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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, 2000
OR
__ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________________ TO __________________
COMMISSION FILE NUMBER 1-11178
REVLON, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 13-3662955
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
625 MADISON AVENUE, NEW YORK, NEW YORK 10022
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 527-4000
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
====================================== ========================================
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, 2001, 20,115,935 SHARES OF CLASS A COMMON STOCK AND
31,250,000 SHARES OF CLASS B COMMON STOCK WERE OUTSTANDING. 11,250,000 SHARES
OF CLASS A COMMON STOCK AND ALL 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 THE NEW YORK STOCK EXCHANGE CLOSING PRICE AS OF MARCH
8, 2001) WAS APPROXIMATELY $50,092,533.
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. 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 worldwide. The Company's products
are marketed under such well-known brand names as REVLON, COLORSTAY, REVLON AGE
DEFYING, ALMAY and ULTIMA in cosmetics; MOON DROPS, ETERNA 27, ULTIMA and
JEANNE GATINEAU in skin care; CHARLIE and FIRE & ICE in fragrances; and FLEX,
OUTRAGEOUS, MITCHUM, COLORSTAY, COLORSILK, JEAN NATE, 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 24 years). The Company also has
leading market positions in several product categories in certain markets
outside of the United States, including in 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
ACNielsen data. ACNielsen measures retail sales volume of products sold in the
United States self-select distribution channel. Such data represent ACNielsen's
estimates based upon data gathered by ACNielsen from market samples and are
therefore subject to some degree of variance.
RECENT DEVELOPMENTS
During the fourth quarter of 2000, the Company shutdown its manufacturing
operations in Mississauga, Canada and began closing its facility in Phoenix,
Arizona, which is expected to be substantially completed by June 2001. The
Company will shift production from these facilities to its Oxford, North
Carolina facility. The Company also announced the shutdown of its facility in
New Zealand in the fourth quarter of 2000, and consolidated such operations
into the Company's facility in Australia. The Company estimates that the costs
of closing these facilities and relocating manufacturing will result in charges
of $55 million to $60 million. These costs principally include compensation and
related costs, relocation costs and write-downs of assets. Net cash
expenditures (after the proceeds from the sale of assets) are estimated to be
$30 million to $35 million. The Company expects that these planned actions,
when fully implemented, will result in annual savings of $25 million to $30
million.
In October 2000, the Company announced changes in the way it goes to
market with its U.S. retail partners designed to increase consumption of the
Company's products and drive market growth. The new terms of trade became
effective January 1, 2001, with a transition during the fourth quarter of 2000.
They include increased in-store coverage, incentives for retailers intended to
encourage more efficient ordering and shipping and to lower merchandise return
rates and rewards for increased consumer sell-through.
In January 2001 (effective December 31, 2000), Products Corporation and
its bank lenders entered into an amendment to the Credit Agreement (as
hereinafter defined), to (i) eliminate the interest coverage ratio and leverage
ratio covenants for 2001; (ii) add a minimum cumulative EBITDA covenant for
each quarter end during the year 2001; (iii) modify the definition of EBITDA
beginning with the quarterly period ended December 31, 2000; (iv) limit the
amount that Products Corporation may spend for capital expenditures; (v) permit
the sale of certain of Products Corporation's non-core assets; (vi) permit
Products Corporation to retain 100% of the Net Proceeds (as
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defined in the Credit Agreement) from such asset sales; (vii) increase the
"applicable margin" by 1/2 of 1%; and (viii) require Products Corporation to
provide a mortgage on its facility in Oxford, North Carolina as security for
its obligations under the Credit Agreement.
PRODUCTS
The Company manufactures and markets a variety of products worldwide.
The following table sets forth the Company's principal brands.
===============================================================================================================================
BRAND COSMETICS SKIN CARE FRAGRANCES PERSONAL
CARE
PRODUCTS
=======================================================================================================================
REVLON Revlon, ColorStay, Moon Drops, Charlie, Charlie Red, Flex, Outrageous,
Revlon Age Defying, Revlon Results, Charlie White, Aquamarine,
Super Lustrous, Eterna 27 Ciara, Fire & Ice Mitchum,
Revlon MoistureStay, Lady Mitchum,
Moon Drops, Hi & Dri,
Line & Shine, ColorStay,
New Complexion, Colorsilk,
Top Speed, Revlon Wet/Dry, Frost & Glow,
EveryLash, Timeliner Jean Nate, 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 Ultima, Beautiful Glowtion, Vital
Nutrient, Wonderwear, Radiance, CHR
The Nakeds, Full
Moisture
SIGNIFICANT Colorama, Juvena, Jeanne Gatineau Charlie Gold Bozzano, Colorama,
REGIONAL BRANDS Jeanne Gatineau, ZP11
Cutex, StreetWear
=======================================================================================================================
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 COLORSTAY lipcolor,
which uses patented transfer-resistant technology that provides long wear, is
produced in approximately 50 shades. COLORSTAY LIQUID LIP and COLORSTAY Lip
Shine, 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 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
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approximately 20 shades. REVLON MOISTURESTAY uses patented 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 64 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 48 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 patented
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 good, healthy for you, hypo-allergenic product."
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 LIPCOLOR to ALMAY 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 brand name, which is the Company's flagship premium-priced
brand sold throughout the world. ULTIMA'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.
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 AGE DEFYING, ALMAY
TIME-OFF Revitalizer, CLEAR COMPLEXION and ULTIMA 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.
4
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, and JUVENA brands in
Brazil; as well as COLORSTAY, 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.
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, CIARA and line
extensions such as CHARLIE RED and CHARLIE WHITE. In international markets, the
Company distributes certain licensed brands, including VAN GILS.
MARKETING
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. The Company's
existing 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 undertook a comprehensive review of its advertising strategy
in late 2000 and early 2001 resulting in its selection of Kirshenbaum Bond &
Partners and Deutsch Inc. to serve as its advertising agency for creative work
for its REVLON and ALMAY brands, respectively, worldwide. This is a major shift
in the Company's advertising strategy. The Company believes that this shift to
leading outside agencies will increase the effectiveness and relevance of its
worldwide advertising, as well as result in more efficient media placement.
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, FLEX, CHARLIE,
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 worldwide, 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, www.revlon.com , which features current product and
promotional information and which is updated regularly to stay current with the
Company's new product launches and other advertising and promotional campaigns.
5
NEW PRODUCT DEVELOPMENT AND RESEARCH AND DEVELOPMENT
The Company believes that it is an industry leader in the development of
innovative and techno-logically-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 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, 2000, 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 2000, 1999 and 1998, the Company spent approximately $27.3
million, $32.9 million and $31.9 million, respectively, on research and
development activities.
MANUFACTURING AND RELATED OPERATIONS AND RAW MATERIALS
The Company manufactured REVLON brand color cosmetics, personal care
products and fragrances and ULTIMA cosmetics and skin treatment products for
sale in the United States, Japan and during 2000 most of the countries in Latin
America and Southeast Asia at its Phoenix, Arizona facility and its Canadian
facility. As part of its new business strategy which includes the consolidation
of manufacturing capacity, the Company has shutdown its Canadian manufacturing
facility and is in the process of shutting down the Phoenix facility and
consolidating North America cosmetics manufacturing at its Oxford, North
Carolina facility. The Company also manufactures ALMAY brand products for sale
throughout the world and personal care products for REVLON and MITCHUM 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, that 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.
