<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 1999
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
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 [ ]
The number of shares outstanding of the registrant's common stock was
1,000 shares as of June 30, 1999, all of which were held by an affiliate of
Mafco Holdings Inc.
Total Pages - 17
<PAGE>
REV HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
ASSETS 1999 1998
---------- ----------
<S> <C> <C>
Current assets: (Unaudited)
Cash and cash equivalents ........................... $ 26.8 $ 34.7
Trade receivables, less allowances of $26.6
and $28.5, respectively ....................... 464.7 536.0
Inventories ......................................... 276.0 264.1
Prepaid expenses and other .......................... 67.7 69.9
---------- ----------
Total current assets .......................... 835.2 904.7
Property, plant and equipment, net ........................ 359.1 378.9
Other assets .............................................. 177.1 181.6
Intangible assets, net .................................... 365.8 372.9
---------- ----------
Total assets .................................. $ 1,737.2 $ 1,838.1
========== ==========
LIABILITIES AND STOCKHOLDER'S DEFICIENCY
Current liabilities:
Short-term borrowings - third parties ............... $ 34.4 $ 27.9
Current portion of long-term debt - third parties ... 4.7 6.0
Accounts payable .................................... 147.8 134.8
Accrued expenses and other .......................... 301.8 389.7
---------- ----------
Total current liabilities ..................... 488.7 558.4
Long-term debt - third parties ............................ 2,332.1 2,241.1
Long-term debt - affiliates ............................... 24.1 24.1
Other long-term liabilities ............................... 247.8 267.5
Stockholder's deficiency:
Common stock, par value $1.00 per share, 1,000 shares
authorized, issued and outstanding ............ -- --
Capital deficiency .................................. (408.8) (408.8)
Accumulated deficit since June 24, 1992 ............. (844.3) (771.6)
Accumulated other comprehensive loss ................ (102.4) (72.6)
---------- ----------
Total stockholder's deficiency ................ (1,355.5) (1,253.0)
---------- ----------
Total liabilities and stockholder's deficiency $ 1,737.2 $ 1,838.1
========== ==========
</TABLE>
See Accompanying Notes to Unaudited Consolidated
Condensed Financial Statements.
2
<PAGE>
<TABLE>
REV HOLDINGS INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(DOLLARS IN MILLIONS)
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------------- ------------------------------
1999 1998 1999 1998
-------------- -------------- --------------- ------------
<S> <C> <C> <C> <C>
Net sales............................................. $ 553.4 $ 575.3 $ 994.5 $ 1,073.1
Cost of sales......................................... 184.9 194.0 340.6 357.3
-------------- -------------- --------------- ------------
Gross profit..................................... 368.5 381.3 653.9 715.8
Selling, general and administrative expenses.......... 324.6 329.8 597.5 635.6
Business consolidation costs and other, net........... 9.5 - 17.7 -
-------------- -------------- --------------- ------------
Operating income 34.4 51.5 38.7 80.2
-------------- -------------- --------------- ------------
Other expenses (income):
Interest expense................................. 52.7 48.7 104.7 107.8
Interest income.................................. (0.4) (1.1) (1.5) (6.2)
Amortization of debt issuance costs.............. 2.1 2.1 4.3 4.9
Foreign currency losses, net..................... - 1.3 - 2.8
Miscellaneous, net............................... (0.2) 1.4 0.3 3.2
Gain on sale of subsidiary stock................. (0.1) (1.1) (0.1) (2.6)
-------------- -------------- --------------- ------------
Other expenses, net.......................... 54.1 51.3 107.7 109.9
-------------- -------------- --------------- ------------
(Loss) income from continuing operations
before income taxes.............................. (19.7) 0.2 (69.0) (29.7)
Provision for income taxes............................ 1.8 3.4 3.7 7.1
-------------- -------------- --------------- ------------
Loss from continuing operations....................... (21.5) (3.2) (72.7) (36.8)
Loss from discontinued operations..................... - (26.9) - (31.5)
Extraordinary items - early extinguishment of debt.... - (13.5) - (51.7)
-------------- -------------- --------------- ------------
Net loss.............................................. $ (21.5) $ (43.6) $ (72.7) $ (120.0)
============== ============== =============== ============
See Accompanying Notes to Unaudited Consolidated
Condensed Financial Statements.
</TABLE>
3
<PAGE>
<TABLE>
REV HOLDINGS INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDER'S DEFICIENCY
AND COMPREHENSIVE LOSS
(DOLLARS IN MILLIONS)
<CAPTION>
ACCUMULATED
OTHER TOTAL
CAPITAL ACCUMULATED COMPREHENSIVE STOCKHOLDER'S
DEFICIENCY DEFICIT LOSS (a) DEFICIENCY
-------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C>
Balance, January 1, 1998................................ $ (408.8) $ (562.2) $ (23.7) $ (994.7)
Comprehensive loss:
Net loss...................................... (120.0) (120.0)
Revaluation of marketable securities.......... (0.1) (0.1)
Currency translation adjustment............... (11.2)(b) (11.2)
----------------
Total comprehensive loss............................ (131.3)
-------------- --------------- --------------- ----------------
Balance, June 30, 1998.................................. $ (408.8) $ (682.2) $ (35.0) $ (1,126.0)
============== =============== =============== ================
Balance, January 1, 1999................................ $ (408.8) $ (771.6) $ (72.6) $ (1,253.0)
Comprehensive loss:
Net loss...................................... (72.7) (72.7)
Revaluation of marketable securities.......... (0.6) (0.6)
Currency translation adjustment............... (29.2) (29.2)
----------------
Total comprehensive loss............................ (102.5)
-------------- --------------- --------------- ----------------
Balance, June 30, 1999.................................. $ (408.8) $ (844.3) $ (102.4) $ (1,355.5)
============== =============== =============== ================
</TABLE>
- --------------------
(a) Accumulated other comprehensive loss includes a revaluation of
marketable securities of $3.6 and $0.1 as of June 30, 1999 and 1998,
respectively, currency translation adjustments of $66.3 and $30.4 as of
June 30, 1999 and 1998, respectively, and adjustments for the minimum
pension liability of $32.5 and $4.5 as of June 30, 1999 and 1998,
respectively.
