<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
--- SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 2000
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
--- SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________________ to _______________
Commission file number 1-11178
REVLON, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-3662955
(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
--- ---
As of September 30, 2000, 20,115,935 shares of Class A Common Stock and
31,250,000 shares of Class B Common Stock were outstanding. 11,250,000 shares of
Class A Common Stock and all the shares of Class B Common Stock were held by REV
Holdings Inc., an indirect wholly owned subsidiary of Mafco Holdings Inc.
Total Pages - 21
<PAGE>
REVLON, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(dollars in millions, except per share data)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
ASSETS 2000 1999
--------------- ---------------
<S> <C> <C>
Current assets: (Unaudited)
Cash and cash equivalents............................................................ $ 24.0 $ 25.4
Trade receivables, less allowances of $19.2
and $27.2, respectively........................................................ 223.8 332.6
Inventories.......................................................................... 202.8 278.3
Prepaid expenses and other........................................................... 42.2 51.3
--------------- ---------------
Total current assets........................................................... 492.8 687.6
Property, plant and equipment, net......................................................... 262.6 336.4
Other assets............................................................................... 165.0 177.5
Intangible assets, net..................................................................... 208.6 356.8
--------------- ---------------
Total assets................................................................... $ 1,129.0 $ 1,558.3
=============== ===============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Short-term borrowings - third parties................................................ $ 25.8 $ 37.6
Current portion of long-term debt - third parties.................................... - 10.2
Accounts payable..................................................................... 85.0 139.8
Accrued expenses and other........................................................... 289.4 409.7
--------------- ---------------
Total current liabilities...................................................... 400.2 597.3
Long-term debt - third parties ............................................................ 1,553.2 1,737.8
Long-term debt - affiliates................................................................ 24.1 24.1
Other long-term liabilities................................................................ 211.5 214.0
Stockholders' deficiency:
Preferred stock, par value $.01 per share; 20,000,000 shares authorized,
546 shares of Series A Preferred Stock
issued and outstanding......................................................... 54.6 54.6
Class B Common Stock, par value $.01 per share; 200,000,000
shares authorized, 31,250,000 issued and outstanding........................... 0.3 0.3
Class A Common Stock, par value $.01 per share; 350,000,000 shares
authorized, 20,115,935 and 19,992,837 issued and outstanding, respectively..... 0.2 0.2
Capital deficiency................................................................... (227.3) (228.4)
Accumulated deficit since June 24, 1992.............................................. (852.3) (773.5)
Accumulated other comprehensive loss................................................. (35.5) (68.1)
--------------- ---------------
Total stockholders' deficiency................................................. (1,060.0) (1,014.9)
--------------- ---------------
Total liabilities and stockholders' deficiency................................. $ 1,129.0 $ 1,558.3
=============== ===============
</TABLE>
See Accompanying Notes to Unaudited Consolidated Condensed Financial Statements.
2
<PAGE>
REVLON, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(dollars in millions, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------------- --------------------------------
2000 1999 2000 1999
-------------- --------------- -------------- -------------
<S> <C> <C> <C> <C>
Net sales.................................................. $ 351.9 $ 452.4 $ 1,170.5 $ 1,446.9
Cost of sales.............................................. 124.7 170.0 417.5 510.6
-------------- --------------- -------------- -------------
Gross profit.......................................... 227.2 282.4 753.0 936.3
Selling, general and administrative expenses............... 203.7 403.5 686.6 1,001.0
Restructuring costs and other, net......................... 13.7 4.4 28.3 22.1
-------------- --------------- -------------- -------------
Operating income (loss)............................... 9.8 (125.5) 38.1 (86.8)
-------------- --------------- -------------- -------------
Other expenses (income):
Interest expense...................................... 35.6 36.8 108.9 108.6
Interest income....................................... (0.7) (0.4) (1.5) (1.9)
Amortization of debt issuance costs................... 1.0 0.8 4.5 3.3
Foreign currency (gains) losses, net.................. (1.1) 0.2 1.0 0.2
Gain on sale of product line and brand, net........... - - (3.0) -
Miscellaneous, net.................................... (0.9) (0.1) - 0.2
-------------- --------------- -------------- -------------
Other expenses, net.............................. 33.9 37.3 109.9 110.4
-------------- --------------- -------------- -------------
Loss before income taxes................................... (24.1) (162.8) (71.8) (197.2)
Provision for income taxes................................. 2.2 1.9 7.0 5.6
-------------- --------------- -------------- -------------
Net loss................................................... $ (26.3) $ (164.7) $ (78.8) $ (202.8)
============== =============== ============== =============
Basic loss per common share................................ $ (0.51) $ (3.21) $ (1.54) $ (3.96)
============== =============== ============== =============
Diluted loss per common share.............................. $ (0.51) $ (3.21) $ (1.54) $ (3.96)
============== =============== ============== =============
Weighted average number of common shares outstanding:
Basic and diluted.................................... 51,365,935 51,242,837 51,322,806 51,239,344
============== =============== ============== =============
</TABLE>
See Accompanying Notes to Unaudited Consolidated Condensed Financial Statements.
3
<PAGE>
REVLON, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS' DEFICIENCY
AND COMPREHENSIVE LOSS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
ACCUMULATED
OTHER TOTAL
PREFERRED COMMON CAPITAL ACCUMULATED COMPREHENSIVE STOCKHOLDERS'
STOCK STOCK DEFICIENCY DEFICIT LOSS (a) DEFICIENCY
--------- -------- ------------ ------------ ---------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1999....................... $ 54.6 $ 0.5 $ (228.5) $ (402.0) $ (72.6) $ (648.0)
Issuance of common stock.................. 0.1 0.1
Comprehensive loss:
Net loss............................... (202.8) (202.8)
Revaluation of marketable securities... (0.9) (0.9)
Currency translation adjustment........ (32.3) (32.3)
-------------
Total comprehensive loss.................. (236.0)
--------- -------- ------------ ------------ ---------------- -------------
Balance, September 30, 1999.................... $ 54.6 $ 0.5 $ (228.4) $ (604.8) $ (105.8) $ (883.9)
========= ======== ============ ============ ================ =============
Balance, January 1, 2000....................... $ 54.6 $ 0.5 $ (228.4) $ (773.5) $ (68.1) $ (1,014.9)
Issuance of common stock.................. 1.1 1.1
Comprehensive loss:
Net loss............................... (78.8) (78.8)
Currency translation adjustment........ 32.6 (b) 32.6
-------------
Total comprehensive loss.................. (46.2)
--------- -------- ------------ ------------ ---------------- -------------
Balance, September 30, 2000.................... $ 54.6 $ 0.5 $ (227.3) $ (852.3) $ (35.5) $ (1,060.0)
========= ======== ============ ============ ================ =============
</TABLE>
--------------------
(a) Accumulated other comprehensive loss includes unrealized losses on
marketable securities of $3.8 and $3.9 as of September 30, 2000 and
1999, respectively, cumulative net currency translation losses of
$26.8 and $69.4 as of September 30, 2000 and 1999, respectively, and
adjustments for the minimum pension liability of $4.9 and $32.5 as of
September 30, 2000 and 1999, respectively.
