<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934
For the quarterly period ended: March 31, 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 March 31, 2000, all of which were held by an affiliate of Mafco
Holdings Inc.
Total Pages - 17
<PAGE>
REV HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
ASSETS 2000 1999
------------- --------------
<S> <C> <C>
Current assets: (Unaudited)
Cash and cash equivalents............................ $ 27.8 $ 25.4
Trade receivables, less allowances of $19.1
and $27.2, respectively........................ 238.9 332.6
Inventories.......................................... 219.5 278.3
Prepaid expenses and other........................... 46.5 51.3
--------- ---------
Total current assets........................... 532.7 687.6
Property, plant and equipment, net......................... 284.4 336.4
Other assets............................................... 174.0 182.0
Intangible assets, net..................................... 244.7 356.8
--------- ---------
Total assets................................... $ 1,235.8 $ 1,562.8
========= =========
LIABILITIES AND STOCKHOLDER'S DEFICIENCY
Current liabilities:
Short-term borrowings - third parties................ $ 29.0 $ 37.6
Current portion of long-term debt - third parties.... 696.5 10.2
Accounts payable..................................... 119.1 139.8
Accrued expenses and other........................... 364.1 409.7
--------- ---------
Total current liabilities...................... 1,208.7 597.3
Long-term debt - third parties ............................ 1,480.3 2,416.5
Long-term debt - affiliates................................ 24.1 24.1
Other long-term liabilities................................ 215.2 215.9
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.............. (1,260.7) (1,214.1)
Accumulated other comprehensive loss................. (23.0) (68.1)
--------- ---------
Total stockholder's deficiency................. (1,692.5) (1,691.0)
--------- ---------
Total liabilities and stockholder's deficiency. $ 1,235.8 $ 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>
QUARTER ENDED MARCH 31,
-----------------------------
2000 1999
--------- ---------
<S> <C> <C>
Net sales.................................... $ 468.0 $ 441.1
Cost of sales................................ 168.5 155.7
--------- ---------
Gross profit............................ 299.5 285.4
Selling, general and administrative expenses. 278.9 272.9
Business consolidation costs, net............ 9.5 8.2
--------- ---------
Operating income ....................... 11.1 4.3
--------- ---------
Other expenses (income):
Interest expense........................ 57.2 52.0
Interest income......................... (0.4) (1.1)
Amortization of debt issuance costs..... 3.4 2.2
Foreign currency gains, net............. (0.5) -
Miscellaneous, net...................... 0.5 0.5
Gain on sale of product line, net....... (6.2) -
--------- ---------
Other expenses, net................ 54.0 53.6
--------- ---------
Loss before income taxes..................... (42.9) (49.3)
Provision for income taxes................... 3.7 1.9
--------- ---------
Net loss..................................... $ (46.6) $ (51.2)
========= =========
</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>
Balance, January 1, 1999........................... $(408.8) $ (771.6) $ (72.6) $(1,253.0)
Comprehensive loss:
Net loss.............................. (51.2) (51.2)
Revaluation of marketable securities.. (0.2) (0.2)
Currency translation adjustment....... (25.7) (25.7)
---------
Total comprehensive loss...................... (77.1)
------- --------- ------- ---------
Balance, March 31, 1999............................ $(408.8) $ (822.8) $ (98.5) $(1,330.1)
======== ========= ======= =========
Balance, January 1, 2000........................... $(408.8) $(1,214.1) $ (68.1) $(1,691.0)
Comprehensive loss:
Net loss.............................. (46.6) (46.6)
Currency translation adjustment....... 45.1 (b) 45.1
---------
Total comprehensive loss...................... (1.5)
------- --------- ------- ---------
Balance, March 31, 2000............................ $(408.8) $(1,260.7) $ (23.0) $(1,692.5)
======= ========= ======= =========
</TABLE>
- --------------------
(a) Accumulated other comprehensive loss includes a revaluation of marketable
securities of $3.8 and $3.2 as of March 31, 2000 and 1999, respectively,
currency translation adjustments of $14.3 and $62.8 as of March 31, 2000
and 1999, respectively, and adjustments for the minimum pension liability
of $4.9 and $32.5 as of March 31, 2000 and 1999, respectively.