During 2000, cosmetics and personal care products also were produced at the
Company's facilities in Canada, Venezuela, Mexico, New Zealand, Brazil,
Argentina, France and South Africa. The New Zealand facility was shutdown in
late 2000, and the Company consolidated such operations into its facility in
Australia. The Company's 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
6
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.
DISTRIBUTION
The Company's products are sold worldwide. The Company's worldwide sales
force had approximately 600 people as of December 31, 2000, including dedicated
sales forces for cosmetics, skin care and fragrance products in the self-select
distribution channel, for the demonstrator-assisted distribution channel and
for personal care products 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
58.8% of the Company's 2000 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, 2000, 12 licenses were in effect
relating to 11 product categories to be marketed in the self-select
distribution channel. Pursuant to such 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.
As part of its new business strategy to increase consumption of the
Company's products at retail, the Company is increasing the number of retail
merchandisers who stock and maintain the Company's point of sale retail
displays to insure high selling SKUs are in stock and to insure the optimal
presentation of the Company's product in retail outlets. Additionally, the
Company has upgraded the technology available to its sales force to provide
real-time information regarding inventory levels and other relevant
information.
International. Net sales outside the United States accounted for
approximately 41.2% of the Company's 2000 net sales. The ten largest countries
in terms of these sales, which include, Brazil, Canada, Australia, the United
Kingdom, South Africa, Mexico, France, Argentina, Italy and Venezuela,
accounted for approximately 30.1% of the Company's net sales in 2000. The
Company distributes its products through drug stores/chemists,
hypermarkets/mass volume retailers and variety stores. The Company also
distributes outside the United States through department stores and specialty
stores such as perfumeries. At December 31, 2000, the Company actively sold its
products through wholly-owned subsidiaries established in 20 countries outside
of the United States and through a large number of distributors and licensees
elsewhere around the world.
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 16.5% of the Company's 2000 consolidated net sales. Although the
loss of Wal-Mart as a customer would have an adverse effect on the Company, the
Company believes that its relationship with Wal-Mart is satisfactory and the
Company has no reason to believe that Wal-Mart will not continue as a customer.
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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
Company's 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, many 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 The Estee Lauder Companies Inc.
PATENTS, TRADEMARKS AND PROPRIETARY TECHNOLOGY
The Company's major trademarks are registered in the United States and in
well over 100 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, CUTEX (outside the U.S.),
MITCHUM, ETERNA 27, ULTIMA, 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 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.
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 the Company's 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 17 of the Notes to
Consolidated Financial Statements of the Company.
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EMPLOYEES
As of December 31, 2000, the Company employed the equivalent of
approximately 8,000 full-time persons. As of December 31, 2000, approximately
1,100 of such employees in the United States were covered by collective
bargaining agreements, the majority of whom are employed at the Phoenix
facility. 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.
ITEM 2. PROPERTIES
The following table sets forth as of December 31, 2000 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 (a)............. Manufacturing, warehousing, distribution and office 706,000
(partially leased)
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 (a).......... Manufacturing, warehousing, distribution and office 245,000
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
(a) As of December 31, 2000, the Company was in the process of closing or
selling these facilities.
In addition to the facilities described above, the Company owns and leases
additional facilities 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 162,000 square feet were sublet to unaffiliated
third parties as of December 31, 2000). 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.
On April 17, 2000, the plaintiffs in the six purported class actions filed
in October and November 1999 by each of Thomas Comport, Boaz Spitz, Felix Ezeir
and Amy Hoffman, Ted Parris, Jerry Krim and Dan Gavish individually and
allegedly on behalf of others similarly situated to them against Revlon, Inc.,
certain of its present
9
and former officers and directors and the parent of Revlon, Inc., REV Holdings
Inc. ("REV Holdings"), alleging among other things, violations of Rule 10b-5
under the Securities Exchange Act of 1934, filed an Amended Complaint, which
consolidated all of the actions and limited the alleged class period to the
period from October 29, 1997 through October 1, 1998 ("In Re Revlon, Inc.
Securities Litigation"). In June 2000, the Company moved to dismiss the
Amended Complaint, which motion was denied in substantial part in March 2001.
The Company believes the allegations contained in the Amended Complaint are
without merit and intends to vigorously defend against them.
A purported class action lawsuit was filed on September 27, 2000, in the
United States District Court for the Southern District of New York on behalf of
Dan Gavish, Tricia Fontan and Walter Fontan individually and allegedly on
behalf of all others similarly situated who purchased the securities of Revlon,
Inc., and REV Holdings, between October 2, 1998 and September 30, 1999 (the
"Purported Class Period"). The complaint alleges that Revlon, Inc. and certain
of its present and former officers and directors and REV Holdings violated,
among other things, Rule 10b-5 under the Securities Exchange Act of 1934. On
October 17, 2000 the court ordered that this lawsuit be consolidated with the
pending In Re Revlon, Inc. Securities Litigation. On October 27, 2000 the
plaintiff moved for reconsideration of the October 17, 2000 consolidation
order. The Company believes the allegations contained in the complaint are
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,
beneficially owns 11,250,000 shares of the Company's Class A Common Stock
(representing approximately 56% of the outstanding shares of the Company's
Class A Common Stock) and all of the outstanding 31,250,000 shares of the
Company's Class B Common Stock, which together represent approximately 83% of
the outstanding shares of the Company's Common Stock and have approximately
97.3% of the combined voting power of the outstanding shares of the Company's
Common Stock. The remaining 8,865,935 shares of the Company's Class A Common
Stock outstanding at March 8, 2001 are owned by the public. As of March 8,
2001, there were 757 holders of record of the Company's Class A Common Stock.
No dividends were declared or paid during 2000 or 1999. 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, 2000 and 1999.
2000 QUARTERLY STOCK PRICES (1)
-------------------------------
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
High .................... $ 11.00 $ 9.75 $ 8.125 $7.375
Low ..................... 6.8125 6.00 5.875 3.72
1999 QUARTERLY STOCK PRICES (1)
-------------------------------
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
High .................... $ 22.25 $ 32.00 $ 29.125 $ 12.00
Low ..................... 13.50 19.125 18.00 7.50
10
(1) Represents the closing price per share on the New York Stock Exchange
(NYSE), the exchange on which shares of the Company's Class A Common Stock
are listed. The Company's symbol is REV.
ITEM 6. SELECTED FINANCIAL DATA
The Consolidated Statements of Operations Data for each of the years in
the five-year period ended December 31, 2000 and the Balance Sheet Data as of
December 31, 2000, 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 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,
--------------------------------------------------------------------------------------
2000 (a) 1999 1998 1997 1996
-------- ---- ---- ---- ----
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
STATEMENTS OF OPERATIONS DATA:
Net sales................................ $ 1,491.6 $ 1,861.3 $ 2,252.2 $ 2,238.6 $ 2,092.1
Operating income (loss)................. 15.0 (b) (212.6)(c) 124.6(d) 214.9 (e) 199.2
(Loss) income from continuing operations (130.6) (371.5) (27.3) 57.8 24.4
Basic (loss) income from continuing
operations per common share....... $ (2.54) $ (7.25) $ (0.53) $ 1.13 $ 0.49
========== =========== ============ ========= ========
Diluted (loss) income from continuing
operations per common share....... $ (2.54) $ (7.25) $ (0.53) $ 1.13 $ 0.49
========== =========== ============ ========= ========
Weighted average number of
common shares outstanding: (f)
Basic........................ 51.3 51.2 51.2 51.1 49.7
========== =========== ============ ========= ========
Diluted........................ 51.3 51.2 51.2 51.5 49.8
========== =========== ============ ========= ========
DECEMBER 31,
--------------------------------------------------------------------------------------
2000 (a) 1999 1998 1997 1996
-------- ---- ---- ---- ----
(IN MILLIONS)
BALANCE SHEET DATA:
Total assets............................ $ 1,101.5 $ 1,558.3 $ 1,830.0 $ 1,756.0 $ 1,617.3
Long-term debt, including current portion 1,563.1 1,772.1 1,660.0 1,425.2 1,361.0
Total stockholders' deficiency.......... (1,106.1) (1,014.9) (648.0) (458.5) (497.1)
(a) On March 30, 2000 and May 8, 2000, the Company completed the dispositions
of its worldwide professional products line and the Plusbelle brand in
Argentina, respectively. Accordingly, the selected financial data include
the results of operations of the professional products line and the
Plusbelle brand through the dates of their respective dispositions.