(b) Accumulated other comprehensive loss and comprehensive loss each
include a reclassification adjustment of $48.3 for realized losses on
foreign currency adjustments associated with the sale of the Company's
worldwide professional products line.
See Accompanying Notes to Unaudited Consolidated Condensed Financial Statements.
4
<PAGE>
REVLON, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES: 2000 1999
-------------- --------------
<S> <C> <C>
Net loss........................................................................... $ (78.8) $ (202.8)
Adjustments to reconcile net loss to net cash
(used for) provided by operating activities:
Depreciation and amortization................................................. 89.6 90.9
Net (gain) loss on sale of product line, brand and certain assets............. (3.0) 1.6
Change in assets and liabilities, net of effects of dispositions:
Decrease in trade receivables............................................ 26.4 74.7
Decrease (increase) in inventories....................................... 15.5 (44.5)
Decrease in prepaid expenses and
other current assets........................................ 8.6 7.0
(Decrease) increase in accounts payable.................................. (22.3) 39.9
Decrease in accrued expenses and other
current liabilities......................................... (120.7) (8.3)
Other, net............................................................... (47.2) (49.3)
-------------- --------------
Net cash used for operating activities............................................. (131.9) (90.8)
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures............................................................... (11.4) (31.4)
Net proceeds from the sale of product line, brand and certain assets............... 339.6 1.6
Acquisition of technology rights................................................... (3.0) -
-------------- --------------
Net cash provided by (used for) investing activities............................... 325.2 (29.8)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in short-term borrowings - third parties................... (7.1) 8.1
Proceeds from the issuance of long-term debt - third parties....................... 289.6 515.1
Repayment of long-term debt - third parties........................................ (475.7) (336.3)
Net proceeds from issuance of common stock......................................... - 0.1
Proceeds from the issuance of debt - affiliates.................................... - 67.1
Repayment of debt - affiliates..................................................... - (67.1)
-------------- --------------
Net cash (used for) provided by financing activities............................... (193.2) 187.0
-------------- --------------
Effect of exchange rate changes on cash and cash equivalents....................... (1.5) (3.4)
-------------- --------------
Net (decrease) increase in cash and cash equivalents.......................... (1.4) 63.0
Cash and cash equivalents at beginning of period.............................. 25.4 34.7
-------------- --------------
Cash and cash equivalents at end of period.................................... $ 24.0 $ 97.7
============== ==============
Supplemental schedule of cash flow information: Cash paid during the period for:
Interest................................................................. $ 121.3 $ 120.1
Income taxes, net of refunds............................................. 3.1 6.1
Supplemental schedule of noncash financing activities:
Issuance of common stock................................................. $ 1.1 $ -
</TABLE>
See Accompanying Notes to Unaudited Consolidated Condensed Financial Statements.
5
<PAGE>
REVLON, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS)
(1) BASIS OF PRESENTATION
Revlon, Inc. (the "Company") is a holding company, formed in April
1992, that conducts its business exclusively through its direct subsidiary,
Revlon Consumer Products Corporation and its subsidiaries (together,
"Products Corporation"). The Company is an indirect majority owned
subsidiary of MacAndrews & Forbes Holdings Inc. ("MacAndrews Holdings"), a
corporation wholly owned through Mafco Holdings Inc. ("Mafco Holdings" and,
together with MacAndrews Holdings, "MacAndrews & Forbes") by Ronald O.
Perelman.
The accompanying Consolidated Condensed Financial Statements are
unaudited. In management's opinion, all adjustments (consisting of only
normal recurring accruals) necessary for a fair presentation have been
made.
The Unaudited Consolidated Condensed Financial Statements include the
accounts of the Company after elimination of all material intercompany
balances and transactions. The Company has made a number of estimates and
assumptions relating to the assets and liabilities, the disclosure of
contingent assets and liabilities and the reporting of revenues and
expenses to prepare these financial statements in conformity with generally
accepted accounting principles. Actual results could differ from those
estimates. The Unaudited Consolidated Condensed Financial Statements should
be read in conjunction with the consolidated financial statements and
related notes contained in the Company's Annual Report on Form 10-K for the
year ended December 31, 1999.
The results of operations and financial position, including working
capital, for interim periods are not necessarily indicative of those to be
expected for a full year.
The Company matches advertising and promotion expenses with sales
revenues for interim reporting purposes. Advertising and promotion expenses
estimated for a full year are charged to earnings for interim reporting
purposes in proportion to the relationship that net sales for such period
bear to estimated full year net sales. As a result, for the nine months
ended September 30, 2000 and 1999, disbursements and commitments for
advertising and promotion exceeded advertising and promotion expenses by
$23.1 and $19.2, respectively, and such amounts were deferred.
On March 30, 2000 and May 8, 2000, the Company completed the
dispositions of its worldwide professional products line and Plusbelle
brand in Argentina, respectively. Accordingly, the Unaudited Consolidated
Condensed Financial Statements include the results of operations of the
professional products line and Plusbelle brand through the dates of their
respective dispositions.
(2) INVENTORIES
SEPTEMBER 30, DECEMBER 31,
2000 1999
--------------- -------------
Raw materials and supplies $ 61.4 $ 74.1
Work-in-process.................... 11.2 19.7
Finished goods..................... 130.2 184.5
--------------- -------------
$ 202.8 $ 278.3
=============== =============
6
<PAGE>
REVLON, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS)
(3) BASIC AND DILUTED (LOSS) INCOME PER COMMON SHARE
The basic (loss) income per common share has been computed based upon
the weighted average number of shares of common stock outstanding during
each of the periods presented. Diluted (loss) income per common share has
been computed based upon the weighted average number of shares of common
stock outstanding. The Company's outstanding stock options represent the
only potential dilutive common stock outstanding. The number of shares used
in the calculation of basic and diluted loss per common share was the same
in each period presented, as it does not include any incremental shares
that would have been outstanding assuming the exercise of stock options
because the effect of those incremental shares would have been
antidilutive. For each period presented, the amount of loss used in the
calculation of diluted loss per common share was the same as the amount of
loss used in the calculation of basic loss per common share.
(4) RESTRUCTURING COSTS AND OTHER, NET
Since 1998 the Company has been continuously evaluating its
organizational structure and has implemented a number of restructuring
plans.
