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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________________ TO __________________
COMMISSION FILE NUMBER 1-11178
REVLON, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 13-3662955
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
625 MADISON AVENUE, NEW YORK, NEW YORK 10022
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 527-4000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OR 12(g) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
- --------------------------------------------------------------------------------
CLASS A COMMON STOCK NEW YORK STOCK EXCHANGE, INC.
- --------------------------------------------------------------------------------
INDICATE BY CHECK MARK WHETHER THE REGISTRANT: (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS.
YES [X] NO [ ]
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS
FORM 10-K. [X]
AS OF MARCH 8, 2000, 19,992,837 SHARES OF CLASS A COMMON STOCK AND
31,250,000 SHARES OF CLASS B COMMON STOCK WERE OUTSTANDING. 11,250,000 SHARES OF
CLASS A COMMON STOCK AND ALL OF THE SHARES OF CLASS B COMMON STOCK WERE HELD BY
REV HOLDINGS INC., AN INDIRECTLY WHOLLY OWNED SUBSIDIARY OF MAFCO HOLDINGS INC.
THE AGGREGATE MARKET VALUE OF THE REGISTRANT'S CLASS A COMMON STOCK HELD BY
NON-AFFILIATES (USING NEW YORK STOCK EXCHANGE, INC. CLOSING PRICE AS OF MARCH 8,
2000) WAS APPROXIMATELY $96,171,207.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
BACKGROUND
Revlon, Inc. (and together with its subsidiaries, the "Company") conducts
its business exclusively through its direct subsidiary, Revlon Consumer Products
Corporation and its subsidiaries ("Products Corporation"). The Company
manufactures, markets and sells an extensive array of cosmetics and skin care,
fragrances and personal care products ("consumer products"). REVLON is one of
the world's best known names in cosmetics and is a leading mass market cosmetics
brand. The Company believes that its global brand name recognition, product
quality and marketing experience have enabled it to create one of the strongest
consumer brand franchises in the world, with products sold in approximately 175
countries and territories. The Company's products are marketed under such
well-known brand names as REVLON, COLORSTAY, REVLON AGE DEFYING, ALMAY and
ULTIMA II in cosmetics; MOON DROPS, ETERNA 27, ULTIMA II and JEANNE GATINEAU in
skin care; CHARLIE and FIRE & ICE in fragrances; and FLEX, OUTRAGEOUS, MITCHUM,
COLORSTAY, COLORSILK, JEAN NATE, PLUSBELLE, BOZZANO and COLORAMA in personal
care products. To further strengthen its consumer brand franchises, the Company
markets each core brand with a distinct and uniform global image, including
packaging and advertising, while retaining the flexibility to tailor products to
local and regional preferences.
The Company was founded by Charles Revson, who revolutionized the cosmetics
industry by introducing nail enamels matched to lipsticks in fashion colors over
65 years ago. Today, the Company has leading market positions in many of its
principal product categories in the United States self-select distribution
channel. The Company's leading market positions for its REVLON brand products
include the number one positions in lip makeup and nail enamel (which the
Company has occupied for the past 23 years), with the top three selling brands
of lip makeup for 1999. The REVLON brand captured in 1996 and continued to hold
in 1999 the number one position overall in color cosmetics (consisting of lip,
eye and face makeup and nail enamel) in the United States self-select
distribution channel, where its market share was 19.7% for 1999. The Company
also has leading market positions in several product categories in certain
markets outside of the United States, including in Argentina, Australia, Brazil,
Canada, Mexico and South Africa.
All United States market share and market position data herein for the
Company's brands are based upon retail dollar sales, which are derived from A.C.
Nielsen data. A.C. Nielsen measures retail sales volume of products sold in the
United States self-select distribution channel. Such data represent A.C.
Nielsen's estimates based upon data gathered by A.C. Nielsen from market samples
and are therefore subject to some degree of variance.
In the United States, the self-select distribution channel includes
independent drug stores and chain drug stores (such as Walgreens, CVS, Eckerds,
Rite Aid and Longs), mass volume retailers (such as Wal-Mart, Target Stores and
Kmart) and supermarkets and combination supermarket/drug stores (such as
Albertson's, Kroger and H.E. Butt). Internationally, the self-select
distribution channel includes retailers such as Boots in the United Kingdom and
Western Europe, Shoppers Drug Mart in Canada and Wal-Mart worldwide. The
foregoing retailers, among others, sell the Company's products.
RECENT DEVELOPMENTS
On October 1, 1999 the Company announced that it had completed its review
of strategic alternatives to maximize shareholder value and had decided to
pursue the sale of its worldwide professional products line and its non-core
Latin American brands Colorama, Juvena, Bozzano and Plusbelle. On March 30,
2000, the Company completed the disposition of its worldwide professional
products line, including professional hair care products for use in and resale
by professional salons, ethnic hair and personal care products, Natural Honey
skin care and certain regional toiletries brands. Proceeds from the sale were
$315 million in cash, (before adjustments), plus $10 million in contingent
consideration based upon the business' future performance. A portion of the net
proceeds of approximately $150.3 million was used to reduce the aggregate
commitment under the Credit Agreement (as described below) and the balance will
be available for general corporate purposes.
On March 28, 2000, Products Corporation executed a definitive agreement
for the sale of its non-core Plusbelle brand in Argentina for $46.5 million in
cash. The closing of the sale, which is expected to occur during the second
quarter, is subject to various conditions. A portion of the net proceeds of the
sale will be used to reduce the aggregate commitment under the Credit Agreement
and the balance will be available for general corporate purposes.
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The Company continues to pursue the sale of its non-core Colorama, Juvena
and Bozzano brands in Brazil and is in discussions with prospective purchasers.
If a transaction is consummated, a portion of the net proceeds will be applied
to reduce the aggregate commitment under the Credit Agreement and the balance
will be available for general corporate purposes.
In the fourth quarter of 1998, the Company committed to a restructuring
plan to realign and reduce personnel, exit excess leased real estate, realign
and consolidate regional activities, reconfigure certain manufacturing
operations and exit certain product lines. During 1999, the Company recorded a
net charge of $20.5 million relating to such restructuring plan, principally for
employee severance and other personnel benefits. Additionally, the Company
adopted a plan to exit a non-core business as to which a charge of $1.6 million
was recorded.
During the fourth quarter of 1999, the Company continued to re-evaluate its
organizational structure and implemented a new restructuring plan principally at
its New York headquarters and New Jersey locations resulting in a charge of
$18.1 million principally for employee severance. As part of this restructuring
plan, the Company reduced personnel and consolidated excess real estate. In the
fourth quarter of 1999, the Company also recorded a $22.0 million charge in
connection with executive separation costs. The Company will continue to
evaluate its organizational structure, which may result in additional
restructuring charges in the future.
BUSINESS OBJECTIVES AND STRATEGY
The Company's objective is to become the most dynamic leader in global
beauty and skin care by being the most trusted supplier to its customers and
consumers, the most innovative in meeting their needs, and the first to market
with these innovations.
To achieve its objectives the Company's business strategy, which is
intended to improve its operating performance, is:
o to attract and retain the best people in the industry;
o to build consistent global equities;
o to gain unique insights into its consumer needs and to execute flawlessly
against those needs;
o to understand the needs of and to exceed the expectations of its trade
partners; and
o to operate at benchmark levels of efficiency in all aspects of its business.
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PRODUCTS
The Company manufactures and markets a variety of products worldwide. The
following table sets forth the Company's principal brands (a).
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BRAND COSMETICS SKIN CARE FRAGRANCES PERSONAL
CARE
PRODUCTS
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REVLON Revlon, ColorStay, Moon Drops, Charlie, Charlie Red, Flex, Outrageous,
Revlon Age Defying, Revlon Results, Charlie White, Aquamarine,
Super Lustrous, Eterna 27 Ciara Mitchum,
MoistureStay, Lady Mitchum,
Moon Drops, Hi & Dri,
Line & Shine, ColorStay,
New Complexion, Colorsilk,
Frost & Glow,
Top Speed, Wet/Dry Shadow, Revlon Shadings,
EveryLash, Timeliner, Jean Nate
StreetWear,
Revlon Implements
ALMAY Almay, Time-Off, Time-Off, Almay
Amazing, One Coat, Moisture Balance,
Stay Smooth, Moisture Renew,
Skin Stays Clean, Stay Clean
Moisture Balance
ULTIMA II Ultima II, Beautiful Glowtion, Vital
Nutrient, Wonderwear, Radiance, CHR
The Nakeds, Full
Moisture
SIGNIFICANT Colorama(b), Juvena(b), Jeanne Gatineau(b) Charlie Gold Plusbelle(b),
REGIONAL BRANDS Jeanne Gatineau(b), Bozzano(b),
Cutex(b) Colorama(b), ZP-11
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(a) Brands relating to the Company's professional products line, ethnic
products and Natural Honey products are not listed.
(b) Trademark owned in certain markets outside the United States.
Cosmetics and Skin Care. The Company sells a broad range of cosmetics and
skin care products designed to fulfill specifically identified consumer needs,
principally priced in the upper range of the self-select distribution channel,
including lip makeup, nail color and nail care products, eye and face makeup and
skin care products such as lotions, cleansers, creams, toners and moisturizers.
Many of the Company's products incorporate patented, patent-pending or
proprietary technology.
The Company markets several different lines of REVLON lip makeup (which
includes lipstick, lip gloss and liner). The Company's breakthrough COLORSTAY
lipcolor, which uses patented transfer-resistant technology that provides long
wear, is produced in approximately 50 shades. COLORSTAY Liquid Lip, a patented
lip technology introduced in 1999, is produced in approximately 40 shades and
builds on the strengths of the COLORSTAY foundation by offering long-wearing
benefits in a new product form, which enhances comfort and shine. SUPER
LUSTROUS lipstick is produced in
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approximately 70 shades. MOON DROPS, a moisturizing lipstick, is produced in
approximately 50 shades. LINE & SHINE utilizes an innovative product form,
combining lipliner and lip gloss in one package, and is produced in
approximately 20 shades. MOISTURESTAY uses patent-pending technology to
moisturize the lips even after the color wears off, and is produced in
approximately 40 shades.
The Company's nail color and nail care lines include enamels, cuticle
preparations and enamel removers. The Company's flagship REVLON nail enamel is
produced in approximately 85 shades and uses a patented formula that provides
consumers with improved wear, application, shine and gloss in a toluene-free and
formaldehyde-free formula. TOP SPEED nail enamel is produced in approximately 80
shades and contains a patented speed drying polymer formula, which sets in 60
seconds. REVLON has the number one position in nail enamel in the United States
self-select distribution channel. The Company also sells CUTEX nail polish
remover and nail care products in certain countries outside the United States.
The Company sells face makeup, including foundation, powder, blush and
concealers, under such REVLON brand names as REVLON AGE DEFYING, which is
targeted for women in the over 35 age bracket; COLORSTAY, which uses
patent-pending transfer-resistant technology that provides long wear and won't
rub off benefits; and NEW COMPLEXION, for consumers in the 18 to 34 age bracket.
The Company's eye makeup products include mascaras, eyeliners, eye shadows
and brow color. COLORSTAY eyecolor, mascara and brow color, EVERYLASH mascara,
SOFTSTROKE eyeliners and REVLON Wet/Dry eye shadows are targeted for women in
the 18 to 49 age bracket.
