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, 19961997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________________ TO __________________
COMMISSION FILE NUMBER 1-11334
REVLON CONSUMER PRODUCTS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 13-3662953
(State or other jurisdiction of(STATE OR OTHER JURISDICTION OF (I.R.S. Employer
incorporation or organization) Identification No.EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
625 Madison Avenue, New York, New YorkMADISON AVENUE, NEW YORK, NEW YORK 10022
(Address of principal executive offices) (Zip Code)(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 527-4000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b)12(B) OR 12(g)12(G) OF THE ACT:
Name of each exchange
Title of each class on which registeredNAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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10 1/2% Senior Subordinated Notes dueSENIOR SUBORDINATED NOTES DUE 2003 N/A
9 3/8% Senior Notes dueSENIOR NOTES DUE 2001 N/A
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9 1/2% Senior Notes dueSENIOR NOTES DUE 1999 New York Stock Exchange, Inc.
10 7/8% Sinking Fund Debentures due 2010 New York Stock Exchange, Inc.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
ITEMIndicate by check mark if disclosure of delinquent filers pursuant to
Item 405 OF REGULATIONof 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 PARTis 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 FORMof this Form 10-K OR ANY
AMENDMENT TO THIS FORMor any
amendment to this Form 10-K. [X]
THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON-AFFILIATES
OF THE REGISTRANT IS NOT APPLICABLE AS THERE IS NO PUBLIC MARKET THEREFOR. ALL
SHARES OF COMMON STOCK ARE HELD BY ONE AFFILIATE. THE NUMBER OF OUTSTANDING
SHARES OF THE REGISTRANT'S COMMON STOCK, AS OF FEBRUARY 20, 1997,23, 1998, WAS 1,000.
ITEM 1. DESCRIPTION OF BUSINESS
BACKGROUND
Revlon Consumer Products Corporation ("Products Corporation" 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 and FIRE & ICE,
CIARA, CHERISH, and JONTUE in
fragrances; FLEX, OUTRAGEOUS, AQUAMARINE, MITCHUM, COLORSTAY, COLORSILK, JEAN
NATE, PLUSBELLE, 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 over 65 years ago. Today, the Company has leading market positions in
many of its principal product categories in the United States self-select
distribution channel. The Company's leading market positions for its REVLON
brand products include the number one positions in the United States
self-select distribution channel in lip makeup and nail enamel (which the
Company has occupied for the past 2021 years) for 1996.1997. The Company has the
number two position in face makeup in the United States self-select
distribution channel for 1996.1997. Propelled by the success of its new product
launches and market share gains in its existing product lines, the Company
has captured in 1996 and continued to hold in 1997 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
21.4%21.6% for 1996.1997. The Company also has leading market positions in several
product categories in certain markets outside of the United States, including
in Argentina, Australia, Brazil, Canada, Mexico and South Africa and Australia.
TheAfrica.
In the United States, 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 storesEckerds and Revco)Rite Aid), 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,. Internationally,
the self-select distribution channel includes retailers such as Boots in the
United Kingdom and Western Europe, and Shoppers Drug Mart in Canada.Canada and Wal-Mart
worldwide. The foregoing retailers, among others, sell the Company's products.
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, theThe 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.
On February 2, 1998, Revlon Escrow Corp. ("Revlon Escrow"), an
affiliate of Products Corporation, issued and sold in a private placement $650
million aggregate principal amount of 8 5/8% Senior Subordinated Notes due 2008
(the "8 5/8% Notes") and $250 million aggregate principal amount of 8 1/8%
Senior Notes due 2006 (the "8 1/8% Notes" and, together with the 8 5/8% Notes,
the "Notes"), with the net proceeds deposited into escrow. The Company previously presented its business asproceeds from
the Consumer Group,sale of the Notes will be used to finance the redemption of Products
Corporation's $555 million aggregate principal amount of 10 1/2% Senior
Subordinated Notes due 2003 (the "Senior Subordinated Notes") and $260 million
aggregate principal amount of 9 3/8% Senior Notes due 2001 (the "Senior
2
Notes" and, together with the Senior Subordinated Notes, the "Old Notes").
Products Corporation delivered a redemption notice to the holders of the Senior
Subordinated Notes for the redemption of the Senior Subordinated Notes on March
4, 1998, at which comprisedtime Products Corporation assumed the Company's consumer products operations
throughoutobligations under
the world (except principally Spain, Portugal, and Italy) and
professional products operations in certain markets, principally in South
Africa and Argentina,8 5/8% Notes and the Professional Group,related indenture (the "8 5/8% Notes Assumption"), and
to the holders of the Senior Notes for the redemption of the Senior Notes on
April 1, 1998, at which time Products Corporation will assume the obligations
under the 8 1/8% Notes and the related indenture (the "8 1/8% Notes Assumption"
and, together with the 8 5/8% Notes Assumption, the "Assumption"). On or before
March 19, 1998 either Revlon Escrow or Products Corporation is required to file
a registration statement with the Securities and Exchange Commission (the
"Commission") with respect to an offer to exchange the Notes for registered
notes with substantially identical terms (the "Exchange Offer"). The Exchange
Offer is expected to occur on or before July 2, 1998.
On April 25, 1997, Prestige Fragrance & Cosmetics, Inc. ("PFC"), a
wholly owned subsidiary of Products Corporation, and The Cosmetic Center, Inc.
("CCI") completed the merger of PFC with and into CCI (the "Cosmetic Center
Merger") with CCI (subsequent to the Cosmetic Center Merger, "Cosmetic Center")
surviving the Cosmetic Center Merger. In the Cosmetic Center Merger, Products
Corporation received in exchange for all of the capital stock of PFC newly
issued Class C Common Stock of Cosmetic Center constituting approximately 85.0%
of Cosmetic Center's outstanding common stock. Accordingly, the Cosmetic Center
Merger was accounted for as a reverse acquisition using the purchase method of
accounting, so that PFC is considered the acquiring entity for accounting
purposes even though Cosmetic Center is the surviving legal entity. The results
of the Company for 1997 include the results of operations of Cosmetic Center
from and after the effective date of the Cosmetic Center Merger.
In May 1997, Products Corporation entered into a credit agreement (the
"Credit Agreement") with a syndicate of lenders, whose individual members
change from time to time. The proceeds of loans made under the Credit Agreement
were used for the purpose of repaying the loans outstanding under the credit
agreement in effect at that time (the "1996 Credit Agreement") and to redeem
Products Corporation's 10 7/8% Sinking Fund Debentures due 2010 (the "Sinking
Fund Debentures") and were and will be used for general corporate purposes or,
in the case of the Acquisition Facility (as defined herein), the financing of
acquisitions. The Credit Agreement provides up to $750.0 million and is
comprised of five senior secured facilities: $200.0 million in two term loan
facilities (the "Term Loan Facilities"), a $300.0 million multi-currency
facility (the "Multi-Currency Facility"), a $200.0 million revolving
acquisition facility, which may be increased to $400.0 million under certain
circumstances with the Company's
professional products operations throughoutconsent of a majority of the world (except principally South
Africalenders (the "Acquisition
Facility"), and Argentina) and consumer products operations in Spain, Portugal and
Italy.a $50.0 million special standby letter of credit facility (the
"Special LC Facility").
On March 5, 1996, Revlon, Inc., the direct parent of Products
Corporation, completed an initial public equity offering (the "Offering""Revlon IPO") in
which it issued and sold 8,625,000 shares of its Class A Common Stock for
$24.00 per share. The 2
proceeds, net of underwriter'sunderwriters' discount and related fees
and expenses, of $187.8 million were contributed to Products Corporation and
were used by Products Corporation to repay borrowings outstanding under
theProducts Corporation's credit agreement in effect at that time (the "Former"1995
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 enteredentering into the
1996 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.Agreement.
Products Corporation was incorporated in Delaware in April 1992. On
June 24, 1992, Products Corporation 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 relating to dates or periods prior to the formation of Products
Corporation mean the cosmetics and skin care, fragrance and personal care
products business of Holdings to which Products Corporation has succeeded.
Unless the context otherwise requires, all references in this Form 10-K to the
Company, Revlon or Products Corporation mean Revlon Consumer Products
Corporation 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.
3
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.
34
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,Outrageous, Revlon
Revlon Age Defying, Revlon Results, Charlie White, Outrageous,Aquamarine, Professional, Roux
StreetWear, Super Lustrous, Eterna 27, Charlie Sunshine, Aquamarine,Mitchum, Lady Fanci-full,
Lustrous, Moon Drops, VelvetRevlon Age Fire & Ice, Fire & Ice Mitchum, LadyHi & Dri, Realistic, Creme of
Drops, Velvet Touch, Defying Ice Cool, Jontue, ColorStay, Nature, Sensor
Line & Shine, New Cool, Cherish, Mitchum, HiCiara, Body Kisses Colorsilk, Frost & Nature, Arosci,Perm, Perfect Perm,
Complexion, Overtime Glow, Revlon Fermodyl, Perfect
Eyes, Touch Lasting, Jontue, Dri, Colorsilk, Sensor Perm, & Glow, Shadings, Jean Touch, Salon
Top Speed, Lashful, StreetWear Scents, Frost & Glow, Perfect Perm,Nate, Roux Perfection,
Lengthwise, Ciara Revlon Shadings, Fermodyl, PerfectFanci-full, Revlonissimo,
Naturally Glamorous, Jean Nate, Roux Touch, SalonRealistic, Creme Voila, Young Color,
Custom Eyes, Fanci-full, Perfection,
Softstroke Timeliner, Realistic, Creme of Revlonissimo,
StreetWear, Revlon Nature, Herba Voila, Young
ImplementsCreative Nail,
Timeliner, Revlon Rich, Fabu-laxer Color, Creative
Nail Design
Systems, Contours, American
Implements Crew, R PRO, True
Cystem
Almay Almay, Time-Off, Time-Off,Sensitive Care, Almay
Almay Clear MoistureOil Control,
Complexion Makeup, Balance,Time-Off,
Amazing, One Coat Moisture
Balance,
Moisture Renew,
Almay Clear
Complexion Skin
Care
Ultima II Ultima II, Beautiful Ultima II, Madly, UIIVital
Nutrient, Radiance,
Wonderwear, The Interactives, CHR
Nakeds CHR
Significant Colorama(b), Jeanne Floid(b), Versace(a), Bozzano(b)Plusbelle(b), Colomer(b),
Regional Juvena(b), Gatineau(b), Charlie Gold Juvena(b)Bozzano(b), Intercosmo(b),
Brands Jeanne Gatineau(b) Natural Honey Myrurgia(a) Geniol(b)Juvena(b), Personal Bio Point,
Colorama(b)Geniol(b), Natural Wonder,
Llongueras(b)Colorama(b), 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.
45
The Company markets several different lines of REVLON lip makeup
(which includes lipstick, lip gloss and liner). The Company's breakthrough
COLORSTAY lipcolor, which uses patented transfer-resistant technology that
provides long wear, is produced in 40 shades. SUPER LUSTROUS the Company's flagship lipstick
brand, is
produced in 5760 shades. MOON DROPS, a moisturizing lipstick, is also
produced in 57
shades. LINE & SHINE, which was introduced in 1997, is a product that utilizes
an innovative product form, combining lipliner and lip gloss in one package,
and is produced in 8 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. STREETWEARTOP SPEED nail enamel, launched in 1996,1997, is produced
in 1952 shades targeted at the "trend" consumer.and contains a patented speed drying polymer formula which sets in
90 seconds. STRONG WEAR, is a patented strengthening nail enamel formula produced
in 1927 shades, which contains ingredients that provide protection against splitting,
chipping and breaking. Revlon has the number one position in nail enamel in the
United States self-select distribution channel. The Company also sells NAIL
BUILDERS, which includes 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.fortifiers.
The Company sells face makeup, including foundation, powder, blush and
concealers, under such REVLON brand names as REVLON AGE DEFYING, which is
targeted tofor women in the over 35 age bracket; COLORSTAY foundation, which uses
proprietarypatent-pending 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, brow
color and liners. COLORSTAY Eyecolor,eyecolor, mascara and COLORSTAY LASHCOLOR mascara,brow color, LASHFUL and
LENGTHWISE mascaras, SOFTSTROKE eyeliners and REVLON CUSTOM EYES and OVERTIME
SHADOW eye shadows are targeted towardsfor women in the 18 to 49 age bracket, and
REVLON AGE DEFYING eye color is targeted tofor 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 tofor consumers who want "healthy looking skin".skin." The Company
positions the ALMAY brand as the clean, naturalnatural-looking 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 and the ALMAY AMAZING collection, which uses long wearincludes
ALMAY AMAZING LASTING lip makeup, which includes the Company's proprietary
transfer-resistant technology and includesdeveloped for COLORSTAY, ALMAY AMAZING LASH
mascara, ALMAY AMAZING eye makeup, ALMAY AMAZING LASTING makeup, and ALMAY
CLEAR COMPLEXION Skin CareSKIN CARE and MakeupMAKEUP and ALMAY EASY-TO-WEAR eyecolor and ALMAY
ONE COAT mascara. The Company targets ALMAY tofor value conscious consumers by
offering benefits equal or
superiorcomparable 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's STREETWEAR brand consists of a line of nail enamels,
mascaras, lip and eye liners and lip glosses which are targeted for the trend
conscious consumer. STREETWEAR was developed in response to the recent trend in
color and fashion coming from the street.
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, including ETERNA 27, MOON DROPS, REVLON RESULTS, ALMAY
TIME-OFF REVITALIZER, CLEAR COMPLEXION and REVLON RESULTS.ULTIMA II VITAL RADIANCE, a skin
care collection introduced in 1997. In addition, the Company sells skin care
products in international markets under internationally recognized brand names
and under regional brands, including NATURAL HONEY.
6
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 proprietarypatent-pending
technology, cheek and eyecolor products that use patentedproprietary technology that
provides long wear, and WONDERWEAR LIPSEXXXY lipstick, which uses patented
transfer-resistant technology that provides long wear, the BEAUTIFUL NUTRIENT
collection, a complete line of nourishing makeup that provides advanced
nutrient protection against dryness 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 and FIRE & ICE 5
JONTUE and CIARA; highly successful
line extensions such as CHARLIE RED, and
CHARLIE WHITE, and new additions such as CHERISH, CHARLIE SUNSHINE and FIRE &
ICE COOL and STREETWEAR SCENTS.COOL. 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, inIn international markets, the Company distributes under license
certain brands, including VERSACE and VAN GILS and MYRURGIA.GILS.
Personal Care Products. The Company sells a broad line of personal
care consumer products thatwhich 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, PLUSBELLE, JUVENA,
LLONGUERAS and NATURAL HONEY brands outside the United States; the
breakthrough, patent-pending COLORSTAY and the COLORSILK, REVLON SHADINGS,
FROST & GLOW and ROUX FANCI-FULL hair coloring lines inthroughout most of the
United States;world; 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, including sunscreens, 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. ThroughTwo recent acquisitions, Creative Nail Design, Inc. ("Creative Nail"),
which was acquired in November 1995, and American Crew, Inc., acquired in April 1996,
increase the Company's strength in the exclusive distribution channel. Through
Creative Nail, 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.brand name. Through AMERICAN CREW, which was acquired in
April 1996 ,American Crew, Inc. the Company
sells men's shampoos, conditioners, gels, and other hair care products for use
by professional salons.salons under the AMERICAN CREW brand name. 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 hasalso
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.
7
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
CompanyAdvertising and consumer-directed promotion expenditures increased advertising expenditures by 17.3% for11.8% in
1997 over 1996 levels and by 17.4% in 1996 over 1995 levels
and by 26.2% for 1995 over 1994 levels. The Company's
marketing
6
emphasizes a uniform global image and product for its portfolio of
core brands, including REVLON, COLORSTAY, REVLON AGE DEFYING, ALMAY, ULTIMA II,
FLEX, CHARLIE, OUTRAGEOUS and MITCHUM. The Company coordinates advertising
campaigns with in-store promotional and other marketing activities. The Company
develops jointly with retailers carefully tailored advertising,
point-of-purchase and other focused marketing programs. The Company 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",Report," a glossy, color pamphlet distributed in magazines and on
merchandising units, available in 3034 countries and 1618 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 inthroughout 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
MobilesThese vehicles create consumer and retail excitement about the Company's new
and existing 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 Company's products, thereby achieving the benefits of an in-store
demonstrator without the corresponding cost,cost; magazine inserts containing
samples of the Company's newest products,products; trial size products and "shade
samplers," which are collections of trial size products in different shades.
Additionally, the Company has its ownCompany's website whichat http://www.revlon.com features current
product and promotional information.information and was recently recognized by a major
national business magazine as one of the top corporate sites on the World Wide
Web. Revlon was the only cosmetics company to receive this recognition.
Professional Products. Professional products are marketed through
educational seminars on their application and benefits and through advertising,
displays and samples to communicate to professionals and consumers the quality
and performance characteristics of such products. The Company's shift to
exclusive line distributors willis intended to 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.
8
NEW PRODUCT DEVELOPMENT AND RESEARCH AND DEVELOPMENT
The Company believes that it is an industry leader in the development
of innovative and technologically advancedtechnologically-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 cross-functional 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 researchers at the Edison facility isare responsible for all of the
Company's new product research worldwide. The Edison facility performsworldwide, performing research for new products,
ideas, concepts and packaging. Research and development for consumer products isThe Company also conducted at manufacturinghas research facilities in
Brazil. ResearchBrazil and development for
the professional products is conducted principally at the Edison facility.California.
The research and development group at the Edison facility also
performs extensive safety and quality tests on the Company's products,
including toxicology, microbiology and package testing. Additionally, quality
control testing is performed at each manufacturing facility.
7
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, 1996,1997, 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 1997, 1996 and 1995 the Company spent
approximately $29.7 million, $26.3 million and $22.3 million, respectively, on
research and development activities.
In certain instances, proprietary technology developed by the Company
for use in products and packaging is available for licensing to third parties
through the Company's Revlon Technologies division. In 1995, the Company
received the Innovation Award from the Coalition of NorthEast Governors
("CONEG") for its patented and patent-pending ENVIROGLUV glass decorating
technology (which resulted in significant cost reductions in decorating REVLON
AGE DEFYING and COLORSTAY makeup bottles and REVLON nail enamel bottles and
which is being offered for licensing to qualified glass decorators). The CONEG
challenge awards program is a nationwide competition to recognize companies
that make significant contributions to packaging and source reduction.
MANUFACTURING AND RELATED OPERATIONS AND RAW MATERIALS
The Company is rationalizingcontinuing to rationalize 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 itthe
Company to centralize production of some product categories for sale throughout
the world within designated facilities and shift production of certain other
product categories to more cost effective manufacturing sites to reduce
production costs. Shifts of production may result in the closing of certain of
the Company's less significant manufacturing facilities, and the Company
continually reviews its needs in this regard. In addition, as part of its
continuing efforts to continuously improve operating efficiencies, the Company attempts to
ensure that a significant portion of its capital expenditures areis devoted to
improving operating efficiencies.
In the United States, theThe 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
and its Canadian 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 products for sale through salons
worldwide are manufactured and otherdistributed through the Vista, California
facility. Personal care 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 hasand Oxford facilities have been
ISO-9002 certified. An ISO-9002 certification is an internationally recognized
standard for manufacturing
9
facilities, which signifies that the manufacturing facility has achieved and
maintains certain performance and quality commitment standards.
The Company manufactures its entire line of consumer products (except
implements) for sale in most of 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,
AustraliaItaly, Argentina, France 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, Italy and Italy.Mexico.
Production of color cosmetics for Japan and Mexico has been shifted primarily
to the United States while production of REVLON brand personal care products
for Argentina has been centralized in Brazil. The Maestag facility hasMaesteg and Irish facilities
have 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 atfrom most of the
Company's principal manufacturing sites in Oxford, North Carolina; Phoenix, Arizona; Irvington, New
Jersey; and Maesteg, South Wales;facilities and the timeliness and accuracy of
new product and promotion deliveries. To promote the Company's understanding
of, and responsiveness to the needs of its retail customers, the Company
assigns members of senior operations 8
management to lead inter-departmental
teams that visit significant accounts, and has provided retail accounts with a
designated customer service representative. As a result of these efforts, accompanied by stronger and more
customer-focused management, the Company has developed strong relationships
with its retailers.
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$12 million for 1996.
The1997,
and the Company intends to continue to upgrade management information systemsanticipates a similar level of expenditure in 1997, which will include improved systems for forecasting, production,
inventory management, order processing, general and fixed asset ledgers and
others.1998. 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.
The Company has made an evaluation of steps necessary to address
issues related to required changes in computer systems for the Year 2000. While
the Company has determined that it currently has computer systems that require
modification to be Year 2000 compliant, many of the modifications are being
accomplished as part of the systems improvements referred to above. As to its
systems which are not impacted by the improvements referred to above, the
Company is identifying those which require modification or replacement to
address the Year 2000 issue. Management believes that there is no material risk
that the Company will fail to address the Year 2000 issues in a timely manner.
Additionally, the Company believes that the Year 2000 issue will not have a
material effect on its financial condition.
10
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 2,1002,900 people
as of December 31, 1996,1997, 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, for salon distribution, and for salon distribution.retail stores. 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%60.8% of the Company's 1996 net sales. Of these1997 net sales, approximately 86%a majority of which 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, 1996,1997, 19
licenses were in effect relating to 2321 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 retail stores through Cosmetic Center. As of
December 31, 1997, Cosmetic Center's retail (or Cosmetic Center) division
operated 66 specialty retail stores in the middle Atlantic region and in
Chicago and its outlet (or Prestige Fragrance & Cosmetics, Inc.
("PFC") approximately 200Cosmetics) division operated
201 retail outlet stores throughout the United StatesStates. The stores in the
Cosmetic Center division offer a broad range of brand name prestige and mass
merchandised cosmetics products at value prices. The stores in the Prestige
Fragrance & Cosmetics division operate in factory outlet malls, rural areas and
other similar locations that are not disruptive to the Company's principal
distribution channels. In these stores, Cosmetic Center sells the Company sellsCompany's
first quality, first quality excess, returned and refurbished, and discontinued
consumer products and retail professional products, as well as similar products
of competingother 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%
9
and 84% of the outstanding common stock. The Merger is subject to a 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%39.2% of the Company's 19961997 net sales. The International
operation's ten largest countries in terms of these sales, which include, among
others, Brazil, Japan,Spain, the United Kingdom, Australia, South Africa, Canada and
Spain,Japan, accounted for approximately 30.7%28% of the Company's net sales in 1996,1997, with
Brazil accounting for approximately 6.1%5.5% 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. TheAs of
December 31, 1997, the Company actively sellssold its products through wholly owned
subsidiaries established 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;Russia; 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.
11
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, RevcoEckerds,
and Thrifty PaylessRite Aid 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.Europe and
Wal-Mart worldwide. The foregoing principal 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-Martsales in 1997 and its
affiliates accounted for approximately 10.1%are representative 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.customers.
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, STREETWEAR, FLEX, PLUSBELLE, 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, COLORSTAY haircolor, FLEX & GO shampoo,
LENGTHWISE mascara, classic REVLON nail enamel, TOP SPEED 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,
ALMAY AMAZING cosmetics, ALMAY ONE COAT eye makeup and cosmetics, ULTIMA II
VITAL RADIANCE skin care products, 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.
12
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,
segmentsfinancial and other information of the Company is set forth in Note 1518 of the
Notes to Consolidated Financial Statements of the Company.
EMPLOYEES
As of December 31, 1996,1997, the Company employed the equivalent of
approximately 14,30016,000 full-time persons. Approximately 2,100 of such employees
in the United States at the end of 1996 wereare 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 twelveeleven countries outside the United States during
1997. The1998 (namely, Australia, Brazil, England, France, Ireland, Israel, Italy,
Japan, Mexico, South Africa and Spain). Although there can be no assurance, the
Company expects that such agreements will be renewed in the ordinary course,
of
negotiations, and further believes that its employee relations are satisfactory. 11Although the
Company has experienced minor work stoppages of limited duration in the past in
the ordinary course of business, such work stoppages have not had a material
effect on the Company's results of operations or financial condition.
13
ITEM 2. PROPERTIES
The following table sets forth as of December 31, 19961997 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.
- -------- --- -------------
United States:
Oxford, North
Carolina.............Carolina.................... Manufacturing, warehousing, distribution and office 1,012,000
Phoenix, Arizona...................Arizona............ Manufacturing, warehousing, distribution and office 706,000
(partially leased)
Holmdel, New Jersey................ Warehousing, distribution and office 540,000
Jacksonville, Florida..............Florida....... Manufacturing, warehousing, distribution, research and 526,000
office
Mississauga, Canada................ Manufacturing, warehousing,Columbia, Maryland.......... Warehousing, distribution and office 245,000(leased) 200,000
Edison, New Jersey.................Jersey.......... Research and office (leased) 133,000
Irvington, New Jersey..............Jersey....... Manufacturing, warehouse and office 96,000
International:
Sao Paulo, Brazil..................Brazil........... Manufacturing, warehousing, distribution, office and 408,000435,000
research
Maesteg, South Wales, United
Kingdom............................Wales........ Manufacturing,.distribution and office 316,000
Mississauga, Canada......... Manufacturing, warehousing, distribution and office 316,000245,000
Santa Maria, Spain ................Spain.......... Manufacturing and warehousing 173,000
Barcelona, Spain .................. Manufacturing, warehousing, research and office 152,000
Caracas, Venezuela.................Venezuela.......... Manufacturing, distribution and office 145,000
Argenteuil, France................. Warehousing and distribution (leased) 73,000
Kempton Park, South Africa.........Africa.. Warehousing, distribution and office (leased) 127,000
Canberra, Australia................Austrialia........ Warehousing, distribution and office (leased) 125,000
Isando, South Africa...............Africa........ Manufacturing, warehousing, distribution and office 94,000
Rydalmere, Australia...............Escobar, Argentina.......... Manufacturing, warehousing, distribution and office 93,00075,000
Argenteuil, France.......... Warehousing and distribution (leased) 73,000
Bologna, Italy.....................Italy.............. Manufacturing, warehousing, distribution and office 60,000
Dublin, Ireland............. Manufacturing, warehousing, distribution and 60,000
researchoffice 32,500
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 85,000approximately 57,000 square feet are currently sublet to affiliates of
the Company)Company and approximately 27,000 square feet are sublet to an unaffiliated
third party). 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.
14
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
Revlon, Inc. beneficially owns all of the outstanding shares of Common
Stock,common
stock, par value $1.00 per share, (the "Common Stock"), of Products Corporation. MacAndrews & Forbes
Holdings Inc. ("MacAndrews & Forbes"Holdings"), which is indirectly wholly owned by
Ronald O. Perelman, which through Revlon Worldwide CorporationREV Holdings Inc. ("Revlon Worldwide"REV Holdings"), beneficially
owns 11,250,000 shares of theRevlon, Inc.'s Class A Common Stock of Revlon, Inc. (representing
56.6% of the outstanding shares of Class A Common Stock of Revlon, Inc.)Stock) and all of the
outstanding 31,250,000 shares of Class B Common Stock, of Revlon, Inc., which together represent
83.1% of the outstanding shares of Revlon, Inc.'s Common StockStock. The remaining
8,637,350 shares of Revlon, Inc., and the remaining 8,625,000
shares of's Class A Common Stock of Revlon, Inc.outstanding at February
2, 1998 are owned by the public. No dividends were declared or paid during 1997
or 1996. The terms of the Credit Agreement, and Products Corporation's 10 1/2 %the Senior Subordinated Notes, Due 2003 (the
"Senior Subordinated Notes"), 9 3/8%the
Senior Notes Due 2001 (the "Senior Notes")
and Products Corporation's 9 1/2% Senior Notes Due 1999 (the "1999
Notes") currently restrict, and, after the Assumption, the terms of the Notes
will 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.