In the fourth quarter of 1998, the Company committed to a restructuring
plan to realign and reduce personnel, exit excess leased real estate,
realign and consolidate regional activities, reconfigure certain
manufacturing operations and exit certain product lines. For the nine
months ended September 30, 1999, the Company recorded a net charge of
$22.1, $3.8 of which was recorded in the third quarter of 1999, relating to
the restructuring plan, principally for additional employee severance and
other personnel benefits as well as other costs. Also in the second quarter
of 1999, the Company adopted a plan to exit a non-core business for which
it recorded a charge of $1.0. In the third quarter of 1999, the Company
also consummated the exit from the non-core business referred to above, as
to which an additional charge of $0.6 was included in restructuring costs
and other, net for such period.
In the first quarter of 2000, the Company recorded a charge of $9.5
relating to a restructuring plan which began in the fourth quarter of 1999,
principally for additional employee severance and other personnel benefits
and to restructure certain operations outside the United States. The
Company continued to implement such restructuring plan during the second
quarter of 2000 during which it recorded a charge of $5.1 relating to
exiting certain operations in Japan and employee severance and other
personnel benefits.
During the third quarter of 2000, the Company continued to re-evaluate
its organizational structure. As part of this re-evaluation, the Company
is developing a new restructuring plan designed to improve profitability by
reducing personnel and consolidating manufacturing facilities. In the third
quarter of 2000, the Company recorded a charge of $13.7 related to such
plan, principally for additional employee severance and other personnel
benefits and to consolidate worldwide operations. Refer to footnote 7 for
further information on the Company's plans.
7
<PAGE>
REVLON, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS)
Of the 208 employees and the 469 employees for whom severance and other
personnel benefits were included in the charges for the fourth quarter 1999
and during the nine-month period ended September 30, 2000, respectively,
the Company had terminated 624 employees by September 30, 2000. As of
September 30, 2000, the unpaid balance of the restructuring costs is
included in accrued expenses and other in the Company's Unaudited
Consolidated Condensed Balance Sheet.
Details of the activity described above during the nine-month period
ended September 30, 2000 are as follows:
<TABLE>
<CAPTION>
BALANCE
BALANCE UTILIZED, NET AS OF
AS OF -------------------------
1/1/00 EXPENSES, NET CASH NONCASH 9/30/00
----------- ----------------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C>
Employee severance and other
personnel benefits....................... $ 24.6 $ 22.9 $ (26.7) $ (1.1) $ 19.7
Factory, warehouse, office
and other costs........................... 9.4 5.4 (4.1) (2.6) 8.1
----------- ----------- ----------- --------- -----------
$ 34.0 $ 28.3 $ (30.8) $ (3.7) $ 27.8
=========== =========== =========== ========= ===========
</TABLE>
(5) DISPOSITION OF PRODUCT LINE AND BRAND
On March 30, 2000, Products Corporation completed the disposition of
its worldwide professional products line, including professional hair care
for use in and resale by professional salons, ethnic hair and personal care
products, Natural Honey skin care and certain regional toiletries brands,
for $315 in cash, before adjustments, plus $10 in purchase price payable in
the future, contingent upon the purchasers' achievement of certain rates of
return on their investment. The disposition involved the sale of certain of
Products Corporation's subsidiaries throughout the world devoted to the
professional products line, as well as assets dedicated exclusively or
primarily to the lines being disposed. The worldwide professional products
line was purchased by a company formed by CVC Capital Partners, the Colomer
family and other investors, led by Carlos Colomer, a former manager of the
line that was sold, following arms'-length negotiation of the terms of the
purchase agreement therefor, including the determination of the amount of
the consideration. In connection with the disposition, the Company
recognized a pre-tax and after-tax gain of $6.2. Approximately $150.3 of
the Net Proceeds (as defined in the Credit Agreement) were used to reduce
the aggregate commitment under the Credit Agreement (as hereinafter
defined).
On May 8, 2000, Products Corporation completed the disposition of its
Plusbelle brand in Argentina for $46.2 in cash. Approximately $20.7 of the
Net Proceeds were used to reduce the aggregate commitment under the Credit
Agreement. In connection with the disposition, the Company recognized a
pre-tax and after-tax loss of $3.2.
8
<PAGE>
REVLON, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS)
(6) GEOGRAPHIC INFORMATION
The Company manages its business on the basis of one reportable
operating segment. The Company is exposed to the risk of changes in social,
political and economic conditions inherent in foreign operations and the
Company's results of operations and the value of its foreign assets and
liabilities are affected by fluctuations in foreign currency exchange
rates. The Company's operations in Brazil have accounted for approximately
5.1% and 3.9% of the Company's net sales for the third quarter of 2000 and
1999, respectively, and 4.7% and 3.9% of the Company's net sales for the
nine months ended September 30, 2000 and 1999, respectively. Net sales by
geographic area are presented by attributing revenues from external
customers on the basis of where the products are sold.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
Geographic areas: SEPTEMBER 30, SEPTEMBER 30,
---------------------------------- ---------------------------------
Net sales: 2000 1999 2000 1999
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
United States......................... $ 215.2 $ 250.0 $ 697.1 $ 847.1
International......................... 136.7 202.4 473.4 599.8
-------------- -------------- -------------- --------------
$ 351.9 $ 452.4 $ 1,170.5 $ 1,446.9
============== ============== ============== ==============
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
Long-lived assets: 2000 1999
-------------- --------------
<S> <C> <C>
United States......................... $ 414.5 $ 611.3
International......................... 221.7 259.4
-------------- --------------
$ 636.2 $ 870.7
============== ==============
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
Classes of similar products: SEPTEMBER 30, SEPTEMBER 30,
---------------------------------- ---------------------------------
Net sales: 2000 1999 2000 1999
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Cosmetics, skin care and fragrances... $ 229.0 $ 241.2 $ 730.4 $ 775.8
Personal care and professional........ 122.9 211.2 440.1 671.1
-------------- -------------- -------------- --------------
$ 351.9 $ 452.4 $ 1,170.5 $ 1,446.9
============== ============== ============== ==============
</TABLE>
(7) SUBSEQUENT EVENTS
As part of the restructuring plan initiated in the third quarter of
2000, the Company announced in the fourth quarter of 2000 that it would
cease its manufacturing operations in Mississauga, Canada, and intended
to discontinue manufacturing operations in Phoenix, Arizona during 2001
and shift production to the Oxford, North Carolina facility. The Company
estimates that the costs of closing these facilities and relocating
manufacturing will result in a one-time charge of $50 to $55 (which is in
addition to the $13.7 recorded in the third quarter of 2000). These costs
principally include severance and write-downs of assets. Net cash
expenditures (after the proceeds from the sale of assets) are estimated to
be $30 to $35.
