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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarter ended December 31, 1996
Commission file number: 33-87280
RENAISSANCE COSMETICS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 06-1396287
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
955 MASSACHUSETTS AVENUE
CAMBRIDGE, MASSACHUSETTS 02139
(Address of principal executive offices) (Zip Code)
(617) 497-5584
(Registrant's telephone number, including area code).
Indicate by check mark whether the issuer (1) filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes (X) No (_)
As of February 12, 1997, there were outstanding 825,086 shares
of the registrant's common stock, $.01 par value per share.
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INTRODUCTION
This Quarterly Report on Form 10-Q contains certain restated financial
information regarding previously-reported results of operations of Renaissance
Cosmetics, Inc. (the "Company"), for the three months ended December 31, 1995.
For more details concerning such restated financial information see the
Company's (1) Quarterly Report on Form 10-Q/A for the fiscal quarter ended
September 30, 1996 and (2) Quarterly Report on Form 10-Q/A for the fiscal
quarter ended June 30, 1996.
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INDEX
PAGE
PART I - FINANCIAL INFORMATION..................................... __
Item 1. Financial Statements................................. 4
Consolidated Balance Sheets as of December 31, 1996
(unaudited) and March 31, 1996.................. 5
Consolidated Statements of Operations for the
three and nine months ended December 31, 1996
and 1995 (unaudited)............................ 6
Consolidated Statements of Cash Flows for the nine
months ended December 31, 1996
and 1995 (unaudited)............................ 7
Notes to Unaudited Consolidated Financial
Statements...................................... 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations........ 14
PART II - OTHER INFORMATION........................................ 27
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 6. Exhibits and Reports on Form 8-K
2
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SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS
Certain statements under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations," and elsewhere in
this Form 10-Q and the documents incorporated herein by reference constitute
"forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933 (the "1933 Act") and Section 21E of the Securities and
Exchange Act of 1934 (the "1934 Act"). Such forward-looking statements
involve known and unknown risks, uncertainties and other factors which may
cause the actual results, levels of activity, performance or achievements of
the Company, or industry results, to be materially different from any future
results, levels of activity performance or achievements expressed or implied
by such forward-looking statements. These statements are typically
identified by their inclusion of phrases such as "the Company anticipates,"
"the Company believes" and other phrases of similar meaning. Such factors
include, among others, the following: general economic and business
conditions; the ability of the Company to implement its business and
acquisition strategy, including the ability to integrate recently acquired
businesses into the Company; the ability of the Company to obtain financing
for general corporate purposes; changes in the retail industry; changes in
consumer preferences; competition; availability of key personnel; foreign
currency exchange rates; industry capacity; changes in, or the failure to
comply with, governmental regulations (especially environmental laws and
regulations); and other factors referenced in this Form 10-Q. As a result of
the foregoing and other factors, no assurance can be given as to future
results, levels of activity and/or achievements, and neither the Company nor
any other person assumes responsibility for the accuracy or completeness of
these statements.
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PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
Information called for by this item is set forth in the financial
statements contained on the immediately following 9 pages.
4
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ITEM 1. FINANCIAL INFORMATION
RENAISSANCE COSMETICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (IN THOUSANDS EXCEPT SHARE DATA)
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DECEMBER 31, MARCH 31,
ASSETS 1996 1996
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(UNAUDITED)
CURRENT ASSETS:
Cash and cash equivalents $ 51,513 $ 1,432
Marketable securities 585 174
Accounts receivable - net 38,226 34,557
Inventories 55,724 30,237
Prepaid expenses and other current assets 11,159 6,540
-------- --------
Total current assets 157,207 72,940
PROPERTY, PLANT AND EQUIPMENT - Net 24,007 14,535
DEFERRED FINANCING COSTS - Net 10,759 8,007
OTHER ASSETS - Net 14,806 12,242
INTANGIBLE ASSETS - Net 160,953 76,895
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TOTAL ASSETS $367,732 $184,619
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-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ - $ 57,000
Accounts payable 14,858 19,463
Accrued expenses 39,389 15,157
Other current liabilities - 2,700
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Total current liabilities 54,247 94,320
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LONG-TERM LIAIBILITIES:
Long-term debt 185,088 67,323
Minimum royalty obligation 4,899 4,686
Deferred tax liability - 141
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Total long-term liabilities 189,987 72,150
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Total liabilities 244,234 166,470
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COMMITMENTS AND CONTINGENCIES
SENIOR EXCHANGEABLE REDEEMABLE PREFERRED STOCK -
SERIES B:
Par value $.01 - authorized, 350,000 shares;
issued 119,008 shares 82,576 -
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REDEEMABLE PREFERRED STOCK:
Par value $.01 - authorized, 40,000 shares;
issued, 12,485 shares at December 31, 1996;
11,594 shares at March 31, 1996 12,783 11,698
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COMMON STOCKHOLDERS' EQUITY:
Common stock, par value $.01 - authorized,
3,000,000 shares; issued, 830,736 shares
at December 31, 1996; 726,818 shares at
March 31, 1996 8 7
Notes receivable from sale of common stock (518) (518)
Additional paid-in capital 69,403 26,787
Treasury stock, at cost (5,650 shares) (210) (210)
Deficit (39,430) (19,564)
Cumulative translation adjustment (1,114) (51)
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Total common stockholders' equity 28,139 6,451
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $367,732 $184,619
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RENAISSANCE COSMETICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS EXCEPT SHARE DATA)
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THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
------------------ ------------------
1996 1995 1996 1995
-------- (As Restated) -------- -------
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NET SALES $ 46,880 $32,415 $124,590 $94,339
COST OF GOODS SOLD 19,328 12,503 48,082 36,052
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Gross profit 27,552 19,912 76,508 58,287
------- ------- -------- -------
OPERATING EXPENSES:
Selling 17,688 11,308 48,341 33,388
General and administrative 6,656 5,305 16,727 13,198
Amortization of intangible
and other assets 2,019 1,150 5,141 3,564
-------- ------- -------- -------
Total operating expenses 26,363 17,763 70,209 50,150
-------- ------- -------- -------
OPERATING INCOME 1,189 2,149 6,299 8,137
INTEREST EXPENSE (INCOME):
Interest expense 6,368 5,237 17,206 14,241
Interest income (713) (40) (1,448) (197)
-------- ------- -------- -------
INCOME (LOSS) BEFORE INCOME TAXES (4,466) (3,048) (9,459) (5,907)
INCOME TAX PROVISION 261 276 569 973
-------- ------- -------- -------
NET INCOME (LOSS) (4,727) (3,324) (10,028) (6,880)
PREFERRED STOCK DIVIDENDS 4,778 331 9,838 992
-------- ------- -------- -------
NET LOSS APPLICABLE TO COMMON
STOCKHOLDERS $ (9,505) $(3,655) $(19,866) $(7,872)
-------- ------- -------- -------
-------- ------- -------- -------
NET LOSS PER COMMON SHARE $ (11.52) $ (5.08) $ (25.95) $(10.93)
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-------- ------- -------- -------
WEIGHTED AVERAGE SHARES
OUTSTANDING 825,086 720,093 765,569 720,093
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-------- ------- -------- -------
See notes to consolidated financial statements.