The Company's ALMAY brand consists of a complete line of hypo-allergenic,
dermatologist-tested, fragrance-free cosmetics and skin care products targeted
for consumers who want "a fresh, healthy, effortless look." ALMAY products
include lip makeup, nail color, eye and face makeup and skin care products. In
1999, ALMAY expanded its flagship ONE COAT franchise to include ONE COAT MASCARA
COLOR & CURL; other ONE COAT products include ONE COAT LIPCOLOR, ONE COAT NAIL
COLOR, ONE COAT GEL EYE PENCIL and ONE COAT LIP SHINE. The Company also
introduced Skin Stays Clean liquid and compact foundation makeup with its
patented "clean pore complex." ALMAY expanded its STAY SMOOTH franchise beyond
its ANTI-CHAP LIPLINER to STAY SMOOTH MASCARA, a defining mascara with a built
in comb. The ALMAY AMAZING COLLECTION features long-wearing mascaras,
foundations and lipcolor.
The Company's STREETWEAR brand consists of a quality, value-priced line of
nail enamels, mascaras, lip and eye liners, lip glosses and body accessories
that are targeted for the young, beauty savvy consumer.
The Company's premium priced cosmetics and skin care products are sold
under the ULTIMA II brand name, which is the Company's flagship premium priced
brand sold throughout the world. ULTIMA II'S products include lip makeup, eye
and face makeup and skin care products including GLOWTION, a line of skin
brighteners that combines skin care and color; FULL MOISTURE FOUNDATION and
lipcolor, VITAL RADIANCE and CHR skin care products; the BEAUTIFUL NUTRIENT
collection, a complete line of nourishing makeup that provides advanced nutrient
protection against dryness; THE NAKEDS makeup, a trend-setting line of makeup
emphasizing neutral colors; and WONDERWEAR. The WONDERWEAR collection includes a
long-wearing foundation that uses patented technology, cheek and eyecolor
products that use proprietary technology that provides long wear, and WONDERWEAR
lipstick, which uses patented transfer-resistant technology. In the U.S. the
Company has broadened the distribution of ULTIMA II into the self-select
channel.
The Company sells implements, which include nail and eye grooming tools
such as clippers, scissors, files, tweezers and eye lash curlers. The Company's
implements are sold individually and in sets under the REVLON brand name and are
the number one brand in the United States self-select distribution channel.
The Company also sells cosmetics in international markets under regional
brand names including COLORAMA and JUVENA in Brazil.
The Company's skin care products, including moisturizers, are sold under
brand names, including ETERNA 27, MOON DROPS, REVLON RESULTS, ALMAY TIME-OFF
REVITALIZER, CLEAR COMPLEXION and ULTIMA II VITAL RADIANCE. In addition, the
Company sells skin care products in international markets under internationally
recognized brand names and under various regional brands, including the
Company's premium priced JEANNE GATINEAU.
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Fragrances. The Company sells a selection of moderately priced and premium
priced fragrances, including perfumes, eau de toilettes and colognes. The
Company's portfolio includes fragrances such as CHARLIE and CIARA and line
extensions such as CHARLIE RED and CHARLIE WHITE. The Company's CHARLIE
fragrance has been a market leader since the mid-1970's. In international
markets, the Company distributes under license certain brands, including VERSACE
and VAN GILS.
Personal Care Products. The Company sells a broad line of personal care
consumer products, which complements its core cosmetics lines and enables the
Company to meet the consumer's broader beauty care needs. In the self-select
distribution channel, the Company sells haircare, antiperspirant and other
personal care products, including the FLEX, OUTRAGEOUS and AQUAMARINE haircare
lines throughout the world and the COLORAMA, BOZZANO, PLUSBELLE and JUVENA
brands outside the United States; the breakthrough, patented COLORSTAY, as well
as COLORSILK, REVLON SHADINGS and FROST & GLOW hair coloring lines throughout
most of the world; and the MITCHUM, LADY MITCHUM and HI & DRI antiperspirant
brands throughout the world. The Company also markets hypo-allergenic personal
care products, including sunscreens, moisturizers and antiperspirants, under
the ALMAY brand.
MARKETING
Consumer Products. The Company markets extensive consumer product lines at
a range of retail prices primarily through the self-select distribution channel
and markets select premium lines through demonstrator-assisted channels,
principally outside the U.S. Each line is distinctively positioned and is
marketed globally with consistently recognizable logos, packaging and
advertising designed to differentiate it from other brands. The Company's
existing consumer product lines are carefully segmented, and new product lines
are developed, to target specific consumer needs as measured by focus groups and
other market research techniques.
The Company uses print and television advertising and point-of-sale
merchandising, including displays and samples. The Company's marketing
emphasizes a uniform global image and product for its portfolio of core brands,
including REVLON, COLORSTAY, REVLON AGE DEFYING, ALMAY, ULTIMA II, FLEX,
CHARLIE, OUTRAGEOUS and MITCHUM. The Company coordinates advertising campaigns
with in-store promotional and other marketing activities. The Company develops
jointly with retailers carefully tailored advertising, point-of-purchase and
other focused marketing programs. The Company uses network and spot television
advertising, national cable advertising and print advertising in major general
interest, women's fashion and women's service magazines, as well as coupons,
magazine inserts and point-of-sale testers. The Company also uses cooperative
advertising programs with some retailers, supported by Company-paid or
Company-subsidized demonstrators, and coordinated in-store promotions and
displays.
The Company also has developed unique marketing materials such as the
"Revlon Report," a glossy, color pamphlet distributed in magazines and on
merchandising units, available in approximately 80 countries and approximately
20 languages, which highlights seasonal and other fashion and color trends,
describes the Company's products that address those trends and contains coupons,
rebate offers and other promotional material to encourage consumers to try the
Company's products. Other marketing materials designed to introduce the
Company's newest products to consumers and encourage trial and purchase include
point-of-sale testers on the Company's display units that provide information
about, and permit consumers to test, the Company's products, thereby achieving
the benefits of an in-store demonstrator without the corresponding cost,
magazine inserts containing samples of the Company's newest products, trial size
products and "shade samplers," which are collections of trial size products in
different shades. Additionally, the Company has its own website, which features
current product and promotional information.
NEW PRODUCT DEVELOPMENT AND RESEARCH AND DEVELOPMENT
The Company believes that it is an industry leader in the development of
innovative and technologically-advanced consumer products. The Company's
marketing and research and development groups identify consumer needs and shifts
in consumer preferences in order to develop new products, tailor line extensions
and promotions and redesign or reformulate existing products to satisfy such
needs or preferences. The Company's research and development group comprises
departments specialized in the technologies critical to the Company's various
product categories as well as an advanced technology department that promotes
inter-departmental, cross-functional research on a wide range of technologies to
develop new and innovative products. The Company
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independently develops substantially all of its new products. The Company also
has entered into joint research projects with major universities and commercial
laboratories to develop advanced technologies.
The Company believes that its Edison, New Jersey facility is one of the
most extensive cosmetics research and development facilities in the United
States. The scientists at the Edison facility are responsible for all of the
Company's new product research worldwide, performing research for new products,
ideas, concepts and packaging. The Company also has satellite research
facilities in Brazil and France.
The research and development group at the Edison facility also performs
extensive safety and quality tests on the Company's products, including
toxicology, microbiology and package testing. Additionally, quality control
testing is performed at each manufacturing facility.
As of December 31, 1999, the Company employed approximately 200 people in
its research and development activities, including specialists in pharmacology,
toxicology, chemistry, microbiology, engineering, biology, dermatology and
quality control. In 1999, 1998 and 1997, the Company spent approximately $32.9
million, $31.9 million and $29.7 million, respectively, on research and
development activities.
MANUFACTURING AND RELATED OPERATIONS AND RAW MATERIALS
The Company manufactures REVLON brand color cosmetics, personal care
products and fragrances and ULTIMA II cosmetics and skin treatment products for
sale in the United States, Japan and most of the countries in Latin America and
Southeast Asia at its Phoenix, Arizona facility and its Canadian facility. The
Company manufactures ALMAY brand products for sale throughout the world at its
Oxford, North Carolina facility. Implements for sale throughout the world are
manufactured and/or assembled at the Company's Irvington, New Jersey facility.
The Phoenix and Oxford facilities have been ISO-9002 certified. ISO-9002
certification is an internationally recognized standard for manufacturing
facilities, which signifies that the manufacturing facility has achieved and
maintains certain performance and quality commitment standards.
The Company manufactures its entire line of consumer products (except
implements) for sale in most of Europe at its Maesteg, South Wales facility.
Production of cosmetics and personal care products also currently takes place at
the Company's facilities in Canada, Venezuela, Mexico, New Zealand, Brazil,
Argentina, France and South Africa. Production of color cosmetics for Japan and
Mexico has been shifted primarily to the United States. The Maesteg facility has
been certified by the British equivalent of ISO-9002.
The globalization of the Company's core brands allows the Company to
centralize production of some product categories for sale throughout the world
within designated facilities and shift production of certain other product
categories to more cost effective manufacturing sites to reduce production
costs. Shifts of production may result in the closing of certain of the
Company's manufacturing facilities, and the Company continually reviews its
needs in this regard. In addition, as part of its efforts to continuously reduce
costs, the Company attempts to ensure that a significant portion of its capital
expenditures is devoted to improving operating efficiencies.
The Company purchases raw materials and components throughout the world.
The Company continuously pursues reductions in cost of goods through the global
sourcing of raw materials and components from qualified vendors, utilizing its
large purchasing capacity to maximize cost savings. The global sourcing of raw
materials and components from accredited vendors also ensures the quality of the
raw materials and components. The Company believes that alternate sources of raw
materials and components exist and does not anticipate any significant shortages
of, or difficulty in obtaining, such materials.
The Company's improvements in manufacturing, sourcing and related
operations have contributed to improved customer service, including an
improvement in the percentage of timely order fulfillment from most of the
Company's principal manufacturing facilities, and the timeliness and accuracy of
new product and promotion deliveries. To promote the Company's understanding of
and responsiveness to the needs of its retail customers, the Company has
dedicated teams assigned to significant accounts, and has provided retail
accounts with a designated customer service representative. As a result of these
efforts, accompanied by stronger and more customer-focused management, the
Company has developed strong relationships with its retailers.
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INFORMATION SYSTEMS
As part of the Company's comprehensive business process enhancement program
the Company's management information systems have been substantially upgraded to
provide comprehensive order processing, production and accounting support for
the Company's business, as well as to upgrade certain information technology to
be Year 2000 compliant. In addition, the Company developed a comprehensive plan
to address Year 2000 issues. The Year 2000 plan addressed three main areas: (a)
information technology systems; (b) non-information technology systems
(including factory equipment, building systems and other embedded systems); and
(c) business partner readiness (including without limitation customers,
inventory and non-inventory suppliers, service suppliers, banks, insurance
companies and tax and other governmental agencies).
Since January 1, 2000, the Company has not experienced any adverse
consequences resulting from Year 2000 issues relative to its systems or business
partners. The Company believes that incremental out-of-pocket costs of its Year
2000 program (which do not include costs incurred in connection with the
Company's comprehensive business process enhancement program) were not material.
