The early
extinguishment of borrowings under a prior credit agreement and the redemption
of the Sinking Fund Debentures were financed by the proceeds from a new credit
agreement which became effective in May 1997 (the "Credit Agreement"). The
extraordinary item in 1996 resulted from the write-off of deferred financing
costs associated with the early extinguishment of borrowings with the net
proceeds from the Revlon IPO and proceeds from a prior credit agreement.
F-10
<PAGE>
4. BUSINESS CONSOLIDATION COSTS AND OTHER, NET
Business consolidation costs and other, net in 1997 include severance,
writedowns of certain assets to their estimated net realizable value and other
related costs to rationalize factory and warehouse operations in certain United
States and International operations, partially offset by related gains from the
sales of certain factory operations of approximately $4.3 and an approximately
$12.7 settlement of a claim in the second quarter of 1997. The business
consolidation costs include $14.2 for the termination of approximately 415
factory and administrative employees. By December 31, 1997 the Company
terminated approximately 200 employees, made cash payments for such
terminations of approximately $6.4, and made cash payments for other business
consolidation costs of approximately $3.2. As of December 31, 1997, the unpaid
balance of the business consolidation accrual approximated $11.0, which amount
is included in accrued expenses and other.
5. ACQUISITIONS
On April 25, 1997, Prestige Fragrance & Cosmetics, Inc. ("PFC"), a
wholly owned subsidiary of Products Corporation, and The Cosmetic Center, Inc.
("CCI") completed the merger of PFC with and into CCI (the "Cosmetic Center
Merger") with CCI (subsequent to the Cosmetic Center Merger, "Cosmetic Center")
surviving the Cosmetic Center Merger. 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 85.0%
of Cosmetic Center's outstanding common stock. Accordingly, the Cosmetic Center
Merger was accounted for as a reverse acquisition using the purchase method of
accounting, with PFC considered the acquiring entity for accounting purposes
even though Cosmetic Center is the surviving legal entity. The deemed purchase
consideration for the acquisition was approximately $27.9 and the goodwill
associated with the Cosmetic Center Merger was approximately $10.5. The Company
recognized a gain of $6.0 resulting from the sale of subsidiary stock pursuant
to the Cosmetic Center Merger. The gain from the sale of subsidiary stock is
included in the income (loss) from discontinued operations in 1997 (See Note
2).
In 1997, the Company consummated other acquisitions for a combined
purchase price of $51.6, with resulting goodwill of $35.8. These acquisitions
were not significant to the Company's results of operations. Acquisitions
consummated in 1996 and 1995 were also not significant to the Company's results
of operations.
6. INVENTORIES
DECEMBER 31,
--------------------------------
1997 1996
-------------- -------------
Raw materials and supplies $ 82.6 $ 76.6
Work-in-process 14.9 19.4
Finished goods 163.2 153.4
-------------- -------------
$ 260.7 $ 249.4
============== =============
7. PREPAID EXPENSES AND OTHER
DECEMBER 31,
--------------------------------
1997 1996
-------------- -------------
Prepaid expenses $ 40.7 $ 42.5
Other 51.3 31.2
-------------- -------------
$ 92.0 $ 73.7
============== =============
F-11
<PAGE>
8. PROPERTY, PLANT AND EQUIPMENT, NET
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1997 1996
-------------- -------------
<S> <C> <C>
Land and improvements $ 32.5 $ 37.5
Buildings and improvements 193.2 207.6
Machinery and equipment 203.5 192.4
Office furniture and fixtures and software development costs 73.9 52.3
Leasehold improvements 37.5 33.1
Construction-in-progress 30.6 43.3
-------------- -------------
571.2 566.2
Accumulated depreciation (207.2) (192.7)
-------------- -------------
$ 364.0 $ 373.5
============== =============
</TABLE>
Depreciation expense for the years ended December 31, 1997, 1996 and
1995 was $38.4, $37.0 and $36.6, respectively.
9. ACCRUED EXPENSES AND OTHER
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1997 1996
-------------- -------------
<S> <C> <C>
Advertising and promotional costs and accrual for sales returns $ 147.1 $ 137.4
Compensation and related benefits 73.5 95.1
Interest 32.1 36.7
Taxes, other than federal income taxes 30.2 34.0
Restructuring and business consolidation costs 18.2 6.9
Net liabilities assumed from Holdings 4.9 5.2
Other 50.0 48.5
-------------- -------------
$ 356.0 $ 363.8
============== =============
</TABLE>
10. SHORT-TERM BORROWINGS
Products Corporation maintained short-term bank lines of credit at
December 31, 1997 and 1996 aggregating approximately $82.3 and $72.7,
respectively, of which approximately $42.7 and $27.1 were outstanding at
December 31, 1997 and 1996, respectively. Interest rates on amounts borrowed
under such short-term lines at December 31, 1997 and 1996 varied from 2.5% to
12.0% and 2.2% to 12.1%, respectively. Compensating balances at December 31,
1997 and 1996 were approximately $6.2 and $7.4, respectively. Interest rates on
compensating balances at December 31, 1997 and 1996 varied from 0.4% to 8.1%
and 0.4% to 7.9%, respectively.
F-12
<PAGE>
11. LONG-TERM DEBT
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1997 1996
-------------- -------------
<S> <C> <C>
Working capital lines (a) $ 344.6 $ 187.2
Bank mortgage loan agreement due 2000 (b) 33.3 41.7
9 1/2% Senior Notes due 1999(c) 200.0 200.0
9 3/8 % Senior Notes due 2001 (d) 260.0 260.0
10 1/2% Senior Subordinated Notes due 2003 (e) 555.0 555.0
10 7/8 % Sinking Fund Debentures due 2010 (f) - 79.6
Advances from Holdings (g) 30.9 30.4
Revlon Worldwide Notes, net of unamortized
discount of $8.1 and $146.2 (h) 329.3 969.6
Senior Secured Discount Notes due 2001, net of
unamortized discount of $219.5 (i) 550.5 -
Other mortgages and notes payable (8.6%-13.0%)
due through 2001 1.4 7.1
-------------- -------------
2,305.0 2,330.6
Less current portion (334.8) (8.8)
-------------- -------------
$ 1,970.2 $ 2,321.8
============== =============
</TABLE>
(a) 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
to repay the loans outstanding under the 1996 Credit Agreement and to redeem
the Sinking Fund Debentures.
The Credit Agreement provides up to $750.0 and is comprised of five
senior secured facilities: $200.0 in two term loan facilities (the "Term Loan
Facilities"), a $300.0 multi-currency facility (the "Multi-Currency Facility"),
a $200.0 revolving acquisition facility, which may be increased to $400.0 under
certain circumstances with the consent of a majority of the lenders (the
"Acquisition Facility"), and a $50.0 special standby letter of credit facility
(the "Special LC Facility" and together with the Term Loan Facilities, the
Multi-Currency Facility and the Acquisition Facility, the "Credit Facilities").
The Multi-Currency Facility is available (i) to Products Corporation in
revolving credit loans denominated in U.S. dollars (the "Revolving Credit
Loans"), (ii) to Products Corporation in standby and commercial letters of
credit denominated in U.S. dollars (the "Operating Letters of Credit") and
(iii) to Products Corporation and certain of its international subsidiaries
designated from time to time in revolving credit loans and bankers' acceptances
denominated in U.S. dollars and other currencies (the "Local Loans"). At
December 31, 1997 Products Corporation had approximately $200.0 outstanding
under the Term Loan Facilities, $102.7 outstanding under the Multi-Currency
Facility, $41.9 outstanding under the Acquisition Facility and $34.8 of issued
but undrawn letters of credit under the Special LC Facility.
The Credit Facilities (other than loans in foreign currencies) bear
interest as of December 31, 1997 at a rate equal to, at Products Corporation's
option, either (A) the Alternate Base Rate plus 1/4 of 1% (or 1.25% for Local
Loans); or (B) the Eurodollar Rate plus 1.25%. Loans in foreign currencies bear
interest as of December 31, 1997 at a rate equal to the Eurocurrency Rate or,
in the case of Local Loans, the local lender rate, in each case plus 1.25%. The
applicable margin is reduced (or increased, but not above 3/4 of 1% for
Alternate Base Rate Loans not constituting Local Loans and 1.75% for other
loans) in the event Products Corporation attains (or fails to attain) certain
leverage ratios. Products Corporation pays the lender a commitment fee as of
December 31, 1997 of 3/8 of 1% of the unused portion of the Credit Facilities,
subject to reduction (or increase, but not above 1/2 of 1%) based on attaining
(or failing to attain) certain leverage ratios. Under the Multi-Currency
Facility, the Company pays the lenders an administrative fee of 1/4% per annum
on the aggregate principal amount of specified Local Loans. Products
Corporation also paid certain facility and other fees to the lenders and agents
upon closing of the Credit Agreement. Prior to its termination date, the
commitments under the Credit Facilities will be reduced by: (i) the net
proceeds in excess of $10.0 each year received during such year from sales of
assets by Holdings (or certain of its subsidiaries), Products Corporation or
any of its subsidiaries (and $25.0 with respect to certain specified
dispositions), subject to certain limited exceptions, (ii) certain proceeds
from the sales of collateral security granted to the lenders, (iii) the net
proceeds from the issuance by Products Corporation or any of its subsidiaries
of certain additional debt, (iv) 50% of the excess cash flow of Products
F-13
<PAGE>
Corporation and its subsidiaries (unless certain leverage ratios are attained)
and (v) certain scheduled reductions in the case of the Term Loan Facilities,
which will commence on May 31, 1998 in the aggregate amount of $1.0 annually
over the remaining life of the Credit Agreement, and in the case of the
Acquisition Facility, which will commence on December 31, 1999 in the amount of
$25.0 and in the amounts of $60.0 during 2000, $90.0 during 2001 and $25.0
during 2002 (which reductions will be proportionately increased if the
Acquisition Facility is increased). The Credit Agreement will terminate on May
30, 2002. The weighted average interest rates on the Term Loan Facilities, the
Multi-Currency Facility and the Acquisition Facility were 7.1%, 5.4% and 5.7%
per annum, respectively, as of December 31, 1997.