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RENAISSANCE COSMETICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
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NINE MONTHS ENDED
DECEMBER 31,
----------------------
1996 1995
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(10,028) $ (6,880)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation 2,715 1,875
Amortization of intangible assets 2,576 2,404
Amortization of minimum royalty and other
assets 2,565 1,160
Amortization of deferred financing costs 2,918 1,874
Accrued interest on senior notes, subordinated
senior notes and minimum royalty obligations 1,103 976
Changes in operating assets and liabilities, net
of effects of acquisitions:
Accounts receivable (921) (17,418)
Inventories (6,986) (1,977)
Prepaid expenses and other assets (9,357) (3,422)
Accounts payable (11,135) (5,685)
Accrued expenses 7,741 3,728
Other current liabilities (2,700) -
Other (1,098) 88
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Net cash used in operating activities (22,607) (23,277)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities (411)
Sale of marketable securities - 324
Capital expenditures (2,826) (5,426)
Acquisitions of businesses - net of cash acquired (94,109) -
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Net cash used in investing activities (97,346) (5,102)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from notes payable 4,200 24,000
Proceeds from Senior Secured Credit Facility 117,500 -
Repayment of notes payable (61,200) -
Payment of minimum royalty obligations (1,386) -
Net proceeds of issuance of preferred
stock - Series A 18,955 -
Payment of deferred financing costs (5,670) (914)
Redemption of preferred stock - Series A (20,434) -
Net proceeds of issuance of redeemable
preferred stock - Series B 108,319 -
Net proceeds from issuance of common stock 9,750 -
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Net cash provided by financing activities 170,034 23,086
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 50,081 (5,293)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,432 7,001
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CASH AND CASH EQUIVALENTS, END OF PERIOD $ 51,513 $ 1,708
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 10,117 $ 7,141
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Income taxes $ 463 $ 728
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SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING
AND FINANCING TRANSACTIONS:
Accrued dividends and accretion on redeemable
preferred stocks $ 9,838 $ 992
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-------- --------
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RENAISSANCE COSMETICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
The consolidated financial statements of Renaissance Cosmetics, Inc. (the
"Company") have been prepared by the Company and are unaudited and include
the accounts of the Company and its wholly-owned subsidiaries, Cosmar
Corporation ("Cosmar"), Houbigant Ltee, Dana Perfumes Corporation ("Dana"),
Great American Cosmetics, Inc. ("GAC") from the date of its acquisition on
August 21, 1996, and MEM Company, Inc. ("MEM") from the date of its
acquisition on December 4, 1996. All significant intercompany activity has
been eliminated. The results of operations for the three and nine months
ended December 31, 1996, are not necessarily indicative of the results to be
expected for any other interim period or for the entire year.
In the opinion of management, all adjustments (consisting solely of
normal recurring adjustments) necessary to present fairly the consolidated
financial position, results of operations and cash flows of the Company have
been made on a consistent basis. Certain information and footnote
disclosures included in consolidated financial statements prepared in
accordance with generally accepted accounting principles have been condensed
or omitted pursuant to the rules and regulations of the Securities and
Exchange Commission ("SEC"). The unaudited financial statements should be
read in conjunction with management's discussion and analysis of financial
condition and results of operations and the consolidated financial statements
included in the Company's Annual Report on Form 10K for the year ended
March 31, 1996 filed with the SEC (the "1995 Form 10K").
Certain reclassifications were made to the 1995 financial statements
to conform to the current presentation.
In January 1997, the Company restated (a) its previously-reported
results of operations for the three and six months ended September 30, 1996
and September 30, 1995 and (b) its previously-reported balance sheet data as
of September 30, 1996 and September 30, 1995 (the "Prior Restatements"). See
the Quarterly Reports on Form 10-Q/A for the three- and six- months ended
June 30, 1996, and September 30, 1996. The Prior Restatements did not
require any restatement of the Company's previously-reported audited
financial statements for Fiscal 1995 and did not have any impact on the
company's results of operations for the nine months ended December 31, 1996
or the balance sheet as of December 31, 1996 and will not have any impact on
the Company's results of operations for Fiscal 1996 or its balance sheet as
of March 31, 1997.
The information relating to the three months ended December 31,
1995, is restated herein to reflect the Prior Restatements, resulting in an
increase in net sales for such period by approximately $1,880,000 and a
decrease in the net loss applicable to common stockholders by approximately
$747,000.
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2. INVENTORIES
The components of inventories are as follows (in 000s):
DECEMBER 31, MARCH 31,
1996 1996
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Raw materials and advertising supplies $25,481 $16,957
Work in process 3,020 2,860
Finished goods 27,223 10,420
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$55,724 $30,237
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------- -------
The above components are shown net of excess and obsolete inventory
reserves of $2,864,000 and $1,540,000 at December 31, 1996, and March 31,
1996, respectively. At December 31, 1996, and March 31, 1996, approximately
49.8% and 60.7%, respectively, of the Company's inventories are stated at the
lower of LIFO cost or market. The excess of current replacement cost over
the stated LIFO value was $0 at December 31, 1996 and March 31, 1996,
respectively.
3. NEW ACCOUNTING PRONOUNCEMENT
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 123, Accounting for
Stock-Based Compensation, which is effective for the Company beginning April 1,
1996. SFAS No. 123 requires expanded disclosures of stock-based
compensation arrangements with employees in Notes to Annual Financial
Statements and encourages (but does not require) compensation cost to be
measured based on the fair value of the equity instrument awarded. Companies
are permitted, however, to continue to apply APB Opinion No. 25, which
recognizes compensation cost based on the intrinsic value of the equity
instrument awarded. The Company will continue to apply APB Opinion No. 25 to
its stock-based compensation awards to employees and will disclose the
required pro forma effect on net income and earnings per share in its annual
financial statements.
4. RECENT ACQUISITIONS
A. MEM ACQUISITION. On December 4, 1996, the Company,
through its wholly-owned subsidiary, Renaissance Acquisition, Inc. ("RAI"),
completed its acquisition (the "MEM Acquisition") of MEM Company, Inc
("MEM"), pursuant to a Merger Agreement, dated August 6, 1996, as amended.
MEM distributes a diversified line of fragrances and toiletries in
the mass-market distribution channel. MEM's products are marketed under the
nationally-advertised trademarks ENGLISH LEATHER, BRITISH STERLING, HEAVEN
SENT and LOVE'S. The principal market for MEM's products is the United
States. Tom Fields, Ltd. ("Tom Fields"), a division of MEM, manufactures
9
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and markets a line of children's cosmetics and accessories principally under
the trademark TINKERBELL. A subsidiary, Tom Fields (U.K.) Ltd., markets this
line of children's products in the United Kingdom and elsewhere in Europe.
The aggregate cash consideration paid to the equity holders of MEM
in connection with the MEM Acquisition was $19.8 million. In addition, in
connection with the MEM Acquisition, the Company repaid all of MEM's
outstanding indebtedness in an amount equal to $18.1 million and incurred
fees and expenses of approximately $800,000.
See Note 6.E., entitled "Subsequent Event--MEM Facility Closing"
below.
B. P&G BRANDS ACQUISITION. On December 6, 1996, the Company
completed its acquisition from The Procter & Gamble Company ("P&G") of the
worldwide rights to manufacture and market certain mass-market fragrances,
including NAVY, NAVY FOR MEN, INSIGNIA, CALIFORNIA FOR MEN AND LE JARDIN (the
"P&G Acquisition"). The cash portion of the purchase price paid through the
closing was $41.1 million, of which $8.0 million related to inventory and
$33.1 million related to the licenses and rights to market such fragrances.
The purchase price for the inventory is subject to adjustment based on the
actual value of inventory purchased. Based upon information received from
P&G, the amount of such adjustment may result in an increase in the
purchase price of approximately $2.5 million. In addition, in connection
with the P&G Acquisition, the Company assumed certain specified trade-related
obligations of P&G, including the liability for returns of products under the
P&G Brands sold prior to the closing and liabilities under certain advertising
and business development commitments. Concurrent with the P&G Acquisition,
the Company entered into transition service agreements under which P&G will
continue the foreign marketing of the P&G Brands through June 30, 1997.
