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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________________ TO __________________
COMMISSION FILE NUMBER 33-99558
REVLON, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 13-3662955
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
625 Madison Avenue, New York, New York 10022
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 527-4000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OR 12(g) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
- -------------------------------- ----------------------------------------
CLASS A COMMON STOCK NEW YORK STOCK EXCHANGE, INC.
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INDICATE BY CHECK MARK WHETHER THE REGISTRANT: (1) HAS FILED ALL
REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS.
YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
AS OF FEBRUARY 12, 1997, 19,875,000 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 REVLON WORLDWIDE CORPORATION, AN INDIRECTLY WHOLLY OWNED SUBSIDIARY OF MAFCO
HOLDINGS INC. THE AGGREGATE MARKET VALUE OF THE REGISTRANT'S CLASS A COMMON
STOCK HELD BY NON-AFFILIATES (USING NEW YORK STOCK EXCHANGE, INC. CLOSING PRICE
AS OF FEBRUARY 12, 1997) WAS APPROXIMATELY $307,266,000.
ITEM 1. DESCRIPTION OF BUSINESS
BACKGROUND
REVLON, Inc. (and together with its subsidiaries, the "Company")
operates in a single business segment with many different products, which
include an extensive array of glamorous, exciting and innovative cosmetics and
skin care, fragrance, personal care and professional products. REVLON is one of
the world's best known names in cosmetics and is a leading mass market
cosmetics brand. The Company's vision is to provide glamour, excitement and
innovation through quality products at affordable prices. To pursue this
vision, the Company's management team combines the creativity of a cosmetics
and fashion company with the marketing, sales and operating discipline of a
consumer packaged goods company. The Company believes that its global brand
name recognition, product quality and marketing experience have enabled it to
create one of the strongest consumer brand franchises in the world, with
products sold in approximately 175 countries and territories. The Company's
products are marketed under such well-known brand names as REVLON, COLORSTAY,
REVLON AGE DEFYING, ALMAY and ULTIMA II in cosmetics; MOON DROPS, ETERNA 27,
REVLON RESULTS, ALMAY TIME-OFF, ULTIMA II, JEANNE GATINEAU and NATURAL HONEY in
skin care; CHARLIE, FIRE & ICE, CIARA, CHERISH, and JONTUE in fragrances; FLEX,
OUTRAGEOUS, AQUAMARINE, MITCHUM, COLORSILK, JEAN NATE, BOZZANO and COLORAMA in
personal care products; and ROUX FANCI-FULL, REALISTIC, CREME OF NATURE,
FERMODYL, VOILA, COLOMER, CREATIVE NAIL DESIGN SYSTEMS and AMERICAN CREW in
professional products. To further strengthen its consumer brand franchises, the
Company markets each core brand with a distinct and uniform global image
including packaging and advertising, while retaining the flexibility to tailor
products to local and regional preferences.
The Company was founded by Charles Revson, who revolutionized the
cosmetics industry by introducing nail enamels matched to lipsticks in fashion
colors 65 years ago. Today, the Company has leading market positions in many of
its principal product categories in the United States self-select distribution
channel. The Company's leading market positions for its REVLON brand products
include the number one positions in the United States self-select distribution
channel in lip makeup and nail enamel (which the Company has occupied for the
past 20 years) for 1996. The Company has the number two position in face makeup
in the United States self-select distribution channel for 1996. Propelled by
the success of its new product launches and share gains in its existing product
lines, the Company has captured the number one position overall in color
cosmetics (consisting of lip, eye and face makeup and nail enamel) in the
United States self-select distribution channel, where its market share was
21.5% for 1996. The Company also has leading market positions in several
product categories in certain markets outside of the United States, including
in Brazil, Canada, South Africa and Australia.
The self-select distribution channel, in which consumers select their
own purchases without the assistance of an in-store demonstrator, includes in
the United States independent drug stores and chain drug stores (such as
Walgreens, CVS Drug stores, Eckerd Drug stores and Revco), mass volume
retailers (such as Wal-Mart, Target Stores and Kmart) and supermarkets and
combination supermarket/drug stores (such as Pathmark, Albertson's, Kroger's
and Smith's) and, internationally, Boots in the United Kingdom and Western
Europe, and Shoppers Drug Mart in Canada.
The Company operates in a single business segment with many different
products, which include cosmetics and skin care, fragrance and personal care
products ("consumer products"), and hair and nail care products principally for
use in and resale by professional salons ("professional products"). To reflect
the integration of management reporting responsibilities culminating in the
third quarter of 1996, the Company presents its business geographically as its
United States operation, which comprise the Company's business in the United
States, and its International operation, which comprise its business outside of
the United States. The Company previously presented its business as the
Consumer Group, which comprised the Company's consumer products operations
throughout the world (except principally Spain, Portugal, and Italy) and
professional products operations in certain markets, principally in South
Africa and Argentina, and the Professional Group, which comprised the Company's
professional products operations throughout the world (except principally South
Africa and Argentina) and consumer products operations in Spain, Portugal and
Italy.
On March 5, 1996, the Company completed an initial public offering
(the "Offering") in which it issued and sold 8,625,000 shares of its Class A
Common Stock for $24.00 per share. The proceeds, net of underwriter's discount
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and related fees and expenses, of $187.8 million were contributed to Revlon
Consumer Products Corporation ("Products Corporation") and used to repay
borrowings outstanding under the credit agreement in effect at that time (the
"Former Credit Agreement") and to pay fees and expenses related to the credit
agreement which became effective on March 5, 1996 (the "Credit Agreement").
In January 1996, Products Corporation entered into the Credit
Agreement which became effective upon consummation of the Offering on March 5,
1996. The Credit Agreement includes the following changes from the Former
Credit Agreement, among other things: (i) an extension of the term of the
facilities from June 30, 1997 to December 31, 2000 (subject to earlier
termination in certain circumstances), (ii) a reduction of the interest rates,
(iii) an increase in the amount of the credit facilities from $500 million to
$600 million and (iv) the release of security interests in assets of certain
foreign subsidiaries of Products Corporation which were previously pledged. The
Credit Agreement is comprised of four senior secured facilities: a $130 million
term loan facility, a $220 million multi-currency facility, a $200 million
revolving acquisition facility and a $50 million standby letter of credit
facility.
On June 24, 1992, the Company succeeded to assets and liabilities of
the cosmetics and skin care, fragrance and personal care products business of
Revlon Holdings Inc. ("Holdings"). Holdings retained certain small brands that
historically had not been profitable (the "Retained Brands") and certain other
assets and liabilities. Unless the context otherwise requires, references to
the Company or Revlon relating to dates or periods prior to the formation of
the Company mean the cosmetics and skin care, fragrance and personal care
products business of Holdings to which the Company has succeeded. The Company's
business is conducted through its wholly owned subsidiary Products Corporation.
Unless the context otherwise requires, all references in this Form 10-K to the
Company or Revlon mean Revlon, Inc. and its subsidiaries.
All United States market share and market position data herein for the
Company's brands are based upon retail dollar sales which are derived from A.C.
Nielsen data. A.C. Nielsen measures retail sales volume of products sold in the
United States self-select distribution channel. Such data represent A.C.
Nielsen's estimates based upon data gathered by A.C. Nielsen from market
samples. Such data are therefore subject to some degree of variance.
BUSINESS STRATEGY
The Company's business strategy, which implements its vision and is
intended to continue to improve operating performance, is to:
o Strengthen and broaden its core brands through globalization of marketing
and advertising, product development and manufacturing and through
increasing its emphasis on advertising and promotion.
o Lead the industry in the development and introduction of technologically
advanced innovative products that set new trends.
o Expand the Company's presence in all markets in which the Company
competes and enter new and emerging markets.
o Continue to reduce costs and improve operating efficiencies, customer
service and product quality by reducing overhead, rationalizing factory
operations, upgrading management information systems, globally sourcing
raw materials and components and carefully managing working capital.
o Continue to expand market share and product lines through possible
strategic acquisitions or joint ventures.
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PRODUCTS
The Company manufactures and markets a variety of products worldwide.
The following table sets forth the Company's principal brands.
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BRAND COSMETICS SKIN CARE FRAGRANCES PERSONAL CARE PROFESSIONAL
PRODUCTS PRODUCTS
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Revlon Revlon, ColorStay, Moon Drops, Charlie, Charlie Red, Flex, Flex Balsam, Revlon
Revlon Age Defying, Revlon Results, Charlie White, Outrageous, Professional, Roux
Super Lustrous, Moon Eterna 27 Charlie Sunshine, Aquamarine, Fanci-full,
Drops, Velvet Touch, Fire & Ice, Fire & Mitchum, Lady Realistic, Creme of
New Complexion, Ice Cool, Cherish, Mitchum, Hi & Dri, Nature, Arosci,
Touch & Glow, Lasting, Jontue, Colorsilk, Frost & Sensor Perm,
Lashful, Lengthwise, StreetWear Scents, Glow, Revlon Perfect Perm,
Naturally Glamorous, Ciara Shadings, Jean Fermodyl, Perfect
Custom Eyes, Nate, Roux Touch, Salon
Softstroke Fanci-full, Perfection,
Timeliner, Realistic, Creme Revlonissimo,
StreetWear, Revlon of Nature, Herba Voila, Young Color,
Implements Rich, Fabu-laxer Creative Nail
Design Systems,
Contours, American
Crew, R PRO,
True Cystem
Almay Almay, Time-Off, Time-Off, Almay
Almay Clear Moisture
Complexion Makeup, Balance,
Amazing, One Coat Moisture Renew,
Almay Clear
Complexion
SkinCare
Ultima II Ultima II, Ultima II, Madly, UII
Wonderwear, The Interactives,
Nakeds CHR
Significant Colorama(b), Jeanne Gatineau(b), Floid(b), Versace(a), Bozzano(b), Colomer(b),
Regional Juvena(b), Natural Honey Charlie Gold, Juvena(b), Intercosmo(b),
Brands Jeanne Gatineau(b) Myrurgia(a) Geniol(b), Personal Bio Point,
Colorama(b), Natural Wonder,
Llongueras(b), Llongueras(b)
Bain de Soleil(b),
ZP-11
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(a) License held for distribution in certain countries outside the
United States.
(b) Trademark owned in certain markets outside the United States.
Cosmetics and Skin Care. The Company sells a broad range of cosmetics
and skin care products designed to fulfill specifically identified consumer
needs, principally priced in the upper range of the self-select distribution
channel, including lip makeup, nail color and nail care products, eye and face
makeup and skin care products such as lotions, cleansers, creams, toners and
moisturizers. Many of the Company's products incorporate patented,
patent-pending or proprietary technology.
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The Company markets several different lines of REVLON lip makeup
(which includes lipstick and liner). The Company's breakthrough COLORSTAY
lipcolor, which uses patented transfer-resistant technology that provides long
wear, is produced in 40 shades. SUPER LUSTROUS, the Company's flagship lipstick
brand, is produced in 57 shades. MOON DROPS, a moisturizing lipstick, is also
produced in 57 shades.
The Company's nail color and nail care lines include enamels, cuticle
preparations and enamel removers. The Company's flagship REVLON nail enamel is
produced in 85 shades and uses a patented formula that provides consumers with
improved wear, application, shine and gloss in a toluene-free and
formaldehyde-free formula. Revlon nail enamel is the number one brand in the
United States self-select distribution channel. STREETWEAR nail enamel,
launched in 1996, is produced in 19 shades targeted at the "trend" consumer.