13
ITEM 6. SELECTED FINANCIAL DATA
The Consolidated Statements of Operations Data for each of the years
in the five-year period ended December 31, 19961997 and the Balance Sheet Data as
of December 31, 1997, 1996, 1995, 1994 1993 and 19921993 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,
-----------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 (a) 1994 (a) 1993
(a) 1992----------- ---------- --------- --------- ------------------- ----------- ----------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)MILLIONS)
STATEMENTS OF OPERATIONS DATA:
Net sales................................................ $ 2,167.0 $ 1,937.8 $ 1,732.5 $ 1,588.3 $ 1,632.2sales.......................... $2,390.9 $2,169.5 $1,940.0 $1,736.7 $1,595.2
=========== ========== ========= ========= =================== =========== ==========
Operating income (loss)..................................income................... $ 201.0214.5(a) $ 146.6201.4 $ 108.4145.6 $ 49.9107.4 $ (82.6)(d)50.5
=========== ========== ========= ========= =================== =========== ==========
Income (loss) before extraordinary
items and cumulative effect of
accounting changes...............................changes................ $ 25.259.7 $ (40.2)25.6 $ (74.0)(41.2) $ (130.8)(75.0) $ (224.0)(130.2)
Extraordinary items - early-early
extinguishments of debt......debt........... (14.9) (6.6) - - (9.5)
(2.9)
Cumulative effect of accounting
changes..................changes........................... - - - (28.8)(b) (6.0)(c)
------------ ---------- --------- --------- ------------------- ----------- ----------
Net income (loss).......................................................... $ 18.644.8 $ (40.2)19.0 $ (102.8)(41.2) $ (146.3)(103.8) $ (226.9)(145.7)
=========== ========== ========= ========== ==================== ==========
DECEMBER 31,
---------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 (a) 1994 (a) 1993
(a) 1992
---------- --------- --------- ------------------- ---------- ---------- ----------
(DOLLARS IN MILLIONS)
BALANCE SHEET DATA:
Total assets............................................. $ 1,622.1 $ 1,535.3 $ 1,418.1 $ 1,548.7 $ 1,438.3assets...................... $1,836.4 $1,622.7 $1,536.0 $1,419.4 $1,551.1
Long-term debt, excluding current
portion................portion.......................... 1,458.7 1,352.2 1,467.5 1,327.5 1,203.8
969.0
Total stockholder's deficiency........................... (495.9) (702.0) (656.5) (555.3) (443.1)deficiency ... (456.7) (496.3) (702.3) (656.2) (554.2)
(a) Effective January 1, 1996, Products Corporation acquired from Holdings
substantially allIn 1997, the Company incurred business consolidation costs and other, net,
of approximately $7.6 million in connection with the assetsimplementation of its
business strategy to rationalize factory and warehouse operations, including
primarily severance and other related costs in certain operations and the
Tarlow Advertising Division ("Tarlow")
in consideration forconsolidation of certain warehouse, distribution and headquarter operations
related to 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 inCosmetic Center Merger partially offset by a manner similar to thatsettlement of a
poolingclaim of interests$12.7 million and accordingly,
prior period financial statements beginninggains associated with January 1, 1993 have been
restated as if the acquisition took place atsale of certain facilities
related to the beginning of such period.
Products Corporation paid $4.1 million to Holdings which was accounted for as
an increase to capital deficiency.rationalizations.
15
(b) Effective January 1, 1994, the Company adopted SFASStatement of Financial
Accounting Standards ("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 of 1993 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 of management information systems, (iii) vacating premises
under lease, (iv) personnel reductions and (v) discontinuance of certain
product lines.
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 and outlet stores and has a licensing group.
To reflect the integration of management reporting responsibilities
culminating in the third quarter of 1996, theThe 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
======== ======== ========
YEAR ENDED DECEMBER 31,
---------------------------------
1997* 1996* 1995*
---------- ---------- ----------
Net sales:
United States............................ $1,452.5 $1,259.7 $1,115.4
International............................ 938.4 909.8 824.6
---------- ---------- ----------
$2,390.9 $2,169.5 $1,940.0
========== ========== ==========
The following sets forth certain statements of operations data as a
percentage of net sales:sales for each of the last three years:
YEAR ENDED DECEMBER 31,
---------------------------------
1997** 1996** 1995**
---------- ---------- ----------
Cost of sales.............................. 34.8% 33.5% 33.7%
Gross profit............................... 65.2 66.5 66.3
Selling, general and administrative
expenses.................................. 55.9 57.2 58.8
Business consolidation costs and other, net 0.3 -- --
Operating income........................... 9.0 9.3 7.5
* The results of Cosmetic Center, after giving effect to certain
intercompany adjustments for 1997, 1996 and 1995, were as follows,
respectively: Net sales of $152.3, $77.4 and $72.7, cost of sales of $89.5,
$37.6 and $38.0, S,G&A expenses of $61.9, $38.4 and $36.5, and operating (loss)
income of ($3.1), $1.4 and ($1.8). 1997 includes business consolidation costs
of $4.0 in the operating (loss).
** Excluding the results of Cosmetic Center, after giving effect to certain
intercompany adjustments for 1997, 1996 and 1995, the above percentages would
have been, respectively: cost of sales of 33.2%, 32.9% and 32.9%, gross profit
of 66.8%, 67.1% and 67.1%, S,G&A expenses of 57.0%, 57.5 % and 59.2%, business
consolidation costs and other, net, of 0.1%, 0% and 0% and operating income of
9.7%, 9.6% and 7.9%.
16
YEAR ENDED DECEMBER 31, --------------------------------------1997 COMPARED WITH YEAR ENDED DECEMBER 31, 1996
1995 1994
-------- -------- --------NET SALES
Net sales were $2,390.9 and $2,169.5 for 1997 and 1996, respectively,
an increase of $221.4, or 10.2% or 12.6% on a constant U.S. dollar basis,
primarily as a result of successful new product introductions worldwide,
increased demand in the United States, the impact of the Cosmetic Center
Merger, 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
$1,452.5 for 1997 from $1,259.7 for 1996, an increase of $192.8, or 15.3%. Net
sales improved for 1997, primarily as a result of continued consumer acceptance
of new product offerings, general improvement in consumer demand for the
Company's color cosmetics and the impact of the Cosmetic Center Merger. These
results were partially offset by a decline in the Company's fragrance business
caused by downward trends in the mass fragrance industry and the Company's
strategy to de-emphasize new fragrance products. Even though consumer
sell-through for the REVLON and ALMAY brands, as described below in more
detail, has increased significantly, the Company's sales to its customers have
been during 1997 and may continue to be impacted by retail inventory balancing
and reductions resulting from consolidation in the chain drugstore industry in
the U.S.
REVLON brand color cosmetics continued as the number one brand in
dollar market share in the self-select distribution channel with a share of
21.6% for 1997 versus 21.4% for 1996. 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 1997, certain products
launched during 1996) generated incremental net sales in 1997, principally as a
result of launches of products in the COLORSTAY collection, including COLORSTAY
eye makeup and face products such as powder and blush, COLORSTAY haircolor,
launched in the third quarter of 1997, TOP SPEED nail enamel, launched in the
third quarter of 1997, and launches of REVLON AGE DEFYING line extensions, the
STREETWEAR collection, NEW COMPLEXION face makeup, LINE & SHINE lip makeup and
launches of products in the ALMAY AMAZING collection, including lip makeup, eye
makeup, face makeup and concealer, ALMAY ONE COAT, and ALMAY TIME-OFF
REVITALIZER.
International. The International operation's net sales increased to
$938.4 for 1997 from $909.8 for 1996, an increase of $28.6, or 3.1% on a
reported basis or 8.8% on a constant U.S. dollar basis. Net sales improved for
1997, principally as a result of increased distribution into the expanding
self-select distribution channel, successful new product introductions,
including the continued roll-out of the COLORSTAY cosmetics collection and the
further development of new international markets. This was partially offset by
the Company's decision to exit the unprofitable demonstrator-assisted channel
in Japan in the second half of 1996, unfavorable economic conditions in several
international markets, and, on a reported basis, the unfavorable effect on
sales of a stronger U.S. dollar against certain foreign currencies, primarily
the Spanish peseta, the Italian lira and several other European currencies, the
Australian dollar, the South African rand and the Japanese yen. New products
such as COLORSTAY haircolor and STREETWEAR were introduced in select
international markets in the second half of 1997. During 1997, the
International operation's sales were divided into the following geographic
areas: Europe, which is comprised of Europe, the Middle East and Africa (in
which net sales increased by 3.4% on a reported basis to $417.9 for 1997 as
compared to 1996 or an increase of 11.3% on a constant U.S. dollar basis); the
Western Hemisphere, which is comprised of Canada, Mexico, Central America,
South America and Puerto Rico (in which net sales increased by 11.1% on a
reported basis to $346.6 for 1997 as compared to 1996 or an increase of 14.5%
on a constant U.S. dollar basis); and the Far East (in which net sales
decreased by 10.3% on a reported basis to $173.9 for 1997 as compared to 1996
or a decrease of 5.5% on a constant U.S. dollar basis). Excluding in both
periods the effect of the Company's strategy of exiting the
demonstrator-assisted distribution channel in Japan, Far East net sales on a
constant U.S. dollar basis for 1997 would have been at approximately the same
level as those in 1996.
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 $130.9, $16.0 and
$7.7, respectively, for 1997 compared to $132.7, $25.1 and $20.0, respectively,
for 1996. Results of operations in Brazil for 1997 were adversely
17
impacted by competitive activity affecting the Company's toiletries business.
Cost of sales
...................As a percentage of net sales, cost of sales was 34.8% for 1997
compared to 33.5% 33.7% 34.5%
Gross profit .................... 66.5% 66.3 65.5
Selling,for 1996. The increase in cost of sales as a percentage of
net sales is due primarily to the impact of the Cosmetic Center Merger.
Excluding the results of Cosmetic Center, as a percentage of net sales, cost of
sales would have been 33.2% for 1997 compared to 32.9% for 1996. Other factors
which increased cost of sales as a percentage of net sales included factors
which enhanced overall operating income, including increased sales of the
Company's higher cost, enhanced-performance, technology-based products and
increased export sales and other factors including 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. These factors
were partially offset by the benefits of improved overhead absorption against
higher production volumes and more efficient global production and purchasing.
S,G&A expenses
As a percentage of net sales, S,G&A expenses were 55.9% for 1997, an
improvement from 57.2% for 1996. S,G&A expenses other than advertising and
consumer-directed promotion expenses, as a percentage of net sales, improved to
39.3% for 1997 compared with 40.8% for 1996, primarily as a result of reduced
general and administrative expenses, ....... 57.2 58.8 59.3improved productivity and lower
distribution costs in 1997 compared with those in 1996. In accordance with its
business strategy, the Company increased advertising and consumer-directed
promotion expenditures in 1997 compared with 1996 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 and consumer-directed promotion expenses
increased by 11.8% to $397.4, or 16.6% of net sales, for 1997 from $355.5, or
16.4% of net sales, for 1996.
Business consolidation costs and other, net
Business consolidation costs and other, net, in 1997 include severance
and other costs in connection with the consolidation of certain warehouse,
distribution and headquarter operations related to the Cosmetic Center Merger,
severance, writedowns of certain assets to their estimated net realizable value
and other related costs to rationalize factory operations in certain operations
in accordance with the Company's business strategy, partially offset by related
gains from the sales of certain factory operations and an approximately $12.7
settlement of a claim in the second quarter of 1997. These business
consolidations are intended to lower the Company's operating costs and increase
efficiency in the future.
Operating income
................ 9.3 7.5 6.2As a result of the foregoing, operating income increased by $13.1, or
6.5%, to $214.5 for 1997 from $201.4 for 1996.
Other expenses/income
Interest expense was $136.2 for 1997 compared to $133.4 for 1996. The
slight increase in interest expense in 1997 is due to higher average
outstanding borrowings, partially offset by lower interest rates.
Gain on sale of subsidiary stock of $6.0 was recognized in the second
quarter of 1997 as a result of the Cosmetic Center Merger.
Foreign currency losses, net, were $6.4 for 1997 compared to $5.7 for
1996. The increase in foreign currency losses for 1997 as compared to 1996
resulted primarily from a non recurring gain recognized in 1996 in connection
with the Company's simplification of its international corporate structure and
from the strengthening of the U.S. dollar versus currencies in the Far East and
most European currencies, partially offset by the stabilization of the
Venezuelan bolivar and Mexican peso versus the devaluations which occurred
during 1996.
18
Provision for income taxes
The provision for income taxes was $9.4 and $25.5 for 1997 and 1996,
respectively. The decrease was primarily attributable to lower taxable income
in certain International operations, partially as a result of the
implementation of tax planning, including the utilization of net operating loss
carryforwards in certain International operations, and benefits from net
operating loss carryforwards domestically.
Extraordinary item
The extraordinary item in 1997 resulted from the write-off in the
second quarter of 1997 of deferred financing costs associated with the early
extinguishment of borrowings under the 1996 Credit Agreement prior to maturity
with proceeds from the Credit Agreement, and costs of approximately $6.3 in
connection with the redemption of Products Corporation's Sinking Fund
Debentures. The extraordinary item in 1996 resulted from the write-off in the
first quarter of 1996 of deferred financing costs associated with the early
extinguishment of borrowings under the 1995 Credit Agreement prior to maturity
with the net proceeds from the Revlon IPO and proceeds from the 1996 Credit
Agreement.
YEAR ENDED DECEMBER 31, 1996 COMPARED WITH YEAR ENDED DECEMBER 31, 1995
NET SALESNet sales
Net sales were $2,167.0$2,169.5 and $1,937.8$1,940.0 for 1996 and 1995, respectively,
an increase of $229.2,$229.5, 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$1,259.7 for 1996 from $1,113.2$1,115.4 for 1995, an increase of $144.0,$144.3, 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 share of its Revlon brandedREVLON brand
cosmetics in the color cosmetics business in the United States self-select
distribution
15
channel to 21.4% for 1996 from 19.5% 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 CHERISHCherish 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. TheDuring 1996, the
International operation's sales arewere 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,
19
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.markets in Europe and the Far East. 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")S,G&A expenses
As a percentage of net sales, SGS,G&A expenses were 57.2% for 1996, an
improvement from 58.8% for 1995. SGS,G&A expenses other than advertising expense,and
consumer-directed promotion expenses, as a percentage of net sales, improved to
40.8% 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 1995.1995, partially offset by additional
costs incurred in Japan in 1996 in connection with the Company's strategy of
exiting the demonstrator-assisted distribution channel. In accordance with its
business strategy, the Company increased advertising and consumer-directed
promotion expenditures 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 expenseand consumer-directed promotion expenses
increased by 17.3%17.4% to $355.2,$355.5, or 16.4% of net sales, for 1996 compared to
$302.7,$302.9, or 15.6% of net sales, for 1995.
16
Operating income
As a result of the foregoing, operating income increased by $54.4,$55.8, or
37.1%38.3%, to $201.0$201.4 for 1996 from $146.6$145.6 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 1996 Credit Agreement
and under the Former1995 Credit Agreement with the use of proceeds from the OfferingRevlon
IPO in the 1996 period and lower interest rates under the 1996 Credit Agreement
than under the Former1995 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.
20
Extraordinary item
The extraordinary item resulted from the write-off recorded in the
first quarter of 1996 of deferred financing costs associated with the early
extinguishment of the Former1995 Credit Agreement prior to its maturity with the net
proceeds from the OfferingRevlon IPO and borrowings under the 1996 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 forprovided by (used for) operating activities was $10.1, $51.7$7.1, ($9.6)
and $1.1($52.1) for 1997, 1996 and 1995, respectively. The increase in net cash
provided by operating activities for 1997 compared with net cash used in 1996
resulted primarily from higher operating income and 1994, respectively.improved working capital
management, partially offset by increased spending on merchandise display units
in connection with the Company's continued expansion into the self-select
distribution channel. 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 $108.4, $65.1 and $72.5 for
1997, 1996 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 in1997, 1996 and 1995 included capital expenditures of $56.5, $58.0 and $54.3,
respectively, and $60.4, $7.1 and $21.2, respectively, used for acquisitions.
The
Company's capital expendituresNet cash used for 1996, 1995 and 1994 were $58.0, $54.3 and
$52.5, respectively. The increaseacquisitions in capital expenditures through 1996 was1997 consisted primarily attributableof cash paid to significant information system enhancementsthe
CCI shareholders in accordanceconnection with the Company's business strategy.cash election pursuant to the Cosmetic
Center Merger and cash paid for the acquisition of a South American hair care
manufacturer and its distributor.
Net cash provided by (used for) financing activities was $78.4, $125.2$109.1, $77.9 and $(49.0)$125.6
for 1997, 1996 and 1995, respectively. Net cash provided by financing
activities for 1997 included cash drawn under the 1996 Credit Agreement, the
Credit Agreement and 1994, respectively.Cosmetic Center's credit facility, partially offset by the
repayment of borrowings under the 1996 Credit Agreement, the payment of fees
and expenses related to entering into the Credit Agreement, the repayment of
borrowings under the Company's Japanese yen-denominated credit agreement (the
"Yen Credit Agreement"), the repayment of borrowings under CCI's former credit
agreement and the redemption of the Sinking Fund Debentures. Net cash provided
by financing activities for 1996 included the net proceeds from the Offering,Revlon IPO,
cash drawn under the Former1995 Credit Agreement and under the 1996 Credit Agreement,
partially offset by the repayment of borrowings under the Former1995 Credit
Agreement, the payment of fees and expenses related to the 1996 Credit
Agreement and the repayment of approximately $5.2borrowings 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 timeprior
to the 1995 Credit Agreement and borrowings under the Former1995 Credit Agreement,
partially offset by repayments of cash drawn under those credit agreements,
repayment of $26.9repayments 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 Yen1995 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,May 1997, Products Corporation entered into the Credit Agreement
which became effective upon consummationwith a syndicate of lenders, whose individual members change from time to time.
The proceeds of loans made under the Credit Agreement were used for the purpose
of repaying the loans outstanding under the 1996 Credit Agreement and to redeem
the Sinking Fund Debentures and were and will be used for general corporate
purposes or, in the case of the Offering on March 5,
1996. The Credit Agreement provides, among other things, (i) an extensionAcquisition Facility, the financing of
acquisitions. See Note 10(a) to the term of the facilities from June 30, 1997 toConsolidated Financial Statements. At
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, 1996,1997 Products Corporation had approximately $130.0$200.0 outstanding
under the term loan facility, $57.2Term Loan Facilities, $102.7 outstanding under the multi-currency facility,
nothingMulti-Currency
Facility, $41.9 outstanding under the revolving acquisition facilityAcquisition Facility and $33.5
outstanding$34.8 of issued
but undrawn letters of credit 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.Special LC Facility.
A subsidiary of Products Corporation is the borrower under the Yen
Credit Agreement, which had a principal balance of approximately Yen 4.84.3
billion as of December 31, 19961997 (approximately $41.7$33.3 U.S. dollar equivalent as
of December 31, 1996)1997). In accordance with the terms of the Yen Credit
Agreement, approximately Yen 2.7 billion (approximately $26.9 U.S. dollar equivalent) was
paid in January 1995 and approximately Yen 539 million (approximately $5.2 U.S. dollar
equivalent) was paid in January 1996. A payment of1996 and approximately Yen 539 million
(approximately $4.6 U.S. dollar equivalent as of December 31, 1996)equivalent) was paid in January 1997. In
June 1997, Products Corporation amended and restated the balanceYen Credit Agreement
to extend the term to December 31, 2000 subject to earlier termination under
certain circumstances. In accordance with the terms of the Yen Credit
Agreement, ofas amended and restated, approximately Yen 4.3 billion539 million
(approximately $37.1$4.2 U.S. dollar equivalent as of December 31, 1996)1997) is
currently21
due in each of March 1998, 1999 and 2000 and Yen 2.7 billion (approximately
$20.7 U.S. dollar equivalent as of December 31, 1997) is due on
December 31, 1997.2000.
Products Corporation is currently renegotiatingmade an extensionoptional sinking fund payment of $13.5
and redeemed all of the term of the Yen Credit
Agreement. In the event that such extension is not obtained, Products
Corporation 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 aggregateoutstanding $85.0 principal amount of Products Corporation's 10 7/8% Sinking Fund
Debentures due 2010 previously purchased onduring 1997 with the open market by
Products Corporation (which was not previously used for sinking fund payments,
includingproceeds of borrowings under the payment in July 1996) and no longer outstanding will be used to
meet future sinking fund requirements of such issue.Credit
Agreement. $9.0 aggregate principal amount of previously purchased debentures wasSinking Fund
Debentures were used for the mandatory sinking fund payment due July 15, 1996.1997.
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, $10.91997.
On February 2, 1998, Revlon Escrow issued and sold the Notes in notes duea
private placement, with the net proceeds deposited into escrow. The proceeds
from the sale of the Notes will be used to finance the redemptions of the Old
Notes. Products Corporation from Holdings
underdelivered a redemption notice to the Financing Reimbursement Agreement (see "Certain Relationshipsholders of the
Senior Subordinated Notes for the redemption of the Senior Subordinated Notes
on March 4, 1998, at which time Products Corporation consummated the 8 5/8%
Notes Assumption, and Related Transactions"to the holders of the Senior Notes for the redemption of
the Senior Notes on April 1, 1998, at which time Products Corporation will
consummate the 8 1/8% Notes Assumption. On or before March 19, 1998 either
Revlon Escrow or Products Corporation is required to file a registration
statement with the Commission with respect to the Exchange Offer, which is
expected to occur on or before July 2, 1998. In connection with the early
redemptions of the Old Notes, the Company expects to record an extraordinary
loss of up to $52 in 1998. The indentures governing the 8 5/8% Notes (the "8
5/8% Notes Indenture") was offset against an $11.7 demand note payableand the 8 1/8% Notes (the "8 1/8% Notes Indenture" and,
together with the 8 5/8% Notes Indenture, the "Notes Indentures") contain
covenants that, after the Assumption among other things, limit (i) the issuance
of additional debt and redeemable stock by Products Corporation, (ii) the
incurrence of liens, (iii) the issuance of debt and preferred stock by Products
Corporation's subsidiaries, (iv) the payment of dividends on capital stock of
Products Corporation, (v) the sale of assets and subsidiary stock, (vi)
transactions with affiliates, (vii) consolidations, mergers and transfers of
all or substantially all Products Corporation assets and (viii) in the case of
the 8 5/8% Notes Indenture, the issuance of additional subordinated debt that
is senior in right of payment to Holdings.the 8 5/8% Notes. The Notes Indentures also
prohibit certain restrictions on distributions from Products Corporation and
subsidiaries of Products Corporation. All of these limitations and
prohibitions, however, are subject to a number of important qualifications.
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 Credit Agreement and the Senior Notes, the
1999 Notes and the Senior Subordinated Notes currently contain, and, following
the Assumption, the Notes will contain, certain provisions that by their terms
limit Products Corporation's and/or its subsidiaries' ability to, among other
things, incur additional debt. The Company's principal uses of funds are
expected to be the payment of operating expenses, working capital and capital
expenditure requirements and debt service payments.
The Company estimates that capital expenditures for 19971998 will be
approximately $60,$65, 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
20
sharing agreement (see "Certain Relationships and
Related Party Transactions -
TaxTransactions-Tax Sharing Agreement"), Products Corporation may be
required to make tax sharing payments to Revlon, Inc., (which in turn may be
required to make suchtax sharing payments to Mafco Holdings Inc.,) as if Products
Corporation were filing separate income tax returns, except that no payments
are required by Products Corporation (or Revlon, Inc.) if and to the extent
that Products Corporation is prohibited under the Credit Agreement from making
tax sharing payments to Revlon, Inc. The Credit Agreement prohibits Products
Corporation from making any cash tax sharing payments other than in respect of state
and local income taxes. Products Corporation currently anticipates that, as a
result of net operating tax losses and prohibitions under the Credit Agreement,
no cash federal tax payments or cash payments in lieu of taxes pursuant to the
tax sharing agreement will be required for 1997.1998.
As of December 31, 1996,1997, 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)LIBOR 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
22
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 considersconsidered to be held for other than trading purposes, on December
31, 1997 and 1996, a loss of approximately $0.1 and $3.5, respectively, 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$14.0 and 1995 was approximately $3.2 in each of the years. The remaining unamortized
gain, which is beingwere amortized over the original lives of the agreements
isthrough 1997. The amortization of the 1993 realized gain in 1997, 1996, and
1995 was approximately $3.1, as of December 31, 1996. Although cash$3.2 and $3.2, respectively. Cash flow from the
presentlyagreements outstanding agreementsat December 31, 1997 was positiveapproximately break even 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,1997. Products Corporation expects to have a positive cash flow of $0.6 fromterminated these agreements in 1997, although no assurances canJanuary 1998 and
realized a gain of approximately $1.6, which will be given. In the event of
nonperformance by the counterparties at any time during the remaining livesrecognized upon repayment
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.hedged indebtedness.
Products Corporation enters into forward foreign exchange contracts
and option contracts from time to time to hedge certain cash flows denominated
in foreign currencies. At December 31, 1997 and 1996, Products Corporation had
forward foreign exchange contracts denominated in various currencies predominantly the U.K.
pound, of
approximately $90.1 and $62.0, (U.S. dollar equivalent).respectively, and option contracts of
approximately $94.9 outstanding at December 31, 1997. Such contracts are
entered into to hedge transactions predominantly occurring within twelve
months. If Products Corporation had terminated these contracts on December 31,
1997 and 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.
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.
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
or seeking capital contributions or loans from Revlon, Inc. or affiliates of
the Company. There can be no assurance that any of such actions could be
effected, that they would enable the Company to continue to satisfy its capital
requirements or that they would be permitted under the terms of the Company's
various debt instruments then in effect. The terms of the Credit Agreement, the
Senior Subordinated Notes, the 1999 Senior
Notes and the Senior Notes generally
restrict and, after the Assumption, the terms of the Notes generally will
restrict, Products Corporation from paying dividends or making distributions,
except that Products Corporation is permitted to pay dividends and make
distributions to Revlon, Inc., among other things, to enable Revlon, Inc. to
pay expenses incidental to being a public holding company, including, among
other things, professional fees such as legal and accounting, regulatory fees
such as 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 Revlon, Inc. of its Class A
Common Stock in connection with the delivery of such Class A Common Stock to
grantees under the Revlon, Inc. Amended and Restated 1996 Stock Plan. However, there can be no assurancePlan, provided
that cash flow from operationsthe aggregate amount of such dividends and funds from existing credit facilities and refinancingdistributions taken together
with any purchases of existing
indebtedness will be sufficientRevlon, Inc. common stock on the open market to meetsatisfy
matching obligations under the Company's cash requirements on a
consolidated basis.
21excess savings plan may not exceed $6.0 per
annum.
23
FORWARD-LOOKING STATEMENTS
This annual report on Form 10-K for the year ended December 31, 19961997
as well as other public documents of the Company containscontain 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 expectationexpectations and
estimates as to introduction of new products and expansion into markets, future
financial performance, including growth in net sales and earnings and the
effect on sales of inventory balancing and consolidation in the chain drugstore
industry in the U.S., cash flows from operations, improved results from
business consolidations, information system upgrades and globalization of the
Company's manufacturing operations, capital expenditures, and the availability of
funds from currently available credit facilities and refinancings of
indebtedness.indebtedness, capital contributions or loans from Revlon, Inc. or affiliates of
the Company, the sale of assets, and the cost and timely implementation of the
Company's Year 2000 compliance modifications. Readers are urged to consider
that statements which use the terms "believes," "does not believe," "no reason
to believe," "expects," "plans," "intends," "estimates," "anticipated""anticipated,"
"anticipates" and similar expressions, as they relate to the Company or "anticipates"the
Company's management, are intended to be uncertainidentify forward-looking statements. Such
statements reflect the current views of the Company with respect to future
events and forward-looking.are subject to certain risks, uncertainties and assumptions. 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 into certain markets and development of
new markets; (iv) unanticipated costs or difficulties or delays in completing
projects associated with the Company's strategy to improve operating
efficiencies, including information system upgrades;upgrades, and to globalize its
manufacturing operations; (v) the inability to refinance indebtedness, secure
capital contributions or loans from Revlon, Inc. or affiliates of the Company
or sell assets; (vi) 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)(vii) actions by competitors, including business
combinations, technological breakthroughs, new product offerings and marketing
and promotional successes; and (vii)(viii) combinations among significant customers or
the loss, insolvency or failure to pay its debts by a significant customer or
customers.customers; (ix) difficulties or delays in realizing improved results from
business consolidations; (x) lower than expected sales as a result of inventory
balancing and consolidation in the chain drugstore industry in the U.S.; and
(xi) unanticipated costs or difficulties or delays in implementing the
Company's Year 2000 compliance modifications. The Company assumes no
responsibility to update forward-looking information contained herein.
Effect of New Accounting Standard
In June 1997, the Financial Accounting Standards Board issued SFAS 130
"Reporting Comprehensive Income," which establishes standards for reporting and
displaying comprehensive income and its components in a full set of
general-purpose financial statements. The Company will adopt SFAS 130 in fiscal
1998.
24
INFLATION
In general, costs are affected by inflation and the effects of
inflation may be experienced by the Company in future periods. Management
believes, however, that such effects have not been material to the Company
during the past three years in the United States or foreign
non-hyperinflationary countries. The Company operates in certain countries
around the world, such as Brazil, Venezuela and Mexico, that have experienced
hyperinflation in the past three years. This hyperinflation has had a material effect on theThe Company's results of operations in Brazil and may,were
accounted for as operating in a hyperinflationary economy until June 30, 1997.
Effective July 1, 1997 Brazil was considered a non-hyperinflationary economy.
The impact of accounting for Brazil as a non-hyperinflationary economy was not
material to the future, haveCompany's operating results. Effective January 1997, Mexico was
considered a material effect on results of operations in Mexico.hyperinflationary economy for accounting purposes. 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.