9
<PAGE>
REVLON, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
OVERVIEW
The Company operates in a single segment and manufactures, markets and
sells an extensive array of cosmetics and skin care, fragrances and personal
care products. In addition, the Company has a licensing group.
On March 30, 2000 and May 8, 2000, Products Corporation completed the
dispositions of its worldwide professional products line and Plusbelle brand in
Argentina, respectively. Accordingly, the Unaudited Consolidated Condensed
Financial Statements include the results of operations of the professional
products line and Plusbelle brand through the dates of their respective
dispositions.
RESULTS OF OPERATIONS
The following table sets forth the Company's net sales for the
three-month and nine-month periods ended September 30, 2000 and 1999,
respectively:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------ ------------------------------
Net sales: 2000 1999 2000 1999
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
United States........... $ 215.2 $ 250.0 $ 697.1 $ 847.1
International........... 136.7 202.4 473.4 599.8
------------ ------------- ------------ -------------
$ 351.9 $ 452.4 $ 1,170.5 $ 1,446.9
============ ============= ============ =============
</TABLE>
The following table sets forth certain statements of operations data as
a percentage of net sales for the three-month and nine-month periods ended
September 30, 2000 and 1999, respectively:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------- -------------------------------
2000 1999 2000 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Cost of sales........................... 35.4 % 37.6 % 35.7 % 35.3 %
Gross profit............................ 64.6 62.4 64.3 64.7
Selling, general and administrative
expenses ("SG&A")................. 57.9 89.2 58.7 69.2
Restructuring costs and other, net...... 3.9 0.9 2.4 1.5
Operating income (loss)................. 2.8 (27.7) 3.3 (6.0)
</TABLE>
NET SALES
Net sales were $351.9 and $452.4 for the third quarters of 2000 and
1999, respectively, a decrease of $100.5, or 22.2% on a reported basis (a
decrease of 21.2% on a constant U.S. dollar basis), and were $1,170.5 and
$1,446.9 for the nine months ended September 30, 2000 and 1999, respectively, a
decrease of $276.4, or 19.1% on a reported basis (a decrease of 18.2% on a
constant U.S. dollar basis). The decline in consolidated net sales for the third
quarter and nine months ended September 30, 2000 as compared with the comparable
1999 periods is primarily due to the sale of the worldwide professional products
line and Plusbelle brand in Argentina, the effect on sales of the reduction of
overall U.S. customer inventories, reduced consumer demand for the Company's
cosmetics, and increased competitive activity in certain markets.
10
<PAGE>
REVLON, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
Net sales, excluding the worldwide professional products line and the
Plusbelle brand in Argentina, were $351.9 and $355.8 for the third quarters of
2000 and 1999, respectively, a decrease of $3.9, or 1.1% on a reported basis (an
increase of 0.6% on a constant U.S. dollar basis), and were $1,074.2 and
$1,149.5 for the nine months ended September 30, 2000 and 1999, respectively, a
decrease of $75.3, or 6.6% on a reported basis (a decrease of 5.5% on a constant
U.S. dollar basis).
United States. Net sales in the United States were $215.2 for the third
quarter of 2000 compared with $250.0 for the third quarter of 1999, a decrease
of $34.8, or 13.9%, and were $697.1 for the nine months ended September 30, 2000
compared with $847.1 for the nine months ended September 30, 1999, a decrease of
$150.0, or 17.7%.
Net sales, excluding the domestic portion of the worldwide professional
products line, were $215.2 for the third quarter of 2000 compared with $210.7
for the third quarter of 1999, an increase of $4.5, or 2.1%, and were $662.0 for
the nine months ended September 30, 2000 compared with $723.5 for the nine
months ended September 30, 1999, a decrease of $61.5, or 8.5%. The decline in
sales for the nine months ended September 30, 2000 is primarily due to a
reduction of overall U.S. customer inventories, which the Company anticipates
will continue to affect sales, and reduced consumer demand for the Company's
cosmetics.
International. Net sales outside the United States were $136.7 for the
third quarter of 2000 compared with $202.4 for the third quarter of 1999, a
decrease of $65.7, or 32.5%, and were $473.4 for the nine months ended September
30, 2000 compared with $599.8 for the nine months ended September 30, 1999, a
decrease of $126.4, or 21.1%. The decrease was due to the sale of the worldwide
professional products line and the Plusbelle brand in Argentina, as well as
increased competitive activity in certain markets.
Net sales, excluding the worldwide professional products line outside
the United States and the Plusbelle brand in Argentina, were $136.7 for the
third quarter of 2000 compared with $145.1 for the comparable 1999 period, a
decrease of $8.4, or 5.8%, on a reported basis (a decrease of 1.6% on a constant
U.S. dollar basis), and were $412.2 for the nine months ended September 30, 2000
compared with $426.0 for the nine months ended September 30, 1999, a decrease of
$13.8, or 3.2%, on a reported basis (a decrease of 0.2% on a constant U.S.
dollar basis). The decrease in net sales for the third quarter and nine months
ended September 30, 2000 on a constant dollar basis is primarily due to
increased competitive activity in certain markets outside the U.S., partially
offset by the introduction of new products in certain markets. The decrease in
net sales for the third quarter and nine months ended September 30, 2000 on a
reported basis also reflects the unfavorable effect on sales of a stronger U.S.
dollar against certain foreign currencies. Sales outside the United States are
divided into three geographic regions. In Europe, which comprises Europe, the
Middle East and Africa, net sales decreased by 8.8% on a reported basis to $41.6
for the third quarter of 2000 as compared with the third quarter of 1999 (an
increase of 1.3% on a constant U.S. dollar basis), and decreased by 5.3% on a
reported basis to $132.2 for the nine months ended September 30, 2000 as
compared with the nine months ended September 30, 1999 (an increase of 2.4% on a
constant U.S. dollar basis). In the Western Hemisphere, which comprises Canada,
Mexico, Central America, South America and Puerto Rico, net sales increased by
0.6% on a reported basis to $63.6 for the third quarter of 2000 as compared with
the third quarter of 1999 (a decrease of 0.5% on a constant U.S. dollar basis),
and increased by 1.9% on a reported basis to $184.8 for the nine months ended
September 30, 2000 as compared with the nine months ended September 30, 1999 (an
increase of 1.7% on a constant U.S. dollar basis). The Company's operations in
Brazil are significant. In Brazil, net sales were $18.1 on a reported basis for
the third quarter of 2000 compared with $17.5 for the third quarter of 1999, an
increase of $0.6, or
11
<PAGE>
REVLON, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
3.4% (an increase of 1.2% on a constant U.S. dollar basis), and were $54.5 on a
reported basis for the nine months ended September 30, 2000 compared with $56.9
for the nine months ended September 30, 1999, a decrease of $2.4, or 4.2% (a
decrease of 3.0% on a constant U.S. dollar basis). On a constant U.S. dollar
basis net sales in Brazil for the nine months ended September 30, 2000 were
adversely affected by increased competitive activities and disruptions resulting
from the Company's consideration of the possible sale of certain of its
Brazilian brands. In the Far East, net sales decreased by 13.2% on a reported
basis to $31.5 for the third quarter of 2000 as compared with the third quarter
of 1999 (a decrease of 7.2% on a constant U.S. dollar basis), and decreased by
9.4% on a reported basis to $95.2 for the nine months ended September 30, 2000
as compared with the nine months ended September 30, 1999 (a decrease of 6.8% on
a constant U.S. dollar basis). Net sales outside the United States, including,
without limitation, in Brazil, may be adversely affected by weak economic
conditions, political and economic uncertainties, including, without limitation,
currency fluctuations, and competitive activities in certain markets.
