<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: September 30, 2000
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 September 30, 2000, all of which were held by an affiliate of Mafco
Holdings Inc.
Total Pages - 21
<PAGE>
REV HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
ASSETS 2000 1999
----------- -------------
Current assets: (Unaudited)
<S> <C> <C>
Cash and cash equivalents ........................................................... $ 24.0 $ 25.4
Trade receivables, less allowances of $19.2
and $27.2, respectively ....................................................... 223.8 332.6
Inventories ......................................................................... 202.8 278.3
Prepaid expenses and other .......................................................... 42.2 51.3
---------- ---------
Total current assets .......................................................... 492.8 687.6
Property, plant and equipment, net ........................................................ 262.6 336.4
Other assets .............................................................................. 166.8 182.0
Intangible assets, net .................................................................... 208.6 356.8
---------- ---------
Total assets .................................................................. $ 1,130.8 $ 1,562.8
========== ==========
LIABILITIES AND STOCKHOLDER'S DEFICIENCY
Current liabilities:
Short-term borrowings - third parties ............................................... $ 25.8 $ 37.6
Current portion of long-term debt - third parties ................................... 734.0 10.2
Accounts payable .................................................................... 85.0 139.8
Accrued expenses and other .......................................................... 289.4 409.7
---------- ---------
Total current liabilities ..................................................... 1,134.2 597.3
Long-term debt - third parties ............................................................ 1,553.2 2,416.5
Long-term debt - affiliates ............................................................... 24.1 24.1
Other long-term liabilities ............................................................... 213.4 215.9
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 ............................................. (1,349.8) (1,214.1)
Accumulated other comprehensive loss ................................................ (35.5) (68.1)
---------- ---------
Total stockholder's deficiency ................................................ (1,794.1) (1,691.0)
---------- ---------
Total liabilities and stockholder's deficiency ................................ $ 1,130.8 $ 1,562.8
========== ==========
</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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------- ----------------------
2000 1999 2000 1999
------ ------ ---------- ----------
<S> <C> <C> <C> <C>
Net sales ...................................... $ 351.9 $ 452.4 $ 1,170.5 $ 1,446.9
Cost of sales .................................. 124.7 170.0 417.5 510.6
-------- -------- ---------- ----------
Gross profit .............................. 227.2 282.4 753.0 936.3
Selling, general and administrative expenses ... 203.7 403.5 686.6 1,001.0
Restructuring costs and other, net ............. 13.7 4.4 28.3 22.1
-------- -------- ---------- ----------
Operating income (loss) ................... 9.8 (125.5) 38.1 (86.8)
-------- -------- ---------- ----------
Other expenses (income):
Interest expense .......................... 54.4 53.7 164.2 158.4
Interest income ........................... (0.7) (0.4) (1.5) (1.9)
Amortization of debt issuance costs ....... 1.9 1.7 7.2 6.0
Foreign currency (gains) losses, net ...... (1.1) 0.2 1.0 0.2
Miscellaneous, net ........................ (0.9) (0.1) -- 0.2
Gain on sale of subsidiary stock .......... -- -- (1.1) (0.1)
Gain on sale of product line and brand, net -- -- (3.0) --
-------- -------- ---------- ----------
Other expenses, net .................. 53.6 55.1 166.8 162.8
-------- -------- ---------- ----------
Loss before income taxes ....................... (43.8) (180.6) (128.7) (249.6)
Provision for income taxes ..................... 2.2 1.9 7.0 5.6
-------- -------- ---------- ----------
Net loss ....................................... $ (46.0) $ (182.5) $ (135.7) $ (255.2)
======== ======== ========== ==========
</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, 1999 ........................... $ (408.8) $ (771.6) $ (72.6) $ (1,253.0)
Comprehensive loss:
Net loss ............................. (255.2) (255.2)
Revaluation of marketable securities . (0.9) (0.9)
Currency translation adjustment ...... (32.3) (32.3)
-------------
Total comprehensive loss ..................... (288.4)
--------------- -------------- ------------------ -------------
Balance, September 30, 1999 ....................... $ (408.8) $ (1,026.8) $ (105.8) $ (1,541.4)
=============== ============== ================== =============
Balance, January 1, 2000 .......................... $ (408.8) $ (1,214.1) $ (68.1) $ (1,691.0)
Comprehensive loss:
Net loss ............................. (135.7) (135.7)
Currency translation adjustment ...... 32.6 (b) 32.6
-------------
Total comprehensive loss ..................... (103.1)
--------------- -------------- ------------------ -------------
Balance, September 30, 2000 ....................... $ (408.8) $ (1,349.8) $ (35.5) $ (1,794.1)
=============== ============== ================== =============
</TABLE>
--------------------
(a) Accumulated other comprehensive loss includes unrealized losses on
marketable securities of $3.8 and $3.9 as of September 30, 2000 and
1999, respectively, cumulative net currency translation losses of $26.8
and $69.4 as of September 30, 2000 and 1999, respectively, and
adjustments for the minimum pension liability of $4.9 and $32.5 as of
September 30, 2000 and 1999, respectively.
(b) Accumulated other comprehensive loss and comprehensive loss each
include a reclassification adjustment of $48.3 for realized losses on
foreign currency adjustments associated with the sale of the Company's
worldwide professional products line.