2225
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 Products Corporation. 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
George Fellows President, Chief Executive Officer 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 and Director
Frank J. Gehrmann Executive Vice President and Chief Financial Officer
Wade H. Nichols III Executive Vice President and Director
Carlos Colomer ExecutiveGeneral Counsel
M. Katherine Dwyer Senior 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
Irwin Engelman Director
Howard Gittis Director
Edward J. Landau Director
The name, age, principal occupation for the last five years and
selected biographical information for each of the directorsDirectors and for the executive
officers of the CompanyProducts Corporation are set forth below. Information is as of
February 13, 1997.1998.
Mr. Perelman (54)(55) has been Chairman of the Executive Committee of the
Board of Products Corporation and of Revlon, Inc. since November 1995, and a
Director of Products Corporation and of Revlon, Inc. since their respective
formations in 1992. Mr. Perelman was Chairman of the Board of Products
Corporation and of Revlon, Inc. from their respective formations in 1992 tountil
November 1995. Mr. Perelman has been Chairman of the Board and Chief Executive
Officer of Mafco Holdings Inc. ("Mafco Holdings") and MacAndrews & ForbesHoldings and
various of its affiliates for more than the past five years. Mr. Perelman also
is Chairman of the BoardExecutive Committees of Andrews Group
Incorporatedthe Boards of The Coleman Company,
Inc. ("Andrews Group"Coleman"), Consolidated Cigar Holdings Inc. ("Cigar Holdings Inc."), Mafco Consolidated Group Inc. ("Mafco Consolidated"), Meridian
Sports Incorporated ("Meridian"), Power Control Technologies, Inc. ("PCT"Holdings") and Toy Biz, Inc.M&F
Worldwide Corp. ("Toy Biz"M&F Worldwide") and Chairman of the Executive Committee of the Board of Marvel Entertainment Group, Inc.Meridian Sports
Incorporated ("Marvel"Meridian"). 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"), ColemanCigar Holdings, CLN Holdings Inc. ("Coleman Holdings"CLN"), Coleman,
Coleman Worldwide Corporation ("Coleman Worldwide"), Cigar Holdings, Consolidated Cigar
Corporation ("Consolidated Cigar"), First Nationwide Holdings Inc. ("FN
Holdings"), First Nationwide (Parent) Holdings Inc. ("First Nationwide Parent"),
First Nationwide HoldingsM&F Worldwide, Meridian, Revlon, Inc. and REV Holdings. (On December 27, 1996,
Marvel Entertainment Group, Inc. ("FN Holdings"Marvel"),
Mafco Consolidated, Marvel, Marvel Holdings Inc. ("Marvel
Holdings"), Marvel (Parent) Holdings Inc. ("Marvel Parent"), and Marvel III
Holdings Inc. ("Marvel III"), Meridian, PCT, Pneumo Abex Corporation ("Pneumo Abex"), Revlon, Inc.,
Revlon Worldwide and Toy Biz. On December 27, 1996, Marvel Holdings, Marvel
Parent, Marvel III and Marvelof which
26
Mr. Perelman was a Director on such date, and several subsidiaries of its subsidiariesMarvel
filed voluntary petitions for reorganization under Chapter 11 of the United
States Bankruptcy Code.
23
)
Mr. Fellows (55) has been President and Chief Executive Officer of
Products Corporation and of Revlon, Inc. since January 1997. He was President
and Chief Operating Officer of Products Corporation and of Revlon, Inc. from
November 1995 until January 1997, and has been a Director of Products
Corporation since September 1994 and a Director of Revlon, Inc. since November
1995. Mr. Fellows was Senior Executive Vice President of Products Corporation
and of Revlon, Inc. and President and Chief Operating Officer of Products
Corporation's Consumer Group from February 1993 until 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. Mr. Fellows is a
Director of Cosmetic Center, Revlon, Inc. and VF Corporation, each of which
files reports pursuant to the Exchange Act.
Mr. Levin (52)(53) has been Chairman of the Board of Products Corporation
and of Revlon, Inc. since November 1995 and a Director of Products Corporation
and of Revlon, Inc. since their respective formations in 1992. Mr. Levin was
Chief Executive Officer of Products Corporation and of Revlon, Inc. from their
respective formations in 1992 to January 1997 and President of Products
Corporation and of Revlon, Inc. 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 of the Board and Acting Chief
Executive Officer of Coleman since February 1997 and has been Chairman of the
Board of Cosmetic Center since April 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, Cosmetic
Center, Ecolab, Inc., First Bank System,U.S. Bancorp, Inc., Meridian and Revlon, Inc.
Mr. Fox (41) was appointed President, Strategic and Corporate
Development, Revlon Worldwide.
Mr. Fellows (54) has been President and Chief Executive OfficerWorldwide, of Products Corporation and of Revlon, Inc. since January 1997. He was President
and
Chief OperatingExecutive Officer, of Products Corporation and Revlon Inc. from
November 1995 untilTechnologies in January 1997, and1998. He has been a Director of Products
Corporation since 1994 and a Director of Revlon, Inc. since November 1995 . Mr.
Fellows was
Senior Executive Vice President of Products Corporation and of Revlon, Inc.
and President and Chief Operating Officer of the Company's
Consumer Group from February 1993 to November 1995. From 1989 throughsince 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.1997. Mr. Fox (40) has been Senior Executive Vice President andwas Chief Financial Officer of Products Corporation
and of Revlon, Inc. sincefrom their respective formations in 1992 until January 19971998
and was also Executive Vice President and Chief Financial Officer of Products Corporation and of Revlon,
Inc. from their respective formations in 1992 until January 1997. Mr. Fox was
elected as a Director of Products Corporation in September 1994 and of Revlon,
Inc. in November 1995 . 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 1987.1995. 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 Vice Chairman of the Board and a Director of Cosmetic
Center, and a Director of The Hain Food Group, Inc. and Revlon, Inc., each of
which files reports pursuant to the Exchange Act.
Mr. Colomer (52) hasGehrmann (43) was elected as Executive Vice President and Chief
Financial Officer of Products Corporation and of Revlon, Inc. in January 1998.
From January 1997 until January 1998 he had been Executive Vice President of Products
Corporation and of Revlon, Inc. since August 1993. Prior to August 1993,January 1997 he served in various
appointed senior executive positions for Products Corporation and Revlon, Inc.,
including Executive Vice President and Chief Financial Officer of Products
Corporation's Operating Groups from August 1996 to January 1998, Executive Vice
President and Chief Financial Officer of Products Corporation's Worldwide
Consumer Products business from January 1995 to August 1996, and Executive Vice
President and Chief Financial Officer of Products Corporation's Revlon North
America unit from September 1993 to January 1994. From 1983 through September
1993, Mr. Gehrmann held positions of increasing responsibility in the financial
organizations of Mennen Corporation and the Colgate-Palmolive Company, which
acquired Mennen Corporation in 1992. Prior to 1983, Mr. Gehrmann served as a
certified public accountant at the international accounting firm of Ernst &
Young.
Mr. Nichols (55) has been Executive Vice President and General Counsel
of Products Corporation and of Revlon, Inc. since January 1998 and served as
Senior Vice President and General Counsel of Products Corporation and of
Revlon, Inc. from their respective formations in 1992 until January 1998. Mr.
Nichols has been Vice
27
President of MacAndrews Holdings since 1988. Mr. Nichols is a Director of
Cosmetic Center, which files reports pursuant to the Exchange Act.
Ms. Dwyer (48) was appointed President of Products Corporation's
United States Consumer Products business in January 1998. Ms Dwyer was elected
Senior Vice President of Products Corporation and of Revlon, Inc. in December
1996. Prior to December 1996 she served in various appointed senior executive
positions for Products Corporation and Revlon, Inc., including President of
Products Corporation's United States Cosmetics unit from November 1995 to
December 1996 and Executive Vice President and General Manager of various of Products
Corporation's Mass Cosmetics unit from June 1993 to November 1995. From 1991 to
1993, Ms. Dwyer was Vice President, Marketing, of Clairol, a division of
Bristol-Myers Squibb Company. Prior to 1991, she served in various senior
positions for Victoria Creations, Avon Products Inc., Cosmair, Inc. and Holdings' international subsidiaries. Mr. Colomer joined Holdings in 1979
when Henry Colomer, S.A.The
Gillette Company. Ms. Dwyer is a Director of WestPoint Stevens Inc. and, as of
February 24, 1998, Reebok International Ltd., each of which files reports
pursuant to 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.Exchange Act.
Mr. Dunbar (59)(60) has been Senior Vice President, Human Resources of
Products Corporation and of Revlon, Inc. 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 New York City 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.
Ms. Dwyer (47) was elected as Senior Vice President of Products
Corporation and of Revlon, Inc. in November 1996. Prior to that she served in
various appointed officer positions for Products Corporation and for Revlon,
Inc., 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.
24
Mr. Nichols (54) has been Senior Vice President and General Counsel of
Products Corporation and of Revlon, Inc. 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)(49) has been a Director of Products Corporation and of
Revlon, Inc. since their respective formations in 1992 and of Holdings since
January 1992. He has been Vice
Chairman of the Board 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,BlackRock Asset Investors,
Cardio Technologies, Inc., Coleman, Coleman Holdings, Coleman Worldwide, Cigar Holdings,
Consolidated Cigar,Cosmetic Center, Genta,
Inc., Playboy Enterprises, Inc., Revlon, Inc., VIMRx Pharmaceuticals Inc. and
Weider Nutrition International, Inc. (On December 27, 1996, Marvel, Marvel
Holdings, Marvel Parent and Marvel III, Revlon,
Inc., Revlon Worldwide, Toy Biz, and VIMRx Pharmaceuticals Inc. On December 27,
1996, Marvel Holdings, Marvel Parent, Marvel III and Marvelof which Mr. Drapkin was a Director on
such date, and several subsidiaries of its
subsidiariesMarvel filed voluntary petitions for
reorganization under Chapter 11 of the United States Bankruptcy Code.)
Mr. Engelman (62)(63) has been a Director of Products Corporation since
1993. Mr. Engelman has been Executive Vice President, Chief Financial Officer
and Director of MacAndrews Holdings and various of its affiliates since 1992.
He was Executive Vice President, Chief Financial Officer and Director of GAF
Corporation from 1990 to 1992, Director, President and Chief Operating Officer
of Citytrust Bancorp Inc. from 1988 to 1990, Executive Vice President of the
Blackstone Group LP from 1987 to 1988 and Director, Executive Vice President
and Chief Financial Officer of General Foods Corporation for more than five
years prior to 1987. Mr. Engelman is a Director of Cal Fed, which files reports
pursuant to the Exchange Act.
Mr. Gittis (62)(63) has been a Director of Products Corporation and of
Revlon, Inc. since their respective formations in 1992 and of Holdings since
1985.1992. He has been Vice
Chairman of the Board 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, CLN, Cigar Holdings,
Consolidated Cigar, FN Holdings, First Nationwide Parent, Mafco Consolidated, PCT, Pneumo Abex, Revlon, Inc., Revlon Worldwide,FN Holdings, Jones Apparel Group,
Inc., Loral Space & Communications Ltd., M&F Worldwide, Revlon, Inc., REV
Holdings and Rutherford-Moran Oil Corporation.
Mr. Landau (67)(68) has been a Director of Products Corporation since June
1992 and a Director of Revlon, Inc. since June 1996. Mr. Landau has been a
Senior Partner in the New York law firm of Wolf, Block, Schorr and Solis-Cohen LLP
(previously Lowenthal, Landau, Fischer & Bring, P.C.) for more than the past
five years. Mr. Landau was a director of Holdings
from 1989 until April 1993. Mr. Landau is a directorDirector of Offitbank Investment Fund, Inc. and
Revlon, Inc., each of which filefiles reports pursuant to the Exchange Act.
BOARD28
COMPENSATION OF DIRECTORS
AND ITS COMMITTEES
Products Corporation has established an Executive Committee consisting
of Messrs. Perelman, Gittis and Levin and an Audit Committee comprised of
Messrs. Landau and Engelman. The Executive Committee may exercise allDirectors who currently are not receiving compensation as officers or
employees of the powersCompany or any of its affiliates are paid an annual retainer
fee of $25,000, payable in quarterly installments, and authoritya fee of $1,000 for each
meeting of the Board except as otherwise provided under Delaware
General Corporation Law.
25of Directors or any committee thereof they attend.
29
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth information for the years indicated
concerning the compensation awarded to, earned by or paid to the persons who
served as Chief Executive Officer of Products Corporation during 1997 and the
four most highly paid executive officers, other than the Chief Executive
Officer, who served as executive officers of Products Corporation as of
December 31, 1996,1997 (collectively, the "Named Executive Officers"), for services
rendered in all capacities to Products Corporation and its subsidiaries during
such periods.
SUMMARY COMPENSATION TABLE
- --------------------------------------------------------------------------------------------------------------------------
LONG-
TERM
COMPEN-
ANNUAL COMPENSATION (a) SATION
-----------------------------------------LONG-TERM
COMPENSATION
-------------- ------------- -----------
AWARDS
------------------
OTHER ----------
ANNUAL SECURITIES ALL OTHER
COMPEN- UNDER- COMPEN-
NAME AND SALARY BONUS SATION LYING SATION
PRINCIPAL POSITION YEAR ($) ($) ($) OPTIONS ($)
- --------------------------------------------------------------------------------------------------------------------------------------------------------------- ---------- -------------- ------------- ----------- ------------------ -------------
George Fellows 1997 1,250,000 1,250,000 22,191 170,000 30,917
President and Chief Executive 1996 1,025,000 870,000 15,242 120,000 4,500
Officer (b) 1995 841,667 531,700 68,559 0 4,500
- ----------------------------------- ---------- -------------- ------------- ----------- ------------------ -------------
Jerry W. Levin (b)1997 825,000 0 20,811 170,000 160,871
Chairman of the Board (c) 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 1995 841,667 531,700 68,559 0 4,500
Executive Officer 1994 745,833 449,200 11,625 0 104,500
- --------------------------------------------------------------------------------------------------------------------------------------------------------------- ---------- -------------- ------------- ----------- ------------------ -------------
William J. Fox (d)1997 825,000 772,300 55,159 50,000 71,590
Senior Executive Vice President 1996 750,000 598,600 50,143 50,000 56,290
Senior Executive Viceand Chief Financial Officer (d) 1995 660,000 455,000 54,731 0 56,290
President and Chief 1994 601,333 329,900 59,143 0 56,290
Financial Officer
- ----------------------------------------------------------------------------------------------------------------------------
Carlos Colomer 1996 700,000 192,600 ------- 37,000----------------------------------- ---------- Executive Vice President 1995 600,000 135,200 ------- 0 ----------
1994 550,000 280,200 ------- 0 ----------
- ------------------------------------------------------------------------------------------------------------------------------------------ ------------- ----------- ------------------ -------------
M. Katherine Dwyer 1997 500,000 800,000 5,948 125,000 18,377
Senior Vice President (e) 1996 500,000 326,100 90,029 45,000 4,500
Senior- ----------------------------------- ---------- -------------- ------------- ----------- ------------------ -------------
Carlos Colomer 1997 700,000 330,700 0 37,000 62,645
Executive Vice President (f) 1996 700,000 192,600 0 37,000 3,062
1995 600,000 135,200 0 0 0
- --------------------------------------------------------------------------------------------------------------------------------------------------------------- ---------- -------------- ------------- ----------- ------------------ -------------
(a) The amounts shown in Annual Compensation for 1997, 1996 1995 and 19941995
reflect salary, and bonus and other annual compensation awarded to, earned
by or paid to the persons listed for services rendered to Products
Corporation and its subsidiaries. Products CorporationThe Company has a bonus plan (the
"Executive Bonus Plan") in which executives participate (including the
Chief Executive Officer and the other Named Executive Officers). The
Executive Bonus Plan provides for payment of cash compensation upon
the achievement of predetermined individualcorporate and/or business unit and
corporateindividual performance goals during the calendar year (withestablished
pursuant to the opportunity for higher awards based upon overachievement of such goals
but in no event higher than 100%).Executive Bonus Plan or by the Compensation Committee.
(b) Mr. Levin wasFellows became Chief Executive Officer of the Company during 1994, 1995Products Corporation and
1996.of Revlon, Inc. in January 1997. The amount shown for Mr. LevinFellows
under Other Annual Compensation for 1996 includes $26,400 in respect of personal use of a
Company-provided automobile and payments in respect of gross ups for
taxes on imputed income arising out of personal use of a
Company-provided automobile and for taxes on imputed income arising
out of premiums paid or reimbursed by the Company in respect of life
insurance. The amount shown for Mr. Levin under All Other
26
Compensation for 1996 reflects $302,713 in respect of life
insurance premiums and $4,500 in respect of matching contributions
under the Revlon Employees' Savings and Investment Plan (the "401(k)
Plan"). The amount shown for Mr. Levin under Other Annual Compensation
for 19951997 reflects payments in respect
of gross ups for taxes on imputed income arising out of personal use
of a Company-provided automobile and for taxes on imputed income
arising out of premiums paid or reimbursed by the Company
30
in respect of life insurance. The amount shown for Mr. LevinFellows under
All Other Compensation for 19951997 reflects $303,502$11,117 in respect of life
insurance premiums, and $4,500$4,800 in respect of matching contributions under
the 401(k) Plan. The amount
shown for Mr. Levin under Other Annual Compensation for 1994 reflects
paymentsRevlon Employees' Savings, Profit Sharing and Investment Plan
(the "401(k) Plan") and $15,000 in respect of gross ups for taxes on imputed income arising
out of personal use of a Company-provided automobile and for taxes on
imputed income arising out of premiums paid or reimbursed by the
Company in respect of life insurance. The amounts shown for Mr. Levin
under All Other Compensation for 1994 reflect payments in respect of
life insurance premiums and certain relocation expenses and matching contributions
under the 401(k) Plan. In connection with such
relocation, the Company purchasedRevlon Excess Savings Plan for face value a $525,000 purchase
money note made by the purchaser of Mr. Levin's home secured by a
mortgage on such home.
(c) Mr. Fellows became Chief Executive Officer of Products Corporation and
Revlon, Inc. in January 1997.Key Employees (the "Excess
Plan"). The amount shown for Mr. Fellows under Other Annual
Compensation for 1996 reflects payments in respect of gross ups for
taxes on imputed income arising out of personal use of a
Company-provided automobile and for taxes on imputed income arising
out of premiums paid or reimbursed by the Company in respect of life
insurance. The amount shown for Mr. Fellows under All Other
Compensation for 1996 reflects matching contributions under the
401(k) Plan. The amount shown for Mr. Fellows under Other Annual
Compensation for 1995 includes $43,251 in respect of membership fees
and related expenses for personal use of a health and country club
and $9,458 in respect of gross ups for taxes on imputed income
arising out of personal use of a Company-provided automobile. The
amount shown for Mr. Fellows under All Other Compensation for 1995
reflects matching contributions under the 401(k) Plan.
(c) Mr. Levin was Chief Executive Officer of Products Corporation and of
Revlon, Inc. during 1995, 1996 and January 1997 and Chairman of the
Board during the remainder of 1997. The amount shown for Mr. FellowsLevin
under Other Annual Compensation for 19941997 reflects payments in respect
of gross ups for taxes on imputed income arising out of personal use
of a Company-provided automobile. The amountsamount shown for Mr. FellowsLevin under
All Other Compensation for 1994 reflect1997 reflects $150,971 in respect of
split-dollar life insurance premiums (under which the Company is
entitled to reimbursement of such premiums or the cash surrender value
of such insurance, whichever is less), $2,400 in respect of matching
contributions under the 401(k) Plan and reimbursement$7,500 in respect of matching
contributions under the Excess Plan. The amount shown for long-term compensationMr. Levin
under Other Annual Compensation for 1996 includes $26,400 in respect
of personal use of a Company-provided automobile, payments in respect
of gross ups for taxes on imputed income arising out of personal use
of such Company-provided automobile and other
benefitspayments for taxes on imputed
income arising out of premiums paid or reimbursed by the Company in
respect of life insurance. The amount shown for Mr. Levin under plansAll
Other Compensation for 1996 reflects $302,713 in respect of his prior employer, whichlife
insurance premiums and $4,500 in respect of matching contributions
under the 401(k) Plan. The amount shown for Mr. Fellows
forfeitedLevin under Other
Annual Compensation for 1995 reflects payments in respect of gross ups
for taxes on imputed income arising out of personal use of a
Company-provided automobile and for taxes on imputed income arising
out of premiums paid or reimbursed by accepting employment with Products Corporation.the Company in respect of life
insurance. The amount shown for Mr. Levin under All Other Compensation
for 1995 reflects $303,502 in respect of life insurance premiums and
$4,500 in respect of matching contributions under the 401(k) Plan.
(d) Mr. Fox became Senior Executive Vice President of Products Corporation
and of Revlon, Inc. in January 1997. Mr. Fox served as Chief Financial
Officer of Products Corporation and of Revlon, Inc. during 1995, 1996
and 1997. In January 1998 Mr. Fox was appointed President, Strategic
and Corporate Development, Revlon Worldwide, and Mr. Gehrmann was
elected Chief Financial Officer of Products Corporation and of Revlon,
Inc. The amount shown for Mr. Fox under Bonus for 1997 includes an
additional payment of $125,000 based upon Mr. Fox's performance. The
amount shown for Mr. Fox under Other Annual Compensation for 1997
reflects payments in respect of gross ups for taxes on imputed income
arising out of personal use of a Company-provided automobile and
payments for taxes on imputed income arising out of premiums paid or
reimbursed by the Company in respect of life insurance. The amount
shown for Mr. Fox under All Other Compensation for 1997 reflects
$51,790 in respect of life insurance premiums, $4,800 in respect of
matching contributions under the 401(k) Plan and $15,000 in respect of
matching contributions under the Excess Plan. The amount shown for Mr.
Fox under Other Annual Compensation for 1996 reflects payments in
respect of gross ups for taxes on imputed income arising out of
personal use of a Company-provided automobile and for taxes on imputed
income arising out of premiums paid or reimbursed by the Company in
respect of life insurance. The amount shown for Mr. Fox under All
Other Compensation for 1996 reflects $51,790 in respect of life
insurance premiums and $4,500 in respect of matching contributions
under the 401(k) Plan. The amount shown for Mr. Fox under Other Annual
Compensation for 1995 reflects payments in respect of gross ups for
taxes on imputed income arising out of personal use of a Company-providedCompany-
provided automobile and for taxes on imputed income arising out of
premiums paid or reimbursed by the Company in respect of life
insurance. The amount shown for Mr. Fox
31
under All Other Compensation for 1995 reflects $51,790 in respect of
life insurance premiums and $4,500 in respect of matching
contributions under the 401(k) Plan.
(e) Ms. Dwyer became an executive officer of Products Corporation and of
Revlon, Inc. in December 1996. The amount shown for Mr. FoxMs. Dwyer under
Bonus for 1997 includes an additional payment of $300,000 pursuant to
her employment agreement. The amount shown for Ms. Dwyer under Other
Annual Compensation for 19941997 reflects payments in respect of gross ups
for taxes on imputed income arising out of personal use of a
Company-provided automobile and payments for taxes on imputed income
arising out of premiums paid or reimbursed by the Company in respect
of life insurance for Mr. Fox.insurance. The amountsamount shown for Mr. FoxMs. Dwyer under All Other
Compensation for 1994 reflect payments1997 reflects $4,800 in respect of matching
contributions under the 401(k) Plan, $10,857 in respect of matching
contributions under the Excess Plan and $2,720 in respect of life
insurance premiums and matching contributions under the 401(k) Plan.
(e) Ms. Dwyer became an executive officer of Products Corporation and of
Revlon, Inc. in November 1996.premiums. The amount shown for Ms. Dwyer under Other Annual
Compensation for 1996 reflects $57,264 in expense reimbursements and
payments in respect of gross ups for taxes on imputed income arising
out of personal use of a Company-provided automobile. The amount shown
for Ms. Dwyer under All Other Compensation for 1996 reflects matching
contributions under the 401(k) Plan.
27(f) Mr. Colomer was an executive officer of Products Corporation and of
Revlon, Inc. during 1995, 1996 and 1997. The amount shown for Mr.
Colomer under Bonus for 1997 includes $148,815 which is being deferred
at Mr. Colomer's election. The amount shown for Mr. Colomer under All
Other Compensation for 1997 reflects $59,583 in respect of an
expatriate travel and hardship allowance and $3,062 in respect of life
insurance premiums. The amount shown for Mr. Colomer under All Other
Compensation for 1996 reflects life insurance premiums.
32
OPTION GRANTS IN THE LAST FISCAL YEAR
During 1996,1997, the following grants of stock options were made
pursuant to the Revlon, Inc. Amended and Restated 1996 Stock Plan (the "Stock
Plan") to the executive officers named in the Summary Compensation Table:
GRANT DATE
VALUE
INDIVIDUAL GRANTS (A)
- ------------------------------------------------------------------------------------------------------------------
Grant
Date
Value
Individual Grants (a) (b)------------------------------- ------------------- ------------------- ---------------- ------------------ --------------------
NUMBER OF
SECURITIES PERCENT OF
UNDERLYING TOTAL OPTIONS EXERCISE OR GRANT DATE PRESENT
OPTIONS GRANTED GRANTED BASE PRICE EXPIRATION VALUE
NAME (#) TO EMPLOYEES IN ($/SH) DATE $
FISCAL YEAR
- ------------------------------------------------------------------------------------------------------------------
Percent
of Total
Number Options
of Granted
Securities To Exercise
Underlying Employees Of Base Grant Date
Option In Fiscal Price Expiration Present
Name Granted (#) Year ($/Sh) Date Value $
- ------------------------------------------------------------------------------------------------------------------------------------------------- ------------------- ------------------- ---------------- ------------------ --------------------
Jerry W. Levin
Chairman (c) 170,000 17% 24.00 2/28/06 1,885,079
- ------------------------------------------------------------------------------------------------------------------
George Fellows
President and Chief 120,000 12% 24.00 2/28/06 1,330,644
Executive
Officer (c)(b) 170,000 11% $31.375 1/08/07 $2,703,255
- ------------------------------------------------------------------------------------------------------------------------------------------------- ------------------- ------------------- ---------------- ------------------ --------------------
Jerry W. Levin
Chairman of the Board (b) 170,000 11% $31.375 1/08/07 $2,703,255
- ------------------------------- ------------------- ------------------- ---------------- ------------------ --------------------
William J. Fox
Senior Executive Vice
President and Chief 50,000 5% 24.00 2/28/06 554,435
Financial
Officer (c)(b) 50,000 3% $31.375 1/08/07 $795,075
- ------------------------------------------------------------------------------------------------------------------------------------------------- ------------------- ------------------- ---------------- ------------------ --------------------
M. Katherine Dwyer
Senior Vice President (b) 125,000 8% $31.375 1/08/07 $1,987,688
- ------------------------------- ------------------- ------------------- ---------------- ------------------ --------------------
Carlos Colomer
Executive Vice President 37,000 4% 24.00 2/28/06 410,2822% $31.375 1/08/07 $588,356
- ------------------------------------------------------------------------------------------------------------------
M. Katherine Dwyer
Senior Vice President 45,000 5% 24.00 2/28/06 498,992
- ------------------------------------------------------------------------------------------------------------------------------------------------- ------------------- ------------------- ---------------- ------------------ --------------------
(a) Prior to the consummation of the Offering, the Board of Directors
of Revlon, Inc.The grants made initial grantsduring 1997 under the Stock Plan to Messrs. Fellows,
Levin, Fox and Colomer and Ms. Dwyer were made on January 9, 1997 and consist
of non-qualified options having a term of 10 years to purchase shares of Class A Common Stock at
an exercise price equal toyears. The options vest 25% each
year beginning on the initial public offering price. The grants to
Messrs. Levin, Fellows, Fox and Colomer and Ms. Dwyer will not vest as to any
portion until the thirdfirst anniversary of the grant date and will thereupon become 100%
vested except that upon terminationon the fourth anniversary of employment by the Company other
than for "cause", death or "disability" undergrant date and have an exercise price
equal to the applicable employment
agreement, such optionsNew York Stock Exchange ("NYSE") closing price per share of
Revlon, Inc.'s Class A Common Stock on the grant date, as indicated in the
table above. During 1997, Revlon, Inc. also granted an option to purchase
300,000 shares of its Class A Common Stock pursuant to the Stock Plan to Mr.
Perelman, Chairman of the Executive Committee. The option will vest with respect to 50%in full on
the fifth anniversary of the shares subject
thereto (ifgrant date and has an exercise price of $34.875,
the termination is betweenNYSE closing price per share of Revlon, Inc.'s Class A Common Stock on
April 4, 1997, the second and third anniversariesdate of the grant).
(b)grant.
(a) Present values were calculated using the Black-Scholes option pricing
model. The model as applied used the grant date of February 29, 1996
and the exercise price per share specified in the table above was equal to the
fair market value per share of Common Stock on the date of grant.January 9, 1997.