(b) Includes restructuring costs and other, net, of $54.1 million. See Note 2
to the Consolidated Financial Statements.
(c) Includes restructuring costs and other, net, and executive separation costs
of $40.2 million and $22.0 million, respectively. See Note 2 to the
Consolidated Financial Statements.
(d) Includes restructuring costs and other, net, aggregating $35.8 million. See
Note 2 to the Consolidated Financial Statements.
(e) Includes restructuring costs and other, net, of $3.6 million.
11
(f) Represents the weighted average number of common shares outstanding for the
period. See Note 1 to the Consolidated Financial Statements.
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 on
March 30, 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,
--------------------------------------------------------
Net sales: 2000 1999 1998
------------- --------- ----------------
United States ........................ $ 877.1 $ 1,046.2 $ 1,343.7
International ........................ 614.5 815.1 908.5
---------- ---------- --------------
$ 1,491.6 $ 1,861.3 $ 2,252.2
========== ========== ==============
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,
--------------------------------------------------------
2000 1999 1998
------------- --------- ----------------
Cost of sales ............................ 37.1% 36.9% 34.0%
Gross profit ............................. 62.9 63.1 66.0
Selling, general and administrative
expenses ("SG&A")*...................... 58.3 72.4 59.0
Operating income (loss) before
restructuring costs and other, net ..... 4.6 (9.3) 7.0
* 1999 includes $22.0 (1.2% of net sales) for charges related to executive
separation costs.
YEAR ENDED DECEMBER 31, 2000 COMPARED WITH YEAR ENDED DECEMBER 31, 1999
Net sales
Net sales were $1,491.6 and $1,861.3 for 2000 and 1999, respectively, a
decrease of $369.7, or 19.9% on a reported basis (a decrease of 18.6% on a
constant U.S. dollar basis). The decline in consolidated net sales for the year
2000 as compared with 1999 is primarily due to the sale of the worldwide
professional products line and the Plusbelle brand in Argentina, the effect on
sales of the reduction of overall U.S. customer inventories, reduced consumer
demand for the Company's cosmetics, and increased competitive activity in
certain markets.
12
Net sales, excluding the worldwide professional products line and the
Plusbelle brand in Argentina, were $1,395.3 and $1,470.9 for 2000 and 1999,
respectively, a decrease of $75.6, or 5.1% on a reported basis (a decrease of
3.5% on a constant U.S. dollar basis).
United States. Net sales in the United States were $877.1 for 2000
compared with $1,046.2 for 1999, a decrease of $169.1, or 16.2%. Net sales,
excluding the domestic portion of the worldwide professional products line,
were $841.9 for 2000 compared with $889.5 for 1999, a decrease of $47.6, or
5.4%. The decline in sales for 2000 is primarily due to a reduction of overall
U.S. customer inventories, which the Company anticipates will continue to
affect sales, and reduced consumer demand for the Company's cosmetics due in
part to fewer new product introductions.
International. Net sales outside the United States were $614.5 for 2000
compared with $815.1 for 1999, a decrease of $200.6, or 24.6% on a reported
basis (a decrease of 21.7% on a constant U.S. dollar basis). The decrease was
primarily due to the sale of the worldwide professional products line and the
Plusbelle brand in Argentina.
Net sales, excluding the worldwide professional products line outside the
United States and the Plusbelle brand in Argentina, were $553.4 for 2000
compared with $581.4 for 1999, a decrease of $28.0, or 4.8%, on a reported
basis (a decrease of 0.5% on a constant U.S. dollar basis). The decrease in net
sales for 2000 on a constant U.S. dollar basis is primarily due to increased
competitive activity in certain markets outside the U.S. The decrease in net
sales for 2000 on a reported basis also reflects the unfavorable effect on
sales of a stronger U.S. dollar against certain foreign currencies. Sales
outside the United States are divided by the Company 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 $174.9 for 2000 as compared with
1999 (an increase of 0.1% 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 2.8% on a reported basis to $253.3 for 2000
as compared with 1999 (an increase of 3.1% on a constant U.S. dollar basis).
The Company's operations in Brazil are significant. In Brazil, net sales were
$76.0 on a reported basis for 2000 compared with $76.1 for 1999. In the Far
East, net sales decreased by 12.0% on a reported basis to $125.2 for 2000 as
compared with 1999 (a decrease of 7.3% on a constant U.S. dollar basis). Net
sales outside the United States, including the Company's operations in Brazil,
may be adversely affected by weak economic conditions, political and economic
uncertainties, adverse currency fluctuations, and competitive activities.
Cost of sales
As a percentage of net sales, cost of sales was 37.1% for 2000 compared
with 36.9% for 1999. Excluding the worldwide professional products line and the
Plusbelle brand in Argentina, cost of sales as a percentage of net sales was
36.8% for 2000 compared with 36.4% for 1999. The increase in cost of sales as a
percentage of net sales for 2000 compared with 1999 is due to the mix of new
products with higher product packaging and material costs and the effect of
fixed costs on lower net sales.
SG&A expenses
As a percentage of net sales, SG&A expenses were 58.3% for 2000 compared
with 72.4% for 1999. Excluding the worldwide professional products line and the
Plusbelle brand in Argentina, SG&A expenses as a percentage of net sales were
58.5% for 2000 compared with 77.3% for 1999. The decrease in SG&A expenses as a
percentage of sales during 2000 primarily reflects reduced brand support
and the favorable impact of the Company's restructuring efforts partially
offset by the effect of fixed costs on lower net sales.
13
Restructuring costs and other, net
Since 1998, the Company has been continuously evaluating its
organizational structure and has implemented a number of restructuring plans.
In the fourth quarter of 1998, the Company executed a 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 (the "1998 Restructuring Plan"). The cost of the 1998
Restructuring Plan resulted in a charge of $44.2 in 1998 and an additional net
charge of $20.5 through the nine-month period ended September 30, 1999,
principally for employee severance and other personnel benefits and obligations
for excess leased real estate primarily in the United States. In 1999, the
Company exited a non-core business for which it recorded a charge of $1.6,
which was included in restructuring costs and other, net. In 1998, the Company
recognized $8.4 of gains on sales of certain non-core assets.
In the fourth quarter of 1999, the Company began a new restructuring
program principally for additional employee severance and other personnel
benefits and to restructure certain operations outside the United States,
including certain operations in Japan (the "1999 Restructuring Plan"). The cost
of the 1999 Restructuring Plan resulted in a charge of $18.1 in the fourth
quarter of 1999. In the first half of 2000, the Company recorded a charge of
$14.6 relating to the 1999 Restructuring Plan.
