<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
--- SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 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 June 30, 2000, all of which were held by an affiliate of Mafco
Holdings Inc.
Total Pages - 19
<PAGE>
REV HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
ASSETS 2000 1999
---------- ----------
(Unaudited)
<S> <C> <C>
Current assets: ...........................................
Cash and cash equivalents ........................... $ 38.1 $ 25.4
Trade receivables, less allowances of $19.7
and $27.2, respectively ....................... 227.6 332.6
Inventories ......................................... 213.5 278.3
Prepaid expenses and other .......................... 42.5 51.3
---------- ----------
Total current assets .......................... 521.7 687.6
Property, plant and equipment, net ........................ 267.5 336.4
Other assets .............................................. 171.4 182.0
Intangible assets, net .................................... 210.7 356.8
---------- ----------
Total assets .................................. $ 1,171.3 $ 1,562.8
========== ==========
LIABILITIES AND STOCKHOLDER'S DEFICIENCY
Current liabilities:
Short-term borrowings - third parties ............... $ 36.5 $ 37.6
Current portion of long-term debt - third parties ... 715.2 10.2
Accounts payable .................................... 90.1 139.8
Accrued expenses and other .......................... 304.7 409.7
---------- ----------
Total current liabilities ..................... 1,146.5 597.3
Long-term debt - third parties ............................ 1,523.6 2,416.5
Long-term debt - affiliates ............................... 24.1 24.1
Other long-term liabilities ............................... 219.4 215.9
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 ............. (1,303.8) (1,214.1)
Accumulated other comprehensive loss ................ (29.7) (68.1)
---------- ----------
Total stockholder's deficiency ................ (1,742.3) (1,691.0)
---------- ----------
Total liabilities and stockholder's deficiency $ 1,171.3 $ 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 JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------- -------------------------
2000 1999 2000 1999
--------- ------------- --------- -----------
<S> <C> <C> <C> <C>
Net sales .............................................. $ 350.6 $ 553.4 $ 818.6 $ 994.5
Cost of sales .......................................... 124.3 184.9 292.8 340.6
-------- -------- -------- --------
Gross profit ...................................... 226.3 368.5 525.8 653.9
Selling, general and administrative expenses ........... 204.0 324.6 482.9 597.5
Business consolidation costs, net ...................... 5.1 9.5 14.6 17.7
-------- -------- -------- --------
Operating income .................................. 17.2 34.4 28.3 38.7
-------- -------- -------- --------
Other expenses (income):
Interest expense .................................. 52.6 52.7 109.8 104.7
Interest income ................................... (0.4) (0.4) (0.8) (1.5)
Amortization of debt issuance costs ............... 1.9 2.1 5.3 4.3
Foreign currency losses, net ...................... 2.6 - 2.1 -
Miscellaneous, net ................................ 0.4 (0.2) 0.9 0.3
Gain on sale of subsidiary stock .................. (1.1) (0.1) (1.1) (0.1)
Loss (gain) on sale of product line and brand, net 3.2 - (3.0) -
-------- -------- -------- --------
Other expenses, net .......................... 59.2 54.1 113.2 107.7
-------- -------- -------- --------
Loss before income taxes ............................... (42.0) (19.7) (84.9) (69.0)
Provision for income taxes ............................. 1.1 1.8 4.8 3.7
-------- -------- -------- --------
Net loss ............................................... $ (43.1) $ (21.5) $ (89.7) $ (72.7)
======== ======== ======== ========
</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>
Balance, January 1, 1999 ......................... $ (408.8) $ (771.6) $ (72.6) $ (1,253.0)
Comprehensive loss:
Net loss ............................ (72.7) (72.7)
Revaluation of marketable securities (0.6) (0.6)
Currency translation adjustment ..... (29.2) (29.2)
----------
Total comprehensive loss .................... (102.5)
-------- ---------- -------- ----------
Balance, June 30, 1999 ........................... $ (408.8) $ (844.3) $ (102.4) $ (1,355.5)
======== ========== ======== ==========
Balance, January 1, 2000 ......................... $ (408.8) $ (1,214.1) $ (68.1) $ (1,691.0)
Comprehensive loss:
Net loss ............................ (89.7) (89.7)
Currency translation adjustment ..... 38.4 (b) 38.4
----------
Total comprehensive loss .................... (51.3)
-------- ---------- -------- ----------
Balance, June 30, 2000 .......................... $ (408.8) $ (1,303.8) $ (29.7) $ (1,742.3)
======== ========== ======== ==========
</TABLE>
--------------------
(a) Accumulated other comprehensive loss includes a revaluation of
marketable securities of $3.8 and $3.6 as of June 30, 2000 and 1999,
respectively, currency translation adjustments of $21.0 and $66.3 as of
June 30, 2000 and 1999, respectively, and adjustments for the minimum
pension liability of $4.9 and $32.5 as of June 30, 2000 and 1999,
respectively.