The model also assumes (i) a risk-free rate of return of 5.99%6.41%, which
was the rate as of the grant date for the U.S. Treasury Zero Coupon
Bond issues with a remaining term similar to the expected term of the
option,options, (ii) stock price volatility of .3139.34% based upon the
peer group average,volatility of the stock price of Revlon, Inc.'s Class A Common Stock,
(iii) a constant dividend rate of zero percent and (iv) that the
options normally would be exercised on the final day of thetheir seventh
year after grant. No discount fromadjustments to the theoretical value was
takenwere made
to reflect the waiting period, if any, prior to vesting of the stock
options or the transferability (or restrictions on the transferrelated thereto) of
the stock options and the
likelihood that the stock options will be exercised in advance of the final day
of their term.
(c)options.
33
(b) Mr. LevinFellows served as Chief Executive OfficerPresident during 1996. Mr.
Fellows was electedall of 1997 and became Chief
Executive Officer in January 1997. Mr. Levin served as Chairman of
the Board during all of 1997 and as Chief Executive Officer during
January 1997. Mr. Fox was elected Senior Executive Viceappointed President, Strategic and
Corporate Development, Revlon Worldwide in January 1997.
28
1998. Ms. Dwyer
was appointed President of Products Corporation's United States
Consumer Products business in January 1998.
AGGREGATED OPTION EXERCISES IN LAST
FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
The following chart shows the number of stock options exercised during
19961997 and the 19961997 year-end value of the stock options held by the executive
officers named in the Summary Compensation Table:
- ---------------------------------------------------------------------------------------------------------------------------
Value of Unexercised
Number of Securities In-The-Money
Underlying Unexercised Options At Fiscal
Options At Fiscal Year-End ($)
Shares Value Year-EndNUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT FISCAL IN-THE-MONEY OPTIONS AT FISCAL
SHARES VALUE YEAR-END (#) Exercisable/
Acquired on Realized Exercisable/ Unexercisable
Name ExerciseYEAR-END EXERCISABLE/
ACQUIRED ON REALIZED EXERCISABLE/ UNEXERCISABLE (A)
NAME EXERCISE (#) ($) Unexercisable (a)UNEXERCISABLE ($)
- ---------------------------------------------------------------------------------------------------------------------------------------------------------- -------------- -------------- ------------------------------------- --------------------------------
Jerry W. Levin
Chairman (b) 0 0 0/170,000 0/998,750
- ---------------------------------------------------------------------------------------------------------------------------
George Fellows
President and
Chief Executive Officer 0 0 0/120,000290,000 0/705,000
(b)2,026,875
- ---------------------------------------------------------------------------------------------------------------------------------------------------------- -------------- -------------- ------------------------------------- --------------------------------
Jerry W. Levin
Chairman of the Board 0 0 0/340,000 0/2,592,500
- ------------------------------- -------------- -------------- ------------------------------------- --------------------------------
William J. Fox
Senior Executive Vice
President and
Chief Financial Officer 0 0 0/50,000100,000 0/293,750
(b)762,500
- ---------------------------------------------------------------------------------------------------------------------------
Carlos Colomer
Executive Vice President 0 0 0/37,000 0/217,375
- ---------------------------------------------------------------------------------------------------------------------------------------------------------- -------------- -------------- ------------------------------------- --------------------------------
M. Katherine Dwyer
Senior Vice President 0 0 0/45,000170,000 0/264,3751,001,250
- ---------------------------------------------------------------------------------------------------------------------------------------------------------- -------------- -------------- ------------------------------------- --------------------------------
Carlos Colomer
Executive Vice President 0 0 0/74,000 0/564,250
- ------------------------------- -------------- -------------- ------------------------------------- --------------------------------
(a) Amounts shown represent the market value of the underlying shares of
Revlon, Inc.'s Class A Common Stock at year-end calculated using the
December 31, 1996 New
York Stock Exchange (the "NYSE")1997 NYSE closing price per share of Class A Common Stock
of $29.875$35 5/16 minus the exercise price of the stock option. The actual
value, if any, an executive may realize is dependent upon the amount
by which the market price of shares of Revlon, Inc.'s Class A Common
Stock exceeds the exercise price per share when the stock options are
exercised. The actual value realized may be greater or less than the
value shown in the table.
(b) Mr. Levin served as Chief Executive Officer during 1996. Mr.
Fellows was elected Chief Executive Officer in January 1997. Mr. Fox was
elected Senior Executive Vice President in January 1997.
EMPLOYMENT AGREEMENTS AND TERMINATION OF EMPLOYMENT ARRANGEMENTS
Each of the Chief Executive Officer and the other Named Executive
Officers has entered into an Executive
Employment Agreementexecutive employment agreement with Products
Corporation (except in the case of Mr. Colomer, who has entered into an Executive Employment Agreementexecutive employment
agreement with a subsidiary of Products Corporation), which became effective
upon consummation of the Offering,Revlon IPO, providing for their continued employment.
Effective January 1, 1997, Mr. Fellows' employment agreement was amended to
provide that he will serve as the President and Chief Executive Officer of
Products Corporation and of Revlon, Inc. at a base salary of $1,250,000 for
1997; $1,350,000 for 1998; $1,450,000 for 1999; $1,550,000 for 2000 and
$1,700,000 for 2001 and thereafter, and that management recommend to Revlon,
Inc.'s Compensation Committee (the "Compensation Committee") that he be granted
options to purchase 170,000 shares of Class A Common Stock each year during the
term of the agreement. At any time after January 1, 2001, Products Corporation
may terminate the term of Mr. Fellows' agreement by 12 months' prior notice of
non-renewal. In connection with his assumption of management responsibility for
an affiliate, Mr. Levin and Products Corporation agreed to terminate his
employment agreement as of June 30, 1997, with Mr. Levin continuing as Chairman
of the
34
Board of Products Corporation and of Revlon, Inc. (the "Levin Amendment").
Pursuant to the Levin Amendment, Mr. Levin received a base salary of $825,000
for services provided to Products Corporation and Revlon, Inc. in 1997.
Effective January 1, 1998, Mr. Colomer's employment agreement was amended to
provide that he will serve as Chairman, Revlon Professional Worldwide Strategic
Committee and Chairman, Revlon Professional International at a base salary of
not less than $700,000 for 1998 and thereafter, and that management recommend
to the Compensation Committee that he be granted options to purchase 37,000
shares of Class A Common Stock each year during the term of the agreement. Mr.
Colomer's agreement further provides that at any time on or after the second
anniversary of the effective date of the relevant Executive
Employment Agreement,his agreement, Products Corporation may
terminate the term by 12 monthsmonths' prior notice of non-renewal. The agreements provideMr. Fox's
agreement provides for a base salary of not less than $1,500,000, $1,650,000$750,000 and $1,800,000that
management recommend to the Compensation Committee that Mr. Fox be granted
options to purchase 50,000 shares of Class A Common Stock each year during 1996, 1997the
term of the agreement, and further provides that at any time on or after the
second anniversary of the effective date of his agreement, Products Corporation
may terminate the term by 12 months' prior notice of non-renewal. Effective
January 1, 1998, Mr. Fox was appointed President, Strategic and thereafter, respectively, in the caseCorporate
Development, Revlon Worldwide, and Chief Executive Officer, Revlon
Technologies. Effective January 1, 1998, Ms. Dwyer's employment agreement was
amended to provide that she will serve as President of Mr. Levin, andProducts Corporation's
United States Consumer Products business at a base salary of $875,000 per annum
for 1998 to be increased as of January 1 of each year by not less than $1,000,000, $750,000, $700,000$75,000,
and $500,000 (orthat management recommend to the Compensation Committee that she be granted
options to purchase 75,000 shares of Class A Common Stock each year during the
term of the agreement. At any greater amount to which
such base salary amountstime on or after the fourth anniversary of the
effective date of her agreement, Products Corporation may be increased)terminate Ms. Dwyer's
agreement by 12 months' prior notice of non-renewal. All of the agreements
currently in the case of Messrs. Fellows, Fox
and Colomer and Ms. Dwyer, respectively,effect provide for participation in the Executive Bonus Plan,
continuation of life insurance and executive medical insurance coverage in the
event of permanent disability the provision of post-retirement life
insurance coverage in the amount of two times base salary in certain
circumstances, and participation in other executive benefit
plans on a basis equivalent to senior executives of the Company generally.
Pursuant to the Levin Amendment, Mr. Levin is entitled to continued disability
insurance and life insurance as well as certain other benefits. The
29
agreements
with Messrs. Fellows and Colomer and Ms. Dwyer provide for Company-paid
supplemental term life insurance during employment in the amount of three times
base salary, while the terms of the agreements with Messrs.Mr. Levin and Mr. Fox
provide that, in lieu of any participation in Company-paid pre-retirement life
insurance coverage, Products Corporation will pay premiums and gross ups for
taxes thereon in respect of, in the case of Mr. Levin, whole life insurance
policies on his life in the amount of $14,100,000 under a split dollar
arrangement pursuant to which Products Corporation would be repaid the amount
of premiums it paid up to the cash surrender value of the policies from
insurance proceeds payable under the policies and, in the case of Mr. Fox, a
whole life insurance policy on his life in the amount of $5,000,000 under an
arrangement providing for all insurance proceeds to be paid to the designated
beneficiary under such policy. The agreements also require that management
recommend to the Compensation Committee that Messrs. Levin, Fellows, Fox and
Colomer and Ms. Dwyer be granted options to purchase 170,000, 120,000, 50,000,
37,000, and 45,000 (in first year and 30,000 thereafter) shares of Class A
Common Stock, respectively, each year during the term of the relevant Executive
Employment Agreement. The agreementscurrently in effect provide that
in the event of termination of the term of the relevant Executive Employment Agreementexecutive employment
agreement by Products Corporation otherwise(otherwise than for "good reason""cause" as defined in the
Executive
Severance Policyemployment agreements or disability) or by the executive for failure of the
Compensation Committee to adopt and implement the recommendations of management
with respect to stock option grants, the executive would be entitled to
severance pursuant to and subject to the terms of the Executive Severance
Policy as in effect on January 1, 19961997 (see -"Executive"--Executive Severance Policy")
(or, at his or her election, to continued base salary payments throughout the
term in the case of Mr. Fellows and Ms. Dwyer). In addition, the employment
agreement with Mr. Fellows provides that if he remains continuously employed withby
Products Corporation or its affiliates until age 60, then upon any subsequent
retirement he will be entitled to a supplemental pension benefit in a
sufficient amount so that his annual pension benefit from all qualified and
non-qualified pension plans of Products Corporation and its affiliates
(expressed as a straight life annuity) equals $500,000. Upon any earlier
retirement with Products Corporation's consent or any earlier termination of
employment by Products Corporation otherwise than for "good reason" (as defined
in the Executive Severance Policy), Mr. Fellows will be entitled to a reduced
annual payment in an amount equal to the product of multiplying $28,540 by the
number of anniversaries, as of the date of retirement or termination, of Mr.
Fellows' fifty-third birthday (but in no event more than would have been
payable to Mr. Fellows under the foregoing provision had he retired at age 60).
In each case, Products Corporation reserves the right to treat Mr. Fellows as
having deferred payment of pension for purposes of computing such supplemental
payments.
As of December 31, 1997, 1996, 1995 and 1994,1995, Mr. Colomer had a loan
outstanding from Products Corporation's subsidiary in Spain in the amount of
25.0 million Spanish pesetas (approximately $205,000$165,050 U.S. dollar equivalent as
of December 31, 1996)1997) dating from 1991 pursuant to a management retention
program grandfathered under a 1992 change in the Spanish tax law which
currently covers certain executives of such
35
subsidiary, including Mr. Colomer. Pursuant to this management retention
program, outstanding loans do not bear interest but an amount equal to the
one-year government bond interest rate in effect at the beginning of the year
is deducted from the executives' annual compensation, and loans must be repaid
in full upon termination of employment. The amount deducted from Mr. Colomer's
compensation was 1.4 million Spanish pesetas (approximately $9,210 U.S. dollar
equivalent as of December 31, 1997) for 1997; 2.15 million Spanish pesetas
(approximately $16,988 U.S. dollar equivalent as of December 31, 1996) for 1996;1996
and 2.25 million Spanish pesetas (approximately $18,097 U.S. dollar equivalent
as of December 31, 1995) for 1995 and 2.25 million Spanish pesetas
(approximately $17,094 U.S. dollar equivalent as of December 31, 1994) for
1994.1995.
EXECUTIVE SEVERANCE POLICY
Products Corporation's Executive Severance Policy, as amended
effective January 1, 1996, provides that upon termination of employment of
eligible executive employees, including the Chief Executive Officer and the
other Named Executive Officers, other than voluntary resignation retirement or termination
by Products Corporation for good reason, in consideration for the execution of
a release and confidentiality agreement and Products Corporation's standard
Employee Agreement as to Confidentiality and Non-Competition (the
"Non-Competition Agreement"), the eligible executive will be entitled to
receive, in lieu of severance under any employment agreement then in effect or
under Products Corporation's basic severance plan, a number of months of
severance pay in semi-monthly installments based upon such executive's grade
level and years of service reduced by the amount of any compensation from
subsequent employment, unemployment compensation or statutory termination
payments received by such executive during the severance period, and, in
certain circumstances, by the actuarial value of enhanced pension benefits
received by the executive, as well as continued participation in medical and
certain other benefit plans for the severance period (or in lieu thereof, upon
commencement of subsequent employment, a lump sum payment equal to the then
present value of 50% of the amount of base salary then remaining payable
through the balance of the severance period, not to
30
exceed six months' base salary)period). Pursuant to the Executive
Severance Policy, upon meeting the conditions set forth therein, Messrs.
Fellows, Levin, Fellows,Fox and Colomer
and Fox and Ms. Dwyer would be entitled to severance
pay equal to two years of base salary at the rate in effect on the date of
employment termination plus continued participation in the medical and dental
plans for two years on the same terms as active employees.
DEFINED BENEFIT PLANS
The following table shows the estimated annual retirement benefits
payable (as of December 31, 1996)1997) at normal retirement age (65) to a person
retiring with the indicated average compensation and years of credited service,
on a straight life annuity basis, after Social Security offset, under the
Revlon Employees' Retirement Plan (the "Retirement Plan"), including amounts
attributable to the Pension Equalization Plan, each as described below:
HIGHEST CONSECUTIVE
FIVE-YEAR AVERAGE
COMPENSATION ESTIMATED ANNUAL STRAIGHT LIFE BENEFITS AT RETIREMENT
DURING FINAL TEN YEARS WITH INDICATED YEARS OF CREDITED SERVICE(a)
- ---------------------- ------------------------------------------------------
15 20 25 30 35
-------- -------- -------- -------- --------
$ 600,000 $152,022 $202,696 $253,370 $304,044 $304,044
700,000 178,022 237,363 296,703 356,044 356,044
800,000 204,022 272,029 340,037 408,044 408,044
900,000 230,022 306,696 383,370 460,044 460,044
1,000,000 256,022 341,363 426,703 500,000 500,000
1,100,000 282,022 376,029 470,037 500,000 500,000
1,200,000 308,022 410,696 500,000 500,000 500,000
1,300,000 334,022 445,363 500,000 500,000 500,000
1,400,000 360,022 480,029 500,000 500,000 500,000
1,500,000 386,02236
HIGHEST CONSECUTIVE FIVE-YEAR
AVERAGE COMPENSATION DURING
ESTIMATED ANNUAL STRAIGHT LIFE ANNUITY BENEFITS AT RETIREMENT
WITH INDICATED YEARS OF CREDITED SERVICE (a)
------------------------------------------------------------------------------
FINAL 10 YEARS 15 20 25 30 35
- ------------------------------- -------- -------- --------- -------- --------
600,000 $151,974 $202,632 $253,290 $303,948 $303,948
700,000 177,974 237,299 296,623 355,948 355,948
800,000 203,974 271,965 339,957 407,948 407,948
900,000 229,974 306,632 383,290 459,948 459,948
1,000,000 255,974 341,299 426,623 500,000 500,000
1,100,000 281,974 375,965 469,957 500,000 500,000
1,200,000 307,974 410,632 500,000 500,000 500,000
1,300,000 333,974 445,299 500,000 500,000 500,000
1,400,000 359,974 479,965 500,000 500,000 500,000
1,500,000 385,974 500,000 500,000 500,000 500,000
2,000,000 500,000 500,000 500,000 500,000 500,000
2,500,000 500,000 500,000 500,000 500,000 500,000
(a) The normal form of benefit for the Retirement Plan and the Pension
Equalization Plan is a straight life annuity.
The Retirement Plan is intended to be a tax qualified defined benefit
plan. Retirement Plan benefits are a function of service and final average
compensation. The Retirement Plan is designed to provide an employee having 30
years of credited service with an annuity generally equal to 52% of final
average compensation, less 50% of estimated individual Social Security
benefits. Final average compensation is defined as average annual base salary
and bonus (but not any part of bonuses in excess of 50% of base salary) during
the five consecutive calendar years in which base salary and bonus (but not any
part of bonuses in excess of 50% of base salary) were highest out of the last
10 years prior to retirement or earlier termination. Except as otherwise
indicated, credited service only includes all periods of employment with the
Company or a subsidiary prior to retirement. The base salaries and bonuses of
each of the Chief Executive Officer and the other Named Executive Officers are
set forth in the Summary Compensation Table under columns entitled "Salary" and
"Bonus," respectively.
The Employee Retirement Income Security Act of 1974, as amended,
places certain maximum limitations upon the annual benefit payable under all
qualified plans of an employer to any one individual. In addition, the Omnibus
Budget Reconciliation Act of 1993 limits the annual amount of compensation that
can be considered in determining the level of benefits under qualified plans.
The Pension Equalization Plan, as amended effective January 1, 1996, is a
non-qualified benefit arrangement designed to provide for the payment by the
Company of the difference, if any, between the amount of such maximum
limitations and the annual benefit that would be payable under the Retirement
Plan but for such limitations, up to a combined maximum annual straight life
annuity benefit at age 65 under the Retirement Plan and the Pension
Equalization Plan of $500,000. Benefits provided under the Pension Equalization
Plan are conditioned on the participant's compliance with his or her
Non-Competition Agreement and, in any case, on the participant not competing
with Products Corporation for one year after termination of employment.
31
The number of years of credited service under the Retirement Plan and
the Pension Equalization Plan as of January 1, 1997 for Mr. Levin is seven
years (which includes credit for service with MacAndrews Holdings),1998 (rounded to full years) for
Mr. Fellows is eightnine years (which includes credit for prior service with
Holdings), for Mr. Fox is 1314 years (which includes credit for service with
MacAndrews Holdings) and for Ms. Dwyer is 3 years.four years, and as of June 30, 1997
for Mr. Levin is eight years (which includes credit for service with MacAndrews
Holdings). Pursuant to the Levin Amendment, Mr. Levin retains all benefits
under the Retirement Plan and the Pension Equalization Plan accrued by him as
of June 30, 1997. Mr. Colomer does not participate in the Retirement Plan or
the Pension Equalization Plan. Mr. Colomer participates in the Revlon Foreign
Service Employees Pension Plan (the "Foreign Pension Plan"). The Foreign
Pension Plan is a non-qualified defined benefit plan. The planForeign Pension Plan
is designed to provide an employee with 2% of final average salary for each
year of
37
credited service, up to a maximum of 30 years, reduced by the sum of all other
Company-provided retirement benefits provided by the Company or any of its subsidiaries and social security or other
government providedgovernment-provided retirement benefits. Credited service includes all periods
of employment with the Company or a subsidiary prior to retirement. Final
average salary is defined as average annual base salary during the five
consecutive calendar years in which base salary was highest out of the last 10
years prior to retirement. The normal form of payment under the Foreign Pension
Plan is a life annuity. Mr. Colomer's credited service as of January 1, 19971998
(rounded to full years) under the Foreign Pension Plan is 1718 years (which
includes credit for service with Holdings).
COMPENSATION OF DIRECTORS
Directors who currently are not receiving compensation as officers or
employees of the Company or any of its affiliates are paid an annual retainer
fee of $25,000, payable in monthly installments, and a fee of $1,000 for each
meeting of the Board of Directors or any committee thereof they attend.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
For 1996,1997, the executive officers of Products Corporation were
compensated for services rendered to Products Corporation and its subsidiaries,
participated in benefit plans sponsored by Products Corporation and received
grants of options under the Stock Plan. The ExecutiveRevlon, Inc.'s Compensation Committee
of the Board of
Directors of Products Corporation (made up of(of which Messrs. Perelman, LevinDrapkin and Gittis)Gittis are members) performed the functions of a
Compensation Committee for Products Corporation with respect to determining
compensation of executive officers of Products Corporation (except
that Mr. Levin was not involved in any such determination of his compensation).
During 1996,Corporation.
Products Corporation has used an airplane which wasis owned by a
corporation of which Messrs. Gittis and Drapkin and Levin wereare the sole stockholders. As of December 31, 1996, Mr. Levin no longer holds an ownership
interest in the corporation that owns the airplane. See
"Certain Relationships and Related Transactions - Other."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Revlon, Inc. beneficially owns all of the outstanding shares of Common
Stockcommon
stock of Products Corporation. No other director, executive officer or other
person beneficially owns any shares of Common Stock.Products Corporation's common stock.
Through Revlon Worldwide,REV Holdings, the parent of Revlon, Inc., Ronald O. Perelman, 35 East
62nd Street, New York, New York 10021, through MacAndrews Holdings, a
corporation wholly owned indirectly through Mafco Holdings (Mafco Holdings,
together with MacAndrews Holdings, "MacAndrews & ForbesForbes"), beneficially owns
11,250,000 shares of Class A Common Stock of Revlon, Inc. (representing 56.6%
of the outstanding shares of Class A Common Stock of Revlon, Inc.) and all of
the outstanding 31,250,000 shares of Class B Common Stock of Revlon, Inc.,
which together represent 83.1% of the outstanding shares of Revlon, Inc.'s
common stock and hashave approximately 97.4% of the combined voting power of the
outstanding shares of Revlon, Inc.'s common stock. All of the shares of Revlon,
Inc.'s common stock owned by Revlon WorldwideREV Holdings are pledged by Revlon WorldwideREV Holdings to secure
its
obligations, under its Senior Secured Discount Notes Due 1998 having an accreted
value as of December 31, 1996 of $969.6 million. Sharesand shares of intermediate holding companies are or may from time
to time be pledged to secure obligations of Mafco Holdings Inc. or its affiliates.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Revlon, Inc. beneficially owns all of the outstanding shares of Common Stockcommon
stock of Products Corporation. Through Revlon Worldwide, MacAndrews & Forbes beneficially owns shares of
Revlon, Inc.'s common stock having approximately 97.4% of the combined voting
power of the outstanding shares of Revlon, Inc.'s common stock. As a result,
MacAndrews & Forbes is able to elect the entire Board of Directors of Products
Corporation and control the vote on all matters submitted to a vote of Products
Corporation's stockholder, including extraordinary transactions such as mergers
32
or sales of all or substantially all of Products Corporation's assets.
MacAndrews & Forbes is wholly owned by Ronald O. Perelman, who is Chairman of
the Executive Committee of the Board and a Director of Products Corporation.
Messrs. Perelman, Levin, Fox and Nichols, each of whom is an executive officer
of Products Corporation, have been, and are expected to continue to be,
officers of MacAndrews & Forbes and certain of its affiliates.
TRANSFER AGREEMENTS
In June 1992, Revlon, Inc. and Products Corporation entered into an
asset transfer agreement with Holdings and certain of its wholly owned
subsidiaries (the "Asset Transfer Agreement"), and Revlon, Inc. and Products
Corporation entered into a real property asset transfer agreement with Holdings
(the "Real Property Transfer Agreement" and, together with the Asset Transfer
Agreement, the "Transfer Agreements"), and pursuant to such agreements, on June
24, 1992 Holdings transferred assets to Products Corporation and Products
Corporation assumed all the liabilities of Holdings, other than certain
specifically excluded assets and liabilities (the liabilities excluded are
referred to as the "Excluded Liabilities"). Holdings retained certain small
brands that historically had not been profitable ("the Retained
Brands").Brands. Holdings agreed to indemnify Revlon, Inc. and Products Corporation
against losses arising from the Excluded Liabilities, and Revlon, Inc. and
Products Corporation agreed to indemnify Holdings against losses arising from
the liabilities assumed by
38
Products Corporation. The amountsamount reimbursed by Holdings to Products Corporation
for the Excluded Liabilities for 19961997 was $1.4$0.4 million.
BENEFIT PLANS ASSUMPTION AGREEMENT
Holdings, Products Corporation and Revlon, Inc. entered into a benefit
plans assumption agreement dated as of July 1, 1992 pursuant to which Products
Corporation assumed all rights, liabilities and obligations under all of
Holdings' benefit plans, arrangements and agreements, including obligations
under the Revlon Employees' Retirement Plan and the Revlon Employees' Savings
and Investment Plan. Products Corporation was substituted for Holdings as
sponsor of all such plans theretofore sponsored by Holdings.
OPERATING SERVICES AGREEMENT
In June 1992, Revlon, Inc., Products Corporation and Holdings entered
into an operating services agreement (as amended and restated, and as
subsequently amended, the "Operating Services Agreement") pursuant to which
Products Corporation manufactures, markets, distributes, warehouses and
administers, including the collection of accounts receivable, the Retained
Brands for Holdings. Pursuant to the Operating Services Agreement, Products
Corporation is reimbursed an amount equal to all of its and Revlon, Inc.'s
direct and indirect costs incurred in connection with furnishing such services,
net of the amounts collected by Products Corporation with respect to the
Retained Brands, payable quarterly. The net amount reimbursed by Holdings to
Products Corporation for such direct and indirect costs for 19961997 was $5.1$1.4
million. Holdings also pays Products Corporation a fee equal to 5% of the net
sales of the Retained Brands, payable quarterly. The fees paid by Holdings to
Products Corporation pursuant to the Operating Services Agreement for services
with respect to the Retained Brands for 19961997 was approximately $0.6$0.3 million.
REIMBURSEMENT AGREEMENTS
Revlon, Inc., Products Corporation and MacAndrews Holdings have
entered into reimbursement agreements (the "Reimbursement Agreements") pursuant
to which (i) MacAndrews Holdings is obligated to provide (directly or through
affiliates) certain professional and administrative services, including
employees, to Revlon, Inc. and its subsidiaries, including Products
Corporation, and purchase services from third party providers, such as
insurance and legal and accounting services, on behalf of Revlon, Inc. and its
subsidiaries, including Products Corporation, to the extent requested by
Products Corporation, and (ii) Products Corporation is obligated to provide
certain professional and administrative services, including employees, to
MacAndrews Holdings (and its affiliates) and purchase services from third party
providers, such as insurance and legal and accounting services, on behalf of
MacAndrews Holdings (and its affiliates) to the extent requested by MacAndrews
Holdings, provided that in each case the performance of such services does not
cause an unreasonable burden to MacAndrews Holdings or Products Corporation, as
the case may be. Products CorporationThe Company reimburses MacAndrews Holdings for the allocable
costs of the services purchased for or provided to Products Corporationthe Company and its
subsidiaries and for reasonable out-of-pocket expenses incurred in connection
with the provision of such services. MacAndrews Holdings (or such affiliates)
reimburses Products Corporationthe Company for the allocable costs of the services purchased for or
provided to MacAndrews Holdings (or such affiliates) and for the
33
reasonable
out-of-pocket expenses incurred in connection with the purchase or provision of
such services. In addition, in connection with certain insurance coverage
provided by MacAndrews Holdings, Products Corporation obtained letters of
credit under the standby letter of credit facility (which aggregated approximately $26.4$27.7 million as of December 31, 1996)1997)
to support certain self-funded risks of MacAndrews Holdings and its affiliates,
including Revlon,
Inc.,the Company, associated with such insurance coverage. The costs of
such letters of credit are allocated among, and paid by, the affiliates of
MacAndrews Holdings, including Revlon, Inc.,the Company, which participate in the insurance
coverage to which the letters of credit relate. The Company expects that these
self-funded risks will be paid in the ordinary course and, therefore, it is
unlikely that such letters of credit will be drawn upon. MacAndrews Holdings
has agreed to indemnify Revlon, Inc. and Products Corporation to the extent amounts are drawn
under any of such letters of credit with respect to claims for which neither
Revlon, Inc. nor Products Corporation is not responsible. The net amount reimbursed
by MacAndrews Holdings to Products Corporationthe Company for the services provided under the
Reimbursement Agreements for 19961997 was $2.2$4.0 million. Each of Revlon, Inc. and
Products Corporation, on the one hand, and MacAndrews Holdings, on the other,
has agreed to indemnify the other party for losses arising out of the provision
of services by it under the Reimbursement Agreements other than losses
resulting from its willful misconduct or gross negligence. The Reimbursement
Agreements may be terminated by either party on 90 days' notice. The Company
does not intend to request services under the Reimbursement Agreements unless
their costs would be at least as favorable to the Company as could be obtained
from unaffiliated third parties.