Cost of sales
As a percentage of net sales, cost of sales was 35.4% for the third
quarter of 2000 compared with 37.6% for the third quarter of 1999, and 35.7% for
the nine months ended September 30, 2000 compared with 35.3% for the nine months
ended September 30, 1999. Excluding the worldwide professional products line and
the Plusbelle brand in Argentina, cost of sales as a percentage of net sales was
35.4% for the third quarter of 2000 compared with 37.3% for the third quarter of
1999, and 35.2% for the nine months ended September 30, 2000 compared with 34.5%
for the nine months ended September 30, 1999. The decrease in cost of sales as a
percentage of net sales for the third quarter of 2000 compared with the third
quarter of 1999 is due primarily to product mix, partially offset by the
effect of fixed costs on lower net sales. The increase in cost of sales as a
percentage of net sales for the nine months ended September 30, 2000 compared
with the nine months ended September 30, 1999 is due to the mix of new products
with higher product packaging and material costs and the effect of fixed costs
on lower net sales.
SG&A expenses
As a percentage of net sales, SG&A expenses were 57.9% for the third
quarter of 2000 compared with 89.2% for the third quarter of 1999, and 58.7% for
the nine months ended September 30, 2000 compared with 69.2% for the nine months
ended September 30, 1999. Excluding the worldwide professional products line and
the Plusbelle brand in Argentina, SG&A expenses as a percentage of net sales
were 57.9% for the third quarter of 2000 compared with 99.0% for the third
quarter of 1999, and 59.0% for the nine months ended September 30, 2000 compared
with 73.4% for the nine months ended September 30, 1999. The decrease in SG&A
expenses as a percentage of sales during the 2000 periods primarily reflects
reduced trade promotion and couponing activity and the favorable impact of the
Company's restructuring efforts partially offset by the effect of fixed costs on
lower net sales. The 1999 periods included an adjustment for recognition of
additional advertising and promotional charges due to a substantially reduced
sales forecast for the 1999 fourth quarter.
12
<PAGE>
REVLON, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
Restructuring costs and other, net
Since 1998 the Company has been continuously evaluating its
organizational structure and has implemented a number of restructuring plans.
In the fourth quarter of 1998, the Company committed to a restructuring
plan to realign and reduce personnel, exit excess leased real estate, realign
and consolidate regional activities, reconfigure certain manufacturing
operations and exit certain product lines. For the nine months ended September
30, 1999, the Company recorded a net charge of $22.1, $3.8 of which was recorded
in the third quarter of 1999, relating to 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. In the third quarter
of 1999, the Company also consummated the exit from the non-core business
referred to above, as to which an additional charge of $0.6 is included in
restructuring costs and other, net for such period.
In the first quarter of 2000, the Company recorded a charge of $9.5
relating to a restructuring plan which began in the fourth quarter of 1999,
principally for additional employee severance and other personnel benefits and
to restructure certain operations outside the United States. The Company
continued to implement such restructuring plan during the second quarter of 2000
during which it recorded a charge of $5.1 relating to exiting certain operations
in Japan and employee severance and other personnel benefits.
During the third quarter of 2000, the Company continued to re-evaluate
its organizational structure. As part of this re-evaluation, the Company
is developing a new restructuring plan designed to improve profitability by
reducing personnel and consolidating manufacturing facilities. In the third
quarter of 2000, the Company recorded a charge of $13.7 related to such plan,
principally for additional employee severance and other personnel benefits and
to consolidate worldwide operations.
The Company anticipates annual savings of approximately $20 relating
to the restructuring charges taken in the nine months ended September 30, 2000.
Operating income (loss)
As a result of the foregoing, operating income (loss) increased to $9.8
for the third quarter of 2000 from $(125.5) for the third quarter of 1999 and
increased to $38.1 for the nine months ended September 30, 2000 from $(86.8) for
the nine months ended September 30, 1999.
Operating income (loss), excluding the worldwide professional products
line and the Plusbelle brand in Argentina, increased to $9.8 for the third
quarter of 2000 from $(132.3) for the third quarter of 1999 and increased to
$33.5 for the nine months ended September 30, 2000 from $(109.0) for the nine
months ended September 30, 1999.
Other expenses (income)
Interest expense was $35.6 for the third quarter of 2000 compared with
$36.8 for the third quarter of 1999 and $108.9 for the nine months ended
September 30, 2000 compared with $108.6 for the nine months ended September 30,
1999. The decrease in interest expense for the third quarter of 2000 as compared
with the third quarter of 1999 is primarily due to 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. The
increase in interest expense for the nine months ended September 30, 2000 as
compared with the nine months ended September 30, 1999 is primarily due to
higher average outstanding debt during the first
13
<PAGE>
REVLON, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
quarter of 2000 and higher interest rates under the Credit Agreement during the
nine months ended September 30, 2000, partially offset by the repayment in June
1999 of Products Corporation's 9 1/2% Senior Notes due 1999 (the "1999 Notes")
and the repayment of borrowings under the Credit Agreement with the net proceeds
from the disposition of the professional products line and the Plusbelle brand.
Foreign currency (gains) losses, net, were $(1.1) for the third quarter
of 2000 compared with $0.2 in the third quarter of 1999, and $1.0 for the nine
months ended September 30, 2000 compared with $0.2 for the nine months ended
September 30, 1999. Foreign currency (gains), net for the third quarter of 2000,
resulted primarily from the strengthening of the Mexican peso against the U.S.
dollar. Foreign currency losses, net for the nine months ended September 30,
2000, consisted primarily of losses in certain markets in Latin America.
