<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: March 31, 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 March 31, 1999, all of which were held by an affiliate of Mafco
Holdings Inc.
Total Pages - 16
<PAGE>
REV HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
ASSETS 1999 1998
---------- ----------
Current assets: (Unaudited)
<S> <C> <C>
Cash and cash equivalents ........................... $ 35.8 $ 34.7
Trade receivables, less allowances of $23.0
and $28.5, respectively ....................... 395.7 536.0
Inventories ......................................... 274.2 264.1
Prepaid expenses and other .......................... 70.3 69.9
---------- ----------
Total current assets .......................... 776.0 904.7
Property, plant and equipment, net ........................ 361.0 378.9
Other assets .............................................. 178.4 181.6
Intangible assets, net .................................... 369.7 372.9
---------- ----------
Total assets .................................. $ 1,685.1 $ 1,838.1
========== ==========
LIABILITIES AND STOCKHOLDER'S DEFICIENCY
Current liabilities:
Short-term borrowings - third parties ............... $ 34.2 $ 27.9
Current portion of long-term debt - third parties ... 5.7 6.0
Accounts payable .................................... 153.8 134.8
Accrued expenses and other .......................... 287.4 389.7
---------- ----------
Total current liabilities ..................... 481.1 558.4
Long-term debt - third parties ............................ 2,239.9 2,241.1
Long-term debt - affiliates ............................... 24.1 24.1
Other long-term liabilities ............................... 270.1 267.5
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 ............. (822.8) (771.6)
Accumulated other comprehensive loss ................ (98.5) (72.6)
---------- ----------
Total stockholder's deficiency ................ (1,330.1) (1,253.0)
---------- ----------
Total liabilities and stockholder's deficiency $ 1,685.1 $ 1,838.1
========== ==========
</TABLE>
See Accompanying Notes to Unaudited Consolidated Condensed Financial Statements.
2
<PAGE>
REV HOLDINGS INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------
1999 1998
-------- --------
<S> <C> <C>
Net sales ......................................... $ 441.1 $ 497.8
Cost of sales ..................................... 155.7 163.3
-------- --------
Gross profit ................................. 285.4 334.5
Selling, general and administrative expenses ...... 272.9 305.8
Business consolidation costs and other, net ....... 8.2 --
-------- --------
Operating income ............................. 4.3 28.7
-------- --------
Other expenses (income):
Interest expense ............................. 52.0 59.1
Interest income .............................. (1.1) (5.1)
Amortization of debt issuance costs .......... 2.2 2.8
Foreign currency losses, net ................. -- 1.5
Miscellaneous, net ........................... 0.5 1.8
Gain on sale of subsidiary stock ............. -- (1.5)
-------- --------
Other expenses, net ..................... 53.6 58.6
-------- --------
Loss from continuing operations before income taxes (49.3) (29.9)
Provision for income taxes ........................ 1.9 3.7
-------- --------
Loss from continuing operations ................... (51.2) (33.6)
Loss from discontinued operations ................. -- (4.6)
Extraordinary items - early extinguishment of debt -- (38.2)
-------- --------
Net loss .......................................... $ (51.2) $ (76.4)
======== ========
</TABLE>
See Accompanying Notes to Unaudited Consolidated Condensed Financial Statements.