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>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------
CASH FLOWS FROM OPERATING ACTIVITIES: 2000 1999
-------- --------
<S> <C> <C>
Net loss ....................................................................... $ (135.7) $ (255.2)
Adjustments to reconcile net loss to net cash
(used for) provided by operating activities:
Depreciation and amortization ............................................. 92.3 93.6
Net (gain) loss on sale of product line, brand and certain assets.......... (3.0) 1.6
Amortization of debt discount ............................................. 55.3 49.8
Gain on sale of subsidiary stock .......................................... (1.1) (0.1)
Change in assets and liabilities, net of effects of dispositions:
Decrease in trade receivables ........................................ 26.4 74.7
Decrease (increase) in inventories ................................... 15.5 (44.5)
Decrease in prepaid expenses and
other current assets .................................... 8.6 7.0
(Decrease) increase in accounts payable .............................. (22.3) 39.9
Decrease in accrued expenses and other
current liabilities ..................................... (120.7) (8.3)
Other, net ........................................................... (47.2) (49.3)
-------- --------
Net cash used for operating activities ......................................... (131.9) (90.8)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ........................................................... (11.4) (31.4)
Net proceeds from the sale of product line, brand and certain assets ........... 339.6 1.6
Acquisition of technology rights ............................................... (3.0) --
-------- --------
Net cash provided by (used for) investing activities ........................... 325.2 (29.8)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in short-term borrowings - third parties ............... (7.1) 8.1
Proceeds from the issuance of long-term debt - third parties ................... 289.6 515.1
Repayment of long-term debt - third parties .................................... (475.7) (336.3)
Net proceeds from the sale of subsidiary common stock .......................... -- 0.1
Proceeds from the issuance of debt - affiliates ................................ -- 67.1
Repayment of debt - affiliates ................................................. -- (67.1)
-------- --------
Net cash (used for) provided by financing activities ........................... (193.2) 187.0
-------- --------
Effect of exchange rate changes on cash and cash equivalents ................... (1.5) (3.4)
-------- --------
Net (decrease) increase in cash and cash equivalents ...................... (1.4) 63.0
Cash and cash equivalents at beginning of period .......................... 25.4 34.7
-------- --------
Cash and cash equivalents at end of period ................................ $ 24.0 $ 97.7
======== ========
Supplemental schedule of cash flow information:
Cash paid during the period for:
Interest ............................................................. $ 121.3 $ 120.1
Income taxes, net of refunds ......................................... 3.1 6.1
</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
REV Holdings Inc. (together with its subsidiaries, "REV Holdings" or
the "Company")is a holding company, formed in 1997, that conducts its business
exclusively through its indirect subsidiary, Revlon Consumer Products
Corporation and its subsidiaries (together, "Products Corporation"). Products
Corporation was formed in April 1992 and, on June 24, 1992, succeeded to the
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% of the outstanding shares of capital stock of Revlon, Inc.
(which represents approximately 97.3% 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.
("Mafco Holdings" and, 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, 1999.
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.
The Company matches advertising and promotion expenses with sales
revenues for interim reporting purposes. Advertising and promotion expenses
estimated for a full year are charged to earnings for interim reporting purposes
in proportion to the relationship that net sales for such period bear to
estimated full year net sales. As a result, for the nine months ended September
30, 2000 and 1999, disbursements and commitments for advertising and promotion
exceeded advertising and promotion expenses by $23.1 and $19.2, respectively,
and such amounts were deferred.
On March 30, 2000 and May 8, 2000, the Company completed the
dispositions of its worldwide professional products line and Plusbelle brand in
Argentina, respectively. Accordingly, the Unaudited Consolidated Condensed
Financial Statements include the results of operations of the professional
products line and Plusbelle brand through the dates of their respective
dispositions.
6
<PAGE>
REV HOLDINGS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS)
(2) INVENTORIES
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
<S> <C> <C>
Raw materials and supplies.................... $ 61.4 $ 74.1
Work-in-process............................... 11.2 19.7
Finished goods................................ 130.2 184.5
------------- -------------
$ 202.8 $ 278.3
============= =============
</TABLE>
(3) RESTRUCTURING COSTS AND OTHER, NET
Since 1998 the Company has been continuously evaluating its
organizational structure and has implemented a number of restructuring plans.
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. For the nine months ended September
30, 1999, the Company recorded a net charge of $22.1, $3.8 of which was recorded
in the third quarter of 1999, relating to the restructuring plan, principally
for additional 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 for which it recorded a charge of $1.0. In the third quarter
of 1999, the Company also consummated the exit from the non-core business
referred to above, as to which an additional charge of $0.6 was included in
restructuring costs and other, net for such period.
In the first quarter of 2000, the Company recorded a charge of $9.5
relating to a restructuring plan which began in the fourth quarter of 1999,
principally for additional employee severance and other personnel benefits and
to restructure certain operations outside the United States. The Company
continued to implement such restructuring plan during the second quarter of 2000
during which it recorded a charge of $5.1 relating to exiting certain operations
in Japan and employee severance and other personnel benefits.
During the third quarter of 2000, the Company continued to re-evaluate
its organizational structure. As part of this re-evaluation, the Company
is developing a new restructuring plan designed to improve profitability by
reducing personnel and consolidating manufacturing facilities. In the third
quarter of 2000, the Company recorded a charge of $13.7 related to such plan,
principally for additional employee severance and other personnel benefits and
to consolidate worldwide operations. Refer to footnote 6 for further information
on the Company's plans.
Of the 208 employees and the 469 employees for whom severance and other
personnel benefits were included in the charges for the fourth quarter 1999 and
during the nine-month period ended September 30, 2000, respectively, the Company
had terminated 624 employees by September 30, 2000. As of September 30, 2000,
the unpaid balance of the restructuring costs is included in accrued expenses
and other in the Company's Unaudited Consolidated Condensed Balance Sheet.