During the third quarter of 2000, the Company continued to re-evaluate its
organizational structure. As part of this re-evaluation, the Company developed
a new restructuring plan designed to improve profitability by reducing
personnel and consolidating manufacturing facilities (the "2000 Restructuring
Plan"). The 2000 Restructuring Plan focused on the Company's plans to close its
manufacturing operations in Phoenix, Arizona and Mississauga, Canada and to
consolidate its production into its plant in Oxford, North Carolina. The 2000
Restructuring Plan also includes the remaining obligation for excess leased
real estate in the Company's headquarters, consolidation costs associated with
the Company closing its facility in New Zealand, and the elimination of several
domestic and international executive and operational positions, both of which
were effected to reduce and streamline corporate overhead costs. In the third
and fourth quarters of 2000, the Company recorded charges of $13.7 and $25.8,
respectively, related to the 2000 Restructuring Plan, principally for
additional employee severance and other personnel benefits and to consolidate
worldwide operations. The Company anticipates that it will recognize
approximately $35 to $40 of additional costs to implement this plan.
The Company anticipates annual savings of approximately $40 to $45
relating to the restructuring charges recorded during 2000 in connection with
the 2000 and 1999 Restructuring Plans.
Other expenses (income)
Interest expense was $144.5 for 2000 compared with $147.9 for 1999. The
decrease in interest expense for 2000 as compared with 1999 is primarily due to
the repayment of borrowings under the Credit Agreement with the net proceeds
from the disposition of the worldwide professional product line and the
Plusbelle brand in Argentina, partially offset by higher interest rates under
the Credit Agreement.
Foreign currency losses (gains), net, were $1.6 for 2000 compared with
$(0.5) for 1999. Foreign currency losses, net for 2000, consisted primarily of
losses in certain markets in Latin America.
Sale of product line and brand
On May 8, 2000, Products Corporation completed the disposition of the
Plusbelle brand in Argentina. In connection with the disposition, the Company
recognized a pre-tax and after-tax loss of $4.8 (See Note 3 to the Consolidated
Financial Statements).
On March 30, 2000, Products Corporation completed the disposition of its
worldwide professional products line, including professional hair care for use
in and resale by professional salons, ethnic hair and personal care products,
Natural Honey skin care and certain regional toiletries brands. In connection
with the disposition, the Company recognized a pre-tax and after-tax gain of
$14.8 (See Note 3 to the Consolidated Financial Statements).
14
Provision for income taxes
The provision for income taxes was $8.6 for 2000 compared with $9.1 for
1999. The decrease for 2000 compared with 1999 was primarily attributable to
lower taxable income in 2000 in certain markets outside the United States.
YEAR ENDED DECEMBER 31, 1999 COMPARED WITH YEAR ENDED DECEMBER 31, 1998
Net sales
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 intended to achieve such retailers' lower inventory target
levels. The reduction of retailers' target inventory levels will continue and
is expected to adversely impact sales in 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.
15
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.
Restructuring costs and other, net
In the fourth quarter of 1998, the Company executed the 1998 Restructuring
Plan recognizing a charge of $44.2. During 1999, the Company continued to
implement the 1998 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 restructuring costs and other, net. In 1998, the
Company recognized $8.4 of gains on sales of certain non-core assets.
During the fourth quarter of 1999, the Company began its 1999
Restructuring Plan resulting in a charge of $18.1 principally for employee
severance.
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.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Net cash used for operating activities was $85.4, $82.8 and $51.5 for
2000, 1999 and 1998, respectively. The slight increase in net cash used for
operating activities for 2000 compared with 1999 resulted primarily from
changes in working capital, partially offset by a lower net loss and lower
purchases of permanent displays. 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 restructuring costs during 1999, partially offset by
changes in working capital.
Net cash provided by (used for) investing activities was $322.1,
$(40.7) and $(91.0) for 2000, 1999 and 1998, respectively. Net cash provided by
investing activities for 2000 consisted of proceeds from the sale of the
Company's worldwide professional products line and the Plusbelle brand in
Argentina, partially offset by cash used for capital expenditures. Net cash used
for investing activities in 1999 related principally to capital expenditures.
Net cash used for investing activities for 1998 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 and from the sale of certain assets. Net cash used
for investing activities for 2000, 1999 and 1998 included capital expenditures
of $19.0, $42.3 and $60.8, respectively, and in 1998 $57.6 was used for
16
acquisitions. Investing activities in 1999 included substantial upgrades to the
Company's management information systems.
Net cash (used for) provided by financing activities was $(202.3), $118.5
and $159.1 for 2000, 1999 and 1998, respectively. Net cash used for financing
activities for 2000 included repayments of borrowings under the Credit
Agreement with the net proceeds from the disposition of the worldwide
professional products line and the Plusbelle brand in Argentina and the
repayment of Products Corporation's Japanese yen-denominated credit agreement
(the "Yen Credit Agreement") partially offset by cash drawn under the Credit
Agreement. Net cash provided by financing activities for 1999 included cash
drawn under the Credit Agreement, partially offset by repayments of borrowings
under the Credit Agreement, redemption of the Products Corporation's 9 1/2
Senior Notes due 1999 and repayments under 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 Products Corporation's 10 1/2% Senior
Subordinated Notes due 2003 and Products Corporation's 9 3/8% Senior Notes due
2001, and the repayment of borrowings under the Yen Credit Agreement. During
1998, net cash used by discontinued operations was $17.3.
In May 1997, Products Corporation entered into a credit agreement (as
subsequently amended, the "Credit Agreement") with a syndicate of lenders,
whose individual members change from time to time. In March 2000 and May 2000,
60% of the Net Proceeds from the disposition of the worldwide professional
products line and the Plusbelle brand in Argentina, respectively, was applied
to reduce the aggregate commitment under the Credit Agreement. As of December
31, 2000, after giving effect to the foregoing reductions, the Credit Agreement
provided up to $518.5 and is comprised of five senior secured facilities:
$106.2 in two term loan facilities (the "Term Loan Facilities"), a $300.0
multi-currency facility (the "Multi-Currency Facility"), a $62.3 revolving
acquisition facility, which may also be used for general corporate purposes
(the "Acquisition Facility"), and a $50.0 special standby letter of credit
facility (the "Special LC Facility"). The Company under certain circumstances
and with the consent of a majority of the lenders may increase the Acquisition
Facility to $262.3. At December 31, 2000, the Company had $106.2 outstanding
under the Term Loan Facilities, $221.2 outstanding under the Multi-Currency
Facility, $62.3 outstanding under the Acquisition Facility and $22.6 of issued
but undrawn letters of credit under the Special LC Facility. The scheduled
reductions of the Acquisition Facility are $48.8 during 2001. The balance of
the Acquisition Facility, along with the Term Loan Facilities, the
Multi-Currency Facility and the Special LC Facility mature in May 2002. In
January 2001 (effective December 31, 2000), Products Corporation and its bank
lenders entered into an amendment to the Credit Agreement, to (i) eliminate the
interest coverage ratio and leverage ratio covenants for 2001; (ii) add a
minimum cumulative EBITDA covenant for each quarter end during the year 2001;
(iii) modify the definition of EBITDA beginning with the quarterly period
ended December 31, 2000; (iv) limit the amount that Products Corporation may
spend for capital expenditures; (v) permit the sale of certain of Products
Corporation's non-core assets; (vi) permit Products Corporation to retain 100%
of the Net Proceeds from such asset sales; (vii) increase the "applicable
margin" by 1/2 of 1%; and (viii) require Products Corporation to provide a
mortgage on its facility in Oxford, North Carolina as security for its
obligations under the Credit Agreement.
