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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
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 1-11334
REVLON CONSUMER PRODUCTS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 13-3662953
(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
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OR 12(g) OF THE ACT:
Name of each exchange
Title of each class on which registered
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10 1/2% Senior Subordinated Notes due 2003 N/A
9 3/8% Senior Notes due 2001 N/A
9 1/2% Senior Notes due 1999 New York Stock Exchange, Inc.
10 7/8% Sinking Fund Debentures due 2010 New York Stock Exchange, Inc.
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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 [ ]
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO
ITEM 405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED,
TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION
STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY
AMENDMENT TO THIS FORM 10-K. [X]
THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON-AFFILIATES
OF THE REGISTRANT IS NOT APPLICABLE AS THERE IS NO PUBLIC MARKET THEREFOR. ALL
SHARES OF COMMON STOCK ARE HELD BY ONE AFFILIATE. THE NUMBER OF OUTSTANDING
SHARES OF THE REGISTRANT'S COMMON STOCK, AS OF FEBRUARY 20, 1997, WAS 1,000.
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ITEM 1. DESCRIPTION OF BUSINESS
BACKGROUND
Revlon Consumer Products Corporation ("Products Corporation" and
together with its subsidiaries, the "Company") operates in a single business
segment with many different products, which include an extensive array of
glamorous, exciting and innovative cosmetics and skin care, fragrance, personal
care and professional products. REVLON is one of the world's best known names
in cosmetics and is a leading mass market cosmetics brand. The Company's vision
is to provide glamour, excitement and innovation through quality products at
affordable prices. To pursue this vision, the Company's management team
combines the creativity of a cosmetics and fashion company with the marketing,
sales and operating discipline of a consumer packaged goods company. The
Company believes that its global brand name recognition, product quality and
marketing experience have enabled it to create one of the strongest consumer
brand franchises in the world, with products sold in approximately 175
countries and territories. The Company's products are marketed under such
well-known brand names as REVLON, COLORSTAY, REVLON AGE DEFYING, ALMAY and
ULTIMA II in cosmetics; MOON DROPS, ETERNA 27, REVLON RESULTS, ALMAY TIME-OFF,
ULTIMA II, JEANNE GATINEAU and NATURAL HONEY in skin care; CHARLIE, FIRE & ICE,
CIARA, CHERISH, and JONTUE in fragrances; FLEX, OUTRAGEOUS, AQUAMARINE,
MITCHUM, COLORSILK, JEAN NATE, BOZZANO and COLORAMA in personal care products;
and ROUX FANCI-FULL, REALISTIC, CREME OF NATURE, FERMODYL, VOILA, COLOMER,
CREATIVE NAIL DESIGN SYSTEMS and AMERICAN CREW in professional products. To
further strengthen its consumer brand franchises, the Company markets each core
brand with a distinct and uniform global image including packaging and
advertising, while retaining the flexibility to tailor products to local and
regional preferences.
The Company was founded by Charles Revson, who revolutionized the
cosmetics industry by introducing nail enamels matched to lipsticks in fashion
colors 65 years ago. Today, the Company has leading market positions in many of
its principal product categories in the United States self-select distribution
channel. The Company's leading market positions for its REVLON brand products
include the number one positions in the United States self-select distribution
channel in lip makeup and nail enamel (which the Company has occupied for the
past 20 years) for 1996. The Company has the number two position in face makeup
in the United States self-select distribution channel for 1996. Propelled by
the success of its new product launches and share gains in its existing product
lines, the Company has captured the number one position overall in color
cosmetics (consisting of lip, eye and face makeup and nail enamel) in the
United States self-select distribution channel, where its market share was
21.4% for 1996. The Company also has leading market positions in several
product categories in certain markets outside of the United States, including
in Brazil, Canada, South Africa and Australia.
The self-select distribution channel, in which consumers select their
own purchases without the assistance of an in-store demonstrator, includes in
the United States independent drug stores and chain drug stores (such as
Walgreens, CVS Drug stores, Eckerd Drug stores and Revco), mass volume
retailers (such as Wal-Mart, Target Stores and Kmart) and supermarkets and
combination supermarket/drug stores (such as Pathmark, Albertson's, Kroger's
and Smith's) and, internationally, Boots in the United Kingdom and Western
Europe, and Shoppers Drug Mart in Canada.
The Company operates in a single business segment with many different
products, which include cosmetics and skin care, fragrance and personal care
products ("consumer products"), and hair and nail care products principally for
use in and resale by professional salons ("professional products"). To reflect
the integration of management reporting responsibilities culminating in the
third quarter of 1996, the Company presents its business geographically as its
United States operation, which comprises the Company's business in the United
States, and its International operation, which comprises its business outside
of the United States. The Company previously presented its business as the
Consumer Group, which comprised the Company's consumer products operations
throughout the world (except principally Spain, Portugal, and Italy) and
professional products operations in certain markets, principally in South
Africa and Argentina, and the Professional Group, which comprised the Company's
professional products operations throughout the world (except principally South
Africa and Argentina) and consumer products operations in Spain, Portugal and
Italy.
On March 5, 1996, Revlon, Inc., the direct parent of Products
Corporation, completed an initial public offering (the "Offering") in which it
issued and sold 8,625,000 shares of its Class A Common Stock for $24.00 per
share. The
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proceeds, net of underwriter's discount and related fees and expenses, of
$187.8 million were contributed to Products Corporation and used to repay
borrowings outstanding under the credit agreement in effect at that time (the
"Former Credit Agreement") and to pay fees and expenses related to the credit
agreement which became effective on March 5, 1996 (the "Credit Agreement").
In January 1996, Products Corporation entered into the Credit
Agreement which became effective upon consummation of the Offering on March 5,
1996. The Credit Agreement includes the following changes from the Former
Credit Agreement, among other things: (i) an extension of the term of the
facilities from June 30, 1997 to December 31, 2000 (subject to earlier
termination in certain circumstances), (ii) a reduction of the interest rates,
(iii) an increase in the amount of the credit facilities from $500 million to
$600 million and (iv) the release of security interests in assets of certain
foreign subsidiaries of Products Corporation which were previously pledged. The
Credit Agreement is comprised of four senior secured facilities: a $130 million
term loan facility, a $220 million multi-currency facility, a $200 million
revolving acquisition facility and a $50 million standby letter of credit
facility.
Products Corporation was incorporated in Delaware in April 1992. On
June 24, 1992, Products Corporation succeeded to assets and liabilities of the
cosmetics and skin care, fragrance and personal care products business of
Revlon Holdings Inc. ("Holdings"). Holdings retained certain small brands that
historically had not been profitable (the "Retained Brands") and certain other
assets and liabilities. Unless the context otherwise requires, references to
the Company relating to dates or periods prior to the formation of Products
Corporation mean the cosmetics and skin care, fragrance and personal care
products business of Holdings to which Products Corporation has succeeded.
Unless the context otherwise requires, all references in this Form 10-K to the
Company, Revlon or Products Corporation mean Revlon Consumer Products
Corporation and its subsidiaries.
All United States market share and market position data herein for the
Company's brands are based upon retail dollar sales which are derived from A.C.
Nielsen data. A.C. Nielsen measures retail sales volume of products sold in the
United States self-select distribution channel. Such data represent A.C.
Nielsen's estimates based upon data gathered by A.C. Nielsen from market
samples. Such data are therefore subject to some degree of variance.
BUSINESS STRATEGY
The Company's business strategy, which implements its vision and is
intended to continue to improve operating performance, is to:
o Strengthen and broaden its core brands through globalization of marketing
and advertising, product development and manufacturing and through
increasing its emphasis on advertising and promotion.
o Lead the industry in the development and introduction of technologically
advanced innovative products that set new trends.
o Expand the Company's presence in all markets in which the Company competes
and enter new and emerging markets.
o Continue to reduce costs and improve operating efficiencies, customer
service and product quality by reducing overhead, rationalizing factory
operations, upgrading management information systems, globally sourcing
raw materials and components and carefully managing working capital.
o Continue to expand market share and product lines through possible
strategic acquisitions or joint ventures.
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PRODUCTS
The Company manufactures and markets a variety of products worldwide.
The following table sets forth the Company's principal brands.
<TABLE>
<CAPTION>
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BRAND COSMETICS SKIN CARE FRAGRANCES PERSONAL CARE PROFESSIONAL
PRODUCTS PRODUCTS
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<S> <C> <C> <C> <C> <C>
Revlon Revlon, ColorStay, Moon Drops, Charlie, Charlie Red, Flex, Flex Balsam, Revlon
Revlon Age Defying, Revlon Results, Charlie White, Outrageous, Professional, Roux
Super Lustrous, Eterna 27 Charlie Sunshine, Aquamarine, Fanci-full,
Moon Drops, Velvet Fire & Ice, Fire & Ice Mitchum, Lady Realistic, Creme of
Touch, New Cool, Cherish, Mitchum, Hi & Nature, Arosci,
Complexion, Touch Lasting, Jontue, Dri, Colorsilk, Sensor Perm,
& Glow, Lashful, StreetWear Scents, Frost & Glow, Perfect Perm,
Lengthwise, Ciara Revlon Shadings, Fermodyl, Perfect
Naturally Glamorous, Jean Nate, Roux Touch, Salon
Custom Eyes, Fanci-full, Perfection,
Softstroke Timeliner, Realistic, Creme of Revlonissimo,
StreetWear, Revlon Nature, Herba Voila, Young
Implements Rich, Fabu-laxer Color, Creative
Nail Design
Systems, Contours,
American Crew,
R PRO, True
Cystem
Almay Almay, Time-Off, Time-Off, Almay
Almay Clear Moisture
Complexion Makeup, Balance,
Amazing, One Coat Moisture Renew,
Almay Clear
Complexion Skin
Care
Ultima II Ultima II, Ultima II, Madly, UII
Wonderwear, The Interactives,
Nakeds CHR
Significant Colorama(b), Jeanne Floid(b), Versace(a), Bozzano(b), Colomer(b),
Regional Juvena(b), Gatineau(b), Charlie Gold, Juvena(b), Intercosmo(b),
Brands Jeanne Gatineau(b) Natural Honey Myrurgia(a) Geniol(b), Personal Bio Point,
Colorama(b), Natural Wonder,
Llongueras(b), Llongueras(b)
Bain de Soleil(b),
ZP-11
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</TABLE>
(a) License held for distribution in certain countries outside the
United States.
(b) Trademark owned in certain markets outside the United States.
Cosmetics and Skin Care. The Company sells a broad range of cosmetics
and skin care products designed to fulfill specifically identified consumer
needs, principally priced in the upper range of the self-select distribution
channel, including lip makeup, nail color and nail care products, eye and face
makeup and skin care products such as lotions, cleansers, creams, toners and
moisturizers. Many of the Company's products incorporate patented,
patent-pending or proprietary technology.
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The Company markets several different lines of REVLON lip makeup
(which includes lipstick and liner). The Company's breakthrough COLORSTAY
lipcolor, which uses patented transfer-resistant technology that provides long
wear, is produced in 40 shades. SUPER LUSTROUS, the Company's flagship lipstick
brand, is produced in 57 shades. MOON DROPS, a moisturizing lipstick, is also
produced in 57 shades.
The Company's nail color and nail care lines include enamels, cuticle
preparations and enamel removers. The Company's flagship REVLON nail enamel is
produced in 85 shades and uses a patented formula that provides consumers with
improved wear, application, shine and gloss in a toluene-free and
formaldehyde-free formula. REVLON nail enamel is the number one brand in the
United States self-select distribution channel. STREETWEAR nail enamel,
launched in 1996, is produced in 19 shades targeted at the "trend" consumer.
STRONG WEAR is a patented strengthening nail enamel formula produced in 19
shades, which contains ingredients that provide protection against splitting,
chipping and breaking. The Company sells nail strengtheners, hardeners and
fortifiers and quick dry nail products, including CALCIUM GEL NAIL BUILDER
strengthener and TOP SPEED quick dry base coat and top coat.
The Company sells face makeup, including foundation, powder, blush and
concealers, under such REVLON brand names as REVLON AGE DEFYING, which is
targeted to women in the over 35 age bracket; COLORSTAY which uses proprietary
transfer-resistant technology that provides long wear; and NEW COMPLEXION, for
consumers in the 25 to 49 age bracket.
The Company's eye makeup products include mascaras, eye shadows and
liners. COLORSTAY Eyecolor, and COLORSTAY LASHCOLOR mascara, LASHFUL and
LENGTHWISE mascaras, SOFTSTROKE eyeliners and REVLON CUSTOM EYES and OVERTIME
SHADOW eye shadows are targeted towards women in the 18 to 49 age bracket, and
REVLON AGE DEFYING eye color is targeted to women over 35.
The Company's ALMAY brand consists of a complete line of
hypo-allergenic, dermatologist-tested, fragrance-free cosmetics and skin care
products targeted to consumers who want "healthy looking skin". The Company
positions the ALMAY brand as the clean, natural and healthy choice. ALMAY
products include lip makeup, nail color and nail care products, eye and face
makeup, skin care products, and sunscreen lotions and creams, including
TIME-OFF makeup and skin care, the AMAZING collection, which uses long wear
transfer-resistant technology and includes AMAZING LASH, ALMAY AMAZING eye
makeup, ALMAY AMAZING LASTING makeup, and ALMAY CLEAR COMPLEXION Skin Care and
Makeup and ALMAY EASY-TO-WEAR eyecolor and ONE COAT mascara. The Company
targets ALMAY to value conscious consumers by offering benefits equal or
superior to higher priced products, such as Clinique, at affordable prices.
ALMAY is the leading brand in the hypo-allergenic market in the United States
self-select distribution channel.
The Company sells implements, which include nail and eye grooming
tools such as clippers, scissors, files, tweezers and eye lash curlers. The
Company's implements are sold individually and in sets under the REVLON brand
name.
The Company also sells cosmetics in international markets under
regional brand names including COLORAMA, which is the top selling popular
priced cosmetics line in Brazil, and JUVENA.
The Company's skin care products, including moisturizers, are sold
under the brand names ETERNA 27, MOON DROPS and REVLON RESULTS. In addition,
the Company sells skin care products in international markets under
internationally recognized brand names and under regional brands, including
NATURAL HONEY.
The Company's premium priced cosmetics and skin care products are sold
under the ULTIMA II brand name, which is the Company's flagship premium priced
brand sold throughout the world, and the JEANNE GATINEAU brand name, which is
sold outside the United States. The ULTIMA II line includes the WONDERWEAR
collection, which includes a long-wearing foundation that uses proprietary
technology, cheek and eyecolor products that use patented technology, and
WONDERWEAR LIPSEXXXY lipstick, which uses patented transfer-resistant
technology that provides long wear, and THE NAKEDS makeup, a trend-setting line
of makeup emphasizing neutral colors.
Fragrances. The Company sells a selection of moderately priced and
premium priced fragrances, including perfumes, eau de toilettes and colognes.
The Company's portfolio includes fragrances such as CHARLIE, FIRE & ICE,
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JONTUE and CIARA; highly successful line extensions such as CHARLIE RED and
CHARLIE WHITE and new additions such as CHERISH, CHARLIE SUNSHINE, FIRE & ICE
COOL and STREETWEAR SCENTS. The Company's CHARLIE fragrance has been a market
leader since the mid-1970's and, the Company believes, one of the top selling
fragrances worldwide. The Company's premium priced fragrance brands include
CIARA and, in international markets, the Company distributes under license
certain brands including VERSACE, VAN GILS and MYRURGIA.
Personal Care Products. The Company sells a broad line of personal
care consumer products that complements its core cosmetics lines and enables
the Company to meet the consumer's broader beauty care needs. In the
self-select distribution channel, the Company sells haircare, anti-perspirant
and other personal care products, including the FLEX, OUTRAGEOUS and AQUAMARINE
haircare lines throughout the world and, the COLORAMA, JUVENA, LLONGUERAS and
NATURAL HONEY brands outside the United States; the COLORSILK, REVLON SHADINGS,
FROST & GLOW and ROUX FANCI-FULL hair coloring lines in the United States; and
the MITCHUM, LADY MITCHUM and HI & DRI anti-perspirant brands throughout the
world. Certain hair care products, including ROUX FANCI-FULL hair coloring and
PERFECT TOUCH and SALON PERFECTION home permanents, were originally developed
for professional use. The Company also markets hypo-allergenic personal care
products, moisturizers and anti-perspirants, under the ALMAY brand.
Professional Products. The Company sells a comprehensive line of salon
products, including permanent wave preparations, hair relaxers, temporary and
permanent hair coloring products, shampoos, conditioners, styling products and
hair conditioners, to professional salons and beauty supply stores under the
REVLON brand as well as other brand names such as ROUX FANCI-FULL, REALISTIC,
FERMODYL, VOILA, REVLONISSIMO, CREME OF NATURE, COLOMER, FABU-LAXER, LOTTABODY,
NATURAL WONDER, SENSOR and INTERCOSMO. Most of the Company's salon products in
the United States currently are distributed in the non-exclusive distribution
channels, in contrast to those products that are distributed exclusively to
professional salons. R PRO, launched in 1996, is a professionally targeted
cosmetic line being distributed through open line channels. Through Creative
Nail Design, Inc. ("Creative Nail"), which was acquired in November 1995, the
Company sells nail enhancement systems and nail color and treatment products
and services for use by the professional salon industry under the brand name of
CREATIVE NAIL DESIGN SYSTEMS. Through AMERICAN CREW, which was acquired in
April 1996 , the Company sells men's shampoos, conditioners, gels, and other
hair care products for use by professional salons. The Company also sells
retail hair care products under the LLONGUERAS, PERSONAL BIO POINT, GENIOL,
FIXPRAY and LANOFIL brands outside the United States. The Company markets in
salons, beauty supply stores and the self-select distribution channel several
lines of hair relaxers, styling products, hair conditioners and other hair care
products under such names as FABU-LAXER and CREME OF NATURE designed for the
particular needs of ethnic consumers. The Company has developed a new exclusive
line of ethnic products, AROSCI, which was successfully launched in 1996. The
Company also sells wigs and hair pieces to retail outlets and certain
professional salons under the REVLON brand and, pursuant to a license, under
the ADOLFO brand.
MARKETING
The Company's vision is to provide glamour, excitement and innovation
through quality products at affordable prices. The Company's marketing efforts
are designed to implement this vision. The Company has formed Global Marketing
Committees, consisting of managers from the Company's marketing, research and
development, operations, advertising and finance departments from the United
States and abroad, which develop strategies for the Company's current and new
brands and products. The Global Marketing Committees coordinate the Company's
globalization efforts while allowing sufficient flexibility to tailor products
to local and regional preferences.
Consumer Products. The Company markets extensive consumer product
lines at a range of retail prices primarily through the self-select
distribution channel and markets select premium lines through
demonstrator-assisted channels. Each line is distinctively positioned and is
marketed globally with consistently recognizable logos, packaging and
advertising designed to differentiate it from other brands. The Company's
existing consumer product lines are carefully segmented, and new product lines
are developed, to target specific consumer needs as measured by focus groups
and other market research techniques.
The Company uses print and television advertising and point-of-sale
merchandising, including displays and samples. The Company has shifted a
significant portion of its marketing to appeal to a broader audience and has
increased media advertising, particularly national television advertising. The
Company increased advertising expenditures by 17.3% for 1996 over 1995 levels
and by 26.2% for 1995 over 1994 levels. The Company's marketing
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emphasizes a uniform global image and product for its portfolio of core brands,
including REVLON, COLORSTAY, REVLON AGE DEFYING, ALMAY, ULTIMA II, FLEX,
CHARLIE, OUTRAGEOUS and MITCHUM. The Company coordinates advertising campaigns
with in-store promotional and other marketing activities. The Company develops
jointly with retailers carefully tailored advertising, point-of-purchase and
other focused marketing programs. The Company has devoted greater resources to
promotional sales of its permanent line of products and reduced the number of
promotional sales of non-recurring products, which historically have had a
higher cost of sales and resulted in larger sales returns. In the self-select
distribution channel, the Company uses network and spot television advertising,
national cable advertising and print advertising in major general interest,
women's fashion and women's service magazines, as well as coupons, magazine
inserts and point-of-sale testers. In the demonstrator-assisted distribution
channel, the Company principally uses cooperative advertising programs with
retailers, supported by Company-paid or Company-subsidized demonstrators and
coordinated in-store promotions and displays.
The Company also has developed unique marketing materials such as the
"Revlon Report", a glossy, color pamphlet distributed in magazines and on
merchandising units, available in 30 countries and 16 languages, which
highlights seasonal and other fashion and color trends, describes the Company's
products that address those trends and contains coupons, rebate offers and
other promotional material to encourage consumers to try the Company's
products. The Company has created two Color Mobiles, which are on-the-road
beauty sampling and information vehicles patterned on the innovative vehicles
that launched COLORSTAY lipcolor, that travel to major retailers in the United
States, at which Company trainers educate consumers on the COLORSTAY and REVLON
AGE DEFYING collections and the latest product and shade offerings. The Color
Mobiles create consumer and retail excitement about the Company's new products
and encourage trial and purchase by consumers. Other marketing materials
designed to introduce the Company's newest products to consumers and encourage
trial and purchase include point-of-sale testers on the Company's display units
that provide information about the Company's products and permit consumers to
test the products, thereby achieving the benefits of an in-store demonstrator
without the corresponding cost, magazine inserts containing samples of the
Company's newest products, trial size products and "shade samplers," which are
collections of trial size products in different shades. Additionally, the
Company has its own website which features current product and promotional
information.
Professional Products. Professional products are marketed through
educational seminars, advertising, displays and samples to communicate to
professionals and consumers the quality and performance characteristics of such
products. The shift to exclusive line distributors will significantly reinforce
the Company's marketing and educational efforts with salon professionals. The
Company believes that its presence in the professional markets benefits its
consumer products business since the Company is able to anticipate consumer
trends in hair, nail and skin care, which often appear first in salons.
NEW PRODUCT DEVELOPMENT AND RESEARCH AND DEVELOPMENT
The Company believes that it is an industry leader in the development
of innovative and technologically advanced consumer and professional products.
The Company's marketing and research and development groups identify consumer
needs and shifts in consumer preferences in order to develop new product
introductions, tailor line extensions and promotions and redesign or
reformulate existing products to satisfy such needs or preferences. The
Company's Advanced Concept Group consists of a select group of researchers that
conducts research on a wide range of areas to develop new and innovative
technology. The Company independently develops substantially
all of its new products. The Company also has entered into joint research
projects with major universities and commercial laboratories worldwide to
develop advanced technologies.
The Company believes that its Edison, New Jersey facility is one of
the most extensive cosmetics research and development facilities in the United
States. The Edison facility is responsible for all new product research
worldwide. The Edison facility performs research for new products, ideas,
concepts and packaging. Research and development for consumer products is also
conducted at manufacturing facilities in Brazil. Research and development for
the professional products is conducted principally at the Edison facility.
The research and development group at the Edison facility performs
extensive safety and quality tests on the Company's products, including
toxicology, microbiology and package testing. Additionally, quality control
testing is performed at each manufacturing facility.
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In certain instances, proprietary technology developed for use in
products and packaging is available for licensing to third parties. The Company
received the Innovation Award from the Coalition of NorthEast Governors
("CONEG") for its ENVIRO*GLUV glass decorating technology (which resulted in
significant cost reductions in decorating REVLON AGE DEFYING and COLORSTAY
makeup bottles and REVLON nail enamel bottles in 1996 and which is being
offered for licensing to qualified glass decorators). The CONEG challenge
awards program is a nationwide competition to publicly recognize companies that
make significant contributions to environmental issues relating to packaging
and source reduction.
As of December 31, 1996, the Company employed approximately 200 people
in its research and development activities, including specialists in
pharmacology, toxicology, chemistry, microbiology, engineering, biology,
dermatology and quality control. In 1996, the Company spent approximately $26.3
million, on research and development activities.
MANUFACTURING AND RELATED OPERATIONS AND RAW MATERIALS
The Company is rationalizing its worldwide manufacturing operations
which is intended to lower costs and improve customer service and product
quality. The globalization of the Company's core brands allows it to centralize
production of some product categories for sale throughout the world within
designated facilities and shift production of certain other product categories
to more cost effective manufacturing sites to reduce production costs. Shifts
of production may result in the closing of certain of the Company's less
significant manufacturing facilities, and the Company continually reviews its
needs in this regard. In addition, as part of its efforts to continuously
improve operating efficiencies, the Company attempts to ensure that a
significant portion of its capital expenditures are devoted to improving
operating efficiencies.
In the United States, the Company manufactures REVLON brand color
cosmetics, personal care products and fragrances for sale in the United States,
Japan and most of the countries in Latin America and Southeast Asia at its
Phoenix, Arizona facility. The Company manufactures ULTIMA II cosmetics and
skin treatment products for sale in the United States and most of the countries
in Latin America and Southeast Asia, personal care products for sale in the
United States and ALMAY brand products for sale throughout the world at its
Oxford, North Carolina facility. Nail care and other implements for sale
throughout the world are manufactured at the Company's Irvington, New Jersey
facility and Vista, California facility. The Company manufactures salon and
retail professional products and personal care consumer products for sale in
the United States and Canada at the Company's Jacksonville, Florida facility.
The Phoenix facility has been ISO-9002 certified.
The Company manufactures its entire line of consumer products (except
implements) for sale in most of the countries of Europe at its Maesteg, South
Wales facility. Local production of cosmetics and personal care products takes
place at the Company's facilities in Spain, Canada, Venezuela, Mexico, New
Zealand, Brazil, Australia and South Africa. The manufacture of professional
products for sale by retailers outside the United States has been centralized
principally at the Company's facilities in Ireland, Spain and Italy. Production
of color cosmetics for Japan and Mexico has been shifted to the United States
while production of personal care products for Argentina has been centralized
in Brazil. The Maestag facility has been certified by the British equivalent of
ISO-9002.
The Company purchases raw materials and components throughout the
world. The Company continuously pursues reductions in cost of goods through the
global sourcing of raw materials and components from qualified vendors,
utilizing its large purchasing capacity to maximize cost savings. The global
sourcing of raw materials and components from accredited vendors also ensures
the quality of the raw materials and components. The Company believes that
alternate sources of raw materials and components exist and does not anticipate
any significant shortages of, or difficulty in obtaining, such materials.
The Company's improvements in manufacturing, sourcing and related
operations have contributed to improved customer service, including an
improvement in the percentage of timely order fulfillment at the Company's
manufacturing sites in Oxford, North Carolina; Phoenix, Arizona; Irvington, New
Jersey; and Maesteg, South Wales; and the timeliness and accuracy of new
product and promotion deliveries. To promote the Company's understanding of,
and responsiveness to the needs of its retail customers, the Company assigns
members of senior operations
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management to lead inter-departmental teams that visit significant accounts,
and has provided retail accounts with a designated customer service
representative. As a result of these efforts, accompanied by stronger and more
customer-focused management, the Company has developed strong relationships
with its retailers.
The Company emphasizes safety and increased training of employees
resulting in an improved safety record. The Company anticipates that the
globalization of, and continued improvement in, the quality of its
manufacturing operations will result in lower manufacturing costs.
BUSINESS PROCESS ENHANCEMENTS
The Company's management information systems have been substantially
upgraded to provide comprehensive order processing, production and accounting
support for the Company's business. The Company's expenditures on improvements
to its management information systems were approximately $13 million for 1996.
The Company intends to continue to upgrade management information systems in
1997, which will include improved systems for forecasting, production,
inventory management, order processing, general and fixed asset ledgers and
others. Systems improvements have been and the Company anticipates that they
will continue to be instrumental in contributing to the reduction of the time
from order entry to shipment, improved forecasting of demand and improved
operating efficiencies.
DISTRIBUTION
As a result of its improved customer service and consumer traffic
generated by its products and innovative marketing programs, the Company
believes that its relationships with self-select distribution cosmetic
retailers are the best in the cosmetics industry.
The Company's products are sold in approximately 175 countries and
territories. The Company's worldwide sales force had approximately 2,100 people
as of December 31, 1996, including a dedicated sales force for cosmetics, skin
care and fragrance products in the self-select distribution channel, for the
demonstrator-assisted distribution channel, for personal care products
distribution and for salon distribution. In addition, the Company utilizes
sales representatives and independent distributors to serve specialized markets
and related distribution channels.
United States. The United States operation's net sales accounted for
approximately 58.0% of the Company's 1996 net sales. Of these net sales,
approximately 86% were made in the self-select distribution channel. However,
the Company intends to use premium products such as ULTIMA II to maintain its
presence in the demonstrator-assisted distribution channel. The Company also
sells a broad range of consumer and retail professional products to United
States Government military exchanges and commissaries. The Company licenses its
trademarks to select manufacturers for products that the Company believes have
the potential to extend the Company's brand names and image. As of December 31,
1996, 19 licenses were in effect relating to 23 product categories to be
marketed in the self-select distribution channel. Pursuant to the licenses, the
Company retains strict control over product design and development, product
quality, advertising and use of its trademarks. These licensing arrangements
offer opportunities for the Company to generate revenues and cash flow through
earned royalties, royalty advances and, in some cases, up-front licensing fees.
Products designed for professional use or resale by beauty salons are sold
through wholesale beauty supply distributors and directly to professional
salons. Various hair care products, such as ethnic hair relaxers, scalp
conditioners, shampoos and hair coloring products and wigs and hairpieces are
sold directly and through wholesalers to chain drug stores and mass volume
retailers. Wigs and hairpieces are also sold through mail order direct
marketing, retail outlet malls, salons and certain department stores.
The Company also operates through Prestige Fragrance & Cosmetics, Inc.
("PFC") approximately 200 retail outlet stores throughout the United States in
factory outlet malls, rural areas and other similar locations that are not
disruptive to the Company's principal distribution channels. In these stores,
the Company sells first quality, first quality excess, returned and
refurbished, and discontinued consumer products and retail professional
products, as well as similar products of competing cosmetics companies. On
November 27, 1996, Products Corporation and PFC entered into an Agreement and
Plan of Merger with The Cosmetic Center, Inc. ("Cosmetic Center") pursuant to
which PFC will merge with and into Cosmetic Center, with Cosmetic Center
surviving the merger (the "Merger"). In the Merger, Products Corporation would
receive newly issued Class C common stock of Cosmetic Center constituting
between 74%
9
<PAGE>
and 84% of the outstanding common stock. The Merger is subject to a number of
significant conditions, including obtaining financing for Cosmetic Center and
approval of the transaction by Cosmetic Center stockholders, among other
conditions. Subject to satisfaction of these conditions, the transaction is
expected to close during the first quarter of 1997.
International. The International operation's net sales accounted for
approximately 42.0% of the Company's 1996 net sales. The International
operation's ten largest countries in terms of these sales, which include
Brazil, Japan, the United Kingdom, Australia, South Africa, Canada and Spain,
accounted for approximately 30.7% of the Company's net sales in 1996, with
Brazil accounting for approximately 6.1% of the Company's net sales. The
International operation is increasing distribution through the expanding
self-select distribution channels outside the United States, such as drug
stores/chemists, hypermarkets/mass volume retailers and variety stores, as
these channels gain importance. The International operation also distributes
through department stores and specialty stores such as perfumeries. The
International operation's professional products are sold directly to beauty
salons by the Company's direct sales force in Spain, France, Germany, Portugal,
Italy, Mexico and Ireland and through distributors in other countries. The
Company actively sells its products through wholly owned subsidiaries in 26
countries outside of the United States, through joint ventures in India and
Indonesia, and through a large number of distributors and licensees elsewhere
around the world. The Company continues to pursue strategies to establish its
presence in new emerging markets. Such new and emerging markets include Eastern
Europe; South Korea; Southeast Asia; Chile; the Middle East; India; and China,
where in 1996 the Company established a subsidiary with a local minority
partner. In addition, the Company is building a franchise through local
distributorships in northern and central Africa, where the Company intends to
expand the distribution of its products by capitalizing on its market strengths
in South Africa.
CUSTOMERS
The Company's principal customers include chain drug stores and large
mass volume retailers, including such well known retailers as Wal-Mart,
Walgreens, Kmart, Target, CVS Drug Stores, Drug Emporium, American Drug Stores,
Eckerd Drug stores, Revco and Thrifty Payless in the self-select distribution
channel, J.C. Penney in the demonstrator-assisted distribution channel, Sally's
Beauty Company for professional products, Shoppers Drug Mart in Canada and
Boots in the United Kingdom and Western Europe. The foregoing customers are
representative of the Company's customers, and for 1996, each of the foregoing
customers accounted for 1% or more of the Company's net sales. Wal-Mart and its
affiliates accounted for approximately 10.1% of the Company's 1996 consolidated
net sales. Although the loss of Wal-Mart as a customer could have an adverse
effect on the Company, the Company believes that its relationship with Wal-Mart
is satisfactory and the Company has no reason to believe that Wal-Mart will not
continue as a customer.
COMPETITION
The cosmetics and skin care, fragrance, personal care and professional
products business is characterized by vigorous competition throughout the
world. Brand recognition, together with product quality, performance and price
and the extent to which consumers are educated on product benefits, have a
marked influence on consumers' choices among competing products and brands.
Advertising, promotion, merchandising and packaging, and the timing of new
product introductions and line extensions, also have a significant impact on
buying decisions, and the structure and quality of the sales force affect
product reception, in-store position, permanent display space and inventory
levels in retail outlets. The Company competes in most of its product
categories against a number of companies, some of which have substantially
greater resources than the Company. In addition to products sold in the
self-select and demonstrator-assisted distribution channels, the Company's
products also compete with similar products sold door-to-door or through mail
order or telemarketing by representatives of direct sales companies. The
Company's principal competitors include L'Oreal S.A., The Procter & Gamble
Company, Helene Curtis Industries, Inc., and Joh A. Benckiser GmbH in the
self-select distribution channel; L'Oreal S.A., Unilever N.V., Estee Lauder,
Inc. and Joh A. Benckiser GmbH in the demonstrator-assisted distribution
channel; and L'Oreal S.A. and Matrix Essentials, Inc., which is owned by
Bristol-Myers Squibb Company, in professional products.
10
<PAGE>
SEASONALITY
The Company's business is subject to certain seasonal fluctuations,
with net sales in the second half of the year generally benefiting from
increased retailer purchases in the United States for the back-to-school and
Christmas selling seasons.
PATENTS, TRADEMARKS AND PROPRIETARY TECHNOLOGY
The Company's major trademarks are registered in the United States and
in many other countries, and the Company considers trademark protection to be
very important to its business. Significant trademarks include REVLON,
COLORSTAY, REVLON AGE DEFYING, FLEX, MITCHUM, ETERNA 27, ULTIMA II, ALMAY,
CHARLIE, JEAN NATE, REVLON RESULTS, COLORAMA, FIRE & ICE, MOON DROPS, SUPER
LUSTROUS and WONDERWEAR LIPSEXXXY for consumer products and REVLON, ROUX
FANCI-FULL, REALISTIC, FERMODYL, COLOMER, CREATIVE NAIL, AMERICAN CREW, R PRO
and INTERCOSMO for professional products.
The Company utilizes certain proprietary or patented technologies in
the formulation or manufacture of a number of the Company's products, including
COLORSTAY lipcolor and cosmetics, FLEX & GO shampoo, LENGTHWISE mascara, REVLON
nail enamel, REVLON AGE DEFYING foundation and cosmetics, NEW COMPLEXION
makeup, WONDERWEAR foundation, WONDERWEAR LIPSEXXXY lipstick, DAY INTO NIGHT
eyeshadows, ALMAY TIME-OFF skin care and makeup, OUTRAGEOUS shampoo, FLEX
hairspray and various professional products, including FERMODYL shampoo and
conditioners. The Company also protects certain of its packaging and component
concepts through design patents. The Company considers its proprietary
technology and patent protection to be important to its business.
GOVERNMENT REGULATION
The Company is subject to regulation by the Federal Trade Commission
and the Food and Drug Administration (the "FDA") in the United States, as well
as various other federal, state, local and foreign regulatory authorities. The
Phoenix, Arizona and Oxford, North Carolina manufacturing facilities are
registered with the FDA as drug manufacturing establishments, permitting the
manufacture of cosmetics that contain over-the-counter drug ingredients such as
sunscreens. Compliance with federal, state, local and foreign laws and
regulations pertaining to discharge of materials into the environment, or
otherwise relating to the protection of the environment, has not had, and is
not anticipated to have, a material effect upon the capital expenditures,
earnings or competitive position of the Company. State and local regulations in
the United States that are designed to protect consumers or the environment
have an increasing influence on product claims, contents and packaging.
INDUSTRY SEGMENTS, FOREIGN AND DOMESTIC OPERATIONS
The Company operates in a single business segment. Certain information
concerning geographic segments of the Company is set forth in Note 15 of the
Notes to Consolidated Financial Statements of the Company.
EMPLOYEES
As of December 31, 1996, the Company employed the equivalent of
approximately 14,300 full-time persons. Approximately 2,100 of such employees
in the United States at the end of 1996 were covered by collective bargaining
agreements. The agreements covering employees in Phoenix, Arizona and
Jacksonville, Florida expire in 1997. In addition, the Company will be
negotiating collective bargaining agreements or portions thereof covering
employees in twelve countries outside the United States during 1997. The
Company expects that such agreements will be renewed in the ordinary course of
negotiations, and further believes that its employee relations are
satisfactory.