These costs included the cost of third party consultants, remediation of
existing computer software and replacement and remediation of embedded systems.
DISTRIBUTION
The Company's products are sold in approximately 175 countries and
territories. The Company's worldwide sales force had approximately 1,000 people
as of December 31, 1999 (which includes approximately 300 employees related to
the professional products line which was sold in March 2000), including
dedicated sales forces for cosmetics, skin care and fragrance products in the
self-select distribution channel, for the demonstrator-assisted distribution
channel, for personal care products distribution and, prior to the disposition
of the worldwide professional products line, for salon distribution. In
addition, the Company utilizes sales representatives and independent
distributors to serve specialized markets and related distribution channels.
United States. Net sales in the United States accounted for approximately
56.2% of the Company's 1999 net sales, a majority of which were made in the
self-select distribution channel. The Company also sells a broad range of
consumer products to United States Government military exchanges and
commissaries. The Company licenses its trademarks to select manufacturers for
products that the Company believes have the potential to extend the Company's
brand names and image. As of December 31, 1999, 10 licenses were in effect
relating to 15 product categories to be marketed in the self-select distribution
channel. Pursuant to the licenses, the Company retains strict control over
product design and development, product quality, advertising and use of its
trademarks. These licensing arrangements offer opportunities for the Company to
generate revenues and cash flow through earned royalties.
International. Net sales outside the United States accounted for
approximately 43.8% of the Company's 1999 net sales. The ten largest countries
in terms of these sales, which include, among others, Spain, Brazil, the United
Kingdom, Argentina, Australia, South Africa and Canada, accounted for
approximately 31.9% of the Company's net sales in 1999. The Company is
increasing distribution through the expanding self-select distribution channels
outside the United States, such as drug stores/chemists, hypermarkets/mass
volume retailers and variety stores, as these channels gain importance. The
Company also distributes outside the United States through department stores and
specialty stores such as perfumeries. At December 31, 1999, the Company actively
sold its products through wholly owned subsidiaries established in 28 countries
outside of the United States and through a large number of distributors and
licensees elsewhere around the world. The Company continues to pursue strategies
to establish its presence in new markets where the Company identifies
opportunities for growth. In addition, the Company is building a franchise
through local distributorships in northern and central Africa, where the Company
intends to expand the distribution of its products by capitalizing on its market
strengths in South Africa.
CUSTOMERS
The Company's principal customers include large mass volume retailers and
chain drug stores, including such well known retailers as Wal-Mart, Target,
Kmart, Walgreens, Rite Aid, CVS, Eckerds, Albertsons Drugs and Longs in the
United States, Boots in the United Kingdom, Carrefour in Western Europe and
Wal-Mart internationally. Wal-Mart and its affiliates worldwide accounted for
approximately 13.1% of the Company's 1999 consolidated net sales. Although the
loss of Wal-Mart as a customer could have an adverse effect on the Company, the
Company believes that its
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relationship with Wal-Mart is satisfactory and the Company has no reason to
believe that Wal-Mart will not continue as a customer.
COMPETITION
The consumer products business is characterized by vigorous competition
throughout the world. Brand recognition, together with product quality,
performance and price and the extent to which consumers are educated on product
benefits, have a marked influence on consumers' choices among competing products
and brands. Advertising, promotion, merchandising and packaging, and the timing
of new product introductions and line extensions, also have a significant impact
on buying decisions, and the structure and quality of the sales force affect
product reception, in-store position, permanent display space and inventory
levels in retail outlets. The Company competes in most of its product categories
against a number of companies, a number of which have substantially greater
resources than the Company. In addition to products sold in the self-select and
demonstrator-assisted distribution channels, the Company's products also compete
with similar products sold door-to-door or through mail order or telemarketing
by representatives of direct sales companies. The Company's principal
competitors include L'Oreal S.A., The Procter & Gamble Company, Unilever N.V.
and Estee Lauder, Inc.
SEASONALITY
The Company's business is subject to certain seasonal fluctuations, with
net sales in the second half of the year benefiting slightly from increased
retailer purchases in the United States for the back-to-school and Christmas
selling seasons.
PATENTS, TRADEMARKS AND PROPRIETARY TECHNOLOGY
The Company's major trademarks are registered in the United States and in
many other countries, and the Company considers trademark protection to be very
important to its business. Significant trademarks include REVLON, COLORSTAY,
REVLON AGE DEFYING, STREETWEAR, FLEX, PLUSBELLE, CUTEX (outside the U.S.),
MITCHUM, ETERNA 27, ULTIMA II, ALMAY, CHARLIE, JEAN NATE, REVLON RESULTS,
COLORAMA, FIRE & ICE, MOON DROPS, SUPER LUSTROUS, WONDERWEAR and COLORSILK.
The Company utilizes certain proprietary or patented technologies in the
formulation or manufacture of a number of the Company's products, including
COLORSTAY lipcolor and cosmetics, COLORSTAY hair color, classic REVLON nail
enamel, TOP SPEED nail enamel, REVLON AGE DEFYING foundation and cosmetics, NEW
COMPLEXION makeup, WONDERWEAR foundation, WONDERWEAR lipstick, ALMAY TIME-OFF
skin care and makeup, ALMAY AMAZING cosmetics, ALMAY ONE COAT eye makeup and
cosmetics, ULTIMA II VITAL RADIANCE skin care products and OUTRAGEOUS shampoo.
The Company also protects certain of its packaging and component concepts
through design patents. The Company considers its proprietary technology and
patent protection to be important to its business.
9
GOVERNMENT REGULATION
The Company is subject to regulation by the Federal Trade Commission and
the Food and Drug Administration (the "FDA") in the United States, as well as
various other federal, state, local and foreign regulatory authorities. The
Phoenix, Arizona and Oxford, North Carolina manufacturing facilities are
registered with the FDA as drug manufacturing establishments, permitting the
manufacture of cosmetics that contain over-the-counter drug ingredients such as
sunscreens. Compliance with federal, state, local and foreign laws and
regulations pertaining to discharge of materials into the environment, or
otherwise relating to the protection of the environment, has not had, and is not
anticipated to have, a material effect upon the capital expenditures, earnings
or competitive position of the Company. State and local regulations in the
United States that are designed to protect consumers or the environment have an
increasing influence on product claims, contents and packaging.
INDUSTRY SEGMENTS, FOREIGN AND DOMESTIC OPERATIONS
The Company operates in a single segment. Certain geographic, financial and
other information of the Company is set forth in Note 19 of the Notes to
Consolidated Financial Statements of the Company.
EMPLOYEES
As of December 31, 1999, the Company employed the equivalent of
approximately 11,000 full-time persons (which includes approximately 1,900
employees related to the professional products line which was sold in March
2000). As of December 31, 1999, approximately 1,700 of such employees in the
United States were covered by collective bargaining agreements, (which includes
approximately 400 employees related to the professional products line). The
Company believes that its employee relations are satisfactory. Although the
Company has experienced minor work stoppages of limited duration in the past in
the ordinary course of business, such work stoppages have not had a material
effect on the Company's results of operations or financial condition.
10
ITEM 2. PROPERTIES
The following table sets forth as of December 31, 1999 the Company's
major manufacturing, research and warehouse/distribution facilities, all of
which are owned except where otherwise noted.
APPROXIMATE FLOOR SPACE
LOCATION USE SQ. FT.
- -------- --- -------
Oxford, North Carolina........ Manufacturing, warehousing, distribution and office 1,012,000
Phoenix, Arizona.............. Manufacturing, warehousing, distribution and office 706,000
(partially leased)
Jacksonville, Florida (a)..... Manufacturing, warehousing, distribution, research and 526,000
office
Edison, New Jersey............ Research and office (leased) 175,000
Irvington, New Jersey......... Manufacturing, warehousing and office 96,000
Sao Paulo, Brazil............. Manufacturing, warehousing, distribution, office and 435,000
research
Maesteg, South Wales.......... Manufacturing, distribution and office 316,000
Mississauga, Canada........... Manufacturing, warehousing, distribution and office 245,000
Santa Maria, Spain (a)........ Manufacturing and warehousing 173,000
Caracas, Venezuela............ Manufacturing, distribution and office 145,000
Kempton Park, South Africa.... Warehousing, distribution and office (leased) 127,000
Canberra, Australia........... Warehousing, distribution and office 125,000
Isando, South Africa.......... Manufacturing, warehousing, distribution and office 94,000
Buenos Aires, Argentina....... Manufacturing, warehousing, distribution and office 75,000
Bologna, Italy (a)............ Manufacturing, warehousing, distribution and office 60,000
Dublin, Ireland (a)........... Manufacturing, warehousing, distribution and office 32,500
(a) Facility was transferred to the purchaser of the professional products line
in March 2000.
In addition to the facilities described above, additional facilities are
owned and leased in various areas throughout the world, including the lease for
the Company's executive offices in New York, New York (346,000 square feet, of
which approximately 19,000 square feet were sublet to affiliates of the Company
and approximately 78,000 square feet were sublet to unaffiliated third parties
as of December 31, 1999). Management considers the Company's facilities to be
well-maintained and satisfactory for the Company's operations, and believes that
the Company's facilities provide sufficient capacity for its current and
expected production requirements.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in various routine legal proceedings incident to
the ordinary course of its business. The Company believes that the outcome of
all pending legal proceedings in the aggregate is unlikely to have a material
adverse effect on the business or consolidated financial condition of the
Company.
In October and November 1999 six purported class actions were filed by each
of Thomas Comport, Boaz Spitz, Felix Ezeir and Amy Hoffman, Ted Parris, Jerry
Krim and Dan Gavish individually and on behalf of others similarly situated to
them, in the United States District Court for the Southern District of New York,
against the Company and certain of its present and former officers and
directors, alleging, among other things, violations of Rule 10b-5 under the
Securities Exchange Act of 1934, as amended, through the alleged use of
deceptive accounting practices during the period from October 29, 1997 through
October 2, 1998, inclusive, in the Comport and
11
Hoffman/Parris cases and October 30, 1997 through October 1, 1999, inclusive, in
the Spitz, Ezeir, Krim and Gavish cases. Each of the actions seeks a declaration
that it is properly brought as a class action, and unspecified damages, attorney
fees and other costs. In January 2000, the court consolidated the six cases. The
Company believes the allegations contained in these suits to be without merit
and intends to vigorously defend against them.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MacAndrews & Forbes Holdings Inc. ("MacAndrews Holdings"), which is
indirectly wholly owned by Ronald O. Perelman, through REV Holdings Inc. ("REV
Holdings"), beneficially owns 11,250,000 shares of the Company's Class A Common
Stock (representing 56.3% of the outstanding shares of Class A Common Stock) and
all of the outstanding 31,250,000 shares of Class B Common Stock, which together
represent approximately 83% of the outstanding shares of the Company's Common
Stock and have approximately 97.4% of the combined voting power of the
outstanding shares of the Company's Common Stock. The remaining 8,742,837 shares
of Class A Common Stock outstanding at March 8, 2000 are owned by the public. As
of March 8, 2000, there were 744 holders of record of Class A Common Stock. No
dividends were declared or paid during 1999 or 1998. The terms of the Credit
Agreement, the 8 5/8% Notes (as hereinafter defined), the 8 1/8% Notes (as
hereinafter defined) and the 9% Notes (as hereinafter defined) currently
restrict the ability of Products Corporation to pay dividends or make
distributions to Revlon, Inc. See the Consolidated Financial Statements of the
Company and the Notes thereto.
