<PAGE>
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 JUNE 30, 1997
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.)
635 MADISON AVENUE
NEW YORK, NEW YORK 10022
(Address of principal executive offices) (Zip Code)
(212) 751-3700
(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 June 30, 1997, there were outstanding 825,086 shares
of the registrant's common stock, $.01 par value per share.
<PAGE>
INDEX
PAGE
PART I - FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . 1
Item 1. Financial Statements . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Balance Sheets as of June 30, 1997
(unaudited) and March 31, 1997 . . . . . . . . . . . . . 3
Consolidated Statements of Operations for the
three months ended June 30, 1997
(unaudited) and 1996 (unaudited) (as restated) . . . . . 4
Consolidated Statements of Cash Flows for the three months
ended June 30, 1997 (unaudited)
and 1996 (unaudited) (as restated) . . . . . . . . . . . 5
Notes to Unaudited Consolidated Financial Statements . . . . . 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . 8
PART II - OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . 13
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . 13
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . 13
<PAGE>
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 any documents incorporated herein by reference constitute
"forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities and Exchange Act of
1934. 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 forward-looking statements involve known
and unknown risks, uncertainties and other factors that 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. 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 future acquisitions, including
obtaining required approvals from its existing lenders for such acquisitions;
changes in the retail industry generally and the fragrance and nail care
industries specifically; changes in consumer preferences; competition;
availability of key personnel; foreign currency exchange rates; industry
capacity; development and operating costs; advertising and promotional
efforts; brand awareness; acceptance of new product offerings; 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 achievements and
neither the Company nor any other person assumes responsibility for the
accuracy and completeness of these statements.
<PAGE>
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 six pages.
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<PAGE>
RENAISSANCE COSMETICS, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
PAGE
ITEM 1. FINANCIAL STATEMENTS:
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Operations . . . . . . . . . . . . 4
Consolidated Statements of Cash Flows . . . . . . . . . . . . 5
Notes to Consolidated Financial Statements . . . . . . . . . . 6
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<PAGE>
RENAISSANCE COSMETICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1997 AND MARCH 31, 1997
(IN THOUSANDS EXCEPT SHARE DATA) (UNAUDITED)
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS JUNE 30, 1997 MARCH 31, 1997
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 15,520 $ 719
Marketable securities 17,903 22,799
Accounts receivable - net 43,170 48,837
Inventories 61,786 55,554
Prepaid expenses and other current assets 11,129 7,827
---------- ----------
Total current assets 149,508 135,736
PROPERTY, PLANT AND EQUIPMENT - Net 27,924 26,581
DEFERRED FINANCING COSTS - Net 12,304 12,748
OTHER ASSETS - Net 12,615 12,141
INTANGIBLE ASSETS - Net 172,843 174,177
---------- ----------
TOTAL ASSETS $ 375,194 $ 361,383
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 16,867 $ 21,612
Accrued expenses 43,119 40,322
---------- ----------
Total current liabilities 59,986 61,934
---------- ----------
LONG-TERM LIABILITIES:
Long-term debt 223,926 203,877
Minimum royalty obligation 3,693 3,768
Deferred tax liability 158 158
---------- ----------
Total long-term liabilities 227,777 207,803
---------- ----------
TOTAL LIABILITIES 287,763 269,737
---------- ----------
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST 357 -
SENIOR REDEEMABLE PREFERRED STOCK 91,299 86,660
REDEEMABLE PREFERRED STOCK: 13,563 13,167
COMMON STOCKHOLDERS' DEFICIT :
Common stock 8 8
Notes receivable from sale of common stock (518) (518)
Additional paid-in capital 69,403 69,403
Treasury stock, at cost (210) (210)
Deficit (84,919) (75,450)
Cumulative translation adjustment (1,552) (1,414)
---------- ----------
-
Total common stockholders' deficit (17,788) (8,181)
---------- ----------
-
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 375,194 $ 361,383
---------- ----------
---------- ----------
</TABLE>
See notes to unaudited consolidated financial statements.