Sale of product line and brand
On May 8, 2000, Products Corporation completed the disposition of its
Plusbelle brand in Argentina for $46.2 in cash. Approximately $20.7 of the Net
Proceeds was used to reduce the aggregate commitment under the Credit Agreement.
In connection with the disposition, the Company recognized a pre-tax and
after-tax loss of $3.2 (See Note 5 to the Unaudited Consolidated Condensed
Financial Statements).
On March 30, 2000, Products Corporation completed the disposition of
its worldwide professional products line, including professional hair care for
use in and resale by professional salons, ethnic hair and personal care
products, Natural Honey skin care and certain regional toiletries brands. In
connection with the disposition, the Company recognized a pre-tax and after-tax
gain of $6.2 (See Note 5 to the Unaudited Consolidated Condensed Financial
Statements).
Provision for income taxes
The provision for income taxes was $2.2 for the third quarter of 2000
compared with $1.9 for the third quarter of 1999 and $7.0 for the nine months
ended September 30, 2000 compared with $5.6 for the nine months ended September
30, 1999. The increase for the nine months ended September 30, 2000 compared
with the nine months ended September 30, 1999 was primarily due to the reduction
of certain deferred tax assets and increased taxes associated with the worldwide
professional products line.
14
<PAGE>
REVLON, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Net cash used for operating activities was $131.9 and $90.8 for the
nine months ended September 30, 2000 and 1999, respectively. The increase in net
cash used for operating activities for the nine months ended September 30, 2000
compared with net cash used for operating activities for the nine months ended
September 30, 1999 resulted primarily from changes in working capital.
Net cash provided by (used for) investing activities was $325.2 and
$(29.8) for the nine months ended September 30, 2000 and 1999, respectively. Net
cash provided by investing activities for the nine months ended September 30,
2000 consisted of proceeds from the sale of the Company's worldwide professional
products line and Plusbelle brand in Argentina, partially offset by cash used
for capital expenditures. Net cash used for investing activities for the nine
months ended September 30, 1999 consisted of capital expenditures, which
primarily included upgrades to the Company's management information systems the
majority of which are non-recurring in 2000, partially offset by proceeds from
the exit from and sale of a small non-core business.
Net cash (used for) provided by financing activities was $(193.2) and
$187.0 for the nine months ended September 30, 2000 and 1999, respectively. Net
cash used for financing activities for the nine months ended September 30, 2000
included repayments of borrowings under the Credit Agreement and the repayment
of Products Corporation's Japanese yen-denominated credit agreement (the "Yen
Credit Agreement"), partially offset by cash drawn under the Credit Agreement.
Net cash provided by financing activities for the nine months ended September
30, 1999 included cash drawn under the Credit Agreement, partially offset by
repayments of borrowings under the Credit Agreement, redemption of the 1999
Notes and repayments under the Yen Credit Agreement.
In May 1997, Products Corporation entered into a credit agreement (as
subsequently amended, the "Credit Agreement") with a syndicate of lenders, whose
individual members change from time to time. In March 2000 and May 2000, 60% of
the Net Proceeds from the disposition of the worldwide professional products
line and its Plusbelle brand in Argentina, respectively, was applied to reduce
the aggregate commitment under the Credit Agreement. As of September 30, 2000,
after giving effect to the foregoing reductions, the Credit Agreement provided
up to $534.8 and is comprised of five senior secured facilities: $106.2 in two
term loan facilities (the "Term Loan Facilities"), a $300.0 multi-currency
facility (the "Multi-Currency Facility"), a $78.6 revolving acquisition
facility, which may also be used for general corporate purposes and which may be
increased to $278.6 under certain circumstances with the consent of a majority
of the lenders (the "Acquisition Facility"), and a $50.0 special standby letter
of credit facility (the "Special LC Facility"). At September 30, 2000, the
Company had $106.2 outstanding under the Term Loan Facilities, $219.1
outstanding under the Multi-Currency Facility, $78.6 outstanding under the
Acquisition Facility and $22.2 of issued but undrawn letters of credit under the
Special LC Facility. As a result of the permanent reductions of the commitment
from the sale of the professional products line and the Plusbelle brand the
scheduled reductions of the Acquisition Facility will also be reduced such that
the total amount of such reductions is equal to the reduced aggregate
Acquisition Facility commitment. The scheduled reductions of the Acquisition
Facility are $16.2 for the remainder of 2000, $48.8 during 2001 and the balance
at maturity in May 2002.
A subsidiary of Products Corporation was the borrower under the Yen
Credit Agreement. In March 2000, the outstanding balance under the Yen Credit
Agreement was repaid in full in accordance with its terms.
The Company's principal sources of funds are expected to be cash flow
generated from operations (before interest), borrowings under the Credit
Agreement and other existing working capital lines and renewals thereof. The
Credit Agreement, Products Corporation's 8 5/8% Senior Subordinated Notes due
15
<PAGE>
REVLON, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
2008 (the "8 5/8% Notes"), Products Corporation's 8 1/8% Senior Notes due 2006
(the "8 1/8% Notes") and Products Corporation's 9% Senior Notes due 2006 (the
"9% Notes") contain certain provisions that by their terms limit Products
Corporation's and/or its subsidiaries' ability to, among other things, incur
additional debt. The Company's principal uses of funds are expected to be the
payment of operating expenses, working capital and capital expenditure
requirements, expenses in connection with the Company's restructuring plans
referred to above and debt service payments.
The Company estimates that capital expenditures for 2000 will be
approximately $15. The Company estimates that cash payments related to the
restructuring plans referred to in Note 4 and Note 7 to the Unaudited
Consolidated Condensed Financial Statements and executive separation costs will
be approximately $55 in 2000. Pursuant to a tax sharing agreement, Revlon,
Inc. may be required to make tax sharing payments to Mafco Holdings Inc. as if
Revlon, Inc. 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.
Revlon, Inc. currently anticipates that, as a result of net operating tax losses
and prohibitions under the Credit Agreement, no cash federal tax payments or
cash payments in lieu of federal taxes pursuant to the tax sharing agreement
will be required for 2000.
Products Corporation enters into forward foreign exchange contracts and
option contracts from time to time to hedge certain cash flows denominated in
foreign currencies. There were no forward foreign exchange or option contracts
outstanding at September 30, 2000.
The Company expects that cash flows from operations and funds from
currently available credit facilities and renewals of short-term borrowings will
be sufficient to enable the Company to meet its anticipated cash requirements
during 2000 on a consolidated basis, including for debt service. However, there
can be no assurance that the combination of cash flow from operations, funds
from existing credit facilities and renewals of short-term borrowings will be
sufficient to meet the Company's cash requirements on a consolidated basis.