(b) Accumulated other comprehensive loss and comprehensive loss each
include a reclassification adjustment of $2.2 for realized gains
associated with the sale of certain assets outside the United States.
See Accompanying Notes to Unaudited Consolidated
Condensed Financial Statements.
4
<PAGE>
<TABLE>
<CAPTION>
REV HOLDINGS INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(DOLLARS IN MILLIONS)
SIX MONTHS ENDED
JUNE 30,
-----------------------
CASH FLOWS FROM OPERATING ACTIVITIES: 1999 1998
--------- -----------
<S> <C> <C>
Net loss ....................................................................... $ (72.7) $ (120.0)
Adjustments to reconcile net loss to net cash
used for operating activities:
Depreciation and amortization ............................................. 62.6 57.0
Amortization of debt discount ............................................. 32.9 37.5
Loss from discontinued operations ......................................... -- 31.5
Extraordinary items ....................................................... -- 51.7
Gain on sale of subsidiary stock .......................................... (0.1) (2.6)
Change in assets and liabilities:
Decrease in trade receivables ......................................... 55.8 33.1
Increase in inventories ............................................... (20.5) (29.5)
(Increase) decrease in prepaid expenses and
other current assets ....................................... (0.1) 10.6
Increase in accounts payable .......................................... 18.2 0.4
Decrease in accrued expenses and other
current liabilities ........................................ (95.3) (88.4)
Other, net ............................................................ (37.0) (43.9)
--------- -----------
Net cash used for operating activities ......................................... (56.2) (62.6)
--------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ........................................................... (20.0) (23.9)
Acquisition of businesses, net of cash acquired ................................ -- (57.6)
Proceeds from the sale of marketable securities, net ........................... -- 337.4
Proceeds from the sale of certain assets ....................................... -- 1.2
--------- -----------
Net cash (used for) provided by investing activities ........................... (20.0) 257.1
--------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in short-term borrowings - third parties .......................... 9.1 3.4
Proceeds from the issuance of long-term debt - third parties ................... 393.7 1,090.2
Repayment of long-term debt - third parties .................................... (331.4) (1,257.4)
Net proceeds from the sale of subsidiary common stock .......................... 0.1 1.1
Proceeds from the issuance of debt - affiliates ................................ 62.1 77.0
Repayment of debt - affiliates ................................................. (62.1) (82.2)
Payment of debt issuance costs ................................................. -- (19.0)
--------- -----------
Net cash provided by (used for) financing activities ........................... 71.5 (186.9)
--------- -----------
Effect of exchange rate changes on cash and cash equivalents ................... (3.2) (1.8)
Net cash used by discontinued operations ....................................... -- (7.4)
--------- -----------
Net decrease in cash and cash equivalents ................................. (7.9) (1.6)
Cash and cash equivalents at beginning of period .......................... 34.7 37.4
--------- -----------
Cash and cash equivalents at end of period ................................ $ 26.8 $ 35.8
========= ===========
Supplemental schedule of cash flow information:
Cash paid during the period for:
Interest .............................................................. $ 69.1 $ 67.3
Income taxes, net of refunds .......................................... 5.6 7.6
Supplemental schedule of noncash investing activities:
Liabilities assumed in connection with business acquisitions:
Fair value of assets acquired ......................................... $ -- $ 74.5
Cash paid ............................................................. -- (57.6)
--------- -----------
Liabilities assumed ................................................... $ -- $ 16.9
========= ===========
</TABLE>
See Accompanying Notes to Unaudited Consolidated
Condensed Financial Statements.
5
<PAGE>
REV HOLDINGS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS)
(1) 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 all of
the rights and obligations of Revlon Worldwide by reason of the Merger including
those under its various agreements.
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"). Products Corporation
was formed in April 1992 and, on June 24, 1992, succeeded to assets and
liabilities of the cosmetic and skin care, fragrances and personal care products
business of its then parent company, whose name was changed from Revlon, Inc. to
Revlon Holdings Inc. ("Holdings"). REV Holdings has had no business operations
of its own and its only material asset is its ownership of approximately 83.0%
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. 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. (together with
MacAndrews Holdings "MacAndrews & Forbes") by Ronald O. Perelman.
The accompanying Consolidated Condensed Financial Statements are
unaudited. In management's opinion, all adjustments (consisting of only normal
recurring accruals) necessary for a fair presentation have been made.
The Unaudited Consolidated Condensed Financial Statements include the
accounts of the Company after elimination of all material intercompany balances
and transactions. The Company has made a number of estimates and assumptions
relating to the assets and liabilities, the disclosure of contingent assets and
liabilities and the reporting of revenues and expenses to prepare these
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates. The Unaudited
Consolidated Condensed Financial Statements should be read in conjunction with
the consolidated financial statements and related notes contained in the
Company's Annual Report on Form 10-K for the year ended December 31, 1998.
The Company recognizes gains and losses on sales of subsidiary stock in
its Statements of Operations.
The results of operations and financial position, including working
capital, for interim periods are not necessarily indicative of those to be
expected for a full year, due, in part, to seasonal fluctuations, which are
normal for the Company's business.