STRONG WEAR is a patented strengthening nail enamel formula produced in 19
shades, which contains ingredients that provide protection against splitting,
chipping and breaking. The Company sells nail strengtheners, hardeners and
fortifiers and quick dry nail products, including CALCIUM GEL NAIL BUILDER
strengthener and TOP SPEED quick dry base coat and top coat.
The Company sells face makeup, including foundation, powder, blush and
concealers, under such REVLON brand names as REVLON AGE DEFYING, which is
targeted to women in the over 35 age bracket; COLORSTAY which uses proprietary
transfer-resistant technology that provides long wear; and NEW COMPLEXION, for
consumers in the 25 to 49 age bracket.
The Company's eye makeup products include mascaras, eye shadows and
liners. COLORSTAY Eyecolor, and COLORSTAY LASHCOLOR mascara, LASHFUL and
LENGTHWISE mascaras, SOFTSTROKE eyeliners and REVLON CUSTOM EYES and OVERTIME
SHADOW eye shadows are targeted towards women in the 18 to 49 age bracket, and
REVLON AGE DEFYING eye color is targeted to women over 35.
The Company's ALMAY brand consists of a complete line of
hypo-allergenic, dermatologist-tested, fragrance-free cosmetics and skin care
products targeted to consumers who want "healthy looking skin". The Company
positions the ALMAY brand as the clean, natural and healthy choice. ALMAY
products include lip makeup, nail color and nail care products, eye and face
makeup, skin care products, and sunscreen lotions and creams, including
TIME-OFF makeup and skin care, the AMAZING collection, which uses long wear
transfer-resistant technology and includes AMAZING LASH, ALMAY AMAZING eye
makeup, ALMAY AMAZING LASTING makeup, and ALMAY CLEAR COMPLEXION skin care and
makeup and ALMAY EASY-TO-WEAR eyecolor and ONE COAT mascara. The Company
targets ALMAY to value conscious consumers by offering benefits equal or
superior to higher priced products, such as Clinique, at affordable prices.
ALMAY is the leading brand in the hypo-allergenic market in the United States
self-select distribution channel.
The Company sells implements, which include nail and eye grooming
tools such as clippers, scissors, files, tweezers and eye lash curlers. The
Company's implements are sold individually and in sets under the REVLON brand
name.
The Company also sells cosmetics in international markets under
regional brand names including COLORAMA, which is the top selling popular
priced cosmetics line in Brazil, and JUVENA.
The Company's skin care products, including moisturizers, are sold
under the brand names ETERNA 27, MOON DROPS and REVLON RESULTS. In addition,
the Company sells skin care products in international markets under
internationally recognized brand names and under regional brands, including
NATURAL HONEY.
The Company's premium priced cosmetics and skin care products are sold
under the ULTIMA II brand name, which is the Company's flagship premium priced
brand sold throughout the world, and the JEANNE GATINEAU brand name, which is
sold outside the United States. The ULTIMA II line includes the WONDERWEAR
collection, which includes a long-wearing foundation that uses proprietary
technology, cheek and eyecolor products that use patented technology, and
WONDERWEAR LIPSEXXXY lipstick, which uses patented transfer-resistant
technology that provides long wear, and THE NAKEDS makeup, a trend-setting line
of makeup emphasizing neutral colors.
Fragrances. The Company sells a selection of moderately priced and
premium priced fragrances, including perfumes, eau de toilettes and colognes.
The Company's portfolio includes fragrances such as CHARLIE, FIRE & ICE, JONTUE
and CIARA; highly successful line extensions such as CHARLIE RED and CHARLIE
WHITE
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and new additions such as CHERISH, CHARLIE SUNSHINE and FIRE & ICE COOL and
STREETWEAR SCENTS. The Company's CHARLIE fragrance has been a market leader
since the mid-1970's and, the Company believes, one of the top selling
fragrances worldwide. The Company's premium priced fragrance brands include
CIARA and, in international markets, the Company distributes under license
certain brands including VERSACE, VAN GILS and MYRURGIA.
Personal Care Products. The Company sells a broad line of personal
care consumer products that complements its core cosmetics lines and enables
the Company to meet the consumer's broader beauty care needs. In the
self-select distribution channel, the Company sells haircare, anti-perspirant
and other personal care products, including the FLEX, OUTRAGEOUS and AQUAMARINE
haircare lines throughout the world and, the COLORAMA, JUVENA, LLONGUERAS and
NATURAL HONEY brands outside the United States; the COLORSILK, REVLON SHADINGS,
FROST & GLOW and ROUX FANCI-FULL hair coloring lines in the United States; and
the MITCHUM, LADY MITCHUM and HI & DRI anti-perspirant brands throughout the
world. Certain hair care products, including ROUX FANCI-FULL hair coloring and
PERFECT TOUCH and SALON PERFECTION home permanents, were originally developed
for professional use. The Company also markets hypo-allergenic personal care
products, moisturizers and anti-perspirants, under the ALMAY brand.
Professional Products. The Company sells a comprehensive line of salon
products, including permanent wave preparations, hair relaxers, temporary and
permanent hair coloring products, shampoos, conditioners, styling products and
hair conditioners, to professional salons and beauty supply stores under the
REVLON brand as well as other brand names such as ROUX FANCI-FULL, REALISTIC,
FERMODYL, VOILA, REVLONISSIMO, CREME OF NATURE, COLOMER, FABU-LAXER, LOTTABODY,
NATURAL WONDER, SENSOR and INTERCOSMO. Most of the Company's salon products in
the United States currently are distributed in the non-exclusive distribution
channels, in contrast to those products that are distributed exclusively to
professional salons. R PRO, launched in 1996, is a professionally targeted
cosmetic line being distributed through open line channels. Through Creative
Nail Design, Inc. ("Creative Nail"), which was acquired in November 1995, the
Company sells nail enhancement systems and nail color and treatment products
and services for use by the professional salon industry under the brand name of
CREATIVE NAIL DESIGN SYSTEMS. Through AMERICAN CREW, which was acquired in
April 1996 , the Company sells men's shampoos, conditioners, gels, and other
hair care products for use by professional salons. The Company also sells
retail hair care products under the LLONGUERAS, PERSONAL BIO POINT, GENIOL,
FIXPRAY and LANOFIL brands outside the United States. The Company markets in
salons, beauty supply stores and the self-select distribution channel several
lines of hair relaxers, styling products, hair conditioners and other hair care
products under such names as FABU-LAXER and CREME OF NATURE designed for the
particular needs of ethnic consumers. The Company has developed a new exclusive
line of ethnic products, AROSCI, which was successfully launched in 1996. The
Company also sells wigs and hair pieces to retail outlets and certain
professional salons under the REVLON brand and, pursuant to a license, under
the ADOLFO brand.
MARKETING
The Company's vision is to provide glamour, excitement and innovation
through quality products at affordable prices. The Company's marketing efforts
are designed to implement this vision. The Company has formed Global Marketing
Committees, consisting of managers from the Company's marketing, research and
development, operations, advertising and finance departments from the United
States and abroad, which develop strategies for the Company's current and new
brands and products. The Global Marketing Committees coordinate the Company's
globalization efforts while allowing sufficient flexibility to tailor products
to local and regional preferences.
Consumer Products. The Company markets extensive consumer product
lines at a range of retail prices primarily through the self-select
distribution channel and markets select premium lines through
demonstrator-assisted channels. Each line is distinctively positioned and is
marketed globally with consistently recognizable logos, packaging and
advertising designed to differentiate it from other brands. The Company's
existing consumer product lines are carefully segmented, and new product lines
are developed, to target specific consumer needs as measured by focus groups
and other market research techniques.
The Company uses print and television advertising and point-of-sale
merchandising, including displays and samples. The Company has shifted a
significant portion of its marketing to appeal to a broader audience and has
increased media advertising, particularly national television advertising. The
Company increased advertising expenditures by 17.3% for 1996 over 1995 levels
and by 26.2% for 1995 over 1994 levels. The Company's marketing emphasizes a
uniform global image and product for its portfolio of core brands, including
REVLON, COLORSTAY, REVLON
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AGE DEFYING, ALMAY, ULTIMA II, FLEX, CHARLIE, OUTRAGEOUS and MITCHUM. The
Company coordinates advertising campaigns with in-store promotional and other
marketing activities. The Company develops jointly with retailers carefully
tailored advertising, point-of-purchase and other focused marketing programs.
The Company has devoted greater resources to promotional sales of its
permanent line of products and reduced the number of promotional sales of
non-recurring products, which historically have had a higher cost of sales and
resulted in larger sales returns. In the self-select distribution channel, the
Company uses network and spot television advertising, national cable
advertising and print advertising in major general interest, women's fashion
and women's service magazines, as well as coupons, magazine inserts and
point-of-sale testers. In the demonstrator-assisted distribution channel, the
Company principally uses cooperative advertising programs with retailers,
supported by Company-paid or Company-subsidized demonstrators and coordinated
in-store promotions and displays.
The Company also has developed unique marketing materials such as the
"Revlon Report", a glossy, color pamphlet distributed in magazines and on
merchandising units, available in 30 countries and 16 languages, which
highlights seasonal and other fashion and color trends, describes the Company's
products that address those trends and contains coupons, rebate offers and
other promotional material to encourage consumers to try the Company's
products. The Company has created two Color Mobiles, which are on-the-road
beauty sampling and information vehicles patterned on the innovative vehicles
that launched COLORSTAY lipcolor, that travel to major retailers in the United
States, at which Company trainers educate consumers on the COLORSTAY and REVLON
AGE DEFYING collections and the latest product and shade offerings. The Color
Mobiles create consumer and retail excitement about the Company's new products
and encourage trial and purchase by consumers. Other marketing materials
designed to introduce the Company's newest products to consumers and encourage
trial and purchase include point-of-sale testers on the Company's display units
that provide information about the Company's products and permit consumers to
test the products, thereby achieving the benefits of an in-store demonstrator
without the corresponding cost, magazine inserts containing samples of the
Company's newest products, trial size products and "shade samplers," which are
collections of trial size products in different shades. Additionally, the
Company has its own website which features current product and promotional
information.
Professional Products. Professional products are marketed through
educational seminars, advertising, displays and samples to communicate to
professionals and consumers the quality and performance characteristics of such
products. The shift to exclusive line distributors will significantly reinforce
the Company's marketing and educational efforts with salon professionals. The
Company believes that its presence in the professional markets benefits its
consumer products business since the Company is able to anticipate consumer
trends in hair, nail and skin care, which often appear first in salons.
NEW PRODUCT DEVELOPMENT AND RESEARCH AND DEVELOPMENT
The Company believes that it is an industry leader in the development
of innovative and technologically advanced consumer and professional products.
The Company's marketing and research and development groups identify consumer
needs and shifts in consumer preferences in order to develop new product
introductions, tailor line extensions and promotions and redesign or
reformulate existing products to satisfy such needs or preferences. The
Company's Advanced Concept Group consists of a select group of researchers that
conducts research on a wide range of areas to develop new and innovative
technology. The Company independently develops substantially all of its new
products. The Company also has entered into joint research projects with major
universities and commercial laboratories worldwide to develop advanced
technologies.
The Company believes that its Edison, New Jersey facility is one of
the most extensive cosmetics research and development facilities in the United
States. The Edison facility is responsible for all new product research
worldwide. The Edison facility performs research for new products, ideas,
concepts and packaging. Research and development for consumer products is also
conducted at manufacturing facilities in Brazil. Research and development for
the professional products is conducted principally at the Edison facility.