(b) Accumulated other comprehensive loss and comprehensive loss 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>
QUARTER ENDED MARCH 31,
-------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES: 2000 1999
------------- -------------
<S> <C> <C>
Net loss............................................................... $ (46.6) $ (51.2)
Adjustments to reconcile net loss to net cash
(used for) provided by operating activities:
Depreciation and amortization..................................... 34.0 31.3
Gain on sale of product line, net................................. (6.2) -
Amortization of debt discount..................................... 17.8 16.1
Change in assets and liabilities, net of effects of dispositions:
Decrease in trade receivables................................ 16.7 128.1
Decrease (increase) in inventories........................... 6.2 (17.2)
Decrease (increase) in prepaid expenses and
other current assets............................ 5.1 (2.1)
Increase in accounts payable................................. 9.8 22.6
Decrease in accrued expenses and other
current liabilities............................. (38.0) (88.2)
Other, net................................................... (15.6) (20.5)
------ -------
Net cash (used for) provided by operating activities................... (16.8) 18.9
------ -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures................................................... (3.4) (8.2)
Net proceeds from the sale of product line and certain assets.......... 293.4 -
------ -------
Net cash provided by (used for) investing activities................... 290.0 (8.2)
------ -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in short-term borrowings - third parties....... (5.1) 7.9
Proceeds from the issuance of long-term debt - third parties........... 49.1 86.3
Repayment of long-term debt - third parties............................ (313.7) (100.8)
Proceeds from the issuance of debt - affiliates........................ - 44.8
Repayment of debt - affiliates......................................... - (44.8)
------ -------
Net cash used for financing activities................................. (269.7) (6.6)
------ -------
Effect of exchange rate changes on cash and cash equivalents........... (1.1) (3.0)
------ -------
Net increase in cash and cash equivalents......................... 2.4 1.1
Cash and cash equivalents at beginning of period.................. 25.4 34.7
------ -------
Cash and cash equivalents at end of period........................ $ 27.8 $ 35.8
====== =======
Supplemental schedule of cash flow information:
Cash paid (received) during the period for:
Interest .................................................... $ 53.0 $ 43.5
Income taxes, net of refunds................................. (0.3) 1.1
</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 ("Products Corporation").
Products Corporation was formed in April 1992 and, on June 24, 1992,
succeeded to assets and liabilities of the cosmetic and skin care,
fragrances and personal care products business of its then parent company,
whose name was changed from Revlon, Inc. to Revlon Holdings Inc.
("Holdings"). REV Holdings has had no business operations of its own and
its only material asset is its ownership of approximately 83.0% of the
outstanding shares of capital stock of Revlon, Inc. (which represents
approximately 97.4% of the voting power of those outstanding shares),
which, in turn, owns all of the capital stock of Products Corporation. The
Company is an indirect wholly owned subsidiary of Holdings and an indirect
wholly owned subsidiary of MacAndrews & Forbes Holdings Inc. ("MacAndrews
Holdings"), a corporation wholly owned indirectly through Mafco Holdings
Inc. (together with MacAndrews Holdings "MacAndrews & Forbes") by Ronald
O. Perelman.
The accompanying Consolidated Condensed Financial Statements are
unaudited. In management's opinion, all adjustments (consisting of only
normal recurring accruals) necessary for a fair presentation have been
made.
The Unaudited Consolidated Condensed Financial Statements include the
accounts of the Company after elimination of all material intercompany
balances and transactions. The Company has made a number of estimates and
assumptions relating to the assets and liabilities, the disclosure of
contingent assets and liabilities and the reporting of revenues and
expenses to prepare these financial statements in conformity with
generally accepted accounting principles. Actual results could differ from
those estimates. The Unaudited Consolidated Condensed Financial Statements
should be read in conjunction with the consolidated financial statements
and related notes contained in the Company's Annual Report on Form 10-K
for the year ended December 31, 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 quarter of 2000 and 1999, disbursements and commitments for
advertising and promotion exceeded advertising and promotion expenses by
$21.1 and $37.3, respectively, and such amounts were deferred.
On March 30, 2000, the Company completed the disposition of its
worldwide professional products line. Accordingly, the Unaudited
Consolidated Condensed Financial Statements include the results of
operations of the worldwide professional products line through the date of
disposition.
6
<PAGE>
REV HOLDINGS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
(2) INVENTORIES
MARCH 31, DECEMBER 31,
2000 1999
--------- ------------
<S> <C> <C>
Raw materials and supplies..... $ 64.3 $ 74.1
Work-in-process................ 12.6 19.7
Finished goods................. 142.6 184.5
------ ------
$219.5 $278.3
====== ======
</TABLE>
(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.