7
<PAGE>
REV HOLDINGS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS)
Details of the activity described above during the nine-month period
ended September 30, 2000 are as follows:
<TABLE>
<CAPTION>
BALANCE UTILIZED, NET BALANCE
AS OF -------------------------- AS OF
1/1/00 EXPENSES, NET CASH NONCASH 9/30/00
----------- ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Employee severance and other
personnel benefits.................... $ 24.6 $ 22.9 $ (26.7) $ (1.1) $ 19.7
Factory, warehouse, office
and other costs........................ 9.4 5.4 (4.1) (2.6) 8.1
----------- ------------ ----------- ----------- ------------
$ 34.0 $ 28.3 $ (30.8) $ (3.7) $ 27.8
=========== ============ =========== =========== ============
</TABLE>
(4) DISPOSITION OF PRODUCT LINE AND BRAND
On March 30, 2000, Products Corporation completed the disposition of
its worldwide professional products line, including professional hair care for
use in and resale by professional salons, ethnic hair and personal care
products, Natural Honey skin care and certain regional toiletries brands, for
$315 in cash, before adjustments, plus $10 in purchase price payable in the
future, contingent upon the purchasers' achievement of certain rates of return
on their investment. The disposition involved the sale of certain of Products
Corporation's subsidiaries throughout the world devoted to the professional
products line, as well as assets dedicated exclusively or primarily to the lines
being disposed. The worldwide professional products line was purchased by a
company formed by CVC Capital Partners, the Colomer family and other investors,
led by Carlos Colomer, a former manager of the line that was sold, following
arms'-length negotiation of the terms of the purchase agreement therefor,
including the determination of the amount of the consideration. In connection
with the disposition, the Company recognized a pre-tax and after-tax gain of
$6.2. Approximately $150.3 of the Net Proceeds (as defined in the Credit
Agreement) were used to reduce the aggregate commitment under the Credit
Agreement (as hereinafter defined).
On May 8, 2000, Products Corporation completed the disposition of its
Plusbelle brand in Argentina for $46.2 in cash. Approximately $20.7 of the Net
Proceeds were used to reduce the aggregate commitment under the Credit
Agreement. In connection with the disposition, the Company recognized a pre-tax
and after-tax loss of $3.2.
(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 5.1% and 3.9% of
the Company's net sales for the third quarter of 2000 and 1999, respectively,
and 4.7% and 3.9% of the Company's net sales for the nine months ended September
30, 2000 and 1999, respectively. Net sales by geographic area are presented by
attributing revenues from external customers on the basis of where the products
are sold.
8
<PAGE>
REV HOLDINGS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
GEOGRAPHIC AREAS: SEPTEMBER 30, SEPTEMBER 30,
---------------------------------- ---------------------------------
2000 1999 2000 1999
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net sales:
United States ..................... $ 215.2 $ 250.0 $ 697.1 $ 847.1
International ..................... 136.7 202.4 473.4 599.8
-------------- -------------- -------------- --------------
$ 351.9 $ 452.4 $ 1,170.5 $ 1,446.9
============== ============== ============== ==============
SEPTEMBER 30, DECEMBER 31,
2000 1999
Long-lived assets: -------------- --------------
United States ..................... $ 416.3 $ 615.8
International ..................... 221.7 259.4
-------------- --------------
$ 638.0 $ 875.2
============== ==============
THREE MONTHS ENDED NINE MONTHS ENDED
CLASSES OF SIMILAR PRODUCTS: SEPTEMBER 30, SEPTEMBER 30,
---------------------------------- ---------------------------------
2000 1999 2000 1999
Net sales: -------------- -------------- -------------- --------------
Cosmetics, skin care and fragrances $ 229.0 $ 241.2 $ 730.4 $ 775.8
Personal care and professional .... 122.9 211.2 440.1 671.1
-------------- -------------- -------------- --------------
$ 351.9 $ 452.4 $ 1,170.5 $ 1,446.9
============== ============== ============== ==============
</TABLE>
(6) SUBSEQUENT EVENTS
As part of the restructuring plan initiated in the third quarter of
2000, the Company announced in the fourth quarter of 2000 that it would cease
its manufacturing operations in Mississauga, Canada, and intended to discontinue
manufacturing operations in Phoenix, Arizona during 2001 and shift production to
the Oxford North Carolina facility. The Company estimates that the costs of
closing these facilities and relocating manufacturing will result in a one-time
charge of $50 to $55 (which is in addition to the $13.7 recorded in the third
quarter of 2000). These costs principally include severance and write-downs of
assets. Net cash expenditures (after the proceeds from the sale of assets) are
estimated to be $30 to $35.
9
<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 and manufactures, markets and
sells an extensive array of cosmetics and skin care, fragrances and personal
care products. In addition, the Company has a licensing group.
On March 30, 2000 and May 8, 2000, Products Corporation completed the
dispositions of its worldwide professional products line and Plusbelle brand in
Argentina, respectively. Accordingly, the Unaudited Consolidated Condensed
Financial Statements include the results of operations of the professional
products line and Plusbelle brand through the dates of their respective
dispositions.