Products Corporation anticipates that it will be seeking to amend its Credit
Agreement in certain respects in 2001 in order to fund its proposed
restructuring plans and to amend certain of the financial covenants for 2001 and
2002. If the Company is unable to satisfy such cash requirements, and amend the
Credit Agreement, the Company could be required to adopt one or more
alternatives, such as reducing or delaying capital expenditures, delaying or
revising proposed restructuring plans, restructuring indebtedness, selling
assets or operations, or seeking capital contributions or loans from affiliates
of the Company or issuing 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 to continue to
satisfy its capital requirements or that they would be permitted under the terms
of the Company's various debt instruments then in effect. Revlon, Inc., as a
holding company, will be dependent on the earnings and cash flow of, and
dividends and distributions from, Products Corporation to pay its expenses and
to pay any cash dividend or distribution on the Class A Common Stock that may be
authorized by the Board of Directors of Revlon, Inc. 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. Amended and
Restated 1996 Stock Plan, provided that the aggregate amount of such dividends
and distributions taken together with any
16
<PAGE>
REVLON, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
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.
SUBSEQUENT EVENTS
As part of the restructuring plan initiated in the third quarter of
2000, the Company announced in the fourth quarter of 2000 that it would cease
its manufacturing operations in Mississauga, Canada, and intended to discontinue
manufacturing operations in Phoenix, Arizona during 2001 and shift production to
the Oxford, North Carolina facility. The Company estimates that the costs of
closing these facilities and relocating manufacturing will result in a one-time
charge of $50 to $55 (which is in addition to the $13.7 recorded in the third
quarter of 2000). These costs principally include severance and write-downs of
assets. Net cash expenditures (after the proceeds from the sale of assets) are
estimated to be $30 to $35. The Company expects that these planned actions when
fully implemented will result in annual savings of approximately $25 to $30.
In October 2000, the Company announced changes in the way it goes to
market with its U.S. retail partners designed to increase consumption of the
Company's products and drive market growth. The new terms of trade are effective
January 1, 2001, with a transition during the fourth quarter of 2000. They
include the phased rollout of a new retail display system, increased in-store
coverage, incentives for retailers intended to encourage more efficient ordering
and shipping and to lower merchandise return rates and rewards for increased
consumer sell-through.
EURO CONVERSION
As part of the European Economic and Monetary Union, a single currency
(the "Euro") will replace the national currencies of the principal European
countries (other than the United Kingdom) in which the Company conducts business
and manufacturing. The conversion rates between the Euro and the participating
nations' currencies were fixed as of January 1, 1999, with the participating
national currencies to be removed from circulation between January 1, 2002 and
June 30, 2002 and replaced by Euro notes and coinage. During the transition
period from January 1, 1999 through December 31, 2001, public and private
entities as well as individuals may pay for goods and services using checks,
drafts, or wire transfers denominated either in the Euro or the participating
country's national currency. Under the regulations governing the transition to a
single currency, there is a "no compulsion, no prohibition" rule, which states
that no one can be prevented from using the Euro after January 1, 2002 and no
one is obliged to use the Euro before July 2002. In keeping with this rule, the
Company expects to either continue using the national currencies or the Euro for
invoicing or payments. Based upon the information currently available, the
Company does not expect that the transition to the Euro will have a material
adverse effect on the business or consolidated financial condition of the
Company.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has exposure to market risk both as a result of changing
interest rates and movements in foreign currency exchange rates. The Company's
policy is to manage market risk through a combination of fixed and floating rate
debt, the use of derivative financial instruments and foreign exchange forward
and option contracts. The Company does not hold or issue financial instruments
for trading purposes. The qualitative and quantitative information presented in
Item 7A of the Company's Annual Report on Form 10-K for the year ended December
31, 1999 describes significant aspects of the Company's financial instrument
programs that have material market risk as of December 31, 1999. As referred to
above, in March 2000 and May 2000, Products Corporation reduced the aggregate
commitment under its Credit Agreement and repaid its Yen Credit Agreement. The
following table presents the information required by Item 7A as of September 30,
2000.
17
<PAGE>
REVLON, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
EXPECTED MATURITY DATE FOR YEAR ENDED SEPTEMBER 30,
---------------------------------------------------------------------- FAIR VALUE
SEPTEMBER 30,
2001 2002 2003 2004 2005 THEREAFTER TOTAL 2000
-------- --------- ------- ------- ------ ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
DEBT (US dollar equivalent in millions)
Short-term variable rate (various currencies).. $25.8 $ 25.8 $ 25.8
Average interest rate (a) ............... 8.3%
Long-term fixed rate ($US) .................... $ 1,149.3 1,149.3 741.8
Average interest rate ................... 8.6%
Long-term variable rate ($US) ................. $ 333.9 333.9 333.9
Average interest rate (a) ............... 9.4%
Long-term variable rate (various currencies) .. 70.0 70.0 70.0
Average interest rate (a) ............... 7.9%
--------- ------------
Total debt $1,579.0 $ 1,171.5
========= ============
</TABLE>
(a) Weighted average variable rates are based upon implied forward rates from
the yield curves at September 30, 2000.
FORWARD-LOOKING STATEMENTS
This quarterly report on Form 10-Q for the quarter ended September 30,
2000 as well as other public documents of the Company contains forward-looking
statements that involve risks and uncertainties. The Company's actual results
may differ materially from those discussed in such forward-looking statements.
Such statements include, without limitation, the Company's expectations and
estimates as to: the introduction of new products; future financial performance;
the effect on sales of the reduction of overall U.S. customer inventories
including the timing thereof; the effect on sales of political and/or economic
conditions and competitive activities in certain markets; the Company's estimate
of restructuring activities, restructuring costs and benefits; the Company's
plans with respect to and estimate of the timing of the shutdown of its Phoenix
and Canada manufacturing operations, the charges, the cash cost and the annual
savings resulting from such shutdowns; the Company's expectation that its new
trade terms for its U.S. customers will increase consumption of its products,
drive market growth, result in more efficient ordering and shipping and reduce
returns; cash flow from operations; capital expenditures; the Company's
qualitative and quantitative estimates as to market risk sensitive instruments;
the Company's expectations about the effects of the transition to the Euro; the
availability of funds from currently available credit facilities, renewals of
short-term borrowings, capital contributions or loans from affiliates, the sale
of assets or operations or additional shares of Revlon, Inc.; Products
Corporation's intent to amend its Credit Agreement to fund its proposed
restructuring plans and to amend certain of the financial covenants in the
Credit Agreement for 2001 and 2002 and the effect of the adoption of certain
accounting standards. Statements that are not historical facts, including
statements about the Company's beliefs and expectations, are forward-looking
statements. Forward-looking statements can be identified by, among other things,
the use of forward-looking language, such as "believes," "expects," "estimates,"
"may," "will," "should," "seeks," "plans," "scheduled to," "anticipates" or
"intends" or the negative of those terms, or other variations of those terms or
comparable language, or by discussions of strategy or intentions.