The MEM Acquisition and the P&G Brands Acquisition are collectively
referred to herein as the "Acquisitions." Both Acquisitions have been
accounted for under the purchase method of business combinations. The
Company has not yet completed the process of allocating the excess of assets
acquired over liabilities assumed to specific assets and liabilities, but
believes that this excess will relate principally to goodwill and trademarks
which will be amortized over an average of 20 years.
The following unaudited pro forma summary presents the consolidated
results of operations as if the Acquisitions had occurred as of the beginning
of each period presented and do not purport to be indicative of what would
have occurred had the Acquisitions been made as of those dates or of results
which may occur in the future (in millions).
Nine Months Ended
12/31/96 12/31/95
Net Sales $196 $181
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---- ----
Operating Income $ 14 $ 15
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---- ----
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5. FINANCING TRANSACTIONS
A. SENIOR SECURED CREDIT FACILITY. On December 4, 1996,
Cosmar, as borrower, the Company and all of the Company's material domestic
and Canadian subsidiaries, as guarantors, entered into a Senior Secured
Credit Facility with the lenders named therein (the "Senior Secured Credit
Facility"), pursuant to which Cosmar borrowed $117.5 million and received net
proceeds of $113.2 million. Such net proceeds were used: (i) to finance the
MEM Acquisition (after the application of a $33.8 million certificate of
deposit, plus approximately $537,000 of interest thereon); (ii) to finance
the P&G Brands Acquisition; (iii) to repay all outstanding indebtedness under
the Company's then-existing credit facility (the "Old Credit Facility") with
Nomura Holding America, Inc. ("Nomura"), which was terminated on such date;
and (iv) the remainder was used or was to be available for general corporate
purposes.
The Senior Secured Credit Facility had an initial term of one year,
subject to extension under certain circumstances, and an initial interest
rate of 11.5% per annum, which was scheduled to increase to 12.5% on June 4,
1997 and by an additional 0.5% at the end of each 90-day period thereafter,
subject to a maximum rate per annum of 20%. The Senior Secured Credit
Facility was secured by substantially all of the assets of Cosmar, the
Company and the other guarantors. The indebtedness under the Senior Secured
Credit Facility was repaid in full on February 7, 1997 and the liens
thereunder were released.
See Note 6.A. entitled "Subsequent Events--New Senior Notes
Offering".
6. SUBSEQUENT EVENTS
A. NEW SENIOR NOTES OFFERING. On February 7, 1997, the
Company completed the sale of $200.0 million aggregate principal amount of
its 11 3/4% Senior Notes due 2004 (the "New Senior Notes"). The net proceeds
from the sale of the New Senior Notes, together with a portion of the
Company's available cash, were used (i) to refinance the Company's
outstanding $65.0 million principal amount of 13-3/4% Senior Notes due 2001,
Series B (the"Existing Senior Notes"), (ii) to repay all outstanding
indebtedness under the Senior Secured Credit Facility and (iii) to fund an
escrow account as discussed below.
The New Senior Notes may be redeemed at the option of the Company on
or after February 15, 2002, initially at 103.358% of the principal amount,
declining to 101.670% of the principal amount on or after February 15, 2003,
in each case, plus accrued and unpaid interest thereon. The Company also may
redeem up to 35% of the original principal amount of the New Senior Notes on
or after February 15, 2000, at a redemption price equal to 111.75% of the
principal amount thereof, plus accrued and unpaid interest thereon, with the
net proceeds of one or more public equity offerings or strategic equity
investments that have occurred within 90 days prior to the redemption,
provided that at least $130 million of the principal amount of the New Senior
Notes originally issued remains outstanding.
In connection with the sale of the New Senior Notes, the Company
transferred $17.5
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million to a newly-formed, special purpose wholly-owned subsidiary,
Renaissance Guarantor, Inc., a Delaware corporation ("RGI"), in exchange for
a limited guarantee by RGI of the Company's obligations under the New Senior
Notes. RGI placed such amount into an escrow account (the "Escrow Account").
The New Senior Notes will be general unsecured obligations of the Company
except to the extent that they are collateralized by a first priority
security interest in the Escrow Account.
This Form 10Q shall not constitute an offer to sell or solicitation
of an offer to buy any securities. The New Senior Notes have not been
registered under the 1933 Act or under any state securities laws, and may not
be offered or sold in the United States absent registration or qualification
or an applicable exemption from registration or qualification.
B. EXISTING SENIOR NOTES OFFERING. On February 7, 1997, the
Company completed its offer to purchase and purchased all of the outstanding
$65.0 million aggregate principal amount of the Existing Senior Notes at a
price of $1,165 for each $1,000 principal amount, plus accrued and unpaid
interest (the "Existing Senior Notes Offer"). In connection with the
Existing Senior Notes Offer, the Company received consents from the holders
of all of the aggregate principal amount of the outstanding Existing Senior
Notes to amend the Existing Indenture. The amendments eliminated
substantially all of the restrictive covenants contained in the Existing
Indenture. The Redeemable Preferred Stock is exchangeable into notes to be
issued under the Existing Indenture (i) by the Company at any time and (ii)
under certain circumstances, by the holders thereof on or after August 15,
1997.
C. NEW REVOLVING CREDIT FACILITY. The Company has received a
commitment letter from a major institutional lender with respect to a
proposed revolving credit facility under which such institutional lender and
other lenders would agree to provide Dana with a senior secured revolving
credit facility (the "New Revolving Credit Facility") with a maximum
committed amount of $75.0 million.
Availability under the New Revolving Credit Facility will be based
on a borrowing base consisting of a percentage of gross eligible accounts
receivable and gross eligible inventory, less reserves, if any. The term of
the New Revolving Credit Facility is expected to be five years.
Amounts borrowed under the New Revolving Credit Facility will bear
interest, at the option of Dana, at either (i) the Index Rate (i.e., the
higher of the prime rate or the overnight Federal funds rate plus 0.50%) plus
1.00% or (ii) absent a default, the LIBOR rate plus 2.25%. The interest rate
will be subject to adjustment, on a quarterly basis, based on the average
outstanding during each quarter.
Under the commitment letter, obligations under the New Revolving
Credit Facility would be guaranteed by the Company, all of its domestic
subsidiaries and all directly-owned Canadian subsidiaries of the Company and
will be secured by a perfected first priority security interest in
substantially all of the existing and after-acquired tangible and intangible
assets of Dana and the guarantors, other than the Escrow Account. The New
Revolving Credit Facility is expected to contain a number of covenants that
restrict the operation of the Company (including financial covenants), which
covenants are typical of a facility of this nature.
There can be no assurance as to when or whether the New Revolving
Credit Facility
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will be entered into or as to whether the New Revolving Credit Facility will
contain the terms and conditions described above, and such New Revolving
Credit Facility may contain terms and conditions more favorable or less
favorable to the Company than set forth above.
D. MEM FACILITY CLOSINGS. On February 7, 1997, the Company
closed MEM's facilities in Northvale, New Jersey, and in Boucherville,
Quebec. The Company has estimated its costs in connection with the closure of
such facilities to be approximately $6.1 million, including severance
payments, ERISA withdrawal liability and stay bonuses for selected employees
of MEM, which have been accrued as of December 31, 1996. The Company's
estimate of its ERISA withdrawal liability costs is an estimate for a 1996
withdrawal and the Company has been advised that its liability for a 1997
withdrawal would be higher.
E. SERIES C PREFERRED STOCK. On January 31, 1997, the
Company filed Amendment No. 1 to the Company's Registration Statement on Form
S-4 (the "Registration Statement") for its 14.0% Senior Redeemable Preferred
Stock, Series C (the "Series C Preferred Stock"), filed on October 1, 1996.