The Credit Facilities, subject to certain exceptions and limitations,
are supported by guarantees from Holdings and certain of its subsidiaries,
Revlon, Inc., Products Corporation and the domestic subsidiaries of Products
Corporation. The obligations of Products Corporation under the Credit
Facilities and the obligations under the aforementioned guarantees are secured,
subject to certain limitations, by (i) mortgages on Holdings' Edison, New
Jersey and Products Corporation's Phoenix, Arizona facilities; (ii) the capital
stock of Products Corporation and its domestic subsidiaries, 66% of the capital
stock of its first tier foreign subsidiaries and the capital stock of certain
subsidiaries of Holdings; (iii) domestic intellectual property and certain
other domestic intangibles of (x) Products Corporation and its domestic
subsidiaries (other than Cosmetic Center) and (y) certain subsidiaries of
Holdings; (iv) domestic inventory and accounts receivable of (x) Products
Corporation and its domestic subsidiaries (other than Cosmetic Center) and (y)
certain subsidiaries of Holdings; and (v) the assets of certain foreign
subsidiary borrowers under the Multi-Currency Facility (to support their
borrowings only). The Credit Agreement provides that the liens on the stock and
personal property referred to above may be shared from time to time with
specified types of other obligations incurred or guaranteed by Products
Corporation, such as interest rate hedging obligations, working capital lines
and a subsidiary of Products Corporation's Yen-denominated credit agreement.
The Credit Agreement contains various material restrictive covenants
prohibiting Products Corporation from (i) incurring additional indebtedness or
guarantees, with certain exceptions, (ii) making dividend, tax sharing and
other payments or loans to Revlon, Inc. or other affiliates, with certain
exceptions, including among others, permitting Products Corporation 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 Securities and Exchange Commission ("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 common stock in connection with the
delivery of such common stock to grantees under any stock option plan, provided
that the aggregate amount of such dividends and distributions taken together
with any purchases of Revlon, Inc. common stock on the market to satisfy
matching obligations under an excess savings plan may not exceed $6.0 per
annum, (iii) creating liens or other encumbrances on their assets or revenues,
granting negative pledges or selling or transferring any of their assets except
in the ordinary course of business, all subject to certain limited exceptions,
(iv) with certain exceptions, engaging in merger or acquisition transactions,
(v) prepaying indebtedness, subject to certain limited exceptions, (vi) making
investments, subject to certain limited exceptions, and (vii) entering into
transactions with affiliates of Products Corporation other than upon terms no
less favorable to Products Corporation or its subsidiaries than it would obtain
in an arms' length transaction. In addition to the foregoing, the Credit
Agreement contains financial covenants requiring Products Corporation to
maintain minimum interest coverage and covenants which limit the leverage ratio
of Products Corporation and the amount of capital expenditures.
In January 1996, Products Corporation entered into a credit agreement
(the "1996 Credit Agreement"), which became effective upon consummation of the
Revlon IPO on March 5, 1996. The 1996 Credit Agreement included, among other
things, (i) a term to December 31, 2000 (subject to earlier termination in
certain circumstances), and (ii) credit facilities of $600.0 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. The weighted average interest rates on the term loan facility
and multi-currency facility were 8.1% and 7.0% per annum, respectively, as of
December 31, 1996.
(b) The Pacific Finance & Development Corp., a subsidiary of Products
Corporation, is the borrower under a yen denominated credit agreement (the "Yen
Credit Agreement"), which had a principal balance of approximately (Yen)4.3
billion as of December 31, 1997 (approximately $33.3 U.S. dollar equivalent as
of December 31, 1997). In accordance
F-14
<PAGE>
with the terms of the Yen Credit Agreement, approximately (Yen)539 million
(approximately $5.2 U.S. dollar equivalent) was paid in January 1996 and
approximately (Yen)539 million (approximately $4.6 U.S. dollar equivalent) was
paid in January 1997. In June 1997, Products Corporation amended and restated
the Yen Credit Agreement to extend the term to December 31, 2000 subject to
earlier termination under certain circumstances. In accordance with the terms
of the Yen Credit Agreement, as amended and restated, approximately (Yen)539
million (approximately $4.2 U.S. dollar equivalent as of December 31, 1997) is
due in each of March 1998, 1999 and 2000 and (Yen)2.7 billion (approximately
$20.7 U.S. dollar equivalent as of December 31, 1997) is due on December 31,
2000. The applicable interest rate at December 31, 1997 under the Yen Credit
Agreement was the Euro-Yen rate plus 1.25% which approximated 1.9%. The
interest rate at December 31, 1996, was the Euro-Yen rate plus 2.5%, which
approximated 3.1%.
(c) The Senior Notes due 1999 (the "1999 Senior Notes") are senior
unsecured obligations of Products Corporation and rank pari passu in right of
payment to all existing and future Senior Debt (as defined in the indenture
relating to the 1999 Senior Notes (the "1999 Senior Note Indenture")). The 1999
Senior Notes bear interest at 9 1/2% per annum. Interest is payable on June 1
and December 1.
The 1999 Senior Notes may not be redeemed prior to maturity. Upon a
Change of Control (as defined in the 1999 Senior Note Indenture) and subject to
certain conditions, each holder of 1999 Senior Notes will have the right to
require Products Corporation to repurchase all or a portion of such holder's
1999 Senior Notes at 101% of the principal amount thereof plus accrued and
unpaid interest, if any, to the date of repurchase. In addition, under certain
circumstances in the event of an Asset Disposition (as defined in the 1999
Senior Note Indenture), Products Corporation will be obligated to make offers
to purchase the 1999 Senior Notes.
The 1999 Senior Note Indenture contains various restrictive covenants
that, among other things, limit (i) the issuance of additional debt and
redeemable stock by Products Corporation, (ii) the issuance of debt and
preferred stock by Products Corporation's subsidiaries, (iii) the incurrence of
liens on the assets of Products Corporation and its subsidiaries which do not
equally and ratably secure the 1999 Senior Notes, (iv) the payment of dividends
on and redemption of capital stock of Products Corporation and its subsidiaries
and the redemption of certain subordinated obligations of Products Corporation,
except that the 1999 Senior Note Indenture permits Products Corporation 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 up to $5.0 per annum (subject to allowable increases) 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 any stock option plan, (v) the sale of assets and subsidiary stock, (vi)
transactions with affiliates and (vii) consolidations, mergers and transfers of
all or substantially all of Products Corporation's assets. The 1999 Senior Note
Indenture also prohibits certain restrictions on distributions from
subsidiaries. All of these limitations and prohibitions, however, are subject
to a number of important qualifications.
(d) The 9 3/8% Senior Notes due 2001 (the "Senior Notes") are senior
unsecured obligations of Products Corporation and rank pari passu in right of
payment to all existing and future Senior Debt (as defined in the indenture
relating to the Senior Notes (the "Senior Note Indenture")). The Senior Notes
bear interest at 9 3/8% per annum. Interest is payable on April 1 and October
1.
The Senior Notes may be redeemed at the option of Products Corporation
in whole or in part at any time on or after April 1, 1998 at the redemption
prices set forth in the Senior Note Indenture, plus accrued and unpaid
interest, if any, to the date of redemption. Upon a Change of Control (as
defined in the Senior Note Indenture), Products Corporation will have the
option to redeem the Senior Notes in whole or in part at a redemption price
equal to the principal amount thereof plus the Applicable Premium (as defined
in the Senior Note Indenture), plus accrued and unpaid interest, if any, to the
date of redemption, and, subject to certain conditions, each holder of Senior
Notes will have the right to require Products Corporation to repurchase all or
a portion of such holder's Senior Notes at 101% of the principal amount
thereof, plus accrued and unpaid interest, if any, to the date of repurchase.
In addition, under certain circumstances in the event of an Asset Disposition
(as defined in the Senior Note Indenture), Products Corporation will be
obligated to make offers to purchase the Senior Notes.
F-15
<PAGE>
The Senior Note Indenture contains various restrictive covenants that,
among other things, limit (i) the issuance of additional indebtedness and
redeemable stock by Products Corporation, (ii) the issuance of indebtedness and
preferred stock by Products Corporation's subsidiaries, (iii) the incurrence of
liens on the assets of Products Corporation and its subsidiaries which do not
equally and ratably secure the Senior Notes, (iv) the payment of dividends on
capital stock of Products Corporation and its subsidiaries and the redemption
of capital stock and certain subordinated obligations of Products Corporation,
except that the Senior Note Indenture permits Products Corporation 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 up to $5.0 per annum (subject to allowable increases) 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 any stock option plan, (v) the sale of assets and subsidiary stock, (vi)
transactions with affiliates and (vii) consolidations, mergers and transfers of
all or substantially all of Products Corporation's assets. The Senior Note
Indenture also prohibits certain restrictions on distributions from
subsidiaries of Products Corporation. All of these limitations and
prohibitions, however, are subject to a number of important qualifications (See
Note 20).
(e) The Senior Subordinated Notes due 2003 (the "Senior Subordinated
Notes") are unsecured obligations of Products Corporation and are subordinated
in right of payment to all existing and future Senior Debt (as defined in the
indenture relating to the Senior Subordinated Notes (the "Senior Subordinated
Note Indenture")). The Senior Subordinated Notes bear interest at 10 1/2% per
annum. Interest is payable on February 15 and August 15.
The Senior Subordinated Notes may be redeemed at the option of
Products Corporation in whole or in part at any time on or after February 15,
1998 at the redemption prices set forth in the Senior Subordinated Note
Indenture, plus accrued and unpaid interest, if any, to the date of redemption.