RESULTS OF OPERATIONS
The following table sets forth the Company's net sales for the
three-month and nine-month periods ended September 30, 2000 and 1999,
respectively:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------ -------------------------------
2000 1999 2000 1999
------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Net sales:
United States ....... $ 215.2 $ 250.0 $ 697.1 $ 847.1
International ....... 136.7 202.4 473.4 599.8
------------- ------------ ------------- -------------
$ 351.9 $ 452.4 $ 1,170.5 $ 1,446.9
============= ============ ============= =============
</TABLE>
The following table sets forth certain statements of operations data as
a percentage of net sales for the three-month and nine-month periods ended
September 30, 2000 and 1999, respectively:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------ -------------------------------
2000 1999 2000 1999
------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Cost of sales .............................. 35.4 % 37.6 % 35.7 % 35.3
Gross profit ............................... 64.6 62.4 64.3 64.7
Selling, general and administrative
expenses ("SG&A") ...................... 57.9 89.2 58.7 69.2
Restructuring costs and other, net ......... 3.9 0.9 2.4 1.5
Operating income (loss) .................... 2.8 (27.7) 3.3 (6.0)
</TABLE>
NET SALES
Net sales were $351.9 and $452.4 for the third quarters of 2000 and
1999, respectively, a decrease of $100.5, or 22.2% on a reported basis (a
decrease of 21.2% on a constant U.S. dollar basis), and were $1,170.5 and
$1,446.9 for the nine months ended September 30, 2000 and 1999, respectively, a
decrease of $276.4, or 19.1% on a reported basis (a decrease of 18.2% on a
constant U.S. dollar basis). The decline in consolidated net sales for the third
quarter and nine months ended September 30, 2000 as compared with the comparable
1999 periods is primarily due to the sale of the worldwide professional products
line and Plusbelle brand in Argentina, the effect on sales of the reduction of
overall U.S. customer inventories, reduced consumer demand for the Company's
cosmetics, and increased competitive activity in certain markets.
10
<PAGE>
REV HOLDINGS INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
Net sales, excluding the worldwide professional products line and the
Plusbelle brand in Argentina, were $351.9 and $355.8 for the third quarters of
2000 and 1999, respectively, a decrease of $3.9, or 1.1% on a reported basis (an
increase of 0.6% on a constant U.S. dollar basis), and were $1,074.2 and
$1,149.5 for the nine months ended September 30, 2000 and 1999, respectively, a
decrease of $75.3, or 6.6% on a reported basis (a decrease of 5.5% on a constant
U.S. dollar basis).
United States. Net sales in the United States were $215.2 for the third
quarter of 2000 compared with $250.0 for the third quarter of 1999, a decrease
of $34.8, or 13.9%, and were $697.1 for the nine months ended September 30, 2000
compared with $847.1 for the nine months ended September 30, 1999, a decrease of
$150.0, or 17.7%.
Net sales, excluding the domestic portion of the worldwide professional
products line, were $215.2 for the third quarter of 2000 compared with $210.7
for the third quarter of 1999, an increase of $4.5, or 2.1%, and were $662.0 for
the nine months ended September 30, 2000 compared with $723.5 for the nine
months ended September 30, 1999, a decrease of $61.5, or 8.5%. The decline in
sales for the nine months ended September 30, 2000 is primarily due to a
reduction of overall U.S. customer inventories, which the Company anticipates
will continue to affect sales, and reduced consumer demand for the Company's
cosmetics.
International. Net sales outside the United States were $136.7 for the
third quarter of 2000 compared with $202.4 for the third quarter of 1999, a
decrease of $65.7, or 32.5%, and were $473.4 for the nine months ended September
30, 2000 compared with $599.8 for the nine months ended September 30, 1999, a
decrease of $126.4, or 21.1%. The decrease was due to the sale of the worldwide
professional products line and the Plusbelle brand in Argentina, as well as
increased competitive activity in certain markets.
Net sales, excluding the worldwide professional products line outside
the United States and the Plusbelle brand in Argentina, were $136.7 for the
third quarter of 2000 compared with $145.1 for the comparable 1999 period, a
decrease of $8.4, or 5.8%, on a reported basis (a decrease of 1.6% on a constant
U.S. dollar basis), and were $412.2 for the nine months ended September 30, 2000
compared with $426.0 for the nine months ended September 30, 1999, a decrease of
$13.8, or 3.2%, on a reported basis (a decrease of 0.2% on a constant U.S.
dollar basis). The decrease in net sales for the third quarter and nine months
ended September 30, 2000 on a constant dollar basis is primarily due to
increased competitive activity in certain markets outside the U.S., partially
offset by the introduction of new products in certain markets. The decrease in
net sales for the third quarter and nine months ended September 30, 2000 on a
reported basis also reflects the unfavorable effect on sales of a stronger U.S.
dollar against certain foreign currencies. Sales outside the United States are
divided into three geographic regions. In Europe, which comprises Europe, the
Middle East and Africa, net sales decreased by 8.8% on a reported basis to $41.6
for the third quarter of 2000 as compared with the third quarter of 1999 (an
increase of 1.3% on a constant U.S. dollar basis), and decreased by 5.3% on a
reported basis to $132.2 for the nine months ended September 30, 2000 as
compared with the nine months ended September 30, 1999 (an increase of 2.4% on a
constant U.S. dollar basis). In the Western Hemisphere, which comprises Canada,
Mexico, Central America, South America and Puerto Rico, net sales increased by
0.6% on a reported basis to $63.6 for the third quarter of 2000 as compared with
the third quarter of 1999 (a decrease of 0.5% on a constant U.S. dollar basis),
and increased by 1.9% on a reported basis to $184.8 for the nine months ended
September 30, 2000 as compared with the nine months ended September 30, 1999 (an
increase of 1.7% on a constant U.S. dollar basis). The Company's operations in
Brazil are significant. In Brazil, net sales were $18.1 on a reported basis for
the third quarter of 2000 compared with $17.5 for the third quarter of 1999, an
increase of $0.6, or
11
<PAGE>
REV HOLDINGS INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
3.4% (an increase of 1.2% on a constant U.S. dollar basis), and were $54.5 on a
reported basis for the nine months ended September 30, 2000 compared with $56.9
for the nine months ended September 30, 1999, a decrease of $2.4, or 4.2% (a
decrease of 3.0% on a constant U.S. dollar basis). On a constant U.S. dollar
basis net sales in Brazil for the nine months ended September 30, 2000 were
adversely affected by increased competitive activities and disruptions resulting
from the Company's consideration of the possible sale of certain of its
Brazilian brands. In the Far East, net sales decreased by 13.2% on a reported
basis to $31.5 for the third quarter of 2000 as compared with the third quarter
of 1999 (a decrease of 7.2% on a constant U.S. dollar basis), and decreased by
9.4% on a reported basis to $95.2 for the nine months ended September 30, 2000
as compared with the nine months ended September 30, 1999 (a decrease of 6.8% on
a constant U.S. dollar basis). Net sales outside the United States, including,
without limitation, in Brazil, may be adversely affected by 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 35.4% for the third
quarter of 2000 compared with 37.6% for the third quarter of 1999, and 35.7% for
the nine months ended September 30, 2000 compared with 35.3% for the nine months
ended September 30, 1999. Excluding the worldwide professional products line and
the Plusbelle brand in Argentina, cost of sales as a percentage of net sales was
35.4% for the third quarter of 2000 compared with 37.3% for the third quarter of
1999, and 35.2% for the nine months ended September 30, 2000 compared with 34.5%
for the nine months ended September 30, 1999. The decrease in cost of sales as a
percentage of net sales for the third quarter of 2000 compared with the third
quarter of 1999 is due primarily to product mix, partially offset by the
effect of fixed costs on lower net sales. The increase in cost of sales as a
percentage of net sales for the nine months ended September 30, 2000 compared
with the nine months ended September 30, 1999 is due to the mix of new products
with higher product packaging and material costs and the effect of fixed costs
on lower net sales.