Pursuant to the terms of the Registration Rights Agreement for the Company's
14.0% Senior Redeemable Preferred Stock, Series B (the "Series B Preferred
Stock"), the annual dividend rate for the Series B Preferred Stock increased
by 0.5% per annum on January 11, 1997, to 14.5% per annum and the dividend
rate will increase by an additional 0.25% per annum for each 90-day period
after January 11, 1997, until the Registration Statement is declared
effective (up to a maximum additional dividends of 2.0% per annum). When the
Registration Statement is declared effective, the dividend rate on the Series
B Preferred Stock will be reduced to the original dividend rate of 14.0% per
annum. If the Exchange Offer is not consummated by March 12, 1997, the
dividend rate on the Series B Preferred Stock will increase by 0.5% per annum
and additional 0.25% per annum for each 90-day period thereafter (up to a
maximum additional dividends of 2.0% per annum), until the Exchange Offer is
consummated, at which time the dividend rate will be reduced to 14.0% per
annum.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The Company's fiscal year ending March 31, 1997, is referred to
herein as "Fiscal 1996". The Company's fiscal year ended March 31, 1996, is
referred to herein as "Fiscal 1995".
This discussion and analysis relates to the consolidated results of
operations of Renaissance Cosmetics, Inc. (the "Company"), which includes the
Company's major operating divisions, Dana (the Company's domestic "Fragrance"
business), Cosmar (the Company's domestic "Cosmetic" business) and
International (the Company's "International" business, which includes both
fragrance and cosmetics sales) resulting from the acquisitions discussed
below that have been consummated by the Company (collectively, the
"Acquisitions").
1. The Houbigant acquisition in July and August 1994, the Cosmar
acquisition in August 1994, the Dana acquisition in December 1994, the ACB
acquisition in December 1994 and Great American Cosmetics, Inc. acquisition
in August 1996;
2. The MEM Acquisition in December 1996 (see "Liquidity and
Capital Resources - B. Recent Acquisitions" below), the domestic operations
of which are being integrated into Dana; and
3. The P&G Brands Acquisition in December 1996 (see "Liquidity and
Capital Resources - B. Recent Acquisitions" below), the domestic operations
of which are being integrated into Dana.
In January 1997, the Company restated (a) its previously-reported
results of operations for the three and six months ended September 30, 1996
and September 30, 1995 and (b) its previously-reported balance sheet data as
of September 30, 1996 and September 30, 1995 (the "Prior Restatements"). See
the Quarterly Reports on Form 10-Q/A for the three- and six- months ended
June 30, 1996, and September 30, 1996. The Prior Restatements did not
require any restatement of the Company's previously-reported audited
financial statements for Fiscal 1995 and did not have any impact on the
company's results of operations for the nine months ended December 31, 1996
or the balance sheet as of December 31, 1996 and will not have any impact on
the Company's results of operations for Fiscal 1996 or its balance sheet as
of March 31, 1997.
14
<PAGE>
The information relating to the three months ended December 31,
1995, is restated herein to reflect the Prior Restatements, resulting in an
increase in net sales for such period by $1,880,000 and a decrease in the net
loss applicable to common stockholders by approximately $747,000.
OPERATIONS FOR THE NINE MONTHS ENDED DECEMBER 31, 1996 AS COMPARED
TO THE NINE MONTHS ENDED DECEMBER 31, 1995
NET SALES. The Company's net sales were as follows (in 000s):
NINE MONTHS ENDED DECEMBER 31,
-----------------------------------------
1996 1995
---- ----
Fragrance 55,624 44.6% 50,582 53.6%
Cosmetic 37,597 30.2% 28,512 30.2%
International 31,369 25.2% 15,245 16.2%
Total 124,590 100.0% 94,339 100.0
Total Company sales increased 32.1%, or $30,251,000, from
$94,339,000 to $124,590,000.
Fragrance sales increased 10.0% from $50,582,000 to $55,624,000.
The increase was due principally to increased orders for promotional items
and Christmas items, sales of Navigator from Canoe and DREAMS BY TABU which
were launched subsequent to December 1995 and sales of MEM and P&G products
after the completion of the Acquisitions.
Cosmetics sales increased by 31.9% from $28,512,000 to $37,597,000.
Contributing to this increase were current year sales of Ultra-Gel and Nail
Fetish, which were launched subsequent to December 1995, and the impact of
the Nat Robbins' sales since the date of the GAC Acquisition in August 1996.
International sales increased $16,124,000 attributable principally
to the Company's Canadian operations and to Dana Brazil (which was acquired
by the Company in December 1995.)
15
<PAGE>
GROSS PROFIT. The Company's gross profit was as follows (in 000s):
NINE MONTHS ENDED DECEMBER 31,
-----------------------------------------
1996 1995
---- ----
Fragrance 36,682 65.9% 32,263 63.8%
Cosmetic 21,892 58.2% 17,865 62.7%
International 17,934 57.2% 8,159 53.5%
Total 76,508 61.4% 58,287 61.8%
Fragrance gross profit margin improved to 65.9% from 63.8%. The
increase was due principally to changes in product mix, and an increase in
sales.
Cosmetics gross profit margin decreased to 58.2% from 62.7%,
resulting principally from the introduction into the product mix of Nat
Robbins products which have lower gross margins and an increase in
lower-margin promotional sales on the Company's base products.
International gross profit margin increased to 57.2% from 53.5%
principally because of higher sales in Brazil (which was acquired in December
1995) and in Canada, which increased the proportion of direct international
sales (versus exports) to total international sales.
SELLING EXPENSES. The Company's selling expenses in the first nine
months of Fiscal 1996 and the first nine months of Fiscal 1995 were
$48,341,000 (38.8% of Net Sales) and $33,388,000 (35.4% of Net Sales),
respectively. The increase in selling expenses as a percentage of sales was
principally attributable to increased advertising (media, artwork and
production costs for a new expanded advertising campaign) and increased
promotional spending relative to the sales increase, both of which continued
the Company's strategy of reinvigorating existing brand equities.
GENERAL AND ADMINISTRATIVE EXPENSES. The Company's general and
administrative expenses in the first nine months of Fiscal 1996 and Fiscal
1995 were $16,727,000 (13.4% of Net Sales) and $13,198,000 (14.0% of Net
Sales), respectively. The increase in general and administrative expenses
was attributable in part to the addition of key personnel at both the
Company's corporate and operating levels in order to operate a larger
organization. The decrease in general and administrative costs as a
percentage of sales, reflects the effort by management to control overhead
costs.
16
<PAGE>
AMORTIZATION OF INTANGIBLES AND OTHER ASSETS. Amortization of
intangible and other assets during the first nine months of Fiscal 1996 was
$5,141,000 (4.1% of Net Sales) and $3,564,000 (3.8% of Net Sales) in the
first nine months of Fiscal 1995. This increase reflects the amortization of
intangible assets relating to the GAC Acquisition, the MEM Acquisition and
the P&G Brands Acquisition (beginning from the date of such Acquisitions),
and an increase in amortization of minimum royalty agreements as such minimum
payments increase in later years.
OPERATING INCOME. Operating income was $6,299,000 (5.1% of Net
Sales) for the first nine months of Fiscal 1996 and $8,137,000 (8.6% of Net
Sales) for the first nine months of Fiscal 1995. The decrease in operating
income for the nine months of Fiscal 1996 compared to the first nine months
of Fiscal 1995 was attributable to the increase in selling and general and
administrative expenses and an increase in non-cash amortization and
depreciation expenses for Fiscal 1996 as compared to Fiscal 1995.