Upon a Change of Control (as defined in the Senior Subordinated Note
Indenture), Products Corporation will have the option to redeem the Senior
Subordinated Notes in whole or in part at a redemption price equal to the
principal amount thereof plus the Applicable Premium (as defined in the Senior
Subordinated Note Indenture), plus accrued and unpaid interest, if any, to the
date of redemption, and, subject to certain conditions, each holder of Senior
Subordinated Notes will have the right to require Products Corporation to
repurchase all or a portion of such holder's Senior Subordinated Notes at 101%
of the principal amount thereof, plus accrued and unpaid interest, if any, to
the date of repurchase. In addition, under certain circumstances in the event
of an Asset Disposition (as defined in the Senior Subordinated Note Indenture),
Products Corporation will be obligated to make offers to purchase the Senior
Subordinated Notes.
The Senior Subordinated Note Indenture contains various restrictive
covenants that, among other things, limit (i) the issuance of additional
indebtedness and redeemable stock by Products Corporation, (ii) the issuance of
indebtedness and preferred stock by Products Corporation's subsidiaries, (iii)
the incurrence of liens on the assets of Products Corporation and its
subsidiaries to secure debt other than Senior Debt (as defined in the Senior
Subordinated Note Indenture) or debt of a subsidiary, unless the Senior
Subordinated Notes are equally and ratably secured, (iv) the payment of
dividends on capital stock of Products Corporation and its subsidiaries and the
redemption of capital stock and certain subordinated obligations of Products
Corporation, except that the Senior Subordinated Note Indenture permits
Products Corporation 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 up to $5.0 per annum (subject to allowable
increases) 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 any stock option plan, (v) the sale of assets and
subsidiary stock, (vi) transactions with affiliates and (vii) consolidations,
mergers and transfers of all or substantially all of Products Corporation's
assets. The Senior Subordinated Note Indenture also prohibits certain
restrictions on distributions from subsidiaries of Products Corporation. All of
these limitations and prohibitions, however, are subject to a number of
important qualifications (See Note 20).
(f) Products Corporation redeemed all the outstanding $85.0 principal
amount of Sinking Fund Debentures during 1997 with the proceeds of borrowings
under the Credit Agreement.
F-16
<PAGE>
(g) During 1992, Holdings made an advance of $25.0 to Products
Corporation. This advance was evidenced by a noninterest-bearing demand note
payable by Products Corporation, the payment of which was subordinated to the
obligations of Products Corporation under the credit agreement in effect at
that time. Holdings agreed not to demand payment under the note so long as any
indebtedness remained outstanding under the credit agreement in effect at that
time. In February 1995, the $13.3 in notes due to Products Corporation under
the Financing Reimbursement Agreement, referred to in Note 16, was offset
against the $25.0 note and Holdings agreed not to demand payment under the
resulting $11.7 note so long as certain indebtedness remains outstanding. In
October 1993, Products Corporation borrowed from Holdings approximately $23.2
(as adjusted and subject to further adjustment for certain expenses)
representing amounts received by Holdings from an escrow account relating to
divestiture by Holdings of certain of its predecessor businesses. In July 1995,
Products Corporation borrowed from Holdings approximately $0.8, representing
certain amounts received by Holdings relating to an arbitration arising out of
the sale by Holdings of certain of its businesses. In 1995, Products
Corporation borrowed from Holdings approximately $5.6, representing certain
amounts received by Holdings from the sale by Holdings of certain of its
businesses. In June 1996, $10.9 in notes due to Products Corporation under the
Financing Reimbursement Agreement from Holdings was offset against the $11.7
demand note (referred to above) payable by Products Corporation to Holdings. In
June 1997, Products Corporation borrowed from Holdings approximately $0.5,
representing certain amounts received by Holdings from the sale of a brand and
the inventory relating thereto. At December 31, 1997 the balance of $30.9 is
evidenced by noninterest-bearing promissory notes payable to Holdings that are
subordinated to Products Corporation's obligations under the Credit Agreement.
(h) The Revlon Worldwide Notes were issued by Revlon Worldwide on
March 25, 1993 in the aggregate principal amount at maturity of $1,115.8 and
were scheduled to mature on March 15, 1998. The Revlon Worldwide Notes were
issued at a substantial discount from their principal amount at maturity
representing a yield to maturity of approximately 12% per annum calculated at
March 25, 1993. There were no periodic interest payments on the Revlon
Worldwide Notes. The Revlon Worldwide Notes were secured by a pledge of all of
the common stock of Revlon, Inc. owned by Revlon Worldwide.
During March 1997, $778.4 principal amount at maturity (accreted value
of $694.0) of the Revlon Worldwide Notes was delivered to the Trustee under the
indenture governing the Revlon Worldwide Notes (the "Revlon Worldwide
Indenture") for cancellation. In connection with the Revlon Worldwide Notes
that were canceled, the Company recorded a capital contribution from its
indirect parent of $560.1 and recorded an extraordinary loss of $43.8, which
included the write-off of deferred financing costs, in the first quarter of
1997. On April 2, 1997, funds from the issuance of the Old Notes (as defined
herein) were deposited in an irrevocable trust to effect the covenant
defeasance of the remaining balance of $337.4 principal amount at maturity of
the Revlon Worldwide Notes. The covenant defeasance of the Revlon Worldwide
Notes was effected on August 4, 1997, the 124th day following the deposit (See
Note 20).
In connection with the Merger, REV Holdings assumed the obligations of
Revlon Worldwide under the Revlon Worldwide Notes and the Revlon Worldwide
Indenture. Because of the effectiveness of the covenant defeasance, however,
REV Holdings may omit to comply with substantially all of its covenants and
other obligations, other than payment (which will be made out of the
irrevocable trust), under the Revlon Worldwide Indenture. As a result of the
Merger, REV Holdings directly owns all of the shares of common stock of Revlon,
Inc. that were owned by Revlon Worldwide and were pledged to secure the Revlon
Worldwide Notes. Following the Merger, REV Holdings pledged 20 million shares
of Revlon, Inc. common stock to secure the indebtedness of the Company and the
balance to secure the obligations of an affiliate.
(i) On March 5, 1997, the Company issued and sold $770.0 aggregate
principal amount at maturity (net proceeds of $505.0) of its Senior Secured
Discount Notes due 2001 (the "Old Notes"). The Old Notes were issued at a
discount from their principal amount at maturity representing a yield to
maturity of 10 3/4% per annum calculated from March 5, 1997. There are no
periodic interest payments on the Notes (as defined herein). The Company filed
a registration statement under the Securities Act of 1933, as amended, relating
to an offer to exchange (the "Exchange Offer") the Old Notes for a like
principal amount of notes (the "New Notes") with substantially identical terms
(the New Notes, together with the Old Notes, being the "Notes"), which
registration statement became effective on July 9, 1997. The Exchange Offer
expired on August 13, 1997, and substantially all of the Old Notes were
exchanged for the New Notes. The Notes are senior debt of REV Holdings and rank
pari
F-17
<PAGE>
passu in right of payment with any future debt of REV Holdings. REV Holdings is
a holding company and substantially all of its liabilities (other than the
Notes) are liabilities of subsidiaries. The Notes are effectively subordinated
to all liabilities of REV Holdings subsidiaries, including trade payables.
The Notes may be redeemed at the option of REV Holdings in whole or
from time to time in part at any time on and after March 15, 2000 at 102.6875%
of their accreted value on the date of redemption. Upon a Change of Control (as
defined in the Indenture) REV Holdings may redeem the Notes, in whole, at a
redemption price equal to the Accreted Value plus the Applicable Premium (each
as defined in the Indenture).
The Indenture governing the Notes requires the Company to hold at all
times a minimum percentage of common stock of Revlon, Inc. pledged to secure
the Notes. In addition, the Indenture contains covenants that, among other
things, limit (i) the issuance of additional debt and redeemable stock by the
Company or Revlon, Inc. and the issuance of preferred stock by Revlon, Inc.,
(ii) the issuance of debt and preferred stock by Products Corporation and its
subsidiaries, (iii) the payments of dividends on capital stock of the Company
and its subsidiaries and the redemption of capital stock of the Company, (iv)
the sale of assets and subsidiary stock, (v) transactions with affiliates and
(vi) consolidations, mergers and transfers of all or substantially all of the
Company's assets. The Indenture also prohibits certain restrictions on
distributions from subsidiaries. All of these limitations and prohibitions,
however, are subject to a number of qualifications which are set forth in the
Indenture.
(j) In connection with the Cosmetic Center Merger, on April 25, 1997
Cosmetic Center entered into a loan and security agreement (the "Cosmetic
Center Facility"). Cosmetic Center paid the then outstanding balance of $14.0
on CCI's former credit agreement with borrowings under the Cosmetic Center
Facility. On April 28, 1997, Cosmetic Center used approximately $21.2 of
borrowings under the Cosmetic Center Facility to fund the cash election
associated with the Cosmetic Center Merger. The Cosmetic Center Facility, which
expires on April 30, 1999, provides up to $70.0 of revolving credit tied to a
borrowing base of 65% of Cosmetic Center's eligible inventory, as defined in
the Cosmetic Center Facility. Borrowings under the Cosmetic Center Facility are
collateralized by Cosmetic Center's accounts receivable and inventory and
proceeds therefrom. Under the Cosmetic Center Facility, Cosmetic Center may
borrow at the London Inter-Bank Offered Rate ("LIBOR") plus 2.25% or at the
lending bank's prime rate plus 0.5%. Cosmetic Center also pays a commitment fee
equal to one-quarter of one percent per annum. Interest is payable on a monthly
basis except for interest on LIBOR rate loans with a maturity of less than
three months, which is payable at the end of the LIBOR rate loan period and
interest on LIBOR rate loans with a maturity of more than three months, which
is payable every three months. If Cosmetic Center terminates the Cosmetic
Center Facility, Cosmetic Center is obligated to pay a prepayment penalty of
$0.7 if the termination occurs before the first anniversary date of the
Cosmetic Center Facility and $0.2 if the termination occurs after the first
anniversary date. The Cosmetic Center Facility contains various restrictive
covenants and requires Cosmetic Center to maintain a minimum tangible net worth
and an interest coverage ratio. At December 31, 1997, approximately $39.0 was
outstanding under the Cosmetic Center Facility with an interest rate of 8.1%.