The research and development group at the Edison facility performs
extensive safety and quality tests on the Company's products, including
toxicology, microbiology and package testing. Additionally, quality control
testing is performed at each manufacturing facility.
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In certain instances, proprietary technology developed for use in
products and packaging is available for licensing to third parties. The Company
received the Innovation Award from the Coalition of NorthEast Governors
("CONEG") for its ENVIRO*GLUV glass decorating technology (which resulted in
significant cost reductions in decorating REVLON AGE DEFYING and COLORSTAY
makeup bottles and REVLON nail enamel bottles in 1996 and which is being
offered for licensing to qualified glass decorators). The CONEG challenge
awards program is a nationwide competition to publicly recognize companies that
make significant contributions to environmental issues relating to packaging
and source reduction.
As of December 31, 1996, the Company employed approximately 200 people
in its research and development activities, including specialists in
pharmacology, toxicology, chemistry, microbiology, engineering, biology,
dermatology and quality control. In 1996, the Company spent approximately $26.3
million, on research and development activities.
MANUFACTURING AND RELATED OPERATIONS AND RAW MATERIALS
The Company is rationalizing its worldwide manufacturing operations
which is intended to lower costs and improve customer service and product
quality. The globalization of the Company's core brands allows it to centralize
production of some product categories for sale throughout the world within
designated facilities and shift production of certain other product categories
to more cost effective manufacturing sites to reduce production costs. Shifts
of production may result in the closing of certain of the Company's less
significant manufacturing facilities, and the Company continually reviews its
needs in this regard. In addition, as part of its efforts to continuously
improve operating efficiencies, the Company attempts to ensure that a
significant portion of its capital expenditures are devoted to improving
operating efficiencies.
In the United States, the Company manufactures REVLON brand color
cosmetics, personal care products and fragrances for sale in the United States,
Japan and most of the countries in Latin America and Southeast Asia at its
Phoenix, Arizona facility. The Company manufactures ULTIMA II cosmetics and
skin treatment products for sale in the United States and most of the countries
in Latin America and Southeast Asia, personal care products for sale in the
United States and ALMAY brand products for sale throughout the world at its
Oxford, North Carolina facility. Nail care and other implements for sale
throughout the world are manufactured at the Company's Irvington, New Jersey
facility and Vista, California facility. The Company manufactures salon and
retail professional products and personal care consumer products for sale in
the United States and Canada at the Company's Jacksonville, Florida facility.
The Phoenix facility has been ISO-9002 certified.
The Company manufactures its entire line of consumer products (except
implements) for sale in most of the countries of Europe at its Maesteg, South
Wales facility. Local production of cosmetics and personal care products
takes place at the Company's facilities in Spain, Canada, Venezuela, Mexico,
New Zealand, Brazil, Australia and South Africa. The manufacture of professional
products for sale by retailers outside the United States has been centralized
principally at the Company's facilities in Ireland, Spain and Italy. Production
of color cosmetics for Japan and Mexico has been shifted to the United States
while production of personal care products for Argentina has been centralized
in Brazil. The Maestag facility has been certified by the British equivalent
of ISO-9002.
The Company purchases raw materials and components throughout the
world. The Company continuously pursues reductions in cost of goods through the
global sourcing of raw materials and components from qualified vendors,
utilizing its large purchasing capacity to maximize cost savings. The global
sourcing of raw materials and components from accredited vendors also ensures
the quality of the raw materials and components. The Company believes that
alternate sources of raw materials and components exist and does not anticipate
any significant shortages of, or difficulty in obtaining, such materials.
The Company's improvements in manufacturing, sourcing and related
operations have contributed to improved customer service, including an
improvement in the percentage of timely order fulfillment at the Company's
manufacturing sites in Oxford, North Carolina; Phoenix, Arizona; Irvington, New
Jersey; and Maesteg, South Wales; and the timeliness and accuracy of new
product and promotion deliveries. To promote the Company's understanding of,
and responsiveness to the needs of its retail customers, the Company assigns
members of senior operations management to lead inter-departmental teams that
visit significant accounts, and has provided retail accounts with a
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designated customer service representative. As a result of these efforts,
accompanied by stronger and more customer-focused management, the Company has
developed strong relationships with its retailers.
The Company emphasizes safety and increased training of employees
resulting in an improved safety record. The Company anticipates that the
globalization of, and continued improvement in, the quality of its
manufacturing operations will result in lower manufacturing costs.
BUSINESS PROCESS ENHANCEMENTS
The Company's management information systems have been substantially
upgraded to provide comprehensive order processing, production and accounting
support for the Company's business. The Company's expenditures on improvements
to its management information systems were approximately $13 million for 1996.
The Company intends to continue to upgrade management information systems in
1997, which will include improved systems for forecasting, production,
inventory management, order processing, general and fixed asset ledgers and
others. Systems improvements have been and the Company anticipates that they
will continue to be instrumental in contributing to the reduction of the time
from order entry to shipment, improved forecasting of demand and improved
operating efficiencies.
DISTRIBUTION
As a result of its improved customer service and consumer traffic
generated by its products and innovative marketing programs, the Company
believes that its relationships with self-select distribution cosmetic
retailers are the best in the cosmetics industry.
The Company's products are sold in approximately 175 countries and
territories. The Company's worldwide sales force had approximately 2,100 people
as of December 31, 1996, including a dedicated sales force for cosmetics, skin
care and fragrance products in the self-select distribution channel, for the
demonstrator-assisted distribution channel, for personal care products
distribution and for salon distribution. In addition, the Company utilizes
sales representatives and independent distributors to serve specialized markets
and related distribution channels.
United States. The United States operation's net sales accounted for
approximately 58.0% of the Company's 1996 net sales. Of these net sales,
approximately 86% were made in the self-select distribution channel. However,
the Company intends to use premium products such as ULTIMA II to maintain its
presence in the demonstrator-assisted distribution channel. The Company also
sells a broad range of consumer and retail professional products to United
States Government military exchanges and commissaries. The Company licenses its
trademarks to select manufacturers for products that the Company believes have
the potential to extend the Company's brand names and image. As of December 31,
1996, 19 licenses were in effect relating to 23 product categories to be
marketed in the self-select distribution channel. Pursuant to the licenses, the
Company retains strict control over product design and development, product
quality, advertising and use of its trademarks. These licensing arrangements
offer opportunities for the Company to generate revenues and cash flow through
earned royalties, royalty advances and, in some cases, up-front licensing fees.
Products designed for professional use or resale by beauty salons are sold
through wholesale beauty supply distributors and directly to professional
salons. Various hair care products, such as ethnic hair relaxers, scalp
conditioners, shampoos and hair coloring products and wigs and hairpieces are
sold directly and through wholesalers to chain drug stores and mass volume
retailers. Wigs and hairpieces are also sold through mail order direct
marketing, retail outlet malls, salons and certain department stores.
The Company also operates through Prestige Fragrance & Cosmetics, Inc.
("PFC"), a subsidiary of Products Corporation, approximately 200 retail outlet
stores throughout the United States in factory outlet malls, rural areas and
other similar locations that are not disruptive to the Company's principal
distribution channels. In these stores, the Company sells first quality, first
quality excess, returned and refurbished, and discontinued consumer products
and retail professional products, as well as similar products of competing
cosmetics companies. On November 27, 1996, Products Corporation and PFC entered
into an Agreement and Plan of Merger with The Cosmetic Center, Inc. ("Cosmetic
Center") pursuant to which PFC will merge with and into Cosmetic Center, with
Cosmetic Center surviving the merger (the "Merger"). In the Merger, Products
Corporation would receive newly issued Class C common stock of Cosmetic Center
constituting between 74% and 84% of the outstanding common stock. The Merger is
subject to a
9
number of significant conditions, including obtaining financing for Cosmetic
Center and approval of the transaction by Cosmetic Center stockholders, among
other conditions. Subject to satisfaction of these conditions, the transaction
is expected to close during the first quarter of 1997.
International. The International operation's net sales accounted for
approximately 42.0% of the Company's 1996 net sales. The International
operation's ten largest countries in terms of these sales, which include
Brazil, Japan, the United Kingdom, Australia, South Africa, Canada and Spain,
accounted for approximately 30.7% of the Company's net sales in 1996, with
Brazil accounting for approximately 6.1% of the Company's net sales. The
International operation is increasing distribution through the expanding
self-select distribution channels outside the United States, such as drug
stores/chemists, hypermarkets/mass volume retailers and variety stores, as
these channels gain importance. The International operation also distributes
through department stores and specialty stores such as perfumeries. The
International operation's professional products are sold directly to beauty
salons by the Company's direct sales force in Spain, France, Germany, Portugal,
Italy, Mexico and Ireland and through distributors in other countries. The
Company actively sells its products through wholly owned subsidiaries in 26
countries outside of the United States, through joint ventures in India and
Indonesia, and through a large number of distributors and licensees elsewhere
around the world. The Company continues to pursue strategies to establish its
presence in new emerging markets. Such new and emerging markets include Eastern
Europe; South Korea; Southeast Asia; Chile; the Middle East; India; and China,
where in 1996 the Company established a subsidiary with a local minority
partner. In addition, the Company is building a franchise through local
distributorships in northern and central Africa, where the Company intends to
expand the distribution of its products by capitalizing on its market strengths
in South Africa.
CUSTOMERS
The Company's principal customers include chain drug stores and large
mass volume retailers, including such well known retailers as Wal-Mart,
Walgreens, Kmart, Target, CVS Drug Stores, Drug Emporium, American Drug Stores,
Eckerd Drug stores, Revco and Thrifty Payless in the self-select distribution
channel, J.C. Penney in the demonstrator-assisted distribution channel, Sally's
Beauty Company for professional products, Shoppers Drug Mart in Canada and
Boots in the United Kingdom and Western Europe. The foregoing customers are
representative of the Company's customers, and for 1996, each of the foregoing
customers accounted for 1% or more of the Company's net sales. Wal-Mart and its
affiliates accounted for approximately 10.1% of the Company's 1996 consolidated
net sales. Although the loss of Wal-Mart as a customer could have an adverse
effect on the Company, the Company believes that its relationship with Wal-Mart
is satisfactory and the Company has no reason to believe that Wal-Mart will not
continue as a customer.
COMPETITION
The cosmetics and skin care, fragrance, personal care and professional
products business is characterized by vigorous competition throughout the
world. Brand recognition, together with product quality, performance and price
and the extent to which consumers are educated on product benefits, have a
marked influence on consumers' choices among competing products and brands.
Advertising, promotion, merchandising and packaging, and the timing of new
product introductions and line extensions, also have a significant impact on
buying decisions, and the structure and quality of the sales force affect
product reception, in-store position, permanent display space and inventory
levels in retail outlets. The Company competes in most of its product
categories against a number of companies, some of which have substantially
greater resources than the Company. In addition to products sold in the
self-select and demonstrator-assisted distribution channels, the Company's
products also compete with similar products sold door-to-door or through mail
order or telemarketing by representatives of direct sales companies. The
Company's principal competitors include L'Oreal S.A., The Procter & Gamble
Company, Helene Curtis Industries, Inc., and Joh A. Benckiser GmbH in the
self-select distribution channel; L'Oreal S.A., Unilever N.V., Estee Lauder,
Inc. and Joh A. Benckiser GmbH in the demonstrator-assisted distribution
channel; and L'Oreal S.A. and Matrix Essentials, Inc., which is owned by
Bristol-Myers Squibb Company, in professional products.