In the fourth quarter of 1998, the Company committed to a
restructuring plan to realign and reduce personnel, exit excess leased
real estate, realign and consolidate regional activities, reconfigure
certain manufacturing operations and exit certain product lines. In the
first quarter of 1999, the Company recorded a net charge of $8.2 relating
to such restructuring plan, principally for additional employee severance
and other personnel benefits.
Of the 208 employees and the 179 employees for whom severance and
other personnel benefits were included in the charges for the fourth
quarter 1999 and the first quarter of 2000, respectively, the Company had
terminated 342 employees by March 31, 2000. As of March 31, 2000, the
unpaid balance of the business consolidation costs is included in accrued
expenses and other in the Company's Unaudited Consolidated Condensed
Balance Sheets.
Details of the activity described above during the three month period
ended March 31, 2000 are as follows:
<TABLE>
<CAPTION>
BALANCE UTILIZED, NET BALANCE
AS OF ------------------ AS OF
1/1/00 EXPENSES, NET CASH NONCASH 3/31/00
----------- ------------- ------ ------- -----------
<S> <C> <C> <C> <C> <C>
Employee severance and other
personnel benefits.................. $24.6 $9.1 $(8.4) $(1.0) $24.3
Factory, warehouse, office
and other costs..................... 9.4 0.4 (0.4) (1.2) 8.2
----- ---- ----- ----- -----
$34.0 $9.5 $(8.8) $(2.2) $32.5
===== ==== ===== ===== =====
</TABLE>
7
<PAGE>
REV HOLDINGS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS)
(4) DISPOSITION OF PRODUCT LINE
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 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)
and the balance will be available for general corporate purposes.
(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 4.2% of the Company's net sales for the first quarter of
2000 and 1999. 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>
GEOGRAPHIC AREAS: QUARTER ENDED MARCH 31,
-------------------------------
Net sales: 2000 1999
------------- ------------
<S> <C> <C>
United States.................... $274.3 $249.8
International.................... 193.7 191.3
------ ------
$468.0 $441.1
====== ======
MARCH 31, DECEMBER 31,
Long-lived assets: 2000 1999
------------- ------------
United States.................... $481.3 $615.8
International.................... 221.8 259.4
------ ------
$703.1 $875.2
====== ======
CLASSES OF SIMILAR PRODUCTS: QUARTER ENDED MARCH 31,
-------------------------------
Net sales: 2000 1999
------------- ------------
Cosmetics, skin care and
fragrances...................... $268.4 $222.9
Personal care and professional... 199.6 218.2
------ ------
$468.0 $441.1
====== ======
</TABLE>
(6) SUBSEQUENT EVENTS
On May 8, 2000, Products Corporation completed the disposition of its
non-core 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 and the balance will be available for general corporate purposes.
In addition, the Company has decided to retain its Colorama, Juvena
and Bozzano brands in Brazil.
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, the Company completed the disposition of its
worldwide professional products line. Accordingly, the Unaudited Consolidated
Condensed Financial Statements include the results of operations of the
worldwide professional products line through the date of disposition.
RESULTS OF OPERATIONS
The following table sets forth the Company's net sales for the first
quarters of 2000 and 1999, respectively:
<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31,
-------------------------------
Net sales: 2000 1999
------------- -------------
<S> <C> <C>
United States......................... $274.3 $249.8
International......................... 193.7 191.3
------ ------
$468.0 $441.1
====== ======
</TABLE>
The following table sets forth certain statements of operations data as a
percentage of net sales for the first quarters of 2000 and 1999, respectively:
<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31,
-------------------------------
2000 1999
------------- -------------
<S> <C> <C>
Cost of sales......................... 36.0% 35.3%
Gross profit.......................... 64.0 64.7
Selling, general and administrative
expenses ("SG&A")................. 59.6 61.9
Business consolidation costs, net..... 2.0 1.8
Operating income ..................... 2.4 1.0
</TABLE>
NET SALES
Net sales were $468.0 and $441.1 for the first quarters of 2000 and
1999, respectively, an increase of $26.9, or 6.1% on a reported basis (an
increase of 7.6% on a constant U.S. dollar basis). Net sales excluding the
worldwide professional products line were $393.7 and $365.9 for the first
quarters of 2000 and 1999, respectively.
United States. Net sales in the United States were $274.3 for the
first quarter of 2000 compared with $249.8 for the first quarter of 1999, an
increase of $24.5, or 9.8%. Net sales improved for the first quarter of 2000,
primarily as a result of consumer acceptance of new product offerings,
partially offset by lower market share, competitive activities and a reduction
in the level of Company shipments to certain
10
<PAGE>
REV HOLDINGS INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
retailers to achieve such retailers' lower inventory target levels. The
reduction of retailers' target inventory levels will continue and is expected
to adversely impact sales through June 2000.