Forward-looking statements speak only as of the date they are made, and the
Company undertakes no obligation to update them. A number of important factors
could cause actual results to differ materially from those contained in any
forward-looking statement. In addition to factors that may be described in the
Company's filings with the Commission, including this 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
18
<PAGE>
REVLON, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
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 or additional shares of Revlon, Inc.; (v) effects of
and changes in political and/or economic conditions, including inflation and
monetary conditions, and in trade, monetary, fiscal and tax policies in
international markets, including but not limited to Brazil; (vi) actions by
competitors, including business combinations, technological breakthroughs, new
products offerings and marketing and promotional successes; (vii) combinations
among significant customers or the loss, insolvency or failure to pay debts by a
significant customer or customers; (viii) lower than expected sales as a result
of the reduction of overall U.S. customer inventories; (ix) difficulties, delays
or unanticipated costs or less than expected savings and other benefits
resulting from the Company's restructuring activities; (x) difficulties or
delays in implementing higher than expected charges and cash costs or lower than
expected savings from the shutdown of manufacturing operations in Phoenix and
Canada; (xi) difficulties or delays in implementing or achieving the intended
results of the new trade terms, including increased consumption, market growth
and lower returns or unexpected consequences from the implementation of the new
trade terms including the possible effect on sales; (xii) interest rate or
foreign exchange rate changes affecting the Company and its market sensitive
financial instruments; (xiii) difficulties, delays or unanticipated costs
associated with the transition to the Euro; (xiv) difficulties, delays or
inability to amend the Credit Agreement to fund proposed restructuring plans and
the financial covenants in the Credit Agreement for 2001 and 2002; and (xv) the
effects of the Company's adoption of certain new accounting standards.
EFFECT OF NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities.
In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities -- Deferral of the Effective Date of SFAS No.
133, an Amendment of SFAS No. 133," which has delayed the required
implementation of SFAS No. 133 such that the Company must adopt this standard no
later than January 1, 2001. In June 2000, the FASB issued SFAS No. 138,
"Accounting for Derivative Instruments and Hedging Activities, an
Amendment of SFAS No. 133," to amend SFAS No. 133 and provide guidance on the
implementation of SFAS No. 133. The Company is in the process of determining the
impact the adoption of this statement will have on its financial position and
results of operations. The Company plans to adopt the new standard on January 1,
2001.
In May 2000, the FASB Emerging Issues Task Force (the "EITF") issued
new guidelines entitled, "Accounting for Certain Sales Incentives" (the
"Guidelines"), which addresses when sales incentives and discounts should be
recognized, as well as where the related revenues and expenses should be
classified in the financial statements. The Guidelines are effective in the
fourth quarter of the fiscal year beginning after December 15, 1999, and would
be applied retroactively for purposes of comparability. Therefore, beginning in
the fourth quarter of 2000, the Company is required to reclassify certain
revenues and expenses related to its promotional programs out of operating
expenses and into sales and cost of sales. The Company has not fully quantified
the reclassification; however, the Company expects that by its nature, such
reclassification will not affect the Company's operating income (loss) or net
loss.
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
became effective July 1, 2000, applies prospectively to new awards, exchanges of
awards, modifications to
19
<PAGE>
REVLON, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
outstanding awards and changes in grantee status that occur on or after July 1,
2000, except for the provisions related to repricings and the definition of an
employee, which apply to awards issued after December 15, 1998. The
implementation of the Interpretation by the Company on July 1, 2000 had no
material impact on the Company's consolidated financial statements.
In December 1999, the staff of the United States Securities and
Exchange Commission issued Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements," as amended by SAB 101A and SAB 101B ("SAB
101"). SAB 101 outlines the basic criteria that must be met to recognize revenue
and provides guidelines for disclosure related to revenue recognition policies.
SAB 101 is required to be implemented in the fourth quarter of 2000. The Company
is currently reviewing SAB 101 to determine the impact of its provisions, if
any, on the Company's consolidated financial statements.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On April 17, 2000 the plaintiffs in the six purported class actions
filed in October and November 1999 by each of Thomas Comport, Boaz Spitz, Felix
Ezeir and Amy Hoffman, Ted Parris, Jerry Krim and Dan Gavish individually and
allegedly on behalf of others similarly situated to them against Revlon, Inc.,
certain of its present and former officers and directors and REV Holdings Inc.,
alleging among other things, violations of Rule 10b-5 under the Securities
Exchange Act of 1934, filed an Amended Complaint, which consolidated all of the
actions and limited the alleged class period to the period from October 29, 1997
through October 1, 1998 ("In Re Revlon, Inc. Securities Litigation"). On June 2,
2000, the Company moved to dismiss the Amended Complaint. The Company believes
the allegations contained in the Amended Complaint are without merit and intends
to vigorously defend against them.
A purported class action lawsuit was filed on September 27, 2000, in
the United States District Court for the Southern District of New York on behalf
of Dan Gavish, Tricia Fontan and Walter Fontan individually and allegedly on
behalf of all others similarly situated who purchased the securities of Revlon,
Inc., and REV Holdings Inc. between October 2, 1998, and September 30, 1999 (the
"Purported Class Period"). The complaint alleges that Revlon, Inc. and certain
of its present and former officers and directors and REV Holdings Inc. violated
Sections 10(b) and 20(a) of the Securities Exchange Act of 1934. On October 17,
2000 the court ordered that this lawsuit be consolidated with the pending In Re
Revlon, Inc. Securities Litigation. The Company believes the Complaint should
properly be consolidated with the pending litigation and in any event that
allegations contained in the complaint are without merit and intends to
vigorously defend against them.
20
<PAGE>
REVLON, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - NONE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS -
10.24 Sixth Amendment, dated as of September 8, 2000, to the Amended
and Restated Credit Agreement, dated as of May 30, 1997, as amended, among
Revlon Consumer Products Corporation, the Borrowing Subsidiaries from time to
time parties thereto, the financial institutions from time to time parties
thereto, the Co-Agents named therein, Citibank, N.A., as Documentation Agent,
Lehman Commercial Paper Inc., as Syndication Agent, The Chase Manhattan Bank, as
Administrative Agent and Chase Securities Inc., as Arranger.
(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.
REVLON, INC.
Registrant
By:/s/ Douglas H. Greeff By:/s/ Laurence Winoker
----------------------------- ------------------------------------
Douglas H. Greeff Laurence Winoker
Executive Vice President Senior Vice President, Corporate
and Chief Financial Officer Controller and Treasurer
Dated: November 14, 2000
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