The Company matches advertising and promotion expenses with sales
revenues for interim reporting purposes. Advertising and promotion expenses
estimated for a full year are charged to earnings for interim reporting purposes
in proportion to the relationship that net sales for such period bear to
estimated full year net sales. As a result, in the first half of 1999 and 1998,
disbursements and commitments for advertising and promotion exceeded advertising
and promotion expenses by $71.1 and $49.1, respectively, and such amounts were
deferred.
Effective January 1999, the Company adopted Statement of Position 98-5,
"Reporting on the Costs of Start-Up Activities," which requires that costs
incurred during start-up activities, including organization costs, be expensed
as incurred. The adoption of this statement did not have a material effect on
the Company's financial condition or results of operations.
6
<PAGE>
REV HOLDINGS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS)
(2) INVENTORIES
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
-------- --------
<S> <C> <C>
Raw materials and supplies .............................................................. $ 86.4 $ 78.2
Work-in-process.......................................................................... 19.4 14.4
Finished goods........................................................................... 170.2 171.5
-------- --------
$ 276.0 $ 264.1
======== ========
</TABLE>
(3) BUSINESS CONSOLIDATION COSTS AND OTHER, NET
In the fourth quarter of 1998, the Company committed to a restructuring
plan to realign and reduce personnel, exit excess leased real estate, realign
and consolidate regional activities, reconfigure certain manufacturing
operations and exit certain product lines. In the first quarter of 1999, the
Company recorded a net charge of $8.2 relating to such restructuring plan,
principally for additional employee severance and other personnel benefits, and
continued to implement such restructuring plan during the second quarter of 1999
during which it recorded a charge of $8.5 principally for employee severance and
other personnel benefits as well as other costs. Also in the second quarter of
1999, the Company adopted a plan to exit a non-core business as to which a
charge of $1.0 is included in the table below. Of the 720 employees, the 22
employees and the 387 employees for whom severance and other personnel benefits
were included in the fourth quarter 1998 charge, the first quarter 1999 charge
and the second quarter 1999 charge, respectively, the Company had terminated 592
employees by June 30, 1999.
Details of the restructuring activity during the six month period ended
June 30, 1999 are as follows:
<TABLE>
<CAPTION>
BALANCE UTILIZED, NET BALANCE
AS OF ----------------------- AS OF
1/1/99 EXPENSES, NET CASH NONCASH 6/30/99
---------- ------------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Employee severance and other
personnel benefits.................... $ 24.9 $ 17.6 $ (20.1) $ - $ 22.4
Factory, warehouse, office and
other costs............................ 12.1 0.1 (3.5) (0.2) 8.5
---------- ---------- --------- --------- ----------
$ 37.0 $ 17.7 $ (23.6) $ (0.2) $ 30.9
========== ========== ========= ========= ==========
</TABLE>
(4) LONG-TERM DEBT
On June 1, 1999, Products Corporation redeemed the $200.0 principal
amount of 9 1/2% Senior Notes due 1999 (the "1999 Notes") with borrowings from
the Credit Agreement (as hereinafter defined). In November 1998, Products
Corporation issued and sold $250.0 principal amount of 9% Senior Notes due 2006
(the "9% Notes"), of which $200.0 was used to temporarily reduce borrowings
under the Credit Agreement in anticipation of the redemption referred to above.
7
<PAGE>
REV HOLDINGS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS)
(5) GEOGRAPHIC INFORMATION
The Company manages its business on the basis of one reportable
operating segment. The Company is exposed to the risk of changes in social,
political and economic conditions inherent in foreign operations and the
Company's results of operations and the value of its foreign assets and
liabilities are affected by fluctuations in foreign currency exchange rates. The
Company's operations in Brazil have accounted for approximately 3.8% and 5.4% of
the Company's net sales for the second quarter of 1999 and 1998, respectively,
and 4.0% and 5.7% of the Company's net sales for the first half of 1999 and
1998, respectively. Net sales by geographic area are presented by attributing
revenues from external customers on the basis of where the products are sold.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
GEOGRAPHIC AREAS: JUNE 30, JUNE 30,
------------------------ ------------------------
Net sales: 1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
United States............................ $ 347.3 $ 340.3 $ 597.1 $ 624.0
International............................ 206.1 235.0 397.4 449.1
---------- ---------- ---------- ----------
$ 553.4 $ 575.3 $ 994.5 $ 1,073.1
========== ========== ========== ==========
JUNE 30, DECEMBER 31,
Long-lived assets: 1999 1998
---------- ----------
United States............................ $ 640.5 $ 646.0
International............................ 261.5 287.4
---------- ----------
$ 902.0 $ 933.4
========== ==========
THREE MONTHS ENDED SIX MONTHS ENDED
CLASSES OF SIMILAR PRODUCTS: JUNE 30, JUNE 30,
------------------------ ------------------------
Net sales: 1999 1998 1999 1998
---------- ---------- ---------- ----------
Cosmetics, skin care and fragrances...... $ 312.4 $ 333.8 $ 539.7 $ 634.2
Personal care and professional........... 241.0 241.5 454.8 438.9
---------- ---------- ---------- ----------
$ 553.4 $ 575.3 $ 994.5 $ 1,073.1
========== ========== ========== ==========
</TABLE>
(6) SUBSEQUENT EVENT
On April 7, 1999 Revlon, Inc. announced that it would undertake a
review of strategic alternatives available to it to maximize shareholder value.