11
<PAGE>
ITEM 2. PROPERTIES
The following table sets forth as of December 31, 1996 the Company's
major manufacturing, research and warehouse/distribution facilities all of
which are owned except where otherwise noted.
<TABLE>
<CAPTION>
APPROXIMATE FLOOR
LOCATION USE SPACE SQ. FT.
- -------- --- -------------
<S> <C> <C>
Oxford, North Carolina............. Manufacturing, warehousing, distribution and office 1,012,000
Phoenix, Arizona................... Manufacturing, warehousing, distribution and office 706,000
(partially leased)
Holmdel, New Jersey................ Warehousing, distribution and office 540,000
Jacksonville, Florida.............. Manufacturing, warehousing, distribution, research and 526,000
office
Mississauga, Canada................ Manufacturing, warehousing, distribution and office 245,000
Edison, New Jersey................. Research and office (leased) 133,000
Irvington, New Jersey.............. Manufacturing, warehouse and office 96,000
Sao Paulo, Brazil.................. Manufacturing, warehousing, distribution, office and 408,000
research
Maesteg, South Wales, United
Kingdom............................ Manufacturing, distribution and office 316,000
Santa Maria, Spain ................ Manufacturing and warehousing 173,000
Barcelona, Spain .................. Manufacturing, warehousing, research and office 152,000
Caracas, Venezuela................. Manufacturing, distribution and office 145,000
Argenteuil, France................. Warehousing and distribution (leased) 73,000
Kempton Park, South Africa......... Warehousing, distribution and office (leased) 127,000
Canberra, Australia................ Warehousing, distribution and office (leased) 125,000
Isando, South Africa............... Manufacturing, warehousing, distribution and office 94,000
Rydalmere, Australia............... Manufacturing, warehousing, distribution and office 93,000
Bologna, Italy..................... Manufacturing, warehousing, distribution, office and 60,000
research
</TABLE>
In addition to the facilities described above, additional facilities
are owned and leased in various areas throughout the world, including the lease
for the Company's executive offices in New York, New York (345,000 square feet,
of which 85,000 square feet are currently sublet to affiliates of the Company).
Management considers the Company's facilities to be well-maintained and
satisfactory for the Company's operations, and believes that the Company's
facilities provide sufficient capacity for its current and expected production
requirements. Products Corporation leases from Holdings on arms' length terms
its research and development facility located in Edison, New Jersey.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in various routine legal proceedings incident
to the ordinary course of its business. The Company believes that the outcome
of all pending legal proceedings in the aggregate is unlikely to have a
material adverse effect on the business or consolidated financial condition of
the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the
fourth quarter of the fiscal year covered by this report.
12
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Revlon, Inc. beneficially owns all of the outstanding shares of Common
Stock, par value $1.00 per share (the "Common Stock"), of Products Corporation.
MacAndrews & Forbes Holdings Inc. ("MacAndrews & Forbes"), which is wholly
owned by Ronald O. Perelman, which through Revlon Worldwide Corporation
("Revlon Worldwide"), beneficially owns 11,250,000 shares of the Class A Common
Stock of Revlon, Inc. (representing 56.6% of the outstanding shares of Class A
Common Stock of Revlon, Inc.) and all of the outstanding 31,250,000 shares of
Class B Common Stock of Revlon, Inc., which together represent 83.1% of the
outstanding shares of Common Stock of Revlon, Inc., and the remaining 8,625,000
shares of Class A Common Stock of Revlon, Inc. are owned by the public. No
dividends were declared or paid during 1996. The terms of the Credit Agreement
and Products Corporation's 10 1/2 % Senior Subordinated Notes Due 2003 (the
"Senior Subordinated Notes"), 9 3/8% Senior Notes Due 2001 (the "Senior Notes")
and 9 1/2% Senior Notes Due 1999 (the "1999 Notes") currently restrict the
ability of Products Corporation to pay dividends or make distributions to
Revlon, Inc. See the Consolidated Financial Statements of the Company and the
Notes thereto.
13
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The Statements of Operations Data for each of the years in the
five-year period ended December 31, 1996 and the Balance Sheet Data as of
December 31, 1996, 1995, 1994, 1993 and 1992 are derived from the Consolidated
Financial Statements of the Company, which have been audited by KPMG Peat
Marwick LLP, independent certified public accountants. The Selected
Consolidated Financial Data should be read in conjunction with the Consolidated
Financial Statements of the Company and the Notes to the Consolidated Financial
Statements and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
1996 1995 (a) 1994 (a) 1993 (a) 1992
---------- --------- --------- --------- ----------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales................................................ $ 2,167.0 $ 1,937.8 $ 1,732.5 $ 1,588.3 $ 1,632.2
========== ========= ========= ========= ==========
Operating income (loss).................................. $ 201.0 $ 146.6 $ 108.4 $ 49.9 $ (82.6)(d)
========== ========= ========= ========= ==========
Income (loss) before extraordinary
items and cumulative effect of
accounting changes............................... $ 25.2 $ (40.2) $ (74.0) $ (130.8) $ (224.0)
Extraordinary items - early extinguishments of debt...... (6.6) - - (9.5) (2.9)
Cumulative effect of accounting changes.................. - - (28.8)(b) (6.0)(c) -
---------- --------- --------- --------- ----------
Net income (loss)........................................ $ 18.6 $ (40.2) $ (102.8) $ (146.3) $ (226.9)
========== ========= ========== ========= ==========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------------------
1996 1995 (a) 1994 (a) 1993 (a) 1992
---------- --------- --------- --------- ----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets............................................. $ 1,622.1 $ 1,535.3 $ 1,418.1 $ 1,548.7 $ 1,438.3
Long-term debt, excluding current portion................ 1,352.2 1,467.5 1,327.5 1,203.8 969.0
Total stockholder's deficiency........................... (495.9) (702.0) (656.5) (555.3) (443.1)
</TABLE>
(a) Effective January 1, 1996, Products Corporation acquired from Holdings
substantially all of the assets of the Tarlow Advertising Division ("Tarlow")
in consideration for the assumption of substantially all of the liabilities and
obligations of Tarlow. Net liabilities assumed were approximately $3.4 million.
The assets acquired and liabilities assumed were accounted for at historical
cost in a manner similar to that of a pooling of interests and, accordingly,
prior period financial statements beginning with January 1, 1993 have been
restated as if the acquisition took place at the beginning of such period.
Products Corporation paid $4.1 million to Holdings which was accounted for as
an increase to capital deficiency.
(b) Effective January 1, 1994, the Company adopted SFAS No. 112, "Employers'
Accounting for Postemployment Benefits." The Company recognized a charge of
$28.8 million in the first quarter of 1994 to reflect the cumulative effect of
the accounting change, net of income tax benefit.
(c) Effective January 1, 1993, the Company adopted SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions," for its retiree
benefit plan in the United States. Accordingly, the Company recognized a charge
of $6.0 million in the 1993 first quarter to reflect the cumulative effect of
the accounting change.
(d) Includes restructuring charges of $162.7 million in 1992, which included
(i) consolidation of certain worldwide manufacturing and warehouse facilities,
(ii) consolidation of management information systems, (iii) vacating premises
under lease, (iv) personnel reductions and (v) discontinuance of certain
product lines.
14
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (DOLLARS IN MILLIONS)
OVERVIEW
The Company operates in a single business segment with many different
products, which include an extensive array of glamorous, exciting and
innovative cosmetics and skin care, fragrance and personal care products, and
professional products, consisting of hair and nail care products principally
for use in and resale by professional salons. In addition, the Company also
operates retail outlet stores and has a licensing group.
To reflect the integration of management reporting responsibilities
culminating in the third quarter of 1996, the Company presents its business
geographically as its United States operation, which comprises the Company's
business in the United States, and its International operation, which comprises
its business outside of the United States. The Company previously presented its
business as the Consumer Group, which comprised the Company's consumer products
operations throughout the world (except principally Spain, Portugal and Italy)
and professional products operations in certain markets, principally in South
Africa and Argentina, and the Professional Group, which comprised the Company's
professional products operations throughout the world (except principally South
Africa and Argentina) and consumer products operations in Spain, Portugal and
Italy. The Company has restated the management's discussion and analysis data
for prior periods to conform to the presentation for 1996.
RESULTS OF OPERATIONS
The following table sets forth the Company's net sales by operation
for each of the last three years:
YEAR ENDED DECEMBER 31,
--------------------------------------
1996 1995 1994
-------- -------- --------
Net sales:
United States ................... $1,257.2 $1,113.2 $ 983.2
International ................... 909.8 824.6 749.3
-------- -------- --------
$2,167.0 $1,937.8 $1,732.5
======== ======== ========
The following sets forth certain statements of operations data as a
percentage of net sales:
YEAR ENDED DECEMBER 31,
--------------------------------------
1996 1995 1994
-------- -------- --------
Cost of sales ................... 33.5% 33.7% 34.5%
Gross profit .................... 66.5% 66.3 65.5
Selling, general and
administrative expenses ....... 57.2 58.8 59.3
Operating income ................ 9.3 7.5 6.2
YEAR ENDED DECEMBER 31, 1996 COMPARED WITH YEAR ENDED DECEMBER 31, 1995
NET SALES
Net sales were $2,167.0 and $1,937.8 for 1996 and 1995, respectively,
an increase of $229.2, or 11.8%, primarily as a result of successful new
product introductions worldwide, increased demand in the United States,
acquisitions of certain exclusive line professional product businesses,
increased distribution internationally into the expanding self-select
distribution channel and the further development of new international markets.
United States. The United States operation's net sales increased to
$1,257.2 for 1996 from $1,113.2 for 1995, an increase of $144.0, or 12.9%. Net
sales improved for 1996 primarily as a result of continued consumer acceptance
of new product offerings, general improvement in consumer demand for the
Company's color cosmetics in the United States and acquisitions of certain
exclusive line professional product businesses, partially offset by overall
softness in the fragrance industry and lower sales of one of the Company's
prestige brands. The Company improved the dollar share of its Revlon branded
cosmetics in the color cosmetics business in the United States self-select
distribution
15
<PAGE>
channel to 21.4% for 1996 from 19.5% for 1995, moving into the leading position
in market share. Market share, which is subject to a number of conditions, can
vary from quarter to quarter as a result of such things as timing of new
product introductions and advertising and promotional spending. New product
introductions (including, in 1996, certain products launched during 1995)
generated incremental net sales in 1996, principally as a result of launches of
products in the COLORSTAY collection, including COLORSTAY foundation, lip
makeup, eye makeup and COLORSTAY LASHCOLOR mascara, launches of products in the
ALMAY AMAZING collection, including lip makeup, eye makeup, face makeup and
concealer, and launches of CHERISH fragrance and MITCHUM CLEAR and ALMAY CLEAR
COMPLEXION line extensions.
International. The International operation's net sales increased to
$909.8 for 1996 from $824.6 for 1995, an increase of $85.2, or 10.3% on a
reported basis or 12.6% on a constant U.S. dollar basis. Net sales improved
principally as a result of successful new product introductions, including the
continued roll-out of the COLORSTAY cosmetics collection and REVLON AGE DEFYING
makeup, increased distribution into the expanding self-select distribution
channel, the further development of new international markets, partially
offset, on a reported basis, by the unfavorable effect on sales of a stronger
U.S. dollar against certain foreign currencies, primarily the South African
rand, Japanese yen, and several European currencies. The International
operation's sales are divided into the following geographic areas: Europe,
which is comprised of Europe, the Middle East and Africa (in which net sales
increased to $404.0 for 1996 from $374.6 for 1995, an increase of $29.4, or
7.8%); the Western Hemisphere, which is comprised of Canada, Mexico, Central
America, South America and Puerto Rico (in which net sales increased to $311.9
for 1996 from $275.4 for 1995, an increase of $36.5, or 13.3%); and the Far
East (in which net sales increased to $193.9 for 1996 from $174.6 for 1995, an
increase of $19.3, or 11.1%).
The Company's operations in Brazil are significant and, along with
operations in certain other countries, have been subject to, and may continue
to be subject to, significant political and economic uncertainties. In Brazil,
net sales, operating income and income before taxes were $132.7, $25.1 and
$20.0, respectively, for 1996 compared to $118.6, $22.8 and $19.8,
respectively, for 1995. In Mexico, net sales for 1996 and 1995 were adversely
affected by the December 1994 devaluation of the Mexican peso and related
economic weakness. Additionally, Mexico will be considered a hyperinflationary
economy beginning in 1997. In Venezuela, net sales and income before taxes for
1996 and 1995 were adversely affected by high inflation and in the 1996 period
by a currency devaluation.
Cost of sales
As a percentage of net sales, cost of sales was 33.5% for 1996
compared to 33.7% for 1995, respectively. The improvement for 1996 resulted
from the benefits of improved overhead absorption against higher production
volumes and more efficient global production and purchasing. This improvement
was partially offset by changes in product mix involving an increase in sales
of the Company's higher cost technology-based products, an increase in export
sales, lower margin products (such as those products sold in Brazil), the
effect of weaker local currencies on the cost of imported purchases and
competitive pressures on the Company's toiletries business in certain
international markets. The aforementioned increases in sales that negatively
impacted cost of sales were, however, more profitable to the Company's overall
operating results.
Selling, general and administrative ("SG&A") expenses
As a percentage of net sales, SG&A expenses were 57.2% for 1996, an
improvement from 58.8% for 1995. SG&A expenses other than advertising expense,
as a percentage of net sales, improved to 40.8% for 1996 compared with 43.2%
for 1995 primarily as a result of reduced general and administrative expenses,
improved productivity and lower distribution costs in 1996 compared with 1995.
In accordance with its business strategy, the Company increased advertising and
consumer-directed promotion in 1996 compared with 1995 to support growth in
existing product lines, new product launches and increased distribution in the
self-select distribution channel in many of the Company's markets in the
International operation. Advertising expense increased by 17.3% to $355.2, or
16.4% of net sales, for 1996 compared to $302.7, or 15.6% of net sales, for
1995.
16
<PAGE>
Operating income
As a result of the foregoing, operating income increased by $54.4, or
37.1%, to $201.0 for 1996 from $146.6 for 1995.
Other expenses/income
Interest expense was $133.4 for 1996 compared to $142.6 for 1995. The
reduction in interest expense is attributable to lower average outstanding
borrowings as a result of the paydown of debt under the Credit Agreement and
under the Former Credit Agreement with the use of proceeds from the Offering in
the 1996 period and lower interest rates under the Credit Agreement than under
the Former Credit Agreement.
Foreign currency losses, net, were $5.7 for 1996 compared to $10.9 for
1995. The reduction in the foreign currency loss in 1996 as compared to 1995
was due to lower foreign currency losses primarily in Mexico and Venezuela and
the Company's simplification of its international corporate structure, which
resulted in $2.1 of gains, previously deferred in the currency translation
account, partially offset by the strengthening of the U.S. dollar against the
Spanish peseta and the strengthening of the U.K. pound against several European
currencies.
Miscellaneous, net, was $6.3 for 1996 compared to $1.8 for 1995. The
increase relates primarily to the Company's continued investment in certain
emerging markets.
Extraordinary item
The extraordinary item resulted from the write-off recorded in the
first quarter of 1996 of deferred financing costs associated with the
extinguishment of the Former Credit Agreement prior to its maturity with the
net proceeds from the Offering and borrowings under the Credit Agreement.
YEAR ENDED DECEMBER 31, 1995 COMPARED WITH YEAR ENDED DECEMBER 31, 1994
Net sales
Net sales were $1,937.8 and $1,732.5 for 1995 and 1994, respectively,
an increase of $205.3, or 11.8%, primarily as a result of successful new
product introductions worldwide, increased demand in the United States,
increased distribution internationally into the expanding self-select
distribution channel, the development of new international markets and a weaker
U.S. dollar versus most foreign currencies.
United States. The United States operation's net sales increased to
$1,113.2 for 1995 from $983.2 for 1994, an increase of $130.0, or 13.2%. Net
sales improved primarily as a result of continued consumer acceptance of new
product offerings and general improvement in consumer demand for the Company's
color cosmetics in the United States, contributing to the Company's improved
share of the color cosmetics business in the United States self-select
distribution channel, as well as increased net sales at the retail outlet
stores. New product introductions (including, in 1995, certain products
launched during 1994) generated incremental net sales in 1995, principally as a
result of the June 1994 launch of COLORSTAY lipcolor, the 1994 first quarter
launch of REVLON AGE DEFYING makeup, the 1995 second and third quarter launches
of COLORSTAY lip makeup line extensions and eye and face makeup, respectively,
which are part of the COLORSTAY collection, the 1995 second quarter launches of
REVLON AGE DEFYING line extensions, CHARLIE WHITE fragrance and ALMAY CLEAR
COMPLEXION makeup, and the 1995 third quarter launches of ALMAY TIME-OFF line
extensions and LASTING fragrance.
International. The International operation's net sales increased to
$824.6 for 1995 from $749.3 for 1994, an increase of $75.3, or 10.0%. Net sales
improved principally as a result of successful new product introductions,
increased distribution into the expanding self-select distribution channel, the
development of new international markets and the favorable effect on sales of a
weaker U.S. dollar versus most foreign currencies, partially offset by lower
unit volume in Mexico and Argentina resulting from recessionary conditions. Net
sales were also favorably affected by the continued roll-out of COLORSTAY
lipcolor, REVLON AGE DEFYING makeup and CHARLIE WHITE fragrance into various
international markets, the continued expansion during the third quarter of 1994
of the ALMAY cosmetics line outside the
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United States and the expansion during the third quarter of 1994 of the CHARLIE
RED fragrance outside the United States. Introduction of the COLORSTAY
cosmetics collection began in the fourth quarter of 1995 and continued in the
first part of 1996. The International operation's sales are divided into the
following geographic areas: Europe, which is comprised of Europe, the Middle
East and Africa (in which net sales increased to $374.6 for 1995 from $334.8
for 1994, an increase of $39.8, or 11.9%); the Western Hemisphere, which is
comprised of Canada, Mexico, Central America, South America and Puerto Rico (in
which net sales increased to $275.4 for 1995 from $269.7 for 1994, an increase
of $5.7, or 2.1%); and the Far East (in which net sales increased to $174.6 for
1995 from $144.8 for 1994, an increase of $29.8, or 20.6%).
The Company's operations in Brazil and Mexico have been subject to
significant political and economic uncertainties. Operations in Brazil were
significantly improved for 1995 over 1994 primarily as a result of higher unit
volume in the first half of 1995. Unit volume in the second half of 1995
declined from the unit volume for the second half of 1994 due to the strong
unit volume in the second half of 1994 as a result of the Brazilian
government's July 1, 1994 introduction of a new economic and monetary policy,
which resulted in increased consumer purchasing. In Brazil, net sales,
operating income and income before taxes were $118.6, $22.8 and $19.8,
respectively, for 1995 compared with $108.1, $29.5 and $14.9, respectively, for
1994. However, net sales and operating income for 1994 benefited from the
hyperinflationary pricing component included in these accounts until the
Brazilian government's July 1, 1994 introduction of a new economic and monetary
policy and related issuance of a new currency, which significantly reduced
inflation. The Company's income before taxes and cash flow from operations in
Brazil for 1994 were not affected to the same extent as operating income
because of a corresponding charge in the foreign currency translation account.
In Mexico, net sales and operating income were $20.5 and $1.6, respectively,
for 1995 compared with $31.1 and $3.2, respectively, for 1994. While the
December 1994 devaluation of the Mexican peso did not have a significant
adverse effect on 1994 operating results in Mexico, 1995 operating results in
Mexico were, and future operating results may continue to be, adversely
affected by this devaluation and other factors such as decreases in unit
volume, limitations on price increases and higher relative costs of products
sourced outside of Mexico. The Company has taken measures to mitigate the
effect of these conditions by increasing prices in line with inflation, where
possible, and efficiently managing its working capital levels.
Cost of sales
As a percentage of net sales, cost of sales was 33.7% for 1995, an
improvement from 34.5% for 1994. This improvement resulted from the benefits on
overhead absorption of higher production volumes allocated over a fixed
manufacturing base, and globalization benefits such as more efficient
production and purchasing performance in 1995 compared with 1994, partially
offset by changes in the product mix involving increases in 1995 compared to
1994 in sales of lower margin products sold in Brazil and by the Company's
retail outlet stores. The first half of 1994 included the benefit of the
inflationary component of pricing in Brazil, partially offset by the
adverse impact of higher transition costs associated with factory
consolidations charged to cost of sales for inventory produced in 1993 and sold
during 1994.
Selling, general and administrative expenses
As a percentage of net sales, SG&A expenses were 58.8% for 1995 and
59.3% for 1994. SG&A expenses, other than advertising expense, as a percentage
of net sales improved to 43.2% for 1995 compared with 45.4% for 1994, primarily
as a result of reduced general and administrative expenses and improved
productivity in 1995 compared with 1994, partially offset by higher European
regional headquarters expenses and severance costs in 1995. The Company
increased advertising and consumer directed promotion during 1995 compared with
1994, principally in the United States and Europe, to support growth in
existing product lines, new product launches and increased distribution in the
self-select distribution channel in Europe in 1995. Advertising expense
increased by 26.2% to $302.7, or 15.6% of net sales, for 1995 from $239.9, or
13.8% of net sales, for 1994.
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Operating income
As a result of the foregoing, operating income increased by $38.2, or
35.2%, to $146.6 for 1995 from $108.4 for 1994.
Other expenses/income
Interest expense was $142.6 for 1995 and $136.7 for 1994, an increase
of $5.9, or 4.3%. The increase in 1995 was due to higher outstanding borrowings
under the Company's credit facilities.
Foreign currency losses, net, were $10.9 for 1995 and $18.2 for 1994.
Results improved in 1995 primarily as a result of reduced inflation associated
with the Brazilian government's July 1, 1994 introduction of a new economic and
monetary policy and related issuance of a new currency and the January 1995
repayment of approximately $26.9 under the Company's Japanese yen-denominated
credit agreement (the "Yen Credit Agreement"), partially offset by the adverse
effect of currency devaluation in Venezuela primarily in the fourth quarter of
1995.
Provision for income taxes
The provision for income taxes was $25.4 and $22.8 for 1995 and 1994,
respectively. The increase in the provision for income taxes was primarily
attributable to higher taxable earnings of certain foreign operations.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Net cash used for operating activities was $10.1, $51.7 and $1.1 for
1996, 1995 and 1994, respectively. The decrease in net cash used for operating
activities for 1996 compared with 1995 resulted primarily from higher operating
income, lower restructuring payments ($13.3 for 1996 compared with $24.2 for
1995) and improved management of inventory relative to business growth,
partially offset by higher trade receivable balances as a result of higher net
sales and increased spending on merchandise display units in connection with
the Company's continued expansion into the self-select distribution channel.
The increase in net cash used for operating activities for 1995 compared with
1994 resulted primarily from an increase in inventories associated with
expected sales volume, higher trade receivable balances, increased spending on
merchandise display units in connection with the Company's continued expansion
into the self-select distribution channel and higher income taxes paid, net of
refunds, offset in part by higher operating income, lower restructuring
payments ($24.2 for 1995 compared with $37.2 for 1994) and lower severance
payments.
Net cash used for investing activities was $65.1, $72.5 and $51.0 for
1996, 1995 and 1994, respectively. Net cash used for investing activities for
1996, 1995 and 1994 consisted primarily of capital expenditures and in 1996 and
1995 included $7.1 and $21.2, respectively, used for acquisitions. The
Company's capital expenditures for 1996, 1995 and 1994 were $58.0, $54.3 and
$52.5, respectively. The increase in capital expenditures through 1996 was
primarily attributable to significant information system enhancements in
accordance with the Company's business strategy.
Net cash provided by (used for) financing activities was $78.4, $125.2
and $(49.0) for 1996, 1995 and 1994, respectively. Net cash provided by
financing activities for 1996 included the net proceeds from the Offering, cash
drawn under the Former Credit Agreement and under the Credit Agreement,
partially offset by the repayment of borrowings under the Former Credit
Agreement, the payment of fees and expenses related to the Credit Agreement and
repayment of approximately $5.2 under the Yen Credit Agreement. Net cash
provided by financing activities for 1995 consisted primarily of borrowings
under the credit agreement of Products Corporation in effect at that time and
borrowings under the Former Credit Agreement, partially offset by repayments of
cash drawn under those credit agreements, repayment of $26.9 under the Yen
Credit Agreement and payment of debt issuance costs under the Former Credit
Agreement. Net cash used for financing activities for 1994 consisted primarily
of repayments of borrowings under the credit agreement of Products Corporation
in effect at that time and a repayment of $12.0 under the Yen Credit Agreement.
In February 1995, Products Corporation entered into the Former Credit
Agreement, which provided up to $500.0 comprised of three senior secured
facilities: a $100.0 term loan facility, a $225.0 revolving credit facility and
a $175.0 multi-currency facility. Borrowings under the Former Credit Agreement
were used to refinance
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Products Corporation's previous $150.0 credit agreement, refinance then
existing lines of credit outside of the United States and refinance
approximately $26.9 paid under the Yen Credit Agreement in January 1995. The
Former Credit Agreement was scheduled to terminate on June 30, 1997. The net
proceeds of $187.8 from the Offering were contributed to Products Corporation
and were used to repay borrowings under the Former Credit Agreement and to pay
fees and expenses related to the Credit Agreement.
In January 1996, Products Corporation entered into the Credit
Agreement, which became effective upon consummation of the Offering on March 5,
1996. The Credit Agreement provides, among other things, (i) an extension of
the term of the facilities from June 30, 1997 to December 31, 2000, subject to
earlier termination in certain circumstances, (ii) a reduction of the interest
rates, (iii) an increase in the aggregate amount of the credit facilities from
$500 to $600 and (iv) the release of security interests in assets of certain
foreign subsidiaries of Products Corporation which were then pledged. The
Credit Agreement is comprised of four senior secured facilities: a $130.0 term
loan facility, a $220.0 multi-currency facility, a $200.0 revolving acquisition
facility and a $50.0 special standby letter of credit facility. As of December
31, 1996, Products Corporation had approximately $130.0 outstanding under the
term loan facility, $57.2 outstanding under the multi-currency facility,
nothing outstanding under the revolving acquisition facility and $33.5
outstanding under the special standby letter of credit facility. In January
1997, the Credit Agreement was amended to, among other things, permit the
Merger of PFC into Cosmetic Center and to generally exclude Cosmetic Center (as
the survivor of the Merger) from the definition of "subsidiary" under the
Credit Agreement. See Note 7(a) to the Consolidated Financial Statements.
A subsidiary of Products Corporation is the borrower under the Yen
Credit Agreement, which had a principal balance of approximately Yen 4.8 billion
as of December 31, 1996 (approximately $41.7 U.S. dollar equivalent as of
December 31, 1996). In accordance with the terms of the Yen Credit Agreement,
approximately Yen 2.7 billion (approximately $26.9 U.S. dollar equivalent) was
paid in January 1995 and approximately Yen 539 million (approximately $5.2 U.S.
dollar equivalent) was paid in January 1996. A payment of approximately Yen 539
million (approximately $4.6 U.S. dollar equivalent as of December 31, 1996) was
paid in January 1997 and the balance of the Yen Credit Agreement of
approximately Yen 4.3 billion (approximately $37.1 U.S. dollar equivalent as of
December 31, 1996) is currently due on December 31, 1997. Products Corporation
is currently renegotiating an extension of the term of the Yen Credit
Agreement. In the event that such extension is not obtained, Products
Corporation is able and intends to refinance the Yen Credit Agreement under
existing long-term credit facilities. Accordingly, the Company's obligation
under the Yen Credit Agreement has been classified as long-term as of December
31, 1996.
The $61.0 aggregate principal amount of Products Corporation's 10 7/8%
Sinking Fund Debentures due 2010 previously purchased on the open market by
Products Corporation (which was not previously used for sinking fund payments,
including the payment in July 1996) and no longer outstanding will be used to
meet future sinking fund requirements of such issue. $9.0 aggregate principal
amount of previously purchased debentures was used for the sinking fund payment
due July 15, 1996.
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 December 31, 1996.
In June 1996, $10.9 in notes due to Products Corporation from Holdings
under the Financing Reimbursement Agreement (see "Certain Relationships and
Related Transactions") was offset against an $11.7 demand note payable by
Products Corporation to Holdings.
The Company's principal sources of funds are expected to be cash flow
generated from operations and borrowings under the Credit Agreement and other
existing working capital lines. The Company's principal uses of funds are
expected to be the payment of operating expenses, working capital and capital
expenditure requirements and debt service payments.
The Company estimates that capital expenditures for 1997 will be
approximately $60, including approximately $10 for upgrades to the Company's
management information systems. In addition, cash payments related to the 1991
and 1992 restructuring charges are estimated to be approximately $9 for 1997.
Pursuant to a tax
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sharing agreement (see "Certain Relationships and Related Party Transactions -
Tax Sharing Agreement"), Products Corporation may be required to make tax
sharing payments to Revlon, Inc., (which in turn may be required to make such
payments to Mafco Holdings Inc.,) as if Products Corporation were filing
separate income tax returns, except that no payments are required by Products
Corporation (or 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 cash tax sharing payments other than in respect of state and local income
taxes. Products Corporation anticipates that, as a result of net operating tax
losses and prohibitions under the Credit Agreement, no federal tax payments or
payments in lieu of taxes pursuant to the tax sharing agreement will be
required for 1997.
As of December 31, 1996, Products Corporation was party to a series of
interest rate swap agreements (which expire at various dates through December
2001) totaling a notional amount of $225.0 in which Products Corporation agreed
to pay on such notional amount a variable interest rate equal to the six month
London Inter-Bank Offered Rate (5.602% per annum at February 11, 1997) to its
counterparties and the counterparties agreed to pay on such notional amounts
fixed interest rates averaging approximately 6.03% per annum. Products
Corporation entered into these agreements in 1993 and 1994 (and in the first
quarter of 1996 extended a portion equal to a notional amount of $125.0 through
December 2001) to convert the interest rate on $225.0 of fixed-rate
indebtedness to a variable rate. If Products Corporation had terminated these
agreements, which Products Corporation considers to be held for other than
trading purposes, on December 31, 1996, a loss of approximately $3.5 would have
been realized. Certain other swap agreements were terminated in 1993 for a gain
of $14.0. The amortization of the realized gain on these agreements for 1996
and 1995 was approximately $3.2 in each of the years. The remaining unamortized
gain, which is being amortized over the original lives of the agreements, is
$3.1 as of December 31, 1996. Although cash flow from the presently outstanding
agreements was positive for 1996, future positive or negative cash flows from
these agreements will depend upon the trend of short-term interest rates during
the remaining lives of such agreements. Based on current interest rate levels,
Products Corporation expects to have a positive cash flow of $0.6 from these
agreements in 1997, although no assurances can be given. In the event of
nonperformance by the counterparties at any time during the remaining lives of
the agreements, Products Corporation could lose some or all of any possible
future positive cash flows from these agreements. However, Products Corporation
does not anticipate nonperformance by such counterparties, although no
assurances can be given.
Products Corporation enters into forward foreign exchange contracts
from time to time to hedge certain cash flows denominated in foreign
currencies. At December 31, 1996, Products Corporation had forward foreign
exchange contracts denominated in various currencies, predominantly the U.K.
pound, of approximately $62.0 (U.S. dollar equivalent). If Products Corporation
had terminated these contracts on December 31, 1996, no material gain or loss
would have been realized.
Based upon the Company's current level of operations and anticipated
growth in net sales and earnings as a result of its business strategy, the
Company expects that cash flows from operations and funds from currently
available credit facilities and refinancings of existing indebtedness will be
sufficient to enable the Company to meet its anticipated cash requirements for
the foreseeable future, including for debt service. If the Company is unable to
satisfy such cash requirements, the Company could be required to adopt one or
more alternatives, such as reducing or delaying capital expenditures,
restructuring indebtedness, selling assets or operations or seeking capital
contributions or loans from Revlon, Inc. or affiliates of the Company. The
terms of the Credit Agreement, the Senior Subordinated Notes, the 1999 Senior
Notes and the Senior 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, professional fees such as legal and accounting,
regulatory fees such as Commission filing fees and other miscellaneous expenses
related to being a public holding company and to pay dividends or make
distributions up to $5.0 per annum 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. 1996
Stock Plan. However, there can be no assurance that cash flow from operations
and funds from existing credit facilities and refinancing of existing
indebtedness will be sufficient to meet the Company's cash requirements on a
consolidated basis.
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FORWARD-LOOKING STATEMENTS
This annual report on Form 10-K for the year ended December 31, 1996
as well as other public documents of the Company contains forward-looking
statements which involve risks and uncertainties. The Company's actual results
may differ materially from those discussed in such forward-looking statements.
Such statements include, without limitation, the Company's expectation and
estimates as to future financial performance, including growth in net sales and
earnings, cash flows from operations, capital expenditures and the availability
of funds from refinancings of indebtedness. Readers are urged to consider
statements which use the terms "believes," "no reason to believe," "expects,"
"plans," "intends," "estimates," "anticipated" or "anticipates" to be uncertain
and forward-looking. In addition to factors that may be described in the
Company's Commission filings, 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
development of new markets; (iv) unanticipated costs or difficulties or delays
in completing projects associated with the Company's strategy to improve
operating efficiencies, including information system upgrades; (v) effects of
and changes in economic conditions, including inflation and monetary
conditions, and in trade, monetary, fiscal and tax policies in countries
outside of the U.S. in which the Company operates, including Brazil; (vi)
actions by competitors, including business combinations, technological
breakthroughs, new product offerings and marketing and promotional successes;
and (vii) combinations among significant customers or the loss, insolvency or
failure to pay its debts by a significant customer or customers.
INFLATION
In general, costs are affected by inflation and the effects of
inflation may be experienced by the Company in future periods. Management
believes, however, that such effects have not been material to the Company
during the past three years in the United States or foreign
non-hyperinflationary countries. The Company operates in certain countries
around the world, such as Brazil, that have experienced hyperinflation in the
past three years. This hyperinflation has had a material effect on the
Company's results of operations in Brazil and may, in the future, have a
material effect on results of operations in Mexico. In hyperinflationary
foreign countries, the Company attempts to mitigate the effects of inflation by
increasing prices in line with inflation, where possible, and efficiently
managing its working capital levels.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to the Index on page F-1 of the Consolidated
Financial Statements of the Company and the Notes thereto contained herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information concerning the
Directors and executive officers of Products Corporation. Each Director holds
office until his successor is duly elected and qualified or until his
resignation or removal, if earlier.
NAME POSITION
- ---- --------
Ronald O. Perelman Chairman of the Executive Committee of the Board
and Director
Jerry W. Levin Chairman of the Board and Director
George Fellows President, Chief Executive Officer and Director
William J. Fox Senior Executive Vice President, Chief Financial
Officer and Director
Carlos Colomer Executive Vice President
Ronald H. Dunbar Senior Vice President, Human Resources
M. Katherine Dwyer Senior Vice President
Wade H. Nichols III Senior Vice President and General Counsel
Donald G. Drapkin Director
Irwin Engelman Director
Howard Gittis Director
Edward J. Landau Director
The name, age, principal occupation for the last five years and
selected biographical information for each of the directors and for the
executive officers of the Company are set forth below. Information is as of
February 13, 1997.
Mr. Perelman (54) has been Chairman of the Executive Committee of the
Board of Products Corporation and of Revlon, Inc. since November 1995, and a
Director of Products Corporation and of Revlon, Inc. since their respective
formations in 1992. Mr. Perelman was Chairman of the Board of Products
Corporation and of Revlon, Inc. from their respective formations in 1992 to
November 1995. Mr. Perelman has been Chairman of the Board and Chief Executive
Officer of MacAndrews & Forbes and various of its affiliates for more than the
past five years. Mr. Perelman also is Chairman of the Board of Andrews Group
Incorporated ("Andrews Group"), Consolidated Cigar Holdings Inc. ("Cigar
Holdings Inc."), Mafco Consolidated Group Inc. ("Mafco Consolidated"), Meridian
Sports Incorporated ("Meridian"), Power Control Technologies, Inc. ("PCT") and
Toy Biz, Inc. ("Toy Biz") and Chairman of the Executive Committee of the Board
of Marvel Entertainment Group, Inc. ("Marvel"). Mr. Perelman is a Director of
the following corporations which file reports pursuant to the Securities
Exchange Act of 1934, as amended (the "Exchange Act"): Andrews Group,
California Federal Bank, a Federal Savings Bank ("Cal Fed"), The Coleman
Company, Inc. ("Coleman"), Coleman Holdings Inc. ("Coleman Holdings"), Coleman
Worldwide Corporation ("Coleman Worldwide"), Cigar Holdings, Consolidated Cigar
Corporation ("Consolidated Cigar"), First Nationwide (Parent) Holdings Inc.