TAX SHARING AGREEMENT
Revlon, Inc. and Products Corporation, for federal income tax
purposes, are included in the affiliated group of which Mafco Holdings is the
common parent, and Revlon, Inc.'s and Products Corporation's federal taxable
39
income and loss are included in such group's consolidated tax return filed by
Mafco Holdings. Revlon, Inc. and Products Corporation also may be included in
certain state and local tax returns of Mafco Holdings or its subsidiaries. In
June 1992, Holdings, Revlon, Inc., Products Corporation and certain of its
subsidiaries and Mafco Holdings entered into a tax sharing agreement (as
subsequently amended, the "Tax Sharing Agreement"), pursuant to which Mafco
Holdings has agreed to indemnify Revlon, Inc. and Products Corporation against
federal, state or local income tax liabilities of the consolidated or combined
group of which Mafco Holdings (or a subsidiary of Mafco Holdings other than
Revlon, Inc. and Products Corporation or its subsidiaries) is the common parent
for taxable periods beginning on or after January 1, 1992 during which Revlon,
Inc. and Products Corporation or a subsidiary of Products Corporation is a
member of such group. Pursuant to the Tax Sharing Agreement, for all taxable
periods beginning on or after January 1, 1992, Products Corporation will pay to
Revlon, Inc., which in turn will pay to Holdings, amounts equal to the taxes
that such corporationProducts Corporation would otherwise have to pay if it were to file
separate federal, state or local income tax returns (including any amounts
determined to be due as a result of a redetermination arising from an audit or
otherwise of the consolidated or combined tax liability relating to any such
period which is attributable to Products Corporation), except that Products
Corporation will not be entitled to carry back any losses to taxable periods
ending prior to January 1, 1992. No payments are required by Products
Corporation or Revlon, Inc. if and to the extent Products Corporation is
prohibited under the Credit Agreement from making cash tax sharing payments to
Revlon, Inc. The Credit Agreement prohibits Products Corporation from making
such cash tax sharing payments other than in respect of state and local income
taxes. Since the payments to be made by Products Corporation under the Tax
Sharing Agreement will be determined by the amount of taxes that Products
Corporation would otherwise have to pay if it were to file separate federal,
state or local income tax returns, the Tax Sharing Agreement will benefit Mafco
Holdings to the extent Mafco Holdings can offset the taxable income generated
by Products Corporation against losses and tax credits generated by Mafco
Holdings and its other subsidiaries. There were no cash payments in respect of
federal taxes made by Products Corporation pursuant to the Tax Sharing
Agreement for 1996.
FINANCING REIMBURSEMENT AGREEMENT
Holdings and1997. Products Corporation entered intohas a financing
reimbursement agreement (the "Financing Reimbursement Agreement")liability of $0.9 million to
Revlon, Inc. in 1992
pursuant to which Holdings agreed to reimburse Products Corporationrespect of federal taxes for Holdings' allocable portion of (i) the debt issuance cost and advisory fees
related to the capital restructuring of Holdings and (ii) interest expense
attributable to the higher cost of funds paid by Products Corporation1997 under the credit agreement in effect at that time as a result of additional borrowings
for the benefit of Holdings in connection with the assumption of certain
liabilities by Products Corporation under the Asset Transfer Agreement and the
repurchase of Old Senior Subordinated Notes from affiliates. In February 1995,
the Financing Reimbursement Agreement was amended
34
and extended to provide that Holdings would reimburse Products Corporation for
a portion of the debt issuance costs and advisory fees related to the Former
Credit Agreement and 1 1/2 % per annum of the average balance outstanding under
the Former Credit Agreement and the average balance outstanding under working
capital borrowings from affiliates through June 30, 1996 and such amounts were
evidenced by a noninterest-bearing promissory note payable on June 30, 1996. In
June 1996, $10.9 million in notes due to Products Corporation, which included
$2.0 million of interest reimbursement in 1996, under the Financing
Reimbursement Agreement from Holdings was offset against a $11.7 million demand
note payable by Products Corporation to Holdings. The Financing Reimbursement
Agreement expired on June 30, 1996.Tax Sharing
Agreement.
OTHER
Pursuant to a lease dated April 2, 1993 (the "Edison Lease"), Holdings
leases to Products Corporation the Edison research and development facility for
a term of up to 10 years with an annual rent of $1.4 million and certain shared
operating expenses payable by Products Corporation which, together with the
annual rent, are not to exceed $2.0 million per year. Pursuant to an assumption
agreement dated February 18, 1993, Holdings agreed to assume all costs and
expenses of the ownership and operation of the Edison facility as of January 1,
1993, other than (i) the operating expenses for which Products Corporation is
responsible under the Edison Lease and (ii) environmental claims and compliance
costs relating to matters which occurred prior to January 1, 1993 up to an
amount not to exceed $8.0 million (the amount of such claims and costs for
which Products Corporation is responsible, the "Environmental Limit"). In
addition, pursuant to such assumption agreement, Products Corporation agreed to
indemnify Holdings for environmental claims and compliance costs relating to
matters which occurred prior to January 1, 1993 up to an amount not to exceed
the Environmental Limit and Holdings agreed to indemnify Products Corporation
for environmental claims and compliance costs relating to matters which
occurred prior to January 1, 1993 in excess of the Environmental Limit and all
such claims and costs relating to matters occurring on or after January 1,
1993. Pursuant to an occupancy agreement, during 19961997 Products Corporation
rented from Holdings a portion of the administration building located at the
Edison facility and space for a retail store of Products Corporation. Products
Corporation provides certain administrative services, including accounting, for
Holdings with respect to the Edison facility pursuant to which Products
Corporation pays on behalf of Holdings costs associated with the Edison
facility and is reimbursed by Holdings for such costs, less the amount owed by
Products Corporation to Holdings pursuant to the Edison Lease and the occupancy
agreement. The net amount reimbursed by Holdings to Products Corporation for
such costs with respect to the Edison facility for 19961997 was $1.1$0.7 million.
During 1997, a subsidiary of Products Corporation sold an inactive
subsidiary to an affiliate for approximately $1.0 million.
Effective JanuaryJuly 1, 1996,1997, Holdings contributed to Products Corporation acquired from Holdings
substantially all of the assets and liabilities of Tarlowthe Bill Blass business not
already owned by Products Corporation. The contributed assets approximated the
contributed liabilities and were accounted for at historical cost in considerationa manner
similar to that of a
40
pooling of interests and, accordingly, prior period financial statements were
restated as if the contribution took place prior to the beginning of the
earliest period presented.
In June 1997, Products Corporation borrowed from Holdings
approximately $0.5 million, representing certain amounts received by Holdings
from the sale of a brand and inventory relating thereto. Such amount is
evidenced by a noninterest bearing promissory note. Holdings agreed not to
demand payment under such note so long as any indebtedness remains outstanding
under Products Corporation's Credit Agreement.
On February 2, 1998, Revlon Escrow issued and sold the Notes in a
private placement, with the net proceeds deposited into escrow. The proceeds
from the sale of the Notes will be used to finance the redemptions of the Old
Notes. Products Corporation delivered a redemption notice to the holders of the
Senior Subordinated Notes for the assumption
of substantially allredemption of the liabilities and obligations of Tarlow. Net
liabilities assumed were approximately $3.4 million.Senior Subordinated Notes
on March 4, 1998, at which time Products Corporation paid
$4.1 millionconsummated the 8-5/8%
Notes Assumption, and to Holdingsthe holders of the Senior Notes for the redemption of
the Senior Notes on April 1, 1998, at which was accounted for astime Products Corporation will
consummate the 8-1/8% Notes Assumption. On or before March 19, 1998 either
Revlon Escrow or Products Corporation is required to file a registration
statement with the Commission with respect to the Exchange Offer, which is
expected to occur on or before July 2, 1998. In connection with these matters,
Products Corporation entered into a Purchase Agreement and a Registration
Agreement with Revlon Escrow and the initial purchasers of the Notes and
entered into an increaseagreement with Revlon Escrow pursuant to which each of Products
Corporation and Revlon Escrow agree to take all actions required under the
Purchase Agreement, the Registration Agreement and the other documents
governing the sale of the Notes, the redemptions of the Old Notes and the
Assumption within the periods prescribed in capital
deficiency.order to effect such transactions
in accordance with their terms. A nationally recognized investment banking firm
rendered its written opinion that the termsAssumption, upon consummation of the
purchaseredemptions of the Old Notes, and the subsequent release from escrow to
Products Corporation of any remaining net proceeds from the sale of the Notes
are fair from a financial standpoint to Products Corporation.Corporation under the
indenture governing the 1999 Notes.
During 1996,1997, Products Corporation leased certain facilities to
MacAndrews & Forbes or its affiliates pursuant to occupancy agreements and
leases includingleases. These included space at Products Corporation's New York headquarters
and at Products Corporation's offices in London and Tokyo.Hong Kong. The rent paid by
MacAndrews & Forbes or its affiliates to Products Corporation for 1996such leases
and agreements for 1997 was $4.6$3.8 million.
TheProducts Corporation's Credit Agreement is supported by, among other
things, guarantees from Holdings and certain of its subsidiaries. The
obligations under such guarantees are secured by, among other things, (i) the
capital stock and certain assets of certain subsidiaries of Holdings and (ii) a
mortgage on Holdings' Edison, New Jersey facility.
Products Corporation borrows funds from its affiliates from time to
time to supplement its working capital borrowings. No such borrowings were
outstanding as of December 31, 1996.1997. The interest rates for such borrowings are
more favorable to Products Corporation than interest rates under the Credit
Agreement and, for borrowings occurring prior to the execution of the Credit
Agreement, the credit facility in effect at the time of such borrowing. The
amount of interest paid by Products Corporation for such borrowings for 19961997
was $0.5$0.6 million.
In November 1993, Products Corporation assigned to Holdings a lease
for warehouse space in New Jersey (the "N.J. Warehouse") between Products
Corporation and a trust established for the benefit of certain family members
of
35
the Chairman of the Executive Committee. The N.J. Warehouse had become vacant
as a result of divestitures and restructuring of Products Corporation. The
lease has annual lease payments of approximately $2.3 million and terminates on
June 30, 2005. In consideration for Holdings assuming all liabilities and
obligations under the lease, Products Corporation paid Holdings $7.5 million
(for which a liability was previously recorded) in three installments of $2.5
million each in January 1994, January 1995 and January 1996. A nationally
recognized investment banking firm rendered its written opinion that the terms
of the lease transfer were fair from a financial standpoint to Products
Corporation. During 1996, Products Corporation paid $0.2 million associated
with the N.J. Warehouse on behalf of Holdings and was reimbursed by Holdings
for such amount.
During 1996,1997, Products Corporation used an airplane which was owned by a
corporation of which Messrs. Gittis and Drapkin and Levin wereare the sole stockholders. In 1996,stockholders, for
which Products Corporation paid approximately $0.2 millionmillion.
During 1997, Products Corporation purchased products from an
affiliate, for the usage of the airplane. As of December 31, 1996, Mr. Levin no longer holdswhich it paid approximately $0.9 million.
During 1997, Products Corporation provided licensing services to an
ownership interest in the corporation that owned the airplane.
Consolidated Cigar, anaffiliate, for which Products Corporation has been paid approximately $0.7
million.
An affiliate of Products Corporation assembles lipstick cases for
Products Corporation. Products Corporation paid approximately $1.0$0.9 million for
such services in 1996.
In the fourth quarter of 1996, Products Corporation and certain of its
subsidiaries purchased an inactive subsidiary from an affiliate for net cash
consideration of approximately $3.0 million in a series of transactions in
which Products Corporation expects to realize certain tax benefits in future
years.1997.
41
Products Corporation believes that the terms of the foregoing
transactions are at least as favorable to Products Corporation as those that
could be obtained from unaffiliated third parties.
36
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) List of documents filed as part of this Report:
(1) Consolidated Financial Statements and Independent Auditors'
Report included herein:
See Index on page F-1
(2) Financial Statement Schedule:
See Index on page F-1
All other schedules are omitted as they are inapplicable or the
required information is furnished in the Consolidated Financial Statements of
the Company or the Notes thereto.
(3) List of Exhibits:
EXHIBIT NO. DESCRIPTION
- ----------- -----------
3. CERTIFICATE OF INCORPORATION AND BY-LAWS.
3.1 Certificate of Incorporation of Products Corporation.
(Incorporated by reference to Exhibit 3.3 to the Form 10 of
Products Corporation filed with the Securities and Exchange
Commission on August 7, 1992 (File No. 1-11334)).
3.2 Certificate of Amendment of Certificate of Incorporation as
filed on February 18, 1993. (Incorporated by reference to
Exhibit 3.4 to the Annual Report on Form 10-K for the year
ended December 31, 1992 of Products Corporation (the
"Products Corporation 1992 10-K")).
*3.33.3 Amended and Restated By-Laws of Products Corporation dated
January 30, 1997.1997 (Incorporated by reference to Exhibit 3.3 to
the Annual Report on Form 10-K for the year ended December
31, 1996 of Products Corporation).
4. INSTRUMENTS DEFINING THE RIGHTRIGHTS OF SECURITY HOLDERS,
INCLUDING INDENTURES.
4.1 Indenture, dated as of July 15, 1980, between Holdings and The Chase
Manhattan Bank, N.A., as Trustee, relating to the 10 7/8 % Sinking
Fund Debentures due 2010 (the "Debentures Indenture"). (Incorporated
by reference to Exhibit 4.1 to the Form S-1 of Revlon, Inc. filed
with the Securities and Exchange Commission on May 22, 1992, File
No. 33-47100 (the "Revlon 1992 Form S-1")).
4.2 First Supplemental Indenture, dated as of August 15, 1986, to the
Debentures Indenture. (Incorporated by reference to Exhibit 4.2 to
the Revlon 1992 Form S-1).
4.3 Instrument of Appointment and Acceptance of Successor Trustee and
Appointment of Agent dated as of November 19, 1987, to appoint First
National Bank of Minneapolis, as Trustee, relating to the Debentures
Indenture. (Incorporated by reference to Exhibit 4.3 to the Revlon
1992 Form S-1).
4.4 Second Supplemental Indenture, dated as of June 24, 1992, among
Holdings, Revlon, Inc. and First National Bank of Minneapolis, as
Trustee, to the Debentures Indenture. (Incorporated by reference to
Exhibit 4.4 to the Amendment No. 1 to the Revlon Form S-1 filed with
the Securities and Exchange Commission on June 29, 1992, File No.
33-47100 (the "Revlon 1992 Amendment No. 1")).
4.5 Third Supplemental Indenture, dated as of June 24, 1992, among
Revlon, Inc., Products Corporation and First National Bank of
Minneapolis, as Trustee, to the Debentures Indenture. (Incorporated
by reference to Exhibit 4.5 to the Revlon 1992 Amendment No. 1).
4.6 Indenture, dated as of February 15, 1993, between Products
Corporation and The Bank of New York, as Trustee, relating to
Products Corporation's 10 1/2%2 % Series B Senior Subordinated
Notes Due 2003. (Incorporated by reference to Exhibit 4.31 to
the Registration Statement on Form S-1 of Products
Corporation filed with the Securities and Exchange Commission
on March 17, 1993, File No. 33-59650).
4.74.2 Indenture, dated as of April 1, 1993, between Products
Corporation and NationsBank of Georgia,
37
EXHIBIT NO. DESCRIPTION
- ----------- ----------- National Association,
as Trustee, relating to the Products Corporation's 9 3/8 %
Senior Notes Due 2001 and Products Corporation's 9 3/8 %
Series B Senior Notes Due 2001. (Incorporated by reference to
Exhibit 4.28 to the Amendment No. 1 to the Registration
Statement on Form S-1 of Products Corporation as filed with
the Securities and Exchange Commission on April 13, 1993,
File(File No. 33-59650)).
4.84.3 Indenture dated as of June 1, 1993, between Products
Corporation and NationsBank of Georgia, National Association,
as Trustee, relating to Products Corporation's 9 1/2%2 % Senior
Notes Due 1999. (Incorporated by reference to Exhibit 4.31 to
the Quarterly Report on Form 10-Q for the quarterly period
ended June 30, 1993 of Products Corporation).
4.9 Financing Reimbursement Agreement by and between Holdings and
Products Corporation dated February 28, 1995. (Incorporated by
reference to Exhibit 4.30 to the Annual Report on Form 10-K for the
year ended December 31, 1994 of Products Corporation (the "Products
Corporation 1994 10-K")).
4.10 Amendment to the Financing Reimbursement Agreement by and between
Holdings and Products Corporation dated May 3, 1996. (Incorporated
by reference to Exhibit 4.10 to the Annual Report on Form 10-K for
the year ended December 31, 1996 of Revlon, Inc. (the "Revlon 1996
10-K")).
4.114.4 Second Amended and Restated Credit Agreement dated as of
December 22, 1994, between Pacific Finance & Development
Corp. and the Long-Term Credit Bank of Japan, Ltd. (the "Yen
Credit Agreement"). (Incorporated by reference to Exhibit
4.32 to the Annual Report on Form 10-K for the year ended
December 31, 1994 of Products Corporation (the "Products
Corporation 1994 10-K)10-K")).
4.12 Credit Agreement,42
EXHIBIT NO. DESCRIPTION
- ----------- -----------
4.5 First Amendment and Consent, dated as of February 28, 1995 among Products
Corporation, Chemical Bank, Citibank N.A. andMarch 10, 1997, with
respect to the lenders party
thereto (the "FormerYen Credit Agreement").Agreement. (Incorporated by
reference to Exhibit 4.334.8 to the Quarterly Report on Form 10-Q
for the quarterly period ended March 31, 19951997 of Products CorporationRevlon, Inc.
(the "Products Corporation"Revlon 1997 First Quarter 10-Q")).
4.13 First Amendment,4.6 Third Amended and Restated Credit Agreement, dated as of February 28, 1995, with respect toJune
30, 1997, between Pacific Finance and Development Corporation
and the FormerLong-Term Credit Agreement.Bank, Ltd. (Incorporated by
reference to Exhibit 4.34
to the Products Corporation First Quarter 10-Q).
4.14 Second Amendment, dated as of February 28, 1995, with respect to the
Former Credit Agreement. (Incorporated by reference to Exhibit 4.354.11 to the Quarterly Report on Form
10-Q for the quarterly period ended June 30, 19951997 of Products Corporation)Revlon,
Inc. (the "Revlon 1997 Second Quarter 10-Q")).
4.15 Third Amendment,4.7 Amended and Restated Credit Agreement, dated as of OctoberMay 30,
1995, with respect to1997, among Products Corporation, The Chase Manhattan Bank,
Citibank N.A., Lehman Commerical Paper Inc., Chase Securities
Inc. and the Former Credit Agreement.lenders party thereto (the "Credit Agreement").
(Incorporated by reference to Exhibit 4.174.23 to Amendment No. 2
to the Registration Statement on Form S-1 of Revlon Inc.Worldwide (Parent) Corporation,
filed with the Securities and Exchange Commission on November 17, 1995June 26,
1997. (File No. 33-99558) (the "Revlon 1995 Form S-1"333-23451)).)
4.16 Amended and Restated Credit Agreement,
4.8 First Amendment, dated as of January 24, 1996,
among Products Corporation, Chemical Bank, Citibank N.A., Chemical
Securities Inc. and the lenders party thereto. (Incorporated by
reference to Exhibit 4.18 to the Amendment No. 3 to the Revlon 1995
Form S-1 filed with the Securities and Exchange Commission on
February 5, 1996 (the "Revlon 1995 Amendment No. 3").
4.17 First Amendment and Consent Number 1 dated as of January 9, 199729, 1998, to the Credit
Agreement. (Incorporated by reference to Exhibit 4.174.8 to the
Annual Report for the year ended December 31, 1997 of Revlon,
1996 10-K)Inc. (the "Revlon 1997 10-K")).
10. MATERIAL CONTRACTS.
10.1 Purchase and Sale Agreement and Amendment thereto by and
between Products Corporation and Holdings, each dated as of
February 18, 1993, relating to the Edison, New Jersey
facility. (Incorporated by reference to Exhibit 4.22 to the
Products Corporation 1992 10-K).
10.2 Asset Transfer Agreement, dated as of June 24, 1992, among
Holdings, National Health Care Group, Inc., Charles of the
Ritz Group Ltd., Products Corporation and Revlon, Inc.
(Incorporated 38
EXHIBIT NO. DESCRIPTION
- ----------- -----------
by reference to Exhibit 10.1 to the Amendment
No. 1 to the Revlon Form S-1 filed with the Securities and
Exchange Commission on June 29, 1992. (File No. 33-47100)
(the "Revlon 1992 Amendment No. 1)1").
10.3 Real Property Asset Transfer Agreement, dated as of June 24,
1992, among Holdings, Revlon, Inc. and Products Corporation.
(Incorporated by reference to Exhibit 10.2 to the Revlon 1992
Amendment No. 1).
10.4 Assumption Agreement relating to the Edison facilityand Amendment thereto by and between
Products Corporation and Holdings, each dated as of February
18, 1993, relating to the Edison, New Jersey facility.
(Incorporated by reference to Exhibit 4.23 to the Products
Corporation 1992 10-K).
10.5 Tax Sharing Agreement, dated as of June 24, 1992, among Mafco
Holdings, Revlon, Inc., Products Corporation and certain
subsidiaries of Products Corporation (the "Tax Sharing
Agreement"). (Incorporated by reference to Exhibit 10.5 to
the Revlon 1992 Amendment No. 1).
10.6 First Amendment, dated as of February 28, 1995, to the Tax
Sharing Agreement. (Incorporated by reference to Exhibit 10.5
to the Products Corporation 1994 10-K).
10.7 Second Amendment, dated as of January 1, 1997, to the Tax
Sharing Agreement. (Incorporated by reference to Exhibit 10.7
to the Annual Report on Form 10-K for the year ended December
31, 1996 of Revlon, Inc. (the "Revlon 1996 10-K")).
10.8 Agreement by The Cosmetic Center, Inc. to be bound by the Tax
Sharing Agreement, dated April 25, 1997. (Incorporated by
reference to Exhibit 10.8 to the Revlon 1997 10-K).
10.810.9 Second Amended and Restated Operating Services Agreement by
and among Holdings, Revlon, Inc. and Products Corporation, as
of January 1, 1996.1996 (the "Operating Services Agreement").
(Incorporated by reference to Exhibit 10.8 to the Revlon 1996
10-K).
10.943
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.10 Amendment to the Operating Services Agreement, dated as of
July 1, 1997. (Incorporated by reference to Exhibit 10.10 to
the Revlon 1997 10-K).
10.11 Employment Agreement dated as of January 1, 1996 between
Products Corporation and Jerry W. Levin (the "Levin
Employment Agreement") (Incorporated by reference to Exhibit
10.10 to the Annual Report on Form 10-K for the year ended
December 31, 1995 of Products Corporation (the "Products
Corporation 1995 10-K").
10.1010.12 Amendment, effective June 30, 1997, to the Levin Employment
Agreement. (Incorporated by reference to Exhibit 10.12 to the
Revlon 1997 10-K).
10.13 Employment Agreement dated as of January 1, 19961997 between
Products Corporation and George FellowsFellows. (Incorporated by
reference to Exhibit 10.1110.10 to the Products Corporation 1995 10-K)Revlon 1997 First Quarter
10-Q).
10.1110.14 Employment Agreement dated as of January 1, 1996 between
Products Corporation and William J. FoxFox. (Incorporated by
reference to Exhibit 10.12 to the Products Corporation 1995
10-K).
10.1210.15 Employment Agreement dated as of January 1, 1996 between
RIROS Corporation and Carlos Colomer CasellasCasellas. (the "Colomer
Employment Agreement") (Incorporated by reference to Exhibit
10.13 to the Products Corporation 1995 10-K).
10.1310.16 Amendment, effective January 1, 1998, to the Colomer
Employment Agreement. (Incorporated by reference to Exhibit
10.16 to the Revlon 1997 10-K).
10.17 Employment Agreement dated as of January 1, 19961998 between
Products Corporation and M. Katherine Dwyer. (Incorporated by
reference to Exhibit 10.1310.17 to the Revlon 19961997 10-K).
10.1410.18 Revlon Employees' Savings, Investment and InvestmentProfit Sharing Plan
effective as of January 1, 19961997. (Incorporated by reference
to Exhibit 10.1510.18 to the Products Corporation 1995Revlon 1997 10-K).
10.1510.19 Revlon Employees' Retirement Plan as amended and restated
December 19, 1994. (Incorporated by reference to Exhibit
10.15 to the Products Corporation 1994 10-K).
10.1610.20 Amended and Restated Revlon Pension Equalization Plan,
effective January 1, 1996. (Incorporated by reference to
Exhibit 10.17 to the Revlon 1995 Amendment No. 4)4 to the Revlon Form S-1
filed with the Securities and Exchange Commission on February
26, 1996 (File No. 33-99558)).
10.1710.21 Executive Supplemental Medical Expense Plan Summary dated
July 1991. (Incorporated by reference to Exhibit 10.18 to the
Form S-1 of Revlon, Inc. filed with the Securities and
Exchange Commission on May 22, 1992 (File No. 33-47100) (the
"Revlon 1992 Form S-1)S-1").
10.1810.22 Description of Post Retirement Life Insurance Program for Key
Executives. (Incorporated by reference to Exhibit 10.19 to
the Revlon 1992 Form S-1).
10.1910.23 Benefit Plans Assumption Agreement dated as of July 1, 1992,
by and among Holdings, Revlon, Inc. and Products Corporation.
(Incorporated by reference to Exhibit 10.25 to the Products
Corporation 1992 10-K).
39
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.2010.24 Revlon Executive Bonus Plan effective January 1, 1997.
(Incorporated by reference to Exhibit 10.20 to the Revlon
1996 10-K).
10.2110.25 Revlon Executive Deferred Compensation Plan, amended as of
October 15, 1993. (Incorporated by reference to Exhibit 10.25
to the Annual Report on Form 10-K for the year ended December
31, 1993 of Products Corporation 1993 10-K).
10.22Corporation.
10.26 Revlon Executive Severance Policy effective January 1, 1996.
(Incorporated by reference to Exhibit 10.23 to the Amendment
No. 3 to the Revlon 1995 Amendment No. 3)Form S-1 filed with the Securities
and Exchange Commission on February 5, 1996).
10.2310.27 Revlon, Inc. 1996 Stock Plan, amended and restated as of
December 17, 1996. (Incorporated by reference to Exhibit
10.23 to the Revlon 1996 10-K).
44
EXHIBIT NO. DESCRIPTION
- ----------- -----------
21. SUBSIDIARIES.
*21.1 Subsidiaries of the Registrant.
24. POWERS OF ATTORNEY.
*24.1 Power of Attorney of Ronald O. Perelman.
*24.2 Power of Attorney of Donald G. Drapkin.
*24.3 Power of Attorney of Jerry W. Levin.
*24.4 Power of Attorney of Howard Gittis.
*24.5 Power of Attorney of Edward J. Landau, Esq.
*24.6 Power of Attorney of Irwin Engelman.
*24.7 Power of Attorney of William J. Fox.
- --------------------
*Filed herewith.
(b) Reports on Form 8-K
Revlon Consumer Products Corporation filed no reports on Form 8-K
during the fiscal year ended December 31, 1996.
401997.
45
REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
Page
----
Independent Auditors' Report............................................................... F-2Report..........................................................F-2
AUDITED FINANCIAL STATEMENTS:
Consolidated Balance Sheets as of December 31, 19961997 and 1995 .......................... F-31996......................F-3
Consolidated Statements of Operations for each of the years in the three-year
period ended December 31, 1996...................................................... F-41997.................................................F-4
Consolidated Statements of Stockholder's Deficiency for each of the years in
the three-year period ended December 31, 1996...................................... F-51997.................................F-5
Consolidated Statements of Cash Flows for each of the years in the three-year
period ended December 31, 1996..................................................... F-61997................................................F-6
Notes to Consolidated Financial Statements............................................. F-7Statements........................................F-7
FINANCIAL STATEMENT SCHEDULE:
Schedule II-- ValuationII--Valuation and Qualifying Accounts........................................ F-29Accounts....................................F-31
F-1
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholder
Revlon Consumer Products Corporation:
We have audited the accompanying consolidated balance sheets of Revlon Consumer
Products Corporation and its subsidiaries as of December 31, 19961997 and 1995,1996, and
the related consolidated statements of operations, stockholder's deficiency and
cash flows and stockholder's
deficiency for each of the years in the three-year period ended December 31,
1996.1997. In connection with our audits of the consolidated financial statements we
have also audited the financial statement schedule as listed on the index on
page F-1. These consolidated financial statements and financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these consolidated financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Revlon Consumer
Products Corporation and its subsidiaries as of December 31, 19961997 and 19951996 and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 1996,1997, in conformity with generally
accepted accounting principles. Also in our opinion, the related financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
As discussed in Note 1 to the consolidated financial statements, in 1994 the
Company adopted the provisions of the Financial Accounting Standards Board's
Statement of Financial Accounting Standards No. 112, "Employers' Accounting for
Postemployment Benefits."