Management believes that an additional measurement, Earnings Before
Interest, Income Taxes, Depreciation and Amortization ("EBITDA"), is useful
and meaningful to an understanding of the operating performance of the
Company. However, EBITDA should not be considered as an alternative either to
net income (loss) as an indicator of the Company's operating performance or
to cash flow as a measurement of liquidity. The computation of EBITDA is set
forth below:
(in 000s)
NINE MONTHS ENDED
DECEMBER 31,
-----------------------
1996 1995
---- ----
Operating Income $ 6,299 $ 8,137
Plus: Amortization 5,141 3,564
Plus: Depreciation 2,715 1,875
------- -------
EBITDA $14,155 $13,576
EBITDA % of Net Sales 11.4% 14.4%
INTEREST EXPENSE. The Company's total interest expense was
$17,206,000 for the first nine months of Fiscal 1996 and $14,241,000 for the
first nine months of Fiscal 1995, while cash interest for the periods was
$13,185,000 and $11,391,000, respectively. Interest expense consisted of the
following:
17
<PAGE>
(in 000s)
NINE MONTHS ENDED
DECEMBER 31,
-----------------
CASH INTEREST PAID OR ACCRUED 1996 1995
- ----------------------------- ---- ----
Interest on Existing Senior Notes $ 6,706 $ 6,708
Interest on Seller Notes (payable in 2002) 337 311
Interest on Old Credit Facility 5,925 4,242
Interest on Senior Secured Credit Facility 77 -
Other Interest 140 130
------- -------
Total Cash Interest Expense $13,185 $11,391
NON-CASH INTEREST EXPENSE
- -------------------------
Accretion of Existing Senior Notes and
Seller Notes $ 265 $ 211
Amortization of Deferred Financing
Costs 2,918 1,874
Accretion of Interest on Obligations
for Minimum Royalty Payments 838 765
------- -------
Total Non-Cash Interest Expense $ 4,021 $ 2,850
Total Interest Expense $17,206 $14,241
INCOME TAX EXPENSE. Income tax expense was $569,000 for the first
nine months of Fiscal 1996 and $973,000 for the first nine months of Fiscal
1995. The effective tax rates differ from the United States federal income
tax rate of 35% due to the effects of filing separate income tax returns in
certain state and foreign jurisdictions and limitations on utilization of
federal income tax benefits.
18
<PAGE>
OPERATIONS FOR THE THREE MONTHS ENDED DECEMBER 31, 1996 AS COMPARED
TO THE THREE MONTHS ENDED DECEMBER 31, 1995 (AS RESTATED)
NET SALES. The Company's net sales were as follows (in 000s):
THREE MONTHS ENDED DECEMBER 31,
--------------------------------------------------
1996 1995
----------------------- -----------------------
DIVISION NET SALES % OF TOTAL NET SALES % OF TOTAL
- -------- --------- ---------- --------- ----------
Fragrance $21,558 46.0% $17,531 54.1%
Cosmetic 13,578 29.0% 8,793 27.1%
International 11,744 25.0% 6,091 18.8%
------- ----- ------- -----
Total $46,880 100% $32,415 100%
Total Company sales increased 44.6%, or $14,465,000, from
$32,415,000 to $46,880,000.
Fragrance sales increased 23.0% from $17,531,000 to $21,558,000.
The increase was principally due to increases in orders for promotional items
and Christmas items sales of Navigator from Canoe and DREAMS BY TABU which
were launched subsequent to December 1995 and sales of P&G and MEM products
after the completion of the Acquisitions.
Cosmetics sales increased by 54.4% from $8,793,000 to $13,578,000.
Contributing to this increase were current year sales of Ultra-Gel and Nail
Fetish, which were launched subsequent to December 1995, and the impact of
the Nat Robbins' sales since the date of the GAC Acquisition in August 1996.
International sales increased by approximately $5,653,000,
principally due to the Company's Canadian operations and to Dana Brazil (which
was acquired in December 1995).
19
<PAGE>
GROSS PROFIT. The Company's gross profits was as follows (in 000s):
THREE MONTHS ENDED DECEMBER 31,
---------------------------------------------------------
1996 1995
-------------------------- --------------------------
DIVISION GROSS PROFIT % OF TOTAL GROSS PROFIT % OF TOTAL
- -------- ------------ ---------- ------------ ----------
Fragrance $12,772 59.2% $11,124 63.4%
Cosmetic 7,971 58.7% 5,690 64.7%
International 6,809 58.0% 3,098 50.9%
------- ----- ------- -----
Total $27,552 58.8% $19,912 61.4%
Fragrance gross profit margin declined to 59.2% from 63.4%. The
decrease was due principally to changes in product mix selling larger
quantities of brands that produce lower profit margins.
Cosmetics gross profit margin decreased to 58.7% from 64.7%,
resulting principally from the introduction into the product mix of Nat
Robbins products which have lower gross margins and an increase in
lower-margin promotional sales on the Company's base products.
International gross profit margin increased to 58% from 50.9%
principally because of higher sales in Brazil (which was acquired in December
1995) and in Canada, which increased the proportion of direct international
sales (versus exports) to total international sales.
SELLING EXPENSES. The Company's selling expenses in the third
quarter of Fiscal 1996 and Fiscal 1995 were $17,688,000 (37.7% of Net Sales)
and $11,308,000 (34.9% of Net Sales), respectively. The increase in selling
expenses as a percentage of sales was principally attributable to increased
advertising (media, artwork and production costs for a new expanded
advertising campaign) and increased promotional spending relative to the
sales increase, both of which continued the Company's strategy of
reinvigorating existing brand equities.
GENERAL AND ADMINISTRATIVE EXPENSES. The Company's general and
administrative expenses in the third quarter of Fiscal 1996 and Fiscal 1995
were $6,656,000 (14.2% of Net Sales) and $5,305,000 (16.4% of Net Sales),
respectively. The increase in general and administrative expenses was
attributable in part to the addition of key personnel at both the Company's
corporate and operating levels in order to operate a larger organization,
while the decrease in general and administrative costs as a percentage of
sales, reflects an effort by management to control overhead costs.
AMORTIZATION OF INTANGIBLES AND OTHER ASSETS. Amortization of
intangibles and other assets was $2,019,000 (4.3% of Net Sales) for the third
quarter of Fiscal 1996 and $1,150,000 (3.5% of Net Sales) for the third
quarter of Fiscal 1995. This increase reflects the amortization of
intangible assets relating to the GAC Acquisition, the MEM Acquisition and
the
20
<PAGE>
P&G Brands Acquisition (beginning from the date of such acquisitions) and an
increase in amortization of minimum royalty agreements as such minimum
payments increase in later years.