A subsidiary of Products Corporation was the borrower under the Yen Credit
Agreement. In March 2000, the outstanding balance under the Yen Credit
Agreement was repaid in full in accordance with its terms.
The Company's principal sources of funds are expected to be cash flow
generated from operations (before interest), net proceeds from the sale of
certain non-core assets and borrowings under the Credit Agreement. The Credit
Agreement, Products Corporation's 8 5/8% Notes, Products Corporation's 8 1/8%
Notes and Products Corporation's 9% Notes contain certain provisions that by
their terms limit Products Corporation's and/or its subsidiaries' ability to,
among other things, incur additional debt. The Company's principal uses of
funds are expected to be the payment of operating expenses, working capital,
purchases of permanent displays and capital expenditure requirements, expenses
in connection with the Company's 2000 and 1999 Restructuring Plans referred to
above and debt service payments.
The Company estimates that purchases of permanent displays for 2001
will be $40 to $50 and capital expenditures for 2001 will be $13 to $17. The
Company estimates that cash payments related to the restructuring
17
plans referred to in Note 2 to the Consolidated Financial Statements and plans
for 2001 and executive separation costs will be $60 to $80 in 2001. Pursuant to
a tax sharing agreement, Revlon, Inc. may be required to make tax sharing
payments to Mafco Holdings Inc. ("Mafco Holdings") 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 2001.
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, 2000.
The Company expects that cash flows from operations, net proceeds from the
sale of certain non-core assets (or financial support from an affiliate, if
such asset sales are not completed on a timely basis) and borrowings under the
Credit Agreement will be sufficient to enable the Company to meet its
anticipated cash requirements during 2001 on a consolidated basis, including
for debt service and expenses in connection with the Company's restructuring
plans. However, there can be no assurance that the combination of cash flow
from operations, net proceeds from the sale of certain non-core assets (or from
such financial support) and borrowings under the Credit Agreement 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
purchases of permanent displays, reducing or delaying capital expenditures,
delaying or revising restructuring plans, restructuring indebtedness, selling
additional assets or operations or seeking capital contributions or additional
loans from affiliates of the Company or issuing additional shares of capital
stock of Revlon, Inc. Products Corporation has received a commitment from an
affiliate that is prepared to provide, if necessary, additional financial
support to Products Corporation of up to $40 on appropriate terms through
December 31, 2001. There can be no assurance that any of such actions could be
effected, that they would enable the Company to continue to satisfy its capital
requirements or that they would be permitted under the terms of the Company's
various debt instruments then in effect. Revlon, Inc., as a holding company,
will be dependent on the earnings and cash flow of, and dividends and
distributions from, Products Corporation to pay its expenses and to pay any
cash dividend or distribution on Revlon, Inc.'s Class A Common Stock that may
be authorized by the Board of Directors of Revlon, Inc. The terms of the Credit
Agreement, the 8 5/8% Notes, the 8 1/8% Notes and the 9% Notes generally
restrict Products Corporation from paying dividends or making distributions,
except that Products Corporation is permitted to pay dividends and make
distributions to Revlon, Inc., among other things, to enable Revlon, Inc. to
pay expenses incidental to being a public holding company, including, among
other things, professional fees such as legal and accounting, regulatory fees
such as Securities and Exchange Commission (the "Commission") filing fees and
other miscellaneous expenses related to being a public holding company and to
pay dividends or make distributions in certain circumstances to finance the
purchase by Revlon, Inc. of its Class A Common Stock in connection with the
delivery of such Class A Common Stock to grantees under the Revlon, Inc.
Amended and Restated 1996 Stock Plan, provided that the aggregate amount of
such dividends and distributions taken together with any purchases of Revlon,
Inc. Class A Common Stock on the open market to satisfy matching obligations
under the excess savings plan may not exceed $6.0 per annum.
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
18
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.
EFFECT OF NEW ACCOUNTING STANDARDS
In June 1998 and June 2000, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities" and SFAS No. 138, "Accounting
for Certain Derivative Instruments and Certain Hedging Activities." These
statements establish accounting and reporting standards requiring that every
derivative instrument be recorded on the balance sheet as either an asset or
liability measured at its fair value. SFAS Nos. 133 and 138 also require that
changes in the derivative's fair value be recognized currently in earnings
unless specific hedge accounting criteria are met. SFAS Nos. 133 and 138 are
effective for fiscal years beginning after June 15, 2000. The adoption of SFAS
Nos. 133 and 138 did not have an effect on the Company's consolidated financial
statements.
In May 2000, the FASB Emerging Issues Task Force (the "EITF") issued new
guidelines entitled, "Accounting for Certain Sales Incentives" (the
"Guidelines"), which addresses when sales incentives and discounts should be
recognized, as well as where the related revenues and expenses should be
classified in the financial statements. The Guidelines, as amended in November
2000, are effective for the second quarter ending June 30, 2001, and would be
applied retroactively for purposes of comparability. Therefore, beginning April
1, 2001, the Company is required to reclassify certain revenues and expenses
related to its promotional programs out of operating expenses and into sales
and cost of sales. Such reclassification will not affect the Company's
operating income (loss) or net loss.
In March 2000, the FASB issued SFAS Interpretation No. 44, "Accounting for
Certain Transactions Involving Stock Compensation: An Interpretation of APB
Opinion No. 25" (the "Interpretation"). The Interpretation provides guidance
for issues that have arisen in the application of APB Opinion No. 25,
"Accounting for Stock Issued to Employees" ("Opinion No. 25"). The
Interpretation, which became effective July 1, 2000, applies prospectively to
new awards, exchanges of awards, modifications to outstanding awards and
changes in grantee status that occur on or after July 1, 2000, except for the
provisions related to repricings and the definition of an employee, which apply
to awards issued after December 15, 1998. The implementation of the
Interpretation by the Company on July 1, 2000 had no impact on the Company's
consolidated financial statements.
In December 1999, the staff of the United States Securities and Exchange
Commission issued Staff Accounting Bulletin No. 101, "Revenue Recognition in
Financial Statements," as amended by SAB 101A and SAB 101B ("SAB 101"). SAB 101
outlines basic criteria that must be met to recognize revenue and provides
guidelines for disclosure related to revenue recognition policies. SAB 101 was
required to be implemented in the fourth quarter of 2000. The adoption of SAB
101 did not have an effect on the Company's consolidated financial statements.