3
<PAGE>
REV HOLDINGS INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDER'S DEFICIENCY AND
COMPREHENSIVE LOSS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
ACCUMULATED
OTHER TOTAL
CAPITAL ACCUMULATED COMPREHENSIVE STOCKHOLDER'S
DEFICIENCY DEFICIT LOSS (a) DEFICIENCY
---------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1998 ........................ $ (408.8) $ (562.2) $ (23.7) $ (994.7)
Comprehensive loss:
Net loss ........................... (76.4) (76.4)
Currency translation adjustment .... (7.8)(b) (7.8)
----------
Total comprehensive loss ................... (84.2)
-------- ---------- ---------- ----------
Balance, March 31, 1998 ......................... $ (408.8) $ (638.6) $ (31.5) $ (1,078.9)
======== ========== ========== ==========
Balance, January 1, 1999 ........................ $ (408.8) $ (771.6) $ (72.6) $ (1,253.0)
Comprehensive loss:
Net loss ........................... (51.2) (51.2)
Revaluation of marketable securities (0.2) (0.2)
Currency translation adjustment .... (25.7) (25.7)
----------
Total comprehensive loss ................... (77.1)
-------- ---------- ---------- ----------
Balance, March 31, 1999 ......................... $ (408.8) $ (822.8) $ (98.5) $ (1,330.1)
======== ========== ========== ==========
</TABLE>
- --------------------
(a) Accumulated other comprehensive loss includes a revaluation of marketable
securities of $3.2 as of March 31, 1999, currency translation adjustments
of $62.8 and $27.0 as of March 31, 1999 and 1998, respectively, and
adjustments for the minimum pension liability of $32.5 and $4.5 as of
March 31, 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>
REV HOLDINGS INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31,
-----------------------
CASH FLOWS FROM OPERATING ACTIVITIES: 1999 1998
-------- --------
<S> <C> <C>
Net loss ....................................................................... $ (51.2) $ (76.4)
Adjustments to reconcile net loss to net cash
provided by (used for) operating activities:
Depreciation and amortization ............................................. 31.3 28.3
Amortization of debt discount ............................................. 16.1 22.4
Loss from discontinued operations ......................................... -- 4.6
Extraordinary items ....................................................... -- 38.2
Gain on sale of subsidiary stock .......................................... -- (1.5)
Change in assets and liabilities:
Decrease in trade receivables ........................................ 128.1 70.5
Increase in inventories .............................................. (17.2) (28.3)
(Increase) decrease in prepaid expenses and
other current assets .................................... (2.1) 1.2
Increase in accounts payable ......................................... 22.6 14.4
Decrease in accrued expenses and other
current liabilities ..................................... (88.2) (71.1)
Other, net ........................................................... (20.5) (23.0)
-------- --------
Net cash provided by (used for) operating activities ........................... 18.9 (20.7)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ........................................................... (8.2) (8.6)
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 ........................... (8.2) 330.0
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in short-term borrowings - third parties ............... 7.9 (3.3)
Proceeds from the issuance of long-term debt - third parties ................... 86.3 671.7
Repayment of long-term debt - third parties .................................... (100.8) (964.6)
Proceeds from the issuance of debt - affiliates ................................ 44.8 50.0
Repayment of debt - affiliates ................................................. (44.8) (50.0)
Payment of debt issuance costs ................................................. -- (13.2)
-------- --------
Net cash used for financing activities ......................................... (6.6) (309.4)
-------- --------
Effect of exchange rate changes on cash and cash equivalents ................... (3.0) (0.7)
-------- --------
Net cash used by discontinued operations ....................................... -- (2.2)
-------- --------
Net increase (decrease) in cash and cash equivalents ...................... 1.1 (3.0)
Cash and cash equivalents at beginning of period .......................... 34.7 37.4
-------- --------
Cash and cash equivalents at end of period ................................ $ 35.8 $ 34.4
======== ========
Supplemental schedule of cash flow information:
Cash paid during the period for:
Interest ............................................................. $ 43.5 $ 38.9
Income taxes, net of refunds ......................................... 1.1 2.4
</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, for the first quarter of 1999 and
1998, disbursements and commitments for advertising and promotion exceeded
advertising and promotion expenses by $37.3 and $28.8, respectively, and such
amounts were deferred.
During March 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
MARCH 31, DECEMBER 31,
1999 1998
------------- -------------
Raw materials and supplies......... $ 77.1 $ 78.2
Work-in-process.................... 19.5 14.4
Finished goods..................... 177.6 171.5
------------- -------------
$ 274.2 $ 264.1
============= =============
(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. By
March 31, 1999, the Company had terminated 694 employees of the 720 employees
included in the fourth quarter 1998 charge and an additional 22 employees in
the first quarter of 1999.