10
SEASONALITY
The Company's business is subject to certain seasonal fluctuations,
with net sales in the second half of the year generally benefiting from
increased retailer purchases in the United States for the back-to-school and
Christmas selling seasons.
PATENTS, TRADEMARKS AND PROPRIETARY TECHNOLOGY
The Company's major trademarks are registered in the United States and
in many other countries, and the Company considers trademark protection to be
very important to its business. Significant trademarks include REVLON,
COLORSTAY, REVLON AGE DEFYING, FLEX, MITCHUM, ETERNA 27, ULTIMA II, ALMAY,
CHARLIE, JEAN NATE, REVLON RESULTS, COLORAMA, FIRE & ICE, MOON DROPS, SUPER
LUSTROUS and WONDERWEAR LIPSEXXXY for consumer products and REVLON, ROUX
FANCI-FULL, REALISTIC, FERMODYL, COLOMER, CREATIVE NAIL, AMERICAN CREW, R PRO
and INTERCOSMO for
professional products.
The Company utilizes certain proprietary or patented technologies in
the formulation or manufacture of a number of the Company's products, including
COLORSTAY lipcolor and cosmetics, FLEX & GO shampoo, LENGTHWISE mascara, REVLON
nail enamel, REVLON AGE DEFYING foundation and cosmetics, NEW COMPLEXION
makeup, WONDERWEAR foundation, WONDERWEAR LIPSEXXXY lipstick, DAY INTO NIGHT
eyeshadows, ALMAY TIME-OFF skin care and makeup, OUTRAGEOUS shampoo, FLEX
hairspray and various professional products, including FERMODYL shampoo and
conditioners. The Company also protects certain of its packaging and component
concepts through design patents. The Company considers its proprietary
technology and patent protection to be important to its business.
GOVERNMENT REGULATION
The Company is subject to regulation by the Federal Trade Commission
and the Food and Drug Administration (the "FDA") in the United States, as well
as various other federal, state, local and foreign regulatory authorities. The
Phoenix, Arizona and Oxford, North Carolina manufacturing facilities are
registered with the FDA as drug manufacturing establishments, permitting the
manufacture of cosmetics that contain over-the-counter drug ingredients such as
sunscreens. Compliance with federal, state, local and foreign laws and
regulations pertaining to discharge of materials into the environment, or
otherwise relating to the protection of the environment, has not had, and is
not anticipated to have, a material effect upon the capital expenditures,
earnings or competitive position of the Company. State and local regulations in
the United States that are designed to protect consumers or the environment
have an increasing influence on product claims, contents and packaging.
INDUSTRY SEGMENTS, FOREIGN AND DOMESTIC OPERATIONS
The Company operates in a single business segment. Certain information
concerning geographic segments of the Company is set forth in Note 15 of the
Notes to Consolidated Financial Statements of the Company.
EMPLOYEES
As of December 31, 1996, the Company employed the equivalent of
approximately 14,300 full-time persons. Approximately 2,100 of such employees
in the United States at the end of 1996 were covered by collective bargaining
agreements. The agreements covering employees in Phoenix, Arizona and
Jacksonville, Florida expire in 1997. In addition, the Company will be
negotiating collective bargaining agreements or portions thereof covering
employees in twelve countries outside the United States during 1997. The
Company expects that such agreements will be renewed in the ordinary course of
negotiations, and further believes that its employee relations are
satisfactory.
11
ITEM 2. PROPERTIES
The following table sets forth as of December 31, 1996 the Company's
major manufacturing, research and warehouse/distribution facilities all of
which are owned except where otherwise noted.
APPROXIMATE FLOOR
LOCATION USE SPACE SQ. FT.
- -------- --- ------------------
Oxford, North Carolina..... Manufacturing, warehousing, distribution and office 1,012,000
Phoenix, Arizona .......... Manufacturing, warehousing, distribution and office 706,000
(partially leased)
Holmdel, New Jersey ....... Warehousing, distribution and office 540,000
Jacksonville, Florida ..... Manufacturing, warehousing, distribution, research and 526,000
office
Mississauga, Canada ....... Manufacturing, warehousing, distribution and office 245,000
Edison, New Jersey ........ Research and office (leased) 133,000
Irvington, New Jersey ..... Manufacturing, warehouse and office 96,000
Sao Paulo, Brazil ......... Manufacturing, warehousing, distribution, office and 408,000
research
Maesteg, South Wales,
United Kingdom ............ Manufacturing, distribution and office 316,000
Santa Maria, Spain ........ Manufacturing and warehousing 173,000
Barcelona, Spain .......... Manufacturing, warehousing, research and office 152,000
Caracas, Venezuela Manufacturing, distribution and office 145,000
Argenteuil, France ........ Warehousing and distribution (leased) 73,000
Kempton Park, South Africa. Warehousing, distribution and office (leased) 127,000
Canberra, Australia ....... Warehousing, distribution and office (leased) 125,000
Isando, South Africa ...... Manufacturing, warehousing, distribution and office 94,000
Rydalmere, Australia ...... Manufacturing, warehousing, distribution and office 93,000
Bologna, Italy ............ Manufacturing, warehousing, distribution, office and 60,000
research
In addition to the facilities described above, additional facilities
are owned and leased in various areas throughout the world, including the lease
for the Company's executive offices in New York, New York (345,000 square feet,
of which 85,000 square feet are currently sublet to affiliates of the Company).
Management considers the Company's facilities to be well-maintained and
satisfactory for the Company's operations, and believes that the Company's
facilities provide sufficient capacity for its current and expected production
requirements. Products Corporation leases from Holdings on arms' length terms
its research and development facility located in Edison, New Jersey.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in various routine legal proceedings incident
to the ordinary course of its business. The Company believes that the outcome
of all pending legal proceedings in the aggregate is unlikely to have a
material adverse effect on the business or consolidated financial condition of
the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the
fourth quarter of the fiscal year covered by this report.
12
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MacAndrews & Forbes Holdings Inc. ("MacAndrews & Forbes"), which is
wholly owned by Ronald O. Perelman, which through Revlon Worldwide Corporation
("Revlon Worldwide"), beneficially owns 11,250,000 shares of the Class A Common
Stock (representing 56.6% of the outstanding shares of Class A Common Stock) and
all of the outstanding 31,250,000 shares of Class B Common Stock, which together
represent 83.1% of the outstanding shares of Common Stock, and the remaining
8,625,000 shares of Class A Common Stock are owned by the public. No dividends
were declared or paid during 1996. The terms of the Credit Agreement and
Products Corporation's 10 1/2 % Senior Subordinated Notes Due 2003 (the "Senior
Subordinated Notes"), 9 3/8% Senior Notes Due 2001 (the "Senior Notes") and 9
1/2% Senior Notes Due 1999 (the "1999 Notes") currently restrict the ability of
Products Corporation to pay dividends or make distributions to Revlon, Inc. See
the Consolidated Financial Statements of the Company and the Notes thereto.
The table below shows the Company's high and low quarterly stock
prices for the year ended December 31, 1996.
1996 QUARTERLY STOCK PRICES (1)
-------------------------------------
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
High $28 1/4 $31 3/8 $31 1/8 $36 1/2
Low 25 1/2 24 3/4 23 1/2 28 5/8
(1) Represents the closing price on the New York Stock exchange
(NYSE), which is the market in which shares of the Company's stock are traded.
The Company's symbol is REV.
13
ITEM 6. SELECTED FINANCIAL DATA
The statements of Operations Data for each of the years in the
five-year period ended December 31, 1996 and the Balance Sheet Data as of
December 31, 1996, 1995, 1994, 1993 and 1992 are derived from the Consolidated
Financial Statements of the Company, which have been audited by KPMG Peat
Marwick LLP, independent certified public accountants. The Selected
Consolidated Financial Data should be read in conjunction with the Consolidated
Financial Statements of the Company and the Notes to the Consolidated Financial
Statements and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
1996 1995(A) 1994(A) 1993(A) 1992
---------- ---------- ---------- ---------- ----------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
STATEMENTS OF OPERATIONS DATA:
Net sales ......................................... $ 2,167.0 $ 1,937.8 $ 1,732.5 $ 1,588.3 $ 1,632.2
=========== =========== =========== =========== ===========
Operating income (loss) ........................... $ 200.2 $ 146.6 $ 108.4 $ 49.9 $ (82.6)(d)
=========== =========== =========== =========== ===========
Income (loss) before extraordinary items and
cumulative effect of accounting changes .......... $ 24.4 $ (40.2) $ (74.0) $ (130.8) $ (224.0)
Extraordinary items -early extinguishments of debt (6.6) -- -- (9.5) (2.9)
Cumulative effect of accounting changes ........... -- -- (28.8)(b) (6.0)(c) --
----------- ----------- ----------- ----------- -----------
Net income (loss) ................................. $ 17.8 $ (40.2) $ (102.8) $ (146.3) $ (226.9)
=========== =========== =========== =========== ===========
INCOME (LOSS) PER COMMON SHARE:
Income (loss) before extraordinary items and
cumulative effect of accounting changes .......... $ 0.49 $ (0.95) $ (1.74) $ (3.08) $ (5.27)
Extraordinary items ............................... (0.13) -- -- (0.22) (0.07)
Cumulative effect of accounting changes ........... -- -- (0.68) (0.14) --
----------- ----------- ----------- ----------- -----------
Net income (loss) ................................. $ 0.36 $ (0.95) $ (2.42) $ (3.44) $ (5.34)
=========== =========== =========== =========== ===========
Weighted average common shares outstanding (e) .... 49,687,500 42,500,000 42,500,000 42,500,000 42,500,000
=========== =========== =========== =========== ===========
DECEMBER 31,
----------------------------------------------------------
1996 1995(A) 1994(A) 1993(A) 1992
---------- ---------- ---------- ---------- ----------
(DOLLARS IN MILLIONS)
BALANCE SHEET DATA:
Total assets ...................................... $1,621.3 $1,535.3 $1,418.1 $1,548.7 $1,438.3
Long-term debt, excluding current portion ......... 1,352.2 1,467.5 1,327.5 1,203.8 969.0
Total stockholders' deficiency .................... (496.7) (702.0) (656.5) (555.3) (443.1)
(a) Effective January 1, 1996, Products Corporation acquired from Holdings
substantially all of the assets of the Tarlow Advertising Division ("Tarlow")
in consideration for the assumption of substantially all of the liabilities and
obligations of Tarlow. Net liabilities assumed were approximately $3.4 million.
The assets acquired and liabilities assumed were accounted for at historical
cost in a manner similar to that of a pooling of interests and, accordingly,
prior period financial statements beginning with January 1, 1993 have been
restated as if the acquisition took place at the beginning of such period.
Products Corporation paid $4.1 million to Holdings which was accounted for as
an increase to capital deficiency.
(b) Effective January 1, 1994, the Company adopted SFAS No. 112, "Employers'
Accounting for Postemployment Benefits." The Company recognized a charge of
$28.8 million in the first quarter of 1994 to reflect the cumulative effect of
the accounting change, net of income tax benefit.
(c) Effective January 1, 1993, the Company adopted SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions," for its retiree
benefit plan in the United States. Accordingly, the Company recognized a charge
of $6.0 million in the 1993 first quarter to reflect the cumulative effect of
the accounting change.