(b) Accumulated other comprehensive loss and comprehensive income each
include a reclassification adjustment of $48.3 for realized losses
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>
SIX MONTHS ENDED JUNE 30,
-------------------------
CASH FLOWS FROM OPERATING ACTIVITIES: 2000 1999
---------- ----------
<S> <C> <C>
Net loss ....................................................................... $ (89.7) $ (72.7)
Adjustments to reconcile net loss to net cash
(used for) provided by operating activities:
Depreciation and amortization ............................................. 63.6 62.6
Net gain on sale of product line and brand ................................ (3.0) -
Amortization of debt discount ............................................. 36.5 32.9
Gain on sale of subsidiary stock .......................................... (1.1) (0.1)
Change in assets and liabilities, net of effects of dispositions:
Decrease in trade receivables ........................................ 25.0 55.8
Decrease (increase) in inventories ................................... 7.6 (20.5)
Decrease (increase) in prepaid expenses and
other current assets .................................... 9.5 (0.1)
(Decrease) increase in accounts payable .............................. (18.3) 18.2
Decrease in accrued expenses and other
current liabilities ..................................... (103.4) (95.3)
Other, net ........................................................... (26.9) (37.0)
---------- ----------
Net cash used for operating activities ......................................... (100.2) (56.2)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ........................................................... (6.1) (20.0)
Net proceeds from the sale of product line, brand and certain assets ........... 339.6 -
Acquisition of technology rights ............................................... (3.0) -
---------- ----------
Net cash provided by (used for) investing activities ........................... 330.5 (20.0)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in short-term borrowings - third parties .......................... 2.7 9.1
Proceeds from the issuance of long-term debt - third parties ................... 231.2 393.7
Repayment of long-term debt - third parties .................................... (449.8) (331.4)
Net proceeds from the sale of subsidiary common stock .......................... - 0.1
Proceeds from the issuance of debt - affiliates ................................ - 62.1
Repayment of debt - affiliates ................................................. - (62.1)
---------- ----------
Net cash (used for) provided by financing activities ........................... (215.9) 71.5
---------- ----------
Effect of exchange rate changes on cash and cash equivalents ................... (1.7) (3.2)
---------- ----------
Net increase (decrease) in cash and cash equivalents ...................... 12.7 (7.9)
Cash and cash equivalents at beginning of period .......................... 25.4 34.7
---------- ----------
Cash and cash equivalents at end of period ................................ $ 38.1 $ 26.8
========== ==========
Supplemental schedule of cash flow information:
Cash paid during the period for:
Interest ............................................................. $ 73.0 $ 69.1
Income taxes, net of refunds ......................................... 2.4 5.6
</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 ("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
first half of 2000 and 1999, disbursements and commitments for advertising
and promotion exceeded advertising and promotion expenses by $31.2 and
$71.1, 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
JUNE 30, DECEMBER 31,
2000 1999
-------- --------
Raw materials and supplies .................. $ 61.5 $ 74.1
Work-in-process ............................. 14.2 19.7
Finished goods .............................. 137.8 184.5
-------- --------
$ 213.5 $ 278.3
======== ========
(3) BUSINESS CONSOLIDATION COSTS, NET
During the fourth quarter of 1999, the Company continued to
re-evaluate its organizational structure and implemented a new
restructuring plan, principally at its New York headquarters and New
Jersey locations. As part of this new restructuring plan, the Company
reduced personnel and consolidated excess real estate. In the first
quarter of 2000, the Company recorded a charge of $9.5 relating to such
restructuring plan, 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.
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 half of 1999, the Company recorded a net charge of $16.7, $8.5 of
which was recorded in the second quarter of 1999, relating to such
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.