The table below shows the Company's high and low quarterly stock prices for
the years ended December 31, 1999 and 1998.
1999 QUARTERLY STOCK PRICES (1)
-------------------------------------------------
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
High .................... $ 22 1/4 $ 32 $ 29 1/8 $ 12
Low ..................... 13 1/2 19 1/8 18 7 1/2
1998 QUARTERLY STOCK PRICES (1)
-------------------------------------------------
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER
------- ------- ---------- ----------
High .................... $ 51 13/16 $ 56 1/16 $ 54 1/2 $ 27 13/16
Low ..................... 33 5/8 47 9/16 30 7/8 12 1/2
(1) Represents the closing price per share on the New York Stock Exchange
(NYSE), which is the exchange on which shares of the Company's Class A Common
Stock are listed. The Company's symbol is REV.
12
ITEM 6. SELECTED FINANCIAL DATA
The Consolidated Statements of Operations Data for each of the years in
the five-year period ended December 31, 1999 and the Balance Sheet Data as of
December 31, 1999, 1998, 1997 and 1996 are derived from the Consolidated
Financial Statements of the Company, which have been audited by KPMG LLP,
independent certified public accountants. The Balance Sheet Data as of December
31, 1995 is derived from unaudited consolidated financial statements, which have
been restated to reflect the Company's former retail and outlet store business
as discontinued operations. The Selected Consolidated Financial Data should be
read in conjunction with the Consolidated Financial Statements of the Company
and the Notes to the Consolidated Financial Statements and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
STATEMENTS OF OPERATIONS DATA:
Net sales .................................. $ 1,861.3 $ 2,252.2 $ 2,238.6 $ 2,092.1 $ 1,867.3
Operating (loss) income .................... (212.6)(a) 124.6(b) 214.9 (c) 199.2 147.5
(Loss) income from continuing operations ... (371.5) (27.3) 57.8 24.4 (37.2)
Basic (loss) income from continuing
operations per common share .............. $ (7.25) $ (0.53) $ 1.13 $ 0.49 $ (0.88)
========== ========== ========== ========== ==========
Diluted (loss) income from continuing
operations per common share .............. $ (7.25) $ (0.53) $ 1.13 $ 0.49 $ (0.88)
========== ========== ========== ========== ==========
Weighted average number of
common shares outstanding: (d)
Basic ................................. 51,240,225 51,217,997 51,131,440 49,687,500 42,500,000
========== ========== ========== ========== ==========
Diluted ............................... 51,240,225 51,217,997 51,544,318 49,818,792 42,500,000
========== ========== ========== ========== ==========
DECEMBER 31,
-------------------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(DOLLARS IN MILLIONS)
BALANCE SHEET DATA:
Total assets ............................... $ 1,558.3 $ 1,830.0 $ 1,756.0 $ 1,617.3 $ 1,532.6
Long-term debt, including current portion .. 1,772.1 1,660.0 1,425.2 1,361.0 1,476.7
Total stockholders' deficiency ............. (1,014.9) (648.0) (458.5) (497.1) (702.3)
(a) Includes business consolidation costs and other, net and executive
separation costs of $40.2 million and $22.0 million, respectively. See
Note 4 to the Consolidated Financial Statements.
(b) Includes business consolidation costs and other, net aggregating $35.8
million. See Note 4 to the Consolidated Financial Statements.
(c) Includes business consolidation costs and other, net, of $3.6 million. See
Note 4 to the Consolidated Financial Statements.
(d) Represents the weighted average number of common shares outstanding for
the period. See Note 1 to the Consolidated Financial Statements.
13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(DOLLARS IN MILLIONS)
OVERVIEW
The Company operates in a single segment and manufactures, markets and
sells an extensive array of cosmetics and skin care, fragrances and personal
care products, and, until the disposition of its professional products line in
March 2000, had included professional products, which consisted of hair and
nail care products principally for use in and resale by professional salons. In
addition, the Company has a licensing group.
RESULTS OF OPERATIONS
The following table sets forth the Company's net sales for each of the
last three years:
YEAR ENDED DECEMBER 31,
--------------------------------------------
1999 1998 1997
-------- -------- --------
Net sales:
United States ................ $ 1,046.2 $ 1,343.7 $ 1,304.9
International ................ 815.1 908.5 933.7
---------- --------- ----------
$ 1,861.3 $ 2,252.2 $ 2,238.6
========== ========== ==========
The following table sets forth certain statements of operations data as a
percentage of net sales for each of the last three years:
YEAR ENDED DECEMBER 31,
--------------------------------------------
1999 1998 1997
---- ---- ----
Cost of sales* ............ 36.9 % 34.0 % 33.2 %
Gross profit .............. 63.1 66.0 66.8
Selling, general and
administrative expenses
("SG&A")** ............. 72.4 59.0 57.1
Business consolidation
costs and other, net ... 2.2 1.5 0.1
Operating (loss) income.... (11.4) 5.5 9.6
* 1998 includes $2.7 (0.1% of net sales) for charges related to business
consolidation costs.
** 1999 includes $22.0 (1.2% of net sales) for charges related to executive
separation costs.
14
YEAR ENDED DECEMBER 31, 1999 COMPARED WITH YEAR ENDED DECEMBER 31, 1998
Net sales were $1,861.3 and $2,252.2 for 1999 and 1998, respectively, a
decrease of $390.9, or 17.4% on a reported basis (a decrease of 14.9% on a
constant U.S. dollar basis).
United States. Net sales in the United States were $1,046.2 for 1999
compared with $1,343.7 for 1998, a decrease of $297.5, or 22.1%. Net sales for
1999 were adversely affected by lower than anticipated share growth,
competitive activities and a reduction in the level of Company shipments to
certain retailers to achieve such retailers' new lower inventory target levels.
The reduction of retailers' target inventory levels will continue and is
expected to adversely impact sales through the first half of 2000.
New products in 1999 included EVERYLASH mascara, MOISTURESTAY SHEER LIP
COLOR, REVLON AGE DEFYING compact makeup, WET/DRY EYE SHADOW, ALMAY STAY SMOOTH
lip makeup and mascara, ALMAY Foundation with Skin Stays Clean attributes,
products in the ALMAY ONE COAT collection, MITCHUM COOL DRY antiperspirant and
COLORSTAY LIQUID LIP.
International. Net sales outside the United States were $815.1 for 1999
compared with $908.5 for 1998, a decrease of $93.4, or 10.3%, on a reported
basis (a decrease of 3.7% on a constant U.S. dollar basis). Net sales for 1999
on a constant U.S. dollar basis were affected by unfavorable economic
conditions in certain markets outside the U.S., principally Brazil, which
restrained consumer and trade demand, increased competitive activity and lower
sales in certain markets, principally the United Kingdom and Canada. The
decrease in net sales for 1999 on a reported basis also reflects the
unfavorable effect on sales of a stronger U.S. dollar against certain foreign
currencies, particularly the Brazilian real. Sales outside the United States
are divided into three geographic regions. In Europe, which comprises Europe,
the Middle East and Africa, net sales decreased by 9.2% on a reported basis to
$369.5 for 1999 as compared with 1998 (a decrease of 4.3% on a constant U.S.
dollar basis). In the Western Hemisphere, which comprises Canada, Mexico,
Central America, South America and Puerto Rico, net sales decreased by 15.4% on
a reported basis to $303.1 for 1999 as compared with 1998 (a decrease of 3.0%
on a constant U.S. dollar basis). The Company's operations in Brazil are
significant. In Brazil, net sales were $76.1 on a reported basis for 1999
compared with $122.5 for 1998, a decrease of $46.4, or 37.9% (a decrease of
3.1% on a constant U.S. dollar basis). On a reported basis, net sales in Brazil
were adversely affected by the stronger U.S. dollar against the Brazilian real,
unfavorable economic conditions and increased competitive activities. In the
Far East, net sales decreased by 0.7% on a reported basis to $142.5 for 1999 as
compared with 1998 (a decrease of 4.0% on a constant U.S. dollar basis). Net
sales outside the United States, including, without limitation, in Brazil, may
be adversely affected by generally weak economic conditions, political and
economic uncertainties, including, without limitation, currency fluctuations
and competitive activities in certain markets.
Cost of sales
As a percentage of net sales, cost of sales was 36.9% for 1999 compared
with 34.0% for 1998. The increase in cost of sales as a percentage of net sales
for 1999 compared with 1998 is due to changes in product mix, the effect of
weaker local currencies on the cost of imported purchases by subsidiaries
outside the U.S. and the effect of lower net sales.
SG&A expenses
As a percentage of net sales, SG&A expenses were 72.4% ($1,347.6) for 1999
compared with 59.0% ($1,328.8) for 1998. The increase in SG&A expenses as a
percentage of net sales is due in large measure to the reduced levels of sales
coupled with the Company's decision to maintain throughout the second half of
1999 brand support intended to drive consumer purchasing and facilitate the
inventory reduction process by U.S. retailers referred to earlier. In addition,
SG&A increased as a result of executive separation costs of $22.0, which were
partially offset by savings from the Company's restructuring plan from 1998.
15
Business consolidation costs and other, net
In the fourth quarter of 1998, the Company committed to a restructuring
plan to realign and reduce personnel, exit excess leased real estate, realign
and consolidate regional activities, reconfigure certain manufacturing
operations and exit certain product lines. During 1999, the Company continued
to implement such restructuring plan for which it recorded a charge of $20.5
for employee severance and other personnel benefits, costs associated with the
exit from leased facilities as well as other costs. Also in 1999, the Company
consummated an exit from a non-core business, resulting in an additional charge
of $1.6, which is included in business consolidation costs and other, net.
During the fourth quarter of 1999, the Company continued to re-evaluate
its organizational structure and implemented a new restructuring plan
principally at its New York headquarters and New Jersey locations resulting in
a charge of $18.1 principally for employee severance. As part of this new
restructuring plan, the Company reduced personnel and consolidated excess real
estate. As a result of the new restructuring plan, executive separation costs,
and the elimination of open positions, the Company anticipates annual savings
of between $45 and $50, beginning in 2000.
Operating (loss) income
As a result of the foregoing, operating (loss) for 1999 was $(212.6)
compared to operating income of $124.6 for 1998.
Other expenses/(income)
Interest expense was $147.9 for 1999 compared with $137.9 for 1998. The
increase in interest expense for 1999 as compared with 1998 is due to higher
average outstanding debt and higher interest rates under the Credit Agreement,
partially offset by lower interest rates as a result of the refinancings in
1998.
Foreign currency (gains) losses, net, were $(0.5) for 1999 compared with
$4.6 in 1998. Foreign currency losses, net for 1998 consisted primarily of
losses in several markets in Latin America.
Provision for income taxes
The provision for income taxes was $9.1 for 1999 compared with $5.0 for
1998.
Discontinued operations
During 1998, the Company completed the disposition of its approximately
85% ownership interest in The Cosmetic Center, Inc. ("CCI") and, accordingly,
the results of operations of CCI had been reported as discontinued operations
along with the loss on disposal of such operations.