Among such alternatives is the possible sale of one or more businesses of
Revlon, Inc., in which event Revlon, Inc. anticipates that the proceeds would be
used to pay down indebtedness. Revlon, Inc. has engaged financial advisors to
assist it in its review. On July 27, 1999, Revlon, Inc. confirmed that it is
continuing such review and is actively engaged in ongoing discussions with
potential purchasers of all or part of Revlon, Inc.'s business. There can be no
assurance that any transaction will be completed as a result of this review.
8
<PAGE>
REV HOLDINGS INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
OVERVIEW
The Company operates in a single 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.
RESULTS OF OPERATIONS
The following table sets forth the Company's net sales for the three
month and six month periods ended June 30, 1999 and 1998, respectively:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------- ----------------------------
Net sales: 1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
United States.................... $ 347.3 $ 340.3 $ 597.1 $ 624.0
International.................... 206.1 235.0 397.4 449.1
----------- ----------- ----------- -----------
$ 553.4 $ 575.3 $ 994.5 $ 1,073.1
=========== =========== =========== ===========
</TABLE>
The following sets forth certain statements of operations data as a
percentage of net sales for the three months and six months ended June 30, 1999
and 1998, respectively:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------- ----------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Cost of sales.................................... 33.4% 33.7% 34.2% 33.3%
Gross profit..................................... 66.6 66.3 65.8 66.7
Selling, general and administrative
expenses ("SG&A")............................ 58.7 57.3 60.1 59.2
Business consolidation costs and other, net...... 1.7 - 1.8 -
Operating income................................. 6.2 9.0 3.9 7.5
</TABLE>
NET SALES
Net sales were $553.4 and $575.3 for the second quarters of 1999 and
1998, respectively, a decrease of $21.9, or 3.8% on a reported basis (a decrease
of 1.2% on a constant U.S. dollar basis), and were $994.5 and $1,073.1 for the
first half of 1999 and 1998, respectively, a decrease of $78.6, or 7.3% on a
reported basis (a decrease of 4.7% on a constant U.S. dollar basis).
United States. Net sales in the United States were $347.3 for the
second quarter of 1999 compared to $340.3 for the second quarter of 1998, an
increase of $7.0, or 2.1%, and were $597.1 for the first half of 1999 compared
to $624.0 for the first half of 1998, a decrease of $26.9, or 4.3%. Net sales
for the second quarter and first half of 1999 were adversely affected by
continuing adjustments in inventory levels by retailers, slower than anticipated
category growth and competitive activities. The Company expects retail inventory
balancing and reductions to continue to affect sales in 1999.
REVLON brand color cosmetics continued as the number one brand in
dollar market share in the U.S. self-select distribution channel. New products
in the first half of 1999 included EVERYLASH mascara, MOISTURESTAY SHEER LIP
COLOR, REVLON AGE DEFYING compact makeup, WET/DRY EYE SHADOW, ALMAY STAY SMOOTH
lip makeup and mascara, ALMAY FOUNDATION with the Skin Stays Clean attributes,
products in the ALMAY ONE COAT collection, MITCHUM COOL DRY antiperspirant and
COLORSTAY LIQUID LIP.
9
<PAGE>
REV HOLDINGS INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
International. Net sales outside the United States were $206.1 for the
second quarter of 1999 compared to $235.0 for the comparable 1998 period, a
decrease of $28.9, or 12.3%, on a reported basis (a decrease of 6.1% on a
constant U.S. dollar basis), and were $397.4 for the first half of 1999 compared
to $449.1 for the first half of 1998, a decrease of $51.7, or 11.5%, on a
reported basis (a decrease of 5.4% on a constant U.S. dollar basis). The
decrease in net sales for the second quarter and first half of 1999 on a
constant dollar basis is primarily due to unfavorable economic conditions in
certain markets outside the U.S., which restrained consumer and trade demand,
and lower sales in certain markets. The decrease in net sales for the second
quarter and first half of 1999 on a reported basis also reflects the unfavorable
effect on sales of a stronger U.S. dollar against certain foreign currencies,
particularly the Brazilian real and the South African rand. Sales outside the
United States are divided into three geographic regions. In Europe, which is
comprised of Europe, the Middle East and Africa, net sales decreased by 11.9% on
a reported basis to $93.7 for the second quarter of 1999 as compared to the
second quarter of 1998 (a decrease of 7.3% on a constant U.S. dollar basis), and
decreased by 11.6% on a reported basis to $182.2 for the first half of 1999 as
compared to the first half of 1998 (a decrease of 8.6% on a constant U.S. dollar
basis). In the Western Hemisphere, which is comprised of Canada, Mexico, Central
America, South America and Puerto Rico, net sales decreased by 15.0% on a
reported basis to $76.6 for the second quarter of 1999 as compared to the second
quarter of 1998 (a decrease of 2.8% on a constant U.S. dollar basis), and
decreased by 14.7% on a reported basis to $146.3 for the first half of 1999 as
compared to the first half of 1998 (a decrease of 1.1% on a constant U.S. dollar
basis). The Company's operations in Brazil are significant. In Brazil, net sales
were $20.8 on a reported basis for the second quarter of 1999 compared to $30.8
for the second quarter of 1998, a decrease of $10.0, or 32.5% (an increase of
1.5% on a constant U.S. dollar basis), and were $39.4 for the first half of 1999
on a reported basis compared to $61.2 for the first half of 1998, a decrease of
$21.8, or 35.6% (a decrease of 1.4% on a constant U.S. dollar basis). On a
reported basis, net sales in Brazil were adversely affected by the stronger U.S.
dollar against the Brazilian real. In the Far East, net sales decreased by 7.0%
on a reported basis to $35.8 for the second quarter of 1999 as compared to the
second quarter of 1998 (a decrease of 10.2% on a constant U.S. dollar basis),
and decreased by 3.6% on a reported basis to $68.9 for the first half of 1999 as
compared to the first half of 1998 (a decrease of 5.3% on a constant U.S. dollar
basis). Net sales outside the United States, including, without limitation, in
Brazil, were, and may continue to be, adversely impacted by generally weak
economic conditions, political and economic uncertainties, including, without
limitation, currency fluctuations and competitive activities in certain markets.