FORWARD-LOOKING STATEMENTS
This annual report on Form 10-K for the year ended December 31, 2000 as
well as other public documents and statements of the Company contains
forward-looking statements that involve risks and uncertainties. The Company's
actual results may differ materially from those discussed in such
forward-looking statements. Such statements include, without limitation, the
Company's expectations and estimates as to: the introduction of new products;
future financial performance; the effect on sales of the reduction of overall
U.S. customer inventories including the timing thereof; the effect on sales of
political and/or economic conditions and competitive activities; the Company's
estimate of restructuring activities, restructuring costs and benefits; the
Company's plans with respect to and estimate of the timing of the shutdown of
its Phoenix manufacturing operation, the charges, the cash cost and the annual
savings resulting from plant shutdowns; the Company's expectation that its new
trade terms for its U.S. customers will increase consumption of its products,
drive market growth, result in more efficient ordering and shipping and reduce
returns; cash flow from operations; purchases of permanent displays, capital
expenditures; the availability of raw materials and components; 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
Company's intent to pursue the sale of certain non-core assets; the
availability of funds from currently available credit facilities, net proceeds
from the sale of certain non-core assets, capital contributions or loans from
affiliates and the sale of additional assets or operations or additional shares
of Revlon, Inc. Statements that are not historical facts, including
19
statements about the Company's beliefs and expectations, are forward-looking
statements. Forward-looking statements can be identified by, among other
things, the use of forward-looking language, such as "believes," "expects,"
"estimates," "projects," "forecast," "may," "will," "should," "seeks," "plans,"
"scheduled to," "anticipates" or "intends" or the negative of those terms, or
other variations of those terms or comparable language, or by discussions of
strategy or intentions. Forward-looking statements speak only as of the date
they are made, and the Company undertakes no obligation to update them. A
number of important factors could cause actual results to differ materially
from those contained in any forward-looking statement. In addition to factors
that may be described in the Company's filings with the Commission, including
this filing, the following factors, among others, could cause the Company's
actual results to differ materially from those expressed in any forward-looking
statements made by the Company: (i) difficulties or delays in developing and
introducing new products or failure of customers to accept new product
offerings; (ii) changes in consumer preferences, including reduced consumer
demand for the Company's color cosmetics and other current products; (iii)
unanticipated costs or difficulties or delays in completing projects associated
with the Company's strategy to improve operating efficiencies; (iv) the
inability to secure capital contributions or loans from affiliates or sell
additional assets or operations or additional shares of Revlon, Inc.; (v)
effects of and changes in political and/or economic conditions, including
inflation and monetary conditions, and in trade, monetary, fiscal and tax
policies in international markets, including but not limited to Brazil; (vi)
actions by competitors, including business combinations, technological
breakthroughs, new products offerings and marketing and promotional successes;
(vii) combinations among significant customers or the loss, insolvency or
failure to pay debts by a significant customer or customers; (viii) lower than
expected sales as a result of the reduction of overall U.S. customer
inventories; (ix) difficulties, delays or unanticipated costs or less than
expected savings and other benefits resulting from the Company's restructuring
activities; (x) difficulties or delays in implementing, higher than expected
charges and cash costs or lower than expected savings from the shutdown of
manufacturing operations in Phoenix; (xi) difficulties or delays in
implementing or achieving the intended results of the new trade terms including
increased consumption, market growth and lower returns or unexpected
consequences from the implementation of the new trade terms including the
possible effect on sales; (xii) interest rate or foreign exchange rate changes
affecting the Company and its market sensitive financial instruments; (xiii)
difficulties, delays or unanticipated costs associated with the transition to
the Euro; (xiv) difficulties or delays in sourcing raw materials or components;
and (xv) difficulties or delays in pursuing the sale of one or more non-core
assets, the inability to consummate such sales or to secure the expected level
of proceeds from such sales.
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. The
Company's operations in Brazil are accounted for as a non-hyperinflationary
economy. 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 EVENTS
On March 29, 2001, a subsidiary of Products Corporation entered into an
agreement to sell land located in Minami Aoyama near Tokyo, Japan and related
rights for the construction of a building on such land for (Y)3.3 billion
(approximately $28 as of March 29, 2001), after fees and expenses. This was less
than the Company expected it would receive and resulted in an additional charge
of $3.4 (reported in SG&A to reduce the book value to its estimated net
realizable value) in excess of that reported in the Company's earnings release
on February 26, 2001. The agreement is subject to a number of conditions.
Subject to satisfaction of such conditions, Products Corporation expects the
sale to be consummated during the second quarter of 2001.
On March 16, 2001, Products Corporation entered into an agreement to sell
its Phoenix facility for $8.0 and lease it back for a certain period of time.
The agreement is subject to a number of conditions, including completion of due
diligence. Subject to satisfaction of such conditions, Products Corporation
expects the sale to be consummated during the second quarter of 2001.
If consummated, proceeds available to the Company from the aforementioned
transactions will be used for general corporate purposes, including payments to
fund the Company's restructuring plans.
20
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,
2000. 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 Company does not hold or issue financial instruments for trading
purposes.
As referred to above, in March 2000 and May 2000, Products Corporation
reduced the aggregate commitment under its Credit Agreement and repaid its Yen
Credit Agreement.
EXPECTED MATURITY DATE FOR YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------FAIR VALUE
DEC. 31,
Debt 2001 2002 2003 2004 2005 THEREAFTER TOTAL 2000
---- ---- ---- ---- ---- ---- ---------- ----- ----
(US dollar equivalent in millions)
Short-term variable rate (various currencies). $30.7 $ 30.7 $ 30.7
Average interest rate (a) .............. 7.4%
Long-term fixed rate ($US) ................... $1,149.3 1,149.3 755.7
Average interest rate .................. 8.6%
Long-term variable rate ($US)................. $331.1 331.1 331.1
Average interest rate (a)............... 8.5%
Long-term variable rate (various currencies).. 58.6 58.6 58.6
Average interest rate (a) .............. 8.2%
---------- ---------
Total debt.................................... $ 1,569.7 $ 1,176.1
========= =========
(a) Weighted average variable rates are based upon implied forward rates from
the yield curves at December 31, 2000.
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.
21
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning Directors and Executive Officers of the Registrant
is contained in Revlon, Inc.'s Proxy Statement for the 2000 Annual Meeting of
Stockholders, which will be mailed to stockholders on or before April 30, 2001
and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information with respect to Executive Compensation is contained in Revlon,
Inc.'s Proxy Statement for the 2000 Annual Meeting of Stockholders, which will
be mailed to stockholders on or before April 30, 2001 and is incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information with respect to Security Ownership of Certain Beneficial
Owners and Management is contained in Revlon, Inc.'s Proxy Statement for the
2000 Annual Meeting of Stockholders, which will be mailed to stockholders on or
before April 30, 2001 and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information with respect to Certain Relationships and Related Transactions
is contained in Revlon, Inc.'s Proxy Statement for the 2000 Annual Meeting of
Stockholders, which will be mailed to stockholders on or before April 30, 2001
and is incorporated herein by reference.
22
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) List of documents filed as part of this Report:
(1) Consolidated Financial Statements and Independent Auditors' Report
included herein:
See Index on page F-1
(2) Financial Statement Schedule:
See Index on page F-1
All other schedules are omitted as they are inapplicable or the
required information is furnished in the Consolidated Financial
Statements of the Company or the Notes thereto.
(3) List of Exhibits:
EXHIBIT NO. DESCRIPTION
3. CERTIFICATE OF INCORPORATION AND BY-LAWS.
3.1 Amended and Restated Certificate of Incorporation of Revlon, Inc.
dated March 4, 1996 (incorporated by reference to Exhibit 3.4 to the
Quarterly Report on Form 10-Q for the quarterly period ended March
31, 1996 of Revlon, Inc.).
3.2 Amended and Restated By-Laws of Revlon, Inc. dated January 30, 1997
(incorporated by reference to Exhibit 3.2 to the Annual Report on
Form 10-K for the year ended December 31, 1996 of Revlon, Inc. (the
"Revlon 1996 10-K")).
4. INSTRUMENTS DEFINING THE RIGHT OF SECURITY HOLDERS, INCLUDING
INDENTURES.
4.1 Indenture, dated as of February 1, 1998, between Revlon Escrow and
U.S. Bank Trust National Association (formerly known as First Trust
National Association), as Trustee, relating to the 8 1/8% Senior
Notes due 2006 (the "8 1/8% Senior Notes Indenture") (incorporated by
reference to Exhibit 4.1 to the Registration Statement on Form S-1 of
Products Corporation filed with the Commission on March 12, 1998,
File No. 333-47875 (the "Products Corporation 1998 Form S-1")).