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<PAGE>
RENAISSANCE COSMETICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT SHARE AMOUNTS) (UNAUDITED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
1997 1996
(As Restated)
<S> <C> <C>
NET SALES $ 40,885 $ 30,202
COST OF GOODS SOLD 16,776 11,429
--------- ---------
GROSS PROFIT 24,109 18,773
--------- ---------
OPERATING EXPENSES:
Selling 14,898 11,159
General and administrative 7,396 5,888
Amortization of intangible and other assets 2,756 1,368
--------- ---------
Total operating expenses 25,050 18,415
--------- ---------
OPERATING INCOME (LOSS) (941) 358
OTHER EXPENSE (INCOME):
Interest expense 7,002 5,201
Other income (3,363) -
Interest income (352) (170)
--------- ---------
Total other expense-net 3,287 5,031
LOSS BEFORE INCOME TAX PROVISION (4,228) (4,673)
INCOME TAX PROVISION (BENEFIT) 205 (156)
--------- ---------
NET LOSS (4,433) (4,517)
PREFERRED STOCK DIVIDENDS 5,036 488
--------- ---------
NET LOSS APPLICABLE TO COMMON STOCKHOLDERS $ (9,469) $ (5,005)
--------- ---------
--------- ---------
NET LOSS PER COMMON SHARE $ (11.48) $ (6.94)
--------- ---------
--------- ---------
WEIGHTED AVERAGE SHARES OUTSTANDING 825,086 721,168
--------- ---------
--------- ---------
</TABLE>
See notes to unaudited consolidated financial statements.
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<PAGE>
RENAISSANCE COSMETICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS) (UNAUDITED)
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
1997 1996
(As Restated)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (4,433) $ (4,517)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation 1,512 869
Amortization of intangible assets 1,889 808
Amortization of minimum royalty and other assets 867 618
Amortization of deferred financing costs 504 726
Other non-cash interest 288 315
Changes in operating assets and liabilities:
Accounts receivable 5,667 6,251
Inventories (6,232) (2,423)
Prepaid expenses, other current assets and other assets (3,852) (7,745)
Accounts payable (4,746) (5,850)
Accrued expenses 2,483 (1,613)
Other (138) (745)
--------- ---------
Net cash used in operating activities (6,191) (13,306)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in joint venture (1,093) -
Sale of marketable securities 5,000 95
Capital expenditures (2,855) (792)
--------- ---------
Net cash provided by (used in) investing activities 1,052 (697)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on New Revolving Credit Facility 20,000 -
Net Proceeds from notes payable - 2,000
Payment of minimum royalty obligation - (185)
Issuance of Series A Preferred Stock - 18,955
Payment of deferred financing costs (60) (627)
--------- ---------
Net cash provided by financing activities 19,940 20,143
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 14,801 6,140
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 719 1,432
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 15,520 $ 7,572
--------- ---------
--------- ---------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 144 $ 1,807
--------- ---------
--------- ---------
Income taxes $ 540 $ 27
--------- ---------
--------- ---------
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING
TRANSACTIONS:
Accrued dividends and accretion on redeemable preferred stocks $ 5,036 $ 488
</TABLE>
See notes to unaudited consolidated financial statements.
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<PAGE>
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 from the
respective dates of their acquisitions. All significant intercompany activity
has been eliminated. The results of operations for the three months ended
June 30, 1997, 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. 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 10-K for the year ended March 31, 1997
filed with the Securities and Exchange Commission (the "1996 Form 10-K").
In January 1997, the Company restated its previously reported
results of operations for the three months ended June 30, 1996. Additionally,
certain reclassifications were made to the financial statements for the three
months ended June 30, 1996 to conform to the current year's presentation.
2. INVENTORIES
The components of inventories are as follows:
(IN THOUSANDS) JUNE 30, MARCH 31,
1997 1997
------------ ---------------
Raw materials and advertising supplies $31,626 $30,453
Work in process 2,599 2,413
Finished goods 27,561 22,688
------------ ---------------
$61,786 $55,554
------------ ---------------
------------ ---------------
The above components are shown net of excess and obsolete inventory
reserves of $2,989,000 and $2,719,000 at June 30, 1997 and March 31, 1997,
respectively. At June 30, 1997 and March 31, 1997, approximately 63.9% and
61.8%, respectively, of the Company's
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<PAGE>
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 June 30, 1997
and March 31, 1997, respectively.