Cost of sales
As a percentage of net sales, cost of sales was 33.4% for the second
quarter of 1999 compared to 33.7% for the second quarter of 1998, and 34.2% for
the first half of 1999 compared to 33.3% for the first half of 1998. The
increase in cost of sales as a percentage of net sales for the first half of
1999 compared to the first half of 1998 is due to changes in product mix, the
effect of weaker local currencies on the cost of imported purchases by
subsidiaries outside the U.S. and the effect of lower net sales.
SG&A expenses
As a percentage of net sales, SG&A expenses were 58.7% for the second
quarter of 1999 compared to 57.3% for the second quarter of 1998, and were 60.1%
for the first half of 1999 compared to 59.2% for the first half of 1998. SG&A
expenses were $324.6 for the second quarter of 1999 compared to $329.8 for the
second quarter of 1998, and were $597.5 for the first half of 1999 compared to
$635.6 for the first half of 1998. SG&A expenses in the 1999 periods reflect
increased brand support as a percentage of net sales offset by reduced general
and administrative expenses, due in part to the cost savings achieved from the
Company's restructuring program. The Company's advertising and consumer-directed
promotion expenditures were incurred to support existing product lines, new
product launches and increased distribution.
Business consolidation costs and other, net
In the fourth quarter of 1998, the Company committed to a restructuring
plan to realign and reduce personnel, exit excess leased real estate, realign
and consolidate regional activities, reconfigure certain manufacturing
operations and exit certain product lines. In the first quarter of 1999, the
Company recorded a net charge of $8.2 relating to such restructuring plan,
principally for additional employee severance and other personnel benefits and
continued to implement such restructuring plan during the second quarter of 1999
during which it recorded a charge of $8.5 principally for employee severance and
other personnel benefits as well as other costs. Also in the second quarter of
1999, the Company adopted a plan to exit a non-core business as to which a
charge of $1.0 is included in business consolidation costs and other, net.
10
<PAGE>
REV HOLDINGS INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
Operating income
As a result of the foregoing, operating income decreased to $34.4 for
the second quarter of 1999 from $51.5 for the second quarter of 1998 and
decreased to $38.7 for the first half of 1999 from $80.2 for the first half of
1998.
Other expenses/income
Interest expense was $52.7 for the second quarter of 1999 compared to
$48.7 for the second quarter of 1998 and $104.7 for the first half of 1999
compared to $107.8 for the first half of 1998. The increase in interest expense
for the second quarter of 1999 as compared to the comparable 1998 period is due
to higher average outstanding debt, higher interest rates under the Credit
Agreement and higher interest expense attributable to the Senior Secured
Discount Notes due 2001 (the "Senior Secured Discount Notes") during the 1999
period, partially offset by lower interest rates as a result of Products
Corporation's refinancings in 1998. The decrease in interest expense for the
first half of 1999 as compared to the first half of 1998 is primarily due to
incremental interest expense in the first quarter of 1998 prior to the
cancellation of the Revlon Worldwide Senior Secured Discount Notes due 1998 (the
"Revlon Worldwide Notes").
Foreign currency losses, net were nil for the second quarter of 1999
compared to $1.3 in the second quarter of 1998 and nil for the first half of
1999 compared to $2.8 for the first half of 1998. Foreign currency losses, net
for the second quarter of 1998 were comprised primarily of losses in several
markets in Europe. Foreign currency losses, net for the first half of 1998 were
comprised primarily of losses in several markets in Europe and Latin America.
Provision for income taxes
The provision for income taxes was $1.8 for the second quarter of 1999
compared to $3.4 for the second quarter of 1998 and $3.7 for the first half of
1999 compared to $7.1 for the first half of 1998. The decrease was primarily
attributable to lower taxable income outside the United States in the second
quarter and first half of 1999 as compared with the corresponding prior year
periods.
Discontinued operations
During 1998, the Company determined to exit the retail and outlet store
business comprised of its approximately 85% ownership interest in The Cosmetic
Center, Inc. ("CCI") and accordingly, the results of operations of CCI have been
reported as discontinued operations for the 1998 periods. By the end of 1998,
the Company completed the disposition of its approximately 85% equity interest
in CCI.
Extraordinary items
The extraordinary item of $13.5 in the second quarter of 1998 resulted
from the write-off of deferred financing costs and payment of a call premium
associated with the redemption in April 1998 of Products Corporation's 9 3/8%
Senior Notes due 2001 (the "Senior Notes"). The first half of 1998 also included
an extraordinary item of $38.2 resulting primarily from the write-off of
deferred financing costs and payment of call premiums associated with the
redemption in March 1998 of Products Corporation's 10 1/2% Senior Subordinated
Notes due 2003 (the "Senior Subordinated Notes").
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Net cash used for operating activities was $56.2 and $62.6 for the
first half of 1999 and 1998, respectively. The decrease in net cash used for
operating activities for the first half of 1999 compared to the first half of
1998 resulted primarily from improved working capital management, partially
offset by lower operating income and cash used for business consolidation costs
in the first half of 1999.
Net cash (used for) provided by investing activities was $(20.0) and
$257.1 for the first half of 1999 and 1998, respectively. Net cash used for
investing activities for the first half of 1999 consisted of capital
expenditures. Net cash provided
11
<PAGE>
REV HOLDINGS INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
by investing activities for the first half of 1998 consisted primarily of
proceeds from the sale of marketable securities that were used to repay the
remaining Revlon Worldwide Notes upon their maturity.