KPMG PEAT MARWICK LLP
New York, New York
January 28, 199723, 1998
F-2
REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)(dollars in millions, except per share data)
DECEMBER 31, DECEMBER 31,
ASSETS 1997 1996
1995
----------- ------------------------- --------------
Current assets:
Cash and cash equivalents .......................................equivalents.......................................... $ 38.642.8 $ 36.338.6
Trade receivables, less allowances of $25.9 and $24.9,
and $23.7, respectively..................................... 426.3 363.1
Inventories ..................................................... 281.0 277.8respectively..................................................... 493.9 426.8
Inventories........................................................ 349.3 281.1
Prepaid expenses and other ......................................other......................................... 99.3 75.3
62.4
-------- ---------------------- --------------
Total current assets........................................ 821.2 739.6assets.............................................. 985.3 821.8
Property, plant and equipment, net....................................net.................................. 378.2 381.1
367.1
Other assets..........................................................assets........................................................ 143.7 139.2 142.9
Intangible assets, related to businesses acquired, net.................net.............................................. 329.2 280.6
285.7
-------- ---------------------- --------------
Total assets................................................ $1,622.1 $1,535.3
======== ========assets...................................................... $1,836.4 $1,622.7
============== ==============
LIABILITIES AND STOCKHOLDER'S DEFICIENCY
Current liabilities:
Short-term borrowings - third parties............................parties.............................. $ 27.142.7 $ 22.727.1
Current portion of long-term debt - third parties................debt-third parties.................... 5.5 8.8
9.2
Accounts payable.................................................payable................................................... 195.5 161.9 151.6
Accrued expenses and other....................................... 365.2 370.6
-------- --------other......................................... 366.1 366.2
-------------- --------------
Total current liabilities................................... 563.0 554.1liabilities......................................... 609.8 564.0
Long-term debt - third parties .......................................debt-third parties........................................ 1,427.8 1,321.8
1,426.2
Long-term debt - affiliates...........................................debt-affiliates........................................... 30.9 30.4 41.3
Other long-term liabilities...........................................liabilities......................................... 224.6 202.8 215.7
Stockholder's deficiency:
Preferred stock, par value $1.00 per share,share; 1,000 shares
authorized, 546 shares issued and outstanding...............outstanding............................ 54.6 54.6
Common stock, par value $1.00 per share,share; 1,000 shares authorized,
issued and outstanding...........................outstanding............................................ - -
Capital deficiency................................................ (232.7) (416.4)deficiency................................................. (230.8) (231.1)
Accumulated deficit since June 24, 1992........................... (299.6) (318.2)1992............................ (256.8) (301.6)
Adjustment for minimum pension liability..........................liability........................... (4.5) (12.4) (17.0)
Currency translation adjustment...................................adjustment.................................... (19.2) (5.8)
(5.0)
-------- ---------------------- --------------
Total stockholder's deficiency............................... (495.9) (702.0)
-------- --------deficiency.................................... (456.7) (496.3)
-------------- --------------
Total liabilities and stockholder's deficiency............... $1,622.1 $1,535.3
======== ========deficiency.................... $1,836.4 $1,622.7
============== ==============
See Notes to Consolidated Financial Statements.
F-3
REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN MILLIONS)(dollars in millions)
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------
1997 1996 1995
1994
--------- --------- ------------------- ---------- ----------
Net sales................................................ $2,167.0 $1,937.8 $1,732.5sales ......................................... $2,390.9 $2,169.5 $1,940.0
Cost of sales............................................ 725.7 652.1 597.3
--------- --------- ---------sales ..................................... 832.1 726.5 653.0
---------- ---------- ----------
Gross profit........................................ 1,441.3 1,285.7 1,135.2profit...................................... 1,558.8 1,443.0 1,287.0
Selling, general and administrative expenses............. 1,240.3 1,139.1 1,026.8
--------- --------- ---------expenses ..... 1,336.7 1,241.6 1,141.4
Business consolidation costs and other, net ...... 7.6 - -
---------- ---------- ----------
Operating income ................................... 201.0 146.6 108.4
--------- --------- ---------income................................. 214.5 201.4 145.6
---------- ---------- ----------
Other expenses (income):
Interest expense...................................expense ................................. 136.2 133.4 142.6 136.7
Interest and net investment income..................income ............... (3.0) (3.4) (4.9)
(6.3)Gain on sale of subsidiary stock ................. (6.0) - -
Amortization of debt issuance costs.................costs .............. 6.7 8.3 11.0 8.4
Foreign currency losses, net........................net ..................... 6.4 5.7 10.9
18.2
Miscellaneous, net..................................net ............................... 5.1 6.3 1.8
2.6
--------- --------- ------------------- ---------- ----------
Other expenses, net.............................net ............................. 145.4 150.3 161.4
159.6
--------- --------- ------------------- ---------- ----------
Income (loss) before income taxes........................ 50.7 (14.8) (51.2)taxes ................. 69.1 51.1 (15.8)
Provision for income taxes..............................taxes ........................ 9.4 25.5 25.4
22.8
--------- --------- ------------------- ---------- ----------
Income (loss) before extraordinary item and
cumulative effect of accounting change............. 25.2 (40.2) (74.0).......... 59.7 25.6 (41.2)
Extraordinary item - earlyitems-early extinguishment of debt......debt .. (14.9) (6.6) -
-
Cumulative effect of accounting change:
Postemployment benefits, net of income tax
benefit of $1.3................................ - - (28.8)
========= ========= =========---------- ---------- ----------
Net income (loss)....................................... ................................. $ 18.644.8 $ (40.2)19.0 $ (102.8)
========= ========= =========(41.2)
========== ========== ==========
See Notes to Consolidated Financial Statements.
F-4
REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S DEFICIENCY
(DOLLARS IN MILLIONS)(dollars in millions)
CURRENCY
PREFERRED CAPITAL ACCUMULATED OTHER TRANSLATION
STOCK DEFICIENCY DEFICIT (a) ADJUSTMENTS ADJUSTMENT
--------- ---------- ----------- ----------- ---------------------- ------------- ------------- -------------
Balance, January 1, 1994...............1995........ $54.6 $(416.4) $(175.2) $(13.9) $(4.4)$(414.7) $(279.4) $(10.9) $ (5.8)
Net loss.......................... (102.8)(b)loss ...................... (41.2)
Adjustment for minimum pension
liability............. 3.0liability .................... (6.1)
Net capital contribution ...... 0.4 (d)
Currency translation
adjustment... (1.4)
----- ------ ------- ------ -----adjustment.................... 0.8
----------- ------------ ------------- ------------- -------------
Balance, December 31, 1994.............1995 ..... 54.6 (416.4) (278.0) (10.9) (5.8)
Net loss.......................... (40.2)
Adjustment for minimum
pension liability............. (6.1)
Currency translation adjustment... 0.8
----- ------ ------- ------ -----
Balance, December 31, 1995............. 54.6 (416.4) (318.2)(414.3) (320.6) (17.0) (5.0)
Net income........................ 18.6income .................... 19.0
Contribution from parent..........parent ...... 187.8 (e)
Adjustment for minimum pension
liability.............liability .................... 4.6
Net capital distribution ...... (0.5)(d)
Currency translation
adjustment...adjustment.................... (0.8)(d)(c)
Acquisition of business...........business ....... (4.1)(c)
----- ------ ------- ------ -----(b)
----------- ------------ ------------- ------------- -------------
Balance, December 31, 1996.............1996 ..... 54.6 (231.1) (301.6) (12.4) (5.8)
Net income .................... 44.8
Adjustment for minimum pension
liability .................... 7.9
Net capital contribution ...... 0.3 (d)
Currency translation
adjustment.................... (13.4)
----------- ------------ ------------- ------------- -------------
Balance, December 31, 1997 ..... $54.6 $(232.7) $(299.6) $(12.4) $(5.8)
===== ====== ======= ====== =====$(230.8) $(256.8) $ (4.5) $(19.2)
=========== ============ ============= ============= =============
- ------------
(a) Represents net loss since June 24, 1992, the effective date of the
transfer agreements referred to in Note 12.15.
(b) Includes cumulative effect of change to new accounting standard for
postemployment benefits as of January 1, 1994.
(c) Represents amountamounts paid to Revlon Holdings Inc. for the Tarlow
Advertising Division ("Tarlow") (See Note 15).
See Note 12.
(d)(c) Includes $2.1 of gains related to the Company's simplification of its
international corporate structure.
(d) Represents changes in capital from the acquisition of the Bill Blass
business (See Note 15).
(e) Represents the capital contribution from Revlon, Inc. with the funds
from its initial public equity offering (the "Offering""Revlon IPO").
See Notes to Consolidated Financial Statements.
F-5
REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN MILLIONS)(dollars in millions)
YEAR ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
1994
------- ------- ---------------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).................................................. ......................................... $ 18.644.8 $ (40.2) $(102.8)19.0 $ (41.2)
Adjustments to reconcile net income (loss) to net cash
provided by (used for)
provided by operating activities:
Depreciation and amortization.................................amortization ............................ 103.8 90.9 88.4
78.8
Extraordinary item............................................item ....................................... 14.9 6.6 -
Gain on sale of subsidiary stock ......................... (6.0) - -
Gain on sale of business interests and certain fixed assets, net.........................................net ................ (4.4) - (2.2) -
Cumulative effect of accounting change........................ - - 28.8
Change in assets and liabilities:
Increase in trade receivables............................ (67.5) (44.5) (22.1)
(Increase) decreasereceivables ........................... (70.3) (67.7) (44.1)
Increase in inventories........................ (5.5) (15.3) 14.1
(Increase) decreaseinventories ................................. (21.4) (5.3) (15.1)
Decrease (increase) in prepaid expenses and other
current assets................................. (8.0)assets ......................................... 1.3 (7.9) 4.5 19.1
Increase in accounts payable..............................payable ............................ 21.6 10.8 10.2 23.4
Decrease in accrued expenses and other current
liabilities............................liabilities ............................................ (4.2) (10.2) (12.2)
(22.8)
Other, net................................................net .............................................. (73.0) (45.8) (40.4)
(17.6)
------- ------- ---------------- --------- ---------
Net cash used forprovided by (used for) operating activities............................. (10.1) (51.7) (1.1)
------- ------- -------activities ..... 7.1 (9.6) (52.1)
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures...............................................expenditures ...................................... (56.5) (58.0) (54.3) (52.5)
Proceeds from the sale of business interests and certain
fixed assets.................................................. - 3.0 4.6
Acquisition of businesses, net of cash acquired....................acquired .......... (60.4) (7.1) (21.2)
(3.1)
------- ------- -------Proceeds from the sale of certain fixed assets ............ 8.5 - 3.0
--------- --------- ---------
Net cash used for investing activities.............................activities .................... (108.4) (65.1) (72.5)
(51.0)
------- ------- ---------------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in short-term borrowings - thirdborrowings-third
parties ................................................... 18.0 5.8 (122.9) (5.8)
Proceeds from the issuance of long-term debt - third parties.......debt-third parties 802.3 266.4 493.7 157.6
Repayment of long-term debt - third parties........................debt-third parties ................. (707.5) (366.6) (236.3)
(197.8)
ContributionNet contribution from parent .......................................... 187.8 - -.............................. 0.3 187.3 0.4
Proceeds from the issuance of debt - affiliates....................debt-affiliates ............. 120.7 115.0 157.4
141.7
Repayment of debt - affiliates.....................................debt-affiliates .............................. (120.2) (115.0) (151.0) (141.7)
Acquisition of business from affiliate.............................affiliate .................... - (4.1) - -
Payment of debt issuance costs.....................................costs ............................ (4.5) (10.9) (15.7)
(3.0)
------- ------- ---------------- --------- ---------
Net cash provided by (used for) financing activities............... 78.4 125.2 (49.0)
------- ------- -------activities ................. 109.1 77.9 125.6
--------- --------- ---------
Effect of exchange rate changes on cash............................cash and cash
equivalents ............................................. (3.6) (0.9) (0.1)
0.9
------- ------- ---------------- --------- ---------
Net increase (decrease) in cash and cash equivalents..........equivalents ................ 4.2 2.3 0.9 (100.2)
Cash and cash equivalents at beginning of period..............period ........ 38.6 36.3 35.4
135.6
------- ------- ---------------- --------- ---------
Cash and cash equivalents at end of period....................period ............... $ 42.8 $ 38.6 $ 36.3
$ 35.4
======= ======= ================ ========= =========
Supplemental schedule of cash flow information:
Cash paid during the period for:
Interest ................................................................................................. $ 142.2 $ 139.0 $ 148.2
$ 138.5
Income taxes, net of refunds..............................refunds ............................ 10.6 15.4 18.8 3.9
Supplemental schedule of noncash investing activities:
In connection with business acquisitions, liabilities
were assumed (including minority interest) as follows:
Fair value of assets acquired.............................acquired ........................... $ 132.7 $ 9.7 $ 27.3
$ 3.3
Cash paid.................................................paid ............................................... (64.5) (7.2) (21.6)
(3.1)
======= ======= =======--------- --------- ---------
Liabilities assumed.......................................assumed ..................................... $ 68.2 $ 2.5 $ 5.7
$ 0.2
======= ======= ================ ========= =========
See Notes to Consolidated Financial Statements.
F-6
REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
1. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION:
Revlon Consumer Products Corporation ("Products Corporation" and
together with its subsidiaries, the "Company") was formed in April 1992. The
Company operates in a single business segment with many different products,
which include an extensive array of glamorous, exciting and innovative cosmetic
and skin care, fragrance and personal care products, and professional products
(products for use in and resale by professional salons). In the United States
and increasingly in international markets, the Company's products are sold
principally in the self-select distribution channel. The Company also sells
certain products in the demonstrator-assisted distribution channel, sells
consumer and professional products to United States military exchanges and
commissaries, operates retail outlet stores and has a licensing group. Outside
the United States, the Company also sells such consumer products through
department stores and specialty stores, such as perfumeries.
On June 24, 1992, Products Corporation succeeded to assets and
liabilities of the cosmetic and skin care, fragrance and personal care products
business of its then parent company whose name was changed from Revlon, Inc. to
Revlon Holdings Inc. ("Holdings"). Certain consumer products lines sold in
demonstrator-assisted distribution channels considered not integral to the
Company's business and which historically had not been profitable (the
"Retained Brands") and certain other assets and liabilities arewere retained by
Holdings.
The Consolidated Financial Statements of the Company presented herein
relate to the business to which the Company succeeded and include the assets,
liabilities and results of operations of such business. Assets, liabilities,
revenues, other income, costs and expenses which were identifiable specifically
to the Company are included herein and those identifiable specifically to the
retained and divested businesses of Holdings have been excluded. Amounts which
were not identifiable specifically to either the Company or Holdings are
included herein to the extent applicable to the Company pursuant to a method of
allocation generally based on the respective proportion of the business of the
Company to the applicable total of the businesses of the Company and Holdings.
The operating results of the Retained Brands and divested businesses of
Holdings have not been reflected in the Consolidated Financial Statements of
the Company. Management of the Company believes that the basis of allocation
and presentation is reasonable.
Although the Retained Brands were not transferred to Products
Corporation when the cosmetic and skin care, fragrance and personal care
products business of Holdings was transferred to Products Corporation, Products
Corporation's bank lenders required that all assets and liabilities relating to
such Retained Brands existing on the date of transfer (June 24, 1992), other
than the brand names themselves and certain other intangible assets, be
transferred to Products Corporation. Any assets and liabilities that had not
been disposed of or satisfied by December 31 of the applicable year have been
reflected in the Company's consolidated financial position as of such dates.
However, any new assets or liabilities generated by such Retained Brands since
the transfer date and any income or loss associated with inventory that has
been transferred to Products Corporation relating to such Retained Brands have
been and will be for the account of Holdings. In addition, certain assets and
liabilities relating to divested businesses were transferred to Products
Corporation on the transfer date and any remaining balances as of December 31
of the applicable year have been reflected in the Company's Consolidated
Balance Sheets as of such dates. At December 31, 19961997 and 1995,1996, the amounts
reflected in the Company's Consolidated Balance Sheets aggregated a net
liability of $23.6$23.3 and $31.2,$23.6, respectively, of which $5.2$4.9 and $6.8,$5.2,
respectively, are included in accrued expenses and other and $18.4 and $24.4,
respectively, areas of both
dates is included in other long-term liabilities, respectively.liabilities.
The Consolidated Financial Statements include the accounts of Products
Corporation and its subsidiaries after elimination of all material intercompany
balances and transactions. Further, the Company has made a number of estimates
and assumptions relating to the reporting of assets and liabilities, the
disclosure of liabilities and the reporting of revenues and expenses to prepare
these financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
F-7
Products Corporation is a direct wholly owned subsidiary of Revlon,
Inc., which is an indirect majority owned subsidiary of MacAndrews & Forbes
Holdings Inc. ("MacAndrews Holdings"), a corporation wholly owned indirectly
through Mafco Holdings Inc. ("Mafco Holdings" and, together with MacAndrews
Holdings, "MacAndrews & Forbes") by Ronald O. Perelman.
CASH AND CASH EQUIVALENTS:
Cash equivalents (primarily investments in time deposits which have
original maturities of three months or less) are carried at cost, which
approximates fair value.
INVENTORIES:
Inventories are stated at the lower of cost or market value. Cost is
principally determined by the first-in, first-out method.
PROPERTY, PLANT AND EQUIPMENT:EQUIPMENT AND OTHER ASSETS:
Property, plant and equipment is recorded at cost and is depreciated
on a straight-line basis over the estimated useful lives of such assets as
follows: land improvements, 20 to 40 years; buildings and improvements, 5 to 50
years; machinery and equipment, 3 to 17 years; and office furniture and
fixtures and capitalized software development costs, 2 to 12 years. Leasehold
improvements are amortized over their estimated useful lives or the terms of
the leases, whichever is shorter. Repairs and maintenance are charged to
operations as incurred, and expenditures for additions and improvements are
capitalized.
Included in other assets are permanent displays amounting to
approximately $107.7 and $81.8 (net of amortization) as of December 31, 1997
and 1996, respectively, which are amortized over 3 to 5 years.
INTANGIBLE ASSETS RELATED TO BUSINESSES ACQUIRED:
Intangible assets related to businesses acquired principally represent
goodwill, the majority of which is being amortized on a straight-line basis
over 40 years. The Company evaluates, when circumstances warrant, the
recoverability of its intangible assets on the basis of undiscounted cash flow
projections and through the use of various other measures, which include, among
other things, a review of its image, market share and business plans.
Accumulated amortization aggregated $94.2$104.4 and $84.2$94.2 at December 31, 19961997 and
1995,1996, respectively.
REVENUE RECOGNITION:
The Company recognizes net sales upon shipment of merchandise. Net
sales comprise gross revenues less expected returns, trade discounts and
customer allowances. Cost of sales is reduced for the estimated net realizable
value of expected returns.
INCOME TAXES:
Income taxes are calculated using the liability method in accordance
with the provisions of Statement of Financial Accounting Standards ("SFAS") No.
109, "Accounting for Income Taxes."
The Company is included in the affiliated group of which Mafco
Holdings is the common parent, and the Company's federal taxable income and
loss will be included in such group's consolidated tax return filed by Mafco
Holdings. The Company also may be included in certain state and local tax
returns of Mafco Holdings or its subsidiaries. For all periods presented,
federal, state and local income taxes are provided as if the Company filed its
own income tax returns. On June 24, 1992, Holdings, Revlon, Inc., Products
Corporation and certain of its subsidiaries and Mafco Holdings entered into a
tax sharing agreement, which is described in Note 9.Notes 12 and 15.
F-8
PENSION AND OTHER POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS:
Products Corporation sponsors pension and other retirement plans in
various forms covering substantially all employees who meet eligibility
requirements. For plans in the United States, the minimum amount required
pursuant to the Employee Retirement Income Security Act, as amended, is
contributed annually. Various subsidiaries outside the United States have
retirement plans under which funds are deposited with trustees or reserves are
provided.
Effective January 1, 1994, the Company adopted SFAS No. 112,
"Employers' Accounting for Postemployment Benefits." SFAS No. 112 requires the
Company to accrueProducts Corporation accounts for benefits such as severance,
disability and health insurance provided to former employees prior to their
retirement, if estimable.
The cumulative effect of this change was an after-tax charge of $28.8
principally for severance related to benefits previously recorded on an as and
when paid basis. Such benefits generally are vested and accumulate over
employees' service periods. Effective January 1, 1994, the Company accounts for
such benefitsestimable, on a terminal basis in accordance with the provisions
of SFAS No. 5, "Accounting for Contingencies," as amended by SFAS No. 112,
"Employers' Accounting for Postemployment Benefits," which requires companies
to accrue for postemployment benefits when it is probable that a liability has
been incurred and the amount of such liability can be reasonably estimated,
which Products Corporation has concluded is generally when an employee is
terminated. The Company does
not believe such liabilities can be reasonably estimated prior to termination.
RESEARCH AND DEVELOPMENT:
Research and development expenditures are expensed as incurred. The
amounts charged against earnings in 1997, 1996 and 1995 were $29.7, $26.3 and
1994 were $26.3, $22.3, and
$19.7, respectively.
FOREIGN CURRENCY TRANSLATION:
Assets and liabilities of foreign operations are generally translated
into United States dollars at the rates of exchange in effect at the balance
sheet date. Income and expense items are generally translated at the weighted
average exchange rates prevailing during each period presented. Gains and
losses resulting from foreign currency transactions are included in the results
of operations. Gains and losses resulting from translation of financial
statements of foreign subsidiaries and branches operating in
non-highly
inflationarynon-hyperinflationary economies are recorded as a component of stockholder's
deficiency. Foreign subsidiaries and branches operating in highly inflationaryhyperinflationary
economies translate nonmonetary assets and liabilities at historical rates and
include translation adjustments in the results of operations.
Effective January 1997, the Company's operations in Mexico have been
accounted for as operating in a hyperinflationary economy. Effective July 1997,
the Company's operations in Brazil have been accounted for as is required for a
non-hyperinflationary economy. The impact of the changes in accounting for
Brazil and Mexico were not material to the Company's operating results in 1997.
SALE OF SUBSIDIARY STOCK:
The Company recognizes gains and losses on sales of subsidiary stock
in its Consolidated Statements of Operations.
CLASSES OF STOCK:
Products Corporation designated 1,000 shares of Preferred Stock as the
Series A Preferred Stock, of which 546 shares are outstanding and held by
Revlon, Inc. The holder of Series A Preferred Stock is not entitled to receive
any dividends. The Series A Preferred Stock is entitled to a liquidation
preference of $100,000 per share before any distribution is made to the holders
of Common Stock. The holder of the Series A Preferred Stock does not have any
voting rights, except as required by law. The Series A Preferred Stock may be
redeemed at any time by Products Corporation, at its option, for $100,000 per
share. However, the terms of Products Corporation's various debt agreements
currently restrict Products Corporation's ability to effect such redemption.
F-9
STOCK-BASED COMPENSATION:
SFAS No. 123, "Accounting for Stock-Based Compensation," encourages,
but does not require companies to record compensation cost for stock-based
employee compensation plans at fair value. The Company has chosen to account
for stock-based compensation plans using the intrinsic value method prescribed
in Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock
Issued to Employees," and related Interpretations. Accordingly, compensation
cost for stock options is measured as the excess, if any, of the quoted market
price of Revlon, Inc.'s stock at the date of the grant over the amount an
employee must pay to acquire the stock. Seestock (See Note 11.14).
DERIVATIVE FINANCIAL INSTRUMENTS:
Derivative financial instruments are utilized by the Company to reduce
interest rate and foreign exchange risks. The Company maintains a control
environment which includes policies and procedures for risk assessment and the
approval, reporting and monitoring of derivative financial instrument
activities. The Company does not hold or issue derivative financial instruments
for trading purposes.
The differentials to be received or paid under interest rate contracts
designated as hedges are recognized in income over the life of the contracts as
adjustments to interest expense. Gains and losses on terminations of interest
rate contracts designated as hedges are deferred and amortized into interest
expense over the remaining life of the original contracts.contracts or until repayment of
the hedged indebtedness. Unrealized gains and losses on outstanding contracts
designated as hedges are not recognized.
F-9
Gains and losses on contracts designated to hedge identifiable foreign
currency commitments are deferred and accounted for as part of the related
foreign currency transaction. Gains and losses on all other forward exchangeforeign currency
contracts are included in income currently. Transaction gains and losses have
not been material.
2. EXTRAORDINARY ITEMS
The extraordinary item in 1997 resulted from the write-off in the
second quarter of 1997 of deferred financing costs associated with the early
extinguishment of borrowings under a prior credit agreement and costs of
approximately $6.3 in connection with the redemption of Products Corporation's
10 7/8% Sinking Fund Debentures due 2010 (the "Sinking Fund Debentures"). The
early extinguishment of borrowings under a prior credit agreement and the
redemption of the Sinking Fund Debentures were financed by the proceeds from a
new credit agreement which became effective in May 1997 (the "Credit
Agreement"). The extraordinary item in 1996 resulted from the write-off of
deferred financing costs associated with the early extinguishment of borrowings
with the net proceeds from the Revlon IPO and proceeds from a prior credit
agreement.
3. BUSINESS CONSOLIDATION COSTS AND OTHER, NET
Business consolidation costs and other, net in 1997 include severance
and other costs in connection with the consolidation of certain warehouse,
distribution and headquarter operations related to the Cosmetic Center Merger
(See Note 4); severance, writedowns of certain assets to their estimated net
realizable value and other related costs to rationalize factory and warehouse
operations in certain United States and International operations, partially
offset by related gains from the sales of certain factory operations of
approximately $4.3 and an approximately $12.7 settlement of a claim in the
second quarter of 1997. The business consolidation costs include $15.5 for the
termination of approximately 475 factory and administrative employees. By
December 31, 1997 the Company terminated approximately 260 employees, made cash
payments for such terminations of approximately $7.7, and made cash payments
for other business consolidation costs of approximately $5.4. As of December
31, 1997, the unpaid balance of the business consolidation accrual approximated
$11.5, which amount is included in accrued expenses and other.
F-10
4. ACQUISITIONS
On April 25, 1997, Prestige Fragrance & Cosmetics, Inc. ("PFC"), a
wholly owned subsidiary of Products Corporation, and The Cosmetic Center, Inc.
("CCI") completed the merger of PFC with and into CCI (the "Cosmetic Center
Merger") with CCI (subsequent to the Cosmetic Center Merger, "Cosmetic Center")
surviving the Cosmetic Center Merger. In the Cosmetic Center Merger, Products
Corporation received in exchange for all of the capital stock of PFC newly
issued Class C Common Stock of Cosmetic Center constituting approximately 85.0%
of Cosmetic Center's outstanding common stock. Accordingly, the Cosmetic Center
Merger was accounted for as a reverse acquisition using the purchase method of
accounting, with PFC considered the acquiring entity for accounting purposes
even though Cosmetic Center is the surviving legal entity. The deemed purchase
consideration for the acquisition was approximately $27.9 and the goodwill
associated with the Cosmetic Center Merger was approximately $10.5. The Company
recognized a gain of $6.0 resulting from the sale of subsidiary stock pursuant
to the Cosmetic Center Merger. The results of the Company for the period ended
December 31, 1997 include the results of operations of Cosmetic Center since
the effective date of the Cosmetic Center Merger.
The following represents certain summary unaudited pro forma
information as if the Cosmetic Center Merger had occurred as of the beginning
of the respective periods presented. The summary unaudited pro forma
information below combines the actual results of the Company (including
Cosmetic Center after the Cosmetic Center Merger) and the results of CCI prior
to the Cosmetic Center Merger, excluding non-recurring business consolidation
costs directly attributable to the Cosmetic Center Merger of $4.0 in 1997, and
reflects increased amortization of goodwill, increased interest expense and
certain income tax adjustments related to the Cosmetic Center Merger that would
have been incurred had the Cosmetic Center Merger occurred at such dates. The
unaudited summary pro forma information is not necessarily indicative of the
results of operations of the Company had the Cosmetic Center Merger occurred at
such dates, nor is it necessarily indicative of future results.
YEAR ENDED
DECEMBER 31,
----------------------
1997 1996
---------- ----------
Net sales........................ $2,426.5 $2,303.3
Operating income................. 216.4 195.1
Income before extraordinary
item............................ 60.6 16.3
In 1997, the Company consummated other acquisitions for a combined
purchase price of $51.6, with resulting goodwill of $35.8. These acquisitions
were not significant to the Company's results of operations. Acquisitions
consummated in 1996 and 1995 were also not significant to the Company's results
of operations.