3. OTHER INCOME
On May 21, 1997, Dr. Thomas V. Bonoma, the late Chairman and Chief
Executive Officer of the Company, died suddenly. Other income was $3,363,000
for the three months ended June 30, 1997. This income consisted of the
proceeds from a key man life insurance policy, on which the Company was the
beneficiary, net of incremental expenses incurred by the Company relating to
Dr. Bonoma's death.
4. EQUITY AND DEBT FINANCING TRANSACTIONS
On April 28, 1997, the Company's offer to exchange the outstanding
shares of Senior Redeemable Preferred Stock, Series B ("Series B Preferred
Stock") for a like number of shares of Senior Redeemable Preferred Stock,
Series C ("Series C Preferred Stock"), with substantially the same terms, was
closed. After the exchange closed, there were 775 shares of Series B
Preferred Stock outstanding and 126,916 shares of Series C Preferred Stock
outstanding. The shares of Series B Preferred Stock and Series C Preferred
Stock are together referred to as Senior Redeemable Preferred Stock on the
Consolidated Balance Sheets at June 30, 1997 and March 31, 1997 in Item 1
hereof.
On June 8, 1997, the Company completed the exchange of all of the
outstanding principal amount of 11 3/4% Senior Notes, due 2004, issued
pursuant to the Indenture dated February 7, 1997, for a like principal amount
of its 11 3/4% Senior Notes, due 2004, which were registered under the
Securities Act.
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The Company's fiscal year ending March 31, 1998, is referred to herein as
"Fiscal 1997." The Company's fiscal year ended March 31, 1997, is referred to
herein as "Fiscal 1996."
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 (the "Fragrance Division," the "Cosmetics
Division" and the "International Division," which includes both fragrance and
cosmetics sales), resulting from the acquisitions that have been consummated
by the Company from the date of such acquisitions. Each of such acquisitions
is discussed in greater detail in Item 1 and Item 7 of the Company's Fiscal
1996 Form 10-K.
OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1997 AS COMPARED TO THE THREE
MONTHS ENDED JUNE 30, 1996 (AS RESTATED)
NET SALES. The Company's net sales were as follows (in 000s):
-8-
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS
ENDED JUNE 30,
1997 1996
------------------------------- ------------------------------
DIVISION NET SALES % OF TOTAL NET SALES % OF TOTAL
------------ ------------- ---------------- -------------- --------------
<S> <C> <C> <C> <C>
Fragrance $16,044 39.2% $10,477 34.7%
Cosmetics 14,664 35.9% 11,751 38.9%
International 10,177 24.9% 7,974 26.4%
------------ ------------- ---------------- -------------- --------------
Total $40,885 100.0% $30,202 100.0%
</TABLE>
Total net sales increased by 35.4% to $40,885,000.
Fragrance Division net sales increased 53.1% to $16,044,000. The
increase was due principally to net sales of brands acquired in the MEM and
P&G Brands Acquisitions. Sales of MEM and P&G Brands were $5,610,000 during
the quarter ended June 30, 1997. Such growth in sales of acquired brands is
consistent with the Company's overall strategy of reinvigorating brand
equities.
Cosmetics Division net sales increased 24.8% to $14,664,000. This
increase is primarily attributable to net sales of acquired brands, including
the Nat Robbins brand acquired in the GAC Acquisition and new product
releases (Nail Fetish). Net sales of Nat Robbins products during the first
quarter of Fiscal 1997 were $4,014,000. This growth in the sales of Nat
Robbins products at the expense of certain base brands is consistent with the
Company's strategy of expanding the number of existing doors for Nat Robbins
products.
International Division net sales increased 27.6% to $10,177,000. The
increase was principally attributable to foreign sales of the P&G Brands.