(d) Includes restructuring charges of $162.7 million in 1992, which included
(i) consolidation of certain worldwide manufacturing and warehouse facilities,
(ii) consolidation in management information systems, (iii) vacating premises
under lease, (iv) personnel reductions and (v) discontinuance of certain
product lines.
(e) Represents the weighted average common shares outstanding for the period.
See Note 1 to the Consolidated Financial Statements.
14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
OVERVIEW
The Company operates in a single business segment with many different
products, which include an extensive array of glamorous, exciting and
innovative cosmetics and skin care, fragrance and personal care products, and
professional products, consisting of hair and nail care products principally
for use in and resale by professional salons. In addition, the Company also
operates retail outlet stores and has a licensing group.
To reflect the integration of management reporting responsibilities
culminating in the third quarter of 1996, the Company presents its business
geographically as its United States operation, which comprises the Company's
business in the United States, and its International operation, which comprises
its business outside of the United States. The Company previously presented its
business as the Consumer Group, which comprised the Company's consumer products
operations throughout the world (except principally Spain, Portugal and Italy)
and professional products operations in certain markets, principally in South
Africa and Argentina, and the Professional Group, which comprised the Company's
professional products operations throughout the world (except principally South
Africa and Argentina) and consumer products operations in Spain, Portugal and
Italy. The Company has restated the management's discussion and analysis data
for prior periods to conform to the presentation for 1996.
RESULTS OF OPERATIONS
The following table sets forth the Company's net sales by operation
for each of the last three years:
YEAR ENDED DECEMBER 31,
---------------------------------
1996 1995 1994
---------- ---------- ---------
Net sales:
United States .............................. $1,257.2 $1,113.2 $ 983.2
International .............................. 909.8 824.6 749.3
---------- ---------- ---------
$2,167.0 $1,937.8 $1,732.5
========== ========== =========
The following sets forth certain statements of operations data as a
percentage of net sales:
YEAR ENDED DECEMBER 31,
----------------------------------
1996 1995 1994
---------- ---------- ----------
Cost of sales ............................... 33.5% 33.7% 34.5%
Gross profit ................................ 66.5 66.3 65.5
Selling, general and administrative expenses 57.3 58.8 59.3
Operating income ............................ 9.2 7.5 6.2
YEAR ENDED DECEMBER 31, 1996 COMPARED WITH YEAR ENDED DECEMBER 31, 1995
NET SALES
Net sales were $2,167.0 and $1,937.8 for 1996 and 1995, respectively,
an increase of $229.2, or 11.8%, primarily as a result of successful new
product introductions worldwide, increased demand in the United States,
acquisitions of certain exclusive line professional product businesses,
increased distribution internationally into the expanding self-select
distribution channel and the further development of new international markets.
United States. The United States operation's net sales increased to
$1,257.2 for 1996 from $1,113.2 for 1995, an increase of $144.0, or 12.9%. Net
sales improved for 1996 primarily as a result of continued consumer acceptance
of new product offerings, general improvement in consumer demand for the
Company's color cosmetics in the United States and acquisitions of certain
exclusive line professional product businesses, partially offset by overall
softness in the fragrance industry and lower sales of one of the Company's
prestige brands. The Company improved the dollar
15
share of its Revlon branded cosmetics in the color cosmetics business in the
United States self-select distribution channel to 21.5% for 1996 from 19.8%
for 1995, moving into the leading position in market share. Market share,
which is subject to a number of conditions, can vary from quarter to quarter
as a result of such things as timing of new product introductions and
advertising and promotional spending. New product introductions (including, in
1996, certain products launched during 1995) generated incremental net sales
in 1996, principally as a result of launches of products in the COLORSTAY
collection, including COLORSTAY foundation, lip makeup, eye makeup and
COLORSTAY LASHCOLOR mascara, launches of products in the ALMAY AMAZING
collection, including lip makeup, eye makeup, face makeup and concealer, and
launches of Cherish fragrance and MITCHUM CLEAR and ALMAY CLEAR COMPLEXION
line extensions.
International. The International operation's net sales increased to
$909.8 for 1996 from $824.6 for 1995, an increase of $85.2, or 10.3% on a
reported basis or 12.6% on a constant U.S. dollar basis. Net sales improved
principally as a result of successful new product introductions, including the
continued roll-out of the COLORSTAY cosmetics collection and REVLON AGE DEFYING
makeup, increased distribution into the expanding self-select distribution
channel, the further development of new international markets, partially
offset, on a reported basis, by the unfavorable effect on sales of a stronger
U.S. dollar against certain foreign currencies, primarily the South African
rand, Japanese yen, and several European currencies. The International
operation's sales are divided into the following geographic areas: Europe,
which is comprised of Europe, the Middle East and Africa (in which net sales
increased to $404.0 for 1996 from $374.6 for 1995, an increase of $29.4, or
7.8%); the Western Hemisphere, which is comprised of Canada, Mexico, Central
America, South America and Puerto Rico (in which net sales increased to $311.9
for 1996 from $275.4 for 1995, an increase of $36.5, or 13.3%); and the Far
East (in which net sales increased to $193.9 for 1996 from $174.6 for 1995, an
increase of $19.3, or 11.1%).
The Company's operations in Brazil are significant and, along with
operations in certain other countries, have been subject to, and may continue
to be subject to, significant political and economic uncertainties. In Brazil,
net sales, operating income and income before taxes were $132.7, $25.1 and
$20.0, respectively, for 1996 compared to $118.6, $22.8 and $19.8,
respectively, for 1995. In Mexico, net sales for 1996 and 1995 were adversely
affected by the December 1994 devaluation of the Mexican peso and related
economic weakness. Additionally, Mexico will be considered a hyperinflationary
economy beginning in 1997. In Venezuela, net sales and income before taxes for
1996 and 1995 were adversely affected by high inflation and in the 1996 period
by a currency devaluation.
Cost of sales
As a percentage of net sales, cost of sales was 33.5% for 1996
compared to 33.7% for 1995, respectively. The improvement for 1996 resulted
from the benefits of improved overhead absorption against higher production
volumes and more efficient global production and purchasing. This improvement
was partially offset by changes in product mix involving an increase in sales
of the Company's higher cost technology-based products, an increase in export
sales, lower margin products (such as those products sold in Brazil), the
effect of weaker local currencies on the cost of imported purchases and
competitive pressures on the Company's toiletries business in certain
international markets. The aforementioned increases in sales that negatively
impacted cost of sales were, however, more profitable to the Company's overall
operating results.
Selling, general and administrative ("SG&A") expenses
As a percentage of net sales, SG&A expenses were 57.3% for 1996, an
improvement from 58.8% for 1995. SG&A expenses other than advertising expense,
as a percentage of net sales, improved to 40.9% for 1996 compared with 43.2%
for 1995 primarily as a result of reduced general and administrative expenses,
improved productivity and lower distribution costs in 1996 compared with 1995.
In accordance with its business strategy, the Company increased advertising and
consumer-directed promotion in 1996 compared with 1995 to support growth in
existing product lines, new product launches and increased distribution in the
self-select distribution channel in many of the Company's markets in the
International operation. Advertising expense increased by 17.3% to $355.2, or
16.4% of net sales, for 1996 compared to $302.7, or 15.6% of net sales, for
1995.
16
Operating income
As a result of the foregoing, operating income increased by $53.6, or
36.6%, to $200.2 for 1996 from $146.6 for 1995.
Other expenses/income
Interest expense was $133.4 for 1996 compared to $142.6 for 1995. The
reduction in interest expense is attributable to lower average outstanding
borrowings as a result of the paydown of debt under the Credit Agreement and
under the Former Credit Agreement with the use of proceeds from the Company's
Offering in the 1996 period and lower interest rates under the Credit Agreement
than under the Former Credit Agreement.
Foreign currency losses, net, were $5.7 for 1996 compared to $10.9 for
1995. The reduction in the foreign currency loss in 1996 as compared to 1995
was due to lower foreign currency losses primarily in Mexico and Venezuela and
the Company's simplification of its international corporate structure, which
resulted in $2.1 of gains, previously deferred in the currency translation
account, partially offset by the strengthening of the U.S. dollar against the
Spanish peseta and the strengthening of the U.K. pound against several European
currencies.
Miscellaneous, net, was $6.3 for 1996 compared to $1.8 for 1995. The
increase relates primarily to the Company's continued investment in certain
emerging markets.
Extraordinary item
The extraordinary item resulted from the write-off recorded in the
first quarter of 1996 of deferred financing costs associated with the
extinguishment of the Former Credit Agreement prior to its maturity with the
net proceeds from the Offering and borrowings under the Credit Agreement.
YEAR ENDED DECEMBER 31, 1995 COMPARED WITH YEAR ENDED DECEMBER 31, 1994
Net sales
Net sales were $1,937.8 and $1,732.5 for 1995 and 1994, respectively,
an increase of $205.3, or 11.8%, primarily as a result of successful new
product introductions worldwide, increased demand in the United States,
increased distribution internationally into the expanding self-select
distribution channel, the development of new international markets and a weaker
U.S. dollar versus most foreign currencies.
United States. The United States operation's net sales increased to
$1,113.2 for 1995 from $983.2 for 1994, an increase of $130.0, or 13.2%. Net
sales improved primarily as a result of continued consumer acceptance of new
product offerings and general improvement in consumer demand for the Company's
color cosmetics in the United States, contributing to the Company's improved
share of the color cosmetics business in the United States self-select
distribution channel, as well as increased net sales at the retail outlet
stores. New product introductions (including, in 1995, certain products
launched during 1994) generated incremental net sales in 1995, principally as a
result of the June 1994 launch of COLORSTAY lipcolor, the 1994 first quarter
launch of REVLON AGE DEFYING makeup, the 1995 second and third quarter launches
of COLORSTAY lip makeup line extensions and eye and face makeup, respectively,
which are part of the COLORSTAY collection, the 1995 second quarter launches of
REVLON AGE DEFYING line extensions, CHARLIE WHITE fragrance and ALMAY CLEAR
COMPLEXION makeup, and the 1995 third quarter launches of ALMAY TIME-OFF line
extensions and LASTING fragrance.
International. The International operation's net sales increased to
$824.6 for 1995 from $749.3 for 1994, an increase of $75.3, or 10.0%. Net sales
improved principally as a result of successful new product introductions,
increased distribution into the expanding self-select distribution channel, the
development of new international markets and the favorable effect on sales of a
weaker U.S. dollar versus most foreign currencies, partially offset by lower
unit volume in Mexico and Argentina resulting from recessionary conditions. Net
sales were also favorably affected by the continued roll-out of COLORSTAY
lipcolor, REVLON AGE DEFYING makeup and CHARLIE WHITE fragrance into various
international markets, the continued expansion during the third quarter of 1994
of the ALMAY cosmetics line outside the
17
United States and the expansion during the third quarter of 1994 of the
CHARLIE RED fragrance outside the United States. Introduction of the COLORSTAY
cosmetics collection began in the fourth quarter of 1995 and continued in the
first part of 1996. The International operation's sales are divided into the
following geographic areas: Europe, which is comprised of Europe, the Middle
East and Africa (in which net sales increased to $374.6 for 1995 from $334.8
for 1994, an increase of $39.8, or 11.9%); the Western Hemisphere, which is
comprised of Canada, Mexico, Central America, South America and Puerto Rico
(in which net sales increased to $275.4 for 1995 from $269.7 for 1994, an
increase of $5.7, or 2.1%); and the Far East (in which net sales increased to
$174.6 for 1995 from $144.8 for 1994, an increase of $29.8, or 20.6%).