SG&A expenses
As a percentage of net sales, SG&A expenses were 57.9% for the third
quarter of 2000 compared with 89.2% for the third quarter of 1999, and 58.7% for
the nine months ended September 30, 2000 compared with 69.2% for the nine months
ended September 30, 1999. Excluding the worldwide professional products line and
the Plusbelle brand in Argentina, SG&A expenses as a percentage of net sales
were 57.9% for the third quarter of 2000 compared with 99.0% for the third
quarter of 1999, and 59.0% for the nine months ended September 30, 2000 compared
with 73.4% for the nine months ended September 30, 1999. The decrease in SG&A
expenses as a percentage of sales during the 2000 periods primarily reflects
reduced trade promotion and couponing activity and the favorable impact of the
Company's restructuring efforts partially offset by the effect of fixed costs on
lower net sales. The 1999 periods included an adjustment for recognition of
additional advertising and promotional charges due to a substantially reduced
sales forecast for the 1999 fourth quarter.
12
<PAGE>
REV HOLDINGS INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
Restructuring costs and other, net
Since 1998 the Company has been continuously evaluating its
organizational structure and has implemented a number of restructuring plans.
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. For the nine months ended September
30, 1999, the Company recorded a net charge of $22.1, $3.8 of which was recorded
in the third quarter of 1999, relating to the restructuring plan, principally
for additional 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 for which it recorded a charge of $1.0. In the third quarter
of 1999, the Company also consummated the exit from the non-core business
referred to above, as to which an additional charge of $0.6 was included in
restructuring costs and other, net for such period.
In the first quarter of 2000, the Company recorded a charge of $9.5
relating to a restructuring plan which began in the fourth quarter of 1999,
principally for additional employee severance and other personnel benefits and
to restructure certain operations outside the United States. The Company
continued to implement such restructuring plan during the second quarter of 2000
during which it recorded a charge of $5.1 relating to exiting certain operations
in Japan and employee severance and other personnel benefits.
During the third quarter of 2000, the Company continued to re-evaluate
its organizational structure. As part of this re-evaluation, the Company is
developing a new restructuring plan designed to improve profitability by
reducing personnel and consolidating manufacturing facilities. In the third
quarter of 2000, the Company recorded a charge of $13.7 related to such plan,
principally for additional employee severance and other personnel benefits and
to consolidate worldwide operations.
The Company anticipates annual savings of approximately $20 relating
to the restructuring charges taken in the nine months ended September 30, 2000.
Operating income (loss)
As a result of the foregoing, operating income (loss) increased to $9.8
for the third quarter of 2000 from $(125.5) for the third quarter of 1999 and
increased to $38.1 for the nine months ended September 30, 2000 from $(86.8) for
the nine months ended September 30, 1999.
Operating income (loss), excluding the worldwide professional products
line and the Plusbelle brand in Argentina, increased to $9.8 for the third
quarter of 2000 from $(132.3) for the third quarter of 1999 and increased to
$33.5 for the nine months ended September 30, 2000 from $(109.0) for the nine
months ended September 30, 1999.
Other expenses (income)
Interest expense was $54.4 for the third quarter of 2000 compared with
$53.7 for the third quarter of 1999 and $164.2 for the nine months ended
September 30, 2000 compared with $158.4 for the nine months ended September 30,
1999. The increase in interest expense for the third quarter of 2000 as compared
with the third quarter of 1999 is primarily due to 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"), partially
offset by the repayment of borrowings under the Credit Agreement with the net
proceeds from the disposition of the worldwide professional product line and the
Plusbelle brand in Argentina. The increase in interest expense for the nine
months ended September 30, 2000 as compared
13
<PAGE>
REV HOLDINGS INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
with the nine months ended September 30, 1999 is primarily due to higher average
outstanding debt during the first quarter of 2000, higher interest rates under
the Credit Agreement during the nine months ended September 30, 2000 and higher
interest expense attributable to the Senior Secured Discount Notes, partially
offset by the repayment in June 1999 of Products Corporation's 9 1/2% Senior
Notes due 1999 (the "1999 Notes") and the repayment of borrowings under the
Credit Agreement with the net proceeds from the disposition of the professional
products line and the Plusbelle brand.