Net sales in the United Kingdom (excluding close-out sales) and sales of P&G
Brands in the rest of the world for the three months ended June 30, 1997 were
$2,219,000. These increases were offset by decreases in export sales and
lower than expected sales in Brazil due to delays in new product launches.
GROSS PROFIT. The Company's gross profit was as follows (in 000s):
<TABLE>
<CAPTION>
THREE MONTHS
ENDED JUNE 30,
1997 1996
------------------------------- ------------------------------
DIVISION GROSS PROFIT % OF NET SALES GROSS PROFIT % OF NET SALES
------------ ------------ ---------------- ------------ ----------------
<S> <C> <C> <C> <C>
Fragrance $ 9,605 59.9% $ 7,103 67.8%
Cosmetics 8,736 59.6% 6,864 58.4%
International 5,768 56.7% 4,806 60.3%
------------ ------------- ---------------- -------------- --------------
Total $24,109 59.0% $18,773 62.2%
</TABLE>
Fragrance Division gross profit margin declined to 59.9% from 67.8% due to
changes in product mix. Included in the gross margin is gross profit from
close-out sales which yield a gross margin of approximately 17%. Additionally,
sales of the Tinkerbell (children's cosmetics) products acquired in the MEM
Acquisition generated an overall gross margin of 46%. Gross margin on regular
fragrance products sold through normal channels improved to 69.2%,
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<PAGE>
reflecting some of the savings from consolidating operations in the Company's
Mountaintop, Pennsylvania facility.
Cosmetics Division gross profit margin remained relatively stable at 59.6%
compared to 58.4% during the comparable period in the prior year. The increase
reflects the changes in product mix mentioned above.
International Division gross profit margin declined from 60.3% to 56.7%,
reflecting changes in product mix, including the lower gross margins on close-
out sales in the United Kingdom.
SELLING EXPENSES. The Company's selling expenses in the first quarter of
Fiscal 1997 and the first quarter of Fiscal 1996 were $14,898,000 (36.4% of Net
Sales) and $11,159,000 (36.9% of Net Sales), respectively. The increase in
selling expenses in whole dollars reflects additional investments in advertising
and promotional programs by the Fragrance and Cosmetics Divisions in order to
support key brands. The decrease in selling expenses as a percentage of sales
is attributable to increased sales as well as the decline in advertising and
promotional expenses at the International Division due to delays in new product
launches.
GENERAL AND ADMINISTRATIVE EXPENSES. The Company's general and
administrative expenses in the first quarter of Fiscal 1997 and the first
quarter of Fiscal 1996 were $7,396,000 (18.1% of Net Sales) and $5,888,000
(19.5% of Net Sales), respectively. The increase in general and administrative
expenses was attributable in part to the additional personnel added throughout
Fiscal 1996 and the additional fixed costs necessary to run a larger
organization. The decrease in general and administrative expenses as a
percentage of sales reflects the synergies of consolidated operations.
AMORTIZATION OF INTANGIBLES AND OTHER ASSETS. Amortization of
intangibles and other assets was $2,756,000 (6.7% of Net Sales) in the first
quarter of Fiscal 1997 and $1,368,000 (4.5% of Net Sales) in the first
quarter of Fiscal 1996. This increase is due to an increase in intangible
assets resulting principally from the GAC, MEM and P&G Brands Acquisitions.