4.2 Indenture, dated as of February 1, 1998, between Revlon Escrow and
U.S. Bank Trust National Association (formerly known as First Trust
National Association), as Trustee, relating to the 8 5/8% Senior
Notes Due 2006 (the "8 5/8% Senior Subordinated Notes Indenture")
(incorporated by reference to Exhibit 4.3 to the Products Corporation
1998 Form S-1).
4.3 First Supplemental Indenture, dated April 1, 1998, among Products
Corporation, Revlon Escrow, and the Trustee, amending the 8 1/8%
Senior Notes Indenture (incorporated by reference to Exhibit 4.2 to
the Products Corporation 1998 Form S-1).
4.4 First Supplemental Indenture, dated March 4, 1998, among Products
Corporation, Revlon Escrow, and the Trustee, amending the 8 5/8%
Senior Subordinated Notes Indenture (incorporated by reference to
Exhibit 4.4 to the Products Corporation 1998 Form S-1).
4.5 Indenture, dated as of November 6, 1998, between Products Corporation
and U.S. Bank Trust National Association, as Trustee, relating to
Products Corporation's 9% Senior Notes due 2006 (incorporated by
reference to Exhibit 4.13 to the Quarterly Report on Form 10-Q for
the quarterly period ended September 30, 1998 of Revlon, Inc. (the
"Revlon 1998 Third Quarter Form 10-Q")).
4.6 Amended and Restated Credit Agreement, dated as of May 30, 1997,
among Products Corporation, The Chase Manhattan Bank, Citibank N.A.,
Lehman Commercial Paper Inc., Chase Securities Inc. and the lenders
party thereto (the "Credit Agreement") (incorporated by reference to
Exhibit 4.23 to Amendment No. 2 to the Registration Statement on Form
S-1 of Revlon
23
Worldwide (Parent) Corporation, filed with the Commission on June 26,
1997, File No. 33-23451).
4.7 First Amendment, dated as of January 29, 1998, to the Credit
Agreement (incorporated by reference to Exhibit 4.8 to the Annual
Report on Form 10-K for the year ended December 31, 1997 of Revlon,
Inc. ).
4.8 Second Amendment, dated as of November 6, 1998, to the Credit
Agreement (incorporated by reference to Exhibit 4.12 to the Revlon
1998 Third Quarter Form 10-Q).
4.9 Third Amendment, dated as of December 23, 1998, to the Credit
Agreement (incorporated by reference to Exhibit 4.12 to Amendment No.
1 to the Products Corporation 1998 Form S-4 filed with the Commission
on January 22, 1999, File No. 33-69213).
4.10 Fourth Amendment, dated as of November 10, 1999, to the Credit
Agreement (incorporated by reference to Exhibit 4.12 to the Quarterly
Report on Form 10-Q for the quarterly period ended September 30, 1999
of Revlon, Inc. (the "Revlon 1999 Third Quarter Form 10-Q")).
4.11 Fifth Amendment, dated as of March 6, 2000, to the Credit Agreement
(incorporated by reference to Exhibit 10.20 to the Quarterly Report
on Form 10-Q for the quarterly period ended March 31, 2000 of Revlon,
Inc. the "Revlon 2000 First Quarter Form 10-Q")).
4.12 Sixth Amendment, dated as of September 8, 2000, to the Credit
Agreement (incorporated by reference to Exhibit 10.24 to the
Quarterly Report on form 10-Q for the quarterly period ended
September 30, 2000 (the "Revlon 2000 Third Quarter Form 10-Q")).
*4.13 Seventh Amendment, dated as of January 29, 2001, to the Credit
Agreement.
10. MATERIAL CONTRACTS.
10.1 Asset Transfer Agreement, dated as of June 24, 1992, among Holdings,
National Health Care Group, Inc., Charles of the Ritz Group Ltd.,
Products Corporation and Revlon, Inc. (incorporated by reference to
Exhibit 10.1 to Amendment No. 1 to the Revlon, Inc. Registration
Statement on Form S-1 filed with the Commission on June 29, 1992,
File No. 33-47100 (the "Revlon 1992 Amendment No. 1")).
10.2 Tax Sharing Agreement, dated as of June 24, 1992, among Mafco
Holdings, Revlon, Inc., Products Corporation and certain subsidiaries
of Products Corporation (the "Tax Sharing Agreement") (incorporated
by reference to Exhibit 10.5 to the Revlon 1992 Amendment No. 1).
10.3 First Amendment, dated as of February 28, 1995, to the Tax Sharing
Agreement (incorporated by reference to Exhibit 10.5 to the Annual
Report on Form 10-K for the year ended December 31, 1994 of Products
Corporation).
10.4 Second Amendment, dated as of January 1, 1997, to the Tax Sharing
Agreement (incorporated by reference to Exhibit 10.7 to the Revlon
1996 10-K).
*10.5 Third Amendment, dated as of January 1, 2001, to the Tax Sharing
Agreement.
10.6 Employment Agreement dated as of November 2, 1999 between Products
Corporation and Jeffrey M. Nugent (incorporated by reference to
Exhibit 10.10 to the Annual Report on Form 10-K for the year ended
December 31, 1999 of Revlon, Inc. (the "Revlon 1999 Form 10-K")).
10.7 Employment Agreement amended and restated as of May 9, 2000 between
Revlon Consumer Products Corporation and Douglas H. Greeff
(incorporated by reference to Exhibit 10.22 to the Quarterly Report
on Form 10-Q for the quarterly period ended June 30, 2000 of Revlon,
Inc.
24
(the "Revlon 2000 Second Quarter 10-Q")).
10.8 Revlon Executive Bonus Plan (Amended and Restated as of March 1,
2000) (incorporated by reference to Exhibit 10.23 to the Revlon 2000
Second Quarter 10-Q).
10.9 Senior Executive Supplemental Long-Term Incentive Program
(incorporated by reference to Exhibit 10.21 to the Revlon 2000 First
Quarter Form 10-Q).
10.10 Amended and Restated Revlon Pension Equalization Plan, amended and
restated as of December 14, 1998 (incorporated by reference to
Exhibit 10.15 to the Annual Report on Form 10-K for year ended
December 31, 1998 of Revlon, Inc.).
10.11 Executive Supplemental Medical Expense Plan Summary dated July 1991
(incorporated by reference to Exhibit 10.18 to the Registration
Statement on Form S-1 of Revlon, Inc. filed with the Commission on
May 22, 1992, File No. 33-47100 (the "Revlon 1992 Form S-1")).
10.12 Description of Post Retirement Life Insurance Program for Key
Executives (incorporated by reference to Exhibit 10.19 to the Revlon
1992 Form S-1).
10.13 Benefit Plans Assumption Agreement dated as of July 1, 1992, by and
among Holdings, Revlon, Inc. and Products Corporation (incorporated
by reference to Exhibit 10.25 to the Annual Report on Form 10-K for
the year ended December 31, 1992 of Products Corporation).
10.14 Revlon Amended and Restated Executive Deferred Compensation Plan
dated as of August 6, 1999 (incorporated by reference to Exhibit
10.27 to the Revlon 1999 Third Quarter Form 10-Q).