("First Nationwide Parent"), First Nationwide Holdings Inc. ("FN Holdings"),
Mafco Consolidated, Marvel, Marvel Holdings Inc. ("Marvel Holdings"), Marvel
(Parent) Holdings Inc. ("Marvel Parent"), Marvel III Holdings Inc. ("Marvel
III"), Meridian, PCT, Pneumo Abex Corporation ("Pneumo Abex"), Revlon, Inc.,
Revlon Worldwide and Toy Biz. On December 27, 1996, Marvel Holdings, Marvel
Parent, Marvel III and Marvel and several of its subsidiaries filed voluntary
petitions for reorganization under Chapter 11 of the United States Bankruptcy
Code.
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Mr. Levin (52) has been Chairman of the Board of Products Corporation
and of Revlon, Inc. since November 1995 and a Director of Products Corporation
and of Revlon, Inc. since their respective formations in 1992. Mr. Levin was
Chief Executive Officer of Products Corporation and of Revlon, Inc. from their
respective formations in 1992 to January 1997 and President of Products
Corporation and of Revlon, Inc. from their respective formations in 1992 to
November 1995. He has been the President and a Director of Holdings since 1991
and Chief Executive Officer since March 1992. Mr. Levin has been Executive Vice
President of MacAndrews Holdings since March 1989. Mr. Levin has been Chairman
and Acting Chief Executive Officer of Coleman since February 1997. For 15 years
prior to joining MacAndrews Holdings, he held various senior executive
positions with The Pillsbury Company. Mr. Levin is a Director of the following
corporations which file reports pursuant to the Exchange Act: Coleman, Coleman
Holdings, Coleman Worldwide, Ecolab, Inc., First Bank System, Inc., Meridian,
Revlon, Inc. and Revlon Worldwide.
Mr. Fellows (54) has been President and Chief Executive Officer of
Products Corporation and of Revlon, Inc. since January 1997. He was President
and Chief Operating Officer of Products Corporation and Revlon, Inc. from
November 1995 until January 1997, and has been a Director of Products
Corporation since 1994 and a Director of Revlon, Inc. since November 1995 . Mr.
Fellows was Senior Executive Vice President of Products Corporation and of
Revlon, Inc. and President and Chief Operating Officer of the Company's
Consumer Group from February 1993 to November 1995. From 1989 through January
1993, he was a senior executive officer of Mennen Corporation and then
Colgate-Palmolive Company, which acquired Mennen Corporation in 1992. From 1986
to 1989 he was Senior Vice President of Holdings. Prior to 1986, he was
President of Holdings' Domestic Beauty Group.
Mr. Fox (40) has been Senior Executive Vice President and Chief
Financial Officer of Products Corporation and of Revlon, Inc. since January
1997 and was Executive Vice President and Chief Financial Officer of Products
Corporation and of Revlon, Inc. from their respective formations in 1992 until
January 1997. Mr. Fox was elected as a Director of Products Corporation in
September 1994 and of Revlon, Inc. in November 1995 . He has been Executive
Vice President and Chief Financial Officer of Holdings since November 1991 and
prior to such time had been a Vice President of Holdings since 1987. He has
been Senior Vice President of MacAndrews Holdings since August 1990. He was
Vice President of MacAndrews Holdings from February 1987 to August 1990 and was
Treasurer of MacAndrews Holdings from February 1987 to September 1992. Prior to
February 1987, he was Vice President and Assistant Treasurer of MacAndrews
Holdings. Mr. Fox joined MacAndrews & Forbes Group, Incorporated in 1983 as
Assistant Controller prior to which time he was a certified public accountant
at the international auditing firm of Coopers & Lybrand. Mr. Fox is a Director
of The Hain Food Group, Inc., which files reports pursuant to the Exchange Act.
Mr. Colomer (52) has been Executive Vice President of Products
Corporation and of Revlon, Inc. since August 1993. Prior to August 1993, he
served as President and General Manager of various of Products Corporation's
and Holdings' international subsidiaries. Mr. Colomer joined Holdings in 1979
when Henry Colomer, S.A., the haircare and cosmetics company that was founded
by his father, was acquired by Holdings, and has held positions of increasing
responsibility since that date.
Mr. Dunbar (59) has been Senior Vice President, Human Resources of
Products Corporation and of Revlon, Inc. since their respective formations in
1992. He was elected Senior Vice President, Human Resources of Holdings in July
1991. Mr. Dunbar was Vice President and General Manager of Arnold Menn and
Associates, a career management consulting and executive outplacement firm,
from 1989 to 1991 and Executive Vice President and Chief Human Resources
Officer of Ryder System Inc., a highway transportation firm, from 1978 to 1989.
Prior to that, Mr. Dunbar served in senior executive human resources positions
at Xerox Corporation and Ford Motor Company.
Ms. Dwyer (47) was elected as Senior Vice President of Products
Corporation and of Revlon, Inc. in November 1996. Prior to that she served in
various appointed officer positions for Products Corporation and for Revlon,
Inc., including President of Products Corporation's United States Cosmetics
Unit from November 1995 to November 1996 and Executive Vice President and
General Manager of Products Corporation's Mass Cosmetics Unit from June 1993 to
November 1995. From 1991 to 1993, Ms. Dwyer was Executive Vice President and
General Manager for Victoria Creations. Prior to 1991, she served in various
senior positions for Avon Products Inc., Cosmair, Inc. and Gillette.
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Mr. Nichols (54) has been Senior Vice President and General Counsel of
Products Corporation and of Revlon, Inc. since their respective formations in
1992. He was elected Senior Vice President and General Counsel of Holdings in
March 1992. He was Vice President and Secretary of Holdings from 1984 to 1992
and Secretary from 1981 to 1984. He joined Holdings in 1978. Mr. Nichols has
been Vice President-Law of MacAndrews Holdings since 1988.
Mr. Drapkin (48) has been a Director of Products Corporation and of
Revlon, Inc. since their respective formations in 1992 and of Holdings since
January 1992. He has been Vice Chairman of MacAndrews Holdings and various of
its affiliates since March 1987. Mr. Drapkin was a partner in the law firm of
Skadden, Arps, Slate, Meagher & Flom for more than five years prior to March
1987. Mr. Drapkin is a Director of the following corporations which file
reports pursuant to the Exchange Act: Algos Pharmaceutical Corporation, Andrews
Group, Coleman, Coleman Holdings, Coleman Worldwide, Cigar Holdings,
Consolidated Cigar, Marvel, Marvel Holdings, Marvel Parent, Marvel III, Revlon,
Inc., Revlon Worldwide, Toy Biz, and VIMRx Pharmaceuticals Inc. On December 27,
1996, Marvel Holdings, Marvel Parent, Marvel III and Marvel and several of its
subsidiaries filed voluntary petitions for reorganization under Chapter 11 of
the United States Bankruptcy Code.
Mr. Engelman (62) has been a Director of Products Corporation since
1993. Mr. Engelman has been Executive Vice President, Chief Financial Officer
and Director of MacAndrews Holdings and various of its affiliates since 1992.
He was Executive Vice President, Chief Financial Officer and Director of GAF
Corporation from 1990 to 1992, Director, President and Chief Operating Officer
of Citytrust Bancorp Inc. from 1988 to 1990, Executive Vice President of the
Blackstone Group LP from 1987 to 1988 and Director, Executive Vice President
and Chief Financial Officer of General Foods Corporation for more than five
years prior to 1987. Mr. Engelman is a Director of Cal Fed which files reports
pursuant to the Exchange Act.
Mr. Gittis (62) has been a Director of Products Corporation and of
Revlon, Inc. since their respective formations in 1992 and of Holdings since
1985. He has been Vice Chairman of MacAndrews Holdings and various of its
affiliates for more than five years. Mr. Gittis is a Director of the following
corporations which file reports pursuant to the Exchange Act: Andrews Group,
Cal Fed, Cigar Holdings, Consolidated Cigar, FN Holdings, First Nationwide
Parent, Mafco Consolidated, PCT, Pneumo Abex, Revlon, Inc., Revlon Worldwide,
Jones Apparel Group, Inc., Loral Space & Communications Ltd. and
Rutherford-Moran Oil Corporation.
Mr. Landau (67) has been a Director of Products Corporation since June
1992 and a Director of Revlon, Inc. since June 1996. Mr. Landau has been a
Senior Partner in the New York law firm of Lowenthal, Landau, Fischer & Bring,
P.C. for more than the past five years. Mr. Landau was a director of Holdings
from 1989 until April 1993. Mr. Landau is a director of Offitbank Investment
Fund, Inc. and Revlon, Inc., which file reports pursuant to the Exchange Act.
BOARD OF DIRECTORS AND ITS COMMITTEES
Products Corporation has established an Executive Committee consisting
of Messrs. Perelman, Gittis and Levin and an Audit Committee comprised of
Messrs. Landau and Engelman. The Executive Committee may exercise all of the
powers and authority of the Board, except as otherwise provided under Delaware
General Corporation Law.
25
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth information for the years indicated
concerning the compensation awarded to, earned by or paid to the Chief
Executive Officer and the four most highly paid executive officers, other than
the Chief Executive Officer, who served as executive officers of Products
Corporation as of December 31, 1996, for services rendered in all capacities to
Products Corporation and its subsidiaries during such periods.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
LONG-
TERM
COMPEN-
ANNUAL COMPENSATION (a) SATION
----------------------------------------- AWARDS
OTHER ----------
ANNUAL SECURITIES ALL OTHER
COMPEN- UNDER- COMPEN-
NAME AND SALARY BONUS SATION LYING SATION
PRINCIPAL POSITION YEAR ($) ($) ($) OPTIONS ($)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Jerry W. Levin (b) 1996 1,500,000 1,500,000 93,801 170,000 307,213
Chairman of the Board 1995 1,450,000 1,450,000 42,651 0 308,002
1994 1,300,000 1,300,000 39,184 0 540,177
- ----------------------------------------------------------------------------------------------------------------------------
George Fellows (c) 1996 1,025,000 870,000 15,242 120,000 4,500
President and Chief 1995 841,667 531,700 68,559 0 4,500
Executive Officer 1994 745,833 449,200 11,625 0 104,500
- ----------------------------------------------------------------------------------------------------------------------------
William J. Fox (d) 1996 750,000 598,600 50,143 50,000 56,290
Senior Executive Vice 1995 660,000 455,000 54,731 0 56,290
President and Chief 1994 601,333 329,900 59,143 0 56,290
Financial Officer
- ----------------------------------------------------------------------------------------------------------------------------
Carlos Colomer 1996 700,000 192,600 ------- 37,000 ----------
Executive Vice President 1995 600,000 135,200 ------- 0 ----------
1994 550,000 280,200 ------- 0 ----------
- ----------------------------------------------------------------------------------------------------------------------------
M. Katherine Dwyer (e) 1996 500,000 326,100 90,029 45,000 4,500
Senior Vice President
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The amounts shown in Annual Compensation for 1996, 1995 and 1994
reflect salary and bonus and other annual compensation awarded to,
earned by or paid to the persons listed for services rendered to
Products Corporation and its subsidiaries. Products Corporation has a
bonus plan (the "Executive Bonus Plan") in which executives
participate (including the Chief Executive Officer and the other Named
Executive Officers). The Executive Bonus Plan provides for payment of
cash compensation upon the achievement of predetermined individual and
corporate performance goals during the calendar year (with the
opportunity for higher awards based upon overachievement of such goals
but in no event higher than 100%).
(b) Mr. Levin was Chief Executive Officer of the Company during 1994, 1995
and 1996. The amount shown for Mr. Levin under Other Annual
Compensation for 1996 includes $26,400 in respect of personal use of a
Company-provided automobile and payments in respect of gross ups for
taxes on imputed income arising out of personal use of a
Company-provided automobile and for taxes on imputed income arising
out of premiums paid or reimbursed by the Company in respect of life
insurance. The amount shown for Mr. Levin under All Other
26
<PAGE>
Compensation for 1996 reflects $302,713 in respect of life
insurance premiums and $4,500 in respect of matching contributions
under the Revlon Employees' Savings and Investment Plan (the "401(k)
Plan"). The amount shown for Mr. Levin under Other Annual Compensation
for 1995 reflects payments in respect of gross ups for taxes on
imputed income arising out of personal use of a Company-provided
automobile and for taxes on imputed income arising out of premiums
paid or reimbursed by the Company in respect of life insurance. The
amount shown for Mr. Levin under All Other Compensation for 1995
reflects $303,502 in respect of life insurance premiums and $4,500 in
respect of matching contributions under the 401(k) Plan. The amount
shown for Mr. Levin under Other Annual Compensation for 1994 reflects
payments in respect of gross ups for taxes on imputed income arising
out of personal use of a Company-provided automobile and for taxes on
imputed income arising out of premiums paid or reimbursed by the
Company in respect of life insurance. The amounts shown for Mr. Levin
under All Other Compensation for 1994 reflect payments in respect of
life insurance premiums and certain relocation expenses and matching
contributions under the 401(k) Plan. In connection with such
relocation, the Company purchased for face value a $525,000 purchase
money note made by the purchaser of Mr. Levin's home secured by a
mortgage on such home.
(c) Mr. Fellows became Chief Executive Officer of Products Corporation and
Revlon, Inc. in January 1997. The amount shown for Mr. Fellows under
Other Annual Compensation for 1996 reflects payments in respect of
gross ups for taxes on imputed income arising out of personal use of a
Company-provided automobile and for taxes on imputed income arising
out of premiums paid or reimbursed by the Company in respect of life
insurance. The amount shown for Mr. Fellows under All Other
Compensation for 1996 reflects matching contributions under the 401(k)
Plan. The amount shown for Mr. Fellows under Other Annual Compensation
for 1995 includes $43,251 in respect of membership fees and related
expenses for personal use of a health and country club and $9,458 in
respect of gross ups for taxes on imputed income arising out of
personal use of a Company-provided automobile. The amount shown for
Mr. Fellows under All Other Compensation for 1995 reflects matching
contributions under the 401(k) Plan. The amount shown for Mr. Fellows
under Other Annual Compensation for 1994 reflects payments in respect
of gross ups for taxes on imputed income arising out of personal use of
a Company-provided automobile. The amounts shown for Mr. Fellows under
All Other Compensation for 1994 reflect matching contributions under
the 401(k) Plan and reimbursement for long-term compensation and other
benefits under plans of his prior employer, which Mr. Fellows
forfeited by accepting employment with Products Corporation.
(d) Mr. Fox became Senior Executive Vice President of Products Corporation
and Revlon, Inc. in January 1997. The amount shown for Mr. Fox under
Other Annual Compensation for 1996 reflects payments in respect of
gross ups for taxes on imputed income arising out of personal use of a
Company-provided automobile and for taxes on imputed income arising
out of premiums paid or reimbursed by the Company in respect of life
insurance. The amount shown for Mr. Fox under All Other Compensation
for 1996 reflects $51,790 in respect of life insurance premiums and
$4,500 in respect of matching contributions under the 401(k) Plan. The
amount shown for Mr. Fox under Other Annual Compensation for 1995
reflects payments in respect of gross ups for taxes on imputed income
arising out of personal use of a Company-provided automobile and for
taxes on imputed income arising out of premiums paid or reimbursed by
the Company in respect of life insurance. The amount shown for Mr. Fox
under All Other Compensation for 1995 reflects $51,790 in respect of
life insurance premiums and $4,500 in respect of matching
contributions under the 401(k) Plan. The amount shown for Mr. Fox
under Other Annual Compensation for 1994 reflects payments in respect
of gross ups for taxes on imputed income arising out of personal use
of a Company-provided automobile and for taxes on imputed income
arising out of premiums paid or reimbursed by the Company in respect
of life insurance for Mr. Fox. The amounts shown for Mr. Fox under All
Other Compensation for 1994 reflect payments in respect of life
insurance premiums and matching contributions under the 401(k) Plan.
(e) Ms. Dwyer became an executive officer of Products Corporation and of
Revlon, Inc. in November 1996. The amount shown for Ms. Dwyer under
Other Annual Compensation for 1996 reflects $57,264 in expense
reimbursements and payments in respect of gross ups for taxes on
imputed income arising out of personal use of a Company-provided
automobile. The amount shown for Ms. Dwyer under All Other
Compensation for 1996 reflects matching contributions under the 401(k)
Plan.
27
<PAGE>
OPTION GRANTS IN THE LAST FISCAL YEAR
During 1996, the following grants of stock options were made pursuant to
the Revlon, Inc. 1996 Stock Plan (the "Stock Plan") to the executive officers
named in the Summary Compensation Table:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Grant
Date
Value
Individual Grants (a) (b)
- ------------------------------------------------------------------------------------------------------------------
Percent
of Total
Number Options
of Granted
Securities To Exercise
Underlying Employees Of Base Grant Date
Option In Fiscal Price Expiration Present
Name Granted (#) Year ($/Sh) Date Value $
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Jerry W. Levin
Chairman (c) 170,000 17% 24.00 2/28/06 1,885,079
- ------------------------------------------------------------------------------------------------------------------
George Fellows
President and Chief 120,000 12% 24.00 2/28/06 1,330,644
Executive Officer (c)
- ------------------------------------------------------------------------------------------------------------------
William J. Fox
Senior Executive Vice
President and Chief 50,000 5% 24.00 2/28/06 554,435
Financial Officer (c)
- ------------------------------------------------------------------------------------------------------------------
Carlos Colomer
Executive Vice President 37,000 4% 24.00 2/28/06 410,282
- ------------------------------------------------------------------------------------------------------------------
M. Katherine Dwyer
Senior Vice President 45,000 5% 24.00 2/28/06 498,992
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Prior to the consummation of the Offering, the Board of Directors
of Revlon, Inc. made initial grants under the Stock Plan of non-qualified
options having a term of 10 years to purchase shares of Class A Common Stock at
an exercise price equal to the initial public offering price. The grants to
Messrs. Levin, Fellows, Fox and Colomer and Ms. Dwyer will not vest as to any
portion until the third anniversary of the grant date and will thereupon become
100% vested, except that upon termination of employment by the Company other
than for "cause", death or "disability" under the applicable employment
agreement, such options will vest with respect to 50% of the shares subject
thereto (if the termination is between the second and third anniversaries of
the grant).
(b) Present values were calculated using the Black-Scholes option
pricing model. The model as applied used the grant date of February 29, 1996
and the exercise price per share specified in the table above was equal to the
fair market value per share of Common Stock on the date of grant. The model
also assumes (i) risk-free rate of return of 5.99% which was the rate as of the
grant date for the U.S. Treasury Zero Coupon Bond issues with a remaining term
similar to the expected term of the option, (ii) stock price volatility of .31
based upon the peer group average, (iii) a constant dividend rate of zero
percent and (iv) that the options normally would be exercised on the final day
of the seventh year after grant. No discount from the theoretical value was
taken to reflect the waiting period, if any, prior to vesting of the stock
options, the restrictions on the transfer of the stock options and the
likelihood that the stock options will be exercised in advance of the final day
of their term.
(c) Mr. Levin served as Chief Executive Officer during 1996. Mr.
Fellows was elected Chief Executive Officer in January 1997. Mr. Fox was
elected Senior Executive Vice President in January 1997.
28
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST
FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
The following chart shows the number of stock options exercised during
1996 and the 1996 year-end value of the stock options held by the executive
officers named in the Summary Compensation Table:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Value of Unexercised
Number of Securities In-The-Money
Underlying Unexercised Options At Fiscal
Options At Fiscal Year-End ($)
Shares Value Year-End (#) Exercisable/
Acquired on Realized Exercisable/ Unexercisable
Name Exercise (#) ($) Unexercisable (a)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Jerry W. Levin
Chairman (b) 0 0 0/170,000 0/998,750
- ---------------------------------------------------------------------------------------------------------------------------
George Fellows
President and
Chief Executive Officer 0 0 0/120,000 0/705,000
(b)
- ---------------------------------------------------------------------------------------------------------------------------
William J. Fox
Senior Executive Vice
President and
Chief Financial Officer 0 0 0/50,000 0/293,750
(b)
- ---------------------------------------------------------------------------------------------------------------------------
Carlos Colomer
Executive Vice President 0 0 0/37,000 0/217,375
- ---------------------------------------------------------------------------------------------------------------------------
M. Katherine Dwyer
Senior Vice President 0 0 0/45,000 0/264,375
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Amounts shown represent the market value of the underlying shares
of Class A Common Stock at year-end calculated using the December 31, 1996 New
York Stock Exchange (the "NYSE") closing price per share of Class A Common
Stock of $29.875 minus the exercise price of the stock option. The actual
value, if any, an executive may realize is dependent upon the amount by which
the market price of shares of Common Stock exceeds the exercise price per share
when the stock options are exercised. The actual value realized may be greater
or less than the value shown in the table.
(b) Mr. Levin served as Chief Executive Officer during 1996. Mr.
Fellows was elected Chief Executive Officer in January 1997. Mr. Fox was
elected Senior Executive Vice President in January 1997.
EMPLOYMENT AGREEMENTS AND TERMINATION OF EMPLOYMENT ARRANGEMENTS
Each of the Named Executive Officers has entered into an Executive
Employment Agreement with Products Corporation (except in the case of Mr.
Colomer, who has entered into an Executive Employment Agreement with a
subsidiary of Products Corporation), which became effective upon consummation
of the Offering, providing for their continued employment. At any time on or
after the second anniversary of the effective date of the relevant Executive
Employment Agreement, Products Corporation may terminate the term by 12 months
prior notice of non-renewal. The agreements provide for base salary of not less
than $1,500,000, $1,650,000 and $1,800,000 during 1996, 1997 and 1998 and
thereafter, respectively, in the case of Mr. Levin, and not less than
$1,000,000, $750,000, $700,000 and $500,000 (or any greater amount to which
such base salary amounts may be increased) in the case of Messrs. Fellows, Fox
and Colomer and Ms. Dwyer, respectively, participation in the Executive Bonus
Plan, continuation of life insurance and executive medical insurance coverage
in the event of permanent disability, the provision of post-retirement life
insurance coverage in the amount of two times base salary in certain
circumstances, and participation in other executive benefit plans on a basis
equivalent to senior executives of the Company generally. The
29
<PAGE>
agreements with Messrs. Fellows and Colomer and Ms. Dwyer provide for
Company-paid supplemental term life insurance during employment in the amount
of three times base salary, while the agreements with Messrs. Levin and Fox
provide that, in lieu of any participation in Company-paid pre-retirement life
insurance coverage, Products Corporation will pay premiums and gross ups for
taxes thereon in respect of, in the case of Mr. Levin, whole life insurance
policies on his life in the amount of $14,100,000 under a split dollar
arrangement pursuant to which Products Corporation would be repaid the amount
of premiums it paid up to the cash surrender value of the policies from
insurance proceeds payable under the policies and, in the case of Mr. Fox, a
whole life insurance policy on his life in the amount of $5,000,000 under an
arrangement providing for all insurance proceeds to be paid to the designated
beneficiary under such policy. The agreements also require that management
recommend to the Compensation Committee that Messrs. Levin, Fellows, Fox and
Colomer and Ms. Dwyer be granted options to purchase 170,000, 120,000, 50,000,
37,000, and 45,000 (in first year and 30,000 thereafter) shares of Class A
Common Stock, respectively, each year during the term of the relevant Executive
Employment Agreement. The agreements provide that in the event of termination
of the term of the relevant Executive Employment Agreement by Products
Corporation otherwise than for "good reason" as defined in the Executive
Severance Policy or failure of the Compensation Committee to adopt and
implement the recommendations of management with respect to stock option
grants, the executive would be entitled to severance pursuant to the Executive
Severance Policy as in effect on January 1, 1996 (see -"Executive Severance
Policy"). In addition, the employment agreement with Mr. Fellows provides that
if he remains continuously employed with Products Corporation or its affiliates
until age 60, then upon any subsequent retirement he will be entitled to a
supplemental pension benefit in a sufficient amount so that his annual pension
benefit from all qualified and non-qualified pension plans of Products
Corporation and its affiliates (expressed as a straight life annuity) equals
$500,000. Upon any earlier retirement with Products Corporation's consent or
any earlier termination of employment by Products Corporation otherwise than
for "good reason" (as defined in the Executive Severance Policy), Mr. Fellows
will be entitled to a reduced annual payment in an amount equal to the product
of multiplying $28,540 by the number of anniversaries, as of the date of
retirement or termination, of Mr. Fellows' fifty-third birthday (but in no
event more than would have been payable to Mr. Fellows under the foregoing
provision had he retired at age 60). In each case, Products Corporation
reserves the right to treat Mr. Fellows as having deferred payment of pension
for purposes of computing such supplemental payments.
As of December 31, 1996, 1995 and 1994, Mr. Colomer had a loan
outstanding from Products Corporation's subsidiary in Spain in the amount of
25.0 million Spanish pesetas (approximately $205,000 U.S. dollar equivalent as
of December 31, 1996) dating from 1991 pursuant to a management retention
program grandfathered under a 1992 change in the Spanish tax law which
currently covers certain executives of such subsidiary, including Mr. Colomer.
Pursuant to this management retention program, outstanding loans do not bear
interest but an amount equal to the one-year government bond interest rate in
effect at the beginning of the year is deducted from the executives' annual
compensation, and loans must be repaid in full upon termination of employment.
The amount deducted from Mr. Colomer's compensation was 2.15 million Spanish
pesetas (approximately $16,988 U.S. dollar equivalent as of December 31, 1996)
for 1996; 2.25 million Spanish pesetas (approximately $18,097 U.S. dollar
equivalent as of December 31, 1995) for 1995 and 2.25 million Spanish pesetas
(approximately $17,094 U.S. dollar equivalent as of December 31, 1994) for
1994.
EXECUTIVE SEVERANCE POLICY
Products Corporation's Executive Severance Policy, as amended
effective January 1, 1996, provides that upon termination of employment of
eligible executive employees, including the Named Executive Officers, other
than voluntary resignation, retirement or termination by Products Corporation
for good reason, in consideration for the execution of a release and
confidentiality agreement and Products Corporation's standard Employee
Agreement as to Confidentiality and Non-Competition (the "Non-Competition
Agreement"), the eligible executive will be entitled to receive, in lieu of
severance under any employment agreement then in effect or under Products
Corporation's basic severance plan, a number of months of severance pay in
semi-monthly installments based upon such executive's grade level and years of
service reduced by the amount of any compensation from subsequent employment,
unemployment compensation or statutory termination payments received by such
executive during the severance period, and, in certain circumstances, by the
actuarial value of enhanced pension benefits received by the executive as well
as continued participation in medical and certain other benefit plans for the
severance period (or in lieu thereof, upon commencement of subsequent
employment, a lump sum payment equal to the then present value of 50% of the
amount of base salary then remaining payable through the balance of the
severance period, not to
30
<PAGE>
exceed six months' base salary). Pursuant to the Executive Severance Policy,
upon meeting the conditions set forth therein, Messrs. Levin, Fellows, Colomer
and Fox and Ms. Dwyer would be entitled to severance pay equal to two years of
base salary at the rate in effect on the date of employment termination plus
continued participation in the medical and dental plans for two years on the
same terms as active employees.
DEFINED BENEFIT PLANS
The following table shows the estimated annual retirement benefits
payable (as of December 31, 1996) at normal retirement age (65) to a person
retiring with the indicated average compensation and years of credited service,
on a straight life annuity basis, after Social Security offset, under the
Revlon Employees' Retirement Plan (the "Retirement Plan"), including amounts
attributable to the Pension Equalization Plan, each as described below:
HIGHEST CONSECUTIVE
FIVE-YEAR AVERAGE
COMPENSATION ESTIMATED ANNUAL STRAIGHT LIFE BENEFITS AT RETIREMENT
DURING FINAL TEN YEARS WITH INDICATED YEARS OF CREDITED SERVICE(a)
- ---------------------- ------------------------------------------------------
15 20 25 30 35
-------- -------- -------- -------- --------
$ 600,000 $152,022 $202,696 $253,370 $304,044 $304,044
700,000 178,022 237,363 296,703 356,044 356,044
800,000 204,022 272,029 340,037 408,044 408,044
900,000 230,022 306,696 383,370 460,044 460,044
1,000,000 256,022 341,363 426,703 500,000 500,000
1,100,000 282,022 376,029 470,037 500,000 500,000
1,200,000 308,022 410,696 500,000 500,000 500,000
1,300,000 334,022 445,363 500,000 500,000 500,000
1,400,000 360,022 480,029 500,000 500,000 500,000
1,500,000 386,022 500,000 500,000 500,000 500,000
2,000,000 500,000 500,000 500,000 500,000 500,000
2,500,000 500,000 500,000 500,000 500,000 500,000
(a) The normal form of benefit for the Retirement Plan and the Pension
Equalization Plan is a life annuity.
The Retirement Plan is intended to be a tax qualified defined benefit
plan. Retirement Plan benefits are a function of service and final average
compensation. The Retirement Plan is designed to provide an employee having 30
years of credited service with an annuity generally equal to 52% of final
average compensation, less 50% of estimated individual Social Security
benefits. Final average compensation is defined as average annual base salary
and bonus (but not any part of bonuses in excess of 50% of base salary) during
the five consecutive calendar years in which base salary and bonus (but not any
part of bonuses in excess of 50% of base salary) were highest out of the last
10 years prior to retirement or earlier termination. Except as otherwise
indicated, credited service only includes all periods of employment with the
Company or a subsidiary prior to retirement. The base salaries and bonuses of
each of the Named Executive Officers are set forth in the Summary Compensation
Table under columns entitled "Salary" and "Bonus," respectively.
The Employee Retirement Income Security Act of 1974, as amended,
places certain maximum limitations upon the annual benefit payable under all
qualified plans of an employer to any one individual. In addition, the Omnibus
Budget Reconciliation Act of 1993 limits the annual amount of compensation that
can be considered in determining the level of benefits under qualified plans.
The Pension Equalization Plan, as amended effective January 1, 1996, is a
non-qualified benefit arrangement designed to provide for the payment by the
Company of the difference, if any, between the amount of such maximum
limitations and the annual benefit that would be payable under the Retirement
Plan but for such limitations, up to a combined maximum annual straight life
annuity benefit at age 65 under the Retirement Plan and the Pension
Equalization Plan of $500,000. Benefits provided under the Pension Equalization
Plan are conditioned on the participant's compliance with his or her
Non-Competition Agreement and, in any case, on the participant not competing
with Products Corporation for one year after termination of employment.
31
<PAGE>
The number of years of credited service under the Retirement Plan and
the Pension Equalization Plan as of January 1, 1997 for Mr. Levin is seven
years (which includes credit for service with MacAndrews Holdings), for Mr.
Fellows is eight years (which includes credit for prior service with Holdings),
for Mr. Fox is 13 years (which includes credit for service with MacAndrews
Holdings) and for Ms. Dwyer is 3 years. Mr. Colomer does not participate in the
Retirement Plan or the Pension Equalization Plan. Mr. Colomer participates in
the Revlon Foreign Service Employees Pension Plan (the "Foreign Pension Plan").
The Foreign Pension Plan is a non-qualified defined benefit plan. The plan is
designed to provide an employee with 2% of final average salary for each year
of credited service, up to a maximum of 30 years, reduced by the sum of all
other benefits provided by the Company or any of its subsidiaries and social
security or other government provided retirement benefits. Credited service
includes all periods of employment with the Company or a subsidiary prior to
retirement. Final average salary is defined as average annual base salary
during the five consecutive calendar years in which base salary was highest out
of the last 10 years prior to retirement. The normal form of payment under the
Foreign Pension Plan is a life annuity. Mr. Colomer's credited service as of
January 1, 1997 under the Foreign Pension Plan is 17 years (which includes
credit for service with Holdings).
COMPENSATION OF DIRECTORS
Directors who currently are not receiving compensation as officers or
employees of the Company or any of its affiliates are paid an annual retainer
fee of $25,000, payable in monthly installments, and a fee of $1,000 for each
meeting of the Board of Directors or any committee thereof they attend.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
For 1996, the executive officers of Products Corporation were
compensated for services rendered to Products Corporation and its subsidiaries,
participated in benefit plans sponsored by Products Corporation and received
grants of options under the Stock Plan. The Executive Committee of the Board of
Directors of Products Corporation (made up of Messrs. Perelman, Levin and
Gittis) performed the functions of a Compensation Committee with respect to
determining compensation of executive officers of Products Corporation (except
that Mr. Levin was not involved in any such determination of his compensation).
During 1996, Products Corporation has used an airplane which was owned
by a corporation of which Messrs. Gittis, Drapkin and Levin were the sole
stockholders. As of December 31, 1996, Mr. Levin no longer holds an ownership
interest in the corporation that owns the airplane. See "Certain Relationships
and Related Transactions - Other."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Revlon, Inc. beneficially owns all of the outstanding shares of Common
Stock of Products Corporation. No other director, executive officer or other
person beneficially owns any shares of Common Stock. Through Revlon Worldwide,
the parent of Revlon, Inc., Ronald O. Perelman, 35 East 62nd Street, New York,
New York 10021, through MacAndrews & Forbes beneficially owns 11,250,000 shares
of Class A Common Stock of Revlon, Inc. (representing 56.6% of the outstanding
shares of Class A Common Stock of Revlon, Inc.) and all of the outstanding
31,250,000 shares of Class B Common Stock of Revlon, Inc., which together
represent 83.1% of the outstanding shares of Revlon, Inc.'s common stock and
has approximately 97.4% of the combined voting power of the outstanding shares
of Revlon, Inc.'s common stock. All of the shares of Revlon, Inc.'s common
stock owned by Revlon Worldwide are pledged by Revlon Worldwide to secure its
obligations under its Senior Secured Discount Notes Due 1998 having an accreted
value as of December 31, 1996 of $969.6 million. Shares of intermediate holding
companies are or may from time to time be pledged to secure obligations of
Mafco Holdings Inc. or its affiliates.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Revlon, Inc. beneficially owns all of the shares of Common Stock of
Products Corporation. Through Revlon Worldwide, MacAndrews & Forbes
beneficially owns shares of Revlon, Inc.'s common stock having approximately
97.4% of the combined voting power of the outstanding shares of Revlon, Inc.'s
common stock. As a result, MacAndrews & Forbes is able to elect the entire
Board of Directors of Products Corporation and control the vote on all matters
submitted to a vote of Products Corporation's stockholder, including
extraordinary transactions such as mergers
32
<PAGE>
or sales of all or substantially all of Products Corporation's assets.
MacAndrews & Forbes is wholly owned by Ronald O. Perelman, who is Chairman of
the Executive Committee of the Board and a Director of Products Corporation.
Messrs. Perelman, Levin, Fox and Nichols, each of whom is an executive officer
of Products Corporation, have been, and are expected to continue to be,
officers of MacAndrews & Forbes and certain of its affiliates.
TRANSFER AGREEMENTS
In June 1992, Revlon, Inc. and Products Corporation entered into an
asset transfer agreement with Holdings and certain of its wholly owned
subsidiaries (the "Asset Transfer Agreement"), and Revlon, Inc. and Products
Corporation entered into a real property asset transfer agreement with Holdings
(the "Real Property Transfer Agreement" and, together with the Asset Transfer
Agreement, the "Transfer Agreements"), and pursuant to such agreements on June
24, 1992, Holdings transferred assets to Products Corporation and Products
Corporation assumed all the liabilities of Holdings, other than certain
specifically excluded assets and liabilities (the liabilities excluded are
referred to as the "Excluded Liabilities"). Holdings retained certain small
brands that historically had not been profitable ("Retained Brands"). Holdings
agreed to indemnify Revlon, Inc. and Products Corporation against losses
arising from the Excluded Liabilities, and Revlon, Inc. and Products
Corporation agreed to indemnify Holdings against losses arising from the
liabilities assumed by Products Corporation. The amounts reimbursed by Holdings
to Products Corporation for the Excluded Liabilities for 1996 was $1.4 million.
BENEFIT PLANS ASSUMPTION AGREEMENT
Holdings, Products Corporation and Revlon, Inc. entered into a benefit
plans assumption agreement dated as of July 1, 1992 pursuant to which Products
Corporation assumed all rights, liabilities and obligations under all of
Holdings' benefit plans, arrangements and agreements, including obligations
under the Revlon Employees' Retirement Plan and the Revlon Employees' Savings
and Investment Plan. Products Corporation was substituted for Holdings as
sponsor of all such plans theretofore sponsored by Holdings.
OPERATING SERVICES AGREEMENT
In June 1992, Revlon, Inc., Products Corporation and Holdings entered
into an operating services agreement (as amended and restated, and as
subsequently amended, the "Operating Services Agreement") pursuant to which
Products Corporation manufactures, markets, distributes, warehouses and
administers, including the collection of accounts receivable, the Retained
Brands for Holdings. Pursuant to the Operating Services Agreement, Products
Corporation is reimbursed an amount equal to all of its and Revlon, Inc.'s
direct and indirect costs incurred in connection with furnishing such services,
net of the amounts collected by Products Corporation with respect to the
Retained Brands, payable quarterly. The net amount reimbursed by Holdings to
Products Corporation for such direct and indirect costs for 1996 was $5.1
million. Holdings also pays Products Corporation a fee equal to 5% of the net
sales of the Retained Brands, payable quarterly. The fees paid by Holdings to
Products Corporation pursuant to the Operating Services Agreement for services
with respect to the Retained Brands for 1996 was approximately $0.6 million.