OPERATING INCOME (LOSS). Operating income (loss) was $(941,000) (2.3% of
Net Sales) for the first quarter of Fiscal 1997 and $358,000 (1.2% of Net Sales)
for the first quarter of Fiscal 1996. Management believes that, as 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
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. The
computation of EBITDA is set forth in the table below (in 000s):
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<PAGE>
THREE MONTHS ENDED
JUNE 30,
1997 1996
---------- ---------
Operating Income $ (941) $ 358
Plus: Amortization 2,756 1,368
Plus: Depreciation 1,512 869
---------- ---------
EBITDA $3,327 $2,595
EBITDA % of Net Sales 8.1% 8.6%
INTEREST EXPENSE. The Company's total interest expense was $7,002,000 for
the first quarter of Fiscal 1997 and $5,201,000 for the first quarter of Fiscal
1996, while cash interest for the periods was $6,210,000 and $4,152,000,
respectively. Interest expense consisted of the following (in 000s):
THREE MONTHS ENDED
JUNE 30,
CASH INTEREST PAID OR ACCRUED 1997 1996
------------------------------------- --------- ---------
Interest on Old Senior Notes $ -- $2,234
Interest on Old and New Notes 5,875 --
Interest on Seller Notes (payable in
2002) 116 108
Interest on Old Credit Facility -- 1,791
Interest on New Revolving Credit
Facility 131 --
Other Interest 88 19
--------- ---------
Total Cash Interest Expense $6,210 $4,152
NON-CASH INTEREST EXPENSE
------------------------------------- --------- ---------
Accretion of Old Senior Notes and
Seller Notes $ 49 $ 81
Amortization of Deferred Financing
Costs 504 726
Accretion of Interest on Obligations
for Minimum Royalty Payment 239 242
--------- ---------
Total Non-Cash Interest Expense $ 792 $1,049
Total Interest Expense $7,002 $5,201
OTHER INCOME. Other income was $3,363,000 for the first quarter of
Fiscal 1997. This income consisted of the proceeds from a key man life
insurance policy covering the late Chairman, Dr. Thomas V. Bonoma, on which
the Company was the beneficiary, net of incremental expenses incurred by the
Company relating to Dr. Bonoma's death.
INCOME TAX PROVISION (BENEFIT). Income tax provision (benefit) was
$205,000 for the first quarter of Fiscal 1997 and $(156,000) for the first
quarter of Fiscal 1996. The effective tax
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<PAGE>
rates differ from the United States federal income tax rate due to state and
foreign income taxes and limitations on utilization of federal income tax
benefits.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 131, "Disclosures about
Segments of an Enterprise and Related Information" ("SFAS 131"), and SFAS No.
130, "Reporting Comprehensive Income" ("SFAS 130"). SFAS 131 establishes
standards for reporting financial and descriptive information for reportable
segments on the same basis which is used internally for evaluating segment
performance and the allocation of resources to segments. SFAS 130
establishes standards for presenting nonshareholder related items that are
excluded from net income and reported as components of stockholders' equity,
such as foreign currency translation. These statements are effective for
fiscal years beginning after December 15, 1997. The adoption of these
statements will not have a material effect on the Company's results of
operations or financial position.
OTHER
The Company is evaluating the potential impact of the situation commonly
referred to as the "Year 2000 problem." The Year 2000 problem, which is
common to most corporations, concerns the inability of information systems,
primarily computer software programs, to properly recognize and process date
sensitive information related to the Year 2000. Preliminary assessments
indicate that resulting solutions will involve a mix of purchasing new
systems and modifying existing systems. The Company is currently in the
process of determining the costs and expenditures associated with the Year
2000 problem.
LIQUIDITY AND CAPITAL RESOURCES
NET CASH USED IN/PROVIDED BY OPERATING, INVESTING AND FINANCING
ACTIVITIES. Net cash used by the Company in operating activities for the
three months ended June 30, 1997 was $6,191,000, consisting primarily of a
net loss of $4,433,000 less (i) non-cash items impacting net loss of
$5,060,000, (ii) increases in inventories and prepaid expenses, other current
assets and other assets of $6,232,000 and $3,852,000, respectively, (iii)
decreases in accounts payable of $4,746,000, (iv) decreases in other of
$138,000; offset by (A) decreases in accounts receivable of $5,667,000 and
(B) increases in accrued expenses of $2,483,000.
Net cash provided by investing activities was $1,052,000, consisting
primarily of net proceeds from the sale of marketable securities of $5,000,000,
offset by capital expenditures of $2,855,000 and an investment in the joint
venture in China of $1,093,000.
Net cash provided by financing activities was $19,940,000, consisting
primarily of borrowings on the revolving credit facility with General Electric
Capital Corporation and other lenders ("New Revolving Credit Facility") of
$20,000,000 offset by the payment of deferred financing fees of $60,000.