5. INVENTORIES
DECEMBER 31,
---------------------
1996 1995
------- ------
Raw materials and supplies................. $ 76.6 $ 84.8
Work-in-process............................ 19.4 27.9
Finished goods............................. 185.0 165.1
------- -------
$ 281.0 $ 277.8
======= =======
3.
DECEMBER 31,
------------------
1997 1996
------ ------
Raw materials and
supplies........................ $ 82.6 $ 76.6
Work-in-process.................. 14.9 19.4
Finished goods................... 251.8 185.1
------ ------
$349.3 $281.1
====== ======
F-11
6. PREPAID EXPENSES AND OTHER
DECEMBER 31,
---------------------
1996 1995
------- ------
Prepaid expenses............................. $ 43.1 $ 36.5
Other........................................ 32.2 25.9
------- -------
$ 75.3 $ 62.4
DECEMBER 31,
----------------
1997 1996
------- -------
Prepaid expenses............................................ $40.9 $43.1
Other....................................................... 58.4 32.2
------- -------
$99.3 $75.3
======= =======
4.
7. PROPERTY, PLANT AND EQUIPMENT, NET
DECEMBER 31,
---------------------
1996 1995
------- ------
Land and improvements........................ $ 37.5 $ 39.4
Buildings and improvements................... 207.6 203.2
Machinery and equipment...................... 194.9 192.8
Office furniture and fixtures................ 59.4 47.8
Leasehold improvements....................... 37.5 33.6
Construction-in-progress..................... 43.7 41.4
------- -------
580.6 558.2
Accumulated depreciation..................... (199.5) (191.1)
------- -------
$ 381.1 $ 367.1
======= =======
DECEMBER 31,
--------------------
1997 1996
--------- ---------
Land and improvements....................................... $ 32.5 $ 37.5
Buildings and improvements.................................. 193.2 207.6
Machinery and equipment..................................... 208.5 194.9
Office furniture and fixtures and software development
costs...................................................... 85.5 59.4
Leasehold improvements...................................... 44.9 37.5
Construction-in-progress.................................... 30.6 43.7
--------- ---------
595.2 580.6
Accumulated depreciation.................................... (217.0) (199.5)
--------- ---------
$ 378.2 $ 381.1
========= =========
Depreciation expense for the years ended December 31, 1997, 1996
and 1995 was $42.1, $39.1 and 1994 was $39.1, $38.6, and $34.7, respectively.
5.8. ACCRUED EXPENSES AND OTHER
DECEMBER 31,
---------------------
1996 1995
------- ------
Advertising and promotional costs and
accrual for sales returns ................. $ 136.4 $127.8
Compensation and related benefits............ 95.5 100.7
Interest..................................... 36.7 37.9
Taxes, other than federal income taxes....... 35.0 33.8
Restructuring costs.......................... 6.9 15.2
Net liabilities assumed from Holdings........ 5.2 6.8
Other........................................ 49.5 48.4
------- -------
$ 365.2 $ 370.6
======= =======
F-10
6.
DECEMBER 31,
------------------
1997 1996
-------- --------
Advertising and promotional costs and accrual for sales
returns..................................................... $ 148.0 $ 137.4
Compensation and related benefits............................ 76.6 95.5
Interest..................................................... 32.3 36.7
Taxes, other than federal income taxes....................... 32.1 35.0
Restructuring and business consolidation costs............... 18.6 6.9
Net liabilities assumed from Holdings........................ 4.9 5.2
Other........................................................ 53.6 49.5
-------- --------
$ 366.1 $ 366.2
======== ========
9. SHORT-TERM BORROWINGS
Products Corporation maintained short-term bank lines of credit at
December 31, 19961997 and 19951996 aggregating approximately $72.7$82.3 and $69.0,$72.7,
respectively, of which approximately $27.1$42.7 and $22.7$27.1 were outstanding at
December 31, 19961997 and 1995, respectively. Compensating balances at December 31,
1996, and 1995 were approximately $7.4 and $7.2, respectively. Interest rates on amounts borrowed
under such short-term lines at December 31, 19961997 and 19951996 varied from 2.5% to
12.0% and 2.2% to 12.1% and 2.0% to 13.4%, respectively. 7. LONG-TERM DEBT
DECEMBER 31,
-----------------------
1996 1995
-------- --------
Working capital lines (a)........................ $ 187.2 $ 277.5
Bank mortgage loan agreement due 1997 (b)........ 41.7 52.4
9 1/2% Senior Notes due 1999 (c)................. 200.0 200.0
9 3/8 % Senior Notes due 2001 (d)................ 260.0 260.0
10 1/2% Senior Subordinated Notes due 2003 (e)... 555.0 555.0
10 7/8 % Sinking Fund Debentures due 2010 (f).... 79.6 79.2
Advances from Holdings (g)....................... 30.4 41.3
Other mortgages and notes payable (8.6%-13.0%)
due through 2001............................. 7.1 11.3
-------- --------
1,361.0 1,476.7
Less current portion............................. (8.8) (9.2)
-------- --------
$1,352.2 $1,467.5
======== ========
(a) The credit agreement in effectCompensating balances at December 31,
1995 (the "Former
Credit Agreement"), which was subsequently amended, provided up to $500.0
comprised of three senior secured facilities: a $100.0 term loan facility, a
$225.0 revolving credit facility1997 and a $175.0 multi-currency facility. Products
Corporation complied with each of the financial covenants contained in the
Former Credit Agreement, as of1996 were approximately $6.2 and for the defined measurement periods ended$7.4, respectively. Interest rates on
compensating balances at December 31, 1995. The Former Credit Agreement was scheduled1997 and 1996 varied from 0.4% to expire on June
30, 1997.8.1%
and 0.4% to 7.9%, respectively.
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10. LONG-TERM DEBT
DECEMBER 31,
---------------------
1997 1996
---------- ---------
Working capital lines (a)...................................... $ 344.6 $ 187.2
Bank mortgage loan agreement due 2000 (b)...................... 33.3 41.7
9 1/2% Senior Notes due 1999 (c)............................... 200.0 200.0
9 3/8% Senior Notes due 2001 (d)............................... 260.0 260.0
10 1/2% Senior Subordinated Notes due 2003 (e)................. 555.0 555.0
10 7/8% Sinking Fund Debentures due 2010 (f)................... - 79.6
Advances from Holdings (g)..................................... 30.9 30.4
Other mortgages and notes payable (8.6%-13.0%) due through
2001.......................................................... 1.4 7.1
Cosmetic Center facility (h)................................... 39.0 -
---------- ---------
1,464.2 1,361.0
Less current portion........................................... (5.5) (8.8)
---------- ---------
$1,458.7 $1,352.2
========== =========
(a) In connection with repayments of indebtedness under the Former Credit
Agreement in 1996, the commitments thereunder were extinguished, representing
an early extinguishment of a portion of such facilities. Consequently, in 1996,
the Company recognized a loss of approximately $6.6 representing the then
unamortized debt issuance costs, which have been reported in the Consolidated
Statements of Operations as an extraordinary item.
Loans that were outstanding under the Former Credit Agreement's
revolving credit facility and term loan facility bore interest initially at a
rate equal to, at Products Corporation's option, either (A) the alternate base
rate, defined to mean the highest of (i) the prime rate, (ii) the secondary
market rate for certificates of deposit plus 1% and (iii) the federal funds
rate plus 1/2%; in each case plus 2 1/2% or (B) the Eurodollar Rate plus 3
1/2%. The multi- currency facility bore interest at a rate equal to the
Eurocurrency Rate, the local lender rate or the alternate base rate, in each
case plus 3 1/2%.
In January 1996,May 1997, Products Corporation entered into the Credit
Agreement with a credit agreement
(the "Credit Agreement"), which became effective upon consummationsyndicate of lenders, whose individual members change from
time to time. The proceeds of loans made under the Offering on March 5, 1996.Credit Agreement were used
to repay the loans outstanding under the 1996 Credit Agreement and to redeem
the Sinking Fund Debentures.
The Credit Agreement includes, among other things,
(i) an extension of the term of the facilities from June 30, 1997provides up 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 $500.0 to $600.0 (subject to reduction as described below)$750.0 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 fourfive
senior secured facilities: a
$130.0$200.0 in two term loan facilityfacilities (the "Term Loan
Facility"Facilities"), a $220.0$300.0 multi-currency facility (the "Multi-Currency Facility"),
a $200.0 revolving acquisition facility, which may be increased to $400.0 under
certain circumstances with the consent of a majority of the lenders (the
"Acquisition Facility"), and a $50.0 special standby letter of credit facility
(the "Special LC Facility" and together with the Term Loan Facility,Facilities, the
Multi-Currency Facility and the Acquisition Facility, the "Credit Facilities").
The Multi-Currency Facility is available (i) to Products Corporation in
revolving credit loans denominated in U.S. dollars (the
F-11
"Revolving Credit
Loans"), (ii) to Products Corporation in standby and commercial letters of
credit denominated in U.S. dollars (the "Operating Letters of Credit") and
(iii) to Products Corporation and certain of its international subsidiaries
designated from time to time in revolving credit loans and bankers' acceptances
denominated in U.S. dollars and other currencies (the "Local Loans"). At
December 31, 1997 Products Corporation had approximately $200.0 outstanding
under the Term Loan Facilities, $102.7 outstanding under the Multi-Currency
Facility, $41.9 outstanding under the Acquisition Facility and $34.8 of issued
but undrawn letters of credit under the Special LC Facility.
The Credit Facilities (other than loans in foreign currencies) bear
interest as of December 31, 1997 at a rate equal to, at Products Corporation's
option, either (A) the Alternate Base Rate plus 1.5%1/4 of 1% (or 2.5%1.25% for Local
Loans); or (B) the Eurodollar Rate plus 2.5%1.25%. Loans in foreign currencies bear
interest as of December 31, 1997 at a rate equal to the Eurocurrency Rate or,
in the case of Local Loans, the local lender rate, in each case plus 2.5%1.25%. The
applicable margin is reduced (or increased, but not above 2%3/4 of 1% for
Alternate Base Rate Loans not constituting Local Loans and 3%1.75% for other
loans) in the event Products Corporation attains (or fails to attain) certain
leverage ratios. Products Corporation pays the Lenderlender a commitment fee as of
1/2December 31, 1997 of 3/8 of 1% of the unused portion of the Credit Facilities.Facilities,
subject to reduction (or increase, but not above 1/2 of 1%) based on attaining
(or failing to attain) certain leverage ratios. Under the Multi-Currency
Facility, the Company pays the lenders an administrative fee of 1/4% per annum
on the aggregate principal amount of specified Local Loans. Products
Corporation also paid certain facility and other fees to the lenders and agents
upon closing of the Credit Agreement. Prior to its termination date, the
commitments under the Credit Facilities will be reduced by: (i) the net
proceeds in excess of $10.0 each year received during such year from sales of
assets by Holdings (or certain of its subsidiaries), Products Corporation or
any of its subsidiaries (and $25.0 with respect to certain specified
dispositions), subject to certain limited exceptions, (ii) certain proceeds
from the sales of collateral security granted to the lenders, (iii) the net
proceeds from the issuance by Holdings, Products Corporation or any of its subsidiaries
of certain additional debt, (iv) 50% of the excess cash flow of Products
Corporation and its subsidiaries (unless certain leverage ratios are attained)
and (v) certain scheduled reductions in the case of the Term Loan Facility,Facilities,
which will commence on JanuaryMay 31, 19971998 in the aggregate amount of $1.0 annually
over the remaining life of the Credit Agreement, and in the case of the
Acquisition Facility, which will commence on
F-13
December 31, 19971999 in the amount of $20.0, $50.0$25.0 and in 1998,the amounts of $60.0 in 1999during
2000, $90.0 during 2001 and $70.0 in 2000. In
addition,$25.0 during 2002 (which reductions will be
proportionately increased if the Credit Agreement requires that the net proceeds from any sale of
equity securities of any parent of Products Corporation which has the assets of
Products Corporation or certain of its subsidiaries as its only substantial
assets be contributed to Products Corporation (except to the extent that such
proceeds are applied to repay or refinance the Senior Secured Discount Notes
Due 1998 (the "Senior Secured Discount Notes") of Revlon Worldwide Corporation
Or are deposited with the trustee under the Indenture covering such notes) and
that Products Corporation use 50% of such proceeds, in certain circumstances,
to reduce commitments under the Credit Agreement.Acquisition Facility is increased). The Credit
Agreement will terminate on December 31, 2000 (subject to earlier terminationMay 30, 2002. The weighted average interest rates
on March 31,
1999 if Products Corporation has not refinanced its 9 1/2% Senior Notes due
1999 (the "1999 Senior Notes") before March 31, 1999 or if an alternative plan
for the refinancing ofTerm Loan Facilities, the 1999 Senior Notes has not been approved byMulti-Currency Facility and the majority lenders prior to March 15, 1999). AsAcquisition
Facility were 7.1%, 5.4% and 5.7% per annum, respectively, 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, none outstanding under the
Acquisition Facility and $33.5 outstanding under the Special LC Facility.1997.
The Credit Facilities, subject to certain exceptions and limitations,
are supported by guarantees from Holdings and certain of its subsidiaries,
the
CompanyRevlon, Inc., Products Corporation and the domestic subsidiaries of Products
Corporation. The obligations of Products Corporation under the Credit
Facilities and the obligations under the aforementioned guarantees are secured,
subject to certain limitations, by (i) mortgages on Holdings' Edison, New
Jersey and Products Corporation's Phoenix, Arizona facilities; (ii) the capital
stock of Products Corporation and its domestic subsidiaries, and 66% of the capital
stock of its first tier foreign subsidiaries and the capital stock of certain
subsidiaries of Holdings; (iii) domestic intellectual property and certain
other domestic intangibles of (x) Products Corporation and its domestic
subsidiaries (other than Cosmetic Center) and (y) certain subsidiaries of
Holdings; (iv) domestic inventory and accounts receivable of (x) Products
Corporation and its domestic subsidiaries (other than Cosmetic Center) and (y)
certain subsidiaries of Holdings; and (v) the assets of certain foreign
subsidiary borrowers under the Multi-Currency Facility (to support their
borrowings only). The Credit Agreement provides that the liens on the stock and
personal property referred to above may be shared from time to time with
specified types of other obligations incurred or guaranteed by Products
Corporation, that were not
included in the Former Credit Agreement, such as interest rate hedging obligations, working capital lines
and the Yena subsidiary of Products Corporation's Yen-denominated credit agreement
(the "Yen Credit Agreement (as defined
below)Agreement").
The Credit Agreement contains various material restrictive covenants
prohibiting Products Corporation and its subsidiaries from among other things, (i) incurring additional indebtedness or
guarantees, with certain exceptions, (ii) making dividend, tax sharing (see Note 9 "Income Taxes") and
other payments or loans to Revlon, Inc. or other affiliates, with certain
exceptions, including among others, permitting Products Corporation to pay
dividends and make distributions to Revlon, Inc., among other things, to enable
Revlon, Inc. to pay expenses incidental to being a public holding company,
including, among other things, professional fees such as legal and accounting,
regulatory fees such as Securities and Exchange Commission ("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
F-12
certain circumstances to
finance the purchase by Revlon, Inc. of its common stock in connection with the
delivery of such common stock to grantees under any stock option plan, provided
that the aggregate amount of such dividends and distributions taken together
with any purchases of Revlon, Inc. common stock on the market to satisfy
matching obligations under an excess savings plan may not exceed $6.0 per
annum, (iii) creating liens or other encumbrances on their assets or revenues,
granting negative pledges or selling or transferring any of their assets except
in the ordinary course of business, all subject to certain limited exceptions,
(iv) with certain exceptions, engaging in merger or acquisition transactions,
(v) prepaying indebtedness, subject to certain limited exceptions, (vi) making
investments, subject to certain limited exceptions, and (vii) entering into
transactions with affiliates of Products Corporation other than upon terms no
less favorable to Products Corporation or its subsidiaries than it would obtain
in an arms' length transaction. In addition to the foregoing, the Credit
Agreement contains certain financial
covenants including, among other things, covenants requiring Products Corporation and its subsidiaries to
maintain minimum consolidated adjusted net
worth, minimum EBITDA (defined as earnings before interest, taxes, depreciation
and amortization and certain other charges), minimum interest coverage and covenants which limit the amount of total indebtednessleverage ratio
of Products Corporation and the amount of capital expenditures.
In January 1997,1996, Products Corporation entered into a credit agreement
(the "1996 Credit Agreement"), which became effective upon consummation of the
Revlon IPO on March 5, 1996. The 1996 Credit Agreement was amended to,included, among other
things, (i) permita term to December 31, 2000 (subject to earlier termination in
certain circumstances), and (ii) credit facilities of $600.0 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 standby letter of
credit facility. The weighted average interest rates on the merger of Prestige Fragrance & Cosmetics, Inc. ("PFC"),
a wholly owned subsidiary of Products Corporation, into The Cosmetic Center,
Inc. ("Cosmetic Center")term loan facility
and to generally exclude Cosmetic Center (as the
survivor of the merger) from the definition of "subsidiary" under the Credit
Agreement, (ii) increase the amount of permitted dividendsmulti-currency facility were 8.1% and distributions to
finance the purchase by Revlon, Inc. of its common stock in connection with the
delivery of such common stock to grantees under any stock option plan to $6.07.0% per annum, and (iii) permit Products Corporation to purchase capital stockrespectively, as of
Revlon, Inc. for purposes of making matching contributions under a proposed
Non-Qualified Excess Savings Plan for Key Executives.December 31, 1996.
(b) The Pacific Finance & Development Corp., a subsidiary of Products
Corporation, , is the borrower under a yen denominated credit agreement (the "Yen
Credit Agreement"), which had a principal balance of approximately
Yen 4.84.3 billion as of December 31, 19961997 (approximately $41.7$33.3 U.S. dollar
equivalent as of December 31, 1996)1997). In accordance with the terms of the
Yen Credit Agreement, approximately Yen 2.7 billion (approximately $26.9 U.S. dollar
equivalent) was paid in January 1995 and approximately Yen 539 million (approximately
$5.2 U.S. dollar equivalent) was paid in January 1996. A payment
of1996 and approximately
Yen 539 million (approximately $4.6 U.S. dollar equivalent as
of December 31, 1996)equivalent) was paid in
January 1997. The balanceIn June 1997, Products Corporation amended and restated the
Yen Credit Agreement to extend the term
F-14
to December 31, 2000 subject to earlier termination under certain
circumstances. In accordance with the terms of the Yen Credit Agreement, ofas
amended and restated, approximately Yen 4.3 billion539 million (approximately $37.1$4.2 U.S.
dollar equivalent as of December 31, 1996)1997) is currentlydue in each of March 1998, 1999
and 2000 and Yen 2.7 billion (approximately $20.7 U.S. dollar equivalent as of
December 31, 1997) is due on December 31, 1997.
Products Corporation is currently renegotiating an extension of the term of the
Yen Credit Agreement. In the event that such extension is not obtained,
Products Corporation 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, 1996.2000. The applicable interest rate at
December 31, 19961997 under the Yen Credit Agreement was the Euro-Yen rate plus
2.5%1.25% which approximated 3.1%1.9%. The interest rate at December 31, 1995, applicable to the remaining
balance,1996, was the
Euro-Yen rate plus 3.5%2.5%, which approximated 4.1%3.1%.
(c) The 1999 Senior Notes due 1999 (the "1999 Senior Notes") are senior
unsecured obligations of Products Corporation and rank pari passu in right of
payment to all existing and future Senior Debt (as defined in the indenture
relating to the 1999 Senior Notes (the "1999 Senior Note Indenture")). The 1999
Senior Notes bear interest at 9 1/2% per annum. Interest is payable on June 1
and December 1.
The 1999 Senior Notes may not be redeemed prior to maturity. Upon a
Change of Control (as defined in the 1999 Senior Note Indenture) and subject to
certain conditions, each holder of 1999 Senior Notes will have the right to
require Products Corporation to repurchase all or a portion of such holder's
1999 Senior Notes at 101% of the principal amount thereof plus accrued and
unpaid interest, if any, to the date of repurchase. In addition, under certain
circumstances in the event of an Asset Disposition (as defined in the 1999
Senior Note Indenture), Products Corporation will be obligated to make offers
to purchase the 1999 Senior Notes.
The 1999 Senior Note Indenture contains various restrictive covenants
that, among other things, limit (i) the issuance of additional debt and
redeemable stock by Products Corporation, (ii) the issuance of debt and
preferred stock by Products Corporation's subsidiaries, (iii) the incurrence of
liens on the assets of Products Corporation and its subsidiaries which do not
equally and ratably secure the 1999 Senior Notes, (iv) the payment of dividends
on and redemption of capital stock of Products Corporation and its subsidiaries
and the redemption of certain subordinated obligations of Products Corporation,
except that the 1999 Senior Note Indenture permits Products Corporation to pay
F-13
dividends and make distributions to Revlon, Inc., among other things, to enable
Revlon, Inc. to pay expenses incidental to being a public holding company,
including, among other things, professional fees such as legal and accounting,
regulatory fees such as 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 (subject to allowable increases) in certain
circumstances to finance the purchase by Revlon, Inc. of its Class A Common
Stock in connection with the delivery of such Class A Common Stock to grantees
under any stock option plan, (v) the sale of assets and subsidiary stock, (vi)
transactions with affiliates and (vii) consolidations, mergers and transfers of
all or substantially all of Products Corporation's assets. The 1999 Senior Note
Indenture also prohibits certain restrictions on distributions from
subsidiaries. All of these limitations and prohibitions, however, are subject
to a number of important qualifications.
(d) The 9 3/8% Senior Notes due 2001 (the "Senior Notes") are senior
unsecured obligations of Products Corporation and rank pari passu in right of
payment to all existing and future Senior Debt (as defined in the indenture
relating to the Senior Notes (the "Senior Note Indenture")). The Senior Notes
bear interest ofat 9 3/8% per annum. Interest is payable on April 1 and October
1.
The Senior Notes may be redeemed at the option of Products Corporation
in whole or in part at any time on or after April 1, 1998 at the redemption
prices set forth therein,in the Senior Note Indenture, plus accrued and unpaid
interest, if any, to the date of redemption. Upon a Change of Control (as
defined in the Senior Note Indenture), Products Corporation will have the
option to redeem the Senior Notes in whole or in part at a redemption price
equal to the principal amount thereof plus the Applicable Premium (as defined
in the Senior Note Indenture), plus accrued and unpaid interest, if any, to the
date of redemption, and, subject to certain conditions, each holder of Senior
Notes will have the right to require Products Corporation to repurchase all or
a portion of such holder's Senior Notes at 101% of the principal amount
thereof, plus accrued and unpaid interest, if any, to the date of repurchase.
In addition, under certain circumstances in the event of an Asset Disposition
(as defined in the Senior Note Indenture), Products Corporation will be
obligated to make offers to purchase the Senior Notes.
The Senior Note Indenture contains various restrictive covenants that,
among other things, limit (i) the issuance of additional indebtedness and
redeemable stock by Products Corporation, (ii) the issuance of indebtedness and
preferred stock by Products Corporation's subsidiaries, (iii) the incurrence of
liens on the assets of Products Corporation and its subsidiaries which do not
equally and ratably secure the Senior Notes, (iv) the payment of
F-15
dividends on capital stock of Products Corporation and its subsidiaries and the
redemption of capital stock and certain subordinated obligations of Products
Corporation, except that the Senior Note Indenture permits Products Corporation
to pay dividends and make distributions to Revlon, Inc., among other things, to
enable Revlon, Inc. to pay expenses incidental to being a public holding
company, including, among other things, professional fees such as legal and
accounting, regulatory fees such as 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 (subject to allowable
increases) in certain circumstances to finance the purchase by Revlon, Inc. of
its Class A Common Stock in connection with the delivery of such Class A Common
Stock to grantees under any stock option plan, (v) the sale of assets and
subsidiary stock, (vi) transactions with affiliates and (vii) consolidations,
mergers and transfers of all or substantially all of Products Corporation's
assets. The Senior Note Indenture also prohibits certain restrictions on
distributions from subsidiaries of Products Corporation. All of these
limitations and prohibitions, however, are subject to a number of important
qualifications.qualifications (See Note 19).
(e) The Senior Subordinated Notes due 2003 (the "Senior Subordinated
Notes") are unsecured obligations of Products Corporation and are subordinated
in right of payment to all existing and future Senior Debt (as defined in the
indenture relating to the Senior Subordinated Notes (the "Senior Subordinated
Note Indenture")). The Senior Subordinated Notes bear interest ofat 10 1/2% per
annum. Interest is payable on February 15 and August 15.
The Senior Subordinated Notes may be redeemed at the option of
Products Corporation in whole or in part at any time on or after February 15,
1998 at the redemption prices set forth therein,in the Senior Subordinated Note
Indenture, plus accrued and unpaid interest, if any, to the date of redemption.
Upon a Change of Control (as defined in the Senior Subordinated Note
Indenture), Products Corporation will have the option to redeem the Senior
Subordinated Notes in whole or in part at a redemption price equal to the
principal amount thereof plus the Applicable Premium (as defined in the Senior
Subordinated Note Indenture), plus accrued and unpaid interest, if any, to the
date of redemption, and, subject to certain conditions, each holder of Senior
Subordinated Notes will have the right to require Products Corporation to
repurchase all or a portion of such holder's Senior Subordinated Notes at 101%
of the principal amount thereof, plus accrued and unpaid interest, if
F-14
any, to
the date of repurchase. In addition, under certain circumstances in the event
of an Asset Disposition (as defined in the Senior Subordinated Note Indenture),
Products Corporation will be obligated to make offers to purchase the Senior
Subordinated Notes.
The Senior Subordinated Note Indenture contains various restrictive
covenants that, among other things, limit (i) the issuance of additional
indebtedness and redeemable stock by Products Corporation, (ii) the issuance of
indebtedness and preferred stock by Products Corporation's subsidiaries, (iii)
the incurrence of liens on the assets of Products Corporation and its
subsidiaries to secure debt other than Senior Debt (as defined in the Senior
Subordinated Note Indenture) or debt of a subsidiary, unless the Senior
Subordinated Notes are equally and ratably secured, (iv) the payment of
dividends on capital stock of Products Corporation and its subsidiaries and the
redemption of capital stock and certain subordinated obligations of Products
Corporation, except that the Senior Subordinated Note Indenture permits
Products Corporation to pay dividends and make distributions to Revlon, Inc.,
among other things, to enable Revlon, Inc. to pay expenses incidental to being
a public holding company, including, among other things, professional fees such
as legal and accounting, regulatory fees such as 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 (subject to allowable
increases) in certain circumstances to finance the purchase by Revlon, Inc. of
its Class A Common Stock in connection with the delivery of such Class A Common
Stock to grantees under any stock option plan, (v) the sale of assets and
subsidiary stock, (vi) transactions with affiliates and (vii) consolidations,
mergers and transfers of all or substantially all of Products Corporation's
assets. The Senior Subordinated Note Indenture also prohibits certain
restrictions on distributions from subsidiaries of Products Corporation. All of
these limitations and prohibitions, however, are subject to a number of
important qualifications.qualifications (See Note 19).
(f) Holdings' 10 7/8%Products Corporation redeemed all the outstanding $85.0 principal
amount of Sinking Fund Debentures due 2010 (face valueduring 1997 with the proceeds of $85.0, net of repurchases) (the "Sinking Fund Debentures") are redeemable, in
whole or in part, at 101.96% ofborrowings
under the principal amount for the year beginning
July 15, 1996, decreasing evenly each year on July 15, to par by July 15, 2000.
Mandatory sinking fund redemptions of $9.0 per year commenced in 1991. Optional
sinking fund redemptions of up to an additional $13.5 per year may be made
annually and may be applied to reduce any subsequent mandatory sinking fund
redemption. Interest is payable on January 15 and July 15. Holdings purchased
$115.0 of the Sinking Fund Debentures in the open market prior to 1985, $9.0 of
which had been used in each of the years 1991 through 1996 to satisfy sinking
fund payment obligations and approximately $61.0 of which is creditable to
future sinking fund requirements. The indenture relating to the Sinking Fund
Debentures contains various restrictive covenants prohibiting Products
Corporation and its subsidiaries from (i) incurring indebtedness in excess of
5% of the consolidated net tangible assets, where such indebtedness is secured
by any manufacturing plant in the United States owned or leased by Products
Corporation, the book value of which exceeds 2% of the consolidated net
tangible assets of Products Corporation, unless the Sinking Fund Debentures are
equally and ratably secured, (ii) entering into certain sale and leaseback
transactions or (iii) consolidating or merging with or into, or selling or
transferring all or substantially all of their properties and assets to,
another corporation, unless certain conditions are satisfied.Credit Agreement.