REIMBURSEMENT AGREEMENTS
Revlon, Inc., Products Corporation and MacAndrews Holdings have
entered into reimbursement agreements (the "Reimbursement Agreements") pursuant
to which (i) MacAndrews Holdings is obligated to provide certain professional
and administrative services, including employees, to Revlon, Inc. and its
subsidiaries, including Products Corporation, and purchase services from third
party providers, such as insurance and legal and accounting services, on behalf
of Revlon, Inc. and its subsidiaries, including Products Corporation, to the
extent requested by Products Corporation, and (ii) Products Corporation is
obligated to provide certain professional and administrative services,
including employees, to MacAndrews Holdings and purchase services from third
party providers, such as insurance and legal and accounting services, on behalf
of MacAndrews Holdings to the extent requested by MacAndrews Holdings, provided
that in each case the performance of such services does not cause an
unreasonable burden to MacAndrews Holdings or Products Corporation, as the case
may be. Products Corporation reimburses MacAndrews Holdings for the allocable
costs of the services purchased for or provided to Products Corporation and for
reasonable out-of-pocket expenses incurred in connection with the provision of
such services. MacAndrews Holdings reimburses Products Corporation for the
allocable costs of the services purchased for or provided to MacAndrews
Holdings and for the
33
<PAGE>
reasonable out-of-pocket expenses incurred in connection with the purchase or
provision of such services. In addition, in connection with certain insurance
coverage provided by MacAndrews Holdings, Products Corporation obtained letters
of credit under the standby letter of credit facility (which aggregated
approximately $26.4 million as of December 31, 1996) to support certain
self-funded risks of MacAndrews Holdings and its affiliates, including Revlon,
Inc., associated with such insurance coverage. The costs of such letters of
credit are allocated among, and paid by, the affiliates of MacAndrews Holdings,
including Revlon, Inc., which participate in the insurance coverage to which
the letters of credit relate. The Company expects that these self-funded risks
will be paid in the ordinary course and, therefore, it is unlikely that such
letters of credit will be drawn upon. MacAndrews Holdings has agreed to
indemnify Revlon, Inc. and Products Corporation to the extent amounts are drawn
under any of such letters of credit with respect to claims for which Products
Corporation is not responsible. The net amount reimbursed by MacAndrews
Holdings to Products Corporation for the services provided under the
Reimbursement Agreements for 1996 was $2.2 million. Each of Revlon, Inc. and
Products Corporation, on the one hand, and MacAndrews Holdings, on the other,
has agreed to indemnify the other party for losses arising out of the provision
of services by it under the Reimbursement Agreements other than losses
resulting from its willful misconduct or gross negligence. The Reimbursement
Agreements may be terminated by either party on 90 days' notice. The Company
does not intend to request services under the Reimbursement Agreements unless
their costs would be at least as favorable to the Company as could be obtained
from unaffiliated third parties.
TAX SHARING AGREEMENT
Revlon, Inc. and Products Corporation, for federal income tax
purposes, are included in the affiliated group of which Mafco Holdings is the
common parent, and Revlon, Inc.'s and Products Corporation's federal taxable
income and loss are included in such group's consolidated tax return filed by
Mafco Holdings. Revlon, Inc. and Products Corporation also may be included in
certain state and local tax returns of Mafco Holdings or its subsidiaries. In
June 1992, Holdings, Revlon, Inc., Products Corporation and certain of its
subsidiaries, and Mafco Holdings entered into a tax sharing agreement (as
subsequently amended, the "Tax Sharing Agreement"), pursuant to which Mafco
Holdings has agreed to indemnify Revlon, Inc. and Products Corporation against
federal, state or local income tax liabilities of the consolidated or combined
group of which Mafco Holdings (or a subsidiary of Mafco Holdings other than
Revlon, Inc. and Products Corporation or its subsidiaries) is the common parent
for taxable periods beginning on or after January 1, 1992 during which Revlon,
Inc. and Products Corporation or a subsidiary of Products Corporation is a
member of such group. Pursuant to the Tax Sharing Agreement, for all taxable
periods beginning on or after January 1, 1992, Products Corporation will pay to
Revlon, Inc. which, in turn, will pay to Holdings amounts equal to the taxes
that such corporation would otherwise have to pay if it were to file separate
federal, state or local income tax returns (including any amounts determined to
be due as a result of a redetermination arising from an audit or otherwise of
the consolidated or combined tax liability relating to any such period which is
attributable to Products Corporation), except that Products Corporation will
not be entitled to carry back any losses to taxable periods ending prior to
January 1, 1992. No payments are required by Products Corporation or Revlon,
Inc. if and to the extent Products Corporation is prohibited under the Credit
Agreement from making cash tax sharing payments to Revlon, Inc. The Credit
Agreement prohibits Products Corporation from making such cash tax sharing
payments other than in respect of state and local income taxes. Since the
payments to be made by Products Corporation under the Tax Sharing Agreement
will be determined by the amount of taxes that Products Corporation would
otherwise have to pay if it were to file separate federal, state or local
income tax returns, the Tax Sharing Agreement will benefit Mafco Holdings to
the extent Mafco Holdings can offset the taxable income generated by Products
Corporation against losses and tax credits generated by Mafco Holdings and its
other subsidiaries. There were no cash payments by Products Corporation
pursuant to the Tax Sharing Agreement for 1996.
FINANCING REIMBURSEMENT AGREEMENT
Holdings and Products Corporation entered into a financing
reimbursement agreement (the "Financing Reimbursement Agreement") in 1992
pursuant to which Holdings agreed to reimburse Products Corporation for
Holdings' allocable portion of (i) the debt issuance cost and advisory fees
related to the capital restructuring of Holdings and (ii) interest expense
attributable to the higher cost of funds paid by Products Corporation under the
credit agreement in effect at that time as a result of additional borrowings
for the benefit of Holdings in connection with the assumption of certain
liabilities by Products Corporation under the Asset Transfer Agreement and the
repurchase of Old Senior Subordinated Notes from affiliates. In February 1995,
the Financing Reimbursement Agreement was amended
34
<PAGE>
and extended to provide that Holdings would reimburse Products Corporation for
a portion of the debt issuance costs and advisory fees related to the Former
Credit Agreement and 1 1/2 % per annum of the average balance outstanding under
the Former Credit Agreement and the average balance outstanding under working
capital borrowings from affiliates through June 30, 1996 and such amounts were
evidenced by a noninterest-bearing promissory note payable on June 30, 1996. In
June 1996, $10.9 million in notes due to Products Corporation, which included
$2.0 million of interest reimbursement in 1996, under the Financing
Reimbursement Agreement from Holdings was offset against a $11.7 million demand
note payable by Products Corporation to Holdings. The Financing Reimbursement
Agreement expired on June 30, 1996.
OTHER
Pursuant to a lease dated April 2, 1993 (the "Edison Lease"), Holdings
leases to Products Corporation the Edison research and development facility for
a term of up to 10 years with an annual rent of $1.4 million and certain shared
operating expenses payable by Products Corporation which, together with the
annual rent are not to exceed $2.0 million per year. Pursuant to an assumption
agreement dated February 18, 1993, Holdings agreed to assume all costs and
expenses of the ownership and operation of the Edison facility as of January 1,
1993, other than (i) the operating expenses for which Products Corporation is
responsible under the Edison Lease and (ii) environmental claims and compliance
costs relating to matters which occurred prior to January 1, 1993 up to an
amount not to exceed $8.0 million (the amount of such claims and costs for
which Products Corporation is responsible, the "Environmental Limit"). In
addition, pursuant to such assumption agreement, Products Corporation agreed to
indemnify Holdings for environmental claims and compliance costs relating to
matters which occurred prior to January 1, 1993 up to an amount not to exceed
the Environmental Limit and Holdings agreed to indemnify Products Corporation
for environmental claims and compliance costs relating to matters which
occurred prior to January 1, 1993 in excess of the Environmental Limit and all
such claims and costs relating to matters occurring on or after January 1,
1993. Pursuant to an occupancy agreement, during 1996 Products Corporation
rented a portion of the administration building located at the Edison facility
and space for a retail store of Products Corporation. Products Corporation
provides certain administrative services, including accounting, for Holdings
with respect to the Edison facility pursuant to which Products Corporation pays
on behalf of Holdings costs associated with the Edison facility and is
reimbursed by Holdings for such costs, less the amount owed by Products
Corporation to Holdings pursuant to the Edison Lease and the occupancy
agreement. The net amount reimbursed by Holdings to Products Corporation for
such costs with respect to the Edison facility for 1996 was $1.1 million.
Effective January 1, 1996, Products Corporation acquired from Holdings
substantially all of the assets of Tarlow in consideration for the assumption
of substantially all of the liabilities and obligations of Tarlow. Net
liabilities assumed were approximately $3.4 million. Products Corporation paid
$4.1 million to Holdings which was accounted for as an increase in capital
deficiency. A nationally recognized investment banking firm rendered its
written opinion that the terms of the purchase are fair from a financial
standpoint to Products Corporation.
During 1996, Products Corporation leased certain facilities to
MacAndrews & Forbes or its affiliates pursuant to occupancy agreements and
leases including space at Products Corporation's New York headquarters and at
Products Corporation's offices in London and Tokyo. The rent paid by MacAndrews
& Forbes or its affiliates to Products Corporation for 1996 was $4.6 million.
The Credit Agreement is supported by, among other things, guarantees
from Holdings and certain of its subsidiaries. The obligations under such
guarantees are secured by, among other things, (i) the capital stock and
certain assets of certain subsidiaries of Holdings and (ii) a mortgage on
Holdings' Edison, New Jersey facility.
Products Corporation borrows funds from its affiliates from time to
time to supplement its working capital borrowings. No such borrowings were
outstanding as of December 31, 1996. The interest rates for such borrowings are
more favorable to Products Corporation than interest rates under the Credit
Agreement and, for borrowings occurring prior to the execution of the Credit
Agreement, the credit facility in effect at the time of such borrowing. The
amount of interest paid by Products Corporation for such borrowings for 1996
was $0.5 million.
In November 1993, Products Corporation assigned to Holdings a lease
for warehouse space in New Jersey (the "N.J. Warehouse") between Products
Corporation and a trust established for the benefit of certain family members
of
35
<PAGE>
the Chairman of the Executive Committee. The N.J. Warehouse had become vacant
as a result of divestitures and restructuring of Products Corporation. The
lease has annual lease payments of approximately $2.3 million and terminates on
June 30, 2005. In consideration for Holdings assuming all liabilities and
obligations under the lease, Products Corporation paid Holdings $7.5 million
(for which a liability was previously recorded) in three installments of $2.5
million each in January 1994, January 1995 and January 1996. A nationally
recognized investment banking firm rendered its written opinion that the terms
of the lease transfer were fair from a financial standpoint to Products
Corporation. During 1996, Products Corporation paid $0.2 million associated
with the N.J. Warehouse on behalf of Holdings and was reimbursed by Holdings
for such amount.
During 1996, Products Corporation used an airplane which was owned by
a corporation of which Messrs. Gittis, Drapkin and Levin were the sole
stockholders. In 1996, Products Corporation paid approximately $0.2 million for
the usage of the airplane. As of December 31, 1996, Mr. Levin no longer holds
an ownership interest in the corporation that owned the airplane.
Consolidated Cigar, an affiliate of Products Corporation, assembles
lipstick cases for Products Corporation. Products Corporation paid
approximately $1.0 million for such services in 1996.
In the fourth quarter of 1996, Products Corporation and certain of its
subsidiaries purchased an inactive subsidiary from an affiliate for net cash
consideration of approximately $3.0 million in a series of transactions in
which Products Corporation expects to realize certain tax benefits in future
years.
Products Corporation believes that the terms of the foregoing
transactions are at least as favorable to Products Corporation as those that
could be obtained from unaffiliated third parties.
36
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) List of documents filed as part of this Report:
(1) Consolidated Financial Statements and Independent Auditors'
Report included herein:
See Index on page F-1
(2) Financial Statement Schedule:
See Index on page F-1
All other schedules are omitted as they are inapplicable or the
required information is furnished in the Consolidated Financial
Statements of the Company or the Notes thereto.
(3) List of Exhibits:
EXHIBIT NO. DESCRIPTION
- ----------- -----------
3. CERTIFICATE OF INCORPORATION AND BY-LAWS.
3.1 Certificate of Incorporation of Products Corporation. (Incorporated
by reference to Exhibit 3.3 to the Form 10 of Products Corporation
filed with the Securities and Exchange Commission on August 7, 1992
(File No. 1-11334)).
3.2 Certificate of Amendment of Certificate of Incorporation as filed on
February 18, 1993. (Incorporated by reference to Exhibit 3.4 to the
Annual Report on Form 10-K for the year ended December 31, 1992 of
Products Corporation (the "Products Corporation 1992 10-K")).
*3.3 Amended and Restated By-Laws of Products Corporation dated
January 30, 1997.
4. INSTRUMENTS DEFINING THE RIGHT OF SECURITY HOLDERS, INCLUDING
INDENTURES.
4.1 Indenture, dated as of July 15, 1980, between Holdings and The Chase
Manhattan Bank, N.A., as Trustee, relating to the 10 7/8 % Sinking
Fund Debentures due 2010 (the "Debentures Indenture"). (Incorporated
by reference to Exhibit 4.1 to the Form S-1 of Revlon, Inc. filed
with the Securities and Exchange Commission on May 22, 1992, File
No. 33-47100 (the "Revlon 1992 Form S-1")).
4.2 First Supplemental Indenture, dated as of August 15, 1986, to the
Debentures Indenture. (Incorporated by reference to Exhibit 4.2 to
the Revlon 1992 Form S-1).
4.3 Instrument of Appointment and Acceptance of Successor Trustee and
Appointment of Agent dated as of November 19, 1987, to appoint First
National Bank of Minneapolis, as Trustee, relating to the Debentures
Indenture. (Incorporated by reference to Exhibit 4.3 to the Revlon
1992 Form S-1).
4.4 Second Supplemental Indenture, dated as of June 24, 1992, among
Holdings, Revlon, Inc. and First National Bank of Minneapolis, as
Trustee, to the Debentures Indenture. (Incorporated by reference to
Exhibit 4.4 to the Amendment No. 1 to the Revlon Form S-1 filed with
the Securities and Exchange Commission on June 29, 1992, File No.
33-47100 (the "Revlon 1992 Amendment No. 1")).
4.5 Third Supplemental Indenture, dated as of June 24, 1992, among
Revlon, Inc., Products Corporation and First National Bank of
Minneapolis, as Trustee, to the Debentures Indenture. (Incorporated
by reference to Exhibit 4.5 to the Revlon 1992 Amendment No. 1).
4.6 Indenture, dated as of February 15, 1993, between Products
Corporation and The Bank of New York, as Trustee, relating to
Products Corporation's 10 1/2% Series B Senior Subordinated Notes
Due 2003. (Incorporated by reference to Exhibit 4.31 to the
Registration Statement on Form S-1 of Products Corporation filed
with the Securities and Exchange Commission on March 17, 1993,
File No. 33-59650).
4.7 Indenture, dated as of April 1, 1993, between Products Corporation
and NationsBank of Georgia,
37
<PAGE>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
National Association, as Trustee, relating to the Products
Corporation's 9 3/8 % Senior Notes Due 2001 and Products
Corporation's 9 3/8 % Series B Senior Notes Due 2001. (Incorporated
by reference to Exhibit 4.28 to the Amendment No. 1 to the
Registration Statement on Form S-1 of Products Corporation as filed
with the Securities and Exchange Commission on April 13, 1993, File
No. 33-59650).
4.8 Indenture dated as of June 1, 1993, between Products Corporation and
NationsBank of Georgia, National Association, as Trustee, relating
to Products Corporation's 9 1/2% Senior Notes Due 1999.
(Incorporated by reference to Exhibit 4.31 to the Quarterly Report
on Form 10-Q for the quarterly period ended June 30, 1993 of
Products Corporation).
4.9 Financing Reimbursement Agreement by and between Holdings and
Products Corporation dated February 28, 1995. (Incorporated by
reference to Exhibit 4.30 to the Annual Report on Form 10-K for the
year ended December 31, 1994 of Products Corporation (the "Products
Corporation 1994 10-K")).
4.10 Amendment to the Financing Reimbursement Agreement by and between
Holdings and Products Corporation dated May 3, 1996. (Incorporated
by reference to Exhibit 4.10 to the Annual Report on Form 10-K for
the year ended December 31, 1996 of Revlon, Inc. (the "Revlon 1996
10-K")).
4.11 Second Amended and Restated Credit Agreement dated as of December
22, 1994, between Pacific Finance & Development Corp. and the
Long-Term Credit Bank of Japan, Ltd. (the "Yen Credit Agreement")
(Incorporated by reference to Exhibit 4.32 to the Products
Corporation 1994 10-K).
4.12 Credit Agreement, dated as of February 28, 1995 among Products
Corporation, Chemical Bank, Citibank N.A. and the lenders party
thereto (the "Former Credit Agreement"). (Incorporated by reference
to Exhibit 4.33 to the Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 1995 of Products Corporation (the
"Products Corporation First Quarter 10-Q")).
4.13 First Amendment, dated as of February 28, 1995, with respect to the
Former Credit Agreement. (Incorporated by reference to Exhibit 4.34
to the Products Corporation First Quarter 10-Q).
4.14 Second Amendment, dated as of February 28, 1995, with respect to the
Former Credit Agreement. (Incorporated by reference to Exhibit 4.35
to the Quarterly Report on Form 10-Q for the quarterly period ended
June 30, 1995 of Products Corporation).
4.15 Third Amendment, dated as of October 30, 1995, with respect to the
Former Credit Agreement. (Incorporated by reference to Exhibit 4.17
to the Registration Statement on Form S-1 of Revlon, Inc. filed with
the Securities and Exchange Commission on November 17, 1995 (File
No. 33-99558) (the "Revlon 1995 Form S-1").)
4.16 Amended and Restated Credit Agreement, dated as of January 24, 1996,
among Products Corporation, Chemical Bank, Citibank N.A., Chemical
Securities Inc. and the lenders party thereto. (Incorporated by
reference to Exhibit 4.18 to the Amendment No. 3 to the Revlon 1995
Form S-1 filed with the Securities and Exchange Commission on
February 5, 1996 (the "Revlon 1995 Amendment No. 3").
4.17 First Amendment and Consent Number 1 dated as of January 9, 1997 to
the Credit Agreement. (Incorporated by reference to Exhibit 4.17 to
the Revlon 1996 10-K).
10. MATERIAL CONTRACTS.
10.1 Purchase and Sale Agreement and Amendment thereto by and between
Products Corporation and Holdings, each dated as of February 18,
1993, relating to the Edison, New Jersey facility. (Incorporated by
reference to Exhibit 4.22 to the Products Corporation 1992 10-K).
10.2 Asset Transfer Agreement, dated as of June 24, 1992, among Holdings,
National Health Care Group, Inc., Charles of the Ritz Group Ltd.,
Products Corporation and Revlon, Inc. (Incorporated
38
<PAGE>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
by reference to Exhibit 10.1 to the Revlon 1992 Amendment No. 1).
10.3 Real Property Asset Transfer Agreement, dated as of June 24, 1992,
among Holdings, Revlon, Inc. and Products Corporation. (Incorporated
by reference to Exhibit 10.2 to the Revlon 1992 Amendment No. 1).
10.4 Assumption Agreement relating to the Edison facility by and between
Products Corporation and Holdings, each dated as of February 18,
1993, relating to the Edison, New Jersey facility. (Incorporated by
reference to Exhibit 4.23 to the Products Corporation 1992 10-K).
10.5 Tax Sharing Agreement, dated as of June 24, 1992, among Mafco
Holdings, Revlon, Inc., Products Corporation and certain
subsidiaries of Products Corporation (the "Tax Sharing Agreement").
(Incorporated by reference to Exhibit 10.5 to the Revlon 1992
Amendment No. 1).
10.6 First Amendment, dated as of February 28, 1995, to the Tax Sharing
Agreement. (Incorporated by reference to Exhibit 10.5 to the
Products Corporation 1994 10-K).
10.7 Second Amendment, dated as of January 1, 1997, to the Tax Sharing
Agreement. (Incorporated by reference to Exhibit 10.7 to the Revlon
1996 10-K).
10.8 Second Amended and Restated Operating Services Agreement by and
among Holdings, Revlon, Inc. and Products Corporation, as of January
1, 1996. (Incorporated by reference to Exhibit 10.8 to the Revlon
1996 10-K).
10.9 Employment Agreement dated as of January 1, 1996 between Products
Corporation and Jerry W. Levin (Incorporated by reference to Exhibit
10.10 to the Annual Report on Form 10-K for the year ended December
31, 1995 of Products Corporation (the "Products Corporation 1995
10-K").
10.10 Employment Agreement dated as of January 1, 1996 between Products
Corporation and George Fellows (Incorporated by reference to Exhibit
10.11 to the Products Corporation 1995 10-K).
10.11 Employment Agreement dated as of January 1, 1996 between Products
Corporation and William J. Fox (Incorporated by reference to Exhibit
10.12 to the Products Corporation 1995 10-K).
10.12 Employment Agreement dated as of January 1, 1996 between RIROS
Corporation and Carlos Colomer Casellas (Incorporated by reference
to Exhibit 10.13 to the Products Corporation 1995 10-K).
10.13 Employment Agreement dated as of January 1, 1996 between Products
Corporation and M. Katherine Dwyer. (Incorporated by reference to
Exhibit 10.13 to the Revlon 1996 10-K).
10.14 Revlon Employees' Savings and Investment Plan effective as of
January 1, 1996 (Incorporated by reference to Exhibit 10.15 to the
Products Corporation 1995 10-K).
10.15 Revlon Employees' Retirement Plan as amended and restated December
19, 1994. (Incorporated by reference to Exhibit 10.15 to the
Products Corporation 1994 10-K).
10.16 Amended and Restated Revlon Pension Equalization Plan, effective
January 1, 1996. (Incorporated by reference to Exhibit 10.17 to the
Revlon 1995 Amendment No. 4).
10.17 Executive Supplemental Medical Expense Plan Summary dated July 1991.
(Incorporated by reference to Exhibit 10.18 to the Revlon 1992 Form
S-1).
10.18 Description of Post Retirement Life Insurance Program for Key
Executives. (Incorporated by reference to Exhibit 10.19 to the
Revlon 1992 Form S-1).
10.19 Benefit Plans Assumption Agreement dated as of July 1, 1992, by and
among Holdings, Revlon, Inc. and Products Corporation. (Incorporated
by reference to Exhibit 10.25 to the Products Corporation 1992
10-K).
39
<PAGE>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.20 Revlon Executive Bonus Plan effective January 1, 1997. (Incorporated
by reference to Exhibit 10.20 to the Revlon 1996 10-K).
10.21 Revlon Executive Deferred Compensation Plan, amended as of
October 15, 1993. (Incorporated by reference to Exhibit 10.25
to the Products Corporation 1993 10-K).
10.22 Revlon Executive Severance Policy effective January 1, 1996.
(Incorporated by reference to Exhibit 10.23 to the Revlon 1995
Amendment No. 3).
10.23 Revlon, Inc. 1996 Stock Plan, amended and restated as of December
17, 1996. (Incorporated by reference to Exhibit 10.23 to the Revlon
1996 10-K).
21. SUBSIDIARIES.
*21.1 Subsidiaries of the Registrant.
24. POWERS OF ATTORNEY.
*24.1 Power of Attorney of Ronald O. Perelman.
*24.2 Power of Attorney of Donald G. Drapkin.
*24.3 Power of Attorney of Jerry W. Levin.
*24.4 Power of Attorney of Howard Gittis.
*24.5 Power of Attorney of Edward J. Landau, Esq.
*24.6 Power of Attorney of Irwin Engelman.
- --------------------
*Filed herewith.
(b) Reports on Form 8-K
Revlon Consumer Products Corporation filed no reports on Form 8-K
during the fiscal year ended December 31, 1996.
40
<PAGE>
REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report............................................................... F-2
AUDITED FINANCIAL STATEMENTS:
Consolidated Balance Sheets as of December 31, 1996 and 1995 .......................... F-3
Consolidated Statements of Operations for each of the years in the three-year
period ended December 31, 1996...................................................... F-4
Consolidated Statements of Stockholder's Deficiency for each of the years in
the three-year period ended December 31, 1996...................................... F-5
Consolidated Statements of Cash Flows for each of the years in the three-year
period ended December 31, 1996..................................................... F-6
Notes to Consolidated Financial Statements............................................. F-7
FINANCIAL STATEMENT SCHEDULE:
Schedule II-- Valuation and Qualifying Accounts........................................ F-29
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholder
Revlon Consumer Products Corporation:
We have audited the accompanying consolidated balance sheets of Revlon Consumer
Products Corporation and its subsidiaries as of December 31, 1996 and 1995, and
the related consolidated statements of operations, cash flows and stockholder's
deficiency for each of the years in the three-year period ended December 31,
1996. In connection with our audits of the consolidated financial statements we
have also audited the financial statement schedule as listed on the index on
page F-1. These consolidated financial statements and financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these consolidated financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Revlon Consumer
Products Corporation and its subsidiaries as of December 31, 1996 and 1995 and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 1996, in conformity with generally
accepted accounting principles. Also in our opinion, the related financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly in all material
respects, the information set forth therein.
As discussed in Note 1 to the consolidated financial statements, in 1994 the
Company adopted the provisions of the Financial Accounting Standards Board's
Statement of Financial Accounting Standards No. 112, "Employers' Accounting for
Postemployment Benefits."
KPMG PEAT MARWICK LLP
New York, New York
January 28, 1997
F-2
<PAGE>
REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
ASSETS 1996 1995
----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents ....................................... $ 38.6 $ 36.3
Trade receivables, less allowances of $24.9
and $23.7, respectively..................................... 426.3 363.1
Inventories ..................................................... 281.0 277.8
Prepaid expenses and other ...................................... 75.3 62.4
-------- --------
Total current assets........................................ 821.2 739.6
Property, plant and equipment, net.................................... 381.1 367.1
Other assets.......................................................... 139.2 142.9
Intangible assets related to businesses acquired, net................. 280.6 285.7
-------- --------
Total assets................................................ $1,622.1 $1,535.3
======== ========
LIABILITIES AND STOCKHOLDER'S DEFICIENCY
Current liabilities:
Short-term borrowings - third parties............................ $ 27.1 $ 22.7
Current portion of long-term debt - third parties................ 8.8 9.2
Accounts payable................................................. 161.9 151.6
Accrued expenses and other....................................... 365.2 370.6
-------- --------
Total current liabilities................................... 563.0 554.1
Long-term debt - third parties ....................................... 1,321.8 1,426.2
Long-term debt - affiliates........................................... 30.4 41.3
Other long-term liabilities........................................... 202.8 215.7
Stockholder's deficiency:
Preferred stock, par value $1.00 per share, 1,000 shares
authorized, 546 shares issued and outstanding............... 54.6 54.6
Common stock, par value $1.00 per share, 1,000 shares
authorized, issued and outstanding........................... - -
Capital deficiency................................................ (232.7) (416.4)
Accumulated deficit since June 24, 1992........................... (299.6) (318.2)
Adjustment for minimum pension liability.......................... (12.4) (17.0)
Currency translation adjustment................................... (5.8) (5.0)
-------- --------
Total stockholder's deficiency............................... (495.9) (702.0)
-------- --------
Total liabilities and stockholder's deficiency............... $1,622.1 $1,535.3
======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Net sales................................................ $2,167.0 $1,937.8 $1,732.5
Cost of sales............................................ 725.7 652.1 597.3
--------- --------- ---------
Gross profit........................................ 1,441.3 1,285.7 1,135.2
Selling, general and administrative expenses............. 1,240.3 1,139.1 1,026.8
--------- --------- ---------
Operating income ................................... 201.0 146.6 108.4
--------- --------- ---------
Other expenses (income):
Interest expense................................... 133.4 142.6 136.7
Interest and net investment income.................. (3.4) (4.9) (6.3)
Amortization of debt issuance costs................. 8.3 11.0 8.4
Foreign currency losses, net........................ 5.7 10.9 18.2
Miscellaneous, net.................................. 6.3 1.8 2.6
--------- --------- ---------
Other expenses, net............................. 150.3 161.4 159.6
--------- --------- ---------
Income (loss) before income taxes........................ 50.7 (14.8) (51.2)
Provision for income taxes.............................. 25.5 25.4 22.8
--------- --------- ---------
Income (loss) before extraordinary item and
cumulative effect of accounting change............. 25.2 (40.2) (74.0)
Extraordinary item - early extinguishment of debt...... (6.6) - -
Cumulative effect of accounting change:
Postemployment benefits, net of income tax
benefit of $1.3................................ - - (28.8)
========= ========= =========
Net income (loss)....................................... $ 18.6 $ (40.2) $ (102.8)
========= ========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S DEFICIENCY
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
CURRENCY
PREFERRED CAPITAL ACCUMULATED OTHER TRANSLATION
STOCK DEFICIENCY DEFICIT (a) ADJUSTMENTS ADJUSTMENT
--------- ---------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1994............... $54.6 $(416.4) $(175.2) $(13.9) $(4.4)
Net loss.......................... (102.8)(b)
Adjustment for minimum
pension liability............. 3.0
Currency translation adjustment... (1.4)
----- ------ ------- ------ -----
Balance, December 31, 1994............. 54.6 (416.4) (278.0) (10.9) (5.8)
Net loss.......................... (40.2)
Adjustment for minimum
pension liability............. (6.1)
Currency translation adjustment... 0.8
----- ------ ------- ------ -----
Balance, December 31, 1995............. 54.6 (416.4) (318.2) (17.0) (5.0)
Net income........................ 18.6
Contribution from parent.......... 187.8 (e)
Adjustment for minimum
pension liability............. 4.6
Currency translation adjustment... (0.8)(d)
Acquisition of business........... (4.1)(c)
----- ------ ------- ------ -----
Balance, December 31, 1996............. $54.6 $(232.7) $(299.6) $(12.4) $(5.8)
===== ====== ======= ====== =====
</TABLE>
- ------------
(a) Represents net loss since June 24, 1992, the effective date of the transfer
agreements referred to in Note 12.
(b) Includes cumulative effect of change to new accounting standard for
postemployment benefits as of January 1, 1994.
(c) Represents amount paid to Revlon Holdings Inc. for the Tarlow Advertising
Division ("Tarlow"). See Note 12.
(d) Includes $2.1 of gains related to the Company's simplification of its
international corporate structure.
(e) Represents the capital contribution from Revlon, Inc. with the funds from
its initial public equity offering (the "Offering").
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).................................................. $ 18.6 $ (40.2) $(102.8)
Adjustments to reconcile net income (loss) to net cash (used for)
provided by operating activities:
Depreciation and amortization................................. 90.9 88.4 78.8
Extraordinary item............................................ 6.6 - -
Gain on sale of business interests and certain
fixed assets, net......................................... - (2.2) -
Cumulative effect of accounting change........................ - - 28.8
Change in assets and liabilities:
Increase in trade receivables............................ (67.5) (44.5) (22.1)
(Increase) decrease in inventories........................ (5.5) (15.3) 14.1
(Increase) decrease in prepaid expenses and other
current assets................................. (8.0) 4.5 19.1
Increase in accounts payable.............................. 10.8 10.2 23.4
Decrease in accrued expenses and other
current liabilities............................ (10.2) (12.2) (22.8)
Other, net................................................ (45.8) (40.4) (17.6)
------- ------- -------
Net cash used for operating activities............................. (10.1) (51.7) (1.1)
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures............................................... (58.0) (54.3) (52.5)
Proceeds from the sale of business interests and certain
fixed assets.................................................. - 3.0 4.6
Acquisition of businesses, net of cash acquired.................... (7.1) (21.2) (3.1)
------- ------- -------
Net cash used for investing activities............................. (65.1) (72.5) (51.0)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in short-term borrowings - third parties .. 5.8 (122.9) (5.8)
Proceeds from the issuance of long-term debt - third parties....... 266.4 493.7 157.6
Repayment of long-term debt - third parties........................ (366.6) (236.3) (197.8)
Contribution from parent .......................................... 187.8 - -
Proceeds from the issuance of debt - affiliates.................... 115.0 157.4 141.7
Repayment of debt - affiliates..................................... (115.0) (151.0) (141.7)
Acquisition of business from affiliate............................. (4.1) - -
Payment of debt issuance costs..................................... (10.9) (15.7) (3.0)
------- ------- -------
Net cash provided by (used for) financing activities............... 78.4 125.2 (49.0)
------- ------- -------
Effect of exchange rate changes on cash............................ (0.9) (0.1) 0.9
------- ------- -------
Net increase (decrease) in cash and cash equivalents.......... 2.3 0.9 (100.2)
Cash and cash equivalents at beginning of period.............. 36.3 35.4 135.6
------- ------- -------
Cash and cash equivalents at end of period.................... $ 38.6 $ 36.3 $ 35.4
======= ======= =======
Supplemental schedule of cash flow information:
Cash paid during the period for:
Interest ................................................. $ 139.0 $ 148.2 $ 138.5
Income taxes, net of refunds.............................. 15.4 18.8 3.9
Supplemental schedule of noncash investing activities:
In connection with business acquisitions, liabilities
were assumed as follows:
Fair value of assets acquired............................. $ 9.7 $ 27.3 $ 3.3
Cash paid................................................. (7.2) (21.6) (3.1)
======= ======= =======
Liabilities assumed....................................... $ 2.5 $ 5.7 $ 0.2
======= ======= =======
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE>
REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
1. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION:
Revlon Consumer Products Corporation ("Products Corporation" and
together with its subsidiaries, the "Company") was formed in April 1992. The
Company operates in a single business segment with many different products,
which include an extensive array of glamorous, exciting and innovative cosmetic
and skin care, fragrance and personal care products, and professional products
(products for use in and resale by professional salons). In the United States
and increasingly in international markets, the Company's products are sold
principally in the self-select distribution channel. The Company also sells
certain products in the demonstrator-assisted distribution channel, sells
consumer and professional products to United States military exchanges and
commissaries, operates retail outlet stores and has a licensing group. Outside
the United States, the Company also sells consumer products through department
stores and specialty stores, such as perfumeries.
On June 24, 1992, Products Corporation succeeded to assets and
liabilities of the cosmetic and skin care, fragrance and personal care products
business of its then parent company whose name was changed from Revlon, Inc. to
Revlon Holdings Inc. ("Holdings"). Certain consumer products lines sold in
demonstrator-assisted distribution channels considered not integral to the
Company's business and which historically had not been profitable (the
"Retained Brands") and certain other assets and liabilities are retained by
Holdings.
The Consolidated Financial Statements of the Company presented herein
relate to the business to which the Company succeeded and include the assets,
liabilities and results of operations of such business. Assets, liabilities,
revenues, other income, costs and expenses which were identifiable specifically
to the Company are included herein and those identifiable specifically to the
retained and divested businesses of Holdings have been excluded. Amounts which
were not identifiable specifically to either the Company or Holdings are
included herein to the extent applicable to the Company pursuant to a method of
allocation generally based on the respective proportion of the business of the
Company to the applicable total of the businesses of the Company and Holdings.
The operating results of the Retained Brands and divested businesses of
Holdings have not been reflected in the Consolidated Financial Statements of
the Company. Management of the Company believes that the basis of allocation
and presentation is reasonable.
Although the Retained Brands were not transferred to Products
Corporation when the cosmetic and skin care, fragrance and personal care
products business of Holdings was transferred to Products Corporation, Products
Corporation's bank lenders required that all assets and liabilities relating to
such Retained Brands existing on the date of transfer (June 24, 1992), other
than the brand names themselves and certain other intangible assets, be
transferred to Products Corporation. Any assets and liabilities that had not
been disposed of or satisfied by December 31 of the applicable year have been
reflected in the Company's consolidated financial position as of such dates.
However, any new assets or liabilities generated by such Retained Brands since
the transfer date and any income or loss associated with inventory that has
been transferred to Products Corporation relating to such Retained Brands have
been and will be for the account of Holdings. In addition, certain assets and
liabilities relating to divested businesses were transferred to Products
Corporation on the transfer date and any remaining balances as of December 31
of the applicable year have been reflected in the Company's Consolidated
Balance Sheets as of such dates. At December 31, 1996 and 1995, the amounts
reflected in the Company's Consolidated Balance Sheets aggregated a net
liability of $23.6 and $31.2, respectively, of which $5.2 and $6.8,
respectively, are included in accrued expenses and other and $18.4 and $24.4,
respectively, are included in other long-term liabilities, respectively.
The Consolidated Financial Statements include the accounts of Products
Corporation and its subsidiaries after elimination of all material intercompany
balances and transactions. Further, the Company has made a number of estimates
and assumptions relating to the reporting of assets and liabilities, the
disclosure of 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.
F-7
<PAGE>
Products Corporation is a direct wholly owned subsidiary of Revlon,
Inc. which 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.