EQUITY AND DEBT FINANCING TRANSACTIONS. On April 28, 1997, the Company's
offer to exchange the outstanding shares of Senior Redeemable Preferred Stock,
Series B ("Series B Preferred Stock") for a like number of shares of Senior
Redeemable Preferred Stock, Series C ("Series C Preferred Stock"), with
substantially the same terms, was closed. After the exchange closed, there were
775 shares of Series B Preferred Stock outstanding and 126,916 shares of Series
C Preferred Stock outstanding.
On June 8, 1997, the Company completed the exchange of all of the
outstanding principal amount of 11 3/4% Senior Notes, due 2004, issued
pursuant to the Indenture dated February 7, 1997 ("Old Notes"), for a like
principal amount of its 11 3/4% Senior Notes, due 2004, which were registered
under the Securities Act ("New Notes").
OUTSTANDING INDEBTEDNESS AND LIQUIDITY REQUIREMENTS. As of June 30, 1997,
the Company had total outstanding indebtedness of $223,926,000, consisting of
(1) $200,000,000 of New Notes, (2) $3,926,000 of Seller Notes and
(3) $20,000,000 under the New Revolving Credit Facility.
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<PAGE>
Because of the nature of the fragrance/cosmetics industry, both the
Company's need for working capital and its income streams 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 calendar year-end holiday sales season and other
events such as new product launches. During the quarter ended June 30, 1997,
the Company implemented a working capital management program, coupled with
management incentives to manage working capital.
The Company believes that the New Revolving Credit Facility, together with
the Company's working capital management program, should be sufficient to fund
existing operations for at least the next twelve months.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Item 3 of the Company's 1996 Form 10-K for a discussion of legal
proceedings. No material changes have occurred since the filing of the 1996
Form 10-K.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
See the Exhibit Index on pages 14 through 15 hereof.
(B) REPORTS ON FORM 8-K
Form 8-K with respect to the death of Dr. Thomas V. Bonoma, filed with the
SEC on May 22, 1997.
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<PAGE>
EXHIBIT INDEX
DESCRIPTION OF DOCUMENT
-----------------------
EXHIBIT NO.
-----------
2.1 (1) Stock Purchase Agreement among Cosmar
Corporation, a Delaware corporation ("Cosmar
Corporation"), Larry Pallini, Vincent Carbone and
Great American Cosmetics, Inc., a New York
corporation ("GAC"), entered into on June 27,
1996, providing for the acquisition by Cosmar
Corporation of all of the capital stock of GAC.
2.2 (1) Agreement and Plan of Merger, among Renaissance
Cosmetics, Inc., a Delaware corporation ("RCI" or
the "Company"), Renaissance Acquisition, Inc., a
New York corporation ("RAI") and MEM Company,
Inc., a New York corporation ("MEM"), dated as of
August 6, 1996.
2.3 (2) Asset Sale and Purchase by and among the Procter
& Gamble Company (as Seller) and Dana Perfumes
Corp. ("Dana") (as Buyer) and solely for purposes
of Sections 4.6, 6.6 and 6.12 hereof of
Renaissance Cosmetics, Inc. and Cosmar Corporation
dated as of October 25, 1996.
2.4 (2) Form of Asset Sale and Purchase Agreement among
P&G foreign affiliate sellers and Dana, dated as
of October 29, 1996.
3.1 (3) Restated certificate of incorporation of RCI
filed with the Secretary of State of the State of
Delaware on August 17, 1994.
3.1.2 (4) Certificate of Designation of Preferences and
Rights of Senior Exchangeable Redeemable Preferred
stock, Series A, of RCI, filed with the Secretary
of State of the State of Delaware on May 29, 1996.
3.1.3 (5) Certificate of Designation of Preferences and
Rights of Senior Redeemable Preferred Stock,
Series B, of RCI, filed with the Secretary of
State of the State of Delaware on August 15, 1996.
3.1.4 (6) Certificate of Increase of Certificate of
Designation of Preferences and Rights of Senior
Redeemable Preferred Stock, Series B, of RCI,
filed with the Secretary of State of the State of
Delaware on September 27, 1996.