Net cash provided by (used for) financing activities was $71.5 and
$(186.9) for the first half of 1999 and 1998, respectively. Net cash provided by
financing activities for the first half of 1999 included cash drawn under the
Credit Agreement, partially offset by repayments of borrowings under the Credit
Agreement, redemption of the 1999 Notes and repayments under Products
Corporation's Japanese yen-denominated credit agreement (the "Yen Credit
Agreement"). Net cash used for financing activities for the first half of 1998
included the repayment of the remaining portion of the Revlon Worldwide Notes,
the payment of fees and expenses related to the issuance of Products
Corporation's 8 5/8% Senior Subordinated Notes due 2008 (the "8 5/8% Notes") and
Products Corporation's 8 1/8% Senior Notes due 2006 (the "8 1/8% Notes"), the
redemption of the Senior Subordinated Notes and the Senior Notes, and the
repayment of borrowings under the Yen Credit Agreement, partially offset by
proceeds from the issuance of the 8 5/8% Notes and the 8 1/8% Notes and cash
drawn under the Credit Agreement. During the first half of 1998, net cash used
by discontinued operations was $7.4.
In May 1997, Products Corporation entered into a credit agreement (as
subsequently amended, 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 and to redeem Products
Corporation's 10 7/8% Sinking Fund Debentures due 2010 and were and will be used
for general corporate purposes and, in the case of the Acquisition Facility (as
hereinafter defined), the financing of acquisitions. The Credit Agreement
provides up to $748.0 and is comprised of five senior secured facilities: $198.0
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 also be used for general corporate purposes and
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"). At June 30, 1999,
the Company had approximately $198.0 outstanding under the Term Loan Facilities,
$146.4 outstanding under the Multi-Currency Facility, $190.0 outstanding under
the Acquisition Facility and $28.8 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)1.0
billion as of June 30, 1999 (approximately $8.4 U.S. dollar equivalent as of
June 30, 1999) after giving effect to the payment of approximately (Yen)539
million (approximately $4.6 U.S. dollar equivalent) in March 1999. Approximately
(Yen)539 million (approximately $4.5 U.S. dollar equivalent as of June 30,
1999) is due in March 2000 and approximately (Yen)474 million (approximately
$3.9 U.S. dollar equivalent as of June 30, 1999) is due on December 31, 2000.
On June 1, 1999, Products Corporation redeemed the $200.0 principal
amount of 1999 Notes with borrowings from the Credit Agreement. In November
1998, Products Corporation issued and sold $250.0 principal amount of 9% Notes,
of which $200.0 was used to temporarily reduce borrowings under the Credit
Agreement in anticipation of the redemption referred to above.
Products Corporation borrows funds from its affiliates from time to
time to supplement its working capital borrowings at interest rates more
favorable to Products Corporation than interest rates under the Credit
Agreement. No such borrowings were outstanding as of June 30, 1999.
The Company's principal sources of funds are expected to be cash flow
generated from operations and borrowings under the Credit Agreement,
refinancings and other existing working capital lines. The Credit Agreement, the
8 5/8% Notes, the 8 1/8% Notes and the 9% Notes contain certain provisions that
by their terms limit Products Corporation's and/or its subsidiaries' ability to,
among other things, incur additional debt. The 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, expenses in
connection with the Company's restructuring referred to above and debt service
payments.
The Company estimates that capital expenditures for 1999 will be
approximately $60, including upgrades to the Company's management information
systems. The Company estimates that cash payments related to the restructuring
plans referred to above will be approximately $55, of which approximately $35
will be paid in 1999. Pursuant to tax sharing agreements, REV Holdings and
Revlon, Inc. may be required to make tax sharing payments to Mafco Holdings Inc.
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
12
<PAGE>
REV HOLDINGS INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
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 currently
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 the absence of business operations or a source of income
of its own, no cash federal tax payments or cash payments in lieu of federal
taxes pursuant to the tax sharing agreements will be required for 1999.
Products Corporation enters into forward foreign exchange contracts and
option contracts from time to time to hedge certain cash flows denominated in
foreign currencies. Products Corporation had forward foreign exchange contracts
denominated in various currencies of approximately $27.6 and $38.3 (U.S. dollar
equivalent) outstanding at June 30, 1999 and 1998, respectively, and option
contracts of approximately $23.9 and $49.6 outstanding at June 30, 1999 and
1998, respectively. Such contracts are entered into to hedge transactions
predominantly occurring within twelve months. If Products Corporation had
terminated these contracts on June 30, 1999 and 1998 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, 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 for 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 their 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 83.0% ownership interest in Revlon, Inc. from the 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 8 1/8% Notes and the 9% Notes generally
restrict Products Corporation from paying dividends or making distributions,
except that Products Corporation is permitted to pay dividends and make
distributions to Revlon, Inc., among other things, to enable Revlon, Inc. to pay
expenses incidental to being a public holding company, including, among other
things, professional fees such as legal and accounting, regulatory fees such as
Securities and Exchange Commission (the "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. Second 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 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
relating to the Senior Secured Discount Notes or any other debt instruments of
the Company and the Company's subsidiaries then in effect.