CASH AND CASH EQUIVALENTS:
Cash equivalents (primarily investments in time deposits which have
original maturities of three months or less) are carried at cost, which
approximates fair value.
INVENTORIES:
Inventories are stated at the lower of cost or market value. Cost is
principally determined by the first-in, first-out method.
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment is recorded at cost and is depreciated
on a straight-line basis over the estimated useful lives of such assets as
follows: land improvements, 20 to 40 years; buildings and improvements, 5 to 50
years; machinery and equipment, 3 to 17 years; and office furniture and
fixtures, 2 to 12 years. Leasehold improvements are amortized over their
estimated useful lives or the terms of the leases, whichever is shorter.
Repairs and maintenance are charged to operations as incurred, and expenditures
for additions and improvements are capitalized.
INTANGIBLE ASSETS RELATED TO BUSINESSES ACQUIRED:
Intangible assets related to businesses acquired principally represent
goodwill, which is being amortized on a straight-line basis over 40 years. The
Company evaluates, when circumstances warrant, the recoverability of its
intangible assets on the basis of undiscounted cash flow projections and
through the use of various other measures, which include, among other things, a
review of its image, market share and business plans. Accumulated amortization
aggregated $94.2 and $84.2 at December 31, 1996 and 1995, respectively.
REVENUE RECOGNITION:
The Company recognizes net sales upon shipment of merchandise. Net
sales comprise gross revenues less expected returns, trade discounts and
customer allowances. Cost of sales is reduced for the estimated net realizable
value of expected returns.
INCOME TAXES:
Income taxes are calculated using the liability method in accordance
with the provisions of Statement of Financial Accounting Standards ("SFAS") No.
109, "Accounting for Income Taxes."
The Company is included in the affiliated group of which Mafco
Holdings is the common parent, and the Company's federal taxable income and
loss will be included in such group's consolidated tax return filed by Mafco
Holdings. The Company also may be included in certain state and local tax
returns of Mafco Holdings or its subsidiaries. For all periods presented,
federal, state and local income taxes are provided as if the Company filed its
own income tax returns. On June 24, 1992, Holdings, Revlon, Inc., Products
Corporation and certain of its subsidiaries and Mafco Holdings entered into a
tax sharing agreement which is described in Note 9.
F-8
<PAGE>
PENSION AND OTHER POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS:
Products Corporation sponsors pension and other retirement plans in
various forms covering substantially all employees who meet eligibility
requirements. For plans in the United States, the minimum amount required
pursuant to the Employee Retirement Income Security Act, as amended, is
contributed annually. Various subsidiaries outside the United States have
retirement plans under which funds are deposited with trustees or reserves are
provided.
Effective January 1, 1994, the Company adopted SFAS No. 112,
"Employers' Accounting for Postemployment Benefits." SFAS No. 112 requires the
Company to accrue for benefits such as severance, disability and health
insurance provided to former employees prior to their retirement, if estimable.
The cumulative effect of this change was an after-tax charge of $28.8
principally for severance related to benefits previously recorded on an as and
when paid basis. Such benefits generally are vested and accumulate over
employees' service periods. Effective January 1, 1994, the Company accounts for
such benefits on a terminal basis in accordance with the provisions of SFAS No.
5, "Accounting for Contingencies," as amended by SFAS No. 112, which requires
companies to accrue for postemployment benefits when it is probable that a
liability has been incurred and the amount of such liability can be reasonably
estimated, which is generally when an employee is terminated. The Company does
not believe such liabilities can be reasonably estimated prior to termination.
RESEARCH AND DEVELOPMENT:
Research and development expenditures are expensed as incurred. The
amounts charged against earnings in 1996, 1995 and 1994 were $26.3, $22.3 and
$19.7, respectively.
FOREIGN CURRENCY TRANSLATION:
Assets and liabilities of foreign operations are generally translated
into United States dollars at the rates of exchange in effect at the balance
sheet date. Income and expense items are generally translated at the weighted
average exchange rates prevailing during each period presented. Gains and
losses resulting from foreign currency transactions are included in the results
of operations. Gains and losses resulting from translation of financial
statements of foreign subsidiaries and branches operating in non-highly
inflationary economies are recorded as a component of stockholder's deficiency.
Foreign subsidiaries and branches operating in highly inflationary economies
translate nonmonetary assets and liabilities at historical rates and include
translation adjustments in the results of operations.
STOCK-BASED COMPENSATION:
SFAS No. 123, "Accounting for Stock-Based Compensation," encourages,
but does not require companies to record compensation cost for stock-based
employee compensation plans at fair value. The Company has chosen to account
for stock-based compensation plans using the intrinsic value method prescribed
in Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock
Issued to Employees," and related Interpretations. Accordingly, compensation
cost for stock options is measured as the excess, if any, of the quoted market
price of Revlon, Inc.'s stock at the date of the grant over the amount an
employee must pay to acquire the stock. See Note 11.
DERIVATIVE FINANCIAL INSTRUMENTS:
Derivative financial instruments are utilized by the Company to reduce
interest rate and foreign exchange risks. The Company maintains a control
environment which includes policies and procedures for risk assessment and the
approval, reporting and monitoring of derivative financial instrument
activities. The Company does not hold or issue derivative financial instruments
for trading purposes.
The differentials to be received or paid under interest rate contracts
designated as hedges are recognized in income over the life of the contracts as
adjustments to interest expense. Gains and losses on terminations of interest
rate contracts designated as hedges are deferred and amortized into interest
expense over the remaining life of the original contracts. Unrealized gains and
losses on outstanding contracts designated as hedges are not recognized.
F-9
<PAGE>
Gains and losses on contracts to hedge identifiable foreign currency
commitments are deferred and accounted for as part of the related foreign
currency transaction. Gains and losses on all other forward exchange contracts
are included in income currently. Transaction gains and losses have not been
material.
2. INVENTORIES
DECEMBER 31,
---------------------
1996 1995
------- ------
Raw materials and supplies................. $ 76.6 $ 84.8
Work-in-process............................ 19.4 27.9
Finished goods............................. 185.0 165.1
------- -------
$ 281.0 $ 277.8
======= =======
3. PREPAID EXPENSES AND OTHER
DECEMBER 31,
---------------------
1996 1995
------- ------
Prepaid expenses............................. $ 43.1 $ 36.5
Other........................................ 32.2 25.9
------- -------
$ 75.3 $ 62.4
======= =======
4. PROPERTY, PLANT AND EQUIPMENT, NET
DECEMBER 31,
---------------------
1996 1995
------- ------
Land and improvements........................ $ 37.5 $ 39.4
Buildings and improvements................... 207.6 203.2
Machinery and equipment...................... 194.9 192.8
Office furniture and fixtures................ 59.4 47.8
Leasehold improvements....................... 37.5 33.6
Construction-in-progress..................... 43.7 41.4
------- -------
580.6 558.2
Accumulated depreciation..................... (199.5) (191.1)
------- -------
$ 381.1 $ 367.1
======= =======
Depreciation expense for the years ended December 31, 1996, 1995 and
1994 was $39.1, $38.6 and $34.7, respectively.
5. ACCRUED EXPENSES AND OTHER
DECEMBER 31,
---------------------
1996 1995
------- ------
Advertising and promotional costs and
accrual for sales returns ................. $ 136.4 $127.8
Compensation and related benefits............ 95.5 100.7
Interest..................................... 36.7 37.9
Taxes, other than federal income taxes....... 35.0 33.8
Restructuring costs.......................... 6.9 15.2
Net liabilities assumed from Holdings........ 5.2 6.8
Other........................................ 49.5 48.4
------- -------
$ 365.2 $ 370.6
======= =======
F-10
<PAGE>
6. SHORT-TERM BORROWINGS
Products Corporation maintained short-term bank lines of credit at
December 31, 1996 and 1995 aggregating approximately $72.7 and $69.0,
respectively, of which approximately $27.1 and $22.7 were outstanding at
December 31, 1996 and 1995, respectively. Compensating balances at December 31,
1996 and 1995 were approximately $7.4 and $7.2, respectively. Interest rates on
amounts borrowed under such short-term lines at December 31, 1996 and 1995
varied from 2.2% to 12.1% and 2.0% to 13.4%, respectively.
7. LONG-TERM DEBT
DECEMBER 31,
-----------------------
1996 1995
-------- --------
Working capital lines (a)........................ $ 187.2 $ 277.5
Bank mortgage loan agreement due 1997 (b)........ 41.7 52.4
9 1/2% Senior Notes due 1999 (c)................. 200.0 200.0
9 3/8 % Senior Notes due 2001 (d)................ 260.0 260.0
10 1/2% Senior Subordinated Notes due 2003 (e)... 555.0 555.0
10 7/8 % Sinking Fund Debentures due 2010 (f).... 79.6 79.2
Advances from Holdings (g)....................... 30.4 41.3
Other mortgages and notes payable (8.6%-13.0%)
due through 2001............................. 7.1 11.3
-------- --------
1,361.0 1,476.7
Less current portion............................. (8.8) (9.2)
-------- --------
$1,352.2 $1,467.5
======== ========
(a) The credit agreement in effect at December 31, 1995 (the "Former
Credit Agreement"), which was subsequently amended, provided up to $500.0
comprised of three senior secured facilities: a $100.0 term loan facility, a
$225.0 revolving credit facility and a $175.0 multi-currency facility. Products
Corporation complied with each of the financial covenants contained in the
Former Credit Agreement, as of and for the defined measurement periods ended
December 31, 1995. The Former Credit Agreement was scheduled to expire on June
30, 1997.
In connection with repayments of indebtedness under the Former Credit
Agreement in 1996, the commitments thereunder were extinguished, representing
an early extinguishment of a portion of such facilities. Consequently, in 1996,
the Company recognized a loss of approximately $6.6 representing the then
unamortized debt issuance costs, which have been reported in the Consolidated
Statements of Operations as an extraordinary item.
Loans that were outstanding under the Former Credit Agreement's
revolving credit facility and term loan facility bore interest initially at a
rate equal to, at Products Corporation's option, either (A) the alternate base
rate, defined to mean the highest of (i) the prime rate, (ii) the secondary
market rate for certificates of deposit plus 1% and (iii) the federal funds
rate plus 1/2%; in each case plus 2 1/2% or (B) the Eurodollar Rate plus 3
1/2%. The multi- currency facility bore interest at a rate equal to the
Eurocurrency Rate, the local lender rate or the alternate base rate, in each
case plus 3 1/2%.
In January 1996, Products Corporation entered into a credit agreement
(the "Credit Agreement"), which became effective upon consummation of the
Offering on March 5, 1996. The Credit Agreement includes, among other things,
(i) an extension of the term of the facilities from June 30, 1997 to December
31, 2000 (subject to earlier termination in certain circumstances), (ii) a
reduction of the interest rates, (iii) an increase in the amount of the credit
facilities from $500.0 to $600.0 (subject to reduction as described below) and
(iv) the release of security interests in assets of certain foreign
subsidiaries of Products Corporation which were then pledged.
The Credit Agreement is comprised of four senior secured facilities: a
$130.0 term loan facility (the "Term Loan Facility"), a $220.0 multi-currency
facility (the "Multi-Currency Facility"), a $200.0 revolving acquisition
facility (the "Acquisition Facility") and a $50.0 standby letter of credit
facility (the "Special LC Facility" and together with the Term Loan Facility,
the Multi-Currency Facility and the Acquisition Facility, the "Credit
Facilities"). The Multi-Currency Facility is available (i) to Products
Corporation, in revolving credit loans denominated in U.S. dollars (the
F-11
<PAGE>
"Revolving Credit Loans"), (ii) to Products Corporation, in standby and
commercial letters of credit denominated in U.S. dollars (the "Operating
Letters of Credit") and (iii) to Products Corporation and certain of its
international subsidiaries designated from time to time in revolving credit
loans and bankers' acceptances denominated in U.S. dollars and other currencies
(the "Local Loans"). The Credit Facilities (other than loans in foreign
currencies) bear interest at a rate equal to, at Products Corporation's option,
either (A) the Alternate Base Rate plus 1.5% (or 2.5% for Local Loans); or (B)
the Eurodollar Rate plus 2.5%. Loans in foreign currencies bear interest at a
rate equal to the Eurocurrency Rate or, in the case of Local Loans, the local
lender rate, in each case plus 2.5%. The applicable margin is reduced (or
increased, but not above 2% for Alternate Base Rate Loans not constituting
Local Loans and 3% for other loans) in the event Products Corporation attains
(or fails to attain) certain leverage ratios. Products Corporation pays the
Lender a commitment fee of 1/2 of 1% of the unused portion of the Credit
Facilities. Products Corporation also paid certain facility and other fees to
the lenders and agents upon closing of the Credit Agreement. Prior to its
termination date, the commitments under the Credit Facilities will be reduced
by: (i) the net proceeds in excess of $10.0 each year received during such year
from sales of assets by Holdings (or certain of its subsidiaries), Products
Corporation or any of its subsidiaries (and $25.0 with respect to certain
specified dispositions), subject to certain limited exceptions, (ii) certain
proceeds from the sales of collateral security granted to the lenders, (iii)
the net proceeds from the issuance by Holdings, Products Corporation or any of
its subsidiaries of certain additional debt, (iv) 50% of the excess cash flow
of Products Corporation and its subsidiaries and (v) certain scheduled
reductions in the case of the Term Loan Facility, which commence on January 31,
1997 in the amount of $1.0 annually over the remaining life of the Credit
Agreement, and the Acquisition Facility, which will commence on December 31,
1997 in the amount of $20.0, $50.0 in 1998, $60.0 in 1999 and $70.0 in 2000. In
addition, the Credit Agreement requires that the net proceeds from any sale of
equity securities of any parent of Products Corporation which has the assets of
Products Corporation or certain of its subsidiaries as its only substantial
assets be contributed to Products Corporation (except to the extent that such
proceeds are applied to repay or refinance the Senior Secured Discount Notes
Due 1998 (the "Senior Secured Discount Notes") of Revlon Worldwide Corporation
Or are deposited with the trustee under the Indenture covering such notes) and
that Products Corporation use 50% of such proceeds, in certain circumstances,
to reduce commitments under the Credit Agreement. The Credit Agreement will
terminate on December 31, 2000 (subject to earlier termination on March 31,
1999 if Products Corporation has not refinanced its 9 1/2% Senior Notes due
1999 (the "1999 Senior Notes") before March 31, 1999 or if an alternative plan
for the refinancing of the 1999 Senior Notes has not been approved by the
majority lenders prior to March 15, 1999). As of December 31, 1996, Products
Corporation had approximately $130.0 outstanding under the Term Loan Facility,
$57.2 outstanding under the Multi-Currency Facility, none outstanding under the
Acquisition Facility and $33.5 outstanding under the Special LC Facility.
The Credit Facilities, subject to certain exceptions and limitations,
are supported by guarantees from Holdings and certain of its subsidiaries, the
Company and the domestic subsidiaries of Products Corporation. The obligations
of Products Corporation under the Credit Facilities and the obligations under
the aforementioned guarantees are secured, subject to certain limitations, by
(i) mortgages on Holdings' Edison, New Jersey and Products Corporation's
Phoenix, Arizona facilities; (ii) the capital stock of Products Corporation and
its domestic subsidiaries and 66% of the capital stock of its first tier
foreign subsidiaries and the capital stock of certain subsidiaries of Holdings;
(iii) domestic intellectual property and certain other domestic intangibles of
(x) Products Corporation and its domestic subsidiaries and (y) certain
subsidiaries of Holdings; (iv) domestic inventory and accounts receivable of
(x) Products Corporation and its domestic subsidiaries and (y) certain
subsidiaries of Holdings; and (v) the assets of certain foreign subsidiary
borrowers under the Multi-Currency Facility (to support their borrowings only).
The Credit Agreement provides that the liens on the stock and personal property
referred to above may be shared from time to time with specified types of other
obligations incurred or guaranteed by Products Corporation that were not
included in the Former Credit Agreement, such as interest rate hedging
obligations, working capital lines and the Yen Credit Agreement (as defined
below).
The Credit Agreement contains various restrictive covenants
prohibiting Products Corporation and its subsidiaries from, among other things,
(i) incurring additional indebtedness, with certain exceptions, (ii) making
dividend, tax sharing (see Note 9 "Income Taxes") and other payments or loans
to Revlon, Inc. or other affiliates, with certain exceptions, including among
others, permitting Products Corporation 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 ("Commission") filing fees and other
miscellaneous expenses related to being a public holding company, and to pay
dividends or make distributions up to $5.0 per annum in
F-12
<PAGE>
certain circumstances to finance the purchase by Revlon, Inc. of its common
stock in connection with the delivery of such common stock to grantees under
any stock option plan, (iii) creating liens or other encumbrances on their
assets or revenues, granting negative pledges or selling or transferring any
of their assets except in the ordinary course of business, all subject to
certain limited exceptions, (iv) with certain exceptions, engaging in merger
or acquisition transactions, (v) prepaying indebtedness, subject to certain
limited exceptions, (vi) making investments, subject to certain limited
exceptions and (vii) entering into transactions with affiliates of Products
Corporation other than upon terms no less favorable to Products Corporation
or its subsidiaries than it would obtain in an arms' length transaction.
In addition to the foregoing, the Credit Agreement contains certain financial
covenants including, among other things, covenants requiring Products
Corporation and its subsidiaries to maintain minimum consolidated adjusted net
worth, minimum EBITDA (defined as earnings before interest, taxes, depreciation
and amortization and certain other charges), minimum interest coverage, and
covenants which limit the amount of total indebtedness of Products Corporation
and the amount of capital expenditures.
In January 1997, the Credit Agreement was amended to, among other
things, (i) permit the merger of Prestige Fragrance & Cosmetics, Inc. ("PFC"),
a wholly owned subsidiary of Products Corporation, into The Cosmetic Center,
Inc. ("Cosmetic Center") and to generally exclude Cosmetic Center (as the
survivor of the merger) from the definition of "subsidiary" under the Credit
Agreement, (ii) increase the amount of permitted dividends and distributions to
finance the purchase by Revlon, Inc. of its common stock in connection with the
delivery of such common stock to grantees under any stock option plan to $6.0
per annum, and (iii) permit Products Corporation to purchase capital stock of
Revlon, Inc. for purposes of making matching contributions under a proposed
Non-Qualified Excess Savings Plan for Key Executives.
(b) The Pacific Finance & Development Corp., a subsidiary of Products
Corporation , is the borrower under a yen denominated credit agreement (the
"Yen Credit Agreement"), which had a principal balance of approximately Yen 4.8
billion as of December 31, 1996 (approximately $41.7 U.S. dollar equivalent as
of December 31, 1996). In accordance with the terms of the Yen Credit
Agreement, approximately Yen 2.7 billion (approximately $26.9 U.S. dollar
equivalent) was paid in January 1995 and approximately Yen 539 million
(approximately $5.2 U.S. dollar equivalent) was paid in January 1996. A payment
of approximately Yen 539 million (approximately $4.6 U.S. dollar equivalent as
of December 31, 1996) was paid in January 1997. The balance of the Yen Credit
Agreement of approximately Yen 4.3 billion (approximately $37.1 U.S. dollar
equivalent as of December 31, 1996) is currently due on December 31, 1997.
Products Corporation is currently renegotiating an extension of the term of the
Yen Credit Agreement. In the event that such extension is not obtained,
Products Corporation is able and intends to refinance the Yen Credit Agreement
under existing long-term credit facilities. Accordingly, the Company's
obligation under the Yen Credit Agreement has been classified as long-term as
of December 31, 1996. The applicable interest rate at December 31, 1996 under
the Yen Credit Agreement was the Euro-Yen rate plus 2.5% which approximated
3.1%. The interest rate at December 31, 1995, applicable to the remaining
balance, was the Euro-Yen rate plus 3.5%, which approximated 4.1%.
(c) The 1999 Senior Notes are senior unsecured obligations of Products
Corporation and rank pari passu in right of payment to all existing and future
Senior Debt (as defined in the indenture relating to the 1999 Senior Notes (the
"1999 Senior Note Indenture")). The 1999 Senior Notes bear interest at 9 1/2%
per annum. Interest is payable on June 1 and December 1.
The 1999 Senior Notes may not be redeemed prior to maturity. Upon a
Change of Control (as defined in the 1999 Senior Note Indenture) and subject to
certain conditions, each holder of 1999 Senior Notes will have the right to
require Products Corporation to repurchase all or a portion of such holder's
1999 Senior Notes at 101% of the principal amount thereof plus accrued and
unpaid interest, if any, to the date of repurchase. In addition, under certain
circumstances in the event of an Asset Disposition (as defined in the 1999
Senior Note Indenture), Products Corporation will be obligated to make offers
to purchase the 1999 Senior Notes.
The 1999 Senior Note Indenture contains various restrictive covenants
that, among other things, limit (i) the issuance of additional debt and
redeemable stock by Products Corporation, (ii) the issuance of debt and
preferred stock by Products Corporation's subsidiaries, (iii) the incurrence of
liens on the assets of Products Corporation and its subsidiaries which do not
equally and ratably secure the 1999 Senior Notes, (iv) the payment of dividends
on and redemption of capital stock of Products Corporation and its subsidiaries
and the redemption of certain subordinated obligations of Products Corporation,
except that the 1999 Senior Note Indenture permits Products Corporation to pay
F-13
<PAGE>
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 Commission filing fees and other miscellaneous expenses
related to being a public holding company, and to pay dividends or make
distributions up to $5.0 per annum 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 any stock option plan,
(v) the sale of assets and subsidiary stock, (vi) transactions with affiliates
and (vii) consolidations, mergers and transfers of all or substantially all of
Products Corporation's assets. The 1999 Senior Note Indenture also prohibits
certain restrictions on distributions from subsidiaries. All of these
limitations and prohibitions, however, are subject to a number of important
qualifications.
(d) The 9 3/8% Senior Notes due 2001 (the "Senior Notes") are senior
unsecured obligations of Products Corporation and rank pari passu in right of
payment to all existing and future Senior Debt (as defined in the indenture
relating to the Senior Notes (the "Senior Note Indenture")). The Senior Notes
bear interest of 9 3/8% per annum. Interest is payable on April 1 and October
1.
The Senior Notes may be redeemed at the option of Products Corporation
in whole or in part at any time on or after April 1, 1998 at the redemption
prices set forth therein, plus accrued and unpaid interest, if any, to the date
of redemption. Upon a Change of Control (as defined in the Senior Note
Indenture), Products Corporation will have the option to redeem the Senior
Notes in whole or in part at a redemption price equal to the principal amount
thereof plus the Applicable Premium (as defined in the Senior Note Indenture),
plus accrued and unpaid interest, if any, to the date of redemption, and,
subject to certain conditions, each holder of Senior Notes will have the right
to require Products Corporation to repurchase all or a portion of such holder's
Senior Notes at 101% of the principal amount thereof, plus accrued and unpaid
interest, if any, to the date of repurchase. In addition, under certain
circumstances in the event of an Asset Disposition (as defined in the Senior
Note Indenture), Products Corporation will be obligated to make offers to
purchase the Senior Notes.
The Senior Note Indenture contains various restrictive covenants that,
among other things, limit (i) the issuance of additional indebtedness and
redeemable stock by Products Corporation, (ii) the issuance of indebtedness and
preferred stock by Products Corporation's subsidiaries, (iii) the incurrence of
liens on the assets of Products Corporation and its subsidiaries which do not
equally and ratably secure the Senior Notes, (iv) the payment of dividends on
capital stock of Products Corporation and its subsidiaries and the redemption
of capital stock and certain subordinated obligations of Products Corporation,
except that the Senior Note Indenture permits Products Corporation 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 Commission filing fees and other miscellaneous expenses
related to being a public holding company, and to pay dividends or make
distributions up to $5.0 per annum 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 any stock option plan,
(v) the sale of assets and subsidiary stock, (vi) transactions with affiliates
and (vii) consolidations, mergers and transfers of all or substantially all of
Products Corporation's assets. The Senior Note Indenture also prohibits certain
restrictions on distributions from subsidiaries of Products Corporation. All of
these limitations and prohibitions, however, are subject to a number of
important qualifications.
(e) The Senior Subordinated Notes are unsecured obligations of
Products Corporation and are subordinated in right of payment to all existing
and future Senior Debt (as defined in the indenture relating to the Senior
Subordinated Notes (the "Senior Subordinated Note Indenture")). The Senior
Subordinated Notes bear interest of 10 1/2% per annum. Interest is payable on
February 15 and August 15.
The Senior Subordinated Notes may be redeemed at the option of
Products Corporation in whole or in part at any time on or after February 15,
1998 at the redemption prices set forth therein, plus accrued and unpaid
interest, if any, to the date of redemption. Upon a Change of Control (as
defined in the Senior Subordinated Note Indenture), Products Corporation will
have the option to redeem the Senior Subordinated Notes in whole or in part at
a redemption price equal to the principal amount thereof plus the Applicable
Premium (as defined in the Senior Subordinated Note Indenture), plus accrued
and unpaid interest, if any, to the date of redemption, and, subject to certain
conditions, each holder of Senior Subordinated Notes will have the right to
require Products Corporation to repurchase all or a portion of such holder's
Senior Subordinated Notes at 101% of the principal amount thereof, plus accrued
and unpaid interest, if
F-14
<PAGE>
any, to the date of repurchase. In addition, under certain circumstances in the
event of an Asset Disposition (as defined in the Senior Subordinated Note
Indenture), Products Corporation will be obligated to make offers to purchase
the Senior Subordinated Notes.
The Senior Subordinated Note Indenture contains various restrictive
covenants that, among other things, limit (i) the issuance of additional
indebtedness and redeemable stock by Products Corporation, (ii) the issuance of
indebtedness and preferred stock by Products Corporation's subsidiaries, (iii)
the incurrence of liens on the assets of Products Corporation and its
subsidiaries to secure debt other than Senior Debt (as defined in the Senior
Subordinated Note Indenture) or debt of a subsidiary, unless the Senior
Subordinated Notes are equally and ratably secured, (iv) the payment of
dividends on capital stock of Products Corporation and its subsidiaries and the
redemption of capital stock and certain subordinated obligations of Products
Corporation, except that the Senior Subordinated Note Indenture permits
Products Corporation 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 Commission filing fees and
other miscellaneous expenses related to being a public holding company, and to
pay dividends or make distributions up $5.0 per annum 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 any
stock option plan, (v) the sale of assets and subsidiary stock, (vi)
transactions with affiliates and (vii) consolidations, mergers and transfers of
all or substantially all of Products Corporation's assets. The Senior
Subordinated Note Indenture also prohibits certain restrictions on
distributions from subsidiaries of Products Corporation. All of these
limitations and prohibitions, however, are subject to a number of important
qualifications.
(f) Holdings' 10 7/8% Sinking Fund Debentures due 2010 (face value of
$85.0, net of repurchases) (the "Sinking Fund Debentures") are redeemable, in
whole or in part, at 101.96% of the principal amount for the year beginning
July 15, 1996, decreasing evenly each year on July 15, to par by July 15, 2000.
Mandatory sinking fund redemptions of $9.0 per year commenced in 1991. Optional
sinking fund redemptions of up to an additional $13.5 per year may be made
annually and may be applied to reduce any subsequent mandatory sinking fund
redemption. Interest is payable on January 15 and July 15. Holdings purchased
$115.0 of the Sinking Fund Debentures in the open market prior to 1985, $9.0 of
which had been used in each of the years 1991 through 1996 to satisfy sinking
fund payment obligations and approximately $61.0 of which is creditable to
future sinking fund requirements. The indenture relating to the Sinking Fund
Debentures contains various restrictive covenants prohibiting Products
Corporation and its subsidiaries from (i) incurring indebtedness in excess of
5% of the consolidated net tangible assets, where such indebtedness is secured
by any manufacturing plant in the United States owned or leased by Products
Corporation, the book value of which exceeds 2% of the consolidated net
tangible assets of Products Corporation, unless the Sinking Fund Debentures are
equally and ratably secured, (ii) entering into certain sale and leaseback
transactions or (iii) consolidating or merging with or into, or selling or
transferring all or substantially all of their properties and assets to,
another corporation, unless certain conditions are satisfied.
(g) During 1992, Holdings made an advance of $25.0 to Products
Corporation. This advance was evidenced by a noninterest-bearing demand note
payable by Products Corporation, the payment of which was subordinated to the
obligations of Products Corporation under the credit agreement in effect at
that time. Holdings agreed not to demand payment under the note so long as any
indebtedness remained outstanding under the credit agreement in effect at that
time. In February 1995, the $13.3 in notes due to Products Corporation under
the Financing Reimbursement Agreement, referred to in Note 12, was offset
against the $25.0 note and Holdings agreed not to demand payment under the
resulting $11.7 note so long as indebtedness remains outstanding under the
Credit Agreement. In October 1993, Products Corporation borrowed from Holdings
approximately $23.2 (as adjusted and subject to further adjustment for certain
expenses) representing amounts received by Holdings from an escrow account
relating to divestiture by Holdings of certain of its predecessor businesses.
In July 1995, Products Corporation borrowed from Holdings approximately $0.8,
representing certain amounts received by Holdings relating to an arbitration
arising out of the sale by Holdings of certain of its businesses. In 1995,
Products Corporation borrowed from Holdings approximately $5.6, representing
certain amounts received by Holdings from the sale by Holdings of certain of
its businesses. In June 1996, $10.9 in notes due to Products Corporation under
the Financing Reimbursement Agreement from Holdings was offset against the
$11.7 demand note (referred to above) payable by Products Corporation to
Holdings. In accordance with the Credit Agreement, such amounts, as adjusted,
are evidenced by noninterest-bearing promissory notes payable to Holdings that
are subordinated to Products Corporation's obligations under the Credit
Agreement.
F-15
<PAGE>
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 the rate under the Credit Agreement. No
such borrowings were outstanding at December 31, 1996 or 1995.
The aggregate amounts of long-term debt maturities and sinking fund
requirements (at December 31, 1996), in the years 1997 through 2001 are $8.8,
$40.6, $201.2, $214.9 and $260.9, respectively, and $634.6 thereafter.
8. FINANCIAL INSTRUMENTS
As of December 31, 1996, Products Corporation was party to a series of
interest rate swap agreements (which expire at various dates through December
2001) totaling a notional amount of $225.0 in which Products Corporation agreed
to pay on such notional amount a variable interest rate equal to the six month
London Inter-Bank Offered Rate (5.6875% per annum at January 24, 1997) to its
counterparties and the counterparties agreed to pay on such notional amounts
fixed interest rates averaging approximately 6.03% per annum. Products
Corporation entered into these agreements in 1993 and 1994 (and in the first
quarter of 1996 extended a portion equal to a notional amount of $125.0 through
December 2001) to convert the interest rate on $225.0 of fixed-rate
indebtedness to a variable rate. If Products Corporation had terminated these
agreements, which Products Corporation considers to be held for other than
trading purposes, on December 31, 1996, a loss of approximately $3.5 would have
been realized. Certain other swap agreements were terminated in 1993 for a gain
of $14.0. The amortization of the realized gain on these agreements for 1996
and 1995 was approximately $3.2 in each of the years. The remaining unamortized
gain, which is being amortized over the original lives of the agreements, is
$3.1 as of December 31, 1996. Although cash flow from the presently outstanding
agreements was positive for 1996, future positive or negative cash flows from
these agreements will depend upon the trend of short-term interest rates during
the remaining lives of such agreements. In the event of nonperformance by the
counterparties at any time during the remaining lives of the agreements,
Products Corporation could lose some or all of any possible future positive
cash flows from these agreements. However, Products Corporation does not
anticipate nonperformance by such counterparties, although no assurances can be
given.
Products Corporation enters into forward foreign exchange contracts
from time to time to hedge certain cash flows denominated in foreign
currencies. At December 31, 1996, Products Corporation had forward foreign
exchange contracts denominated in various currencies, predominantly the U.K.
pound of approximately $62.0 (U.S. dollar equivalent). If Products Corporation
had terminated these contracts on December 31, 1996, no material gain or loss
would have been realized. Products Corporation had similar contracts
outstanding at December 31, 1995 in the amount of $8.0 (U.S. dollar
equivalent).
The fair value of the Company's long-term debt is estimated based on
the quoted market prices for the same issues or on the current rates offered to
the Company for debt of the same remaining maturities. The estimated fair value
of long-term debt at December 31, 1996 was approximately $37.3 more than the
carrying value of $1,361.0. Because considerable judgment is required in
interpreting market data to develop estimates of fair value, the estimates are
not necessarily indicative of the amounts that could be realized or would be
paid in a current market exchange. The effect of using different market
assumptions or estimation methodologies may be material to the estimated fair
value amounts.
Products Corporation also maintains standby and trade letters of
credit with certain banks for various corporate purposes under which Products
Corporation is obligated, of which approximately $40.9 were outstanding at
December 31, 1996. Included in this amount are $26.4 in standby letters of
credit which support Products Corporation's self-insurance programs. See Note
12. The estimated liability under such programs is accrued by Products
Corporation.
The carrying amounts of cash and cash equivalents, trade receivables,
accounts payable and short-term borrowings approximate their fair values.
F-16
<PAGE>
9. INCOME TAXES
In June 1992, Holdings, Revlon, Inc., Products Corporation and certain
of its subsidiaries and Mafco Holdings entered into a tax sharing agreement (as
subsequently amended, the "Tax Sharing Agreement"), pursuant to which Mafco
Holdings has agreed to indemnify Revlon, Inc. and Products Corporation against
federal, state or local income tax liabilities of the consolidated or combined
group of which Mafco Holdings (or a subsidiary of Mafco Holdings other than
Revlon, Inc. and Products Corporation or its subsidiaries) is the common parent
for taxable periods beginning on or after January 1, 1992 during which Revlon,
Inc. and Products Corporation or a subsidiary of Products Corporation is a
member of such group. Pursuant to the Tax Sharing Agreement, for all taxable
periods beginning on or after January 1, 1992, Products Corporation will pay to
Revlon, Inc. which, in turn, will pay Mafco Holdings, amounts equal to the
taxes that such corporation would otherwise have to pay if they were to file
separate federal, state or local income tax returns (including any amounts
determined to be due as a result of a redetermination arising from an audit or
otherwise of the consolidated or combined tax liability relating to any such
period which is attributable to Products Corporation ), except that Products
Corporation will not be entitled to carry back any losses to taxable periods
ending prior to January 1, 1992. No payments are required by Products
Corporation or 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 cash tax sharing payments other than in respect of state and local income
taxes. Since the payments to be made by Products Corporation under the Tax
Sharing Agreement will be determined by the amount of taxes that Products
Corporation would otherwise have to pay if it were to file separate federal,
state or local income tax returns, the Tax Sharing Agreement will benefit Mafco
Holdings to the extent Mafco Holdings can offset the taxable income generated
by Products Corporation against losses and tax credits generated by Mafco
Holdings and its other subsidiaries. As a result of net operating tax losses
and prohibitions under the Credit Agreement, no federal tax payments or
payments in lieu of taxes pursuant to the Tax Sharing Agreement were required
for 1996, 1995 or 1994.
Pursuant to the asset transfer agreement referred to in Note 12,
Products Corporation assumed all tax liabilities of Holdings other than (i)
certain income tax liabilities arising prior to January 1, 1992 to the extent
such liabilities exceeded reserves on Holdings' books as of January 1, 1992 or
were not of the nature reserved for and (ii) other tax liabilities to the
extent such liabilities are related to the business and assets retained by
Holdings.
The Company's income (loss) before income taxes and the applicable
provision (benefit) for income taxes are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1995 1994
----- ------ ------
<S> <C> <C> <C>
Income (loss) before income taxes:
Domestic................................................ $10.2 $(38.4) $(68.0)
Foreign................................................. 40.5 23.6 16.8
----- ------ ------
$50.7 $(14.8) $(51.2)
===== ====== ======
Provision (benefit) for income taxes:
Federal................................................. $ - $ - $ -
State and local......................................... 1.2 3.4 2.8
Foreign................................................. 24.3 22.0 20.0
----- ------ ------
$25.5 $ 25.4 $ 22.8
===== ====== ======
Current................................................. $22.7 $ 37.1 $ 40.5
Deferred................................................ 6.6 3.0 1.4
Benefits of operating loss carryforwards................ (4.7) (15.4) (18.1)
Carryforward utilization applied to goodwill............ 1.0 0.8 -
Effect of enacted change of tax rates................... (0.1) (0.1) -
Beginning-of-year valuation allowance adjustment........ - - (1.0)
----- ------ ------
$25.5 $ 25.4 $ 22.8
===== ====== ======
</TABLE>
F-17
<PAGE>
The effective tax rate on income (loss) before income taxes is
reconciled to the applicable statutory federal income tax rate as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1996 1995 1994
----- ------ -----
<S> <C> <C> <C>
Statutory federal income tax rate............................... 35.0 % (35.0)% (35.0)%
State and local taxes, net of federal income tax benefit........ 1.6 14.9 3.6
Foreign and U.S. tax effects attributable to
operations outside the U.S................................. 35.6 92.8 27.6
Nondeductible amortization expense.............................. 5.8 16.8 4.8
U.S. loss without benefit....................................... - 82.1 43.5
Change in valuation allowance................................... (24.3) - -
Other........................................................... (3.4) - -
----- ----- -----
Effective rate.................................................. 50.3 % 171.6 % 44.5 %
===== ===== =====
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December
31, 1996 and 1995 are presented below:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1996 1995
------- -------
<S> <C> <C>
Deferred tax assets:
Accounts receivable, principally due to doubtful accounts................ $ 3.9 $ 3.7
Inventories.............................................................. 12.5 12.8
Net operating loss carryforwards......................................... 269.2 270.3
Restructuring and related reserves....................................... 10.2 13.4
Employee benefits........................................................ 31.7 36.3
State and local taxes.................................................... 12.8 12.8
Self-insurance........................................................... 3.6 3.9
Advertising, sales discounts and returns and coupon redemptions ......... 23.6 19.1
Other.................................................................... 23.9 19.7
------ -------
Total gross deferred tax assets..................................... 391.4 392.0
Less valuation allowance............................................ (347.0) (357.2)
------ -------
Net deferred tax assets............................................. 44.4 34.8
Deferred tax liabilities:
Plant, equipment and other assets........................................ (43.0) (34.6)
Inventories.............................................................. (0.2) (0.2)
Other.................................................................... (7.2) (6.3)
------ -------
Total gross deferred tax liabilities................................ (50.4) (41.1)
------ -------
Net deferred tax liability.......................................... $ (6.0) $ (6.3)
====== =======
</TABLE>
The valuation allowance for deferred tax assets at January 1, 1996 was
$357.2. The valuation allowance decreased by $10.2 during the year ended
December 31, 1996 and increased by $19.2 during the year ended December 31,
1995.