The borrowings under the Cosmetic Center Facility are included as part of net
assets of discontinued operations in the consolidated balance sheet (See Note
2).
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 the rate under the Credit Agreement. No
such borrowings were outstanding at December 31, 1997 or 1996.
The aggregate amounts of long-term debt maturities and sinking fund
requirements (at December 31, 1997), in the years 1998 through 2002 are $334.8,
$205.4, $26.2, $829.0 and $354.6, respectively, and $555.0 thereafter.
F-18
<PAGE>
12. FINANCIAL INSTRUMENTS
As of December 31, 1997, 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 amount 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. If
Products Corporation had terminated these agreements, which Products
Corporation considered to be held for other than trading purposes, on December
31, 1997 and 1996, a loss of approximately $0.1 and $3.5, respectively would
have been realized. Certain other swap agreements were terminated in 1993 for a
gain of $14.0 that was amortized over the original lives of the agreements
through 1997. The amortization of the 1993 realized gain in 1997, 1996 and 1995
was approximately $3.1, $3.2 and $3.2, respectively. Cash flow from the
agreements outstanding at December 31, 1997 was approximately break even for
1997. In anticipation of repayment of the hedged indebtedness, Products
Corporation terminated these agreements in January 1998 and realized a gain of
approximately $1.6, which will be recognized upon repayment of the hedged
indebtedness.
Products Corporation enters into forward foreign exchange contracts
and option contracts from time to time to hedge certain cash flows denominated
in foreign currencies. At December 31, 1997 and 1996, Products Corporation had
forward foreign exchange contracts denominated in various currencies of
approximately $90.1 and $62.0, respectively, and option contracts of
approximately $94.9 outstanding at December 31, 1997. Such contracts are
entered into to hedge transactions predominantly occurring within twelve
months. If Products Corporation had terminated these contracts on December 31,
1997 and 1996, no material gain or loss would have been realized.
The fair value of the Company's long-term debt is estimated based on
the quoted market prices for the same issues or on the current rates offered to
the Company for debt of the same remaining maturities. The estimated fair value
of long-term debt (including the current portion) at December 31, 1997 and 1996
was approximately $22.7 and $35.6 more than the carrying value of $2,305.0 and
$2,330.6, respectively. Because considerable judgment is required in
interpreting market data to develop estimates of fair value, the estimates are
not necessarily indicative of the amounts that could be realized or would be
paid in a current market exchange. The effect of using different market
assumptions or estimation methodologies may be material to the estimated fair
value amounts.
Products Corporation also maintains standby and trade letters of
credit with certain banks for various corporate purposes under which Products
Corporation is obligated, of which approximately $40.6 and $40.9 (including
amounts available under credit agreements in effect at that time) were
maintained at December 31, 1997 and 1996, respectively. Included in these
amounts are $27.7 and $26.4, respectively, in standby letters of credit which
support Products Corporation's self-insurance programs (See Note 16). The
estimated liability under such programs is accrued by Products Corporation.
The carrying amounts of cash and cash equivalents, trade receivables,
accounts payable and short-term borrowings approximate their fair values.
The Company accounts for investments in marketable securities,
consisting of U.S. Treasury Bills, in accordance with SFAS No. 115, "Accounting
for Certain Investments in Debt and Equity Securities." As of December 31,
1997, the fair market value of the Company's investments in restricted
marketable securities approximated its carrying value. The restricted
marketable securities were deposited in an irrevocable trust in connection with
the covenant defeasance of a portion of the Revlon Worldwide Notes.
F-19
<PAGE>
13. INCOME TAXES
In June 1992, Holdings, Revlon, Inc., Products Corporation and certain
of its subsidiaries, and Mafco Holdings entered into a tax sharing agreement
(as subsequently amended, the "1992 Tax Sharing Agreement"), pursuant to which
Mafco Holdings has agreed to indemnify Revlon, Inc. and Products Corporation
against federal, state or local income tax liabilities of the consolidated or
combined group of which Mafco Holdings (or a subsidiary of Mafco Holdings other
than Revlon, Inc. or its subsidiaries) is the common parent for taxable periods
beginning on or after January 1, 1992 during which Revlon, Inc. or a subsidiary
of Revlon, Inc. is a member of such group. Pursuant to the 1992 Tax Sharing
Agreement, for all taxable periods beginning on or after January 1, 1992,
Revlon, Inc. will pay to Holdings amounts equal to the taxes that Revlon, Inc.
would otherwise have to pay if it were to file separate federal, state or local
income tax returns (including any amounts determined to be due as a result of a
redetermination arising from an audit or otherwise of the consolidated or
combined tax liability relating to any such period which is attributable to
Revlon, Inc.), except that Revlon, Inc. will not be entitled to carry back any
losses to taxable periods ending prior to January 1, 1992. 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
such tax sharing payments other than in respect of state and local income
taxes.
In March 1993, Revlon Worldwide (now REV Holdings) and Mafco Holdings
entered into a tax sharing agreement (the "1993 Tax Sharing Agreement" and,
together with the 1992 Tax Sharing Agreement, the "Tax Sharing Agreements")
pursuant to which, for all taxable periods beginning on or after January 1,
1993, REV Holdings will pay to Mafco Holdings amounts equal to the taxes that
REV Holdings would otherwise have to pay if it were to file separate federal,
state and local income tax returns for itself, excluding Revlon, Inc. and its
subsidiaries (including any amounts determined to be due as a result of a
redetermination arising from an audit or otherwise of the tax liability
relating to any such period which is attributable to REV Holdings).
Since the payments to be made by Revlon, Inc. under the 1992 Tax
Sharing Agreement and by REV Holdings under the 1993 Tax Sharing Agreement will
be determined by the amount of taxes that Revlon, Inc. or REV Holdings, as the
case may be, would otherwise have to pay if they were to file separate federal,
state or local income tax returns, the Tax Sharing Agreements will benefit
Mafco Holdings to the extent Mafco Holdings can offset the taxable income
generated by Revlon, Inc. or REV Holdings against losses and tax credits
generated by Mafco Holdings and its other subsidiaries. With respect to REV
Holdings, as a result of the absence of business operations or a source of
income of its own, no federal tax payments or payments in lieu of taxes
pursuant to the 1993 Tax Sharing Agreement were required for 1997, 1996 or
1995. With respect to Revlon, Inc., 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 1992 Tax Sharing Agreement were required for
1997, 1996 or 1995. Revlon, Inc. has a liability of $0.9 to Holdings in respect
of federal taxes for 1997 under the 1992 Tax Sharing Agreement.
Pursuant to the asset transfer agreement referred to in Note 16,
Products Corporation assumed all tax liabilities of Holdings other than (i)
certain income tax liabilities arising prior to January 1, 1992 to the extent
such liabilities exceeded reserves on Holdings' books as of January 1, 1992 or
were not of the nature reserved for and (ii) other tax liabilities to the
extent such liabilities are related to the business and assets retained by
Holdings.
F-20
<PAGE>
The Company's (loss) income before income taxes and the applicable
provision (benefit) for income taxes are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
(Loss) income before income taxes: 1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Domestic $ (5.3) $ 86.2 $ (134.5)
Foreign (15.5) 40.5 23.6
------------ ------------ ------------
(20.8) 126.7 $ (110.9)
============ ============ ============
Provision (benefit) for income taxes:
Federal $ 0.9 $ - $ -
State and local 1.1 1.2 3.4
Foreign 7.3 24.3 22.0
------------ ------------ ------------
$ 9.3 $ 25.5 $ 25.4
============ ============ ============
Current $ 31.9 $ 22.7 $ 37.1
Deferred 10.4 6.6 3.0
Benefits of operating loss carryforwards (34.1) (4.7) (15.4)
Carryforward utilization applied to goodwill 1.1 1.0 0.8
Effect of enacted change of tax rates - (0.1) (0.1)
------------ ------------ ------------
$ 9.3 $ 25.5 $ 25.4
============ ============ ============
</TABLE>
The effective tax rate on (loss) income before income taxes is
reconciled to the applicable statutory federal income tax rate as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Statutory federal income tax rate (35.0)% 35.0% (35.0)%
State and local taxes, net of federal income tax benefit 3.4 0.6 2.0
Foreign and U.S. tax effects attributable to
operations outside the U.S. 43.1 14.3 12.4
Nondeductible amortization expense 14.6 2.3 2.2
U.S. loss without benefit 25.5 19.8 41.3
Nontaxable gain on sale of subsidiary stock - (51.9) -
Other (6.9) - -
------------ ------------ ------------
Effective rate 44.7 % 20.1% 22.9 %
============ ============ ============
</TABLE>
F-21
<PAGE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December
31, 1997 and 1996 are presented below:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
Deferred tax assets: 1997 1996
------------ ------------
<S> <C> <C>
Accounts receivable, principally due to doubtful accounts $ 3.3 $ 3.9
Inventories 10.5 11.7
Net operating loss carryforwards 379.8 383.6
Restructuring and related reserves 9.4 10.2
Employee benefits 28.7 31.7
State and local taxes 13.1 12.8
Self-insurance 3.8 3.6
Advertising, sales discounts and returns and coupon redemptions 26.0 23.6
Other 25.3 23.9
------------ ------------
Total gross deferred tax assets 499.9 505.0
Less valuation allowance (452.2) (460.0)
------------ ------------
Net deferred tax assets 47.7 45.0
Deferred tax liabilities:
Plant, equipment and other assets (50.8) (43.9)
Inventories (0.2) (0.2)
Other (5.3) (6.9)
------------ ------------
Total gross deferred tax liabilities (56.3) (51.0)
------------ ------------
Net deferred tax liability $ (8.6) $ (6.0)
============ ============
</TABLE>
The valuation allowance for deferred tax assets at January 1, 1997 was
$460.0. The valuation allowance decreased by $7.8 during the year ended
December 31, 1997 and increased by $29.0 and $53.9 during the years ended
December 31, 1996 and 1995, respectively.