Of the 208 employees and the 181 employees for whom severance and
other personnel benefits were included in the charges for the fourth
quarter 1999 and during the first half of 2000, respectively, the Company
had terminated 344 employees by June 30, 2000. As of June 30, 2000, the
unpaid balance of the business consolidation 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 six-month period
ended June 30, 2000 are as follows:
<TABLE>
<CAPTION>
BALANCE UTILIZED, NET BALANCE
AS OF ------------------------- AS OF
1/1/00 EXPENSES, NET CASH NONCASH 6/30/00
----------- -------------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C>
Employee severance and other
personnel benefits .................. $ 24.6 $ 11.4 $ (18.0) $ (1.1) $ 16.9
Factory, warehouse, office
and other costs ...................... 9.4 3.2 (2.6) (2.1) 7.9
----------- -------------- ----------- --------- ----------
$ 34.0 $ 14.6 $ (20.6) $ (3.2) $ 24.8
=========== ============== =========== ========= ==========
</TABLE>
(4) DISPOSITION OF PRODUCT LINE AND BRAND
On March 30, 2000, the Company 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 the Company'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) was 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 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.
8
<PAGE>
REV HOLDINGS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS)
(5) GEOGRAPHIC INFORMATION
The Company manages its business on the basis of one reportable
operating segment. The Company is exposed to the risk of changes in
social, political and economic conditions inherent in foreign operations
and the Company's results of operations and the value of its foreign
assets and liabilities are affected by fluctuations in foreign currency
exchange rates. The Company's operations in Brazil have accounted for
approximately 4.7% and 3.8% of the Company's net sales for the second
quarter of 2000 and 1999, respectively, and 4.4% and 4.0% of the Company's
net sales for the first half of 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.
<TABLE>
<CAPTION>
GEOGRAPHIC AREAS: THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
---------------------------------- ----------------------------------
Net sales: 2000 1999 2000 1999
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
United States ........................ $ 207.6 $ 347.3 $ 481.9 $ 597.1
International ........................ 143.0 206.1 336.7 397.4
-------------- -------------- -------------- --------------
$ 350.6 $ 553.4 $ 818.6 $ 994.5
============== ============== ============== ==============
JUNE 30, DECEMBER 31,
Long-lived assets: 2000 1999
-------------- --------------
United States ........................ $ 426.8 $ 615.8
International ........................ 222.8 259.4
-------------- --------------
$ 649.6 $ 875.2
============== ==============
CLASSES OF SIMILAR PRODUCTS: THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
---------------------------------- ----------------------------------
Net sales: 2000 1999 2000 1999
-------------- -------------- -------------- --------------
Cosmetics, skin care and fragrances .. $ 232.2 $ 310.4 $ 501.5 $ 534.6
Personal care and professional ....... 118.4 243.0 317.1 459.9
-------------- -------------- -------------- --------------
$ 350.6 $ 553.4 $ 818.6 $ 994.5
============== ============== ============== ==============
</TABLE>
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, 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.
RESULTS OF OPERATIONS
The following table sets forth the Company's net sales for the
three-month and six-month periods ended June 30, 2000 and 1999, respectively:
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
------------------------------- -------------------------------
Net sales: 2000 1999 2000 1999
------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
United States ................. $ 207.6 $ 347.3 $ 481.9 $ 597.1
International ................. 143.0 206.1 336.7 397.4
------------- ------------ ------------- -------------
$ 350.6 $ 553.4 $ 818.6 $ 994.5
============= ============ ============= =============
</TABLE>
The following table sets forth certain statements of operations data as
a percentage of net sales for the three-month and six-month periods ended June
30, 2000 and 1999, respectively:
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
------------------------------- -------------------------------
2000 1999 2000 1999
------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Cost of sales ............................. 35.5% 33.4% 35.8% 34.2%
Gross profit .............................. 64.5 66.6 64.2 65.8
Selling, general and administrative
expenses ("SG&A") ..................... 58.2 58.7 59.0 60.1
Business consolidation costs, net ......... 1.5 1.7 1.8 1.8
Operating income .......................... 4.9 6.2 3.5 3.9
</TABLE>
NET SALES
Net sales were $350.6 and $553.4 for the second quarters of 2000 and
1999, respectively, a decrease of $202.8, or 36.6% on a reported basis (a
decrease of 36.1% on a constant U.S. dollar basis), and were $818.6 and $994.5
for the first half of 2000 and 1999, respectively, a decrease of $175.9, or
17.7% on a reported basis (a decrease of 16.8% on a constant U.S. dollar
basis). The decline in consolidated net sales for the second quarter and first
half of 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, a reduction of overall U.S. customer inventories, and reduced
consumer demand for the Company's hair care products.