Foreign currency (gains) losses, net, were $(1.1) for the third quarter
of 2000 compared with $0.2 in the third quarter of 1999, and $1.0 for the nine
months ended September 30, 2000 compared with $0.2 for the nine months ended
September 30, 1999. Foreign currency (gains), net for the third quarter of 2000,
resulted primarily from the strengthening of the Mexican peso against the U.S.
dollar. Foreign currency losses, net for the nine months ended September 30,
2000, consisted primarily of losses in certain markets in Latin America.
Sale of product line and brand
On May 8, 2000, Products Corporation completed the disposition of its
Plusbelle brand in Argentina for $46.2 in cash. Approximately $20.7 of the Net
Proceeds was used to reduce the aggregate commitment under the Credit Agreement.
In connection with the disposition, the Company recognized a pre-tax and
after-tax loss of $3.2 (See Note 4 to the Unaudited Consolidated Condensed
Financial Statements).
On March 30, 2000, Products Corporation completed the disposition of
its worldwide professional products line, including professional hair care for
use in and resale by professional salons, ethnic hair and personal care
products, Natural Honey skin care and certain regional toiletries brands. In
connection with the disposition, the Company recognized a pre-tax and after-tax
gain of $6.2 (See Note 4 to the Unaudited Consolidated Condensed Financial
Statements).
Provision for income taxes
The provision for income taxes was $2.2 for the third quarter of 2000
compared with $1.9 for the third quarter of 1999 and $7.0 for the nine months
ended September 30, 2000 compared with $5.6 for the nine months ended September
30, 1999. The increase for the nine months ended September 30, 2000 compared
with the nine months ended September 30, 1999 was primarily due to the reduction
of certain deferred tax assets and increased taxes associated with the worldwide
professional products line.
14
<PAGE>
REV HOLDINGS INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Net cash used for operating activities was $131.9 and $90.8 for the
nine months ended September 30, 2000 and 1999, respectively. The increase in net
cash used for operating activities for the nine months ended September 30, 2000
compared with net cash used for operating activities for the nine months ended
September 30, 1999 resulted primarily from changes in working capital.
Net cash provided by (used for) investing activities was $325.2 and
$(29.8) for the nine months ended September 30, 2000 and 1999, respectively. Net
cash provided by investing activities for the nine months ended September 30,
2000 consisted of proceeds from the sale of the Company's worldwide professional
products line and Plusbelle brand in Argentina, partially offset by cash used
for capital expenditures. Net cash used for investing activities for the nine
months ended September 30, 1999 consisted of capital expenditures, which
primarily included upgrades to the Company's management information systems the
majority of which are non-recurring in 2000, partially offset by proceeds from
the exit from and sale of a small non-core business.
Net cash (used for) provided by financing activities was $(193.2) and
$187.0 for the nine months ended September 30, 2000 and 1999, respectively. Net
cash used for financing activities for the nine months ended September 30, 2000
included repayments of borrowings under the Credit Agreement and the repayment
of Products Corporation's Japanese yen-denominated credit agreement (the "Yen
Credit Agreement"), partially offset by cash drawn under the Credit Agreement.
Net cash provided by financing activities for the nine months ended September
30, 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 the Yen Credit Agreement.
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. In March 2000 and May 2000, 60% of
the Net Proceeds from the disposition of the worldwide professional products
line and its Plusbelle brand in Argentina, respectively, was applied to reduce
the aggregate commitment under the Credit Agreement. As of September 30, 2000,
after giving effect to the foregoing reductions, the Credit Agreement provided
up to $534.8 and is comprised of five senior secured facilities: $106.2 in two
term loan facilities (the "Term Loan Facilities"), a $300.0 multi-currency
facility (the "Multi-Currency Facility"), a $78.6 revolving acquisition
facility, which may also be used for general corporate purposes and which may be
increased to $278.6 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 September 30, 2000, the
Company had $106.2 outstanding under the Term Loan Facilities, $219.1
outstanding under the Multi-Currency Facility, $78.6 outstanding under the
Acquisition Facility and $22.2 of issued but undrawn letters of credit under the
Special LC Facility. As a result of the permanent reductions of the commitment
from the sale of the professional products line and the Plusbelle brand the
scheduled reductions of the Acquisition Facility will also be reduced such that
the total amount of such reductions is equal to the reduced aggregate
Acquisition Facility commitment. The scheduled reductions of the Acquisition
Facility are $16.2 for the remainder of 2000, $48.8 during 2001 and the balance
at maturity in May 2002.
A subsidiary of Products Corporation was the borrower under the Yen
Credit Agreement. In March 2000, the outstanding balance under the Yen Credit
Agreement was repaid in full in accordance with its terms.
The Company's principal sources of funds are expected to be cash flow
generated from operations (before interest), borrowings under the Credit
Agreement and other existing working capital lines and renewals thereof. The
Credit Agreement, Products Corporation's 8 5/8% Senior Subordinated Notes due
15
<PAGE>
REV HOLDINGS INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
2008 (the "8 5/8% Notes"), Products Corporation's 8 1/8% Senior Notes due 2006
(the "8 1/8% Notes") and Products Corporation's 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 plans referred to above and debt service payments.
The Company estimates that capital expenditures for 2000 will be
approximately $15. The Company estimates that cash payments related to the
restructuring plans referred to in Note 3 and Note 6 to the Unaudited
Consolidated Condensed Financial Statements and executive separation costs will
be approximately $55 in 2000. 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 2000.
Products Corporation enters into forward foreign exchange contracts and
option contracts from time to time to hedge certain cash flows denominated in
foreign currencies. There were no forward foreign exchange or option contracts
outstanding at September 30, 2000.