During 1997, 1996 and 1995, certain of Revlon, Inc.'s foreign
subsidiaries used operating loss carryforwards to credit the current provision
for income taxes by $4.0, $4.7 and $15.4, respectively. Certain other foreign
operations generated losses during 1997, 1996 and 1995 for which the potential
tax benefit was reduced by a valuation allowance. During 1997, Revlon, Inc.
used domestic operating loss carryforwards to credit the current provision for
income taxes by $18.1 and the deferred provision for income taxes by $12.0. At
December 31, 1997, the Company had tax loss carryforwards of approximately
$1,073.0 which expire in future years as follows: 1998-$21.1; 1999-$25.3;
2000-$9.3; 2001-$15.9; and beyond-$880.5; unlimited-$120.9. Approximately $43.6
of the tax loss carryforwards at December 31, 1997 is attributable to
discontinued operations, and expire beyond 2001, some of which may not be
available to the Company upon the disposal of such operations and all of which
would not be available to the Company if the Company were not a member of the
Mafco Holdings consolidated federal income tax return. The Company will receive
a benefit only to the extent it has taxable income during the carryforward
periods in the applicable jurisdictions.
Appropriate United States and foreign income taxes have been accrued
on foreign earnings that have been or are expected to be remitted in the near
future. Unremitted earnings of foreign subsidiaries which have been, or are
currently intended to be, permanently reinvested in the future growth of the
business aggregated approximately $18.7 at December 31, 1997, excluding those
amounts which, if remitted in the near future, would not result in significant
additional taxes under tax statutes currently in effect.
F-22
<PAGE>
14. POSTRETIREMENT BENEFITS
PENSIONS:
The Company uses a September 30 date for measurement of plan
obligations and assets.
The following tables reconcile the funded status of the Company's
significant pension plans with the respective amounts recognized in the
Consolidated Balance Sheets at the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------------------------------------
OVERFUNDED UNDERFUNDED
Actuarial present value of benefit obligation: PLANS PLANS TOTAL
------------ ------------ ------------
<S> <C> <C> <C>
Accumulated benefit obligation as of September 30,
1997, includes vested benefits of $304.5 $ (269.3) $ (45.2) $ (314.5)
============ ============ ============
Projected benefit obligation as of September 30,
1997 for service rendered $ (309.3) $ (55.5) $ (364.8)
Fair value of plan assets as of September 30, 1997 305.0 1.9 306.9
------------ ------------ ------------
Plan assets less than projected benefit
obligation (4.3) (53.6) (57.9)
Amounts contributed to plans during fourth
quarter 1997 0.3 0.6 0.9
Unrecognized net (assets) obligation (1.3) 0.2 (1.1)
Unrecognized prior service cost 6.5 3.2 9.7
Unrecognized net loss 0.2 12.7 12.9
Adjustment to recognize additional minimum liability - (6.5) (6.5)
------------ ------------ ------------
Prepaid (accrued) pension cost $ 1.4 $ (43.4) $ (42.0)
============ ============ ============
DECEMBER 31, 1996
-----------------------------------------------
OVERFUNDED UNDERFUNDED
Actuarial present value of benefit obligation: PLANS PLANS TOTAL
------------ ------------ ------------
Accumulated benefit obligation as of September 30,
1996, includes vested benefits of 286.9 $ (163.7) $ (131.4) $ (295.1)
============ ============ ============
Projected benefit obligation as of September 30,
1996 for service rendered $ (198.1) $ (141.4) $ (339.5)
Fair value of plan assets as of September 30, 1996 173.3 81.6 254.9
------------ ------------ ------------
Plan assets less than projected benefit
obligation (24.8) (59.8) (84.6)
Amounts contributed to plans during fourth
quarter 1996 0.2 0.5 0.7
Unrecognized net (assets) obligation (1.5) 0.2 (1.3)
Unrecognized prior service cost 5.2 3.9 9.1
Unrecognized net loss 20.2 20.5 40.7
Adjustment to recognize additional minimum liabilit - (15.3) (15.3)
------------ ------------ ------------
Accrued pension cost $ (0.7) $ (50.0) $ (50.7)
============ ============ ============
</TABLE>
The weighted average discount rate assumed was 7.75% for 1997 and 1996
for domestic plans. For foreign plans, the weighted average discount rate was
7.1% and 7.9% for 1997 and 1996, respectively. The rate of future compensation
increases was 5.3% for 1997 and 1996 for domestic plans and was a weighted
average of 5.3% and 5.1% for 1997 and 1996, respectively, for foreign plans.
The expected long-term rate of return on assets was 9.0% for 1997 and 1996 for
domestic plans and a weighted average of 10.1% for 1997 and 10.4% for 1996 for
foreign plans.
F-23
<PAGE>
Plan assets consist primarily of common stock, mutual funds and fixed
income securities, which are stated at fair market value and cash equivalents
which are stated at cost, which approximates fair market value.
In accordance with the provisions of SFAS No. 87, "Employers'
Accounting for Pensions," the Company recorded an additional liability to the
extent that, for certain U.S. plans, the unfunded accumulated benefit
obligation exceeded recorded liabilities. At December 31, 1997, the additional
liability was recognized by recording an intangible asset to the extent of
unrecognized prior service costs of $1.0, a due from affiliates of $1.0 and a
charge to stockholder's deficiency of $4.5. At December 31, 1996, the
additional liability was recognized by recording an intangible asset to the
extent of unrecognized prior service costs of $1.8, a due from affiliates of
$1.1, and a charge to stockholder's deficiency of $12.4.
Net periodic pension cost for the pension plans consisted of the
following components:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Service cost-benefits earned during the period $ 11.7 $ 10.6 $ 8.2
Interest cost on projected benefit obligation 26.0 24.3 21.7
Actual return on plan assets (55.8) (30.4) (27.3)
Net amortization and deferrals 35.6 15.1 13.4
------------ ------------ ------------
17.5 19.6 16.0
Portion allocated to Holdings (0.3) (0.3) (0.3)
------------ ------------ ------------
Net periodic pension cost of the Company $ 17.2 $ 19.3 $ 15.7
============ ============ ============
</TABLE>
A substantial portion of the Company's employees in the United States
are covered by defined benefit retirement plans. To the extent that aggregate
pension costs could be identified as relating to the Company or to Holdings,
such costs have been so apportioned. The components of the net periodic pension
cost applicable solely to the Company are not presented as it is not practical
to segregate such information between Holdings and the Company. In 1997 and
1996, there was a settlement loss of $0.2 and $0.3, respectively, and a
curtailment loss of $0.1 and $1.0, respectively, resulting from workforce
reductions.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS:
The Company also has sponsored an unfunded retiree benefit plan, which
provides death benefits payable to beneficiaries of certain key employees and
former employees. Participation in this plan is limited to participants
enrolled as of December 31, 1993. The Company also administers a medical
insurance plan on behalf of Holdings, the cost of which has been apportioned to
Holdings. Net periodic postretirement benefit cost for each of the years ended
December 31, 1997, 1996 and 1995 was $0.7 which consists primarily of interest
on the accumulated postretirement benefit obligation. The Company's date of
measurement of plan obligations is September 30. At December 31, 1997 and 1996,
the portion of accumulated benefit obligation attributable to retirees was $7.3
and $6.9, respectively, and to other fully eligible participants, $1.4 and
$1.3, respectively. The amount of unrecognized gain at December 31, 1997 and
1996 was $1.9 and $1.2, respectively. At December 31, 1997 and 1996, the
accrued postretirement benefit obligation recorded on the Company's
Consolidated Balance Sheets was $10.6 and $9.4, respectively. Of these amounts,
$1.9 and $2.0 was attributable to Holdings and was recorded as a receivable
from affiliates at December 31, 1997 and 1996, respectively. The weighted
average discount rate used in determining the accumulated postretirement
benefit obligation at September 30, 1997 and 1996 was 7.75%.
F-24
<PAGE>
15. STOCK COMPENSATION PLAN
At December 31, 1997 and 1996, Revlon, Inc. had a stock-based
compensation plan (the "Plan"), which is described below. Revlon, Inc. applies
APB Opinion No. 25 and related Interpretations in accounting for the Plan.
Under APB Opinion No. 25, because the exercise price of Revlon, Inc.'s employee
stock options equals the market price of the underlying stock on the date of
grant, no compensation cost has been recognized. Had compensation cost for
Revlon, Inc.'s Plan been determined consistent with SFAS No. 123, the Company's
net (loss) income for 1997 of $(88.1) and $95.0 for 1996 would have changed to
the pro forma net loss of $(100.4) for 1997 and the pro forma net income of
$91.8 for 1996. The fair value of each option grant is estimated on the date of
the grant using the Black-Scholes option-pricing model assuming no dividend
yield, expected volatility of approximately 39% in 1997 and 31% in 1996;
weighted average risk-free interest rate of 6.54% in 1997 and 5.99% in 1996;
and a seven year expected average life for the Plan's options issued in 1997
and 1996. The effects of applying SFAS No. 123 in this pro forma disclosure are
not necessarily indicative of future amounts.
Under the Plan, Revlon, Inc. may grant options to its employees for up
to an aggregate of 5.0 million shares of Class A Common Stock. Non-qualified
options granted under the Plan have a term of 10 years during which the holder
can purchase shares of Class A Common Stock at an exercise price which must be
not less than the market price on the date of the grant. Options granted in
1996 to certain executive officers will not vest as to any portion until the
third anniversary of the grant date and will thereupon become 100% vested,
except that upon termination of employment by Revlon, Inc. other than for
"cause," death or "disability" under the applicable employment agreement, such
options will vest with respect to 25% of the shares subject thereto (if the
termination is between the first and second anniversaries of the grant) and 50%
of the shares subject thereto (if the termination is between the second and
third anniversaries of the grant). Primarily all other option grants, including
options granted to certain executive officers in 1997 will vest 25% each year
beginning on the first anniversary of the date of grant and will become 100%
vested on the fourth anniversary of the date of grant. During 1997, Revlon,
Inc. granted to Mr. Perelman, Chairman of the Executive Committee, an option to
purchase 300,000 shares of Class A Common Stock, which will vest in full on the
fifth anniversary of the grant date. At December 31, 1997 there were 98,450
options exercisable under the Plan. At December 31, 1996 there were no options
exercisable under the Plan.