16
YEAR ENDED DECEMBER 31, 1998 COMPARED WITH YEAR ENDED DECEMBER 31, 1997
NET SALES
Net sales were $2,252.2 and $2,238.6 for 1998 and 1997, respectively, an
increase of $13.6, or 0.6% (or 2.7% on a constant U.S. dollar basis).
United States. Net sales in the United States were $1,343.7 for 1998
compared with $1,304.9 for 1997, an increase of $38.8, or 3.0%. The increase in
net sales in 1998 reflects improvements in net sales of products in the
Company's ALMAY and ULTIMA franchises and expansion of certain of the Company's
professional product lines including an acquisition. For the first half of
1998, net sales for the Company's REVLON franchise increased as compared to the
first half of 1997 as a result of continued consumer acceptance of new product
offerings and general improvement in consumer demand for the Company's color
cosmetics. Beginning in third quarter of 1998, such sales were adversely
affected by a slowdown in the rate of growth in the mass market color cosmetics
category and a leveling of market share. Additionally, net sales for 1998 were
impacted by reduced purchases by some retailers, particularly chain drug stores,
resulting from improved inventory management through systems upgrades and
inventory reductions following several recent business combinations.
REVLON brand color cosmetics continued as the number one brand in dollar
market share in the U.S. self-select distribution channel. New product
introductions (including, in 1998, certain products launched during 1997)
generated incremental net sales in 1998, principally as a result of launches of
TOP SPEED nail enamel, MOISTURESTAY lip makeup, products in the NEW COMPLEXION
line, COLORSTAY shampoo, ALMAY STAY SMOOTH lip makeup, products in the ALMAY
AMAZING collection, products in the ALMAY ONE COAT collection, products in the
ULTIMA II BEAUTIFUL NUTRIENT and ULTIMA II FULL MOISTURE lipcolor lines and
ULTIMA II GLOWTION skin brighteners.
International. Net sales outside the United States were $908.5 for 1998
compared with $933.7 for 1997, a decrease of $25.2, or 2.7%, on a reported
basis (an increase of 2.4% on a constant U.S. dollar basis). The increase in
net sales for 1998 on a constant dollar basis reflects the benefits of
increased distribution, including acquisitions, and successful new product
introductions in several markets including MOISTURESTAY lip makeup and TOP
SPEED nail enamel. The decrease in net sales for 1998 on a reported basis
reflects the unfavorable effect on sales of a stronger U.S. dollar against most
foreign currencies and unfavorable economic conditions in several international
markets. These unfavorable economic conditions restrained consumer and trade
demand outside the U.S., particularly in South America and the Far East, as
well as Russia and other developing economies. Sales outside the United States
are divided into three geographic regions. In Europe, which comprises Europe,
the Middle East and Africa, net sales decreased by 2.6% on a reported basis to
$406.9 for 1998 as compared with 1997 (an increase of 0.5% on a constant U.S.
dollar basis). In the Western Hemisphere, which comprises Canada, Mexico,
Central America, South America and Puerto Rico, net sales increased by 4.7% on
a reported basis to $358.1 for 1998 as compared with 1997 (an increase of 9.5%
on a constant U.S. dollar basis). The Company's operations in Brazil are
significant. In Brazil, net sales were $122.5 on a reported basis for 1998
compared with $130.9 for 1997, a decrease of $8.4, or 6.4% (an increase of 0.5%
on a constant U.S. dollar basis). On a reported basis, net sales in Brazil were
adversely affected by the stronger U.S. dollar against the Brazilian real. In
the Far East, net sales decreased by 17.5% on a reported basis to $143.5 for
1998 as compared with 1997 (a decrease of 7.4% on a constant U.S. dollar
basis). Net sales outside the United States, including without limitation in
Brazil, were adversely impacted by generally weak economic conditions,
political and economic uncertainties, including without limitation currency
fluctuations, and competitive activities in certain markets.
Cost of sales
As a percentage of net sales, cost of sales was 34.0% for 1998 compared
with 33.2% for 1997. The increase in cost of sales as a percentage of net sales
for 1998 compared with 1997 is due to changes in product mix, the effect of
weaker local currencies on the cost of imported purchases, the effect of lower
net sales in the second half of 1998 and the inclusion of $2.7 of other costs
incurred to exit certain product lines outside the United States in connection
with the restructuring charge in the fourth quarter of 1998. These factors were
partially offset by the benefits of more efficient global production and
purchasing.
17
SG&A expenses
As a percentage of net sales, SG&A expenses were 59.0% for 1998 compared
with 57.1% for 1997. SG&A expenses other than advertising and consumer-directed
promotion expenses, as a percentage of net sales, were 40.2% for 1998 compared
with 39.3% for 1997. The increase in SG&A expenses other than advertising and
consumer-directed promotion expenses as a percentage of net sales was due
primarily to the effects of lower than expected sales. The Company's
advertising and consumer-directed promotion expenditures were incurred to
support existing product lines, new product launches and increased
distribution. Advertising and consumer-directed promotion expenses as a
percentage of net sales were 18.8%, or $422.9, for 1998 compared to 17.8%, or
$397.4, for 1997.
Business consolidation costs and other, net
In the fourth quarter of 1998 the Company committed to a restructuring
plan to realign and reduce personnel, exit excess leased real estate, realign
and consolidate regional activities, reconfigure certain manufacturing
operations and exit certain product lines. As a result, the Company recognized
a net charge of $42.9 consisting of $26.6 of employee severance and termination
benefits for 720 sales, marketing, administrative, factory and distribution
employees worldwide, $14.9 of costs to exit excess leased real estate primarily
in the United States and $2.7 of other costs described above in cost of sales,
partially offset by a gain of $1.3 for the sale of a factory outside the United
States.
In the third quarter of 1998 the Company recognized a gain of
approximately $7.1 for the sale of the wigs and hairpieces portion of its
business in the United States.
In 1997 the Company incurred business consolidation costs of $20.6 in
connection with the implementation of its business strategy to rationalize
factory operations. These costs primarily included severance for 415 factory
and administrative employees and other costs related to the rationalization of
certain factory and warehouse operations worldwide. Such costs were partially
offset by an approximately $12.7 settlement of a claim and related gains of
approximately $4.3 for the sales of certain factory operations outside the
United States.
Operating income
As a result of the foregoing, operating income decreased by $90.3, or
42.0%, to $124.6 for 1998 from $214.9 for 1997.
Other expenses/income
Interest expense was $137.9 for 1998 compared with $133.7 for 1997. The
increase in interest expense for 1998 as compared with 1997 is due to higher
average outstanding borrowings partially offset by lower interest rates.
Foreign currency losses, net, were $4.6 for 1998 compared to $6.4 for
1997. The foreign currency losses for 1998 consisted primarily of losses in
several markets in Latin America. The losses in 1997 consisted primarily of
losses in several markets in Europe and the Far East.
18
Provision for income taxes
The provision for income taxes was $5.0 and $9.3 for 1998 and 1997,
respectively. The decrease was primarily attributable to lower taxable income
outside the United States in 1998.
Discontinued operations
During 1998, the Company completed the disposition of its approximately
85% equity interest in CCI. In connection with such transaction,
the Company recorded a loss on disposal of $47.7 during 1998. (Loss) income
from discontinued operations was $(16.5) (excluding the $47.7 loss on disposal)
and $0.7 for 1998 and 1997, respectively. The 1997 period includes a $6.0
non-recurring gain resulting from the merger of Prestige Fragrance & Cosmetics,
Inc., then a wholly owned subsidiary of the Company, with and into CCI on
April 25, 1997, partially offset by related business consolidation costs of
$4.0. The 1998 period includes the Company's share of a non-recurring charge of
$10.5 taken by CCI primarily related to inventory and severance.
Extraordinary items
The extraordinary loss of $51.7 in 1998 resulted primarily from the
write-off of deferred financing costs and payment of call premiums associated
with the redemption of Products Corporation's 9 3/8% Senior Notes due 2001 (the
"Senior Notes") and Products Corporation's 10 1/2% Senior Subordinated Notes due
2003 (the "Senior Subordinated Notes"). The extraordinary loss in 1997 resulted
from the write-off of deferred financing costs associated with the
extinguishment of borrowings under the credit agreement in effect at that time
prior to maturity with proceeds from the credit agreement, and costs of
approximately $6.3 in connection with the redemption of Products Corporation's
10 7/8% Sinking Fund Debentures due 2010 (the "Sinking Fund Debentures").
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Net cash (used for)/provided by operating activities was $(82.8), $(51.5)
and $8.7 for 1999, 1998 and 1997, respectively. The increase in net cash used
for operating activities for 1999 compared with 1998 was the result of
operating losses and increased use of cash for business consolidation costs
during 1999, partially offset by changes in working capital. The increase in
net cash used for operating activities for 1998 compared with cash provided in
1997 resulted primarily from lower operating income and increased cash used for
business consolidation costs in 1998.
Net cash used for investing activities was $40.7, $91.0 and $84.3 for
1999, 1998 and 1997, respectively. Net cash used for investing activities in
1999 related principally to capital expenditures. Net cash used for investing
activities for 1998 and 1997 includes cash paid in connection with acquisitions
of businesses and capital expenditures, partially offset by the proceeds from
the sale of the wigs and hairpieces portion of the Company's business in the
United States in 1998 and from the sale of certain assets in 1998 and 1997. Net
cash used for investing activities for 1999, 1998 and 1997 included capital
expenditures of $42.3, $60.8 and $52.3, respectively, and in 1998 and 1997
$57.6 and $40.5, respectively, used for acquisitions.
Net cash provided by financing activities was $118.5, $159.1 and $84.9 for
1999, 1998 and 1997, respectively. Net cash provided by financing activities for
1999 included cash drawn under the Credit Agreement, partially offset by
repayments of borrowings under the Credit Agreement, redemption of the 9 1/2%
Senior Notes due 1999 (the "1999 Notes") and repayments under Products
Corporation's Japanese yen-denominated credit agreement (the "Yen Credit
Agreement"). Net cash provided by financing activities for 1998 included
proceeds from the issuance of Products Corporation's 9% Senior Notes due 2006
(the "9% Notes"), Products Corporation's 8 5/8% Senior Subordinated Notes due
2008 (the "8 5/8% Notes") and Products Corporation's 8 1/8% Senior Notes due
2006 (the "8 1/8% Notes") and cash drawn under the Credit Agreement, partially
offset by the payment of fees and expenses related to the issuance of the 9%
Notes, the 8 5/8% Notes and the 8 1/8% Notes, the redemption of the Senior
Subordinated Notes and the Senior Notes, and the repayment of borrowings under
the Yen Credit Agreement. Net cash provided by financing activities for 1997
included cash drawn under the credit agreement in effect at that time and the
Credit Agreement, partially offset by the repayment of borrowings under the
credit agreement in effect at that time, the payment of fees and expenses
related to entering into the Credit Agreement, the repayment of borrowings under
the
19
Yen Credit Agreement and the redemption of Products Corporation's Sinking Fund
Debentures. During 1998 and 1997, net cash used by discontinued operations was
$17.3 and $3.4, respectively.