The Company expects that cash flows from operations and funds from
currently available subsidiary credit facilities and renewals of subsidiary
short-term borrowings will be sufficient to enable the Company to meet its
anticipated cash requirements during 2000 including debt service of its
subsidiaries. However, there can be no assurance that cash flow will be
sufficient to meet the Company's cash requirements on a consolidated basis.
Products Corporation anticipates that it will be seeking to amend its Credit
Agreement in certain respects in 2001 in order to fund its proposed
restructuring plans and to amend certain of the financial covenants for 2001 and
2002. If the Company is unable to satisfy such cash requirements from these
sources, and amend the Credit Agreement, the Company could be required to adopt
one or more alternatives, such as reducing or delaying capital expenditures,
delaying or revising proposed restructuring plans, 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. Products Corporation has had
discussions with an affiliate that is prepared to provide financial support to
Products Corporation of up to $40 on appropriate terms through December 31,
2000. 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% 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
16
<PAGE>
REV HOLDINGS INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
distributions in certain circumstances to finance the purchase by Revlon, Inc.
of its Class A Common Stock in connection with the delivery of such Class A
Common Stock to grantees under the Revlon, Inc. Amended and Restated 1996 Stock
Plan, provided that the aggregate amount of such dividends and distributions
taken together with any purchases of Revlon, Inc. Class A 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.
SUBSEQUENT EVENTS
As part of the restructuring plan initiated in the third quarter of
2000, the Company announced in the fourth quarter of 2000 that it would cease
its manufacturing operations in Mississauga, Canada, and intended to discontinue
manufacturing operations in Phoenix, Arizona during 2001 and shift production to
the Oxford, North Carolina facility. The Company estimates that the costs of
closing these facilities and relocating manufacturing will result in a one-time
charge of $50 to $55 (which is in addition to the $13.7 recorded in the third
quarter of 2000). These costs principally include severance and write-downs of
assets. Net cash expenditures (after the proceeds from the sale of assets) are
estimated to be $30 to $35. The Company expects that these planned actions when
fully implemented will result in annual savings of approximately $25 to $30.
In October 2000, the Company announced changes in the way it goes to
market with its U.S. retail partners designed to increase consumption of the
Company's products and drive market growth. The new terms of trade are effective
January 1, 2001, with a transition during the fourth quarter of 2000. They
include the phased rollout of a new retail display system, increased in-store
coverage, incentives for retailers intended to encourage more efficient ordering
and shipping and to lower merchandise return rates and rewards for increased
consumer sell-through.
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 to be 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, 1999 describes significant aspects of the Company's financial instrument
programs that have material market risk as of December 31, 1999. As referred to
above, in March 2000 and May 2000, Products Corporation reduced the aggregate
commitment under its Credit Agreement and repaid its Yen Credit Agreement. The
following table presents the information required by Item 7A as of September 30,
2000.
17
<PAGE>
REV HOLDINGS INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
EXPECTED MATURITY DATE FOR YEAR ENDED SEPTEMBER 30, FAIR VALUE
------------------------------------------------------------------------ SEPTEMBER 30,
2001 2002 2003 2004 2005 THEREAFTER TOTAL 2000
-------- ---------- ------- ------- ------- -------------------------- -------------
Debt (US dollar equivalent in millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Short-term variable rate
(various currencies)........... $25.8 $ 25.8 $ 25.8
Average interest rate (a).. 8.3%
Short-term fixed rate ($US)...... 734.0 734.0 372.5
Average interest rate...... 10.8%
Long-term fixed rate ($US)....... $1,149.3 1,149.3 741.8
Average interest rate...... 8.6%
Long-term variable rate ($US).... $333.9 333.9 333.9
Average interest rate (a).. 9.4%
Long-term variable rate
(various currencies).......... 70.0 70.0 70.0
Average interest rate (a).. 7.9%
------------ ------------
Total debt... $2,313.0 $ 1,544.0
============ ============
</TABLE>
(a) Weighted average variable rates are based upon implied forward rates from
the yield curves at September 30, 2000.
FORWARD-LOOKING STATEMENTS
This quarterly report on Form 10-Q for the quarter ended September 30,
2000 as well as other public documents of the Company contains forward-looking
statements that 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: the introduction of new products; future financial performance;
the effect on sales of the reduction of overall U.S. customer inventories
including the timing thereof; the effect on sales of political and/or economic
conditions and competitive activities in certain markets; the Company's estimate
of restructuring activities, restructuring costs and benefits; the Company's
plans with respect to and estimate of the timing of the shutdown of its Phoenix
and Canada manufacturing operations, the charges, the cash cost and the annual
savings resulting from such shutdowns; the Company's expectation that its new
trade terms for its U.S. customers will increase consumption of its products,
drive market growth, result in more efficient ordering and shipping and reduce
returns; cash flow from operations; 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, renewals
of short-term borrowings, capital contributions or loans from affiliates, 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 Products Corporation's
intent to amend its Credit Agreement to fund proposed restructuring plans and to
amend certain of the financial covenants in the Credit Agreement for 2001 and
2002; and the effect of the adoption of certain accounting standards. 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 "believes," "expects," "estimates," "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
18
<PAGE>
REV HOLDINGS INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
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)
unanticipated costs or difficulties or delays in completing projects associated
with the Company's strategy to improve operating efficiencies; (iv) the
inability to renew short-term borrowings, 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; (v) 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; (vi) actions by competitors,
including business combinations, technological breakthroughs, new products
offerings and marketing and promotional successes; (vii) combinations among
significant customers or the loss, insolvency or failure to pay debts by a
significant customer or customers; (viii) lower than expected sales as a result
of the reduction of overall U.S. customer inventories; (ix) difficulties, delays
or unanticipated costs or less than expected savings and other benefits
resulting from the Company's restructuring activities; (x) difficulties or
delays in implementing, higher than expected charges and cash costs or lower
than expected savings from the shutdown of manufacturing operations in Phoenix
and Canada; (xi) difficulties or delays in implementing or achieving the
intended results of the new trade terms including increased consumption, market
growth and lower returns or unexpected consequences from the implementation of
the new trade terms including the possible effect on sales; (xii) interest rate
or foreign exchange rate changes affecting the Company and its market sensitive
financial instruments; (xiii) difficulties, delays or unanticipated costs
associated with the transition to the Euro; (xiv) difficulties, delays or
inability to amend the Credit Agreement to fund proposed restructuring plans and
the financial covenants in the Credit Agreement for 2001 and 2002; and (xv) the
effects of the Company's adoption of certain new accounting standards.