A summary of the status of the Plan as of December 31, 1997 and 1996
and changes during the years then ended is presented below:
Shares Weighted Average
(000) Exercise Price
------------- --------------
Outstanding at 2/28/96 - -
Granted 1,010.2 $24.37
Exercised - -
Forfeited (119.1) 24.00
-------------
Outstanding at 12/31/96 891.1 24.37
Granted 1,485.5 32.64
Exercised (12.1) 24.00
Forfeited (85.1) 29.33
=============
Outstanding at 12/31/97 2,279.4 29.57
=============
The weighted average fair value of each option granted during 1997
and 1996 approximated $16.42 and $11.00, respectively.
F-25
<PAGE>
The following table summarizes information about the Plan's options
outstanding at December 31, 1997:
Year Ended December 31, 1997
--------------------------------------------------------------------------
Weighted
Range Number Average Weighted
of Outstanding Years Average
Exercise Prices (000) Remaining Exercise Price
----------------- -------------- -------------- -------------
$24.00 to $29.88 817.9 8.17 $24.05
31.38 to 33.88 1,067.8 9.02 31.40
34.88 to 50.75 393.7 9.38 36.10
--------------
24.00 to 50.75 2,279.4 8.78 29.57
==============
16. RELATED PARTY TRANSACTIONS
TRANSFER AGREEMENTS
In June 1992, Revlon, Inc. and Products Corporation entered into an
asset transfer agreement with Holdings and certain of its wholly owned
subsidiaries (the "Asset Transfer Agreement"), and Revlon, Inc. and Products
Corporation entered into a real property asset transfer agreement with Holdings
(the "Real Property Transfer Agreement" and, together with the Asset Transfer
Agreement, the "Transfer Agreements"), and pursuant to such agreements, on June
24, 1992 Holdings transferred assets to Products Corporation and Products
Corporation assumed all the liabilities of Holdings, other than certain
specifically excluded assets and liabilities (the liabilities excluded are
referred to as the "Excluded Liabilities"). Holdings retained the Retained
Brands. Holdings agreed to indemnify Revlon, Inc. and Products Corporation
against losses arising from the Excluded Liabilities, and Revlon, Inc. and
Products Corporation agreed to indemnify Holdings against losses arising from
the liabilities assumed by Products Corporation. The amounts reimbursed by
Holdings to Products Corporation for the Excluded Liabilities for 1997, 1996
and 1995 were $0.4, $1.4 and $4.0, respectively.
OPERATING SERVICES AGREEMENT
In June 1992, Revlon, Inc., Products Corporation and Holdings entered
into an operating services agreement (as amended and restated, and as
subsequently amended, the "Operating Services Agreement") pursuant to which
Products Corporation manufactures, markets, distributes, warehouses and
administers, including the collection of accounts receivable, the Retained
Brands for Holdings. Pursuant to the Operating Services Agreement, Products
Corporation is reimbursed an amount equal to all of its and Revlon, Inc.'s
direct and indirect costs incurred in connection with furnishing such services,
net of the amounts collected by Products Corporation with respect to the
Retained Brands, payable quarterly. The net amounts reimbursed by Holdings to
Products Corporation for such direct and indirect costs for 1997, 1996 and 1995
were $1.4, $5.1 and $8.6, respectively. Holdings also pays Products Corporation
a fee equal to 5% of the net sales of the Retained Brands, payable quarterly.
The fees paid by Holdings to Products Corporation pursuant to the Operating
Services Agreement for services with respect to the Retained Brands for 1997,
1996 and 1995 were approximately $0.3, $0.6 and $1.7, respectively.
REIMBURSEMENT AGREEMENTS
Revlon, Inc., Products Corporation and MacAndrews Holdings have
entered into reimbursement agreements (the "Reimbursement Agreements") pursuant
to which (i) MacAndrews Holdings is obligated to provide (directly or through
affiliates) certain professional and administrative services, including
employees, to Revlon, Inc. and its subsidiaries, including Products
Corporation, and purchase services from third party providers, such as
insurance and legal and accounting services, on behalf of Revlon, Inc. and its
subsidiaries, including Products Corporation, to the extent requested by
Products Corporation, and (ii) Products Corporation is obligated to provide
certain professional and administrative services, including employees, to
MacAndrews Holdings (and its affiliates) and purchase services from third party
providers, such as insurance and legal and accounting services, on behalf of
MacAndrews Holdings (and its affiliates) to the extent requested by MacAndrews
Holdings, provided that in each case the performance of such
F-26
<PAGE>
services does not cause an unreasonable burden to MacAndrews Holdings or
Products Corporation, as the case may be. Products Corporation reimburses
MacAndrews Holdings for the allocable costs of the services purchased for or
provided to Revlon, Inc. and its subsidiaries and for reasonable out-of-pocket
expenses incurred in connection with the provision of such services. MacAndrews
Holdings (or such affiliates) reimburses Products Corporation for the allocable
costs of the services purchased for or provided to MacAndrews Holdings (or such
affiliates) and for the reasonable out-of-pocket expenses incurred in
connection with the purchase or provision of such services. In addition, in
connection with certain insurance coverage provided by MacAndrews Holdings,
Products Corporation obtained letters of credit under the Special LC Facility
(which aggregated approximately $27.7 as of December 31, 1997) to support
certain self-funded risks of MacAndrews Holdings and its affiliates, including
Revlon, Inc., associated with such insurance coverage. The costs of such
letters of credit are allocated among, and paid by, the affiliates of
MacAndrews Holdings, including Revlon, Inc., which participate in the insurance
coverage to which the letters of credit relate. The Company expects that these
self-funded risks will be paid in the ordinary course and, therefore, it is
unlikely that such letters of credit will be drawn upon. MacAndrews Holdings
has agreed to indemnify Products Corporation to the extent amounts are drawn
under any of such letters of credit with respect to claims for which neither
Revlon, Inc. nor Products Corporation is responsible. The net amounts
reimbursed by MacAndrews Holdings to Products Corporation for the services
provided under the Reimbursement Agreements for 1997, 1996 and 1995 were $4.0,
$2.2 and $3.0, respectively. Each of Revlon, Inc. and Products Corporation, on
the one hand, and MacAndrews Holdings, on the other, has agreed to indemnify
the other party for losses arising out of the provision of services by it under
the Reimbursement Agreements other than losses resulting from its willful
misconduct or gross negligence. The Reimbursement Agreements may be terminated
by either party on 90 days' notice. REV Holdings does not expect Revlon, Inc.
or Products Corporation to request services under the Reimbursement Agreements
unless their costs would be at least as favorable to Revlon, Inc. or Products
Corporation, as the case may be, as could be obtained from unaffiliated third
parties.
In March 1993, Revlon Worldwide (now REV Holdings) and MacAndrews
Holdings entered into a reimbursement agreement pursuant to which MacAndrews
Holdings agreed to provide third party services to REV Holdings on the same
basis as it provides services to Revlon, Inc., and REV Holdings agreed to
indemnify MacAndrews Holdings on the same basis as Revlon, Inc. is obligated to
indemnify MacAndrews Holdings under the Reimbursement Agreements. There were no
services provided and no payments made pursuant to this agreement during 1997,
1996 or 1995.
TAX SHARING AGREEMENTS
Holdings, Revlon, Inc., Products Corporation and certain of its
subsidiaries and Mafco Holdings are parties to the 1992 Tax Sharing Agreement
and Revlon Worldwide (now REV Holdings) and Mafco Holdings are parties to the
1993 Tax Sharing Agreement, each of which is described in Note 13. Since
payments to be made by Revlon, Inc. under the 1992 Tax Sharing Agreement and by
REV Holdings under the 1993 Tax Sharing Agreement will be determined by the
amount of taxes that Revlon, Inc. or REV Holdings, as the case may be, would
otherwise have to pay if they were to file separate federal, state or local
income tax returns, the Tax Sharing Agreements will benefit Mafco Holdings to
the extent Mafco Holdings can offset the taxable income generated by Revlon,
Inc. or REV Holdings against losses and tax credits generated by Mafco Holdings
and its other subsidiaries.
FINANCING REIMBURSEMENT AGREEMENT
Holdings and Products Corporation entered into a financing
reimbursement agreement (the "Financing Reimbursement Agreement") in 1992,
which expired on June 30, 1996, pursuant to which Holdings agreed to reimburse
Products Corporation for Holdings' allocable portion of (i) the debt issuance
cost and advisory fees related to the capital restructuring of Holdings, and
(ii) interest expense attributable to the higher cost of funds paid by Products
Corporation under the credit agreement in effect at that time as a result of
additional borrowings for the benefit of Holdings in connection with the
assumption of certain liabilities by Products Corporation under the Asset
Transfer Agreement and the repurchase of certain subordinated notes from
affiliates. The amount of interest to be reimbursed by Holdings for 1994 was
approximately $0.8 and was evidenced by noninterest-bearing promissory notes
originally due and payable on June 30, 1995. In February 1995, the $13.3 in
notes then payable by Holdings to Products Corporation under the Financing
Reimbursement Agreement was offset against a $25.0 note payable by Products
Corporation to Holdings and Holdings agreed not to demand payment under the
resulting $11.7 note payable by Products Corporation
F-27
<PAGE>
so long as any indebtedness remained outstanding under the credit agreement
then in effect. In February 1995, the Financing Reimbursement Agreement was
amended and extended to provide that Holdings would reimburse Products
Corporation for a portion of the debt issuance costs and advisory fees related
to the credit agreement then in effect (which portion was approximately $4.7
and was evidenced by a noninterest-bearing promissory note payable on June 30,
1996) and 1 1/2 % per annum of the average balance outstanding under the credit
agreement then in effect and the average balance outstanding under working
capital borrowings from affiliates through June 30, 1996 and such amounts were
evidenced by a noninterest-bearing promissory note payable on June 30, 1996.