13
<PAGE>
REV HOLDINGS INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
YEAR 2000
Commencing in 1997, the Company undertook a business process
enhancement program to substantially upgrade management information technology
systems in order to provide comprehensive order processing, production and
accounting support for the Company's business. The Company also developed a
comprehensive plan to address Year 2000 issues. The Year 2000 plan addresses
three main areas: (a) information technology systems; (b) non-information
technology systems (including factory equipment, building systems and other
embedded systems); and (c) business partner readiness (including without
limitation customers, inventory and non-inventory suppliers, service suppliers,
banks, insurance companies and tax and other governmental agencies). To oversee
the process, the Company has established a Steering Committee comprised of
senior executives of the Company.
In connection with and as part of the Company's business process
enhancement program, certain information technology systems have been and will
continue to be upgraded to be Year 2000 compliant. In addition, as part of its
Year 2000 plan, the Company has identified potential deficiencies related to
Year 2000 in certain of its information technology systems, both hardware and
software, and is in the process of addressing them through upgrades and other
remediation. The Company currently expects to complete upgrade and remediation
and testing of its information systems during the third quarter of 1999. In
respect of non-information technology systems with date sensitive operating
controls, the Company is in the process of identifying those items which may
require remediation or replacement, and has commenced an upgrade and remediation
program for systems identified as Year 2000 non-compliant. The Company expects
to complete remediation or replacement and testing of these during the third
quarter of 1999. The Company has identified and contacted and continues to
identify and contact key suppliers, both inventory and non-inventory, key
customers and other strategic business partners, such as banks, pension trust
managers and marketing data suppliers, either by soliciting written responses to
questionnaires and/or by meeting with certain of such third parties. The parties
from whom the Company has received responses to date generally have indicated
that their systems are or will be Year 2000 compliant.
The Company does not expect that incremental out-of-pocket costs of its
Year 2000 program (which do not include costs incurred in connection with the
Company's comprehensive business process enhancement program) will be material.
These costs are expected to continue to be incurred through fiscal 1999 and
include the cost of third party consultants, remediation of existing computer
software and replacement and remediation of embedded systems.
The Company believes that at the current time it is difficult to
identify specifically the most reasonably likely worst case Year 2000 scenario.
As with all manufacturers and distributors of products such as those sold by the
Company, a reasonable worst case scenario would be the result of failures of
third parties (including, without limitation, governmental entities and entities
with which the Company has no direct involvement, as well as the Company's
suppliers of goods and services and customers) that continue for more than a
brief period in various geographic areas where the Company's products are
produced or sold at retail or in areas from which the Company's raw materials
and components are sourced. In connection with functions that represent a
particular Year 2000 risk, including the production, warehousing and
distribution of products and the supply of raw materials and components, the
Company is considering various contingency plans. Continuing failures in key
geographic areas in the United States and in certain European, South American
and Asian countries that limit the Company's ability to produce products, its
customers' ability to purchase and pay for the Company's products and/or
consumers' ability to shop, would be likely to have a material adverse effect on
the Company's results of operations and financial condition, although it would
be expected that at least part of any lost sales eventually would be recouped.
The extent of such deferred or lost revenue cannot be estimated at this time.
The Company's Year 2000 efforts are ongoing and its overall plan, as
well as the consideration of contingency plans, will continue to evolve as new
information becomes available. While the Company currently anticipates
continuity of its business activities, that continuity will be dependent upon
its ability, and the ability of third parties upon which the Company relies
directly, or indirectly, to be Year 2000 compliant. There can be no assurance
that the Company and such third parties will eliminate potential Year 2000
issues in a timely manner or as to the ultimate cost to the Company of doing so.
14
<PAGE>
REV HOLDINGS INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
EURO CONVERSION
As part of the European Economic and Monetary Union, a single currency
(the "Euro") will replace the national currencies of the principal European
countries (other than the United Kingdom) in which the Company conducts business
and manufacturing. The conversion rates between the Euro and the participating
nations' currencies were fixed as of January 1, 1999, with the participating
national currencies being removed from circulation between January 1, 2002 and
June 30, 2002 and replaced by Euro notes and coinage. During the transition
period from January 1, 1999 through December 31, 2001, public and private
entities as well as individuals may pay for goods and services using checks,
drafts, or wire transfers denominated either in the Euro or the participating
country's national currency. Under the regulations governing the transition to a
single currency, there is a "no compulsion, no prohibition" rule which states
that no one can be prevented from using the Euro after January 1, 2002 and no
one is obliged to use the Euro before July 2002. In keeping with this rule, the
Company expects to either continue using the national currencies or the Euro for
invoicing or payments. Based upon the information currently available, the
Company does not expect that the transition to the Euro will have a material
adverse effect on the business or consolidated financial condition of the
Company.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has exposure to market risk both as a result of changing
interest rates and movements in foreign currency exchange rates. The Company's
policy is to manage market risk through a combination of fixed and floating rate
debt, the use of derivative financial instruments and foreign exchange forward
and option contracts. The Company does not hold or issue financial instruments
for trading purposes. The qualitative and quantitative information presented in
Item 7A of the Company's Annual Report on Form 10-K for the year ended December
31, 1998 describe significant aspects of the Company's financial instrument
programs which have material market risk. As referred to above, on June 1, 1999,
Products Corporation redeemed the $200.0 principal amount of 1999 Notes with
borrowings from Credit Agreement. As of June 30, 1999 there have been no other
substantive changes in the qualitative and quantitative information presented in
Item 7A at December 31, 1998.