Details of the restructuring activity during the quarter ended March
31, 1999 are as follows:
<TABLE>
<CAPTION>
BALANCE (UTILIZED) RECEIVED BALANCE
AS OF EXPENSE ------------------------------ AS OF
1/1/99 (INCOME) CASH NONCASH 3/31/99
------------ ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
Employee severance, termination
and other personnel benefits....... $ 24.9 $ 10.0 $ (12.7) $ - $ 22.2
Factory, warehouse and
office costs........................ 12.1 (1.8) (0.4) - 9.9
------------ ------------ ------------ ------------- ------------
$ 37.0 $ 8.2 $ (13.1) $ - $ 32.1
============ ============ ============ =========== ============
</TABLE>
7
<PAGE>
REV HOLDINGS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS)
(4) 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 4.2% and 6.1% of
the Company's net sales for the first quarter 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>
GEOGRAPHIC AREAS: QUARTER ENDED MARCH 31,
---------------------------------
Net sales: 1999 1998
-------------- -------------
<S> <C> <C>
United States................................ $ 249.8 $ 283.7
International................................ 191.3 214.1
-------------- -------------
$ 441.1 $ 497.8
============== =============
MARCH 31, DECEMBER 31,
Long-lived assets: 1999 1998
-------------- -------------
United States................................ $ 641.5 $ 646.0
International................................ 267.6 287.4
-------------- -------------
$ 909.1 $ 933.4
============== =============
CLASSES OF SIMILAR PRODUCTS: QUARTER ENDED MARCH 31,
---------------------------------
Net sales: 1999 1998
-------------- -------------
Cosmetics, skin care and fragrances.......... $ 227.4 $ 300.4
Personal care and professional............... 213.7 197.4
-------------- -------------
$ 441.1 $ 497.8
============== =============
</TABLE>
(5) SUBSEQUENT EVENT
Revlon, Inc. announced on April 7, 1999 that it will undertake a review of
strategic alternatives available to it to maximize shareholder value.
Alternatives to be reviewed will include 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. Revlon, Inc. stated that no
decision has been made to enter into any transaction or as to what form any such
transaction might take. Moreover, Revlon, Inc. stated that there could be no
assurance that any transaction would be completed as a result of its 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 first
quarters of 1999 and 1998, respectively:
<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31,
--------------------------------
<S> <C> <C>
Net sales: 1999 1998
------------- -------------
United States............................ $ 249.8 $ 283.7
International............................ 191.3 214.1
------------- -------------
$ 441.1 $ 497.8
============= =============
</TABLE>
The following sets forth certain statements of operations data as a
percentage of net sales for the first quarters of 1999 and 1998, respectively:
<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31,
--------------------------------
1999 1998
------------- --------------
<S> <C> <C>
Cost of sales.................................. 35.3% 32.8%
Gross profit................................... 64.7 67.2
Selling, general and administrative
expenses ("SG&A")........................ 61.9 61.4
Business consolidation costs and other, net.... 1.8 -
Operating income............................... 1.0 5.8
</TABLE>
NET SALES
Net sales were $441.1 and $497.8 for the first quarters of 1999 and
1998, respectively, a decrease of $56.7, or 11.4% (a decrease of 8.8% on a
constant U.S. dollar basis).
United States. Net sales in the United States were $249.8 for the first
quarter of 1999 compared to $283.7 for the first quarter of 1998, a decrease of
$33.9, or 11.9%. Net sales were adversely affected by continuing adjustments in
inventory levels by retailers and slower than anticipated category growth. 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 quarter of 1999 included EVERYLASH mascara, REVLON AGE DEFYING
compact makeup, WET/DRY EYE SHADOW, products in the NEW COMPLEXION line, ALMAY
STAY SMOOTH lip makeup, ALMAY FOUNDATION with the Skin Stays Clean attributes,
SUPER LUSTROUS haircolor, products in the ALMAY ONE COAT collection and
products in the ULTIMA II BEAUTIFUL NUTRIENT and ULTIMA II FULL MOISTURE
lipcolor lines.