New products in the first quarter 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.
International. Net sales outside the United States were $193.7 for the
first quarter of 2000 compared with $191.3 for the first quarter of 1999, an
increase of $2.4, or 1.3%, on a reported basis (an increase of 4.7% on a
constant U.S. dollar basis). Net sales improved for the first quarter of 2000
on a constant U.S. dollar basis principally due to successful new product
introductions in certain markets. This was partially offset, on a reported
basis, by the unfavorable effect on sales of a stronger U.S. dollar against
certain foreign currencies and increased competitive activity. 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 1.8% on a
reported basis to $86.9 for the first quarter of 2000 as compared with the
first quarter of 1999 (an increase of 7.0% 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 5.5% on a reported basis to
$73.5 for the first quarter of 2000 as compared with the first quarter of 1999
(an increase of 4.5% on a constant U.S. dollar basis). The Company's operations
in Brazil are significant. In Brazil, net sales were $19.8 on a reported basis
for the first quarter of 2000 compared with $18.6 for the first quarter of
1999, an increase of $1.2, or 6.5% (an increase of 7.6% on a constant U.S.
dollar basis). The improvement in sales is primarily due to increased volume in
toiletries and cosmetics as well as improved economic conditions. In the Far
East, net sales increased by 0.6% on a reported basis to $33.3 for the first
quarter of 2000 as compared with the first quarter of 1999 (a decrease of 0.6%
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 36.0% for the first
quarter of 2000 compared with 35.3% for the first quarter of 1999. The increase
in cost of sales as a percentage of net sales for the first quarter of 2000
compared with the first quarter of 1999 is due to changes in product mix and
the effect of weaker local currencies on the cost of imported purchases by
certain subsidiaries outside the U.S.
SG&A expenses
As a percentage of net sales, SG&A expenses were 59.6% for the first
quarter of 2000 compared with 61.9% for the first quarter of 1999. The decrease
of SG&A expenses as a percentage of net sales is due in large measure to the
cost reduction efforts undertaken by the Company in 1999 and 1998.
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 anticipates additional annual
savings of between $5 and $7 relating to the first quarter of 2000 charge.
11
<PAGE>
REV HOLDINGS INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
In the fourth quarter of 1998, the company committed to a
restructuring plan to realign and reduce personnel, exit excess leased real
estate, realign and consolidate regional activities, reconfigure certain
manufacturing operations and exit certain product lines. In the first quarter
of 1999, the Company recorded a net charge of $8.2 relating to such
restructuring plan, principally for additional employee severance and other
personnel benefits.
Operating income
As a result of the foregoing, operating income for the first quarter
of 2000 was $11.1 compared with $4.3 for the first quarter of 1999. Operating
income (loss) excluding the worldwide professional products line was $8.0 and
$(1.8) for the first quarters of 2000 and 1999, respectively.
Other expenses (income)
Interest expense was $57.2 for the first quarter of 2000 compared with
$52.0 for the first quarter of 1999. The increase in interest expense for the
first quarter of 2000 as compared with the first quarter of 1999 is due to
higher average outstanding debt and 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 in 1999 of Products Corporation's 9 1/2 % Senior Notes due
1999.
Foreign currency gains, net, were $0.5 for the first quarter of 2000
compared with nil in the first quarter of 1999.
Gain on sale of product line, net
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 gain of $6.2 (See Note 4).
Provision for income taxes
The provision for income taxes was $3.7 for the first quarter of 2000
compared with $1.9 for the first quarter of 1999. The increase in the first
quarter of 2000 compared with the first quarter of 1999 was primarily due to the
reduction of certain deferred tax assets and increased taxes associated with the
worldwide professional products line as well as higher taxable income in certain
markets outside the United States.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Net cash (used for) provided by operating activities was $(16.8) and
$18.9 for the first quarters of 2000 and 1999, respectively. The increase in
net cash used for operating activities in the first quarter of 2000 compared
with net cash provided by operating activities in the first quarter of 1999
resulted primarily from changes in working capital.
Net cash provided by (used for) investing activities was $290.0 and
$(8.2) for the first quarters of 2000 and 1999, respectively. Net cash provided
by investing activities in the first quarter of 2000 consisted of proceeds from
the sale of the Company's worldwide professional products line, partially
offset by cash used for capital expenditures. Net cash used for investing
activities for the first quarter of 1999 consisted of capital expenditures.