During 1996, 1995 and 1994, certain of the Company's foreign
operations generated taxable income as to which the related tax liability was
offset by the utilization of operating loss carryforwards generated in prior
years. Accordingly, credits of $4.7, $15.4 and $18.1 representing the reduction
of current foreign taxes payable for the years ended December 31, 1996, 1995
and 1994, respectively, have been recognized in the Consolidated Statements of
Operations. Certain other foreign operations generated losses during the years
1996, 1995 and 1994 for which the potential tax benefit was reduced by a
valuation allowance as it is more likely than not that such benefit will not be
realized. At December 31, 1996, the Company had foreign tax loss carryforwards
of approximately $332.2 which expire in future years as follows: 1997-$53.3;
1998-$30.0; 1999-$33.0; 2000-$12.1; 2001 and beyond-$30.4; unlimited-$173.4.
The Company will receive a benefit only to the extent it has taxable income
during the carryforward periods in the applicable foreign jurisdictions.
F-18
<PAGE>
Appropriate United States and foreign income taxes have been accrued
on foreign earnings that have been or are expected to be remitted in the near
future. Unremitted earnings of foreign subsidiaries which have been, or are
currently intended to be, permanently reinvested in the future growth of the
business aggregated approximately $16.1 at December 31, 1996, excluding those
amounts which, if remitted in the near future, would not result in significant
additional taxes under tax statutes currently in effect.
10. POSTRETIREMENT BENEFITS
PENSIONS:
Products Corporation uses a September 30 date for measurement of plan
obligations and assets.
The following tables reconcile the funded status of all of Products
Corporation's significant pension plans with the respective amounts recognized
in the Consolidated Balance Sheets at the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------------------------
OVERFUNDED UNDERFUNDED
PLANS PLANS TOTAL
----------- ----------- -------
<S> <C> <C> <C>
Actuarial present value of benefit obligation:
Accumulated benefit obligation as of September 30,
1996, includes vested benefits of $286.9........... $(163.7) $(131.4) $(295.1)
======= ======= =======
Projected benefit obligation as of September 30,
1996 for service rendered to date.................. $(198.1) $(141.4) $(339.5)
Fair value of plan assets as of September 30, 1996........... 173.3 81.6 254.9
------- ------- -------
Plan assets less than projected benefit
obligation.............................................. (24.8) (59.8) (84.6)
Amounts contributed to plans during fourth
quarter 1996............................................ 0.2 0.5 0.7
Unrecognized net (assets) obligation......................... (1.5) 0.2 (1.3)
Unrecognized prior service cost.............................. 5.2 3.9 9.1
Unrecognized net loss........................................ 20.2 20.5 40.7
Adjustment to recognize additional minimum liability......... - (15.3) (15.3)
------- ------- -------
Accrued pension cost............................... $ (0.7) $ (50.0) $ (50.7)
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1995
---------------------------------
OVERFUNDED UNDERFUNDED
PLANS PLANS TOTAL
---------- --------- -------
<S> <C> <C> <C>
Actuarial present value of benefit obligation:
Accumulated benefit obligation as of September 30,
1995, includes vested benefits of $269.1........... $(18.8) $(257.2) $(276.0)
====== ======= =======
Projected benefit obligation as of September 30,
1995 for service rendered to date.................. $(21.9) $(294.1) $(316.0)
Fair value of plan assets at September 30, 1995.............. 26.3 185.0 211.3
------ ------- -------
Plan assets in excess of (less than) projected
benefit obligation...................................... 4.4 (109.1) (104.7)
Amounts contributed to plans during fourth
quarter 1995............................................ 0.2 0.9 1.1
Unrecognized net (assets) obligation......................... (1.3) 0.2 (1.1)
Unrecognized prior service cost.............................. 0.3 9.9 10.2
Unrecognized net loss........................................ 1.9 45.2 47.1
Adjustment to recognize additional minimum liability......... - (19.9) (19.9)
------ ------- -------
Prepaid (accrued) pension cost..................... $ 5.5 $ (72.8) $ (67.3)
====== ======= =======
</TABLE>
F-19
<PAGE>
The weighted-average discount rate assumed was 7.75% for 1996 and 1995
for domestic plans. For foreign plans, the weighted-average discount rate was
7.9% and 7.6% for 1996 and 1995, respectively. The rate of future compensation
increases was 5.25% for 1996 and 1995 for domestic plans and was a
weighted-average of 5.05% and 4.81% for 1996 and 1995, respectively, for
foreign plans. The expected long-term rate of return on assets was 9.0% for
1996 and 1995 for domestic plans and a weighted-average of 10.4% for 1996 and
1995 for foreign plans.
Plan assets consist primarily of common stock, mutual funds and fixed
income securities, which are stated at fair market value and cash equivalents
which are stated at cost, which approximates fair market value.
In accordance with the provisions of SFAS No. 87, "Employers'
Accounting for Pensions," the Company recorded an additional liability to the
extent that, for certain U.S. plans, the unfunded accumulated benefit
obligation exceeded recorded liabilities. At December 31, 1996, the additional
liability was recognized by recording an intangible asset to the extent of
unrecognized prior service costs of $1.8, a due from affiliates of $1.1 and a
charge to stockholder's deficiency of $12.4. At December 31, 1995, the
additional liability was recognized by recording an intangible asset to the
extent of unrecognized prior service costs of $1.6, a due from affiliates of
$1.3, and a charge to stockholder's deficiency of $17.0.
Net periodic pension cost for the pension plans consisted of the
following components:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Service cost-benefits earned during the period............... $ 10.6 $ 8.2 $ 9.1
Interest cost on projected benefit obligation................ 24.3 21.7 20.8
Actual (return) loss on plan assets.......................... (30.4) (27.3) 2.7
Net amortization and deferrals............................... 15.1 13.4 (14.4)
------ ------ ------
19.6 16.0 18.2
Portion allocated to Holdings................................ (0.3) (0.3) (0.3)
------ ------ ------
Net periodic pension cost of the Company..................... $ 19.3 $ 15.7 $ 17.9
====== ====== ======
</TABLE>
A substantial portion of the Company's employees in the United States
are covered by defined benefit retirement plans. To the extent that aggregate
pension costs could be identified as relating to the Company or to Holdings,
such costs have been so apportioned. The components of the net periodic pension
cost applicable solely to the Company are not presented as it is not practical
to segregate such information between Holdings and the Company. In 1996 and
1995, there was a settlement loss of $0.3 and $0.1, respectively, and a
curtailment loss of $1.0 and $0.1, respectively, resulting from workforce
reductions.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS:
During 1996, 1995 and 1994, the Company sponsored an unfunded retiree
benefit plan, which provides death benefits payable to beneficiaries of certain
key employees. Participation in this plan is limited to participants enrolled
as of December 31, 1993. Net periodic postretirement benefit cost for each of
the years ended December 31, 1996, 1995 and 1994 was $0.7 which consists
primarily of interest on the accumulated postretirement benefit obligation. The
Company's date of measurement of Plan obligations is September 30. At December
31, 1996 and 1995, the portion of accumulated benefit obligation attributable
to retirees was $6.9 and $6.7, respectively, and to other fully eligible
participants, $1.3 and $1.0, respectively. The amount of unrecognized gain at
December 31, 1996 and 1995 was $1.2 and $1.7, respectively. At December 31,
1996 and 1995, the accrued postretirement benefit obligation recorded on the
Company's Consolidated Balance Sheets was $9.4. Of these amounts, $2.0 and $2.2
was attributable to Holdings and was recorded as a receivable from affiliates
at December 31, 1996 and 1995, respectively. The weighted average discount rate
used in determining the accumulated postretirement benefit obligation at
September 30, 1996 and 1995 was 7.75%.
F-20
<PAGE>
11. STOCK COMPENSATION PLAN
At December 31, 1996, Revlon, Inc. has a stock-based compensation plan
(the "Plan"), which is described below. The Company applies APB Opinion No. 25
and related Interpretations in accounting for the Plan. Under APB Opinion No.
25, because the exercise price of Revlon, Inc.'s employee stock options equals
the market price of the underlying stock on the date of grant, no compensation
cost has been recognized. Had compensation cost for Revlon, Inc.'s Plan been
determined consistent with SFAS No. 123, the Company's net income for 1996 of
$18.6 would have been reduced to the pro forma amount of $15.4. The effects of
applying SFAS No. 123 in this pro forma disclosure are not necessarily
indicative of future amounts.
Under the Plan, Revlon, Inc. may grant options to its employees for up
to an aggregate of 5.0 million shares of Class A Common Stock. Non-qualified
options granted under the Plan have a term of 10 years during which the holder
can purchase shares of Class A Common Stock at an exercise price which must be
not less than the market price on the date of the grant. Options granted in
1996 to certain executive officers will not vest as to any portion until the
third anniversary of the grant date and will thereupon become 100% vested,
except that upon termination of employment by the Company other than for
"cause", death or "disability" under the applicable employment agreement, such
options will vest with respect to 25% of the shares subject thereto (if the
termination is between the first and second anniversaries of the grant) and 50%
of the shares subject thereto (if the termination is between the second and
third anniversaries of the grant). All other initial option grants will vest
25% each year beginning on the first anniversary of the date of grant and will
become 100% vested on the fourth anniversary of the date of grant. The fair
value of each option grant is estimated on the date of the grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for option grants in 1996: no dividend yield; expected
volatility of 31%; risk-free interest rate of 5.99%; and an expected average
life of seven years for the Plan's options. At December 31, 1996 there were no
options exercisable under the Plan.
A summary of the status of the Plan as of December 31, 1996 and
changes during the year then ended is presented below:
SHARES WEIGHTED AVERAGE
(000) EXERCISE PRICE
------- --------------
Outstanding at beginning of year..... - -
Granted.............................. 1,010.2 $24.33
Exercised............................ - -
Forfeited............................ (119.1) 24.00
-------
Outstanding at end of year........... 891.1 24.37
=======
The weighted average fair value of each option granted during 1996
approximated $11.00.
The following table summarizes information about the Plan's options
outstanding at December 31, 1996:
WEIGHTED
RANGE NUMBER AVERAGE WEIGHTED
OF OUTSTANDING YEARS AVERAGE
EXERCISE PRICES (000) REMAINING EXERCISE PRICE
- ----------------- ------------- --------- --------------
$24.00 to $29.88 855.1 9.16 $ 24.06
31.00 to 33.88 36.0 9.79 31.88
-----
24.00 to 33.88 891.1 9.19 24.37
=====
F-21
<PAGE>
12. RELATED PARTY TRANSACTIONS
TRANSFER AGREEMENTS
In June 1992, Revlon, Inc. and Products Corporation entered into an asset
transfer agreement with Holdings and certain of its wholly owned subsidiaries
(the "Asset Transfer Agreement"), and Revlon, Inc. and Products Corporation
entered into a real property asset transfer agreement with Holdings (the "Real
Property Transfer Agreement" and, together with the Asset Transfer Agreement,
the "Transfer Agreements"), and pursuant to such agreements on June 24, 1992,
Holdings transferred assets to Products Corporation and Products Corporation
assumed all the liabilities of Holdings, other than certain specifically
excluded assets and liabilities (the liabilities excluded are referred to as
the "Excluded Liabilities"). Holdings retained certain small brands that
historically had not been profitable ("Retained Brands"). Holdings agreed to
indemnify Revlon, Inc. and Products Corporation against losses arising from the
Excluded Liabilities, and Revlon, Inc. and Products Corporation agreed to
indemnify Holdings against losses arising from the liabilities assumed by
Products Corporation. The amounts reimbursed by Holdings to Products
Corporation for the Excluded Liabilities for 1996, 1995 and 1994 were $1.4,
$4.0 and $7.4, respectively.
BENEFIT PLANS ASSUMPTION AGREEMENT
Holdings, Products Corporation and Revlon, Inc. entered into a benefit
plans assumption agreement dated as of July 1, 1992 pursuant to which Products
Corporation assumed all rights, liabilities and obligations under all of
Holdings' benefit plans, arrangements and agreements, including obligations
under the Revlon Employees' Retirement Plan and the Revlon Employees' Savings
and Investment Plan. Products Corporation was substituted for Holdings as
sponsor of all such plans theretofore sponsored by Holdings.
OPERATING SERVICES AGREEMENT
In June 1992, Revlon, Inc., Products Corporation and Holdings entered
into an operating services agreement (as amended and restated, and as
subsequently amended, the "Operating Services Agreement") pursuant to which
Products Corporation manufactures, markets, distributes, warehouses and
administers, including the collection of accounts receivable, the Retained
Brands for Holdings. Pursuant to the Operating Services Agreement, Products
Corporation is reimbursed an amount equal to all of its and Revlon, Inc.'s
direct and indirect costs incurred in connection with furnishing such services,
net of the amounts collected by Products Corporation with respect to the
Retained Brands, payable quarterly. The net amounts reimbursed by Holdings to
Products Corporation for such direct and indirect costs for 1996, 1995 and 1994
were $5.1, $8.6 and $11.5, respectively. Holdings also pays Products
Corporation a fee equal to 5% of the net sales of the Retained Brands, payable
quarterly. The fees paid by Holdings to Products Corporation pursuant to the
Operating Services Agreement for services with respect to the Retained Brands
for 1996, 1995 and 1994 were approximately $0.6, $1.7 and $1.9, respectively.
REIMBURSEMENT AGREEMENTS
Revlon, Inc., Products Corporation and MacAndrews Holdings have
entered into reimbursement agreements (the "Reimbursement Agreements") pursuant
to which (i) MacAndrews Holdings is obligated to provide certain professional
and administrative services, including employees, to Revlon, Inc. and its
subsidiaries, including Products Corporation, and purchase services from third
party providers, such as insurance and legal and accounting services, on behalf
of Revlon, Inc. and its subsidiaries, including Products Corporation, to the
extent requested by Products Corporation, and (ii) Products Corporation is
obligated to provide certain professional and administrative services,
including employees, to MacAndrews Holdings and purchase services from third
party providers, such as insurance and legal and accounting services, on behalf
of MacAndrews Holdings to the extent requested by MacAndrews Holdings, provided
that in each case the performance of such services does not cause an
unreasonable burden to MacAndrews Holdings or Products Corporation, as the case
may be. Products Corporation reimburses MacAndrews Holdings for the allocable
costs of the services purchased for or provided to Products Corporation and for
reasonable out-of-pocket expenses incurred in connection with the provision of
such services. MacAndrews Holdings reimburses Products Corporation for the
allocable costs of the services purchased for or provided to MacAndrews
Holdings and for the reasonable out-of-pocket expenses incurred in connection
with the purchase or provision of such services. In addition, in connection
with certain insurance coverage provided by MacAndrews Holdings, Products
Corporation obtained
F-22
<PAGE>
letters of credit under the Special LC Facility (which aggregated approximately
$26.4 as of December 31, 1996) to support certain self-funded risks of
MacAndrews Holdings and its affiliates, including Revlon, Inc., associated with
such insurance coverage. The costs of such letters of credit are allocated
among, and paid by, the affiliates of MacAndrews Holdings, including Revlon,
Inc., which participate in the insurance coverage to which the letters of
credit relate. The Company expects that these self-funded risks will be paid in
the ordinary course and, therefore, it is unlikely that such letters of credit
will be drawn upon. MacAndrews Holdings has agreed to indemnify Revlon, Inc.
and Products Corporation to the extent amounts are drawn under any of such
letters of credit with respect to claims for which Products Corporation is not
responsible. The net amounts reimbursed by MacAndrews Holdings to Products
Corporation for the services provided under the Reimbursement Agreements for
1996, 1995 and 1994 were $2.2, $3.0 and $1.6, respectively. Each of Revlon,
Inc. and Products Corporation, on the one hand, and MacAndrews Holdings, on the
other, has agreed to indemnify the other party for losses arising out of the
provision of services by it under the Reimbursement Agreements other than
losses resulting from its willful misconduct or gross negligence. The
Reimbursement Agreements may be terminated by either party on 90 days' notice.
The Company does not intend to request services under the Reimbursement
Agreements unless their costs would be at least as favorable to the Company as
could be obtained from unaffiliated third parties.
TAX SHARING AGREEMENT
Holdings, Revlon, Inc., Products Corporation and certain of its
subsidiaries and Mafco Holdings are parties to the Tax Sharing Agreement which
is described in Note 9. Since the payments to be made by Products Corporation
under the Tax Sharing Agreement will be determined by the amount of taxes that
Products Corporation would otherwise have to pay if it were to file separate
federal, state or local income tax returns, the Tax Sharing Agreement will
benefit Mafco Holdings to the extent Mafco Holdings can offset the taxable
income generated by Products Corporation, against losses and tax credits
generated by Mafco Holdings and its other subsidiaries.
FINANCING REIMBURSEMENT AGREEMENT
Holdings and Products Corporation entered into a financing
reimbursement agreement (the "Financing Reimbursement Agreement") in 1992
pursuant to which Holdings agreed to reimburse Products Corporation for
Holdings' allocable portion of (i) the debt issuance cost and advisory fees
related to the capital restructuring of Holdings, and (ii) interest expense
attributable to the higher cost of funds paid by Products Corporation under the
credit agreement in effect at that time as a result of additional borrowings
for the benefit of Holdings in connection with the assumption of certain
liabilities by Products Corporation under the Asset Transfer Agreement and the
repurchase of Old Senior Subordinated Notes from affiliates. The amount of
interest to be reimbursed by Holdings for 1994 was approximately $0.8 and was
evidenced by noninterest-bearing promissory notes originally due and payable on
June 30, 1995. In February 1995, the $13.3 in notes then payable by Holdings to
Products Corporation under the Financing Reimbursement Agreement was offset
against a $25.0 note payable by Products Corporation to Holdings and Holdings
agreed not to demand payment under the resulting $11.7 note payable by Products
Corporation so long as any indebtedness remained outstanding under the Former
Credit Agreement. In February 1995, the Financing Reimbursement Agreement was
amended and extended to provide that Holdings would reimburse Products
Corporation for a portion of the debt issuance costs and advisory fees related
to the Former Credit Agreement (which portion was approximately $4.7 and was
evidenced by a noninterest-bearing promissory note payable on June 30, 1996)
and 1 1/2 % per annum of the average balance outstanding under the Former
Credit Agreement and the average balance outstanding under working capital
borrowings from affiliates through June 30, 1996 and such amounts were
evidenced by a noninterest-bearing promissory note payable on June 30, 1996.
The amount of interest to be reimbursed by Holdings for 1995 was approximately
$4.2. As of December 31, 1995, the aggregate amount of notes payable by
Holdings under the Financing Reimbursement Agreement was $8.9. In June 1996,
$10.9 in notes due to Products Corporation, which included $2.0 of interest
reimbursement in 1996, under the Financing Reimbursement Agreement from
Holdings was offset against an $11.7 demand note payable by Products
Corporation to Holdings. The Financing Reimbursement Agreement expired on June
30, 1996.
OTHER
Pursuant to a lease dated April 2, 1993 (the "Edison Lease"), Holdings
leases to Products Corporation the Edison research and development facility for
a term of up to 10 years with an annual rent of $1.4 and certain shared
F-23
<PAGE>
operating expenses payable by Products Corporation which, together with the
annual rent are not to exceed $2.0 per year. Pursuant to an assumption
agreement dated February 18, 1993, Holdings agreed to assume all costs and
expenses of the ownership and operation of the Edison facility as of January 1,
1993, other than (i) the operating expenses for which Products Corporation is
responsible under the Edison Lease and (ii) environmental claims and compliance
costs relating to matters which occurred prior to January 1, 1993 up to an
amount not to exceed $8.0 (the amount of such claims and costs for which
Products Corporation is responsible, the "Environmental Limit"). In addition,
pursuant to such assumption agreement, Products Corporation agreed to indemnify
Holdings for environmental claims and compliance costs relating to matters
which occurred prior to January 1, 1993 up to an amount not to exceed the
Environmental Limit and Holdings agreed to indemnify Products Corporation for
environmental claims and compliance costs relating to matters which occurred
prior to January 1, 1993 in excess of the Environmental Limit and all such
claims and costs relating to matters occurring on or after January 1, 1993.
Pursuant to an occupancy agreement, during 1996 and 1995 Products Corporation
rented a portion of the administration building located at the Edison facility
and space for a retail store of Products Corporation. Products Corporation
provides certain administrative services, including accounting, for Holdings
with respect to the Edison facility pursuant to which Products Corporation pays
on behalf of Holdings costs associated with the Edison facility and is
reimbursed by Holdings for such costs, less the amount owed by Products
Corporation to Holdings pursuant to the Edison Lease and the occupancy
agreement. The net amount reimbursed by Holdings to Products Corporation for
such costs with respect to the Edison facility for 1996, 1995 and 1994 was
$1.1, $1.2 and $2.1, respectively.
In the fourth quarter of 1996, Products Corporation and certain of its
subsidiaries purchased an inactive subsidiary from an affiliate for net cash
consideration of approximately $3.0 in a series of transactions in which
Products Corporation expects to realize foreign tax benefits in future years.
Effective January 1, 1996, Products Corporation acquired from Holdings
substantially all of the assets of Tarlow in consideration for the assumption
of substantially all of the liabilities and obligations of Tarlow. Net
liabilities assumed were approximately $3.4. The assets acquired and
liabilities assumed were accounted for at historical cost in a manner similar
to that of a pooling of interests and, accordingly, prior period financial
statements have been restated as if the acquisition took place at the beginning
of the earliest period. Products Corporation paid $4.1 to Holdings which was
accounted for as an increase in capital deficiency. A nationally recognized
investment banking firm rendered its written opinion that the terms of the
purchase are fair from a financial standpoint to Products Corporation.
Effective January 1, 1994, Products Corporation sold the inventory,
contracts, dedicated tools, dies and molds, intellectual property and a license
agreement relating to the NEW ESSENTIALS brand to Holdings for $2.2
(representing the net book value of such brand which Products Corporation
believes approximated its fair market value at the time of sale), and the
Operating Services Agreement was amended to include NEW ESSENTIALS as a
Retained Brand.
During 1996, 1995 and 1994, Products Corporation leased certain
facilities to MacAndrews & Forbes or its affiliates pursuant to occupancy
agreements and leases including space at Products Corporation's New York
headquarters and at Products Corporation's offices in London and Tokyo. The
rent paid by MacAndrews & Forbes or its affiliates to Products Corporation for
1996, 1995 and 1994 was $4.6, $5.3 and $4.1, respectively.
In July 1995, Products Corporation borrowed from Holdings
approximately $0.8, representing certain amounts received by Holdings relating
to an arbitration arising out of the sale by Holdings of certain of its
businesses. In 1995, Products Corporation borrowed from Holdings approximately
$5.6, representing certain amounts received by Holdings from the sale by
Holdings of certain of its businesses. Such amounts are evidenced by
noninterest-bearing promissory notes. Holdings agreed not to demand payment
under such notes so long as any indebtedness remains outstanding under the
Credit Agreement.
The Credit Agreement is supported by, among other things, guarantees
from Holdings and certain of its subsidiaries. The obligations under such
guarantees are secured by, among other things, (i) the capital stock and
certain assets of certain subsidiaries of Holdings and (ii) a mortgage on
Holdings' Edison, New Jersey facility.
Products Corporation borrows funds from its affiliates from time to
time to supplement its working capital borrowings. No such borrowings were
outstanding as of December 31, 1996, 1995 or 1994. The interest rates for such
borrowings are more favorable to Products Corporation than interest rates under
the Credit Agreement and, for
F-24
<PAGE>
borrowings occurring prior to the execution of the Credit Agreement, the credit
facility in effect at the time of such borrowing. The amount of interest paid
by Products Corporation for such borrowings for 1996, 1995 and 1994 was $0.5,
$1.2 and $1.1, respectively.
In November 1993, Products Corporation assigned to Holdings a lease
for warehouse space in New Jersey (the "N.J. Warehouse") between Products
Corporation and a trust established for the benefit of certain family members
of the Chairman of the Executive Committee. The N.J. Warehouse had become
vacant as a result of divestitures and restructuring of Products Corporation.
The lease has annual lease payments of approximately $2.3 and terminates on
June 30, 2005. In consideration for Holdings assuming all liabilities and
obligations under the lease, Products Corporation paid Holdings $7.5 (for which
a liability was previously recorded) in three installments of $2.5 each in
January 1994, January 1995 and January 1996. A nationally recognized investment
banking firm rendered its written opinion that the terms of the lease transfer
were fair from a financial standpoint to Products Corporation. During 1996,
1995 and 1994, Products Corporation paid certain costs associated with the N.J.
Warehouse on behalf of Holdings and was reimbursed by Holdings for such
amounts. The amounts reimbursed by Holdings to Products Corporation for such
costs were $0.2, $0.2 and $0.3 for 1996, 1995 and 1994, respectively.
During 1996, 1995 and 1994, Products Corporation used an airplane
which was owned by a corporation of which Messrs. Gittis, Drapkin and Levin
were the sole stockholders. Products Corporation paid approximately $0.2, $0.4
and $0.5 for the usage of the airplane for 1996, 1995 and 1994, respectively.
As of December 31, 1996, Mr. Levin no longer holds an ownership interest in the
corporation that owned the airplane.
Consolidated Cigar, an affiliate of Products Corporation , assembles
lipstick cases for Products Corporation. Products Corporation paid
approximately $1.0, $1.0 and $0.6 for such services for 1996, 1995 and 1994,
respectively.
During 1994, Products Corporation was retained by an affiliate,
Meridian, to act as licensing agent for Meridian's trademarks. Products
Corporation will receive a percentage of any royalties generated by such
licenses. No royalties were earned by Meridian for 1994, 1995 or 1996. However,
Meridian paid Products Corporation approximately $0.1 in 1994 for reimbursement
of expenses incurred in connection with such licensing activities.
In January 1995, Products Corporation agreed to license certain of its
trademarks to Guthy-Renker Corporation ("Guthy-Renker"), a corporation in which
an affiliate of MacAndrews & Forbes held a 37.5% equity interest, to be used by
Guthy-Renker in connection with the marketing and sale of hair extensions and
hair pieces. The amount paid by Guthy-Renker to Products Corporation pursuant
to such license for 1995 was less than $0.1. In connection with this licensing
arrangement, Guthy-Renker agreed to use Products Corporation as its exclusive
supplier of hair extensions and hair pieces. Guthy-Renker purchased $1.1 of
wigs from Products Corporation during 1995. Products Corporation terminated the
license with Guthy-Renker during 1995.
13. COMMITMENTS AND CONTINGENCIES
The Company currently leases manufacturing, executive, including
research and development, and sales facilities and various types of equipment
under operating lease agreements. Rental expense was $51.7, $49.3 and $51.0 for
the years ended December 31, 1996, 1995 and 1994, respectively. Minimum rental
commitments under all noncancelable leases, including those pertaining to idled
facilities and the Edison research and development facility, with remaining
lease terms in excess of one year from December 31, 1996 aggregated $230.0;
such commitments for each of the five years subsequent to December 31, 1996 are
$37.9, $36.4, $31.2, $28.6 and $25.6, respectively. Such amounts exclude the
minimum rentals to be received in the future under noncancelable subleases of
$16.1.
The Company and its subsidiaries are defendants in litigation and
proceedings involving various matters. In the opinion of the Company's
management, based upon advice of its counsel handling such litigation and
proceedings, adverse outcomes, if any, will not result in a material effect on
the Company's consolidated financial condition or results of operations.
F-25
<PAGE>
14. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the unaudited quarterly results of
operations:
YEAR ENDED DECEMBER 31, 1996
-----------------------------------
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
Net sales................................. $464.3 $517.9 $571.1 $613.7
Gross profit.............................. 311.4 347.2 378.1 404.6
(Loss) income before extraordinary item... (29.1) 1.5 21.7 31.1
Net (loss) income ........................ (35.7)(a) 1.5 21.7 31.1
YEAR ENDED DECEMBER 31, 1995(b)
-----------------------------------
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
Net sales................................. $412.2 $452.6 $514.5 $558.5
Gross profit.............................. 270.6 299.0 346.8 369.3
Net (loss) income......................... (33.4) (14.0) 3.4 3.8
(a) Includes a charge of $6.6 resulting from the write-off of deferred
financing costs associated with the extinguishment of the Former Credit
Agreement prior to maturity.
(b) Effective January 1, 1996, Products Corporation acquired from
Holdings substantially all of the assets of Tarlow in consideration for the
assumption of substantially all of the liabilities and obligations of Tarlow.
Net liabilities assumed were approximately $3.4. The assets acquired and
liabilities assumed were accounted for at historical cost in a manner similar
to that of a pooling of interests and, accordingly, prior period financial
statements presented have been restated as if the acquisition took place at the
beginning of the earliest period. Products Corporation paid $4.1 to Holdings
which was accounted for as an increase to capital deficiency.
15. GEOGRAPHIC SEGMENTS
The Company operates in a single business segment. The Company has
operations based in 26 foreign countries and its products are sold throughout
the world. 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 are affected by
fluctuations in foreign currency exchange rates. The Company enters into
forward foreign exchange contracts to hedge certain cash flows denominated in
foreign currency. In addition, the Company's operations in Brazil (which
accounted for approximately 6.1% of the Company's net sales for 1996) are
subject to hyperinflationary conditions. There can be no assurance as to the
future effect of changes in social, political and economic conditions on the
Company's business or financial condition. During 1996, one customer accounted
for approximately 10.1% of the Company's consolidated net sales. Information
related to the Company's geographic segments for each of the years in the
three-year period ended December 31, 1996 with respect to operating results,
and as of December 31, 1996 and 1995 with respect to identifiable assets, is
presented below.
Operating profit (loss), as presented below, is operating income, net
foreign currency translation (gains) losses and identifiable miscellaneous
income and expense; it excludes general corporate income and expenses, net
interest and investment income and expense, including amortization of debt
issuance costs, and income taxes. Export sales, including those to affiliates,
are not significant. Export sales to non-affiliates and related operating
profits are reflected in their geographic area of origin.
Identifiable assets, as presented below, are those assets used in each
geographic area. Corporate assets are principally cash and cash equivalents,
certain property and equipment and nonoperating assets.
F-26
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
GEOGRPAHIC AREAS
Net Sales:
United States................................................ $1,282.2 $1,155.8 $1,019.8
Europe, Middle East and Africa............................... 404.1 357.1 320.7
Latin America, Canada and Puerto Rico........................ 297.2 259.5 253.4
Far East, Australia and other areas of the world............. 183.5 165.4 138.6
-------- -------- --------
$2,167.0 $1,937.8 $1,732.5
======== ======== ========
Operating profit (loss):
United States................................................ $ 163.9 $ 121.7 $ 85.7
Europe, Middle East and Africa............................... 9.9 7.6 16.2
Latin America, Canada and Puerto Rico........................ 23.3 14.9 18.3
Far East, Australia and other areas of the world............. 7.5 7.8 (3.7)
-------- -------- --------
204.6 152.0 116.5
Unallocated expenses (income):
Interest expense............................................. 133.4 142.6 136.7
Interest and net investment income........................... (3.4) (4.9) (6.3)
Amortization of debt issuance costs.......................... 8.3 11.0 8.4
Corporate expenses and miscellaneous, net.................... 15.6 18.1 28.9
-------- -------- --------
Income (loss) before income taxes............................ $ 50.7 $ (14.8) $ (51.2)
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1995
-------- --------
<S> <C> <C>
Identifiable assets:
United States................................................ $ 944.1 $ 897.6
Europe, Middle East and Africa............................... 287.6 268.3
Latin America, Canada and Puerto Rico........................ 198.7 167.8
Far East, Australia and other areas of the world............. 130.6 127.0
Corporate.................................................... 61.1 74.6
-------- --------
$1,622.1 $1,535.3
======== ========
</TABLE>
SKIN CARE,
COSMETICS PERSONAL CARE
AND AND
FRAGRANCES PROFESSIONAL TOTAL
---------- ------------ --------
CLASSES OF SIMILAR PRODUCTS (UNAUDITED):
1996................................ $1,263.9 $903.1 $2,167.0
% of net sales...................... 58% 42% 100%
1995................................ $1,075.2 $862.6 $1,937.8
% of net sales...................... 55% 45% 100%
1994................................ $884.8 $847.7 $1,732.5
% of net sales...................... 51% 49% 100%
F-27
<PAGE>
16. PENDING ACQUISITION
On November 27, 1996, Products Corporation and PFC entered into an
Agreement and Plan of Merger with Cosmetic Center pursuant to which PFC will
merge with and into Cosmetic Center, with Cosmetic Center surviving the merger
(the "Merger"). In the Merger, Products Corporation would receive newly issued
common stock of Cosmetic Center constituting between 74% and 84% of the
outstanding common stock. The Merger is subject to a number of significant
conditions, including obtaining financing for Cosmetic Center and approval of
the transaction by Cosmetic Center stockholders, among other conditions.
F-28
<PAGE>
SCHEDULE II
REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE
BEGINNING COST AND OTHER AT END
OF YEAR EXPENSES DEDUCTIONS OF YEAR
---------- ---------- ---------- -------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1996:
Applied against asset accounts:
Allowance for doubtful accounts............................ $13.6 $ 7.1 $ (7.8)(1) $12.9
Allowance for volume and early payment
discounts............................................... $10.1 $43.8 $(41.9)(2) $12.0
YEAR ENDED DECEMBER 31, 1995:
Applied against asset accounts:
Allowance for doubtful accounts............................ $11.1 $ 5.5 $ (3.0)(1) $13.6
Allowance for volume and early payment
discounts............................................... $10.6 $33.3 $(33.8)(2) $10.1
YEAR ENDED DECEMBER 31, 1994:
Applied against asset accounts:
Allowance for doubtful accounts............................ $14.6 $ 4.6 $ (8.1)(1) $11.1
Allowance for volume and early payment
discounts............................................... $ 9.7 $26.0 $(25.1)(2) $10.6
</TABLE>
- ----------------------
Notes:
(1) Doubtful accounts written off, less recoveries, reclassifications and
foreign currency translation adjustments.
(2) Discounts taken, reclassifications and foreign currency translation
adjustments.
F-29
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Revlon Consumer Products Corporation
(Registrant)
<TABLE>
<S> <C> <C>
By: /s/ George Fellows By: /s/ William J. Fox By: /s/ Lawrence E. Kreider
-------------------------- ------------------------ -------------------------
George Fellows William J. Fox Lawrence E. Kreider
President, Senior Executive Vice Senior Vice President,
Chief Executive Officer President, Controller and
and Director Chief Financial Officer Chief Accounting Officer
and Director
</TABLE>
Dated: February 24, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant on
February 24, 1997 and in the capacities indicated.
Signature Title
* Chairman of the Executive Committee of the
- ----------------------------------- Board and Director
(Ronald O. Perelman)
* Chairman of the Board and Director
- -----------------------------------
(Jerry W. Levin)
/s/ George Fellows President, Chief Executive Officer and
- ----------------------------------- Director
(George Fellows)
/s/ William J. Fox Senior Executive Vice President, Chief
- ----------------------------------- Financial Officer and Director
(William J. Fox)
* Director
- -----------------------------------
(Donald G. Drapkin)
<PAGE>
* Director
- -----------------------------------
(Irwin Engelman)
* Director
- -----------------------------------
(Howard Gittis)
* Director
- -----------------------------------
(Edward J. Landau)
* Robert K. Kretzman, by signing his name hereto, does hereby sign this report
on behalf of the directors of the registrant after whose typed names asterisks
appear, pursuant to powers of attorney duly executed by such Directors and
filed with the Securities and Exchange Commission.