In May 1997, Products Corporation entered into a credit agreement (as
subsequently amended, the "Credit Agreement") with a syndicate of lenders,
whose individual members change from time to time. Prior to the commitment
reduction resulting from the sale of the professional products line (See
"Subsequent Event" below) the Credit Agreement provided up to $723.0 and
comprises five senior secured facilities: $198.0 in two term loan facilities
(the "Term Loan Facilities"), a $300.0 multi-currency facility (the
"Multi-Currency Facility"), a $175.0 revolving acquisition facility, which may
also be used for general corporate purposes and which may be increased to
$375.0 under certain circumstances with the consent of a majority of the
lenders (the "Acquisition Facility"), and a $50.0 special standby letter of
credit facility (the "Special LC Facility"). At December 31, 1999, the Company
had approximately $198.0 outstanding under the Term Loan Facilities, $235.2
outstanding under the Multi-Currency Facility, $155.0 outstanding under the
Acquisition Facility and $29.8 of issued but undrawn letters of credit under
the Special LC Facility.
The Credit Agreement contained financial covenants requiring Products
Corporation to maintain minimum interest coverage and to limit its leverage
ratio, among other things. As a result of the loss from continuing operations
before taxes incurred by Products Corporation in the third quarter of 1999, the
interest coverage and leverage ratios specified in the Credit Agreement were
not achieved at September 30, 1999. The Credit Agreement was amended on
November 10, 1999 to (i) eliminate the interest coverage ratio and leverage
ratio covenants from the quarter ended September 30, 1999 through the year 2000
and to modify those covenants for the years 2001 and 2002; (ii) add a minimum
EBITDA covenant for each quarter end during the year 2000; (iii) limit the
amount that Products Corporation may spend for capital expenditures and
investments including acquisitions; (iv) permit the sale of Products
Corporation's worldwide professional products line and its non-core Latin
American brands Colorama, Juvena, Bozzano and Plusbelle (the "Asset Sales");
(v) change the reduction of the aggregate commitment that is required upon
consummation of any Asset Sale to an amount equal to 60% of the "Net Proceeds"
(as defined in the Credit Agreement) from such Asset Sale as opposed to 100% of
such Net Proceeds as provided under the Credit Agreement prior to the
amendment; (vi) increase the "applicable margin" by 3/4 of 1% and (vii) permit
the amendment of the Yen Credit Agreement described below. In March 2000, 60%
of the Net Proceeds from the sale of its worldwide professional products line
was applied to reduce the aggregate commitment under the Credit Agreement to
$572.7 (See "Subsequent Event" below). In March 2000, the Credit Agreement was
amended to eliminate the default upon the acceleration of or certain payment
defaults under indebtedness of REV Holdings in excess of $0.5.
A subsidiary of Products Corporation was the borrower under the Yen Credit
Agreement, which had a principal balance of approximately (Yen)1.0 billion as
of December 31, 1999 (approximately $9.9 U.S. dollar equivalent as of December
31, 1999) after giving effect to the payment of approximately (Yen)539 million
(approximately $4.6 U.S. dollar equivalent) in March 1999. In November 1999, the
borrower under the Yen Credit Agreement executed an amendment to the Yen Credit
Agreement to eliminate the amortization payment due in March 2000 and to provide
that the final maturity date of the Yen Credit Agreement will be the earlier of
(i) the closing date of the sale of Products Corporation's professional products
line and (ii) December 31, 2000. In March 2000, the outstanding balance under
the Yen Credit Agreement was repaid in full in accordance with its terms.
In November 1998, Products Corporation issued and sold $250.0 principal
amount of 9% Notes, of which $200.0 was used to temporarily reduce borrowings
under the Credit Agreement in anticipation of the redemption referred to below.
On June 1, 1999, Products Corporation redeemed the $200.0 principal amount of
1999 Notes with borrowings from the Credit Agreement.
Products Corporation borrows funds from its affiliates from time to time
to supplement its working capital borrowings at interest rates more favorable
to Products Corporation than interest rates under the Credit Agreement. No such
borrowings were outstanding as of December 31, 1999.
The Company's principal sources of funds are expected to be cash flow
generated from operations (before interest) and borrowings under the Credit
Agreement, other existing working capital lines and renewals thereof, as well
as proceeds from the sale of one or more of the Company's non-core Latin
American brands. The Credit Agreement, the 8 5/8% Notes, the 8 1/8% Notes and
the 9% Notes contain certain provisions that by their terms limit Products
Corporation's and/or its subsidiaries' ability to, among other things, incur
additional debt. The Company's
20
principal uses of funds are expected to be the payment of operating expenses,
working capital and capital expenditure requirements, expenses in connection
with the Company's restructuring referred to above and debt service payments.
As required under the Credit Agreement, the Company used 60% of the Net
Proceeds (as defined in the Credit Agreement) from the sale of its worldwide
professional products line to reduce the aggregate commitment under the Credit
Agreement. Additionally, the Company expects that it will receive cash proceeds
from the sale of one or more of its non-core Latin American brands and that it
will use 60% of the Net Proceeds, to reduce the aggregate commitment under the
Credit Agreement.
The Company estimates that capital expenditures for 2000 will be
approximately $25, including upgrades to the Company's management information
systems. The Company estimates that cash payments related to the restructuring
plans referred to in Note 4 and executive separation costs will be
approximately $35 in 2000. Pursuant to a tax sharing agreement, Revlon, Inc.
may be required to make tax sharing payments to Mafco Holdings Inc. as if
Revlon, Inc. were filing separate income tax returns, except that no payments
are required by Revlon, Inc. if and to the extent that Products Corporation is
prohibited under the Credit Agreement from making tax sharing payments to
Revlon, Inc. The Credit Agreement prohibits Products Corporation from making
any tax sharing payments other than in respect of state and local income taxes.
Revlon, Inc. currently anticipates that, as a result of net operating tax
losses and prohibitions under the Credit Agreement, no cash federal tax
payments or cash payments in lieu of federal taxes pursuant to the tax sharing
agreement will be required for 2000.
Products Corporation enters into forward foreign exchange contracts and
option contracts from time to time to hedge certain cash flows denominated in
foreign currencies. There were no forward foreign exchange or option contracts
outstanding at December 31, 1999. Products Corporation had forward foreign
exchange contracts denominated in various currencies of approximately $197.5
(U.S. dollar equivalent) outstanding at December 31, 1998 and option contracts
of approximately $51.0 at December 31, 1998. Such contracts are entered into to
hedge transactions predominantly occurring within twelve months. If Products
Corporation had terminated these contracts on December 31, 1998 no material
gain or loss would have been realized.
The Company expects that cash flows from operations and funds from
currently available credit facilities and renewals of short-term borrowings will
be sufficient to enable the Company to meet its anticipated cash requirements
during 2000 on a consolidated basis, including for debt service. However, there
can be no assurance that the combination of cash flow from operations, funds
from existing credit facilities and renewals of short-term borrowings will be
sufficient to meet the Company's cash requirements on a consolidated basis. If
the Company is unable to satisfy such cash requirements, the Company could be
required to adopt one or more alternatives, such as reducing or delaying capital
expenditures, restructuring indebtedness, selling other assets or operations, or
seeking capital contributions or loans from affiliates of the Company or issuing
additional shares of capital stock of Revlon, Inc. Products Corporation has had
discussions with an affiliate that is prepared to provide financial support to
Products Corporation of up to $40 on appropriate terms through December 31,
2000. Revlon, Inc., as a holding company, will be dependent on the earnings and
cash flow of, and dividends and distributions from, Products Corporation to pay
its expenses and to pay any cash dividend or distribution on the Class A Common
Stock that may be authorized by the Board of Directors of Revlon, Inc. There can
be no assurance that any of such actions could be effected, that they would
enable the Company to continue to satisfy its capital requirements or that they
would be permitted under the terms of the Company's various debt instruments
then in effect. The terms of the Credit Agreement, the 8 5/8% Notes, the 8 1/8%
Notes and the 9% Notes generally restrict Products Corporation from paying
dividends or making distributions, except that Products Corporation is permitted
to pay dividends and make distributions to Revlon, Inc., among other things, to
enable Revlon, Inc. to pay expenses incidental to being a public holding
company, including, among other things, professional fees such as legal and
accounting, regulatory fees such as Securities and Exchange Commission (the
"Commission") filing fees and other miscellaneous expenses related to being a
public holding company and to pay dividends or make distributions in certain
circumstances to finance the purchase by Revlon, Inc. of its Class A Common
Stock in connection with the delivery of such Class A Common Stock to grantees
under the Revlon, Inc. Second Amended and Restated 1996 Stock Plan, provided
that the aggregate amount of such dividends and distributions taken together
with any purchases of Revlon, Inc. common stock on the open market to satisfy
matching obligations under the excess savings plan may not exceed $6.0 per
annum.
21
EURO CONVERSION
As part of the European Economic and Monetary Union, a single currency
(the "Euro") will replace the national currencies of the principal European
countries (other than the United Kingdom) in which the Company conducts
business and manufacturing. The conversion rates between the Euro and the
participating nations' currencies were fixed as of January 1, 1999, with the
participating national currencies to be removed from circulation between
January 1, 2002 and June 30, 2002 and replaced by Euro notes and coinage.
During the transition period from January 1, 1999 through December 31, 2001,
public and private entities as well as individuals may pay for goods and
services using checks, drafts, or wire transfers denominated either in the Euro
or the participating country's national currency. Under the regulations
governing the transition to a single currency, there is a "no compulsion, no
prohibition" rule which states that no one can be prevented from using the Euro
after January 1, 2002 and no one is obliged to use the Euro before July 2002.
In keeping with this rule, the Company expects to either continue using the
national currencies or the Euro for invoicing or payments. Based upon the
information currently available, the Company does not expect that the
transition to the Euro will have a material adverse effect on the business or
consolidated financial condition of the Company.
FORWARD-LOOKING STATEMENTS
This annual report on Form 10-K for the year ended December 31, 1999 as
well as other public documents of the Company contains forward-looking
statements that involve risks and uncertainties. The Company's actual results
may differ materially from those discussed in such forward-looking statements.
Such statements include, without limitation, the Company's expectations and
estimates as to being the most trusted supplier, the most innovative and the
first to market with innovations, attracting and retaining the best people in
the industry, building consistent global equities, addressing consumer needs,
exceeding trade partners' expectations, operating at benchmark levels of
efficiency, becoming the most dynamic leader in global beauty and skin care,
the introduction of new products and expansion into markets, future financial
performance, the effect on sales of lower retailer inventory targets, the
effect on sales of political and/or economic conditions and competitive
activities in certain markets, the Company's estimate of restructuring
activities, costs and benefits, cash flow from operations, capital
expenditures, the Company's qualitative and quantitative estimates as to market
risk sensitive instruments, the Company's expectations about the effects of the
transition to the Euro, the availability of funds from currently available
credit facilities, renewals of short-term borrowings, and capital contributions
or loans from affiliates or the sale of assets or operations or additional
shares of Revlon, Inc. and the Company's intent to pursue the sale of one or
more of its non-core regional Latin American brands, that it will consummate
such sales during the second quarter of 2000 and its expectation regarding the
proceeds of such sales. Statements that are not historical facts, including
statements about the Company's beliefs and expectations, are forward-looking
statements. Forward-looking statements can be identified by, among other
things, the use of forward-looking language, such as "believe," "expects,"
"may," "will," "should," "seeks," "plans," "scheduled to," "anticipates" or
"intends" or the negative of those terms, or other variations of those terms or
comparable language, or by discussions of strategy or intentions.