New products in the first half of 2000 included REVLON COLORSTAY
LIPSHINE, REVLON COLORSTAY STICK makeup, REVLON AGE DEFYING LIFTING makeup,
ALMAY ONE COAT LIP CREAM, ALMAY LIGHT & EASY makeup and ALMAY 3-IN-1 STICK
makeup.
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 $346.6 and $447.0 for the second quarters of
2000 and 1999, respectively, a decrease of $100.4, or 22.5% on a reported basis
(a decrease of 21.4% on a constant U.S. dollar basis), and were $722.3 and
$793.7 for the first half of 2000 and 1999, respectively, a decrease of $71.4,
or 9.0% on a reported basis (a decrease of 8.2% on a constant U.S. dollar
basis).
United States. Net sales in the United States were $207.6 for the
second quarter of 2000 compared with $347.3 for the second quarter of 1999, a
decrease of $139.7, or 40.2%, and were $481.9 for the first half of 2000
compared with $597.1 for the first half of 1999, a decrease of $115.2, or
19.3%.
Net sales, excluding the domestic portion of the worldwide professional
products line, were $207.6 for the second quarter of 2000 compared with $299.6
for the second quarter of 1999, a decrease of $92.0, or 30.7%, and were $446.8
for the first half of 2000 compared with $512.8 for the first half of 1999, a
decrease of $66.0, or 12.9%. The decline in sales in the second quarter and
first half of 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 hair care products. Despite
significantly decreased sales to retailers in the U.S., consumer take away in
dollar volume of REVLON cosmetics in the first half of 2000 (as measured by
ACNielsen) in the U.S. mass cosmetic market remained approximately the same
compared with the first half of 1999.
International. Net sales outside the United States were $143.0 for the
second quarter of 2000 compared with $206.1 for the second quarter of 1999, a
decrease of $63.1, or 30.6%, and were $336.7 for the first half of 2000
compared with $397.4 for the first half of 1999, a decrease of $60.7, or 15.3%.
Net sales, excluding the worldwide professional products line outside
the United States and the Plusbelle brand in Argentina, were $139.0 for the
second quarter of 2000 compared with $147.4 for the comparable 1999 period, a
decrease of $8.4, or 5.7%, on a reported basis (a decrease of 2.0% on a
constant U.S. dollar basis), and were $275.5 for the first half of 2000
compared with $280.9 for the first half of 1999, a decrease of $5.4, or 1.9%,
on a reported basis (an increase of 0.5% on a constant U.S. dollar basis). The
decrease in net sales for the second quarter of 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 second quarter and first half of 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 4.4% on a reported basis to
$46.0 for the second quarter of 2000 as compared with the second quarter of 1999
(an increase of 3.4% on a constant U.S. dollar basis), and decreased by 3.6% on
a reported basis to $90.6 for the first half of 2000 as compared with the first
half of 1999 (an increase of 2.9% on a constant U.S. dollar basis). In the
Western Hemisphere, which comprises Canada, Mexico, Central America, South
America and Puerto Rico, net sales decreased by 1.6% on a reported basis to
$62.6 for the second quarter of 2000 as compared with the second quarter of 1999
(and sales were at the same level on a constant U.S. dollar basis), and
increased by 2.6% on a reported basis to $121.2 for the first half of 2000 as
compared with the first half of 1999 (an increase of 3.0% on a constant U.S.
dollar basis). The Company's operations in Brazil are significant. In Brazil,
net sales were $16.5 on a reported basis for the second quarter of 2000 compared
with $20.8 for the second quarter of 1999, a decrease of $4.3, or 20.7% (a
decrease of 16.8% on a constant U.S. dollar basis), and were $36.4 on a reported
basis for the first half of 2000 compared with $39.4 for the first half of 1999,
a decrease of $3.0, or 7.6% (a decrease of 5.1% 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, 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 14.8% on a reported basis to $30.4 for the second quarter of 2000
as compared with the second quarter of 1999 (a decrease of 12.3% on a constant
U.S. dollar basis), and decreased by 7.4% on a reported basis to $63.7 for the
first half of 2000 as compared with the first half of 1999 (a decrease of 6.6%
on a constant U.S. dollar basis). Net sales outside
11
<PAGE>
REV HOLDINGS INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
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 35.5% for the second
quarter of 2000 compared with 33.4% for the second quarter of 1999, and 35.8%
for the first half of 2000 compared with 34.2% for the first half of 1999.