The Company's operations in Brazil and Mexico have been subject to
significant political and economic uncertainties. Operations in Brazil were
significantly improved for 1995 over 1994 primarily as a result of higher unit
volume in the first half of 1995. Unit volume in the second half of 1995
declined from the unit volume for the second half of 1994 due to the strong
unit volume in the second half of 1994 as a result of the Brazilian
government's July 1, 1994 introduction of a new economic and monetary policy,
which resulted in increased consumer purchasing. In Brazil, net sales,
operating income and income before taxes were $118.6, $22.8 and $19.8,
respectively, for 1995 compared with $108.1, $29.5 and $14.9, respectively, for
1994. However, net sales and operating income for 1994 benefited from the
hyperinflationary pricing component included in these accounts until the
Brazilian government's July 1, 1994 introduction of a new economic and monetary
policy and related issuance of a new currency, which significantly reduced
inflation. The Company's income before taxes and cash flow from operations in
Brazil for 1994 were not affected to the same extent as operating income
because of a corresponding charge in the foreign currency translation account.
In Mexico, net sales and operating income were $20.5 and $1.6, respectively,
for 1995 compared with $31.1 and $3.2, respectively, for 1994. While the
December 1994 devaluation of the Mexican peso did not have a significant
adverse effect on 1994 operating results in Mexico, 1995 operating results in
Mexico were, and future operating results may continue to be, adversely
affected by this devaluation and other factors such as decreases in unit
volume, limitations on price increases and higher relative costs of products
sourced outside of Mexico. The Company has taken measures to mitigate the
effect of these conditions by increasing prices in line with inflation, where
possible, and efficiently managing its working capital levels.
Cost of sales
As a percentage of net sales, cost of sales was 33.7% for 1995, an
improvement from 34.5% for 1994. This improvement resulted from the benefits on
overhead absorption of higher production volumes allocated over a fixed
manufacturing base, and globalization benefits such as more efficient
production and purchasing performance in 1995 compared with 1994, partially
offset by changes in the product mix involving increases in 1995 compared to
1994 in sales of lower margin products sold in Brazil and by the Company's
retail outlet stores. The first half of 1994 included the benefit of the
inflationary component of pricing in Brazil, partially offset by the adverse
impact of higher transition costs associated with factory consolidations
charged to cost of sales for inventory produced in 1993 and sold during 1994.
Selling, general and administrative expenses
As a percentage of net sales, SG&A expenses were 58.8% for 1995 and
59.3% for 1994. SG&A expenses, other than advertising expense, as a percentage
of net sales improved to 43.2% for 1995 compared with 45.4% for 1994, primarily
as a result of reduced general and administrative expenses and improved
productivity in 1995 compared with 1994, partially offset by higher European
regional headquarters expenses and severance costs in 1995. The Company
increased advertising and consumer directed promotion during 1995 compared with
1994, principally in the United States and Europe, to support growth in
existing product lines, new product launches and increased distribution in the
self-select distribution channel in Europe in 1995. Advertising expense
increased by 26.2% to $302.7, or 15.6% of net sales, for 1995 from $239.9, or
13.8% of net sales, for 1994.
18
Operating income
As a result of the foregoing, operating income increased by $38.2, or
35.2%, to $146.6 for 1995 from $108.4 for 1994.
Other expenses/income
Interest expense was $142.6 for 1995 and $136.7 for 1994, an increase
of $5.9, or 4.3%. The increase in 1995 was due to higher outstanding borrowings
under the Company's credit facilities.
Foreign currency losses, net, were $10.9 for 1995 and $18.2 for 1994.
Results improved in 1995 primarily as a result of reduced inflation associated
with the Brazilian government's July 1, 1994 introduction of a new economic and
monetary policy and related issuance of a new currency and the January 1995
repayment of approximately $26.9 under the Company's Japanese yen-denominated
credit agreement (the "Yen Credit Agreement"), partially offset by the adverse
effect of currency devaluation in Venezuela primarily in the fourth quarter of
1995.
Provision for income taxes
The provision for income taxes was $25.4 and $22.8 for 1995 and 1994,
respectively. The increase in the provision for income taxes was primarily
attributable to higher taxable earnings of certain foreign operations.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Net cash used for operating activities was $10.1, $51.7 and $1.1 for
1996, 1995 and 1994, respectively. The decrease in net cash used for operating
activities for 1996 compared with 1995 resulted primarily from higher operating
income, lower restructuring payments ($13.3 for 1996 compared with $24.2 for
1995) and improved management of inventory relative to business growth,
partially offset by higher trade receivable balances as a result of higher net
sales and increased spending on merchandise display units in connection with
the Company's continued expansion into the self-select distribution channel.
The increase in net cash used for operating activities for 1995 compared with
1994 resulted primarily from an increase in inventories associated with
expected sales volume, higher trade receivable balances, increased spending on
merchandise display units in connection with the Company's continued expansion
into the self-select distribution channel and higher income taxes paid, net of
refunds, offset in part by higher operating income, lower restructuring
payments ($24.2 for 1995 compared with $37.2 for 1994) and lower severance
payments.
Net cash used for investing activities was $65.1, $72.5 and $51.0 for
1996, 1995 and 1994, respectively. Net cash used for investing activities for
1996, 1995 and 1994 consisted primarily of capital expenditures and in 1996 and
1995 included $7.1 and $21.2, respectively, used for acquisitions. The
Company's capital expenditures for 1996, 1995 and 1994 were $58.0, $54.3 and
$52.5, respectively. The increase in capital expenditures through 1996 was
primarily attributable to significant information system enhancements in
accordance with the Company's business strategy.
Net cash provided by (used for) financing activities was $78.4, $125.2
and $(49.0) for 1996, 1995 and 1994, respectively. Net cash provided by
financing activities for 1996 included the net proceeds from the Offering, cash
drawn under the Former Credit Agreement and under the Credit Agreement,
partially offset by the repayment of borrowings under the Former Credit
Agreement, the payment of fees and expenses related to the Credit Agreement and
repayment of approximately $5.2 under the Yen Credit Agreement. Net cash
provided by financing activities for 1995 consisted primarily of borrowings
under the credit agreement of Products Corporation in effect at that time and
borrowings under the Former Credit Agreement, partially offset by repayments of
cash drawn under those credit agreements, repayment of $26.9 under the Yen
Credit Agreement and payment of debt issuance costs under the Former Credit
Agreement. Net cash used for financing activities for 1994 consisted primarily
of repayments of borrowings under the credit agreement of Products Corporation
in effect at that time and a repayment of $12.0 under the Yen Credit Agreement.
In February 1995, Products Corporation entered into the Former Credit
Agreement, which provided up to $500.0 comprised of three senior secured
facilities: a $100.0 term loan facility, a $225.0 revolving credit facility and
a $175.0 multi-currency facility. Borrowings under the Former Credit Agreement
were used to refinance
19
Products Corporation's previous $150.0 credit agreement, refinance then
existing lines of credit outside of the United States and refinance
approximately $26.9 paid under the Yen Credit Agreement in January 1995. The
Former Credit Agreement was scheduled to terminate on June 30, 1997. The net
proceeds of $187.8 from the Offering were contributed to Products Corporation
and were used to repay borrowings under the Former Credit Agreement and to pay
fees and expenses related to the Credit Agreement.
In January 1996, Products Corporation entered into the Credit
Agreement, which became effective upon consummation of the Offering on March 5,
1996. The Credit Agreement provides, among other things, (i) an extension of
the term of the facilities from June 30, 1997 to December 31, 2000, subject to
earlier termination in certain circumstances, (ii) a reduction of the interest
rates, (iii) an increase in the aggregate amount of the credit facilities from
$500 to $600 and (iv) the release of security interests in assets of certain
foreign subsidiaries of Products Corporation which were then pledged. The
Credit Agreement is comprised of four senior secured facilities: a $130.0 term
loan facility, a $220.0 multi-currency facility, a $200.0 revolving acquisition
facility and a $50.0 special standby letter of credit facility. As of December
31, 1996, Products Corporation had approximately $130.0 outstanding under the
term loan facility, $57.2 outstanding under the multi-currency facility,
nothing outstanding under the revolving acquisition facility and $33.5
outstanding under the special standby letter of credit facility. In January
1997, the Credit Agreement was amended to, among other things, permit the
Merger of PFC into Cosmetic Center and to generally exclude Cosmetic Center (as
the survivor of the Merger) from the definition of "subsidiary" under the
Credit Agreement. See Note 7(a) to the Consolidated Financial Statements.
A subsidiary of Products Corporation is the borrower under the Yen
Credit Agreement, which had a principal balance of approximately Y4.8
billion as of December 31, 1996 (approximately $41.7 U.S. dollar equivalent as
of December 31, 1996). In accordance with the terms of the Yen Credit
Agreement, approximately Y2.7 billion (approximately $26.9 U.S. dollar
equivalent) was paid in January 1995 and approximately Y539 million
(approximately $5.2 U.S. dollar equivalent) was paid in January 1996. A payment
of approximately Y539 million (approximately $4.6 U.S. dollar equivalent
as of December 31, 1996) was paid in January 1997 and the balance of the Yen
Credit Agreement of approximately Y4.3 billion (approximately $37.1 U.S.
dollar equivalent as of December 31, 1996) is currently due on December 31,
1997. The Company is currently renegotiating an extension of the term of the
terms of the Yen Credit Agreement. In the event that such extension is not
obtained, the Company is able and intends to refinance the Yen Credit Agreement
under existing long-term credit facilities. Accordingly, the Company's
obligation under the Yen Credit Agreement has been classified as long-term as
of December 31, 1996.
The $61.0 aggregate principal amount of Products Corporation's 10 7/8%
Sinking Fund Debentures due 2010 previously purchased on the open market by
Products Corporation (which was not previously used for sinking fund payments,
including the payment in July 1996) and no longer outstanding will be used to
meet future sinking fund requirements of such issue. $9.0 aggregate principal
amount of previously purchased debentures was used for the sinking fund payment
due July 15, 1996.
Products Corporation borrows funds from its affiliates from time to
time to supplement its working capital borrowings at interest rates more
favorable to Products Corporation than interest rates under the Credit
Agreement. No such borrowings were outstanding as of December 31, 1996.
In June 1996, $10.9 in notes due to Products Corporation from Holdings
under the Financing Reimbursement Agreement (See "Certain Relationships and
Related Transactions") was offset against an $11.7 demand note payable by
Products Corporation to Holdings.
The Company's principal sources of funds are expected to be cash flow
generated from operations and borrowings under the Credit Agreement and other
existing working capital lines. The Company's principal uses of funds are
expected to be the payment of operating expenses, working capital and capital
expenditure requirements and debt service payments.
The Company estimates that capital expenditures for 1997 will be
approximately $60, including approximately $10 for upgrades to the Company's
management information systems. In addition, cash payments related to the 1991
and 1992 restructuring charges are estimated to be approximately $9 for 1997.
Pursuant to a tax sharing agreement (See "Certain Relationships and Related
Party Transactions - Tax Sharing Agreement"), the
20
Company may be required to make tax sharing payments to Mafco Holdings Inc. as
if the Company were filing separate income tax returns, except that no
payments are required by the Company if and to the extent that Products
Corporation is prohibited under the Credit Agreement from making tax sharing
payments to the Company. The Credit Agreement prohibits Products Corporation
from making any cash tax sharing payments other than in respect of state and
local income taxes. The Company anticipates that, as a result of net operating
tax losses and prohibitions under the Credit Agreement, no federal tax
payments or payments in lieu of taxes pursuant to the tax sharing agreement
will be required for 1997.