12
<PAGE>
REV HOLDINGS INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
Net cash used for financing activities was $269.7 and $6.6 for the
first quarters of 2000 and 1999, respectively. Net cash used for financing
activities for the first quarter 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 used for financing
activities for the first quarter of 1999 included repayments of borrowings
under the Credit Agreement and repayments under the Yen Credit Agreement
partially offset by cash drawn under the 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, 60% of the
Net Proceeds from the sale of its worldwide professional products line was
applied to reduce the aggregate commitment under the Credit Agreement. As of
March 31, 2000, the Credit Agreement provides up to $572.7 and is comprised of
five senior secured facilities: $118.2 in two term loan facilities (the "Term
Loan Facilities"), a $300.0 multi-currency facility (the "Multi-Currency
Facility"), a $104.5 revolving acquisition facility, which may also be used for
general corporate purposes and which may be increased to $304.5 under certain
circumstances with the consent of a majority of the lenders (the "Acquisition
Facility"), and a $50.0 special standby letter of credit facility (the "Special
LC Facility"). At March 31, 2000, the Company had $118.2 outstanding under the
Term Loan Facilities, $117.9 outstanding under the Multi-Currency Facility,
$95.0 outstanding under the Acquisition Facility and $23.6 of issued but
undrawn letters of credit under the Special LC Facility.
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.
Products Corporation borrows funds from its affiliates from time to
time to supplement its working capital borrowings at interest rates more
favorable to Products Corporation than interest rates under the Credit
Agreement. No such borrowings were outstanding as of March 31, 2000.
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
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. As required under
the Credit Agreement, the Company used 60% of the Net Proceeds from the sale of
its worldwide professional products line to reduce the aggregate commitment
under the Credit Agreement on March 30, 2000, and used 60% of the Net Proceeds
from the sale of its non-core Plusbelle brand in Argentina in May 2000 to
reduce the aggregate commitment under the Credit Agreement.
The Company estimates that capital expenditures for 2000 will be
approximately $25, including upgrades to the Company's management information
systems. The Company estimates that cash payments related to the restructuring
plans referred to in Note 3 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
13
<PAGE>
REV HOLDINGS INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
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 March 31, 2000. Products Corporation had forward
foreign exchange contracts denominated in various currencies of approximately
$112.7 (U.S. dollar equivalent) outstanding at March 31, 1999 and option
contracts of approximately $37.5 at March 31, 1999. Such contracts are entered
into to hedge transactions predominantly occurring within twelve months. If
Products Corporation had terminated these contracts on March 31, 1999 no
material gain or loss would have been realized.
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
things, professional fees such as legal and accounting, regulatory fees such as
Securities and Exchange Commission (the "Commission") filing fees and other
miscellaneous expenses related to being a public holding company and to pay
dividends or make distributions in certain circumstances to finance the purchase
by Revlon, Inc. of its Class A Common Stock in connection with the delivery of
such Class A Common Stock to grantees under the Revlon, Inc. Second Amended and
Restated 1996 Stock Plan, provided that the aggregate amount of such dividends
and distributions taken together with any purchases of Revlon, Inc. common stock
on the open market to satisfy matching obligations under the excess savings plan
may not exceed $6.0 per annum.
The Company currently anticipates that cash flow generated from
operations will be insufficient to pay the principal amount at maturity of the
Senior Secured Discount Notes. Accordingly, the Company currently anticipates
that it will be required to adopt one or more alternatives to pay the principal
amount at maturity of the Senior Secured Discount Notes, such as refinancing
its indebtedness, selling its equity securities or the equity securities or
assets of Revlon, Inc. or seeking capital contributions or loans from its
affiliates. There can be no assurance that any of the foregoing actions could
be effected on satisfactory terms, that any of the foregoing actions would
enable the Company to pay the principal amount at maturity
14
<PAGE>
REV HOLDINGS INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
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, 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 March 31, 2000.
<TABLE>
<CAPTION>
EXPECTED MATURITY DATE FOR YEAR ENDED MARCH 31, FAIR VALUE
------------------------------------------------------------------- MARCH 31,
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).. $ 29.0 $ 29.0 $ 29.0
Average interest rate(a)................. 6.7%
Short-term fixed rate ($US).................... 696.5 696.5 215.9
Average interest rate.................... 10.8%
Long-term fixed rate ($US) $ 1,149.2 1,149.2 644.3
Average interest rate.................... 8.6%
Long-term variable rate ($US) $213.2 213.2 213.2
Average interest rate(a)................. 10.0%
Long-term variable rate (various currencies)... 117.9 117.9 117.9
Average interest rate(a)................. 8.4%
-------- --------
Total debt $2,205.8 $1,220.3
======== ========
</TABLE>
(a) Weighted average variable rates are based upon implied forward rates from
the yield curves at March 31, 2000.