Excluding the worldwide professional products line and the Plusbelle brand in
Argentina, cost of sales as a percentage of net sales was 35.2% for the second
quarter of 2000 compared with 32.3% for the second quarter of 1999, and 35.1%
for the first half of 2000 compared with 33.2% for the first half of 1999. The
increase in cost of sales as a percentage of net sales for the second quarter
and first half of 2000 compared with the second quarter and first half of 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 58.2% for the second
quarter of 2000 compared with 58.7% for the second quarter of 1999, and 59.0%
for the first half of 2000 compared with 60.1% for the first half of 1999.
Excluding the worldwide professional products line and the Plusbelle brand in
Argentina, SG&A expenses as a percentage of net sales were 58.3% for the second
quarter of 2000 compared with 60.0% for the second quarter of 1999, and 59.6%
for the first half of 2000 compared with 61.9% for the first half of 1999. The
decrease of SG&A expenses as a percentage of net sales is primarily due to
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.
Business consolidation costs, net
During the fourth quarter of 1999, the Company continued to
re-evaluate its organizational structure and implemented a new restructuring
plan, principally at its New York headquarters and New Jersey locations. As part
of this new restructuring plan, the Company reduced personnel and consolidated
excess real estate. In the first quarter of 2000, the Company recorded a charge
of $9.5 relating to such restructuring plan, 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. The Company anticipates annual savings
of between $6 and $8 relating to the restructuring charges taken in the first
half of 2000.
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 half of
1999, the Company recorded a net charge of $16.7, $8.5 of which was recorded in
the second quarter of 1999, relating to such 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 as to which a charge of $1.0 is included in business
consolidation costs and other, net.
12
<PAGE>
REV HOLDINGS INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
Operating income
As a result of the foregoing, operating income decreased to $17.2 for
the second quarter of 2000 from $34.4 for the second quarter of 1999 and
decreased to $28.3 for the first half of 2000 from $38.7 for the first half of
1999.
Operating income, excluding the worldwide professional products line
and the Plusbelle brand in Argentina, decreased to $17.4 for the second quarter
of 2000 from $27.0 for the second quarter of 1999 and increased to $23.7 for
the first half of 2000 from $23.3 for the first half of 1999.
Other expenses (income)
Interest expense was $52.6 for the second quarter of 2000 compared
with $52.7 for the second quarter of 1999 and $109.8 for the first half of 2000
compared with $104.7 for the first half of 1999. The decrease in interest
expense for the second quarter of 2000 as compared with the second quarter of
1999 is primarily due to 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
worldwide professional product line and the Plusbelle brand in Argentina,
partially offset by 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"). The increase in interest expense for the first
half of 2000 as compared with the first half of 1999 is primarily due to higher
average outstanding debt during the first quarter of 2000 and higher interest
rates under the Credit Agreement during the first half of 2000 and higher
interest expense attributable to the Senior Secured Discount Notes, partially
offset by the repayment of the 1999 Notes and the repayment of borrowings under
the Credit Agreement with the net proceeds from the disposition of the
professional product line and the Plusbelle brand.
Foreign currency losses, net, were $2.6 for the second quarter of 2000
compared with nil in the second quarter of 1999, and $2.1 in the first half of
2000 compared with nil in the first half of 1999. Foreign currency losses, net
for the second quarter and first half of 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, the Company 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 $1.1 for the second quarter of 2000
compared with $1.8 for the second quarter of 1999 and $4.8 for the first half
of 2000 compared with $3.7 for the first half of 1999. The decrease in the
second quarter of 2000 as compared with the second quarter of 1999 was
primarily attributable to lower taxable income in certain markets outside the
United States. The increase in the first half of 2000 compared with the first
half of 1999 was primarily due to the reduction of certain deferred tax assets
and increased taxes associated with the worldwide professional products line.
13
<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 $100.2 and $56.2 for the
first half of 2000 and 1999, respectively. The increase in net cash used for
operating activities in the first half of 2000 compared with net cash used for
operating activities in the first half of 1999 resulted primarily from an
increased net loss and changes in working capital.
Net cash provided by (used for) investing activities was $330.5 and
$(20.0) for the first half of 2000 and 1999, respectively. Net cash provided by
investing activities in the first half of 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 first half of 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.