FORWARD-LOOKING STATEMENTS
This quarterly report on Form 10-Q for the quarter ended June 30, 1999
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, the effect on
sales of retail inventory balancing and reductions, the effect on sales of
political and/or economic conditions and competitive activities in certain
markets, the Company's estimate of restructuring activities, costs and benefits,
cash flow from operations, information systems upgrades, the Company's plan to
address the Year 2000 issue, the costs associated with the Year 2000 issue and
the results of Year 2000 non-compliance by the Company or by one or more of the
Company's customers, suppliers or other strategic business partners, capital
expenditures, the Company's qualitative and quantitative estimates as to market
risk sensitive instruments, the Company's expectations about the effects of the
transition to the Euro, the availability of funds from currently available
credit facilities and refinancings of indebtedness, and capital contributions or
loans from affiliates or the sale of assets or operations of the Company or
additional shares of Revlon, Inc., or the sale of equity securities of REV
Holdings and Revlon, Inc.'s intent with respect to and the possible results of
its review of strategic alternatives. Statements that are not historical facts,
including statements about the Company's beliefs and expectations, are
forward-looking statements. Forward-looking statements can be identified by,
among other things, the use of forward-looking language, such as "believe,"
"expects," "may," "will," "should," "seeks," "plans," "scheduled to,"
"anticipates" or "intends" or the negative of those terms, or other variations
of those terms or comparable language, or by discussions of strategy or
intentions. Forward-looking statements speak only as of the date they are made,
and the Company undertakes no obligation to update them. A number of important
factors could cause actual results to differ materially from those contained in
any forward-looking statement. In addition to factors that may be described in
the Company's filings with the Commission, 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
15
<PAGE>
REV HOLDINGS INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
upgrades; (v) the inability to refinance indebtedness, secure capital
contributions or loans from affiliates or sell assets or operations of the
Company or additional shares of Revlon, Inc. or equity securities of REV
Holdings; (vi) effects of and changes in political and/or economic conditions,
including inflation and monetary conditions, and in trade, monetary, fiscal and
tax policies in international markets, including but not limited to Brazil;
(vii) actions by competitors, including business combinations, technological
breakthroughs, new products offerings and marketing and promotional successes;
(viii) combinations among significant customers or the loss, insolvency or
failure to pay debts by a significant customer or customers; (ix) lower than
expected sales as a result of a longer than expected duration of retail
inventory balancing and reductions; (x) difficulties, delays or unanticipated
costs or less than expected benefits resulting from the Company's restructuring
activities; (xi) interest rate or foreign exchange rate changes affecting the
Company and its market sensitive financial instruments; (xii) difficulties,
delays or unanticipated costs associated with the transition to the Euro; (xiii)
difficulties, delays or unanticipated costs in achieving Year 2000 compliance or
unanticipated consequences from non-compliance by the Company or one or more of
the Company's customers, suppliers or other strategic business partners; and
(xiv) difficulties or delays in reviewing strategic alternatives or the failure
to complete any transaction in connection therewith.
EFFECT OF NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. The effect
of adopting the statement and the date of such adoption by the Company have not
yet been determined. In June 1999, the FASB issued SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective Date
of SFAS No. 133, an Amendment of SFAS No. 133," which has delayed the required
implementation of SFAS No. 133 such that the Company must adopt this new
standard no later than January 1, 2001.
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - NONE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS -
10.26 Employment Agreement amended and restated as of the 10th day of
May, 1999, effective as of January 1, 1997, between Revlon Consumer
Products Corporation and George Fellows. (Incorporated by reference to
Exhibit 10.23 to the Quarterly Report on Form 10-Q for the quarterly
period ended June 30, 1999 of Revlon, Inc. (the "Revlon, Inc. June 30,
1999 Form 10-Q")).
10.27 Employment Agreement amended and restated as of the 10th day of
May, 1999, effective as of January 1, 1999, between Revlon Consumer
Products Corporation and Irwin Engelman. (Incorporated by reference to
Exhibit 10.24 to the Revlon, Inc. June 30, 1999 Form 10-Q).
10.28 Employment Agreement amended and restated as of the 10th day of
May, 1999, effective as of January 1, 1998, between Revlon Consumer
Products Corporation and Wade H. Nichols. (Incorporated by reference to
Exhibit 10.25 to the Revlon, Inc. June 30, 1999 Form 10-Q).
10.29 Revlon, Inc. Second Amended and Restated 1996 Stock Plan (Amended
and Restated as of February 12, 1999) (Incorporated by reference to
Exhibit 4.1 to the Registration Statement on Form S-8 of Revlon, Inc.
filed with the Commission on April 14, 1999. File No. 333-76267).
(B) REPORTS ON FORM 8-K - NONE
16
<PAGE>
REV HOLDINGS INC. AND SUBSIDIARIES
S I G N A T U R E S
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
REV HOLDINGS INC.
Registrant
By:/s/ Todd J. Slotkin By:/s/ Robert F. Sierpinski
- ----------------------------------- ------------------------------------------
Todd J. Slotkin Robert F. Sierpinski
Executive Vice President Vice President, Acting Controller
and Chief Financial Officer and Acting Chief Accounting Officer
Dated: August 16, 1999
17
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<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 26,800
<SECURITIES> 0
<RECEIVABLES> 491,300
<ALLOWANCES> 26,600
<INVENTORY> 276,000
<CURRENT-ASSETS> 835,200
<PP&E> 596,400
<DEPRECIATION> 237,300
<TOTAL-ASSETS> 1,737,200
<CURRENT-LIABILITIES> 488,700
<BONDS> 2,332,100
0
0
<COMMON> 1
<OTHER-SE> (1,355,500)
<TOTAL-LIABILITY-AND-EQUITY> 1,737,200
<SALES> 994,500
<TOTAL-REVENUES> 994,500
<CGS> 340,600
<TOTAL-COSTS> 340,600
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 3,200
<INTEREST-EXPENSE> 104,700
<INCOME-PRETAX> (69,000)
<INCOME-TAX> 3,700
<INCOME-CONTINUING> (72,700)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (72,700)
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