10.15 Revlon Executive Severance Policy effective January 1, 1996
(incorporated by reference to Exhibit 10.23 to the Amendment No. 3 to
the Registration Statement on Form S-1 of Revlon, Inc. filed with the
Commission on February 5, 1996, File No. 33-9958).
10.16 Revlon, Inc. Second Amended and Restated 1996 Stock Plan (Amended and
Restated as of February 12, 1999) (incorporated by reference to
Exhibit 4.1 to the Registration Statement on Form S-8 of Revlon, Inc.
filed with the Commission on April 14, 1999, File No. 333-76267).
10.17 Purchase Agreement dated as of February 18, 2000 by and among Revlon,
Inc., Revlon Consumer Products Corporation, REMEA 2 B.V., Revlon
Europe, Middle East and Africa, Ltd., Revlon International
Corporation, Europeenne de Produits de Beaute S.A., Deutsche Revlon
GmbH & Co. K.G., Revlon Canada, Inc., Revlon de Argentina, S.A.I.C.,
Revlon South Africa (Proprietary) Limited, Revlon (Suisse) S.A.,
Revlon Overseas Corporation C.A., CEIL - Comercial, Exportadora,
Industrial Ltda., Revlon Manufacturing Ltd., Revlon Belgium N.V.,
Revlon (Chile) S.A., Revlon (Hong Kong) Limited, Revlon, S.A., Revlon
Nederland B.V., Revlon New Zealand Limited, European Beauty Products
S.p.A. and Beauty Care Professional Products Luxembourg, S.a.r.l.
(incorporated by reference to Exhibit 10.19 to the Revlon 1999 10-K).
21. SUBSIDIARIES.
*21.1 Subsidiaries of the Registrant.
23. CONSENTS OF EXPERTS AND COUNSEL.
*23.1 Consent of KPMG LLP.
24. POWERS OF ATTORNEY.
*24.1 Power of Attorney of Ronald O. Perelman.
*24.2 Power of Attorney of Donald G. Drapkin.
*24.3 Power of Attorney of Meyer Feldberg.
*24.4 Power of Attorney of Howard Gittis.
*24.5 Power of Attorney of Vernon E. Jordan, Jr., Esq.
25
*24.6 Power of Attorney of Edward J. Landau, Esq.
*24.7 Power of Attorney of Jerry W. Levin.
*24.8 Power of Attorney of Linda Gosden Robinson.
*24.9 Power of Attorney of Terry Semel.
*24.10 Power of Attorney of Martha Stewart.
27. Financial Data Schedule.
- --------------------
* Filed herewith.
(b) Reports on Form 8-K.
Form 8-K filed on January 30, 2001 to report the Seventh Amendment, dated
January 29, 2001, to the Credit Agreement, among Products Corporation, The
Chase Manhattan Bank, Citibank N.A., Lehman Commercial Paper Inc., Chase
Securities Inc. and the lenders party thereto.
26
REVLON, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
Page
----
Independent Auditors' Report................................................F-2
AUDITED FINANCIAL STATEMENTS:
Consolidated Balance Sheets as of
December 31, 2000 and 1999........................................F-3
Consolidated Statements of Operations
for each of the years in the three-year
period ended December 31, 2000....................................F-4
Consolidated Statements of
Stockholders' Deficiency and
Comprehensive Loss for each of the
years in the three-year period ended
December 31, 2000.................................................F-5
Consolidated Statements of Cash Flows
for each of the years in the three-year
period ended December 31, 2000....................................F-6
Notes to Consolidated Financial Statements............................F-7
FINANCIAL STATEMENT SCHEDULE:
Schedule II--Valuation and Qualifying Accounts.........................F-32
F-1
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Revlon, Inc.:
We have audited the accompanying consolidated balance sheets of Revlon, Inc.
and its subsidiaries as of December 31, 2000 and 1999, and the related
consolidated statements of operations, stockholders' deficiency and
comprehensive loss and cash flows for each of the years in the three-year
period ended December 31, 2000. In connection with our audits of the
consolidated financial statements we have also audited the financial statement
schedule as listed on the index on page F-1. These consolidated financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedule based on our
audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Revlon, Inc. and
its subsidiaries as of December 31, 2000 and 1999 and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 2000, in conformity with accounting principles generally
accepted in the United States of America. Also in our opinion, the related
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
KPMG LLP
New York, New York
March 28, 2001
F-2
REVLON, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in millions, except per share data)
DECEMBER 31, DECEMBER 31,
ASSETS 2000 1999
----------------- --------------
Current assets:
Cash and cash equivalents...................... $ 56.3 $ 25.4
Trade receivables, less allowances of $16.1
and $27.2, respectively.............. 220.3 332.6
Inventories.................................... 184.7 278.3
Prepaid expenses and other.................... 66.1 51.3
--------- ---------
Total current assets.................. 527.4 687.6
Property, plant and equipment, net........................ 221.7 336.4
Other assets.............................................. 146.3 177.5
Intangible assets, net................................... 206.1 356.8
--------- ---------
Total assets......................... $ 1,101.5 $ 1,558.3
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Short-term borrowings - third parties........... $ 30.7 $ 37.6
Current portion of long-term debt - third parties - 10.2
Accounts payable................................. 86.3 139.8
Accrued expenses and other....................... 309.9 409.7
--------- ---------
Total current liabilities............. 426.9 597.3
Long-term debt - third parties ........................... 1,539.0 1,737.8
Long-term debt - affiliates............................... 24.1 24.1
Other long-term liabilities............................... 217.6 214.0
Stockholders' deficiency:
Preferred stock, par value $.01 per share; 20,000,000 shares
authorized, 546 shares of Series A Preferred Stock
issued and outstanding................ 54.6 54.6
Class B Common Stock, par value $.01 per share; 200,000,000
shares authorized, 31,250,000 issued and outstanding 0.3 0.3
Class A Common Stock, par value $.01 per share; 350,000,000
shares authorized, 20,115,935 and 19,992,837 issued and
outstanding, respectively............. 0.2 0.2
Capital deficiency.............................. (227.3) (228.4)
Accumulated deficit since June 24, 1992........ (904.1) (773.5)
Accumulated other comprehensive loss............ (29.8) (68.1)
--------- ---------
Total stockholders' deficiency........ (1,106.1) (1,014.9)
--------- ---------
Total liabilities and stockholders' deficiency... $ 1,101.5 $ 1,558.3
========= =========
See Accompanying Notes to Consolidated Financial Statements.
F-3
REVLON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in millions, except per share data)
YEAR ENDED DECEMBER 31,
--------------------------------------------------
2000 1999 1998
----------- ------------ ----------
Net sales............................................. $ 1,491.6 $ 1,861.3 $ 2,252.2
Cost of sales......................................... 553.0 686.1 765.7
----------- ------------ ----------
Gross profit................................. 938.6 1,175.2 1,486.5
Selling, general and administrative expenses.......... 869.5 1,347.6 1,328.8
Restructuring costs and other, net.................... 54.1 40.2 33.1
----------- ------------ ----------
Operating income (loss)...................... 15.0 (212.6) 124.6
----------- ------------ ----------
Other expenses (income):
Interest expense............................. 144.5 147.9 137.9
Interest income.............................. (2.1) (2.8) (5.2)
Amortization of debt issuance costs.......... 5.6 4.3 5.1
Foreign currency losses (gains), net......... 1.6 (0.5) 4.6
Gain on sale of product line and brand, net.. (10.8) -- --
Miscellaneous, net........................... (1.8) 0.9 4.5
----------- ------------ ----------
Other expenses, net................. 137.0 149