Forward-looking statements speak only as of the date they are made, and the
Company undertakes no obligation to update them. A number of important factors
could cause actual results to differ materially from those contained in any
forward-looking statement. In addition to factors that may be described in the
Company's filings with the Commission, including this filing, the following
factors, among others, could cause the Company's actual results to differ
materially from those expressed in any forward-looking statements made by the
Company: (i) difficulties or delays in becoming the most trusted supplier, the
most innovative and the first to market with innovations, attracting and
retaining the best people in the industry, building consistent global equities,
addressing consumer needs, exceeding trade partners' expectations, operating at
benchmark levels of efficiency, becoming the most dynamic leader in global
beauty and skin care, and in developing and introducing new products or failure
of customers to accept new product offerings; (ii) changes in consumer
preferences, including reduced consumer demand for the Company's color
cosmetics and other current products; (iii) difficulties or delays in the
Company's continued expansion into the self-select distribution channel and
into certain markets and development of new markets; (iv) unanticipated costs
or difficulties or delays in completing projects associated with the Company's
strategy to improve operating efficiencies ; (v) the inability to secure
capital contributions or loans from affiliates or sell assets or operations or
additional shares of Revlon, Inc.; (vi) effects of and changes in political
and/or economic conditions, including inflation and monetary conditions, and in
trade, monetary, fiscal and tax policies in international markets, including
but not limited to Brazil; (vii) actions by competitors, including business
combinations, technological breakthroughs, new products offerings and marketing
and promotional successes; (viii) combinations among significant customers or
the loss, insolvency or failure to pay debts by a significant customer or
customers; (ix) lower than expected sales as a result of difficulties or delays
in achieving retailers' inventory target levels; (x) difficulties, delays or
unanticipated costs or
22
less than expected benefits resulting from the Company's restructuring
activities; (xi) interest rate or foreign exchange rate changes affecting the
Company and its market sensitive financial instruments; (xii) difficulties,
delays or unanticipated costs associated with the transition to the Euro; and
(xiii) difficulties or delays in pursuing the sale of one or more of its
non-core Latin American brands, the inability to consummate such sales during
the second quarter of 2000 or to secure the expected level of proceeds from
such sales.
EFFECT OF NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which establishes accounting
and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities.
In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of SFAS No.
133, an Amendment of SFAS No. 133," which has delayed the required
implementation of SFAS No. 133 such that the Company must adopt this new
standard no later than January 1, 2001. The effect of adopting the new standard
by the Company has not yet been determined. The Company plans to adopt the new
standard on January 1, 2001.
INFLATION
In general, costs are affected by inflation and the effects of inflation
may be experienced by the Company in future periods. Management believes,
however, that such effects have not been material to the Company during the
past three years in the United States or foreign non-hyperinflationary
countries. The Company operates in certain countries around the world, such as
Brazil, Venezuela and Mexico, that have experienced hyperinflation in the past
three years. The Company's operations in Brazil were accounted for as operating
in a hyperinflationary economy until June 30, 1997. Effective July 1, 1997,
Brazil was considered a non-hyperinflationary economy. The impact of accounting
for Brazil as a non-hyperinflationary economy was not material to the Company's
operating results. Effective January 1997, Mexico was considered a
hyperinflationary economy for accounting purposes. Effective January 1, 1999,
Mexico was considered a non-hyperinflationary economy. In hyperinflationary
foreign countries, the Company attempts to mitigate the effects of inflation by
increasing prices in line with inflation, where possible, and efficiently
managing its working capital levels.
SUBSEQUENT EVENT
On March 30, 2000, the Company completed the disposition of its worldwide
professional products line, including professional hair care for use in and
resale by professional salons, ethnic hair and personal care products, Natural
Honey skin care and certain regional toiletries brands, for $315 in cash,
before adjustments, plus $10 in purchase price payable in the future,
contingent upon the purchasers' achievement of certain rates of return on their
investment. The disposition involved the sale of certain of the Company's
subsidiaries throughout the world devoted to the professional products line, as
well as assets dedicated exclusively or primarily to the lines being disposed.
The worldwide professional products line was purchased by a company formed by
CVC Capital Partners, the Colomer family and other investors, led by Carlos
Colomer, a former manager of the line that was sold, following arms'-length
negotiation of the terms of the purchase agreement therefor, including the
determination of the amount of the consideration.
The following unaudited summary pro forma financial information gives
effect to the sale of the worldwide professional products line as of January 1,
1999 in the case of the pro forma statement of operations data and as of
December 31, 1999 in the case of the pro forma balance sheet data. The pro forma
information includes certain adjustments, such as reduced interest expense and a
reduction in long-term debt as a result of the repayment of debt with $294.3 of
the net proceeds from the disposition. The unaudited pro forma statement of
operations data exclude the gain on the sale of the professional products line
and eliminate costs incurred to date in connection with the sale since the gain
and associated costs are non-recurring. The unaudited summary pro forma
financial information is not necessarily indicative of the results of operations
of the Company had the sale occurred at January 1, 1999, or financial position
at December 31, 1999 had the sale occurred at that date, nor is it necessarily
indicative of future results.
23
REVLON, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
HISTORICAL RESULTS OF
YEAR ENDED PROFESSIONAL YEAR ENDED
DECEMBER 31, PRODUCTS DECEMBER 31,
1999 LINE ADJUSTMENTS 1999
------------- ------------ -------------- ------------
Net sales........................................... $ 1,861.3 $ (320.1) $ $ 1,541.2
Cost of sales....................................... 686.1 (118.7) 567.4
------------ --------- ------------ -----------
Gross profit...................................... 1,175.2 (201.4) 973.8
Selling, general and administrative expenses........ 1,347.6 (168.9) 1,178.7
Business consolidation costs and other, net......... 40.2 (0.9) 39.3
------------ --------- ------------ -----------
Operating loss ................................... (212.6) (31.6) (244.2)
------------ --------- ------------ -----------
Other expenses (income):
Interest expense.................................. 147.9 (0.7) (26.9) 120.3
Other, net........................................ 1.9 1.3 (2.0) 1.2
------------ --------- ------------ -----------
Other expenses, net........................... 149.8 0.6 (28.9) 121.5
------------ --------- ------------ -----------
(Loss) income from operations before income taxes... (362.4) (32.2) 28.9 (365.7)
Provision for income tax............................ 9.1 (2.6) 6.5
------------ --------- ------------ -----------
(Loss) income from operations....................... $ (371.5) $ (29.6) $ 28.9 $ (372.2)
============ ========= ============ ===========
Basic and diluted (loss) income per common share:
(Loss) income from operations.................... $ (7.25) $ (7.26)
============ ============
Weighted average number of common
shares outstanding:
Basic and diluted................................ 51,240,225 51,240,225
============ ============
24
REVLON, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEETS
(DOLLARS IN MILLIONS)
PROFESSIONAL DECEMBER 31,
DECEMBER 31, PRODUCTS 1999
ASSETS 1999 LINE ADJUSTMENTS PRO FORMA
------------ ------------- ----------- ------------
Current assets:
Cash and cash equivalents ............................ $ 25.4 $ (3.0) $ 22.4
Trade receivables, net ............................... 332.6 (78.4) 254.2
Inventories .......................................... 278.3 (49.6) 228.7
Prepaid expenses and other ........................... 51.3 6.7 58.0
--------- ---------- ---------- ---------
Total current assets ............................... 687.6 (124.3) 563.3
Property, plant and equipment, net ..................... 336.4 (41.5) 294.9
Other assets ........................................... 177.5 (3.3) 174.2
Intangible assets, net ................................. 356.8 (111.4) 245.4
--------- ---------- ---------- ---------
Total assets ....................................... $ 1,558.3 $ (280.5) $ 1,277.8
========= ========== ========== =========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Total current liabilities .............................. $ 597.3 $ (49.6) $ 547.7
Long-term debt-third parties ........................... 1,737.8 (0.3) $ (296.3) 1,441.2
Long-term debt-affiliates .............................. 24.1 24.1
Other long-term liabilities ............................ 214.0 214.0
Total stockholders' deficiency ......................... (1,014.9) (230.6) 296.3 (949.2)
--------- ---------- ---------- ---------
Total liabilities and stockholders' deficiency ..... $ 1,558.3 $ (280.5) $ - $ 1,277.8
========= ========== ========== =========
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Sensitivity
The Company has exposure to changing interest rates, primarily in the
United States. The Company's policy is to manage interest rate risk through the
use of a combination of fixed and floating rate debt. The Company from time to
time makes use of derivative financial instruments to adjust its fixed and
floating rate ratio. The table below provides information about the Company's
indebtedness that is sensitive to changes in interest rates. The table presents
cash flows with respect to principal on indebtedness and related weighted
average interest rates by expected maturity dates. Weighted average variable
rates are based on implied forward rates in the yield curve at December 31,
1999. The information is presented in U.S. dollar equivalents, which is the
Company's reporting currency.
Exchange Rate Sensitivity
The Company manufactures and sells its products in a number of
countries throughout the world and, as a result, is exposed to movements in
foreign currency exchange rates. In addition, a portion of the Company's
borrowings are denominated in foreign currencies, which are also subject to
market risk associated with exchange rate movement. The Company from time to
time hedges major net foreign currency cash exposures generally through foreign
exchange forward and option contracts. The contracts are entered into with major
financial institutions to minimize counterparty risk. These contracts generally
have a duration of less than twelve months and are primarily against the U.S.
dollar. In addition, the Company enters into foreign currency swaps to hedge
intercompany financing transactions. The forward foreign exchange and option
contracts entered into during 1999 expired by December 31, 1999.
25
The Company does not hold or issue financial instruments for trading
purposes.
EXPECTED MATURITY DATE FOR YEAR ENDED DECEMBER 31,
------------------------------------------------------------- FAIR VALUE
DEC. 31,
2000 2001 2002 2003 2004 THEREAFTER TOTAL 1999
------ ------ ------ ------ ------ ---------- ------ -------
(US dollar equivalent in millions)
DEBT
Short term variable rate (various currencies). $37.6 $ 37.6 $ 37.6
Average interest rate...................... 8.3%
Long-term fixed rate ($US) $1,149.2 1,149.2 705.0
Average interest rate...................... 8.6%
Long-term variable rate ($US) $67.2 $405.8 473.0 473.0
Average interest rate...................... 9.5% 9.7%
Long-term variable rate (various currencies) 10.2 0.3 115.2 $0.1 125.8 125.8
Average interest rate...................... 3.1% 7.3% 8.0% 7.3% -------- --------
Total debt $1,785.6 $1,341.4
======== ========
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to the Index on page F-1 of the Consolidated
Financial Statements of the Company and the Notes thereto contained herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not applicable.
26
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information concerning the
Directors and executive officers of the Company. Each Director holds office
until his successor is duly elected and qualified or until his resignation or
removal, if earlier.