International. Net sales outside the United States were $191.3 for the
first quarter of 1999 compared to $214.1 for the comparable 1998 period, a
decrease of $22.8, or 10.6%, on a reported basis (a decrease of 4.5% on a
constant U.S. dollar basis). The decrease in net sales for the first quarter 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 than expected sales in
9
<PAGE>
REV HOLDINGS INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(DOLLARS IN MILLIONS)
certain markets in Europe. The decrease in net sales for the first quarter of
1999 on a reported basis reflects the unfavorable effect on sales of a stronger
U.S. dollar against certain foreign currencies, particularly the Brazilian real,
and unfavorable economic conditions in several international markets. 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
11.2% on a reported basis to $88.5 for the first quarter of 1999 as compared to
the first quarter of 1998 (a decrease of 9.9% 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 14.4% on a
reported basis to $69.7 for the first quarter of 1999 as compared to the first
quarter of 1998 (an increase of 0.7% on a constant U.S. dollar basis). The
Company's operations in Brazil are significant. In Brazil, net sales were $18.6
on a reported basis for the first quarter of 1999 compared to $30.4 for the
first quarter of 1998, a decrease of $11.8, or 38.8% (a decrease of 4.4% 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 increased by 0.3% on a reported basis to $33.1 for the
first quarter of 1999 as compared to the first quarter of 1998 (an increase of
0.7% 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 35.3% for the first
quarter of 1999 compared to 32.8% for the first quarter of 1998. The increase in
cost of sales as a percentage of net sales for the first quarter of 1999
compared to the first quarter 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 61.9% for the first
quarter of 1999 compared to 61.4% for the first quarter of 1998. SG&A expenses
other than advertising and consumer-directed promotion expenses decreased to
$205.2 for the first quarter of 1999 compared to $217.9 for the first quarter of
1998 in part due to cost savings achieved from the restructuring implemented in
the fourth quarter of 1998. The Company's advertising and consumer-directed
promotion expenditures were incurred to support existing product lines, new
product launches and increased distribution. Advertising and consumer-directed
promotion expenses were $67.7 and $87.9 for the first quarters of 1999 and 1998,
respectively.
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. By
March 31, 1999, the Company had terminated 694 employees of the 720 employees
included in the fourth quarter 1998 charge and an additional 22 employees in
the first quarter of 1999.
Operating income
As a result of the foregoing, operating income decreased to $4.3 for
the first quarter of 1999 from $28.7 for the first quarter of 1998.
10
<PAGE>
REV HOLDINGS INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(DOLLARS IN MILLIONS)
Other expenses/income
Interest expense was $52.0 for the first quarter of 1999 compared to
$59.1 for the first quarter of 1998. The decrease is primarily due to the
cancellation of the Revlon Worldwide Senior Secured Discount Notes due 1998 (the
"Revlon Worldwide Notes") and a non-recurring interest charge associated with
the refinancings in 1998, partially offset by higher interest expense
attributable to the Senior Secured Discount Notes due 2001 (the "Senior Secured
Discount Notes"), higher average outstanding debt and higher interest rates
under the Credit Agreement (as hereinafter defined).
The foreign currency losses, net of $1.5 in the first quarter 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 $1.9 and $3.7 for the first quarters
of 1999 and 1998, respectively. The decrease was primarily attributable to lower
taxable income outside the United States in the first quarter of 1999.
Discontinued operations
During 1998, the Company determined to exit the retail and outlet store
business comprised of its 85% ownership interest in The Cosmetic Center, Inc.
("CCI") and 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 $38.2 in the first quarter of 1998 resulted
primarily from the write-off of deferred financing costs and payment of call
premiums associated with the redemption in March 1998 of the 10 1/2% Senior
Subordinated Notes due 2003 (the "Senior Subordinated Notes").
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by (used for) operating activities was $18.9 and
$(20.7) for the first quarters of 1999 and 1998, respectively. The increase in
net cash provided by operating activities for the first quarter of 1999 compared
with the net cash used in the first quarter 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 quarter of 1999.