3.1.5 (6) Certificate of Designation of Preferences and
Rights of Senior Redeemable Preferred Stock,
Series C, par value $.01 per share, of RCI, filed
with the Secretary of State of the State of
Delaware on August 15, 1996.
3.1.6 (6) Certificate of Increase of Certificate of
Designation of Preferences and Rights of Senior
Redeemable Preferred Stock, Series C, of RCI,
filed with the Secretary of State of the State of
Delaware on September 27, 1996.
3.2 (7) Amended and Restated By-laws of RCI
3.3 (8) Certificate of Incorporation of Renaissance
Guarantor, Inc. ("RGI") filed with the Secretary
of State of the State of Delaware on February 6,
1997.
3.4 (8) By-laws of RGI.
4.1 (9) Indenture, dated February 7, 1997, among RCI, as
issuer, RGI, as guarantor, and United States Trust
Company of New York, as trustee.
4.2 (9) Escrow and Disbursement Agreement, dated
February 7, 1997, among RCI, as issuer, RGI, as
guarantor, United States Trust Company of New
York, as trustee, and United States Trust Company
of New York, as escrow agent.
-14-
<PAGE>
4.3 (9) Notes Registration Rights Agreement, dated
February 7, 1997, between RCI, as issuer, and CIBC
Wood Gundy Securities Corp., as initial purchaser.
10.1 (7) Waiver and Amendment, dated as of June 27, 1997,
among Dana Perfumes Corp., as borrower, the other
Credit Parties to the Credit Agreement, General
Electric Capital Corporation as agent and lender
and the other Lenders party to the Credit
Agreement.
10.2 (7) Letter Agreement, dated as of June 27, 1997,
among Dana Perfumes Corp., as borrower, General
Electric Capital Corporation, as agent and lender,
and the other Lenders party to the Credit
Agreement.
10.3 Letter Agreement, dated as of July 25, 1997,
among Dana Perfumes Corp., as borrower, General
Electric Capital Corporation, as agent and lender,
and the other lenders party to the Credit
Agreement.
27.1 Financial Data Schedule.
___________________
Notes to Exhibit Index:
(1) Filed with RCI's Quarterly Report on Form 10-Q filed with the SEC on August
14, 1996, and incorporated herein by reference thereto.
(2) Filed with RCI's Form 8-K filed with the SEC on December 20, 1996, and
incorporated herein by reference thereto.
(3) Filed with RCI's Registration Statement on Form S-4 filed with the SEC on
December 12, 1994, Registration No.33-87280, and incorporated herein by
reference thereto.
(4) Filed with RCI's Annual Report on Form 10-K filed with the SEC for the
fiscal year ended March 31, 1996, and incorporated herein by reference
thereto.
(5) Filed with RCI's Form 8-K filed with the SEC on August 8, 1996, and
incorporated herein by reference thereto.
(6) Filed with Amendment No. 1 to RCI's Registration Statement on Form S-4
filed with the SEC on January 31, 1997, Registration No. 33-13171, and
incorporated herein by reference thereto.
(7) Filed with RCI's Annual Report on Form 10-K filed with the SEC for the
fiscal year ended March 31, 1997, and incorporated herein by reference
thereto.
(8) Filed with RCI's Registration Statement on Form S-4 filed with the SEC on
March 24, 1997, Registration No. 33-23847, and with Amendment No. 1
thereto, as filed with the SEC on May 2, 1997, and incorporated herein by
reference thereto.
(9) Filed with RCI's Form 8-K filed with the SEC on February 20, 1997, and
incorporated herein by reference thereto.
-15-
<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: August 14, 1997 By: /S/ THOMAS T. S. KAUNG
-----------------------------------
Thomas T.S. Kaung
Group Vice President, Finance
and Chief Financial Officer
-16-
<PAGE>
EXHIBIT 10.3
DANA PERFUMES CORP.
C/O RENAISSANCE COSMETICS, INC.
635 MADISON AVENUE
NEW YORK, NEW YORK 10022
July 25, 1997
General Electric Capital Corporation
for itself, as Lender, and as Agent
201 High Ridge Road
Stamford, Connecticut 06927-5100
National City Commercial Finance, Inc.