NAME POSITION
Ronald O. Perelman Chairman of the Board, Chairman of the Executive
Committee of the Board and Director
Jeffrey M. Nugent President, Chief Executive Officer and Director
Frank J. Gehrmann Executive Vice President and Chief Financial Officer
Wade H. Nichols III Executive Vice President and Chief Administrative
Officer
Donald G. Drapkin Director
Meyer Feldberg Director
Howard Gittis Director
Morton L. Janklow Director
Vernon E. Jordan Director
Edward J. Landau Director
Jerry W. Levin Director
Linda Gosden Robinson Director
Terry Semel Director
Martha Stewart Director
The name, age (as of March 8, 2000), principal occupation for the last
five years and selected biographical information for each of the Directors and
executive officers of the Company are set forth below.
Mr. Perelman (57) has been Chairman of the Board of Directors of the
Company and of the Company's wholly owned subsidiary Products Corporation since
June 1998, Chairman of the Executive Committee of the Board of the Company and
of Products Corporation since November 1995, and a Director of the Company and
of Products Corporation since their respective formations in 1992. Mr. Perelman
was Chairman of the Board of the Company and of Products Corporation from their
respective formations in 1992 until November 1995. Mr. Perelman has been
Chairman of the Board and Chief Executive Officer of Mafco Holdings Inc.
("Mafco Holdings" and, collectively with MacAndrews Holdings, "MacAndrews &
Forbes") and MacAndrews Holdings and various of its affiliates since 1980. Mr.
Perelman is also Chairman of the Executive Committee of the Board of Directors
of M&F Worldwide Corp. ("M&F Worldwide") and is Chairman of the Board of
Directors of Panavision Inc. ("Panavision"). Mr. Perelman is also a Director of
the following corporations which file reports pursuant to the Securities
Exchange Act of 1934, as amended (the "Exchange Act"): Golden State Bancorp
Inc. ("Golden State"), Golden State Holdings Inc. ("Golden State Holdings"),
M&F Worldwide, Panavision and REV Holdings. (On December 27, 1996, Marvel
27
Entertainment Group, Inc. ("Marvel"), Marvel Holdings Inc. ("Marvel Holdings"),
Marvel (Parent) Holdings Inc. ("Marvel Parent") and Marvel III Holdings Inc.
("Marvel III"), of which Mr. Perelman was a Director on such date, filed
voluntary petitions for reorganization under Chapter 11 of the United States
Bankruptcy Code.)
Mr. Nugent (53) has been President and Chief Executive Officer of the
Company and of Products Corporation since December 5, 1999. He has been a
Director of the Company and of Products Corporation since February 14, 2000. He
had been Worldwide President and Chief Executive Officer of Neutrogena
Corporation from January 1995 until December 5, 1999. Prior to that, Mr. Nugent
held various senior executive positions at Johnson & Johnson.
Mr. Gehrmann (45) was elected as Executive Vice President and Chief
Financial Officer of the Company and of Products Corporation in January 1998.
From January 1997 until January 1998 he had been Vice President of the Company
and of Products Corporation. Prior to January 1997 he served in various
appointed senior executive positions for the Company and for Products
Corporation, including Executive Vice President and Chief Financial Officer of
Products Corporation's Operating Groups from August 1996 to January 1998,
Executive Vice President and Chief Financial Officer of Products Corporation's
Worldwide Consumer Products business from January 1995 to August 1996, and
Executive Vice President and Chief Financial Officer of Products Corporation's
Revlon North America unit from September 1993 to January 1994. From 1983
through September 1993, Mr. Gehrmann held positions of increasing
responsibility in the financial organizations of Mennen Corporation and the
Colgate-Palmolive Company, which acquired Mennen Corporation in 1992. Prior to
1983, Mr. Gehrmann served as a certified public accountant at the international
auditing firm of Ernst & Young.
Mr. Nichols (57) has been Executive Vice President and Chief
Administrative Officer of the Company and of Products Corporation since January
1, 2000. He was Executive Vice President and General Counsel of the Company and
of Products Corporation from January 1998 until December 31, 1999 and served as
Senior Vice President and General Counsel of the Company and Products
Corporation from their respective formations in 1992 until January 1998.
Mr. Drapkin (52) has been a Director of the Company and of Products
Corporation since their respective formations in 1992. He has been Vice
Chairman of the Board of MacAndrews & Forbes and various of its affiliates
since 1987. Mr. Drapkin was a partner in the law firm of Skadden, Arps, Slate,
Meagher & Flom for more than five years prior to 1987. Mr. Drapkin is also a
Director of the following corporations which file reports pursuant to the
Exchange Act: Algos Pharmaceutical Corporation, Anthracite Capital, Inc.,
BlackRock Asset Investors, The Molson Companies Limited, Nexell Therapeutics
Inc., Playboy Enterprises, Inc., Warnaco Group, Inc. and Weider Nutrition
International, Inc. (On December 27, 1996, Marvel, Marvel Holdings, Marvel
Parent and Marvel III, of which Mr. Drapkin was a Director on such date, filed
voluntary petitions for reorganization under Chapter 11 of the United States
Bankruptcy Code.)
Professor Feldberg (57) has been a Director of the Company since February
1997. Professor Feldberg has been the Dean of Columbia Business School, New
York City, for more than the past five years. Professor Feldberg is also a
Director of the following corporations which file reports pursuant to the
Exchange Act: Federated Department Stores, Inc., PRIMEDIA Inc. and Paine Webber
Group, Inc. (28 directorships within such fund complex).
Mr. Gittis (66) has been a Director of the Company and of Products
Corporation since their respective formations in 1992. He has been Vice
Chairman of the Board of MacAndrews & Forbes and various of its affiliates
since 1985. Mr. Gittis is also a Director of the following corporations which
file reports pursuant to the Exchange Act: Golden State, Golden State Holdings,
Jones Apparel Group, Inc., Loral Space & Communications Ltd., M&F Worldwide,
Panavision, REV Holdings and Sunbeam Corporation.
Mr. Janklow (69) has been a Director of the Company since July 1997. He
has been of counsel to Janklow, Newborn & Ashley and Senior Partner of Janklow
& Nesbit Associates, a New York City-based literary agency, since 1989 and
Chairman of the Board and Chief Executive Officer of Morton L. Janklow
Associates, Inc., New York City since 1977. Mr. Janklow is also trustee of the
Managed Accounts Services Portfolio Trust/Pace.
Mr. Jordan (64) has been a Director of the Company since June 1996. Mr.
Jordan has been a Managing Director of Lazard Freres & Co. LLC since January
2000. Since January 2000, Mr. Jordan has been Of
28
Counsel at the Washington, D.C. law firm of Akin, Gump, Strauss, Hauer & Feld,
LLP, and was a Senior Partner of such firm for more than five years prior
thereto. He is also a Director of the following corporations which file reports
pursuant to the Exchange Act: American Express Company, Callaway Golf
Corporation, AMFM Inc., Dow Jones & Company, Inc., J.C.
Penney Company, Inc., Ryder System, Inc., Sara Lee Corporation, Union Carbide
Corporation and Xerox Corporation. He is also a trustee of Howard University.
Mr. Landau (70) has been a Director of the Company since June 1996. Mr.
Landau has been Of Counsel at the law firm of Wolf, Block, Schorr and
Solis-Cohen LLP since February 1998, and was a Senior Partner of Lowenthal,
Landau, Fischer & Bring, P.C., the predecessor to such firm, for more than five
years prior to that date. Mr. Landau is also a Director of Offitbank Investment
Fund, Inc., which files reports pursuant to the Exchange Act.
Mr. Levin (55) was Chairman of the Board of the Company and of Products
Corporation from November 1995 to June 1998 and has been a Director of the
Company since its formation in 1992 and a Director of Products Corporation from
its formation in 1992 to November 1998. Mr. Levin has been President and Chief
Executive Officer and a Director of Sunbeam Corporation ("Sunbeam") since June
1998 and was elected Chairman of the Sunbeam Board in March 1999. He has served
as Chairman and Chief Executive Officer of The Coleman Company, Inc.
("Coleman") since August 1998. Mr. Levin was Chairman and Chief Executive
Officer of Company from 1997 to March 1998 and was Chairman of the Board and a
Director of The Cosmetic Center, Inc. from April 1997 until December 1998. Mr.
Levin was Chief Executive Officer of the Company and of Products Corporation
from their respective formations in 1992 until 1997 and President of the
Company and of Products Corporation from their respective formations in 1992
until November 1995. Mr. Levin has been Executive Vice President of MacAndrews
Holdings since March 1989. For 15 years prior to joining MacAndrews Holdings,
he held various senior executive positions with The Pillsbury Company. Mr.
Levin is a Director of the following corporations which file reports pursuant
to the Exchange Act: Ecolab, Inc., Sunbeam Corporation and U.S. Bancorp, Inc.
Ms. Robinson (47) has been a Director of the Company since June 1996. Ms.
Robinson has been Chairman of the Board and Chief Executive Officer of Robinson
Lerer & Montgomery, LLC, a New York City strategic communications consulting
firm, since May 1996. For more than five years prior thereto she was Chairman
of the Board and Chief Executive Officer of Robinson Lerer Sawyer Miller Group,
or its predecessors. Ms. Robinson is a trustee of Mt. Sinai Medical Center and
Health System.
Mr. Semel (57) has been a Director of the Company since June 1996. Mr.
Semel has been Chairman of Windsor Media, Inc., Los Angeles, a diversified media
company, since October 1999. He was Chairman of the Board and Co-Chief Executive
Officer of the Warner Bros. Division of Time Warner Entertainment LP ("Warner
Brothers"), Los Angeles, from March 1994 until October 1999 and of Warner Music
Group, Los Angeles, from November 1995 until October 1999. For more than ten
years prior to that he was President of Warner Brothers or its predecessor,
Warner Bros. Inc. Mr. Semel is also a Director of Polo Ralph Lauren Corporation,
which files reports pursuant to the Exchange Act.
Ms. Stewart (58) has been a Director of the Company since June 1996. Ms.
Stewart is the Chairman of the Board and Chief Executive Officer of Martha
Stewart Living Omnimedia, Inc., New York City (formerly Martha Stewart Living
Omnimedia, LLC, New York City). She has been an author, founder of the magazine
Martha Stewart Living, creator of a syndicated television series, a syndicated
newspaper column and a catalog company, and a lifestyle consultant and lecturer
for more than the past five years. Ms. Stewart is a Director of Martha Stewart
Living Omnimedia, Inc., which files reports pursuant to the Exchange Act.
29
BOARD OF DIRECTORS AND ITS COMMITTEES
The Board of Directors has an Executive Committee, an Audit Committee and
a Compensation and Stock Plan Committee (the "Compensation Committee").
The Executive Committee consists of Messrs. Perelman, Gittis and Nugent.
The Executive Committee may exercise all of the powers and authority of the
Board, except as otherwise provided under the Delaware General Corporation Law.
The Executive Committee also serves as the Company's nominating committee for
Board membership. The Audit Committee, consisting of Mr. Landau, Professor
Feldberg and Ms. Robinson, makes recommendations to the Board of Directors
regarding the engagement of the Company's independent auditors for ratification
by the Company's stockholders, reviews the plan, scope and results of the
audit, and reviews with the auditors and management the Company's policies and
procedures with respect to internal accounting and financial controls, changes
in accounting policy and the scope of the non-audit services which may be
performed by the Company's independent auditors, among other things. The
Compensation Committee, curre