The amount of interest to be reimbursed by Holdings for 1995 was approximately
$4.2. As of December 31, 1995, the aggregate amount of notes payable by
Holdings under the Financing Reimbursement Agreement was $8.9. In June 1996,
$10.9 in notes due to Products Corporation, which included $2.0 of interest
reimbursement from Holdings in 1996, under the Financing Reimbursement
Agreement was offset against an $11.7 demand note payable by Products
Corporation to Holdings.
REGISTRATION RIGHTS AGREEMENT
Prior to the consummation of the Revlon IPO, Revlon, Inc. and Revlon
Worldwide (now REV Holdings), the then direct parent of Revlon, Inc., entered
into the Registration Rights Agreement pursuant to which REV Holdings and
certain transferees of Revlon, Inc.'s Common Stock held by REV Holdings (the
"Holders") have the right to require Revlon, Inc. to register all or part of
the Class A Common Stock owned by such Holders and the Class A Common Stock
issuable upon conversion of Revlon, Inc.'s Class B Common Stock owned by such
Holders under the Securities Act (a "Demand Registration"); provided that
Revlon, Inc. may postpone giving effect to a Demand Registration up to a period
of 30 days if Revlon, Inc. believes such registration might have a material
adverse effect on any plan or proposal by Revlon, Inc. with respect to any
financing, acquisition, recapitalization, reorganization or other material
transaction, or if Revlon, Inc. is in possession of material non-public
information that, if publicly disclosed, could result in a material disruption
of a major corporate development or transaction then pending or in progress or
in other material adverse consequences to Revlon, Inc. In addition, the Holders
have the right to participate in registrations by Revlon, Inc. of its Class A
Common Stock (a "Piggyback Registration"). The Holders will pay all
out-of-pocket expenses incurred in connection with any Demand Registration.
Revlon, Inc. will pay any expenses incurred in connection with a Piggyback
Registration, except for underwriting discounts, commissions and expenses
attributable to the shares of Class A Common Stock sold by such Holders.
OTHER
Pursuant to a lease dated April 2, 1993 (the "Edison Lease"), Holdings
leases to Products Corporation the Edison research and development facility for
a term of up to 10 years with an annual rent of $1.4 and certain shared
operating expenses payable by Products Corporation which, together with the
annual rent, are not to exceed $2.0 per year. Pursuant to an assumption
agreement dated February 18, 1993, Holdings agreed to assume all costs and
expenses of the ownership and operation of the Edison facility as of January 1,
1993, other than (i) the operating expenses for which Products Corporation is
responsible under the Edison Lease and (ii) environmental claims and compliance
costs relating to matters which occurred prior to January 1, 1993 up to an
amount not to exceed $8.0 (the amount of such claims and costs for which
Products Corporation is responsible, the "Environmental Limit"). In addition,
pursuant to such assumption agreement, Products Corporation agreed to indemnify
Holdings for environmental claims and compliance costs relating to matters
which occurred prior to January 1, 1993 up to an amount not to exceed the
Environmental Limit and Holdings agreed to indemnify Products Corporation for
environmental claims and compliance costs relating to matters which occurred
prior to January 1, 1993 in excess of the Environmental Limit and all such
claims and costs relating to matters occurring on or after January 1, 1993.
Pursuant to an occupancy agreement, during 1997, 1996 and 1995 Products
Corporation rented from Holdings a portion of the administration building
located at the Edison facility and space for a retail store of Products
Corporation. Products Corporation provides certain administrative services,
including accounting, for Holdings with respect to the Edison facility pursuant
to which Products Corporation pays on behalf of Holdings costs associated with
the Edison facility and is reimbursed by Holdings for such costs, less the
amount owed by Products Corporation to Holdings pursuant to the Edison Lease
and the occupancy agreement. The net amount reimbursed by Holdings to Products
Corporation for such costs with respect to the Edison facility for 1997, 1996
and 1995 was $0.7, $1.1 and $1.2, respectively.
During 1997, a subsidiary of Products Corporation sold an inactive
subsidiary to an affiliate for approximately $1.0.
F-28
<PAGE>
Effective July 1, 1997, Holdings contributed to Products Corporation
substantially all of the assets and liabilities of the Bill Blass business not
already owned by Products Corporation. The contributed assets approximated the
contributed liabilities and were accounted for at historical cost in a manner
similar to that of a pooling of interests and, accordingly, prior period
financial statements were restated as if the contribution took place prior to
the beginning of the earliest period presented.
In the fourth quarter of 1996, a subsidiary of Products Corporation
purchased an inactive subsidiary from an affiliate for net cash consideration
of approximately $3.0 in a series of transactions in which Products Corporation
expects to realize foreign tax benefits in future years.
Effective January 1, 1996, Products Corporation acquired from Holdings
substantially all of the assets of Tarlow in consideration for the assumption
of substantially all of the liabilities and obligations of Tarlow. 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, prior period financial
statements have been restated as if the acquisition took place at the beginning
of the earliest period. Products Corporation paid $4.1 to Holdings which was
accounted for as an increase in 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.
Products Corporation leases certain facilities to MacAndrews & Forbes
or its affiliates pursuant to occupancy agreements and leases. These included
space at Products Corporation's New York headquarters and at Products
Corporation's offices in London during 1997, 1996 and 1995; in Tokyo during
1996 and 1995 and in Hong Kong during 1997. The rent paid by MacAndrews &
Forbes or its affiliates to Products Corporation for such leases and agreements
for 1997, 1996 and 1995 was $3.8, $4.6 and $5.3, respectively.
In July 1995, Products Corporation borrowed from Holdings
approximately $0.8, representing certain amounts received by Holdings relating
to an arbitration arising out of the sale by Holdings of certain of its
businesses. In 1995, Products Corporation borrowed from Holdings approximately
$5.6, representing certain amounts received by Holdings from the sale by
Holdings of certain of its businesses.
In June 1997, Products Corporation borrowed from Holdings
approximately $0.5, representing certain amounts received by Holdings from the
sale of a brand and inventory relating thereto. Such amounts are evidenced by
noninterest-bearing promissory notes. Holdings agreed not to demand payment
under such notes so long as any indebtedness remains outstanding under the
Credit Agreement.
The Credit Agreement is supported by, among other things, guarantees
from Holdings and certain of its subsidiaries. The obligations under such
guarantees are secured by, among other things, (i) the capital stock and
certain assets of certain subsidiaries of Holdings and (ii) a mortgage on
Holdings' Edison, New Jersey facility.
Products Corporation borrows funds from its affiliates from time to
time to supplement its working capital borrowings. No such borrowings were
outstanding as of December 31, 1997, 1996 or 1995. The interest rates for such
borrowings are more favorable to Products Corporation than interest rates under
the Credit Agreement and, for borrowings occurring prior to the execution of
the Credit Agreement, the credit facility in effect at the time of such
borrowing. The amount of interest paid by Products Corporation for such
borrowings for 1997, 1996 and 1995 was $0.6, $0.5 and $1.2, respectively.
In November 1993, Products Corporation assigned to Holdings a lease
for warehouse space in New Jersey (the "N.J. Warehouse") between Products
Corporation and a trust established for the benefit of certain family members
of the Chairman of the Executive Committee. The N.J. Warehouse had become
vacant as a result of divestitures and restructuring of Products Corporation.
The lease has annual lease payments of approximately $2.3 and terminates on
June 30, 2005. In consideration for Holdings assuming all liabilities and
obligations under the lease, Products Corporation paid Holdings $7.5 (for which
a liability was previously recorded) in three installments of $2.5 each in
January 1994, January 1995 and January 1996. A nationally recognized investment
banking firm rendered its written opinion that the terms of the lease transfer
were fair from a financial standpoint to Products Corporation. During 1996 and
1995, Products Corporation paid certain costs associated with the N.J.
Warehouse on behalf of Holdings and was
F-29
<PAGE>
reimbursed by Holdings for such amounts. The amounts reimbursed by Holdings to
Products Corporation for such costs were $0.2 and $0.2 for 1996 and 1995,
respectively.
During 1997, 1996 and 1995, Products Corporation used an airplane
owned by a corporation of which Mr. Gittis, Drapkin and, during 1995 and 1996,
Mr. Levin were stockholders, for which Products Corporation paid approximately
$0.2, $0.2 and $0.4 for 1997, 1996 and 1995, respectively.
During 1997, Products Corporation purchased products from an
affiliate, for which it paid approximately $0.9.
During 1997, Products Corporation provided licensing services to an
affiliate, for which Products Corporation has been paid approximately $0.7.
An affiliate of Products Corporation assembles lipstick cases for
Products Corporation. Products Corporation paid approximately $0.9, $1.0 and
$1.0 for such services for 1997, 1996 and 1995, respectively.
In connection with the cancellation of the Revlon Worldwide Notes, at
December 31, 1997 REV Holdings had an outstanding payable to an affiliate of
approximately $2.4.
REV Holdings has guaranteed, on a non-recourse basis, certain
obligations of an affiliate and has pledged certain shares of the Revlon, Inc.
common stock owned by REV Holdings to secure such guarantee.
In January 1995, Products Corporation agreed to license certain of its
trademarks to a former affiliate of MacAndrews & Forbes. The amount paid to
Products Corporation pursuant to such license for 1995 was less than $0.1. The
affiliate purchased $1.1 of wigs from Products Corporation during 1995.
Products Corporation terminated the license with the affiliate during 1995.