As of December 31, 1996, Products Corporation was party to a series of
interest rate swap agreements (which expire at various dates through December
2001) totaling a notional amount of $225.0 in which Products Corporation agreed
to pay on such notional amount a variable interest rate equal to the six month
London Inter-Bank Offered Rate (5.602% per annum at February 11, 1997) to its
counterparties and the counterparties agreed to pay on such notional amounts
fixed interest rates averaging approximately 6.03% per annum. Products
Corporation entered into these agreements in 1993 and 1994 (and in the first
quarter of 1996 extended a portion equal to a notional amount of $125.0 through
December 2001) to convert the interest rate on $225.0 of fixed-rate
indebtedness to a variable rate. If Products Corporation had terminated these
agreements, which Products Corporation considers to be held for other than
trading purposes, on December 31, 1996, a loss of approximately $3.5 would have
been realized. Certain other swap agreements were terminated in 1993 for a gain
of $14.0. The amortization of the realized gain on these agreements for 1996
and 1995 was approximately $3.2 in each of the years. The remaining unamortized
gain, which is being amortized over the original lives of the agreements, is
$3.1 as of December 31, 1996. Although cash flow from the presently outstanding
agreements was positive for 1996, future positive or negative cash flows from
these agreements will depend upon the trend of short-term interest rates during
the remaining lives of such agreements. Based on current interest rate levels,
Products Corporation expects to have a positive cash flow of $0.6 from these
agreements in 1997, although no assurances can be given. In the event of
nonperformance by the counterparties at any time during the remaining lives of
the agreements, Products Corporation could lose some or all of any possible
future positive cash flows from these agreements. However, Products Corporation
does not anticipate nonperformance by such counterparties, although no
assurances can be given.
Products Corporation enters into forward foreign exchange contracts
from time to time to hedge certain cash flows denominated in foreign
currencies. At December 31, 1996, Products Corporation had forward foreign
exchange contracts denominated in various currencies, predominantly the U.K.
pound, of approximately $62.0 (U.S. dollar equivalent). If Products Corporation
had terminated these contracts on December 31, 1996, no material gain or loss
would have been realized.
Based upon the Company's current level of operations and anticipated
growth in net sales and earnings as a result of its business strategy, the
Company expects that cash flows from operations and funds from currently
available credit facilities and refinancings of existing indebtedness will be
sufficient to enable the Company to meet its anticipated cash requirements for
the foreseeable future on a consolidated basis, including for debt service. If
the Company is unable to satisfy such cash requirements, the Company could be
required to adopt one or more alternatives, such as reducing or delaying
capital expenditures, restructuring indebtedness, selling assets or operations,
seeking capital contributions or loans from affiliates of the Company or
issuing additional shares of capital stock of the Company. The Company, 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 dividends or distributions on the Class A Common Stock that may
be authorized by the Board of Directors of the Company. The terms of the Credit
Agreement, the Senior Subordinated Notes, the 1999 Senior Notes and the Senior
Notes generally restrict Products Corporation from paying dividends or making
distributions, except that Products Corporation is permitted to pay dividends
and make distributions to the Company, among other things, to enable the
Company to pay expenses incidental to being a public holding company,
including, among other things, professional fees such as legal and accounting,
regulatory fees such as Commission filing fees and other miscellaneous expenses
related to being a public holding company and to pay dividends or make
distributions up to $5.0 per annum in certain circumstances to finance the
purchase by the Company of its Class A Common Stock in connection with the
delivery of such Class A Common Stock to grantees under the Revlon, Inc. 1996
Stock Plan. However, there can be no assurance that cash flow from operations
and funds from existing credit facilities and refinancing of existing
indebtedness will be sufficient to meet the Company's cash requirements on a
consolidated basis.
21
FORWARD-LOOKING STATEMENTS
This annual report on Form 10-K for the year ended December 31, 1996
as well as other public documents of the Company contains forward-looking
statements which involve risks and uncertainties. The Company's actual results
may differ materially from those discussed in such forward-looking statements.
Such statements include, without limitation, the Company's expectation and
estimates as to future financial performance, including growth in net sales and
earnings, cash flows from operations, capital expenditures and the availability
of funds from refinancings of indebtedness. Readers are urged to consider
statements which use the terms "believes," "no reason to believe," "expects,"
"plans," "intends," "estimates," "anticipated" or "anticipates" to be uncertain
and forward-looking. In addition to factors that may be described in the
Company's Commission filings, including this filing, the following factors,
among others, could cause the Company's actual results to differ materially
from those expressed in any forward-looking statements made by the Company: (i)
difficulties or delays in developing and introducing new products or failure of
customers to accept new product offerings; (ii) changes in consumer
preferences, including reduced consumer demand for the Company's color
cosmetics and other current products; (iii) difficulties or delays in the
Company's continued expansion into the self-select distribution channel and
development of new markets; (iv) unanticipated costs or difficulties or delays
in completing projects associated with the Company's strategy to improve
operating efficiencies, including information system upgrades; (v) effects of
and changes in economic conditions, including inflation and monetary
conditions, and in trade, monetary, fiscal and tax policies in countries
outside of the U.S. in which the Company operates, including Brazil; (vi)
actions by competitors, including business combinations, technological
breakthroughs, new product offerings and marketing and promotional successes;
and (vii) combinations among significant customers or the loss, insolvency or
failure to pay its debts by a significant customer or customers.
INFLATION
In general, costs are affected by inflation and the effects of
inflation may be experienced by the Company in future periods. Management
believes, however, that such effects have not been material to the Company
during the past three years in the United States or foreign
non-hyperinflationary countries. The Company operates in certain countries
around the world, such as Brazil, that have experienced hyperinflation in the
past three years. This hyperinflation has had a material effect on the
Company's results of operations in Brazil and may, in the future, have a
material effect on results of operations in Mexico. In hyperinflationary
foreign countries, the Company attempts to mitigate the effects of inflation by
increasing prices in line with inflation, where possible, and efficiently
managing its working capital levels.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to the Index on page F-1 of the Consolidated
Financial Statements of the Company and the Notes thereto contained herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
22
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information concerning the
Directors and executive officers of the Company. Each Director holds office
until his successor is duly elected and qualified or until his resignation or
removal, if earlier.
NAME POSITION
- ---- --------
Ronald O. Perelman Chairman of the Executive Committee of the Board and Director
Jerry W. Levin Chairman of the Board and Director
George Fellows President, Chief Executive Officer and Director
William J. Fox Senior Executive Vice President, Chief Financial Officer and
Director
Carlos Colomer Executive Vice President
Ronald H. Dunbar Senior Vice President, Human Resources
M. Katherine Dwyer Senior Vice President
Wade H. Nichols III Senior Vice President and General Counsel
Donald G. Drapkin Director
Meyer Feldberg Director
Howard Gittis Director
Vernon E. Jordan Director
Henry A. Kissinger Director
Edward J. Landau Director
Linda G. Robinson Director
Terry Semel Director
Martha Stewart Director
The name, age, principal occupation for the last five years and
selected biographical information for each of the directors and for the
executive officers of the Company are set forth below. Information is as of
February 13, 1997.
Mr. Perelman (54) has been Chairman of the Executive Committee of the
Board of the Company and of Products Corporation since November 1995, and a
Director of the Company and of Products Corporation since their respective
formations in 1992. Mr. Perelman was Chairman of the Board of the Company and
of Products Corporation from their respective formations in 1992 to November
1995. Mr. Perelman has been Chairman of the Board and Chief Executive Officer
of MacAndrews & Forbes and various of its affiliates for more than the past five
years. Mr. Perelman also is Chairman of the Board of Andrews Group Incorporated
("Andrews Group"), Consolidated Cigar Holdings Inc. ("Cigar Holdings Inc."),
Mafco Consolidated Group Inc. ("Mafco Consolidated"), Meridian Sports
Incorporated ("Meridian"), Power Control Technologies, Inc. ("PCT") and Toy
Biz, Inc. ("Toy Biz") and Chairman of the Executive Committee of the Board of
Marvel Entertainment Group, Inc. ("Marvel"). Mr. Perelman is a Director of the
following corporations which file reports pursuant to the Securities Exchange
Act of 1934, as amended (the "Exchange Act"): Andrews Group, California Federal
Bank, a Federal Savings Bank ("Cal Fed"), The Coleman Company, Inc. ("Coleman"),
Coleman Holdings Inc. ("Coleman Holdings"), Coleman Worldwide Corporation
("Coleman Worldwide"), Cigar Holdings, Consolidated Cigar Corporation
("Consolidated Cigar"), First Nationwide (Parent) Holdings Inc. ("First
Nationwide
23
Parent"), First Nationwide Holdings Inc. ("FN Holdings"), Mafco Consolidated,
Marvel, Marvel Holdings Inc. ("Marvel Holdings"), Marvel (Parent) Holdings
Inc. ("Marvel Parent"), Marvel III Holdings Inc. ("Marvel III"), Meridian,
PCT, Pneumo Abex Corporation ("Pneumo Abex"), Products Corporation, Revlon
Worldwide and Toy Biz. On December 27, 1996, Marvel Holdings, Marvel Parent,
Marvel III and Marvel and several of its subsidiaries filed voluntary
petitions for reorganization under Chapter 11 of the United States Bankruptcy
Code.
Mr. Levin (52) has been Chairman of the Board of the Company and of
Products Corporation since November 1995 and a Director of the Company and of
Products Corporation since their respective formations in 1992. Mr. Levin was
Chief Executive Officer of the Company and of Products Corporation from their
respective formations in 1992 to January 1997 and President of the Company and
of Products Corporation from their respective formations in 1992 to November
1995. He has been the President and a Director of Holdings since 1991 and Chief
Executive Officer since March 1992. Mr. Levin has been Executive Vice President
of MacAndrews Holdings since March 1989. Mr. Levin has been Chairman and Acting
Chief Executive Officer of Coleman since February 1997. For 15 years prior to
joining MacAndrews Holdings, he held various senior executive positions with
The Pillsbury Company. Mr. Levin is a Director of the following corporations
which file reports pursuant to the Exchange Act: Coleman, Coleman Holdings,
Coleman Worldwide, Ecolab, Inc., First Bank System, Inc., Meridian, Products
Corporation and Revlon Worldwide.
Mr. Fellows (54) has been President and Chief Executive Officer of the
Company and of Products Corporation since January 1997. He was President and
Chief Operating Officer of the Company and Products Corporation from November
1995 until January 1997, and has been a Director of the Company since November
1995 and a Director of Products Corporation since 1994. Mr. Fellows was Senior
Executive Vice President of the Company and of Products Corporation and
President and Chief Operating Officer of the Company's Consumer Group from
February 1993 to November 1995. From 1989 through January 1993, he was a senior
executive officer of Mennen Corporation and then Colgate-Palmolive Company,
which acquired Mennen Corporation in 1992. From 1986 to 1989 he was Senior Vice
President of Holdings. Prior to 1986, he was President of Holdings' Domestic
Beauty Group.