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.
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 standard no
later than January 1, 2001. In June 2000, the FASB issued SFAS No. 138,
"Accounting for Derivative Instruments and Hedging Activities, an
Amendment of SFAS No. 133," to amend SFAS No. 133 and provide guidance on the
implementation of SFAS No. 133. The Company is in the process of determining the
impact the adoption of this statement will have on its financial position and
results of operations. The Company plans to adopt the new standard on January 1,
2001.
In May 2000, the FASB Emerging Issues Task Force (the "EITF") issued
new guidelines entitled, "Accounting for Certain Sales Incentives" (the
"Guidelines"), which addresses when sales incentives and discounts should be
recognized, as well as where the related revenues and expenses should be
classified in the financial statements. The Guidelines are effective in the
fourth quarter of the fiscal year beginning after December 15, 1999, and would
be applied retroactively for purposes of comparability. Therefore, beginning in
the fourth quarter of 2000, the Company is required to reclassify certain
revenues and expenses related to its promotional programs out of operating
expenses and into sales and cost of sales. The Company has not fully quantified
the reclassification; however, the Company expects that by its nature, such
reclassification will not affect the Company's operating income (loss) or net
loss.
19
<PAGE>
REV HOLDINGS INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
In March 2000, the FASB issued SFAS Interpretation No. 44, "Accounting
for Certain Transactions Involving Stock Compensation: An Interpretation of APB
Opinion No. 25" (the "Interpretation"). The Interpretation provides guidance for
issues that have arisen in the application of APB Opinion No. 25, "Accounting
for Stock Issued to Employees" ("Opinion No. 25"). The Interpretation, which
become effective July 1, 2000, applies prospectively to new awards, exchanges of
awards, modifications to outstanding awards and changes in grantee status that
occur on or after July 1, 2000, except for the provisions related to repricings
and the definition of an employee, which apply to awards issued after December
15, 1998. The implementation of the Interpretation by the Company on July 1,
2000 had no material impact on the Company's consolidated financial statements.
In December 1999, the staff of the United States Securities and
Exchange Commission issued Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements," as amended by SAB 101A and SAB 101B ("SAB
101"). SAB 101 outlines the basic criteria that must be met to recognize revenue
and provides guidelines for disclosure related to revenue recognition policies.
SAB 101 is required to be implemented in the fourth quarter of 2000. The Company
is currently reviewing SAB 101 to determine the impact of its provisions, if
any, on the Company's consolidated financial statements.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On April 17, 2000 the plaintiffs in the six purported class actions
filed in October and November 1999 by each of Thomas Comport, Boaz Spitz, Felix
Ezeir and Amy Hoffman, Ted Parris, Jerry Krim and Dan Gavish individually and
allegedly on behalf of others similarly situated to them against Revlon, Inc.
and certain of its present and former officers and directors and REV Holdings
Inc., alleging among other things, violations of Rule 10b-5 under the Securities
Exchange Act of 1934, filed an Amended Complaint, which consolidated all of the
actions and limited the alleged class period to the period from October 29, 1997
through October 1, 1998 ("In Re Revlon, Inc. Securities Litigation"). On June 2,
2000, the Company moved to dismiss the Amended Complaint. The Company believes
the allegations contained in the Amended Complaint are without merit and intends
to vigorously defend against them.
A purported class action lawsuit was filed on September 27, 2000, in
the United States District Court for the Southern District of New York on behalf
of Dan Gavish, Tricia Fontan and Walter Fontan individually and allegedly on
behalf of all others similarly situated who purchased the securities of Revlon,
Inc., and REV Holdings Inc. between October 2, 1998, and September 30, 1999 (the
"Purported Class Period"). The complaint alleges that Revlon, Inc. and certain
of its present and former officers and directors and REV Holdings Inc. violated
Sections 10(b) and 20(a) of the Securities Exchange Act of 1934. On October 17,
2000 the court ordered that this lawsuit be consolidated with the pending In Re
Revlon, Inc. Securities Litigation. The Company believes the complaint should
properly be consolidated with the pending litigation and in any event that
allegations contained in the complaint are without merit and intends to
vigorously defend against them.
20
<PAGE>
REV HOLDINGS INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - NONE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS -
10.24 Sixth Amendment, dated as of September 8, 2000, to the Amended
and Restated Credit Agreement, dated as of May 30, 1997, as amended, among
Revlon Consumer Products Corporation, the Borrowing Subsidiaries from time to
time parties thereto, the financial institutions from time to time parties
thereto, the Co-Agents named therein, Citibank, N.A., as Documentation Agent,
Lehman Commercial Paper Inc., as Syndication Agent, The Chase Manhattan Bank, as
Administrative Agent and Chase Securities Inc., as Arranger. (Incorporated by
reference to Exhibit 10.24 to the Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 2000 of Revlon, Inc.).
(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
----------------------
Todd J. Slotkin
Executive Vice President,
Chief Financial Officer
and Chief Accounting Officer
Dated: November 14, 2000
21