17. COMMITMENTS AND CONTINGENCIES
The Company currently leases manufacturing, executive, including
research and development, and sales facilities and various types of equipment
under operating lease agreements. Rental expense was $46.1, $46.7 and $44.5 for
the years ended December 31, 1997, 1996 and 1995, respectively. Minimum rental
commitments under all noncancelable leases, including those pertaining to idled
facilities and the Edison research and development facility, with remaining
lease terms in excess of one year from December 31, 1997 aggregated $146.6;
such commitments for each of the five years subsequent to December 31, 1997 are
$32.4, $29.4, $25.8, $22.0 and $20.7, respectively. Such amounts exclude the
minimum rentals to be received in the future under noncancelable subleases of
$4.2 and future minimum lease commitments of the discontinued operations under
noncancelable operating leases with initial lease terms in excess of one year
from December 31, 1997 aggregating $54.5; such commitments for each of the five
years subsequent to December 31, 1997 are $10.8, $10.4, $8.8, $7.3 and $6.0,
respectively.
The Company and its subsidiaries are defendants in litigation and
proceedings involving various matters. In the opinion of the Company's
management, based upon advice of its counsel handling such litigation and
proceedings, adverse outcomes, if any, will not result in a material effect on
the Company's consolidated financial condition or results of operations.
F-30
<PAGE>
18. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the unaudited quarterly results of
operations:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997 (a)
--------------------------------------------------------------
1ST 2ND 3RD 4TH
QUARTER (b) QUARTER (b) QUARTER QUARTER
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
Net sales $ 480.0 $ 537.7 $ 581.0 $ 639.9
Gross profit 319.6 356.5 389.3 430.1
(Loss) income before extraordinary item (54.8) (9.5) 13.8 21.1
Net (loss) income (98.6)(c) (24.4)(d) 13.8 21.1
YEAR ENDED DECEMBER 31, 1996 (a) (b)
--------------------------------------------------------------
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER
------------ ------------- ------------ -------------
Net sales $ 452.1 $ 502.1 $ 551.7 $ 586.2
Gross profit 305.1 338.9 368.1 391.1
Income (loss) before extraordinary item 132.5 (e) (26.1) (6.8) 2.0
Net income (loss) 125.9 (f) (26.1) (6.8) 2.0
</TABLE>
(a) On June 8, 1998, the Company announced its intention to dispose of
the retail and outlet store business comprised of its approximately 85%
ownership interest in Cosmetic Center. The results of operations of Cosmetic
Center have been reported as a discontinued operation and, accordingly, all
prior periods have been restated (See Note 2).
(b) Effective July 1, 1997, Holdings contributed to Products
Corporation substantially all of the assets and liabilities of the Bill Blass
business not already owned by Products Corporation. The contributed assets
approximated the contributed liabilities and were accounted for at historical
cost in a manner similar to that of a pooling of interests and, accordingly,
prior period financial statements were restated as if the contribution took
place prior to the beginning of the earliest period presented.
(c) Includes the extraordinary charge of $43.8 resulting from the
cancellation in the first quarter of 1997 of a portion of the Revlon Worldwide
Notes as well as the write-off of deferred financing costs associated with such
cancellation.
(d) Includes the extraordinary charges of $14.9 resulting from the
write-off in the second quarter of 1997 of deferred financing costs associated
with the early extinguishment of borrowings and the redemption of Products
Corporation's Sinking Fund Debentures.
(e) Includes the gain on sale of subsidiary stock of $187.8 that was
recognized in connection with the Revlon IPO.
(f) Includes an extraordinary charge of $6.6 resulting from the
write-off of deferred financing costs associated with the early extinguishment
of borrowings.
F-31
<PAGE>
19. GEOGRAPHIC SEGMENTS
The Company manages its business on the basis of one reportable
segment. See Note 1 for a brief description of the Company's business. As of
December 31, 1997, the Company had operations established in 26 countries
outside of the United States and its products are sold throughout the world.
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 are affected by fluctuations in
foreign currency exchange rates. The Company's operations in Brazil have
accounted for approximately 5.8%, 6.3% and 6.4% of the Company's net sales for
1997, 1996 and 1995, respectively. Net sales by geographic area are presented
by attributing revenues from external customers on the basis of where the
products are sold. During 1997 and 1996, one customer and its affiliates
accounted for approximately 10.3% and 10.5% of the Company's consolidated net
sales, respectively. This data is presented in accordance with SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information," which
the Company has retroactively adopted for all periods presented.
<TABLE>
<CAPTION>
GEOGRAPHIC AREAS: YEAR ENDED DECEMBER 31,
-----------------------------------------------------
Net sales: 1997 1996 1995
--------------- --------------- --------------
<S> <C> <C> <C>
United States $ 1,300.2 $ 1,182.3 $ 1,042.7
International 938.4 909.8 824.6
--------------- --------------- --------------
2,238.6 $ 2,092.1 $ 1,867.3
=============== =============== ==============
AS OF DECEMBER 31,
-----------------------------------
Long-lived assets: 1997 1996
--------------- ---------------
United States $ 557.4 $ 550.4
International 280.5 245.9
--------------- ---------------
$ 837.9 $ 796.3
=============== ===============
CLASSES OF SIMILAR PRODUCTS: YEAR ENDED DECEMBER 31,
----------------------------------------------------
Net sales: 1997 1996 1995
--------------- --------------- --------------
Cosmetics, skin care and fragrances $ 1,319.6 $ 1,216.3 $ 1,038.8
Personal care and professional 919.0 875.8 828.5
--------------- --------------- --------------
$ 2,238.6 $ 2,092.1 $ 1,867.3
=============== =============== ==============
</TABLE>
20. SUBSEQUENT EVENTS (UNAUDITED)
On February 2, 1998, Revlon Escrow Corp., 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% Notes due 2006 (the "8 1/8%
Notes"). The net proceeds of $880 (net of discounts, fees and expenses) were
deposited with an escrow agent and were used to fund the redemption on March 4,
1998 of Products Corporation's 10 1/2% Senior Subordinated Notes due 2003 (the
"Senior Subordinated Notes") and will be used to fund the redemption (expected
to occur on April 1, 1998) of Products Corporation's 9 3/8% Senior Notes due
2001 (the "Senior Notes"). On March 4, 1998 Products Corporation assumed the
obligations under the 8 5/8% Notes and the related indenture. Products
Corporation delivered a notice to the holders of the Senior Notes for
redemption of the Senior Notes on April 1, 1998, at which time Products
Corporation will assume the obligations under the 8 1/8% Notes and the related
indenture. In connection with the early redemptions of the Senior Notes and
Senior Subordinated Notes, the Company expects to record an extraordinary loss
of up to $52 in 1998.
On March 16, 1998, $337.4 of funds held in an irrevocable trust were
used to repay the remaining Revlon Worldwide Notes upon their maturity.
F-32
<PAGE>
Schedule II
REV HOLDINGS INC.
VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 1997, 1996 and 1995
(dollars in millions)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE
BEGINNING COST AND OTHER AT END
OF YEAR EXPENSES DEDUCTIONS OF YEAR
------------- ------------ ------------- -----------
<S> <C> <C> <C> <C>
Year ended December 31, 1997:
Applied against asset accounts:
Allowance for doubtful accounts $ 12.9 $ 3.6 $ (4.5)(1) $ 12.0
Allowance for volume and early payment
discounts $ 12.0 $ 46.8 $ (44.9)(2) $ 13.9
Year ended December 31, 1996:
Applied against asset accounts:
Allowance for doubtful accounts $ 13.6 $ 7.1 $ (7.8)(1) $ 12.9
Allowance for volume and early payment
discounts $ 10.1 $ 43.8 $ (41.9)(2) $ 12.0
Year ended December 31, 1995:
Applied against asset accounts:
Allowance for doubtful accounts $ 11.1 $ 5.5 $ (3.0)(1) $ 13.6
Allowance for volume and early payment
discounts $ 10.6 $ 33.3 $ (33.8)(2) $ 10.1
</TABLE>
- ----------------------
Notes:
(1) Doubtful accounts written off, less recoveries, reclassifications and
foreign currency translation adjustments.
(2) Discounts taken, reclassifications and foreign currency translation
adjustments.
F-33
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
REV Holdings Inc.
(Registrant)
By: /s/ Irwin Engelman By: /s/ Lawrence E. Kreider
------------------------ --------------------------
Irwin Engelman Lawrence E. Kreider
Executive Vice Senior Vice President,
President and Controller and
Chief Financial Officer Chief Accounting Officer
Dated: December 18, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant on
December 18, 1998 and in the capacities indicated.
<TABLE>
<CAPTION>
Signature Title
<S> <C>
* Chairman of the Board, Chief Executive Officer and
__________________________________ Director
(Ronald O. Perelman)
* Vice Chairman of the Board and Director
__________________________________
(Howard Gittis)
</TABLE>
* Robert K. Kretzman, by signing his name hereto, does hereby sign this report
on behalf of the directors of the registrant after whose typed names asterisks
appear, pursuant to powers of attorney duly executed by such directors and
filed with the Securities and Exchange Commission.
By: /s/ Robert K. Kretzman
Robert K. Kretzman
Attorney-in-fact
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 37,400
<SECURITIES> 0
<RECEIVABLES> 518,400
<ALLOWANCES> 25,900
<INVENTORY> 260,700
<CURRENT-ASSETS> 1,216,600
<PP&E> 571,200
<DEPRECIATION> 207,200
<TOTAL-ASSETS> 2,099,600
<CURRENT-LIABILITIES> 912,300
<BONDS> 1,939,300
0
0
<COMMON> 0
<OTHER-SE> (994,700)
<TOTAL-LIABILITY-AND-EQUITY> 2,099,600
<SALES> 2,238,600
<TOTAL-REVENUES> 2,238,600
<CGS> 743,100
<TOTAL-COSTS> 743,100
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 3,600
<INTEREST-EXPENSE> 232,900
<INCOME-PRETAX> (20,800)
<INCOME-TAX> 9,300
<INCOME-CONTINUING> (30,100)
<DISCONTINUED> 700
<EXTRAORDINARY> (58,700)
<CHANGES> 0
<NET-INCOME> (88,100)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