OPERATING INCOME. Operating income was $1,189,000 (2.5% of Net
Sales) for the third quarter of Fiscal 1996 and $2,149,000 (6.6% of Net
Sales) for the third quarter of Fiscal 1995. Management believes an
additional measurement, Earnings Before Interest, Taxes, Depreciation and
Amortization ("EBITDA") is useful and meaningful to an understanding of the
operating performance of the Company. However, EBITDA should not be
considered by the reader as an alternative to net income (loss) as an
indicator of the Company's operating performance or to cash flows as a
measurement of liquidity. EBITDA is detailed in the table below:
21
<PAGE>
(in 000s)
THREE MONTHS ENDED
DECEMBER 31
------------------------
1996 1995
---- ----
Operating Income $1,189 $2,149
Add Amortization 2,019 1,150
Add Depreciation 1,036 762
------ ------
EBITDA 4,244 4,061
EBITDA % of Net Sales 9.1% 12.5%
INTEREST EXPENSE. The Company's total interest expense was
$6,368,000 for the third quarter of Fiscal 1996 and $5,237,000 for the third
quarter of Fiscal 1995, while cash interest for the periods was $4,609,000
and $4,193,000, respectively. Interest expense consisted of the following:
(in 000s)
THREE MONTHS ENDED
DECEMBER 31
--------------------
CASH INTEREST PAID OR ACCRUED 1996 1995
- ----------------------------- ---- ----
Interest on Existing Senior Notes $2,235 $2,234
Interest on Seller Notes (payable in 2002) 117 108
Interest on Old Credit Facility 2,095 1,733
Interest on Senior Secured Credit Facility 77 -
Other Interest 85 118
------ ------
Total Cash Interest Expense $4,609 $4,193
NON-CASH INTEREST EXPENSE
- -------------------------
Accretion of Senior Notes and Seller
Notes $ 96 $ 78
Amortization of Deferred Financing
Costs 1,313 711
Accretion of Interest on Obligations
for Minimum Royalty Payment 350 255
------ ------
Total Non-Cash Interest Expense $1,759 $1,044
Total Interest Expense $6,368 $5,237
INCOME TAX EXPENSE. Income tax expense was $261,000 for the third
quarter of Fiscal 1996 and $276,000 for the third quarter of Fiscal 1995. The
effective tax rates differ from the United States federal income tax rate of 35%
due to the effects of filing separate
22
<PAGE>
income tax returns in certain state and foreign jurisdictions and limitations
on utilization of federal income tax benefits.
LIQUIDITY AND CAPITAL RESOURCES
A. NET CASH USED IN/PROVIDED BY OPERATING, INVESTING AND FINANCING
ACTIVITIES.
Net cash used by the Company in operating activities for the nine
months ended December 31, 1996 was $22,607,000, consisting primarily of a net
loss of $10,028,000, less the impact of non-cash items impacting net loss of
11,877,000, increases in accounts receivable, inventories and prepaid
expenses of $921,000, $6,986,000 and 9,357,000, respectively, and decreases
in accounts payable, other current liabilities and other of $11,135,000,
$2,700,000 and $1,098,000, respectively; offset by an increase in accrued
expenses of $7,741,000.
Net cash used in investing activities was $97,346,000, consisting
primarily of the cash paid for the Acquisitions of $94,109,000, net of cash
acquired.
Net cash provided by financing activities was $170,034,000,
consisting primarily of the proceeds from the issuance of the Series B
Preferred Stock and Common Stock (together, the "Equity Financing"),
consisting of $119.1 million, net of issuance costs, and the proceeds from
the issuance of the Senior Secured Credit Facility (as defined below) of
$113.2, net of issuance costs offset by the repayment of the Old Credit
Facility (as defined below). The net increase in cash and cash equivalents
was $50,081,000.
B. RECENT ACQUISITIONS.
On December 4, 1996, the Company acquired all of the issued and
outstanding stock of the MEM Company, Inc. for $19.8 million (the "MEM
Acquisition"). In addition, in connection with such acquisition, the Company
repaid all of MEM's outstanding indebtedness in the amount of $18.1 million
and incurred fees and expenses of approximately $800,000. MEM is engaged in
the business of distributing and marketing a diversified line of fragrances
and toiletries in the mass-market distribution channel under the
nationally-advertised trademarks ENGLISH LEATHER, BRITISH STERLING, HEAVEN
SENT and LOVE'S.
On February 7, 1997, the Company closed MEM's facilities in
Northvale, New Jersey, and in Boucherville, Quebec. The Company expects to
incur costs in connection with the closings and the consolidation of MEM's
operations in an amount of approximately $6.1 million, including severance
payments, ERISA withdrawal liability and stay bonuses for selected employees
of MEM. The severance payments and stay bonuses (estimated to be
approximately
23
<PAGE>
$2.7 million) are expected to be paid during the last quarter of Fiscal 1996
or the first quarter of Fiscal 1997. The Company's estimate of its ERISA
withdrawal liability costs is an estimate based upon a 1996 withdrawal, and
the Company has been advised that its liability for a 1997 withdrawal would
be higher. The ERISA withdrawal liability will be paid (with interest) in
equal quarterly installments over a period of years in an amount per
installment to be determined under a statutory formula and based in part on
the employer's contribution rate to the plan and highest employee head count
over the last decade. The MEM and Tom Fields combined contributions were
approximately $390,000 in fiscal 1995 and are expected to be approximately
$250,000 in fiscal 1996, although the number of MEM and Tom Fields employees
has declined by approximately one-half from its highest levels over the last
decade. Accordingly, the annual total of the quarterly payment amounts may be
significantly higher than the contributions to the union plan in recent
years.
On December 6, 1996, the Company acquired from P&G the worldwide
rights to manufacture and market certain mass-market fragrances, including
NAVY, NAVY FOR MEN, INSIGNIA, CALIFORNIA FOR MEN AND LE JARDIN (the "P&G
Brands Acquisition")(the "P&G Brands"). The cash portion of the purchase
price paid through the closing was $41.1 million, of which $8.0 million
related to inventory and $33.1 million related to the licenses and rights to
market such fragrances. The purchase price for the inventory is subject to
adjustment based on the actual value of inventory purchased. In addition,
the Company assumed certain specified trade-related obligations of P&G,
including the liability for returns of products under the P&G Brands sold
prior to the closing and liabilities under certain advertising and business
development commitments.
Concurrent with the P&G Brands Acquisition, the Company entered into
transition services agreements, under which P&G will continue the
foreign marketing of the P&G Brands through June 30, 1997. P&G will remit to
the Company, within 45 days of the end of a calendar month, the net amount of
revenues earned from product sales, less allowances for sales returns,
discounts, bad debts, any applicable sales and marketing costs and less any
costs of goods in excess of inventories already purchased by the Company.
C. EQUITY AND DEBT FINANCING TRANSACTIONS.
On December 4, 1996, Cosmar entered into a Senior Secured Credit
Facility (the "Senior Secured Credit Facility") pursuant to which Cosmar
borrowed $117.5 million and received net proceeds of $113.2 million. Such
net proceeds were used: (i) to finance the MEM Acquisition (after the
application of a $33.8 million certificate of deposit, plus approximately
$537,000 of interest thereon); (ii) to finance the P&G Brands Acquisition;
(iii) to repay all outstanding indebtedness under the Company's then-existing
credit facility (the "Old Credit Facility") (which was terminated on such
date); and (iv) the remainder was used or to be available for general
corporate purposes. The indebtedness under the Senior Secured Credit
Facility had an initial term of one year, subject to extension under certain
circumstances, and an initial interest rate of 11.5% per annum, which was
scheduled to increase to 12.5% on June 4, 1997 and by an additional 0.5% at
the end of each 90-day period thereafter, subject to a
24
<PAGE>
maximum rate per annum of 20%. The Senior Secured Credit Facility was
secured by substantially all of the assets of Cosmar, the Company and the
other guarantors. The indebtedness under the Senior Secured Credit Facility
was repaid in full on February 7, 1997 and liens thereunder were released.
On December 24, 1996, the Company commenced an offer to purchase all
of its outstanding $65.0 million principal amount of its 13-3/4% Senior Notes
due 2001, Series B (the "Existing Senior Notes") at a price of $1,165 for each
$1,000 principal amount thereof (plus accrued interest thereon). On February
7, 1997, the Company completed the Existing Senior Notes Offer and purchased
all of the outstanding $65 million aggregate principal amount of the Existing
Senior Notes at a price of $1,165 for each $1,000 principal amount, plus
accrued and unpaid interest thereon.
On February 7, 1997, the Company completed the sale of $200.0
million aggregate principal amount of its 11 3/4% Senior Notes due 2004 (the
"New Senior Notes"). The net proceeds from the sale of the New Senior Notes,
together with approximately $23 million of the Company's available cash, were
used (i) to finance the Existing Senior Notes Offer, (ii) to repay all
outstanding indebtedness under the Senior Secured Credit Facility (discussed
above) and (iii) to fund an escrow account which will be used to pay a
portion of the interest expense on the New Senior Notes for two years
(discussed below).