Net cash (used for) provided by investing activities was $(8.2) and
$330.0 for the first quarters of 1999 and 1998, respectively. Net cash used for
investing activities for the first quarter of 1999 consisted of capital
expenditures. Net cash provided by investing activities for the first quarter 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 used for financing activities was $6.6 and $309.4 for the
first quarters of 1999 and 1998, respectively. Net cash used for financing
activities for the first quarter of 1999 included repayments of borrowings under
the Company's Credit Agreement and repayments under the Company's Japanese
yen-denominated credit agreement (the "Yen Credit Agreement") partially offset
by cash drawn under the Credit Agreement. Net cash used for financing
activities for the first quarter of 1998 included the repayment of the remaining
portion of the Revlon Worldwide Notes, payment of fees and expenses related to
the issuance of the 8 5/8% Senior Subordinated Notes due 2008 (the "8 5/8%
Notes"), the redemption of the Senior Subordinated Notes and the repayment of
borrowings under the Yen Credit Agreement, partially offset by the proceeds from
the issuance of the 8 5/8% Notes and cash drawn under the Credit Agreement.
During the first quarter of 1998, net cash used by discontinued operations was
$2.2.
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
11
<PAGE>
REV HOLDINGS INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(DOLLARS IN MILLIONS)
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
$749.0 and is comprised of five senior secured facilities: $199.0 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 March 31, 1999, the Company had
approximately $199.0 outstanding under the Term Loan Facilities, $58.8
outstanding under the Multi-Currency Facility, $2.0 outstanding under the
Acquisition Facility and $29.1 of issued but undrawn letters of credit under the
Special LC Facility. In connection with the issuance of the 9% Notes (as
hereinafter defined), Products Corporation agreed that until the 1999 Notes (as
hereinafter defined) are refinanced, $200.0 of the Multi-Currency Facility
available under the Credit Agreement (reduced by the amount of 1999 Notes
actually repurchased or refinanced, none of which had been so repurchased or
refinanced as of March 31, 1999), which would otherwise be available for working
capital purposes, will be used solely to refinance the 1999 Notes.
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 March 31, 1999 (approximately $8.6 U.S. dollar equivalent as of
March 31, 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 $4.6 U.S. dollar equivalent as of
March 31, 1999) is due in March 2000 and approximately yen 474 million
(approximately $4.0 U.S. dollar equivalent as of March 31, 1999) is due on
December 31, 2000.
Products Corporation borrows funds from its affiliates from time to
time to supplement its working capital borrowings at interest rates more
favorable to Products Corporation than interest rates under the Credit
Agreement. No such borrowings were outstanding as of March 31, 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
9 1/2/% Senior Notes due 1999 (the "1999 Notes"), the 8 5/8% Notes, the 8 1/8%
Senior Notes due 2006 (the "8 1/8% Notes") and the 9% Senior Notes due 2006 (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 (including purchase
and repayment of the 1999 Notes).
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 $45, of which approximately $32
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 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 $112.7 and $45.1 (U.S. dollar
equivalent) outstanding at March 31, 1999 and 1998, respectively, and option
contracts of approximately $37.5 and $75.8 outstanding at March 31, 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 March 31, 1999 and 1998 no material gain or loss
would have been realized.
12
<PAGE>
REV HOLDINGS INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(DOLLARS IN MILLIONS)
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 (including refinancing
the 1999 Notes). 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 1999 Notes, 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.
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 by 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 by 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
13
<PAGE>
REV HOLDINGS INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(DOLLARS IN MILLIONS)
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.
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 of March 31, 1999 there have been
no material changes in the qualitative and quantitative information presented at
December 31, 1998.
14
<PAGE>
REV HOLDINGS INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(DOLLARS IN MILLIONS)
FORWARD-LOOKING STATEMENTS
This quarterly report on Form 10-Q for the quarter ended March 31, 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 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
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's 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 issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. The effect of adopting
the statement and the date of such adoption by the Company have not yet been
determined. The Company must adopt this new standard by January 1, 2000.
15
<PAGE>
REV HOLDINGS INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(DOLLARS IN MILLIONS)
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 - NONE
(b) REPORTS ON FORM 8-K - NONE
S I G N A T U R E S
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
REV HOLDINGS INC.
Registrant
By:/s/ Todd J. Slotkin By:/s/ Lawrence E. Kreider
- ---------------------------------- ----------------------------------------
Todd J. Slotkin Lawrence E. Kreider
Executive Vice President Senior Vice President, Controller
and Chief Financial Officer and Chief Accounting Officer
Dated: May 17, 1999
16
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<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
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<SALES> 441,100
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