15
<PAGE>
REV HOLDINGS INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
FORWARD-LOOKING STATEMENTS
This quarterly report on Form 10-Q for the quarter ended March 31,
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 and expansion into markets,
future financial performance, the effect on sales of lower retailer inventory
targets 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, 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, and capital contributions or loans from affiliates or the sale of
assets or operations of the Company or additional shares of Revlon, Inc., or
the sale of equity securities of REV Holdings. Statements that are not
historical facts, including statements about the Company's beliefs and
expectations, are forward-looking statements. Forward-looking statements can be
identified by, among other things, the use of forward-looking language, such as
"believe," "expects," "may," "will," "should," "seeks," "plans," "scheduled
to," "anticipates" or "intends" or the negative of those terms, or other
variations of those terms or comparable language, or by discussions of strategy
or intentions. Forward-looking statements speak only as of the date they are
made, and the Company undertakes no obligation to update them. A number of
important factors could cause actual results to differ materially from those
contained in any forward-looking statement. In addition to factors that may be
described in the Company's filings with the Commission, including this filing,
the following factors, among others, could cause the Company's actual results
to differ materially from those expressed in any forward-looking statements
made by the Company: (i) difficulties or delays in developing and introducing
new products or failure of customers to accept new product offerings; (ii)
changes in consumer preferences, including reduced consumer demand for the
Company's color cosmetics and other current products; (iii) difficulties or
delays in the Company's continued expansion into the self-select distribution
channel and into certain markets and development of new markets; (iv)
unanticipated costs or difficulties or delays in completing projects associated
with the Company's strategy to improve operating efficiencies; (v) 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; (vi) effects of
and changes in political and/or economic conditions, including inflation and
monetary conditions, and in trade, monetary, fiscal and tax policies in
international markets, including but not limited to Brazil; (vii) actions by
competitors, including business combinations, technological breakthroughs, new
products offerings and marketing and promotional successes; (viii) combinations
among significant customers or the loss, insolvency or failure to pay debts by
a significant customer or customers; (ix) lower than expected sales as a result
of difficulties or delays in achieving retailers' inventory target levels; (x)
difficulties, delays or unanticipated costs or less than expected benefits
resulting from the Company's restructuring activities; (xi) interest rate or
foreign exchange rate changes affecting the Company and its market sensitive
financial instruments; and (xii) difficulties, delays or unanticipated costs
associated with the transition to the Euro.
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 new
standard no later than
16
<PAGE>
REV HOLDINGS INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
January 1, 2001. The effect of adopting the new standard by the Company has not
yet been determined. The Company plans to adopt the new standard on January 1,
2001.
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - NONE
----------------------------------------------------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) EXHIBITS -
10.20 Fifth Amendment, dated as of March 6, 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 10.20 to the Quarterly Report on Form 10-Q for the
quarterly period ended March 31,2000 of Revlon, Inc. (the "Revlon, Inc. March
31, 2000 Form 10-Q")).
10.21 Senior Executive Supplemental Long-Term Incentive Program.
(Incorporated by reference to Exhibit 10.21 to the Revlon, Inc. March 31, 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: May 15, 2000
17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 27,800
<SECURITIES> 0
<RECEIVABLES> 258,000
<ALLOWANCES> 19,100
<INVENTORY> 219,500
<CURRENT-ASSETS> 532,700
<PP&E> 514,500
<DEPRECIATION> 230,100
<TOTAL-ASSETS> 1,235,800
<CURRENT-LIABILITIES> 1,208,700
<BONDS> 1,480,300
0
0
<COMMON> 1
<OTHER-SE> (1,692,500)
<TOTAL-LIABILITY-AND-EQUITY> 1,235,800
<SALES> 468,000
<TOTAL-REVENUES> 468,000
<CGS> 168,500
<TOTAL-COSTS> 168,500
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,400
<INTEREST-EXPENSE> 57,200
<INCOME-PRETAX> (42,900)
<INCOME-TAX> 3,700
<INCOME-CONTINUING> (46,600)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (46,600)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