Interest on the New Senior Notes is payable at the rate of 11 3/4%
per year in cash. The New Senior Notes mature on February 15, 2004. In
connection with the sale of the New Senior Notes, the Company transferred
$17.5 million to an escrow account (the "Escrow Account") maintained by a
newly-formed special purpose subsidiary, Renaissance Guarantor, Inc. ("RGI"),
in exchange for a limited guarantee by RGI of the Company's obligations under
the New Senior Notes. The New Senior Notes are general unsecured obligations
of the Company except to the extent they are collateralized by a first
priority security interest in the Escrow Account.
D. OUTSTANDING INDEBTEDNESS AND LIQUIDITY REQUIREMENTS.
As of December 31, 1996, the Company had outstanding indebtedness of
$185.1 million, including $117.5 million under its Senior Secured Credit
Facility (which has since been repaid). Due to the nature of the
fragrance/cosmetics industry, both the Company's
25
<PAGE>
need for working capital and its income stream are seasonal. The most
significant liquidity requirements occur in connection with the production of
inventory prior to the sales surge and related shipments to customers in
advance of the year-end holiday sales season and other events such as new
launches.
As a result of the repayment of all outstanding indebtedness under,
and the termination of, the Old Credit Facility on December 4, 1996, the
Company no longer has a revolving credit facility to fund working capital
needs. The completion of the GAC Acquisition, the MEM Acquisition and the
P&G Brands Acquisition has resulted in a significant increase in the
Company's working capital needs.
In order to address its working capital needs, the Company has
obtained a binding commitment letter from a major institutional lender with
respect to a proposed revolving credit facility under which such
institutional lender and other lenders would agree to provide Dana with a
senior secured revolving credit facility (the "New Revolving Credit
Facility") with a maximum committed amount of $75.0 million.
Availability under the New Revolving Credit Facility is expected to
be subject to a borrowing base calculation based upon eligible inventories
and accounts receivable, as defined.
Amounts borrowed under the New Revolving Credit Facility will bear
interest, at the option of Dana, at either (i) the Index Rate (i.e., the
higher of the prime rate or the overnight Federal funds rate plus 0.50%) plus
1.00% or (ii) absent a default, the LIBOR rate plus 2.25%. The interest rate
will be subject to adjustment, on a quarterly basis, based on the average
outstanding during each quarter.
The New Revolving Credit Facility is expected to contain affirmative
and negative covenants customarily found in a facility of this size and type.
Additionally, the New Revolving Credit Facility would be guaranteed by
substantially all of the Company's domestic and Canadian subsidiaries.
The Company's ability to borrow under the New Revolving Credit
Facility will be subject to, among other conditions, the execution and
delivery of definitive financing agreements containing terms acceptable to
the lenders, the satisfaction of certain financial conditions. There
can be no assurance as to when or whether the New Revolving Credit Facility
will be entered into or as to whether the New Revolving Credit Facility will
contain the terms and conditions described above. If the Company is not able to
agree with the lenders on the terms of the New Revolving Credit Facility, the
Company would need to seek other sources of financing for its working capital
needs.
26
<PAGE>
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
ATLANTIS LITIGATION. The Company is a defendant in a lawsuit filed
in New York State Supreme Court in March 1995 by Atlantis International, Ltd.
("Atlantis") and Brian Appel. The complaint alleges defamation, conspiracy,
unfair competition, intentional interference with Atlantis' contractual and
business relationships, PRIMA FACIE tort and breach of warranty and seeks
damages allegedly suffered in the amount of $6.0 million and punitive damages
in the amount of $1.0 million. The Company has been given an indefinite
extension of time to answer or move against the complaint but intends to
vigorously defend this lawsuit and believes that it has substantial and
meritorious defenses.
MEM LITIGATION. An action (seeking class action certification) was
filed on July 31, 1996 on behalf of the shareholders of MEM against MEM and
four of its current and former directors, alleging that the compensation
offered to the shareholders in the MEM Acquisition was inadequate and grossly
unfair and that the defendants had violated their fiduciary duties by not
seeking additional potential purchasers for MEM. The action sought, among
other things, a court order requiring the defendants to seek other
purchasers, or, if the MEM Acquisition was consummated, damages. Although
MEM and the Company believe that the suit is without merit, because of the
expense of continued legal proceedings, MEM has reached an agreement in
principle with the named plaintiff for settlement of the lawsuit without the
admission of liability or wrongdoing by the defendants. The terms of the
settlement include some additional disclosure to be made to shareholders
through the settlement notice, a payment of up to $25,000 for plaintiffs'
attorneys' fees and the exchange of releases by the parties. The settlement
is subject to, among other things, the execution of final settlement
documents by the parties and final approval by the court.
OTHER LITIGATION. The Company is involved from time to time in
various legal proceedings arising from the ordinary course of business. The
Company believes that the outcome of all pending legal proceedings in the
aggregate will not have a material effect on the financial condition or
results of operations of the Company.
27
<PAGE>
ITEM 2. CHANGES IN SECURITIES
See Part I, Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations, "Liquidity and Capital
Resources, C. Equity and Debt Financing Transactions"; and Note 5 "Financing
Transactions" and Note 6, "Subsequent Events," to the Unaudited Consolidated
Financial Statements for the period ended December 31, 1996.
28
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS.
2.3(1) Asset Sale and Purchase by and among the Procter & Gamble
Company (as Seller) and Dana Perfumes Corp. (as Buyer) and
solely for purposes of Sections 4.6, 6.6 and 6.12 hereof
Renaissance Cosmetics, Inc. and Cosmar Corporation dated
as of October 25, 1996.
2.4(1) Form of Asset Sale and Purchase Agreement among P&G
foreign affiliate sellers and Dana Perfumes Corp., dated
as of October 29, 1996.
3.1.4(2) Certificate of Increase of Certificate of Designation of
Preferences and Rights of Senior Redeemable Preferred
Stock, Series B filed with the Secretary of State of the
State of Delaware on September 27, 1996.
4.2(2) Certificate of Increase of Certificate of Designation of
Preferences and Rights of Senior Redeemable Preferred
Stock Series C filed with the Secretary of State of the
State of Delaware on September 27, 1996.
4.3(2) Specimen certificate of share of Series C Preferred Stock.
5.1(2) Opinion of Paul, Weiss, Rifkind, Wharton & Garrison,
regarding the legality of the securities being registered.
10.34(2) Amendment No. 1 to Security Agreement--Trademarks, dated
July 31, 1996, among Houbigant, Parfums Parquet, Chemical
Bank New Jersey N.A. and NatWest Bank N.A.
10.40(2) Employee Stock Option Plans.
10.53(2) Lease, between Bonanno Real Estate Group II, L.P. and
Parfums Parquet, dated February 10, 1995 relating to the
property situated at 734 Grand Avenue, in the Borough of
Ridgefield, New Jersey.
10.66(2) Non-Competition Agreement, dated as of August 18, 1994,
among Renaissance Cosmetics, Inc., Cosmar Corporation and
Jerry D. Kayne.
10.67(2) Non-Competition Agreement, dated as of August 18, 1994,
among Renaissance Cosmetics, Inc., Cosmar Corporation and
Fred Kayne.
10.115.1(2) Sixth Supplemental Indenture, dated as of December
4, 1996, between the Company, Certain Guarantors and
Firstar Bank of Minnesota, successor to American Bank
National Association,
29
<PAGE>
Trustee.