1965 E. 6th Street, Suite 400
Cleveland, Ohio 44114
PNC Bank N.A.
1600 Market Street, 31st Floor
Philadelphia, Pennsylvania 19103
Re: AMENDMENT TO JUNE 1997 LETTER AGREEMENT
Ladies and Gentlemen:
Reference is hereby made to (1) that certain Credit Agreement, dated
as of March 12, 1997 (as from time to time amended, restated, supplemented or
otherwise modified, the "Credit Agreement"), by and among Dana Perfumes Corp.
("Borrower"), the other Credit Parties signatory thereto (the "Other Credit
Parties"), General Electric Capital Corporation ("GECC"), as Lender, and as
Agent for Lenders (in such capacity "Agent"), and the other Lenders signatory
thereto from time to time (along with GECC, in its capacity as a Lender,
collectively, "Lenders"), (2) that certain Waiver and Amendment, dated as of
June 27, 1997, by and among Borrower, the Other Credit Parties, Agent and
Lenders ("Amendment No. 1") and (3) that certain Letter Agreement, dated as of
June 27, 1997, by and among Borrower (for and on behalf of itself and the Other
Credit Paries), Agent and Lenders (the "June 1997 Letter Agreement").
Capitalized terms used herein and not otherwise defined have the
meanings assigned to them in the Credit Agreement.
Borrower, for and on behalf of itself and the Other Credit Parties,
Agent and Lenders hereby agree that (1) the third paragraph of the June 1997
Letter Agreement is hereby amended by deleting the date "July 31, 1997", and
substituting therefor "August 22, 1997" and (2) Schedule A to the June 1997
Letter Agreement is amended by (a) deleting "and" at the end of Item 1.e., (b)
deleting "." at the end of Item 1.f. and substituting therefor ";", (c) adding,
<PAGE>
after Item 1.f., "g. the merger of St. Thomas Holdings, Inc. (an inactive
Subsidiary), with and into MEM; and" and (d) adding, after new Item 1.g., "h.
the use by Borrower of the name "Classic Edition Fragrances" as a d/b/a in
the State of Illinois."
This letter agreement shall be effective on and as of July 31, 1997.
Please acknowledge your agreement with the foregoing by signing and
returning the enclosed copy of this letter.
Very truly yours,
DANA PERFUMES CORP. (for and on behalf of
itself and the OTHER CREDIT PARTIES)
By: /S/
-------------------------------------
Name: John R. Jackson
Title: Group Vice President
Acknowledged, Agreed to and Accepted by:
GENERAL ELECTRIC CAPITAL CORPORATION
By: /S/
- -------------------------------------
Name: Peggy Erlenkotter
Title: Duly Authorized Signatory
NATIONAL CITY COMMERCIAL FINANCE, INC.
By: /S/
- -------------------------------------
Name: Christina M. Lucas
Title: Vice President
PNC BANK N.A.
By: /S/
- -------------------------------------
Name: Frank Phillips
Title: Vice President
2
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS OF RENAISSANCE COSMETICS INC. FOR
THE THREE MONTHS ENDED JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 15,520
<SECURITIES> 17,903
<RECEIVABLES> 43,170
<ALLOWANCES> 0
<INVENTORY> 61,786
<CURRENT-ASSETS> 149,508
<PP&E> 37,963
<DEPRECIATION> (10,039)
<TOTAL-ASSETS> 375,194
<CURRENT-LIABILITIES> 59,986
<BONDS> 223,926
104,862
0
<COMMON> 8
<OTHER-SE> (17,796)
<TOTAL-LIABILITY-AND-EQUITY> 375,194
<SALES> 40,885
<TOTAL-REVENUES> 40,885
<CGS> 16,776
<TOTAL-COSTS> 41,826
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,002
<INCOME-PRETAX> (4,228)
<INCOME-TAX> 205
<INCOME-CONTINUING> (4,228)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,433)
<EPS-PRIMARY> (11.48)
<EPS-DILUTED> (11.48)
</TABLE>