Mr. Fox (40) has been Senior Executive Vice President and Chief
Financial Officer of the Company and of Products Corporation since January 1997
and was Executive Vice President and Chief Financial Officer of the Company and
of Products Corporation from their respective formations in 1992 until January
1997. Mr. Fox was elected as a Director of the Company in November 1995 and of
Products Corporation in September 1994. He has been Executive Vice President
and Chief Financial Officer of Holdings since November 1991 and prior to such
time had been a Vice President of Holdings since 1987. He has been Senior Vice
President of MacAndrews Holdings since August 1990. He was Vice President of
MacAndrews Holdings from February 1987 to August 1990 and was Treasurer of
MacAndrews Holdings from February 1987 to September 1992. Prior to February
1987, he was Vice President and Assistant Treasurer of MacAndrews Holdings. Mr.
Fox joined MacAndrews & Forbes Group, Incorporated in 1983 as Assistant
Controller prior to which time he was a certified public accountant at the
international auditing firm of Coopers & Lybrand. Mr. Fox is a Director of The
Hain Food Group, Inc., which files reports pursuant to the Exchange Act.
Mr. Colomer (52) has been Executive Vice President of the Company and
of Products Corporation since August 1993. Prior to August 1993, he served as
President and General Manager of various of the Company's and Holdings'
international subsidiaries. Mr. Colomer joined Holdings in 1979 when Henry
Colomer, S.A., the haircare and cosmetics company that was founded by his
father, was acquired by Holdings, and has held positions of increasing
responsibility since that date.
Mr. Dunbar (59) has been Senior Vice President, Human Resources of the
Company and of Products Corporation since their respective formations in 1992.
He was elected Senior Vice President, Human Resources of Holdings in July 1991.
Mr. Dunbar was Vice President and General Manager of Arnold Menn and
Associates, a career management consulting and executive outplacement firm,
from 1989 to 1991 and Executive Vice President and Chief Human Resources
Officer of Ryder System Inc., a highway transportation firm, from 1978 to 1989.
Prior to that, Mr. Dunbar served in senior executive human resources positions
at Xerox Corporation and Ford Motor Company.
24
Ms. Dwyer (47) was elected as Senior Vice President of the Company and
of Products Corporation in November 1996. Prior to that she served in various
appointed officer positions for the Company and for Products Corporation,
including President of Products Corporation's United States Cosmetics Unit from
November 1995 to November 1996 and Executive Vice President and General Manager
of Products Corporation's Mass Cosmetics Unit from June 1993 to November 1995.
From 1991 to 1993, Ms. Dwyer was Executive Vice President and General Manager
for Victoria Creations. Prior to 1991, she served in various senior positions
for Avon Products Inc., Cosmair, Inc.
and Gillette.
Mr. Nichols (54) has been Senior Vice President and General Counsel
of the Company and of Products Corporation since their respective formations
in 1992. He was elected Senior Vice President and General Counsel of Holdings
in March 1992. He was Vice President and Secretary of Holdings from 1984 to
1992 and Secretary from 1981 to 1984. He joined Holdings in 1978. Mr. Nichols
has been Vice President-Law of MacAndrews Holdings since 1988.
Mr. Drapkin (48) has been a Director of the Company and of Products
Corporation since their respective formations in 1992 and of Holdings since
January 1992. He has been Vice Chairman of MacAndrews Holdings and various of
its affiliates since March 1987. Mr. Drapkin was a partner in the law firm of
Skadden, Arps, Slate, Meagher & Flom for more than five years prior to March
1987. Mr. Drapkin is a Director of the following corporations which file
reports pursuant to the Exchange Act: Algos Pharmaceutical Corporation, Andrews
Group, Coleman, Coleman Holdings, Coleman Worldwide, Cigar Holdings,
Consolidated Cigar, Marvel, Marvel Holdings, Marvel Parent, Marvel III,
Products Corporation, Revlon Worldwide, Toy Biz, and VIMRx Pharmaceuticals Inc.
On December 27, 1996, Marvel Holdings, Marvel Parent, Marvel III and Marvel and
several of its subsidiaries filed voluntary petitions for reorganization under
Chapter 11 of the United States Bankruptcy Code.
Dr. Feldberg (54) has been a Director of the Company since February
1997. Dr. Feldberg has been the Dean of Columbia University Business School
for more than the past five years. Dr. Feldberg is a Director of the following
corporations which file reports pursuant to the Exchange Act: Federated
Department Stores, Inc., Paine Webber Group, Inc. (certain funds) and KIII
Communications Corporation.
Mr. Gittis (62) has been a Director of the Company and of Products
Corporation since their respective formations in 1992 and of Holdings since
1985. He has been Vice Chairman of MacAndrews Holdings and various of its
affiliates for more than five years. Mr. Gittis is a Director of the following
corporations which file reports pursuant to the Exchange Act: Andrews Group,
Cal Fed, Cigar Holdings, Consolidated Cigar, FN Holdings, First Nationwide
Parent, Mafco Consolidated, PCT, Pneumo Abex, Products Corporation, Revlon
Worldwide, Jones Apparel Group, Inc., Loral Space & Communications Ltd. and
Rutherford-Moran Oil Corporation.
Dr. Kissinger (73) has been a Director of the Company since June
1996. Dr. Kissinger has been Chairman of the Board and Chief Executive Officer
of Kissinger Associates, Inc., an international consulting firm since 1982.
Dr. Kissinger is an Advisor to the Board of Directors of American Express
Company, serves as Counselor to the Chase Manhattan Bank and is a member of
its International Advisory Committee. He is Chairman of the International
Advisory Board of American International Group, Inc. and is a Director of
Continental Grain Company, Hollinger International Inc. and Freeport-McMoran,
Inc., all of which file reports pursuant to the Exchange Act.
Mr. Jordan (61) has been a Director of the Company since June 1996.
Mr. Jordan is a Senior Partner in the Washington, D.C. law firm of Akin, Gump,
Strauss, Hauer & Feld, LLP where he has practiced law since 1982. He is a
Director of the following corporations which file reports pursuant to the
Exchange Act: American Express Company, Bankers Trust Company, Bankers Trust
New York Company, Corning Incorporated, Dow Jones & Company, Inc., J.C. Penney
Company, Inc., Ryder System, Inc., Sara Lee Corporation, Union Carbide
Corporation and Xerox Corporation. He is also trustee of the Ford Foundation
and Howard University.
Mr. Landau (67) has been a Director of the Company since June 1996.
Mr. Landau has been a Senior Partner in the New York law firm of Lowenthal,
Landau, Fischer & Bring, P.C. for more than the past five years. He has been a
Director of Products Corporation since June 1992 and was a director of
Holdings from 1989 until April 1993. Mr. Landau is a director of Offitbank
Investment Fund, Inc., which files reports pursuant to the Exchange Act.
25
Ms. Robinson (44) has been a Director of the Company since June 1996.
Ms. Robinson has been Chairman and Chief Executive Officer of Robinson Lerer &
Montgomery, LLC, a strategic communications consulting firm, since May 1996.
For more than five years prior to that she was Chairman and Chief Executive
Officer of Robinson Lerer Sawyer Miller Group, or its predecessors. Ms. Robinson
is a director of VIMRx Pharmaceuticals, Inc. which files reports pursuant to
the Exchange Act, and is a trustee of New York University Medical Center.
Mr. Semel (53) has been a Director of the Company since June 1996.
Mr. Semel has been Chairman and Co-Executive Officer of the Warner Bros.,
Division of Time Warner Entertainment LP ("Warner Brothers") since March 1994
and of Warner Music Group since November 1995. For more than ten years prior
to that he was President of Warner Brothers or its predecessor Warner Bros.
Inc.
Ms. Stewart (55) has been a Director of the Company since June 1996.
Ms. Stewart is the Chairman of Martha Stewart Living Omnimedia LLC. She has
been an author, founder of the magazine Martha Stewart Living, creator of a
syndicated television series, a syndicated newspaper column and a catalog
company and a lifestyle consultant and lecturer for more than the past five
years.
BOARD OF DIRECTORS AND ITS COMMITTEES
The Board of Directors has an Executive Committee, an Audit Committee
and a Compensation and Stock Plan Committee (the "Compensation Committee").
The Executive Committee consists of Messrs. Perelman, Gittis and
Levin. The Executive Committee may exercise all of the powers and authority of
the Board, except as otherwise provided under the Delaware General Corporation
Law ("DGCL"). The Audit Committee, consisting of Messrs. Landau and Ms.
Robinson and, effective February 13, 1997, Dr. Feldberg, makes recommendations
to the Board of Directors regarding the engagement of the Company's independent
auditors, reviews the plan, scope and results of the audit, reviews with the
auditors and management the Company's policies and procedures with respect to
internal accounting and financial controls, changes in accounting policy and
the scope of the non-audit services which may be performed by the Company's
independent auditors, among other things. The Audit Committee also monitors
policies to prohibit unethical, questionable or illegal activities by the
Company's employees. The Compensation Committee, consisting of Messrs. Gittis
and Drapkin and effective June 5, 1996, Mr. Semel, makes recommendations to the
Board regarding compensation and incentive arrangements (including
performance-based arrangements) for the Chief Executive Officer, other
Executive Officers, officers and other key managerial employees of the Company.
The Compensation Committee also considers and recommends awards of stock
options to purchase shares of Common Stock pursuant to the Revlon, Inc. 1996
Stock Plan (the "Stock Plan") and administers the Stock Plan.
During 1996, the Board of Directors held four meetings and acted two
times by unanimous written consent of all members thereof in accordance with
the Company's By-Laws and the DGCL, and the Executive Committee acted two times
by unanimous written consent of all members thereof in accordance with the
Company's By-Laws and the DGCL. The Audit Committee held two meetings in 1996.
During 1996, the Compensation Committee acted five times by unanimous written
consent of all members thereof in accordance with the Company's By-Laws and the
DGCL. During 1996, all Directors attended 75% or more of the meetings of the
Board of Directors and of the Committees of which they were members.
26
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth information for the years indicated
concerning the compensation awarded to, earned by or paid to the Chief
Executive Officer of the Company and the four most highly paid executive
officers, other than the Chief Executive Officer, who served as executive
officers of the Company as of December 31, 1996, for services rendered in all
capacities to the Company and its subsidiaries during such periods.
SUMMARY COMPENSATION TABLE
------------------------------- --------- --------------------------------------- ------------ -------------
LONG-TERM
ANNUAL COMPENSATION (A) COMPENSATION
------------- ------------- ----------- AWARDS
------------
OTHER SECURITIES
ANNUAL UNDER- ALL OTHER
NAME AND COMPEN- LYING COMPEN-
PRINCIPAL POSITION YEAR SALARY BONUS SATION OPTIONS SATION
($) ($) ($) ($)
------------------------------- --------- ------------- ------------- ----------- ------------ -------------
Jerry W. Levin (b) 1996 1,500,000 1,500,000 93,801 170,000 307,213
Chairman of the Board 1995 1,450,000 1,450,000 42,651 0 308,002
1994 1,300,000 1,300,000 39,184 0 540,177
------------------------------- --------- ------------- ------------- ----------- ------------ -------------
George Fellows (c) 1996 1,025,000 870,000 15,242 120,000 4,500
President and Chief Executive 1995 841,667 531,700 68,559 0 4,500
Officer 1994 745,833 449,200 11,625 0 104,500
------------------------------- --------- ------------- ------------- ----------- ------------ -------------
William J. Fox (d) 1996 750,000 598,600 50,143 50,000 56,290
Senior Executive Vice 1995 660,000 455,000 54,731 0 56,290
President and Chief Financial 1994 601,333 329,900 59,143 0 56,290
Officer
------------------------------- ---------