10.127(2) Securities Purchase Agreement, dated as of September 27,
1996, between Renaissance Cosmetics, Inc. and Bastion
Capital Fund, L.P.
10.128(2) Common Stock Registration Rights Agreement, dated as of
September 27, 1996, between Renaissance Cosmetics, Inc. and
Bastion Capital Fund, L.P.
10.129(2) Voting Agreement, dated as of September 27, 1996,
between Kidd, Kamm Equity Partners, L.P. and Bastion
Capital Fund, L.P.
10.130(2) Consulting Agreement, dated December 28, 1994, between
Renaissance Cosmetics, Inc. and Robert H. Schnell.
10.131(2) Senior Secured Credit Agreement, dated as of December 4,
1996, between the Company, Cosmar, CIBC Wood Gundy and the
Lenders named therein.
10.132(2) Form of Bridge Note, dated December 4, 1996.
10.133(2) Form of Term Note.
10.134(2) Form of Guarantee, dated December 4, 1996, by the
Company for and in consideration of the purchase by the
Lenders of Bridge Notes issued by Cosmar Corporation
pursuant to the Senior Secured Credit Agreement, dated
December 4, 1996.
10.135(2) Form of Guarantee, dated December 4, 1996, by Houbigant
(1995) Ltd. for and in consideration of the purchase by the
Lenders of Bridge Notes issued by Cosmar Corporation
pursuant to the Senior Secured Credit Agreement, dated
December 4, 1996.
10.136(2) Form of Guarantee, dated December 4, 1996, by Dana
Perfumes Corp. for and in consideration of the purchase by
the Lenders of Bridge Notes issued by Cosmar Corporation
pursuant to the Senior Secured Credit Agreement, dated
December 4, 1996.
10.137(2) Form of Guarantee, dated December 4, 1996, by MEM for
and in consideration of the purchase by the Lenders of
Bridge Notes issued by Cosmar Corporation pursuant to the
Senior Secured Credit Agreement, dated December 4, 1996.
30
<PAGE>
10.138(2) Form of Guarantee, dated December 4, 1996, by GAC for
and in consideration of the purchase by the Lenders of
Bridge Notes issued by Cosmar Corporation pursuant to the
Senior Secured Credit Agreement, dated December 4, 1996.
10.139(2) Security Agreement, dated December 4, 1996, between the
Company, Cosmar, Dana Perfumes Corp., GAC, Houbigant (1995)
Limited, MEM and CIBC Wood Gundy Securities Corp. as
collateral agent.
10.141(2) License and Consultant Agreement dated January 25, 1991
between Cosmar and The Nail Consultants, Ltd., as amended
by letter agreements dated May 29, 1991 and January 5, 1993.
10.142(2) License Agreement, dated October 1, 1995, between The
Nail Consultants, Ltd. and Cosmar.
10.143(2) Renaissance Employee Bonus Plan.
10.144(2) Agreement dated as of July 1,1 995 between MEM as
licensor and Filo America, Inc. as licensee for the license
of the "English Leather" trademark for shaving equipment.
10.145(2) Agreement dated as of January 1, 1995 between MEM as
licensor and M.Z. Berger as licensee for the license of the
"Tinkerbell" trademark for watches, clocks and plastic
jewelry.
10.146(2) License granted under the License Agreement dated August
1, 1978 between G. Visconti di Modrone, S.p.A and V.O.M.
Ltd. for the use of certain trademarks by Victor of Milano,
Ltd. in connection with its sale of men's toiletries.
10.147(2) License Agreement dated as of April 1, 1977 between MEM
as licensor and Welling International as licensee for the
license of the "English Leather" trademark for eyeglass
frames and sunglasses, as amended by letter agreement dated
November 6, 1996.
10.148(2) Trademark Agreement dated as of July 3, 1985 between MEM
as licensor and Willow Hosiery Co., Inc., as licensee for
the license of the "English Leather" trademark for men's
hosiery, as amended by letter agreements dated January 29,
1996 and January 25, 1995.
10.149(2) Trademark License Agreement dated as of July 1, 1991
between English Leather, Inc. as licensor and Bag Bazaar,
Ltd. as licensee
31
<PAGE>
for the license of the "English Leather" trademark for
men's and women's handbags and personal (small) leather
goods, as amended by letter agreement dated May 19, 1995.
10.150(2) License Agreement dated as of July 14, 1987 between
Coscelebra, Inc. as licensor and MEM as licensee for the
license of the "Heaven Sent" trademark for cosmetic
products.
10.151(2) Agreement dated as of January 1, 1981 between Helena
Rubenstein, Inc. as licensor and Alliance Trading Company
Incorporated as licensee for the license of the "Heaven
Sent" trademark for cosmetic products, as amended by
agreement dated June 15, 1981.
10.152(2) Agreement dated as of March 12, 1982 between Alleghany
Pharmacal Corporation as licensor and MEM as licensee for
the sub-license of "Heaven Sent" trademark for cosmetic
products.
10.153(2) Agreement dated as of December 1, 1991 between Tom
Fields, Ltd. as licensor and Red Box Toy Factory Ltd. as
licensee for the license of the "Tinkerbell" trademark for
fashion beauty kits.
10.154(3) Form of Stay Bonus Agreement
10.155(2) Collective Bargaining Agreement between Dana Perfumes
Corp. and Oil, Chemical & Atomic Workers International
Union AFL-CIO and its Local Union No. 8-782.
27.1 Financial Data Schedule.
- -------------------------------------------------------------------------------
1. Filed with the Company's Form 8-K filed with the SEC on December 20, 1996
and incorporated herein by reference thereto.
2. Filed with the Company's Amendment No. 1 to Form S-4 filed with the SEC on
January 31, 1997 and incorporated herein by reference thereto.
3. Filed with the Company's Form 8-K filed with the SEC on December 19, 1996
and incorporated herein by reference thereto.
32
<PAGE>
B. REPORTS ON FORM 8-K.
(1) Form 8-KA filed with the SEC on November 2, 1996.
(2) Form 8-K filed with the SEC on November 6, 1996.
(3) Form 8-K filed with the SEC on December 9, 1996.
(4) Form 8-K filed with the SEC on December 9, 1996.
(5) Form 8-K filed with the SEC on December 19, 1996.
(6) Form 8-K filed with the SEC on December 20, 1996.
(7) Form 8-K filed with the SEC on December 27, 1996.
(8) Form 8-K filed with the SEC on January 15, 1997.
(9) Form 8-K filed with the SEC on January 16, 1997.
(10) Form 8-K filed with the SEC on January 28, 1997.
33
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, the registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
RENAISSANCE COSMETICS, INC.
Dated: February 14, 1997 By: /s/ THOMAS T.S. KAUNG
------------------------------------
Thomas T.S. Kaung
Group Vice-President, Finance
and Chief Financial Officer
34
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM RENAISSANCE COSMETIC'S
INC. CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 51,513
<SECURITIES> 585
<RECEIVABLES> 38,226
<ALLOWANCES> 0
<INVENTORY> 55,724
<CURRENT-ASSETS> 157,207
<PP&E> 37,670
<DEPRECIATION> (13,663)
<TOTAL-ASSETS> 367,732
<CURRENT-LIABILITIES> 54,247
<BONDS> 67,588
95,359
0
<COMMON> 8
<OTHER-SE> 28,131
<TOTAL-LIABILITY-AND-EQUITY> 367,732
<SALES> 124,590
<TOTAL-REVENUES> 124,590
<CGS> 48,082
<TOTAL-COSTS> 48,082
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17,206
<INCOME-PRETAX> (9,459)
<INCOME-TAX> 569
<INCOME-CONTINUING> (10,028)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,028)
<EPS-PRIMARY> (25.95)
<EPS-DILUTED> 0
</TABLE>