By: /s/ Robert K. Kretzman
Robert K. Kretzman
Attorney-in-fact
<PAGE>
AMENDED AND RESTATED
BY-LAWS
OF
REVLON CONSUMER PRODUCTS CORPORATION
January 30, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C>
ARTICLE I OFFICES
Section 1. Registered Office............................................................... 1
Section 2. Other Offices................................................................... 1
ARTICLE II MEETINGS OF STOCKHOLDERS
Section 1. Place of Meetings............................................................... 1
Section 2. Annual Meetings................................................................. 1
Section 3. Special Meetings................................................................ 2
Section 4. Quorum.......................................................................... 2
Section 5. Proxies......................................................................... 3
Section 6. Voting.......................................................................... 3
Section 7. Organization and Order of Business.............................................. 3
Section 8. Consent of Stockholders in Lieu of Meeting...................................... 4
Section 9. List of Stockholders Entitled to Vote........................................... 5
Section 10. Stock Ledger.................................................................... 5
Section 11. Record Date..................................................................... 5
Section 12. Inspectors of Election.......................................................... 6
ARTICLE III DIRECTORS
Section 1. Number and Election of Directors................................................ 7
Section 2. Vacancies....................................................................... 7
Section 3. Duties and Powers............................................................... 8
Section 4. Organization.................................................................... 8
Section 5. Resignations and Removals of Directors.......................................... 8
Section 6. Meetings........................................................................ 9
Section 7. First Yearly Meeting............................................................ 9
Section 8. Quorum and Manner of Acting..................................................... 9
Section 9. Action by Written Consent....................................................... 10
Section 10. Meetings by Means of Conference Telephone....................................... 10
Section 11. Compensation.................................................................... 10
Section 12. Interested Directors............................................................ 10
ARTICLE IV COMMITTEES
Section 1. How Constituted and Powers...................................................... 11
Section 2. Executive Committee............................................................. 12
i
<PAGE>
Section 3. Organization.................................................................... 12
Section 4. Meetings........................................................................ 12
Section 5. Quorum and Manner of Acting..................................................... 12
Section 6. General......................................................................... 13
ARTICLE V OFFICERS
Section 1. Officers........................................................................ 13
Section 2. Term of Office and Qualifications............................................... 13
Section 3. Subordinate Officers............................................................ 13
Section 4. Removal......................................................................... 14
Section 5. Resignations.................................................................... 14
Section 6. Vacancies....................................................................... 14
Section 7. Compensation.................................................................... 14
Section 8. Chairman of the Board of Directors.............................................. 14
Section 9. President....................................................................... 15
Section 10. Vice Presidents................................................................. 16
Section 11. Treasurer....................................................................... 17
Section 12. Controller...................................................................... 18
Section 13. Secretary....................................................................... 18
Section 14. Duties of Assistant Treasurers, Assistant
Secretaries and Other Subordinate Officers...................................... 19
Section 15. Appointed Officers.............................................................. 20
ARTICLE VI CONTRACTS, VOTING OF STOCK HELD,
CHECKS, DRAFTS, BANK ACCOUNTS, ETC.
Section 1. Execution of Contracts.......................................................... 20
Section 2. Loans and Loan Guarantees....................................................... 21
Section 3. Voting of Stock Held............................................................ 21
Section 4. Checks, Drafts, etc............................................................. 22
Section 5. Deposits........................................................................ 22
ARTICLE VII STOCK AND DIVIDENDS
Section 1. Form of Certificates............................................................ 22
Section 2. Signatures...................................................................... 23
Section 3. Lost, Destroyed, Stolen or Mutilated Certificates............................... 23
Section 4. Transfers....................................................................... 24
Section 5. Transfer and Registry Agents.................................................... 25
Section 6. Beneficial Owners............................................................... 25
Section 7. Dividends....................................................................... 25
ii
<PAGE>
Section 8. Limitations on Transfer......................................................... 25
ARTICLE VII NOTICES
Section 1. Notices......................................................................... 26
Section 2. Waivers of Notice............................................................... 26
ARTICLE IX BOOKS
Section 1. Books........................................................................... 27
Section 2. Form of Books................................................................... 27
ARTICLE X INDEMNIFICATION
Section 1. Power to Indemnify in Actions, Suits or Proceedings
other Than Those by or in the Right of the Corporation.......................... 28
Section 2. Power to Indemnify in Actions, Suits or Proceedings by
or in the Right of the Corporation.............................................. 29
Section 3. Authorization of Indemnification................................................ 29
Section 4. Good Faith Defined.............................................................. 30
Section 5. Indemnification by a Court...................................................... 31
Section 6. Expenses Payable in Advance..................................................... 31
Section 7. Nonexclusivity of Indemnification and Advancement of
Expenses........................................................................ 31
Section 8. Insurance....................................................................... 32
Section 9. Certain Definitions............................................................. 32
Section 10. Survival of Indemnification and Advancement of
Expenses........................................................................ 33
Section 11. Limitation on Indemnification................................................... 33
Section 12. Indemnification of Appointed Officers, Employees and
Agents.......................................................................... 34
ARTICLE XI AMENDMENT OF BY-LAWS
Section 1. Amendment of By-Laws............................................................ 34
Section 2. Entire Board of Directors....................................................... 34
ARTICLE XII GENERAL PROVISIONS
Section 1. Seal............................................................................ 34
Section 2. Fiscal Year..................................................................... 35
iii
<PAGE>
BY-LAWS
(as restated and amended)
OF
REVLON CONSUMER PRODUCTS CORPORATION
(hereinafter called the "Corporation")
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office of the
Corporation shall be in the City of Wilmington, County of New Castle, State of
Delaware.
Section 2. Other Offices. The Corporation may also have
offices at such other places both within and without the State of Delaware as
the Board of Directors may from time to time determine.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Place of Meetings. Meetings of the stockholders
for the election of directors or for any other purpose shall be held at any
place, either within or without the State of Delaware as shall be designated
from time to time by the Board of Directors and stated in the notice of the
meeting or in a duly executed waiver of notice thereof.
Section 2. Annual Meetings. The Annual Meetings of
Stockholders shall be held on such date and at such time as shall be designated
from time to time by the Board of Directors and stated in the notice of the
meeting, at
<PAGE>
which meetings the stockholders shall elect a Board of Directors, and transact
such other business as may properly be brought before the meeting. Written
notice of the Annual Meeting of Stockholders stating the place, date and hour
of the meeting shall be given to each stockholder entitled to vote at such
meeting not less than ten nor more than sixty days before the date of the
meeting.
Section 3. Special Meetings. Unless otherwise prescribed by
law or by the Certificate of Incorporation, Special Meetings of Stockholders,
for any purpose or purposes, may be called by either (i) the Board of
Directors, (ii) the Chairman of the Board of Directors, (iii) the Chairman of
the Executive Committee of the Board of Directors or (iv) the President. Such
request shall state the purpose or purposes of the proposed meeting. Written
notice of a Special Meeting of Stockholders stating the place, date and hour of
the meeting and the purpose or purposes for which the meeting is called shall
be given not less than ten nor more than sixty days before the date of the
meeting to each stockholder entitled to vote at such meeting.
Section 4. Quorum. Except as otherwise required by law or by
the Certificate of Incorporation, the holders of a majority in total number of
votes of the capital stock issued and outstanding and entitled to vote thereat,
present in person or represented by proxy, shall constitute a quorum at all
meetings of the stockholders for the transaction of business. A quorum, once
established, shall not be broken by the withdrawal of enough votes to leave
less than a quorum. If, however, such quorum shall not be present or
represented at any meeting of the stockholders, the Chairman of the meeting or
the holders of a majority in number of votes of the capital stock entitled to
vote thereat, present in person or represented by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement
at the meeting of the time and place of the adjourned meeting, until a quorum
shall be present or represented. At such adjourned meeting at which a
-2-
<PAGE>
quorum shall be present or represented, any business may be transacted which
might have been transacted at the meeting as originally noticed. If the
adjournment is for more than thirty days, or if after the adjournment a new
record date is fixed for the adjourned meeting, a written notice of the
adjourned meeting shall be given to each stockholder entitled to vote at the
meeting not less than ten nor more than sixty days before the date of the
meeting.
Section 5. Proxies. Any stockholder entitled to vote may do
so in person or by his proxy appointed by an instrument in writing subscribed
by such stockholder or by his attorney thereunto authorized, delivered to the
Secretary of the meeting; provided, however, that no proxy shall be voted or
acted upon after three years from its date, unless said proxy provides for a
longer period. All proxies must be filed with the Secretary of the Corporation
at the beginning of the meeting in order to be counted in any vote at the
meeting.
Section 6. Voting. At all meetings of the stockholders at
which a quorum is present, except as otherwise required by law, the Certificate
of Incorporation or these By-Laws, any question brought before any meeting of
stockholders shall be decided by the affirmative vote of the holders of a
majority of the total number of votes of the capital stock present in person or
represented by proxy, and entitled to vote thereat voting as a single class. At
the Annual Meeting of Stockholders, or any Special Meeting of Stockholders at
which directors are to be elected, the directors shall be elected by a
plurality vote.
Section 7. Organization and Order of Business. At every
meeting of stockholders, the Chairman of the Board of Directors or, in such
person's absence, the Chairman of the Executive Committee of the Board of
Directors or, in such person's absence, the President, or in the absence of the
three of them, such person as shall have been designated by the Board of
Directors or, if none, by the Chairman of the Board of Directors, or, if none,
by the Chairman of the Executive Committee of the
-3-
<PAGE>
Board of Directors or, if none, by the President, shall act as Chairman of the
meeting. The Secretary or, in such person's absence, an Assistant Secretary,
shall act as Secretary of the meeting. The Chairman of the meeting shall have
the sole authority to prescribe the agenda and rules of order for the conduct
of any Annual or Special Meeting of Stockholders and to determine all questions
arising thereat relating to the order of business and the conduct of the
meeting, except as otherwise required by law. Unless otherwise directed by the
Chairman of the meeting, the vote at any meeting of the stockholders need not
be by written ballot. In case none of the officers above designated to act as
Secretary of the meeting shall be present, the Chairman of the meeting or
Secretary of the meeting shall be appointed by vote of a majority of the total
number of votes of the capital stock present in person or represented by proxy
and entitled to vote thereat.
Section 8. Consent of Stockholders in Lieu of Meeting. Unless
otherwise provided in the Certificate of Incorporation, any action required or
permitted to be taken at any Annual or Special Meeting of Stockholders may be
taken without a meeting, without prior notice and without a vote, if a consent
or consents in writing, setting forth the action so taken, shall be signed by
the holders of outstanding stock having not less than the minimum number of
votes that would be necessary to authorize or take such action at a meeting at
which all shares entitled to vote thereon were present and voted. Prompt notice
of the taking of the corporate action without a meeting by less than unanimous
written consent shall be given to those stockholders who have not consented in
writing. In the event that the action which is consented to is such as would
have required the filing of a certificate under the General Corporation Law of
the State of Delaware ("DGCL") if such action had been voted on by stockholders
at a meeting thereof, the certificate filed shall state, in lieu of any
statement concerning any vote of stockholders, that written consent and written
notice has been given as provided in this Section 8.
-4-
<PAGE>
Section 9. List of Stockholders Entitled to Vote. The officer
of the Corporation who has charge of the stock ledger of the Corporation shall
prepare and make, at least ten days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open
to the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder of the Corporation who is
present.
Section 10. Stock Ledger. The stock ledger of the Corporation
shall be the only evidence as to who are the stockholders entitled to examine
the stock ledger, the list required by Section 9 of this Article II or the
books of the Corporation, or to vote in person or by proxy at any meeting of
stockholders.
Section 11. Record Date. In order that the Corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or entitled to express consent to
corporate action in writing without a meeting, or entitled to receive payment
of any dividend or other distribution or allotment of any rights, or entitled
to exercise any rights in respect of any change, conversion or exchange of
stock, or for the purpose of any other lawful action, the Board of Directors
may fix a record date, which record date shall not precede the date upon which
the resolution fixing the record date is adopted by the Board of Directors and
which record date: (1) in the case of determination of stockholders entitled to
vote at any meeting of stockholders or adjournment thereof,
-5-
<PAGE>
shall not be more than sixty nor less than ten days before the date of such
meeting; (2) in the case of determination of stockholders entitled to express
consent to corporate action in writing without a meeting, shall not be more
than ten days after the date upon which the resolution fixing the record date
is adopted by the Board of Directors; and (3) in the case of any other action,
shall not be more than sixty days prior to such other action. If no record date
is fixed: (1) the record date for determining stockholders entitled to notice
of or to vote at a meeting of stockholders shall be at the close of business on
the day next preceding the day on which notice is given, or, if notice is
waived, at the close of business on the day next preceding the day on which the
meeting is held; (2) the record date for determining stockholders entitled to
express consent to corporate action in writing without a meeting when no prior
action of the Board of Directors is required by law, shall be the first date on
which a signed written consent setting forth the action taken or proposed to be
taken is delivered to the Corporation in accordance with applicable law, or if
prior action by the Board of Directors is required by law, shall be at the
close of business on the day on which the Board of Directors adopts the
resolution taking such prior action; and (3) the record date for determining
stockholders for any other purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution relating thereto. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for
the adjourned meeting.
Section 12. Inspectors of Election. The Corporation shall, in
advance of any meeting of stockholders, appoint one or more inspectors of
elections to act at the meeting and make a written report thereof. The
Corporation may designate one or more persons as alternate inspectors to
replace any inspector who fails to act. If no inspector or alternate is able to
act at a meeting of stockholders, the
-6-
<PAGE>
Chairman of the meeting shall appoint one or more inspectors to act at the
meeting. Unless otherwise required by law, inspectors may be officers,
employees or agents of the Corporation. Each inspector, before entering upon
the discharge of his duties, shall take and sign an oath faithfully to execute
the duties of inspector with strict impartiality and according to the best of
his ability. The inspector shall take charge of the polls and, when the vote is
completed, shall make a certificate of the result of the vote taken and of such
other facts as may be required by law.
ARTICLE III
DIRECTORS
Section 1. Number and Election of Directors. The Board of
Directors shall consist of not less than three members, the exact number of
which shall from time to time be determined by resolution of the Board of
Directors. Except as provided in Section 2 of this Article, directors shall be
elected by the stockholders at the Annual Meetings of Stockholders, and each
director so elected shall hold office until his successor is duly elected and
qualified, or until his death, or until his earlier resignation, or removal.
Directors need not be stockholders.
Section 2. Vacancies. Vacancies and newly created
directorships resulting from any increase in the authorized number of directors
may be filled by a majority of the directors then in office, though less than a
quorum, or by a sole remaining director, except that any vacancy resulting from
the death, resignation, removal or disqualification of a director elected by
the holders of any class or classes of the stock of the Corporation voting as a
class, or from an increase in the number of directors which such holders are
entitled to elect, may be filled by the affirmative vote of a majority of the
directors elected by such class or classes, or by a sole remaining director so
elected, and each director so chosen shall hold office until his
-7-
<PAGE>
successor is duly elected and qualified or until his death, or until his
earlier resignation or removal, or disqualification.
Section 3. Duties and Powers. The business of the Corporation
shall be managed by or under the direction of the Board of Directors which may
exercise all such powers of the Corporation and do all such lawful acts and
things as are not by statute or by the Certificate of Incorporation or by these
By-Laws required to be exercised or done by the stockholders.
Section 4. Organization. At each meeting of the Board of
Directors, the Chairman of the Executive Committee of the Board of Directors or
the Chairman of the Board of Directors, or, in the absence of both of them, a
director chosen by a majority of the directors present, shall act as Chairman.
The Secretary of the Corporation shall act as Secretary at each meeting of the
Board of Directors. In case the Secretary shall be absent from any meeting of
the Board of Directors, an Assistant Secretary shall perform the duties of
Secretary at such meeting; and in the absence from any such meeting of the
Secretary and all the Assistant Secretaries, the Chairman of the meeting may
appoint any person to act as Secretary of the meeting.
Section 5. Resignations and Removals of Directors. Any
director of the Corporation may resign at any time, by giving written notice to
the Chairman of the Board of Directors, the Chairman of the Executive Committee
of the Board of Directors, the President or the Secretary of the Corporation.
Such resignation shall take effect at the time therein specified or, if no time
is specified, immediately; and, unless otherwise specified in such notice, the
acceptance of such resignation shall not be necessary to make it effective.
Except as otherwise required by law, any director or the entire Board of
Directors may be removed, with or without cause, by the affirmative vote or
written consent of a majority in total voting power of the issued and
outstanding capital stock of the Corporation represented and entitled to vote
in the election of directors.
-8-
<PAGE>
Section 6. Meetings. The Board of Directors of the
Corporation may hold meetings, both regular and special, either within or
without the State of Delaware. Regular meetings of the Board of Directors may
be held at such time and at such place as may from time to time be determined
by the Board of Directors and, unless required by resolution of the Board of
Directors, without notice. Special meetings of the Board of Directors may be
called by the Chairman of the Board of Directors, the Chairman of the Executive
Committee of the Board of Directors, or a majority of directors then in office.
Notice thereof stating the place, date and hour of the meeting shall be given
to each director either by mail not less than forty-eight hours before the date
of the meeting; by telephone, telecopy or telegram on twenty-four hours notice;
or on such shorter notice as the person or persons calling such meeting may
deem necessary or appropriate in the circumstances.
Section 7. First Yearly Meeting. The Board of Directors shall
meet for the purpose of organization, the election of officers and the
transaction of other business, as soon as practicable after each Annual Meeting
of Stockholders, and no notice of such meeting to the existing or newly elected
directors shall be necessary in order to legally constitute the meeting,
provided a quorum is present. Such first meeting may be held at any other time
or place specified in a notice given as hereinafter provided for special
meetings of the Board of Directors, or in a waiver of notice thereof.
Section 8. Quorum and Manner of Acting. Except as otherwise
required by law, the Certificate of Incorporation or these By-Laws, at all
meetings of the Board of Directors, a majority of the entire Board of Directors
shall constitute a quorum for the transaction of business and the act of a
majority of the directors present at any meeting at which there is a quorum
shall be the act of the Board of Directors. If a quorum shall not be present at
any meeting of the Board of Directors, the directors present thereat may
adjourn the meeting from time to time, without
-9-
<PAGE>
notice other than announcement at the meeting, of the time and place of the
adjourned meeting, until a quorum shall be present.
Section 9. Action by Written Consent. Unless otherwise
required by the Certificate of Incorporation or these By-Laws, any action
required or permitted to be taken at any meeting of the Board of Directors or
of any committee thereof may be taken without a meeting, if all the members of
the Board of Directors or committee, as the case may be, consent thereto in
writing, and the writing or writings are filed with the minutes of proceedings
of the Board of Directors or committee.
Section 10. Meetings by Means of Conference Telephone. Unless
otherwise required by the Certificate of Incorporation or these By-Laws,
members of the Board of Directors, or any committee designated by the Board of
Directors, may participate in a meeting of the Board of Directors or such
committee by means of a conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in a meeting pursuant to this Section 10 shall
constitute presence in person at such meeting.
Section 11. Compensation. The directors may be paid their
expenses, if any, of attendance at each meeting of the Board of Directors and
may be paid a fixed sum for attendance at each meeting of the Board of
Directors or a stated salary, or such other emoluments, as the Board of
Directors shall from time to time determine. No such payment shall preclude any
director from serving the Corporation in any other capacity and receiving
compensation therefor. Each director who shall serve as a member or Chairman of
special or standing committee may be allowed like compensation for attending
committee meetings.
Section 12. Interested Directors. No contract or transaction
between the Corporation and one or more of its directors or officers, or
between the
-10-
<PAGE>
Corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers, are directors
or officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or committee thereof
which authorizes the contract or transaction, or solely because his or their
votes are counted for such purpose if (i) the material facts as to his or their
relationship or interest and as to the contract or transaction are disclosed or
are known to the Board of Directors or the committee, and the Board of
Directors or committee in good faith authorizes the contract or transaction by
the affirmative votes of a majority of the disinterested directors, even though
the disinterested directors be less than a quorum; or (ii) the material facts
as to his or their relationship or interest and as to the contract or
transaction are disclosed or are known to the stockholders entitled to vote
thereon, and the contract or transaction is specifically approved in good faith
by vote of the stockholders; or (iii) the contract or transaction is fair as to
the Corporation as of the time it is authorized, approved or ratified, by the
Board of Directors, a committee thereof or the stockholders. Common or
interested directors may be counted in determining the presence of a quorum at
a meeting of the Board of Directors or of a committee which authorizes the
contract or transaction.
ARTICLE IV
COMMITTEES
Section 1. How Constituted and Powers. The Board of Directors
may, by resolution passed by a majority of the entire Board of Directors,
designate one or more committees, each committee to consist of one or more of
the directors of the Corporation, except as otherwise provided in these
By-Laws. The Board of Directors may designate one or more directors as
alternate members of any committee who may replace any absent or disqualified
member at any meeting of
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<PAGE>
any such committee. In the absence or disqualification of a member of a
committee, and in the absence of a designation by the Board of Directors of an
alternate member to replace the absent or disqualified member, the member or
members thereof present at any meeting and not disqualified from voting,
whether or not they constitute a quorum, may unanimously appoint another member
of the Board of Directors to act in the place of any absent or disqualified.
Each committee, to the extent permitted by law, shall have and may exercise all
the powers and authority of the Board of Directors in the management of the
business and affairs of the Corporation as provided in the resolution
establishing such committee.
Section 2. Executive Committee. The Board of Directors may
designate an Executive Committee, to consist of not less than three members of
the Board of Directors, which shall have and may exercise, to the extent
permitted by law, all of the powers of the Board of Directors in the management
of the business and affairs of the Corporation, including, unless otherwise
specified by a resolution or resolutions of the Board of Directors, the power
and authority to declare dividends, to authorize the issuance of stock and to
adopt a certificate of ownership and merger pursuant to Section 253 of the
DGCL.
Section 3. Organization. The Board of Directors or each such
committee may choose its Chairman and Secretary, and shall keep and record all
its acts and proceedings and report the same from time to time to the Board of
Directors.
Section 4. Meetings. Regular meetings of any such committee,
of which no notice shall be necessary, shall be held at such times and in such
places as shall be fixed by the committee or by the Board of Directors. Special
meetings of any such committee shall be held at the request of any member of
the committee.
Section 5. Quorum and Manner of Acting. A majority of the
members of any such committee shall constitute a quorum for the transaction of
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<PAGE>
business, and the act of a majority of those present at any meeting at which a
quorum is present shall be the act of the committee.
Section 6. General. The Board of Directors shall have the
power at any time to change the members of, fill vacancies in, and discharge or
disband any such committee, either with or without cause.
ARTICLE V
OFFICERS
Section 1. Officers. The Board of Directors shall elect a
Chairman of the Board of Directors, a President, one or more Vice Presidents, a
Treasurer, a Controller and a Secretary. The Board of Directors may designate
one or more Vice Presidents as Senior Executive Vice Presidents, Executive Vice
Presidents or Senior Vice Presidents, and may use such other descriptive words
as it may determine to designate the seniority or areas of special competence
or responsibility of the officers. Any two or more offices may be held by the
same person.
Section 2. Term of Office and Qualifications. Each such
officer shall hold office until such officer's successor shall have been duly
chosen and shall qualify, or until such officer's death, resignation or removal
in the manner hereinafter provided. The Chairman of the Board of Directors
shall be chosen from among the directors, but no other officer need be a
director. Each officer shall have such functions or duties as are provided in
these By-Laws, or as the Board of Directors may from time to time determine.
Section 3. Subordinate Officers. The Board of Directors may
from time to time elect such other officers or assistant officers as it may
deem necessary, each of whom shall hold office for such period, have such
authority, and
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perform such duties as are provided in these By-Laws, or as the Board of
Directors may from time to time determine.
Section 4. Removal. Any officer may be removed, either with
or without cause, by the Board of Directors, and any officer also may be
removed in such other manner as may be specified by the Board of Directors in
the resolution or resolutions electing such officer. Any officer may be
suspended by the Chairman of the Board of Directors either with or without
cause.
Section 5. Resignations. Any officer may resign at any time
by giving written notice to the Board of Directors, the Chairman of the Board
of Directors or the Secretary of the Corporation. Any such resignation shall
take effect at the time therein specified or if no time is specified,
immediately; and, unless otherwise specified in such notice, the acceptance of
such resignation shall not be necessary to make it effective.
Section 6. Vacancies. A vacancy in any office because of
death, resignation, removal, disqualification or any other cause shall be
filled in the manner prescribed in these By-Laws for the regular election to
that office.
Section 7. Compensation. Salaries or other compensation of
the officers may be fixed from time to time by the Board of Directors or any
duly authorized committee of directors and shall be so fixed by the Board of
Directors or such committee as to any officer serving the Corporation as a
director. No officer shall be prevented from receiving proper compensation for
such officer's services by reason of the fact that such officer is also a
director of the Corporation.
Section 8. Chairman of the Board of Directors. The Chairman
of the Board of Directors, if present, shall preside at all meetings of the
stockholders and of the Board of Directors. The Chairman of the Board of
Directors may, with the Treasurer or the Secretary or an Assistant Treasurer or
an Assistant Secretary, sign certificates for stock of the Corporation. The
Chairman of the Board of Directors may
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enter into and execute in the name of the Corporation deeds, mortgages, bonds,
guarantees, contracts and other instruments, except in cases where the making
and execution thereof shall be expressly restricted or delegated by the Board
of Directors or by a duly authorized committee of directors or by these By-Laws
to some other officer or agent of the Corporation, or shall be required by law
otherwise to be made or executed. In general, the Chairman of the Board of
Directors shall have all authority incident to the office of Chairman of the
Board of Directors and shall have such other authority and perform such other
duties as may from time to time be assigned by the Board of Directors or by any
duly authorized committee of directors.
Section 9. President. The President shall be the chief
executive officer of the Corporation and shall have general supervision of the
business, affairs and property of the Corporation and over its several
officers, subject, however, to the control of the Board of Directors. The
President also shall be the chief operating officer of the Corporation and,
subject to the direction of the Board of Directors, any duly authorized
committee of directors, shall have general supervision of the operations of the
Corporation. The President may, with the Treasurer or the Secretary or an
Assistant Treasurer or an Assistant Secretary, sign certificates for stock of
the Corporation. The President may enter into and execute in the name of the
Corporation deeds, mortgages, bonds, guarantees, contracts and other
instruments, except in cases where the making and execution thereof shall be
expressly restricted or delegated by the Board of Directors or by a duly
authorized committee of directors, or by these By-Laws to some other officer or
agent of the Corporation, or shall be required by law otherwise to be made or
executed. The President shall have the power to fix the compensation of elected
officers whose compensation is not fixed by the Board of Directors or a
committee thereof in accordance with Section 7 of this Article V, and also to
engage, discharge, determine the duties and fix the compensation of all
employees and agents of the Corporation necessary or proper for the transaction
of the
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business of the Corporation. In general, the President shall have all
authority incident to the office of President and chief executive officer and
chief operating officer and shall have such other authority and perform such
other duties as may from time to time be assigned by the Board of Directors or
by any duly authorized committee of directors or by the Chairman of the Board
of Directors. The President shall, at the request or in the absence or
disability of the Chairman of the Board of Directors, perform the duties and
exercise the powers of such officer.
Section 10. Vice Presidents. The Vice Presidents shall have
supervision over the operations of the Corporation within their respective
areas of special competence or responsibility and in accordance with policies,
procedures and practices in effect from time to time, subject, however, to the
control of the Board of Directors, any duly authorized committee of directors,
the Chairman of the Board of Directors, the President and any other officer to
whom they report. They shall, within such areas (in the order of their
designation, or in the absence of such designation, in the order of their
seniority based on title or, in the case of officers of equal title, in order
of their tenure), at the request or in the absence or disability of the
Chairman of the Board of Directors, perform the duties and exercise the powers
of such officer and at the request or in the absence or disability of the
President, perform the duties and exercise the powers of such officer and at
the request or in the absence or disability of the President, perform the
duties and exercise the power of such officer. They may, with the Treasurer or
the Secretary or an Assistant Treasurer or an Assistant Secretary, sign
certificates for stock of the Corporation. They may enter into and execute in
the name of the Corporation deeds, mortgages, guarantees, bonds, contracts and
other instruments, except in cases where the making and execution thereof shall
be expressly restricted or otherwise delegated by these By-Laws or by the Board
of Directors, a duly authorized committee of directors, the Chairman of the
Board of Directors, the President or any other officer to whom they report, or
shall be required by law
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otherwise to be made or executed. In general, they shall have all authority
incident to their respective offices and shall have such other authority and
perform such other duties as may from time to time be assigned to them by the
Board of Directors, any duly authorized committee of directors, the Chairman of
the Board of Directors, the President or any other officer to whom they report.
Section 11. Treasurer. The Treasurer shall, if required by
the Board of Directors, the Chairman of the Board of Directors, the President
or any other officer to whom the Treasurer reports, give a bond for the
faithful discharge of duties, in such sum and with such sureties as may be so
required. The Treasurer shall have custody of, and be responsible for, all
funds and securities of the Corporation; receive and give receipts for money
due and payable to the Corporation from any source whatsoever; deposit all such
money in the name of the Corporation in such banks, trust companies, or other
depositories as shall be selected in accordance with the provisions of Section
5 of Article VI of these By-Laws; against proper vouchers, cause such funds to
be disbursed by check or draft on the authorized depositories of the
Corporation signed in such manner as shall be determined in accordance with the
provisions of Section 4 of Article VI of these By-Laws and be responsible for
the accuracy of the amounts of all funds so disbursed; regularly enter or cause
to be entered in books to be kept by the Treasurer or under the Treasurer's
direction, full and adequate accounts of all money received and paid by the
Treasurer for the account of the Corporation; have the right to require, from
time to time, reports or statements giving such information as the Treasurer
may determine to be necessary or desirable with respect to any and all
financial transactions of the Corporation from the officers and agents
transacting the same; render to the Board of Directors, any duly authorized
committee of directors, the Chairman of the Board of Directors, the President
or any officer to whom the Treasurer reports, whenever they or any of them,
respectively, shall require the Treasurer so to do, an account of the financial
condition of the Corporation and of all transactions of
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the Treasurer; exhibit at all reasonable times the books of accounts and other
records provided for herein to any of the directors of the Corporation; and, in
general, have all authority incident to the office of Treasurer and such other
authority and perform such other duties as from time to time may be assigned by
the Board of Directors, any duly authorized committee of directors, the
Chairman of the Board of Directors, the President or any other officer to whom
the Treasurer reports, and may sign with the Chairman of the Board of
Directors, the President or any Vice President, certificates for stock of the
Corporation.
Section 12. Controller. The Controller shall be responsible
for preparing and maintaining reasonable and adequate books of account and
other accounting records of the assets, liabilities and transactions of the
Corporation in accordance with generally accepted accounting principles and
procedures, shall see that reasonable and adequate audits thereof are regularly
made and that reasonable and adequate systems of financial control are
maintained, shall examine and certify the financial accounts of the
Corporation, shall prepare and render such budgets and other financial reports
as the Board of Directors, the Chairman of the Board of Directors, the
President or any other officer to whom the Controller reports may require, and
shall, in general, have all authority incident to the office of Controller and
such other authority and perform such other duties as from time to time may be
assigned by the Board of Directors, any duly authorized committee of directors,
the Chairman of the Board of Directors, the President or any other officer to
whom the Controller reports.
Section 13. Secretary. The Secretary shall act as Secretary
of all meetings of the stockholders and of the Board of Directors of the
Corporation; shall keep the minutes thereof in the proper book or books to be
provided for that purpose; shall see that all notices required to be given by
the Corporation in connection with meetings of stockholders and of the Board of
Directors are duly given; may, with the
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Chairman of the Board of Directors, the President or any Vice President, sign
certificates for stock of the Corporation; shall be the custodian of the seal
of the Corporation and shall affix the seal or cause it or a facsimile thereof
to be affixed to all certificates for stock of the Corporation and to all
documents or instruments requiring the same, the execution of which on behalf
of the Corporation is duly authorized in accordance with the provisions of
these By-Laws; shall have charge of the stock records and also of the other
books, records and papers of the Corporation relating to its organization and
acts as a corporation, and shall see that the reports, statements and other
documents related thereto required by law are properly kept and filed; and
shall, in general, have all authority incident to the office of Secretary and
such other authority and perform such other duties as from time to time may be
assigned by the Board of Directors, any duly authorized committee of directors,
the Chairman of the Board of Directors, the President or any other officer to
whom the Secretary reports.
Section 14. Duties of Assistant Treasurers, Assistant
Secretaries and Other Subordinate Officers. The Assistant Treasurers shall,
respectively, if required by the Board of Directors, the Chairman of the Board
of Directors, the President or any other officer to whom they report, give
bonds for the faithful discharge of their duties in such sums and with such
sureties as may be so required. Assistant Treasurers and Assistant Secretaries
may, with the Chairman of the Board of Directors, the President or any Vice
President, sign certificates for stock of the Corporation. Subordinate officers
shall have all authority incident to their respective offices and such other
authority and perform such other duties as shall be assigned to them by the
Board of Directors, any duly authorized committee of directors, the Chairman of
the Board of Directors, the President or the officers to whom they report.
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Section 15. Appointed Officers. The Chairman of the Board of
Directors and the President may appoint or cause to be appointed, in accordance
with the policies and procedures established by them, such Presidents, Vice
Presidents and other officers of the Divisions, Groups and Staffs of the
Corporation (each an "Appointed Officer") as each of them shall determine to be
necessary or desirable in furtherance of the business and affairs of such
Divisions, Groups and Staffs, may designate such Vice Presidents as Senior
Executive Vice Presidents, Executive Vice Presidents or Senior Vice Presidents,
and may use such other descriptive words as each of them may determine to
designate the seniority or areas of special competence or responsibility of the
Appointed Officers appointed in accordance with this Section 15. Appointed
Officers appointed in accordance with this Section 15 shall not be deemed to be
officers as elsewhere referred to in this Article V or in Article X hereof but
as between themselves and the Corporation shall have such authority and perform
such duties in the management and operations of the Divisions, Groups and
Staffs of the Corporation of which they are appointed officers as the officer
appointing them and the persons to whom they report may from time to time
determine. Such Appointed Officers shall have the authority as between
themselves and third parties to bind the Corporation solely to the extent of
their apparent authority based upon their titles and solely in relation to the
business affairs of the Divisions, Groups and Staffs of which they are
appointed officers.
ARTICLE VI
CONTRACTS, VOTING OF STOCK HELD,
CHECKS, DRAFTS, BANK ACCOUNTS, ETC.
Section 1. Execution of Contracts. The Board of Directors or
any duly authorized committee of directors, except as by these By-Laws
otherwise require, may authorize any officer other than or in addition to the
officers authorized by Article V of these By-Laws, including Appointed
Officers, and any employee or
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agent or agents, in the name and on behalf of the Corporation, to enter into
and execute any deed, mortgage, bond, guarantee, contract or other instrument,
and any such authority may be general or may be confined to specific instances
or otherwise limited.
Section 2. Loans and Loan Guarantees. Any officer, employee
or agent of the Corporation thereunder authorized by the Board of Directors or
by any duly authorized committee of directors may effect in the name and on
behalf of the Corporation, loans or advances from, or guarantees of loans or
advances to, any bank, trust company or other institution or any firm,
corporation or individual, and for such loans and advances or guarantees may
make, execute and deliver promissory notes, bonds or other certificates or
evidences of indebtedness or guaranty of the Corporation, and may pledge or
hypothecate or transfer any securities or other property of the Corporation as
security for any such loans, advances or guarantees. Such authority conferred
by the Board of Directors or any duly authorized committee of directors may be
general or may be confined to specific instances or otherwise limited.
Section 3. Voting of Stock Held. The Chairman of the Board of
Directors and the President and, unless otherwise provided by resolution of the
Board of Directors or directed by the Chairman of the Board of Directors or the
President, the Secretary may from time to time personally or by an attorney or
attorneys or agent or agents of the Corporation, in the name and on behalf of
the Corporation, cast the votes which the Corporation may be entitled to cast
as a stockholder or otherwise in any other corporation, any of the stock or
securities of which may be held by the Corporation, at meetings of the holders
of the stock or other securities of such other corporations, or consent in
writing to any action by any such other corporation, and may instruct any
person or persons so appointed as to the manner of casting such votes or giving
such consent, and may execute or cause to be executed on behalf of
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the Corporation and under its corporate seal, or otherwise, such written
proxies, consents, waivers or other instruments as the Secretary may deem
necessary or proper in the premises; or may attend any meeting of the holders
of stock or other securities of any such other corporation and thereat vote or
exercise any or all other powers of the Corporation as the holder of such stock
or other securities of such other corporation.
Section 4. Checks, Drafts, etc. All checks, drafts and other
orders for payment of money out of the funds of the Corporation and all notes
and other evidences of indebtedness of the Corporation shall be signed on
behalf of the Corporation by the Treasurer or an Assistant Treasurer or by any
other officer, employee or agent of the Corporation to whom such power may from
time to time be delegated by the Board of Directors or any duly authorized
committee of directors or by any officer, employee or agent of the Corporation
to whom the power of delegation may from time to time be granted by the Board
of Directors or any duly authorized committee of directors.