Net cash (used for) provided by financing activities was $(215.9) and
$71.5 for the first half of 2000 and 1999, respectively. Net cash used for
financing activities for the first half of 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 first half of 1999 included cash
drawn under the Credit Agreement, partially offset by repayments of borrowings
under the Credit Agreement, redemption of the 1999 Notes and repayments under
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 sale of its worldwide professional products
line and its Plusbelle brand in Argentina, respectively was applied to reduce
the aggregate commitment under the Credit Agreement. As of June 30, 2000, the
Credit Agreement provides 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
June 30, 2000, the Company had $106.2 outstanding under the Term Loan
Facilities, $189.6 outstanding under the Multi-Currency Facility, $78.5
outstanding under the Acquisition Facility and $28.7 of issued but undrawn
letters of credit under the Special LC Facility. In May 2000, approximately
$20.7 of Net Proceeds from the sale of the Plusbelle brand in Argentina was
used to permanently reduce the aggregate commitment under the Credit Agreement.
As a result of such commitment reductions and scheduled reductions, as of June
30, 2000, the aggregate amount outstanding under the Term Loan Facilities was
reduced by $12.0 to $106.2, and the aggregate commitment under the Acquisition
Facility was reduced by $25.9 to $78.6. 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 changed from $17.9 to
$16.2 for the remainder of 2000, from $53.8 to $48.8 during 2001 and from $14.9
to $13.6 during 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
14
<PAGE>
REV HOLDINGS INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
renewals thereof. The Credit Agreement, Products Corporation's 8 5/8% Senior
Subordinated Notes due 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 referred to above and debt service
payments.
The Company estimates that capital expenditures for 2000 will be
approximately $25. The Company estimates that cash payments related to the
restructuring plans referred to in Note 3 to the Unaudited Consolidated
Condensed Financial Statements and executive separation costs will be
approximately $48 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 June 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. 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 other 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
15
<PAGE>
REV HOLDINGS INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
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.
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.
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 June 30, 2000.
16
<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 JUNE 30,
------------------------------------------------------------------------- FAIR VALUE
JUNE 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).. $36.5 $ 36.5 $ 36.5
Average interest rate (a) ............... 7.7%
Short-term fixed rate ($US) ................... 715.2 715.2 290.1
Average interest rate ................... 10.8%
Long-term fixed rate ($US) .................... $ 1,149.3 1,149.3 683.9
Average interest rate ................... 8.6%
Long-term variable rate ($US) ................. $300.6 300.6 300.6
Average interest rate (a) ............... 10.1%
Long-term variable rate (various currencies)... 73.7 73.7 73.7
Average interest rate (a) ............... 7.6%
---------- ----------
Total debt $2,275.3 $ 1,384.8
========== ==========
</TABLE>
(a) Weighted average variable rates are based upon implied forward rates from
the yield curves at June 30, 2000.
FORWARD-LOOKING STATEMENTS
This quarterly report on Form 10-Q for the quarter ended June 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; 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 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 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
17
<PAGE>
REV HOLDINGS INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
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 the
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) interest rate or foreign exchange rate
changes affecting the Company and its market sensitive financial instruments;
(xi) difficulties, delays or unanticipated costs associated with the transition
to the Euro; and (xii) 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
Certain 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 Certain
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 Certain 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 address the recognition, measurement, and income statement
classification for sales incentives, such as coupons. The Guidelines are
effective for the Company beginning October 1, 2000. The implementation of the
Guidelines will require the Company to make reclassifications between SG&A and
sales.
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 is 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.
18
<PAGE>
REV HOLDINGS INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On April 17, 2000 the plaintiffs in the six purported class actions
filed by each of Thomas Comport, Boaz Spitz, Felix Ezeir and Amy Hoffman, Ted
Parris, Jerry Krim and Dan Gavish individually and on behalf of others
similarly situated to them against Revlon, Inc. and certain of its present and
former officers and directors, alleging among other things, violations of Rule
10b-5 under the Securities and Exchange Act of 1934 in October and November of
1999 in the United States District Court for the Southern District of New York,
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. 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - NONE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS -
10.22 Employment Agreement amended and restated as of May 9, 2000
between Revlon Consumer Products Corporation and Douglas Greeff. (Incorporated
by reference to Exhibit 10.22 to the Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 2000 of Revlon, Inc. (the "Revlon, Inc. June
30, 2000 Form 10-Q")).
10.23 Revlon Executive Bonus Plan (Amended and Restated as of March 1,
2000). (Incorporated by reference to Exhibit 10.23 to the Revlon, Inc. June 30,
2000 Form 10-Q).
(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: August 14, 2000
19