Section 5. Deposits. The funds of the Corporation not
otherwise employed shall be deposited from time to time to the order of the
Corporation in such banks, trust companies or other depositories as the Board
of Directors or any duly authorized committee of directors may from time to
time select, or as may be selected by any officer, employee or agent of the
Corporation to whom such power may from time to time be delegated by these
By-Laws, the Board of Directors or any duly authorized committee of directors.
ARTICLE VII
STOCK AND DIVIDENDS
Section 1. Form of Certificates. (a) Every holder of stock in
the Corporation shall be entitled to have a certificate signed, in the name of
the
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Corporation (i) by the Chairman of the Board of Directors, the President or one
of the Vice Presidents and (ii) by the Treasurer or an Assistant Treasurer, or
the Secretary or an Assistant Secretary of the Corporation, certifying the
number of shares owned by him in the Corporation.
(b) If the Corporation shall be authorized to issue more
than one class of stock or more than one series of any class, the powers,
designations, preferences and relative, participating, optional or other
special rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights shall be set
forth in full or summarized on the face or back of the certificate which the
Corporation shall issue to represent such class or series of stock, provided
that, except as otherwise required by Section 202 of the DGCL, in lieu of the
foregoing requirements, there may be set forth on the face or back of the
certificate which the Corporation shall issue to represent such class or series
of stock, a statement that the Corporation will furnish without charge to each
stockholder who so requests the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or
series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights.
Section 2. Signatures. Any or all signatures on the
certificate may be a facsimile. In case an officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent or registrar before such
certificate is issued, unless otherwise ordered by the Board of Directors, it
may be issued by the Corporation with the same effect as if he were such
officer, transfer agent or registrar at the date of issue.
Section 3. Lost, Destroyed, Stolen or Mutilated Certificates.
The Board of Directors may direct a new certificate to be issued in place of
any certificate theretofore issued by the Corporation alleged to have been
lost, stolen or destroyed,
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upon the making of an affidavit or such other proof satisfactory to the Board
of Directors of that fact by the person claiming the certificate of stock to be
lost, stolen or destroyed. When authorizing such issue of a new certificate,
the Board of Directors may, in its discretion and as a condition precedent to
the issuance thereof, require the owner of such lost, stolen or destroyed
certificate, or his legal representative, to advertise the same in such manner
as the Board of Directors shall require and/or to give the Corporation a bond
in such sum as it may direct as indemnity against any claim that may be made
against the Corporation and its transfer agents and registrars with respect to
the certificate alleged to have been lost, stolen or destroyed or the issuance
of such new certificate.
Section 4. Transfers. Except as otherwise prescribed by law
or the Certificate of Incorporation, stock of the Corporation shall be
transferable in the manner prescribed in these By-Laws. Transfers of stock
shall be made on the books of the Corporation only by the person named in the
certificate or by such person's duly authorized attorney appointed by a power
of attorney duly executed and filed with the Secretary of the Corporation or a
transfer agent of the Corporation, and upon surrender of the certificate or
certificates for such stock properly endorsed for transfer and payment of all
necessary transfer taxes; provided, however, that such surrender and
endorsement or payment of taxes shall not be required in any case in which the
officers of the Corporation shall determine to waive such requirement. Every
certificate exchanged, returned or surrendered to the Corporation shall be
marked "Canceled," with the date of cancellation, by the Secretary or an
Assistant Secretary of the Corporation or the transfer agent thereof. No
transfer of stock shall be valid as against the Corporation, its stockholders
or creditors for any purpose until it shall have been entered in the stock
records of the Corporation by an entry showing from and to whom transferred.
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Section 5. Transfer and Registry Agents. The Corporation may
from time to time maintain one or more transfer offices or agencies and
registry offices or agencies at such place or places as may be determined from
time to time by the Board of Directors.
Section 6. Beneficial Owners. The Corporation shall be
entitled to recognize the exclusive right of a person registered on its books
as the owner of shares to receive dividends, and to vote as such owner, and to
hold liable for calls and assessments a person registered on its books as the
owner of shares, and shall not be bound to recognize any equitable or other
claim to or interest in such share or shares on the part of any other person,
whether or not it shall have express or other notice thereof, except as
otherwise required by law.
Section 7. Dividends. Dividends upon the capital stock of the
Corporation, subject to the provisions of the Certificate of Incorporation, if
any, may be declared by the Board of Directors at any regular or special
meeting, and may be paid in cash, in property, or in shares of the
Corporation's capital stock. Before payment of any dividend, there may be set
aside out of any funds of the Corporation available for dividends such sum or
sums as the Board of Directors from time to time, in its absolute discretion,
deems proper as a reserve or reserves to meet contingencies, or for purchasing
any of the shares of capital stock, warrants, rights, options, bonds,
debentures, notes, scrip or other securities or evidences of indebtedness of
the Corporation, or for equalizing dividends, or for repairing or maintaining
any property of the Corporation, or for any proper purpose, and the Board of
Directors may modify or abolish any such reserve.
Section 8. Limitations on Transfer. A written restriction on
the transfer or registration of transfer of a security of the Corporation, if
permitted by Section 202 of the DGCL and noted conspicuously on the certificate
representing the security or, in the case of uncertificated shares, contained
in the notice sent pursuant
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to Section 151(f) of the DGCL, may be enforced against the holder of the
restricted security or any successor or transferee of the holder including an
executor, administrator, trustee, guardian or other fiduciary entrusted with
like responsibility for the person or estate of the holder. Unless noted
conspicuously on the certificate representing the security or, in the case of
uncertificated shares, contained in the notice sent pursuant to Section 151(f)
of the DGCL, a restriction, even though permitted by Section 202 of the DGCL,
is ineffective except against a person with actual knowledge of the
restriction. A restriction on the transfer or registration of transfer of
securities of the Corporation may be imposed either by the Certificate of
Incorporation or by these By-Laws or by an agreement among any number of
security holders or among such holders and the Corporation. No restriction so
imposed shall be binding with respect to securities issued prior to the
adoption of the restriction unless the holders of the securities are parties to
an agreement or voted in favor of the restriction.
ARTICLE VIII
NOTICES
Section 1. Notices. Whenever written notice is required by
law, the Certificate of Incorporation or these By-Laws to be given to any
director, member of a committee or stockholder, such notice may be given by
mail, addressed to such director, member of a committee or stockholder, at such
person's address as it appears on the records of the Corporation, with postage
thereon prepaid, and such notice shall be deemed to be given at the time when
the same shall be deposited in the United States mail. Written notice may also
be given personally or by courier service, facsimile transmission, telegram,
telex or cable.
Section 2. Waivers of Notice. (a) Whenever any notice is
required by law, the Certificate of Incorporation or these By-Laws, to be given
to any director, member of a committee or stockholder, a waiver thereof in
writing, signed,
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by the person or persons entitled to said notice, whether before or after the
time stated therein, shall be deemed equivalent to notice. Attendance of a
person at a meeting, present by person or represented by proxy, shall
constitute a waiver of notice of such meeting, except where the person attends
the meeting for the express purpose of objecting at the beginning of the
meeting to the transaction of any business because the meeting is not lawfully
called or convened.
(b) Neither the business to be transacted at, nor the purpose
of, any regular or special meeting of the stockholders, directors or members of
a committee of directors need be specified in any written waiver of notice
unless so required by law, the Certificate of Incorporation or these By-Laws.
ARTICLE IX
BOOKS
Section 1. Books. The Corporation shall keep in accordance
with applicable law correct and adequate books and records of account and
minutes of proceedings of the stockholders, the Board of Directors and any
committees of the Board of Directors. The Corporation shall keep in accordance
with applicable law at the office designated in the Certificate of
Incorporation or at the office of the transfer agent or registrar of the
Corporation, a record containing the names and addresses of all stockholders,
the number and class of shares held by each and the dates when they
respectively became the owners of record thereof.
Section 2. Form of Books. Any books maintained by the
Corporation, including its stock ledger, books of account and minute books, may
be kept on, or be in the form of, electronic data storage, computer discs,
punch cards, magnetic tape, photographs, microphotographs or any other
information storage device, provided that the records so kept can be converted
into clearly legible written
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form within a reasonable time. The Corporation shall so convert any records so
kept upon the request of any person entitled to inspect the same.
ARTICLE X
INDEMNIFICATION
Section 1. Power to Indemnify in Actions, Suits or
Proceedings other Than Those by or in the Right of the Corporation. Subject to
Section 3 of this Article X, the Corporation shall indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than an action by or in the right of the Corporation)
by reason of the fact that such person is or was a director or officer of the
Corporation, or is or was a director or officer of the Corporation serving at
the request of the Corporation as a director or officer, employee or agent of
another corporation, partnership, joint venture, trust, employee benefit plan
or other entity or enterprise, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding if
such person acted in good faith and in a manner such person reasonably believed
to be in or not opposed to the best interests of the Corporation, and, with
respect to any criminal action or proceeding, had no reasonable cause to
believe such person's conduct was unlawful. The termination of any action, suit
or proceeding by judgment, order, settlement, conviction, or upon a plea of
nolo contendere or its equivalent, shall not, of itself, create a presumption
that such person did not act in good faith and in a manner which such person
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that such person's conduct was unlawful.
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Section 2. Power to Indemnify in Actions, Suits or
Proceedings by or in the Right of the Corporation. Subject to Section 3 of this
Article X, the Corporation shall indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action
or suit by or in the right of the Corporation to procure a judgment in its
favor by reason of the fact that such person is or was a director or officer of
the Corporation, or is or was a director or officer of the Corporation serving
at the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust, employee benefit plan
or other entity or enterprise, against expenses (including attorneys' fees)
actually and reasonably incurred by such person in connection with the defense
or settlement of such action or suit if such person acted in good faith and in
a manner such person reasonably believed to be in or not opposed to the best
interests of the Corporation; except that no indemnification shall be made in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the Corporation unless and only to the extent that the
Court of Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or such
other court shall deem proper.
Section 3. Authorization of Indemnification. Any
indemnification under this Article X (unless ordered by a court) shall be made
by the Corporation only as authorized in the specific case upon a determination
that indemnification of the director or officer is proper in the circumstances
because such person has met the applicable standard of conduct set forth in
Section 1 or Section 2, and in each case Section 11, of this Article X, as the
case may be. Such determination shall be made (i) by a majority vote of the
directors who were not parties to such action, suit or proceeding, even though
less than a quorum, or (ii) if
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there are no such directors, or if such directors so direct, by independent
legal counsel in a written opinion, or (iii) by the stockholders. To the
extent, however, that a director or officer of the Corporation has been
successful on the merits or otherwise in defense of any action, suit or
proceeding described above, or in defense of any claim, issue or matter
therein, such person shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by such person in connection
therewith, without the necessity of authorization in the specific case.
Section 4. Good Faith Defined. For purposes of any
determination under Section 3 of this Article X, a person shall be deemed to
have acted in good faith and in a manner such person reasonably believed to be
in or not opposed to the best interests of the Corporation, or, with respect to
any criminal action or proceeding, to have had no reasonable cause to believe
such person's conduct was unlawful, if such person's action is based on the
records or books of account of the Corporation or another enterprise, or on
information supplied to such person by the officers of the Corporation or
another enterprise in the course of their duties, or on the advice of legal
counsel for the Corporation or another enterprise or on information or records
given or reports made to the Corporation or another enterprise by an
independent certified public accountant or by an appraiser or other expert
selected with reasonable care by the Corporation or another enterprise. The
term "another enterprise" as used in this Section 4 shall mean any other
corporation or any partnership, joint venture, trust, employee benefit plan or
other entity or enterprise of which such person is or was serving at the
request of the Corporation as a director, officer, employee or agent. The
provisions of this Section 4 shall not be deemed to be exclusive or to limit in
any way the circumstances in which a person may be deemed to have met the
applicable standard of conduct set forth in Sections 1 or 2, and in each case
Section 11, of this Article X, as the case may be.
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<PAGE>
Section 5. Indemnification by a Court. Notwithstanding any
contrary determination in the specific case under Section 3 of this Article X,
and notwithstanding the absence of any determination thereunder, any director
or officer may apply to any court of competent jurisdiction in the State of
Delaware for indemnification to the extent otherwise permissible under Sections
1 and 2, and in each case Section 11, of this Article X. The basis of such
indemnification by a court shall be a determination by such court that
indemnification of the director or officer is proper in the circumstances
because such person has met the applicable standards of conduct set forth in
Sections 1 or 2, and in each case Section 11, of this Article X, as the case
may be. Neither a contrary determination in the specific case under Section 3
of this Article X nor the absence of any determination thereunder shall be a
defense to such application or create a presumption that the director or
officer seeking indemnification has not met any applicable standard of conduct.
Notice of any application for indemnification pursuant to this Section 5 shall
be given to the Corporation promptly upon the filing of such application. If
successful, in whole or in part, the director or officer seeking
indemnification shall also be entitled to be paid the expense of prosecuting
such application.
Section 6. Expenses Payable in Advance. Expenses (including
attorneys' fees) incurred by a director or officer in defending any civil,
criminal, administrative or investigative action, suit or proceeding shall be
paid by the Corporation in advance of the final disposition of such action,
suit or proceeding upon receipt of an undertaking by or on behalf of such
director or officer to repay such amount if it shall ultimately be determined
that such person is not entitled to be indemnified by the Corporation as
authorized in this Article X.
Section 7. Nonexclusivity of Indemnification and Advancement
of Expenses. The indemnification and advancement of expenses provided by or
granted pursuant to this Article X shall not be deemed exclusive of any other
rights
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<PAGE>
to which those seeking indemnification or advancement of expenses may be
entitled under any by-law, agreement, contract, vote of stockholders or
disinterested directors or pursuant to the direction (howsoever embodied) of
any court of competent jurisdiction or otherwise, both as to action in such
person's official capacity and as to action in another capacity while holding
such office, it being the policy of the Corporation that indemnification of the
persons specified in Sections 1 and 2 of this Article X shall be made to the
fullest extent permitted by law. The provisions of this Article X shall not be
deemed to preclude the indemnification of any person who is not specified in
Sections 1 or 2 of this Article X but whom the Corporation has the power or
obligation to indemnify under the provisions of the DGCL, or otherwise.
Section 8. Insurance. The Corporation may purchase and
maintain insurance on behalf of any person who is or was a director or officer
of the Corporation, or is or was a director or officer of the Corporation
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other entity or enterprise against any liability asserted
against such person and incurred by such person in any such capacity, or
arising out of such person's status as such, whether or not the Corporation
would have the power or the obligation to indemnify such person against such
liability under the provisions of this Article X.
Section 9. Certain Definitions. For purposes of this Article
X, references to "the Corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors or officers, so that any person who is or was a director or officer
of such constituent corporation, or is or was a director or officer of such
constituent corporation serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation,
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<PAGE>
partnership, joint venture, trust, employee benefit plan or other entity or
enterprise, shall stand in the same position under the provisions of this
Article X with respect to the resulting or surviving corporation as such person
would have with respect to such constituent corporation if its separate
existence had continued. For purposes of this Article X, references to "fines"
shall include any excise taxes assessed on a person with respect to an employee
benefit plan; and references to "serving at the request of the Corporation"
shall include any service as a director, officer, employee or agent of the
Corporation which imposes duties on, or involves services by, such director or
officer with respect to an employee benefit plan, its participants or
beneficiaries; and a person who acted in good faith and in a manner such person
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the Corporation" as referred to in this
Article X. For purposes of this Article X, the term "officers" shall not
include "Appointed Officers" as defined in Section 15 of Article V.
Section 10. Survival of Indemnification and Advancement of
Expenses. The indemnification and advancement of expenses provided by, or
granted pursuant to, this Article X shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director
or officer and shall inure to the benefit of the heirs, executors and
administrators of such a person.
Section 11. Limitation on Indemnification. Notwithstanding
anything contained in this Article X to the contrary, except for proceedings to
enforce rights to indemnification (which shall be governed by Section 5
hereof), the Corporation shall not be obligated to indemnify any director or
officer in connection with a proceeding (or part thereof) initiated by such
person unless such proceeding (or part thereof) was authorized or consented to
by the Board of Directors of the Corporation.
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<PAGE>
Section 12. Indemnification of Appointed Officers, Employees
and Agents. The Corporation may, to the extent authorized from time to time by
the Board of Directors, provide rights to indemnification and to the
advancement of expenses to Appointed Officers, employees and agents of the
Corporation similar to those conferred in this Article X to directors and
officers of the Corporation.
ARTICLE XI
AMENDMENT OF BY-LAWS
Section 1. Amendment of By-Laws. These By-Laws may be
altered, amended or repealed, in whole or in part, or new By-Laws may be
adopted by the stockholders or by the Board of Directors; provided, however,
that notice of such alteration, amendment, repeal or adoption of new By-Laws be
contained in the notice of such meeting of stockholders or Board of Directors
as the case may be. All such amendments must be approved by either the
affirmative vote of the holders of a majority in total number of votes of the
outstanding capital stock entitled to vote thereon or by a majority of the
directors then in office.
Section 2. Entire Board of Directors. As used in this Article
XI and in these By-Laws generally, the term "entire Board of Directors" means
the total number of directors which the Corporation would have if there were no
vacancies.
ARTICLE XII
GENERAL PROVISIONS
Section 1. Seal. The Board of Directors shall approve a
corporate seal which shall be in the form of a circle and shall bear the name
of the Corporation, the year of its incorporation and the word "Delaware." The
Seal may be used by causing it or a facsimile thereof to be impressed or
affixed or reproduced or otherwise.
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<PAGE>
Section 2. Fiscal Year. The fiscal year of the Corporation
shall be determined and may be changed by resolution of the Board of Directors,
and unless and until otherwise so determined, shall be the calendar year.
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</TABLE>
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
Set forth below is a list of certain of the Registrant's subsidiaries.
Such subsidiaries are incorporated or organized in the jurisdictions indicated.
Except as otherwise indicated herein, each of the other listed subsidiaries is
wholly owned by Revlon Consumer Products Corporation directly, or indirectly as
indicated, and all listed subsidiaries are included in the Registrant's
consolidated financial statements. The names of the Registrant's remaining
subsidiaries have been omitted from the following list, but such omitted
subsidiaries, considered in the aggregate as a single subsidiary, would not
constitute a significant subsidiary.
DOMESTIC SUBSIDIARIES
AMERICAN CREW, INC., an Illinois corporation
ALMAY, INC., a Delaware corporation
APPLIED SCIENCE & TECHNOLOGIES INC., a Delaware corporation
CARRINGTON PARFUMS LTD., a Delaware corporation
CHARLES REVSON INC., a New York corporation
CREATIVE NAIL DESIGN, INC., a California corporation
(d/b/a CREATIVE NAIL DESIGN SYSTEMS AND CND INC. in California)
DOLLY PARTON INC., a Delaware corporation
FASHION & DESIGNER FRAGRANCE GROUP, INC., a Delaware corporation
FERMODYL PROFESSIONALS INC., a Delaware corporation
GENERAL WIG MANUFACTURERS, INC., a Florida corporation(1)
(d/b/a REVLON GENERAL WIG AND BEAUTY TRENDS in Florida)
NORTH AMERICA REVSALE INC., a New York corporation
OXFORD PROPERTIES CO., a Delaware corporation
(d/b/a OXFORD PROPERTIES OF DELAWARE in North Carolina)
PACIFIC FINANCE & DEVELOPMENT CORP., a California corporation
PPI TWO CORPORATION, a Delaware corporation
PRESTIGE FRAGRANCE & COSMETICS, INC., a Delaware corporation
(d/b/a COLOURS & SCENTS in Arizona, California, Colorado, Florida,
Georgia, Hawaii, Massachusetts, Missouri, Nevada, New Mexico, New
York, North Carolina, Ohio, Pennsylvania, Tennessee, Texas, Virginia
and Washington)
(d/b/a THE COSMETIC WAREHOUSE in Florida)
(d/b/a PFC FRAGRANCE & COSMETICS, INC. in California)
(d/b/a VISAGE in Florida)
PRESTIGE FRAGRANCES, LTD., a Delaware corporation
REALISTIC/ROUX PROFESSIONAL PRODUCTS INC., a Delaware corporation(1)
REVLON COMMISSARY SALES, INC., a Delaware corporation(2)
REVLON CONSUMER CORP., a Delaware corporation
<PAGE>
DOMESTIC SUBSIDIARIES, CONTINUED
REVLON GOVERNMENT SALES, INC., a Delaware corporation
REVLON INTERNATIONAL CORPORATION, a Delaware corporation
REVLON PROFESSIONAL, INC., a Delaware corporation (1)
REVLON PROFESSIONAL PRODUCTS INC., a Delaware corporation (1)
REVLON RECEIVABLES SUBSIDIARY, INC., a Delaware corporation
RIROS CORPORATION, a New York corporation RIT INC., a Delaware corporation (4)
ROUX LABORATORIES, INC., a New York corporation
(d/b/a REVLON PROFESSIONAL in Florida and New York)
- 2 -
<PAGE>
FOREIGN SUBSIDIARIES
FOREIGN SUBSIDIARIES
CEIL - COMERCIAL, EXPORTADORA, INDUSTRIAL LTDA. (Brazil) (4)
CENDICO B.V. (Netherlands) (5)
COLEMAN DO BRASIL INDUSTRIA E COMERCIO LIMITADA (Brazil) (32)
DEUTSCHE REVLON GMBH (Germany) (31)
DEUTSCHE REVLON GMBH & CO. KG (Germany) (27)
EUROPEAN BEAUTY PRODUCTS S.P.A. (Italy) (21)
EUROPEENNE DE PRODUITS DE BEAUTE S.A. (France) (9)
INTERCOSMO S.P.A. (Italy) (10)
REVLON A.B. (Sweden) (11)
REVLON (AUST.) PTY. LIMITED (Australia) (12)
REVLON BELGIUM S.A. (Belgium) (29)
REVLON B.V. (Netherlands) (3)
REVLON CANADA INC. (Canada) (3)
REVLON (CAYMAN) LIMITED (Cayman Islands) (22)
REVLON CHINA HOLDINGS LIMITED (33)
REVLON COIFFURE SNC (France) (13)
REVLON COSMETICS AND FRAGRANCES LIMITED (United Kingdom) (14)
REVLON DE ARGENTINA, S.A.I.C. (Argentina) (15)
REVLON EUROPE, MIDDLE EAST AND AFRICA LTD. (Bermuda) (5)
REVLON GESELLSCHAFT M.B.H. (Austria) (16)
REVLON GROUP LIMITED (United Kingdom)
REVLON (HONG KONG) LIMITED (Hong Kong) (3)
REVLON (ISRAEL) LIMITED (Israel) (17)
REVLON K.K. (Japan) (3)
REVLON REAL ESTATE K.K. (Japan) (3)
REVLON LATIN AMERICA AND CARIBBEAN, LTD. (Bermuda) (5)
REVLON (MALAYSIA) SDN. BHD. (Malaysia) (3)
REVLON MANUFACTURING LTD. (Bermuda) (3)
REVLON MANUFACTURING (U.K.) LIMITED (United Kingdom) (18)
REVLON MAURITIUS LTD. (Mauritius) (3)
REVLON NEDERLAND B.V. (Netherlands) (8)
REVLON NEW ZEALAND LIMITED (New Zealand) (3)
REVLON OFFSHORE LIMITED (Bermuda)
REVLON OVERSEAS CORPORATION, C.A. (Venezuela) (19)
REVLON PENSION TRUSTEE COMPANY (U.K.) LIMITED (United Kingdom)
REVLON - PRODUTOS COSMETICOS, LTDA. (Portugal) (8)
REVLON PROFESIONAL, S.A. DE C.V. (Mexico) (6)
REVLON PROFESSIONAL LIMITED (Ireland) (1)
REVLON (PUERTO RICO) INC. (Puerto Rico) (3)
-3-
<PAGE>
FOREIGN SUBSIDIARIES, CONTINUED
REVLON-REALISTIC INTERNATIONAL LIMITED (Ireland) (28)
REVLON, S.A. (Mexico) (3)
REVLON, S.A. (Spain) (20)
REVLON (SHANGHAI) LIMITED (34)
REVLON (SINGAPORE) PTE. LTD. (Singapore) (3)
REVLON SOUTH AFRICA (PROPRIETARY) LIMITED (South Africa) (7)
REVLON (SUISSE) S.A. (Switzerland) (3)
REVLON TAIWAN LIMITED (Taiwan) (7)
RGI BEAUTY PRODUCTS (PROPRIETARY) LIMITED (South Africa)
RGI (CAYMAN) LIMITED (Cayman Islands) (30)
RGI LIMITED (Cayman Islands) (23)
RGI MEDICAL PRODUCTS (PTY.) LIMITED (South Africa) (24)
RIC PTY. LIMITED (Australia) (5)
R.I.F.C. BANK LIMITED (Bahamas) (7)
R.O.C. HOLDING C.A. (Venezuela) (3)
SHANGHAI REVSTAR COSMETIC MARKETING SERVICES (34)
TINDAFIL, S.A. (Uruguay) (25)
ULTIMA II COSMETICS GMBH (Germany) (26)
YAE ARTISTIC PACKINGS INDUSTRY LTD. (Israel) (17)
-4-
<PAGE>
OWNERSHIP
(1) Owned 100% by ROUX LABORATORIES INC. (New York)
(2) Owned 100% by REVLON GOVERNMENT SALES, INC. (Delaware)
(3) Owned 100% by REVLON INTERNATIONAL CORPORATION (Delaware)
(4) Owned 99% by RGI LIMITED (Cayman Islands)
and less than 1% by REVLON INTERNATIONAL CORPORATION (Delaware)
(5) Owned 100% by REVLON MANUFACTURING LIMITED (Bermuda)
(6) Owned 95% by ROUX LABORATORIES INC. (New York)
and 5% by THIRD PARTIES
(7) Owned 100% by REVLON OFFSHORE LIMITED (Bermuda)
(8) Owned 100% by REVLON, S.A. (Spain)
(9) Owned 62% by REVLON EUROPE, MIDDLE EAST AND AFRICA LTD. (Bermuda),
37% by REVLON INTERNATIONAL CORPORATION (Delaware)
and 1% by REVLON, S.A. (Spain)
(10) Owned 100% by EUROPEAN BEAUTY PRODUCTS S.P.A. (Italy)
(11) Owned 100% by REVLON B.V. (Netherlands)
(12) Owned 50% by REVLON MANUFACTURING LIMITED (Bermuda)
and 50% by RIC PTY. LIMITED (Australia)
(13) Owned 100% by EUROPEENNE DE PRODUITS DE BEAUTE, S.A. (France)
(14) Owned 100% by REVLON MANUFACTURING (UK) LIMITED (United Kingdom)
(15) Owned 94% by REVLON INTERNATIONAL CORPORATION (Delaware)
and 6% by REVLON MANUFACTURING LTD. (Bermuda)
(16) Owned 74% by REVLON INTERNATIONAL CORPORATION (Delaware)
and 26% by REVLON CONSUMER PRODUCTS CORPORATION (Delaware)
(17) Owned 99.8% by REVLON AB, the remainder by third parties (Sweden)
(18) Owned 100% by REVLON GROUP LIMITED (United Kingdom)
(19) Owned 100% by R.O.C. HOLDING C.A. (Venezuela)
(20) Owned 54% by REVLON EUROPE, MIDDLE EAST AND AFRICA LTD. (Bermuda)
and 46% by REVLON INTERNATIONAL CORPORATION (Delaware)
(21) Owned 95.45% by REVLON, S.A. (Spain)
and 4.55% by REVLON INTERNATIONAL CORPORATION (Delaware)
(22) Owned 100% by PPI TWO CORPORATION (Delaware)
(23) Owned 98% by REVLON CONSUMER PRODUCTS CORPORATION (Delaware)
and 2% by REVLON (CAYMAN) LIMITED (Cayman Islands)
(24) Owned 100% by REVLON SOUTH AFRICA (PTY.) LTD. (South Africa)
(25) Owned 100% by CEIL - COMERCIAL, EXPORTADORA, INDUSTRIAL LTDA. (Brazil)
(26) Owned 75% by REVLON INTERNATIONAL CORPORATION (Delaware)
and 25% by REVLON CONSUMER PRODUCTS CORPORATION (Delaware)
(27) Owned 50% by DEUTSCHE REVLON GMBH (Germany)
and 50% by REVLON OFFSHORE LIMITED (Bermuda)
(28) Owned 97% by REVLON PROFESSIONAL LIMITED (Ireland)
and 3% by ROUX LABORATORIES INC. (New York)
(29) Owned 100% by REVLON NEDERLAND B.V. (Netherlands)
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<PAGE>
(30) Owned 100% by REVLON (CAYMAN) LIMITED (Cayman Islands)
(31) Owned 99% by REVLON CONSUMER PRODUCTS CORPORATION (Delaware)
and 1% by REVLON INTERNATIONAL CORPORATION (Delaware)
(32) Owned 83% by CEIL - COMERCIAL, EXPORTADORA, INDUSTRIAL LTDA. (Brazil),
15% by RGI LIMITED (Cayman Islands)
and 2% by REVLON INTERNATIONAL CORPORATION (Delaware)
(33) Owned 94.737% by REVLON INTERNATIONAL CORPORATION (Delaware)
and 5.263% by SUMSTAR DEVELOPMENT LIMITED (Cayman Islands), an
unrelated third party
(34) Owned 95% by REVLON CHINA HOLDINGS LIMITED
and 5% by BEIJING SUMSTAR INDUSTRIAL COMPANY LIMITED, an unrelated
third party
-6-
<PAGE>
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that the undersigned hereby
constitutes and appoints each of Wade H. Nichols III, Robert K. Kretzman,
Lawrence E. Kreider and Joram C. Salig or any of them, each acting alone, his
true and lawful attorney-in-fact and agent, with full power of substitution,
for him and his name, place and stead, in any and all capacities, in connection
with the REVLON CONSUMER PRODUCTS CORPORATION (the "Corporation") Annual Report
on Form 10-K for the year ended December 31, 1996 (the "Form 10-K") under the
Securities Exchange Act of 1934, as amended, including, without limiting the
generality of the foregoing, to sign the Form 10-K in the name and on behalf of
the Corporation or on behalf of the undersigned as a director or officer of the
Corporation, and any amendments to the Form 10-K and any instrument, contract,
document or other writing, of or in connection with the Form 10-K or amendments
thereto, and to file the same, with all exhibits thereto, and other documents
in connection therewith, including this power of attorney, with the Securities
and Exchange Commission and any applicable securities exchange or securities
self-regulatory body, granting unto said attorneys-in-fact and agents, each
acting alone, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as he might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents, each acting alone,
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has signed these presents this
18th day of February, 1997.
/s/ Ronald O. Perelman
-----------------------
RONALD O. PERELMAN
<PAGE>
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that the undersigned hereby
constitutes and appoints each of Wade H. Nichols III, Robert K. Kretzman,
Lawrence E. Kreider and Joram C. Salig or any of them, each acting alone, his
true and lawful attorney-in-fact and agent, with full power of substitution,
for him and his name, place and stead, in any and all capacities, in connection
with the REVLON CONSUMER PRODUCTS CORPORATION (the "Corporation") Annual Report
on Form 10-K for the year ended December 31, 1996 (the "Form 10-K") under the
Securities Exchange Act of 1934, as amended, including, without limiting the
generality of the foregoing, to sign the Form 10-K in the name and on behalf of
the Corporation or on behalf of the undersigned as a director or officer of the
Corporation, and any amendments to the Form 10-K and any instrument, contract,
document or other writing, of or in connection with the Form 10-K or amendments
thereto, and to file the same, with all exhibits thereto, and other documents
in connection therewith, including this power of attorney, with the Securities
and Exchange Commission and any applicable securities exchange or securities
self-regulatory body, granting unto said attorneys-in-fact and agents, each
acting alone, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as he might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents, each acting alone,
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has signed these presents this
18th day of February, 1997.
/s/ Donald G. Drapkin
-----------------------
DONALD G. DRAPKIN
<PAGE>
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that the undersigned hereby
constitutes and appoints each of Wade H. Nichols III, Robert K. Kretzman,
Lawrence E. Kreider and Joram C. Salig or any of them, each acting alone, his
true and lawful attorney-in-fact and agent, with full power of substitution,
for him and his name, place and stead, in any and all capacities, in connection
with the REVLON CONSUMER PRODUCTS CORPORATION (the "Corporation") Annual Report
on Form 10-K for the year ended December 31, 1996 (the "Form 10-K") under the
Securities Exchange Act of 1934, as amended, including, without limiting the
generality of the foregoing, to sign the Form 10-K in the name and on behalf of
the Corporation or on behalf of the undersigned as a director or officer of the
Corporation, and any amendments to the Form 10-K and any instrument, contract,
document or other writing, of or in connection with the Form 10-K or amendments
thereto, and to file the same, with all exhibits thereto, and other documents
in connection therewith, including this power of attorney, with the Securities
and Exchange Commission and any applicable securities exchange or securities
self-regulatory body, granting unto said attorneys-in-fact and agents, each
acting alone, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as he might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents, each acting alone,
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has signed these presents this
12th day of February, 1997.
/s/ Jerry W. Levin
-----------------------
JERRY W. LEVIN
<PAGE>
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that the undersigned hereby
constitutes and appoints each of Wade H. Nichols III, Robert K. Kretzman,
Lawrence E. Kreider and Joram C. Salig or any of them, each acting alone, his
true and lawful attorney-in-fact and agent, with full power of substitution,
for him and his name, place and stead, in any and all capacities, in connection
with the REVLON CONSUMER PRODUCTS CORPORATION (the "Corporation") Annual Report
on Form 10-K for the year ended December 31, 1996 (the "Form 10-K") under the
Securities Exchange Act of 1934, as amended, including, without limiting the
generality of the foregoing, to sign the Form 10-K in the name and on behalf of
the Corporation or on behalf of the undersigned as a director or officer of the
Corporation, and any amendments to the Form 10-K and any instrument, contract,
document or other writing, of or in connection with the Form 10-K or amendments
thereto, and to file the same, with all exhibits thereto, and other documents
in connection therewith, including this power of attorney, with the Securities
and Exchange Commission and any applicable securities exchange or securities
self-regulatory body, granting unto said attorneys-in-fact and agents, each
acting alone, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as he might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents, each acting alone,
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has signed these presents this
18th day of February, 1997.
/s/ Howard Gittis
-----------------------
HOWARD GITTIS
<PAGE>
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that the undersigned hereby
constitutes and appoints each of Wade H. Nichols III, Robert K. Kretzman,
Lawrence E. Kreider and Joram C. Salig or any of them, each acting alone, his
true and lawful attorney-in-fact and agent, with full power of substitution,
for him and his name, place and stead, in any and all capacities, in connection
with the REVLON CONSUMER PRODUCTS CORPORATION (the "Corporation") Annual Report
on Form 10-K for the year ended December 31, 1996 (the "Form 10-K") under the
Securities Exchange Act of 1934, as amended, including, without limiting the
generality of the foregoing, to sign the Form 10-K in the name and on behalf of
the Corporation or on behalf of the undersigned as a director or officer of the
Corporation, and any amendments to the Form 10-K and any instrument, contract,
document or other writing, of or in connection with the Form 10-K or amendments
thereto, and to file the same, with all exhibits thereto, and other documents
in connection therewith, including this power of attorney, with the Securities
and Exchange Commission and any applicable securities exchange or securities
self-regulatory body, granting unto said attorneys-in-fact and agents, each
acting alone, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as he might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents, each acting alone,
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has signed these presents this
14th day of January, 1997.
/s/ Edward J. Landau, Esq.
-----------------------
EDWARD J. LANDAU, ESQ.
<PAGE>
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that the undersigned hereby
constitutes and appoints each of Wade H. Nichols III, Robert K. Kretzman,
Lawrence E. Kreider and Joram C. Salig or any of them, each acting alone, his
true and lawful attorney-in-fact and agent, with full power of substitution,
for him and his name, place and stead, in any and all capacities, in connection
with the REVLON CONSUMER PRODUCTS CORPORATION (the "Corporation") Annual Report
on Form 10-K for the year ended December 31, 1996 (the "Form 10-K") under the
Securities Exchange Act of 1934, as amended, including, without limiting the
generality of the foregoing, to sign the Form 10-K in the name and on behalf of
the Corporation or on behalf of the undersigned as a director or officer of the
Corporation, and any amendments to the Form 10-K and any instrument, contract,
document or other writing, of or in connection with the Form 10-K or amendments
thereto, and to file the same, with all exhibits thereto, and other documents
in connection therewith, including this power of attorney, with the Securities
and Exchange Commission and any applicable securities exchange or securities
self-regulatory body, granting unto said attorneys-in-fact and agents, each
acting alone, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as he might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents, each acting alone,
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has signed these presents this
18th day of February, 1997.
/s/ Irwin Engelman
-----------------------
IRWIN ENGELMAN
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