(g) During 1992, Holdings made an advance of $25.0 to Products
Corporation. This advance was evidenced by a noninterest-bearing demand note
payable by Products Corporation, the payment of which was subordinated to the
obligations of Products Corporation under the credit agreement in effect at
that time. Holdings agreed not to demand payment under the note so long as any
indebtedness remained outstanding under the credit agreement in effect at that
F-16
time. In February 1995, the $13.3 in notes due to Products Corporation under
the Financing Reimbursement Agreement, referred to in Note 12,15, was offset
against the $25.0 note and Holdings agreed not to demand payment under the
resulting $11.7 note so long as certain indebtedness remains outstanding under the
Credit Agreement.outstanding. In
October 1993, Products Corporation borrowed from Holdings approximately $23.2
(as adjusted and subject to further adjustment for certain expenses)
representing amounts received by Holdings from an escrow account relating to
divestiture by Holdings of certain of its predecessor businesses. In July 1995,
Products Corporation borrowed from Holdings approximately $0.8, representing
certain amounts received by Holdings relating to an arbitration arising out of
the sale by Holdings of certain of its businesses. In 1995, Products
Corporation borrowed from Holdings approximately $5.6, representing certain
amounts received by Holdings from the sale by Holdings of certain of its
businesses. In June 1996, $10.9 in notes due to Products Corporation under the
Financing Reimbursement Agreement from Holdings was offset against the $11.7
demand note (referred to above) payable by Products Corporation to Holdings. In
accordance withJune 1997, Products Corporation borrowed from Holdings approximately $0.5,
representing certain amounts received by Holdings from the Credit Agreement, such amounts, as adjusted,
aresale of a brand and
the inventory relating thereto. At December 31, 1997 the balance of $30.9 is
evidenced by noninterest-bearing promissory notes payable to Holdings that are
subordinated to Products Corporation's obligations under the Credit Agreement.
F-15
(h) In connection with the Cosmetic Center Merger, on April 25, 1997
Cosmetic Center entered into a loan and security agreement (the "Cosmetic
Center Facility"). Cosmetic Center paid the then outstanding balance of $14.0
on CCI's former credit agreement with borrowings under the Cosmetic Center
Facility. On April 28, 1997, Cosmetic Center used approximately $21.2 of
borrowings under the Cosmetic Center Facility to fund the cash election
associated with the Cosmetic Center Merger. The Cosmetic Center Facility, which
expires on April 30, 1999, provides up to $70.0 of revolving credit tied to a
borrowing base of 65% of Cosmetic Center's eligible inventory, as defined in
the Cosmetic Center Facility. Borrowings under the Cosmetic Center Facility are
collateralized by Cosmetic Center's accounts receivable and inventory and
proceeds therefrom. Under the Cosmetic Center Facility, Cosmetic Center may
borrow at the London Inter-Bank Offered Rate ("LIBOR") plus 2.25% or at the
lending bank's prime rate plus 0.5%. Cosmetic Center also pays a commitment fee
equal to one-quarter of one percent per annum. Interest is payable on a monthly
basis except for interest on LIBOR rate loans with a maturity of less than
three months, which is payable at the end of the LIBOR rate loan period and
interest on LIBOR rate loans with a maturity of more than three months, which
is payable every three months. If Cosmetic Center terminates the Cosmetic
Center Facility, Cosmetic Center is obligated to pay a prepayment penalty of
$0.7 if the termination occurs before the first anniversary date of the
Cosmetic Center Facility and $0.2 if the termination occurs after the first
anniversary date. The Cosmetic Center Facility contains various restrictive
covenants and requires Cosmetic Center to maintain a minimum tangible net worth
and an interest coverage ratio. At December 31, 1997, approximately $39.0 was
outstanding under the Cosmetic Center Facility with an interest rate of 8.1%.
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 the rate under the Credit Agreement. No
such borrowings were outstanding at December 31, 19961997 or 1995.1996.
The aggregate amounts of long-term debt maturities and sinking fund
requirements (at December 31, 1996)1997), in the years 19971998 through 20012002 are $8.8,
$40.6, $201.2, $214.9$5.5,
$244.4, $26.2, $278.5 and $260.9,$354.6, respectively, and $634.6$555.0 thereafter.
8.11. FINANCIAL INSTRUMENTS
As of December 31, 1996,1997, 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 (5.6875% per annum at January 24, 1997)LIBOR 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 considersconsidered to be held for other than trading purposes, on December
31, 1997 and 1996, a loss of approximately $0.1 and $3.5, respectively 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$14.0 that was approximately $3.2 in each of the years. The remaining unamortized
gain, which is being amortized over the original lives of the agreements
isthrough 1997. The amortization of the 1993 realized gain in 1997, 1996 and 1995
was approximately $3.1, as of December 31, 1996. Although cash$3.2 and $3.2, respectively. Cash flow from the
presentlyagreements
F-17
outstanding agreementsat December 31, 1997 was positiveapproximately break even for 1996, future positive or negative cash flows from1997. In
anticipation of repayment of the hedged indebtedness, Products Corporation
terminated these agreements in January 1998 and realized a gain of
approximately $1.6, which will dependbe recognized upon the trend of short-term interest rates during
the remaining lives of such agreements. In the event of nonperformance by the
counterparties at any time during the remaining livesrepayment 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.hedged
indebtedness.
Products Corporation enters into forward foreign exchange contracts
and option contracts from time to time to hedge certain cash flows denominated
in foreign currencies. At December 31, 1997 and 1996, Products Corporation had
forward foreign exchange contracts denominated in various currencies predominantly the U.K.
pound of
approximately $90.1 and $62.0, (U.S. dollar equivalent).respectively, and option contracts of
approximately $94.9 outstanding at December 31, 1997. Such contracts are
entered into to hedge transactions predominantly occurring within twelve
months. If Products Corporation had terminated these contracts on December 31,
1997 and 1996, no material gain or loss would have been realized. Products Corporation had similar contracts
outstanding at December 31, 1995 in the amount of $8.0 (U.S. dollar
equivalent).
The fair value of the Company's long-term debt is estimated based on
the quoted market prices for the same issues or on the current rates offered to
the Company for debt of the same remaining maturities. The estimated fair value
of long-term debt at December 31, 1997 and 1996 was approximately $39.0 and
$37.3 more than the carrying value of $1,361.0.$1,464.2 and $1,361.0, respectively.
Because considerable judgment is required in interpreting market data to
develop estimates of fair value, the estimates are not necessarily indicative
of the amounts that could be realized or would be paid in a current market
exchange. The effect of using different market assumptions or estimation
methodologies may be material to the estimated fair value amounts.
Products Corporation also maintains standby and trade letters of
credit with certain banks for various corporate purposes under which Products
Corporation is obligated, of which approximately $40.6 and $40.9 (including
amounts available under credit agreements in effect at that time) were
outstandingmaintained at December 31, 1996.1997 and 1996, respectively. Included in this amountthese
amounts are $27.7 and $26.4, respectively, in standby letters of credit which
support Products Corporation's self-insurance programs. Seeprograms (See Note 12.15). The
estimated liability under such programs is accrued by Products Corporation.
The carrying amounts of cash and cash equivalents, trade receivables,
accounts payable and short-term borrowings approximate their fair values.
F-16
9.12. INCOME TAXES
In June 1992, Holdings, Revlon, Inc., Products Corporation and certain
of its subsidiaries, and Mafco Holdings entered into a tax sharing agreement
(as subsequently amended, the "Tax Sharing Agreement"), pursuant to which Mafco
Holdings has agreed to indemnify Revlon, Inc. and Products Corporation against
federal, state or local income tax liabilities of the consolidated or combined
group of which Mafco Holdings (or a subsidiary of Mafco Holdings other than
Revlon, Inc. and Products Corporation or its subsidiaries) is the common parent
for taxable periods beginning on or after January 1, 1992 during which Revlon,
Inc. and Products Corporation or a subsidiary of Products Corporation is a
member of such group. Pursuant to the Tax Sharing Agreement, for all taxable
periods beginning on or after January 1, 1992, Products Corporation will pay to
Revlon, Inc., which in turn will pay Mafco Holdings, amounts equal to the taxes
that such corporation would otherwise have to pay if they were to file separate
federal, state or local income tax returns (including any amounts determined to
be due as a result of a redetermination arising from an audit or otherwise of
the consolidated or combined tax liability relating to any such period which is
attributable to Products Corporation ),Corporation), except that Products Corporation will
not be entitled to carry back any losses to taxable periods ending prior to
January 1, 1992. No payments are required by Products Corporation or Revlon,
Inc. if and to the extent that Products Corporation is prohibited under the
Credit Agreement from making tax sharing payments to Revlon, Inc. The Credit
Agreement prohibits Products Corporation from making any cash tax sharing payments
other than in respect of state and local income taxes. Since the payments to be
made by Products Corporation under the Tax Sharing Agreement will be determined
by the amount of taxes that Products Corporation would otherwise have to pay if
it were to file separate federal, state or local income tax returns, the Tax
Sharing Agreement will benefit Mafco Holdings to the extent Mafco Holdings can
offset the taxable income generated by Products Corporation against losses and
tax credits generated by Mafco Holdings and its other subsidiaries. As a result
of net operating tax losses and prohibitions under the Credit Agreement there
were no federal tax payments or payments in lieu of taxes pursuant to the Tax
Sharing Agreement were required
for 1997, 1996 1995 or 1994.1995. Products Corporation has a liability
of $0.9 to Revlon, Inc. in respect of federal taxes for 1997 under the Tax
Sharing Agreement.
F-18
Pursuant to the asset transfer agreement referred to in Note 12,15,
Products Corporation assumed all tax liabilities of Holdings other than (i)
certain income tax liabilities arising prior to January 1, 1992 to the extent
such liabilities exceeded reserves on Holdings' books as of January 1, 1992 or
were not of the nature reserved for and (ii) other tax liabilities to the
extent such liabilities are related to the business and assets retained by
Holdings.
The Company's income (loss) before income taxes and the applicable
provision (benefit) for income taxes are as follows:
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1997 1996 1995
1994
----------- ------ ------
Income (loss) before income taxes:
Domestic................................................ $10.2 $(38.4) $(68.0)
Foreign.................................................Domestic..................................................... $ 84.6 $10.6 $(39.4)
Foreign...................................................... (15.5) 40.5 23.6
16.8------ ----- ------
------
$50.7 $(14.8) $(51.2)$ 69.1 $51.1 $(15.8)
====== ===== ====== ======
Provision (benefit) for income taxes:
Federal.................................................Federal...................................................... $ -0.9 $ - $ -
State and local.........................................local.............................................. 1.2 1.2 3.4
2.8
Foreign.................................................Foreign...................................................... 7.3 24.3 22.0
20.0------ ----- ------
------$ 9.4 $25.5 $ 25.4
$ 22.8====== ===== ======
======
Current.................................................Current...................................................... $ 30.5 $22.7 $ 37.1
$ 40.5
Deferred................................................Deferred..................................................... 10.4 6.6 3.0 1.4
Benefits of operating loss carryforwards................carryforwards .................... (32.6) (4.7) (15.4) (18.1)
Carryforward utilization applied to
goodwill............goodwill.................................................... 1.1 1.0 0.8 -
Effect of enacted change of tax rates...................rates ....................... - (0.1) (0.1)
-
Beginning-of-year valuation allowance adjustment........ - - (1.0)------ ----- ------
------$ 9.4 $25.5 $ 25.4
$ 22.8====== ===== ====== ======
F-17
The effective tax rate on income (loss) before income taxes is reconciled
to the applicable statutory federal income tax rate as follows:
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1997 1996 1995
1994
----- ------ ------------- -------- ---------
Statutory federal income tax rate............................... 35.0 % (35.0)%rate.............................. 35.0% 35.0% (35.0)%
State and local taxes, net of federal income tax benefit........benefit ...... 1.2 1.6 14.9 3.614.0
Foreign and U.S. tax effects attributable to operations
outside the U.S................................. 35.6 92.8 27.6U.S. ............................................. 12.9 35.4 87.0
Nondeductible amortization expense.............................. 5.8 16.8 4.8expense............................. 4.4 5.7 15.7
U.S. loss without benefit.......................................benefit...................................... - 82.1 43.5- 79.1
Change in domestic valuation allowance................................... (24.3)allowance......................... (40.2) (29.0) -
Nontaxable gain on sale of subsidiary stock.................... (3.1) - -
Other........................................................... (3.4)Other.......................................................... 3.4 1.2 -
-
----- ----- ------------- -------- ---------
Effective rate.................................................. 50.3 % 171.6 % 44.5 %
===== ===== =====rate................................................. 13.6% 49.9% 160.8%
======== ======== =========
F-19
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December
31, 19961997 and 19951996 are presented below:
DECEMBER 31,
---------------------------------------------
1997 1996
1995
------- ---------------- ---------
Deferred tax assets:
Accounts receivable, principally due to doubtful accounts................accounts .... $ 3.3 $ 3.9
$ 3.7
Inventories..............................................................Inventories................................................... 11.7 12.5 12.8
Net operating loss carryforwards.........................................carryforwards.............................. 222.2 269.2 270.3
Restructuring and related reserves.......................................reserves............................ 9.4 10.2
13.4
Employee benefits........................................................benefits............................................. 29.0 31.7 36.3
State and local taxes....................................................taxes......................................... 13.1 12.8
12.8
Self-insurance...........................................................Self-insurance................................................ 3.8 3.6 3.9
Advertising, sales discounts and returns and coupon
redemptions .........redemptions.................................................. 26.0 23.6
19.1
Other....................................................................Other......................................................... 26.2 23.9
19.7
------ ---------------- ---------
Total gross deferred tax assets.....................................assets.............................. 344.7 391.4 392.0
Less valuation allowance............................................allowance..................................... (298.9) (347.0)
(357.2)
------ ---------------- ---------
Net deferred tax assets.............................................assets...................................... 45.8 44.4 34.8
Deferred tax liabilities:
Plant, equipment and other assets........................................assets............................. (49.7) (43.0)
(34.6)
Inventories..............................................................Inventories................................................... (0.2) (0.2)
Other....................................................................Other......................................................... (4.5) (7.2)
(6.3)
------ ---------------- ---------
Total gross deferred tax liabilities................................liabilities......................... (54.4) (50.4)
(41.1)
------ ---------------- ---------
Net deferred tax liability..........................................liability................................... $ (8.6) $ (6.0)
$ (6.3)
====== ================ =========
The valuation allowance for deferred tax assets at January 1, 19961997 was
$357.2.$347.0. The valuation allowance decreased by $48.1 and $10.2 during the yearyears
ended December 31, 1997 and 1996, respectively, and increased by $19.2 during
the year ended December 31, 1995.
During 1997, 1996 1995 and 1994,1995, certain of the Company's foreign
operations generated taxable income as to which the related tax liability was
offset by the utilization ofsubsidiaries used operating loss carryforwards generated in prior
years. Accordingly, credits ofto credit the current provision
for income taxes by $4.0, $4.7 and $15.4, and $18.1 representing the reduction
of current foreign taxes payable for the years ended December 31, 1996, 1995
and 1994, respectively, have been recognized in the Consolidated Statements of
Operations.respectively. Certain other foreign
operations generated losses during the years 1997, 1996 1995 and 19941995 for which the
potential tax benefit was reduced by a valuation allowance as it is more likely than not that such benefit will not be
realized.allowance. During 1997, the
Company used domestic operating loss carryforwards to credit the current
provision for income taxes by $16.6 and the deferred provision for income taxes
by $12.0. At December 31, 1996,1997, the Company had foreign tax loss carryforwards of
approximately $332.2$578.9 which expire in future years as follows: 1997-$53.3;
1998-$30.0;21.1;
1999-$33.0;25.3; 2000-$12.1; 20019.3; 2001-$15.9; and beyond-$30.4;386.4; unlimited-$173.4.120.9. The
Company will receive a benefit only to the extent it has taxable income during
the carryforward periods in the applicable foreign jurisdictions.
F-18
Appropriate United States and foreign income taxes have been accrued
on foreign earnings that have been or are expected to be remitted in the near
future. Unremitted earnings of foreign subsidiaries which have been, or are
currently intended to be, permanently reinvested in the future growth of the
business aggregated approximately $16.1$18.7 at December 31, 1996,1997, excluding those
amounts which, if remitted in the near future, would not result in significant
additional taxes under tax statutes currently in effect.
10.F-20
13. POSTRETIREMENT BENEFITS
PENSIONS:
Products Corporation uses a September 30 date for measurement of plan
obligations and assets.
The following tables reconcile the funded status of all of Products
Corporation's significant pension plans with the respective amounts recognized
in the Consolidated Balance Sheets at the dates indicated:
DECEMBER 31, 1996
-----------------------------------1997
---------------------------------------
OVERFUNDED UNDERFUNDED
PLANS PLANS TOTAL
----------- ----------- ------------------- ------------- ----------
Actuarial present value of benefit obligation:
Accumulated benefit obligation as of September 30,
1997, includes vested benefits of $304.5............... $(269.3) $(45.2) $(314.5)
============ ============= ==========
Projected benefit obligation as of September 30, 1997
for service rendered................................... $(309.3) $(55.5) $(364.8)
Fair value of plan assets as of September 30, 1997 ...... 305.0 1.9 306.9
------------ ------------- ----------
Plan assets less than projected benefit obligation ...... (4.3) (53.6) (57.9)
Amounts contributed to plans during fourth quarter 1997 . 0.3 0.6 0.9
Unrecognized net (assets) obligation..................... (1.3) 0.2 (1.1)
Unrecognized prior service cost.......................... 6.5 3.2 9.7
Unrecognized net loss.................................... 0.2 12.7 12.9
Adjustment to recognize additional minimum liability .... - (6.5) (6.5)
------------ ------------- ----------
Prepaid (accrued) pension cost......................... $ 1.4 $(43.4) $ (42.0)
============ ============= ==========
DECEMBER 31, 1996
---------------------------------------
OVERFUNDED UNDERFUNDED
PLANS PLANS TOTAL
------------ ------------- ----------
Actuarial present value of benefit obligation:
Accumulated benefit obligation as of September 30,
1996, includes vested benefits of $286.9...........$286.9............... $(163.7) $(131.4) $(295.1)
======= ======= =================== ============= ==========
Projected benefit obligation as of September 30, 1996
for service rendered to date..................rendered................................... $(198.1) $(141.4) $(339.5)
Fair value of plan assets as of September 30, 1996...........1996 ...... 173.3 81.6 254.9
------- ------- ------------------- ------------- ----------
Plan assets less than projected benefit obligation..............................................obligation ...... (24.8) (59.8) (84.6)
Amounts contributed to plans during fourth quarter 1996............................................1996 . 0.2 0.5 0.7
Unrecognized net (assets) obligation.........................obligation..................... (1.5) 0.2 (1.3)
Unrecognized prior service cost..............................cost.......................... 5.2 3.9 9.1
Unrecognized net loss........................................loss.................................... 20.2 20.5 40.7
Adjustment to recognize additional minimum liability.........liability .... - (15.3) (15.3)
------- ------- ------------------- ------------- ----------
Accrued pension cost...............................cost................................... $ (0.7) $ (50.0) $ (50.7)
======= ======= =================== ============= ==========
DECEMBER 31, 1995
---------------------------------
OVERFUNDED UNDERFUNDED
PLANS PLANS TOTAL
---------- --------- -------
Actuarial present value of benefit obligation:
Accumulated benefit obligation as of September 30,
1995, includes vested benefits of $269.1........... $(18.8) $(257.2) $(276.0)
====== ======= =======
Projected benefit obligation as of September 30,
1995 for service rendered to date.................. $(21.9) $(294.1) $(316.0)
Fair value of plan assets at September 30, 1995.............. 26.3 185.0 211.3
------ ------- -------
Plan assets in excess of (less than) projected
benefit obligation...................................... 4.4 (109.1) (104.7)
Amounts contributed to plans during fourth
quarter 1995............................................ 0.2 0.9 1.1
Unrecognized net (assets) obligation......................... (1.3) 0.2 (1.1)
Unrecognized prior service cost.............................. 0.3 9.9 10.2
Unrecognized net loss........................................ 1.9 45.2 47.1
Adjustment to recognize additional minimum liability......... - (19.9) (19.9)
------ ------- -------
Prepaid (accrued) pension cost..................... $ 5.5 $ (72.8) $ (67.3)
====== ======= =======
F-19
The weighted-averageweighted average discount rate assumed was 7.75% for 19961997 and 19951996
for domestic plans. For foreign plans, the weighted-averageweighted average discount rate was
7.1% and 7.9% for 1997 and 7.6% for 1996, and 1995, respectively. The rate of future compensation
increases was 5.25%5.3% for 19961997 and 19951996 for domestic plans and was a weighted-averageweighted
average of 5.05%5.3% and 4.81%5.1% for 19961997 and 1995,1996, respectively, for foreign plans.
The expected long-term rate of return on assets was 9.0% for 19961997 and 19951996 for
domestic plans and a weighted-averageweighted average of 10.1% for 1997 and 10.4% for 1996 and
1995 for
foreign plans.
F-21
Plan assets consist primarily of common stock, mutual funds and fixed
income securities, which are stated at fair market value and cash equivalents
which are stated at cost, which approximates fair market value.
In accordance with the provisions of SFAS No. 87, "Employers'
Accounting for Pensions," the Company recorded an additional liability to the
extent that, for certain U.S. plans, the unfunded accumulated benefit
obligation exceeded recorded liabilities. At December 31, 1997, the additional
liability was recognized by recording an intangible asset to the extent of
unrecognized prior service costs of $1.0, a due from affiliates of $1.0 and a
charge to stockholder's deficiency of $4.5. At December 31, 1996, the
additional liability was recognized by recording an intangible asset to the
extent of unrecognized prior service costs of $1.8, a due from affiliates of
$1.1, and a charge to stockholder's deficiency of $12.4.
At December 31, 1995, the
additional liability was recognized by recording an intangible asset to the
extent of unrecognized prior service costs of $1.6, a due from affiliates of
$1.3, and a charge to stockholder's deficiency of $17.0.
Net periodic pension cost for the pension plans consisted of the
following components:
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1997 1996 1995
1994
------ ------ -------------- -------- --------
Service cost-benefits earned during the
period...............period........................................ $ 11.7 $ 10.6 $ 8.2 $ 9.1
Interest cost on projected benefit obligation................obligation . 26.0 24.3 21.7
20.8
Actual (return) lossreturn on plan assets..........................assets................... (55.8) (30.4) (27.3) 2.7
Net amortization and deferrals...............................deferrals................. 35.6 15.1 13.4
(14.4)
------ ------ -------------- -------- --------
17.5 19.6 16.0 18.2
Portion allocated to Holdings................................Holdings.................. (0.3) (0.3) (0.3)
------ ------ -------------- -------- --------
Net periodic pension cost of the Company.....................Company ...... $ 17.2 $ 19.3 $ 15.7
$ 17.9
====== ====== ============== ======== ========
A substantial portion of the Company's employees in the United States
are covered by defined benefit retirement plans. To the extent that aggregate
pension costs could be identified as relating to the Company or to Holdings,
such costs have been so apportioned. The components of the net periodic pension
cost applicable solely to the Company are not presented as it is not practical
to segregate such information between Holdings and the Company. In 19961997 and
1995,1996, there was a settlement loss of $0.3$0.2 and $0.1,$0.3, respectively, and a
curtailment loss of $1.0$0.1 and $0.1,$1.0, respectively, resulting from workforce
reductions.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS:
During 1996, 1995 and 1994, theThe Company also has sponsored an unfunded retiree benefit plan, which
provides death benefits payable to beneficiaries of certain key employees and
former employees. Participation in this plan is limited to participants
enrolled as of December 31, 1993. The Company also administers a medical
insurance plan on behalf of Holdings, the cost of which has been apportioned to
Holdings. Net periodic postretirement benefit cost for each of the years ended
December 31, 1997, 1996 1995 and 19941995 was $0.7 which consists primarily of interest
on the accumulated postretirement benefit obligation. The Company's date of
measurement of Plan obligations is September 30. At December 31, 19961997 and 1995,1996,
the portion of accumulated benefit obligation attributable to retirees was $6.9$7.3
and $6.7,$6.9, respectively, and to other fully eligible participants, $1.3$1.4 and
$1.0,$1.3, respectively. The amount of unrecognized gain at December 31, 1997 and
1996 was $1.9 and 1995 was $1.2, and $1.7, respectively. At December 31, 19961997 and 1995,1996, the
accrued postretirement benefit obligation recorded on the Company's
Consolidated Balance Sheets was $9.4.$10.6 and $9.4, respectively. Of these amounts,
$2.0$1.9 and $2.2$2.0 was attributable to Holdings and was recorded as a receivable
from affiliates at December 31, 19961997 and 1995,1996, respectively. The weighted
average discount rate used in determining the accumulated postretirement
benefit obligation at September 30, 19961997 and 19951996 was 7.75%.
F-20F-22
11.14. STOCK COMPENSATION PLAN
At December 31, 1997 and 1996, Revlon, Inc. hashad a stock-based
compensation plan (the "Plan"), which is described below. The CompanyProducts Corporation
applies APB Opinion No. 25 and related Interpretations in accounting for the
Plan. Under APB Opinion No. 25, because the exercise price of Revlon, Inc.'s
employee stock options equals the market price of the underlying stock on the
date of grant, no compensation cost has been recognized. Had compensation cost
for Revlon, Inc.'s Plan been determined consistent with SFAS No. 123, the Company'sProducts
Corporation's net income for 19961997 of $18.6 $44.8 ($19.0 in 1996)would have been
reduced to the pro forma amountamounts of $15.4.$32.5 for 1997 ($15.8 in 1996). The fair
value of each option grant is estimated on the date of the grant using the
Black-Scholes option-pricing model assuming no dividend yield, expected
volatility of approximately 39% in 1997 and 31% in 1996; weighted average
risk-free interest rate of 6.54% in 1997 and 5.99% in 1996; and a seven year
expected average life for the Plan's options issued in 1997 and 1996. The
effects of applying SFAS No. 123 in this pro forma disclosure are not
necessarily indicative of future amounts.
Under the Plan, Revlon, Inc. may grant options to its employees for up
to an aggregate of 5.0 million shares of Class A Common Stock. Non-qualified
options granted under the Plan have a term of 10 years during which the holder
can purchase shares of Class A Common Stock at an exercise price which must be
not less than the market price on the date of the grant. Options granted in
1996 to certain executive officers will not vest as to any portion until the
third anniversary of the grant date and will thereupon become 100% vested,
except that upon termination of employment by the CompanyRevlon, Inc. other than for
"cause","cause," death or "disability" under the applicable employment agreement, such
options will vest with respect to 25% of the shares subject thereto (if the
termination is between the first and second anniversaries of the grant) and 50%
of the shares subject thereto (if the termination is between the second and
third anniversaries of the grant). AllPrimarily all other initial option grants, including
options granted to certain executive officers in 1997 will vest 25% each year
beginning on the first anniversary of the date of grant and will become 100%
vested on the fourth anniversary of the date of grant. The fair
valueDuring 1997, Revlon,
Inc. granted to Mr. Perelman, Chairman of eachthe Executive Committee, an option grant is estimatedto
purchase 300,000 shares of Revlon, Inc.'s Class A Common Stock, which will vest
in full on the datefifth anniversary of the grant usingdate. At December 31, 1997 there
were 98,450 options exercisable under the Black-Scholes option-pricing model with the following weighted-average
assumptions used for option grants in 1996: no dividend yield; expected
volatility of 31%; risk-free interest rate of 5.99%; and an expected average
life of seven years for the Plan's options.Plan. At December 31, 1996 there were
no options exercisable under the Plan.
A summary of the status of the Plan as of December 31, 1997 and 1996
and changes during the yearyears then ended is presented below:
SHARES WEIGHTED AVERAGE
(000) EXERCISE PRICE
------- --------------
Outstanding at beginning of year..... - -
Granted.............................. 1,010.2 $24.33
Exercised............................ - -
Forfeited............................ (119.1) 24.00
-------
Outstanding at end of year........... 891.1 24.37
=======
SHARES WEIGHTED AVERAGE
(000) EXERCISE PRICE
--------- ----------------
Outstanding at 2/28/96 . - -
Granted................. 1,010.2 $24.37
Exercised............... - -
Forfeited............... (119.1) 24.00
---------
Outstanding at
12/31/96............... 891.1 24.37
Granted................. 1,485.5 32.64
Exercised............... (12.1) 24.00
Forfeited............... (85.1) 29.33
---------
Outstanding at
12/31/97............... 2,279.4 29.57
=========
The weighted average fair value of each option granted during 1997 and
1996 approximated $11.00.$16.42 and $11.00, respectively.
F-23
The following table summarizes information about the Plan's options
outstanding at December 31, 1996:
WEIGHTED
RANGE NUMBER AVERAGE WEIGHTED
OF OUTSTANDING YEARS AVERAGE
EXERCISE PRICES (000) REMAINING EXERCISE PRICE
- ----------------- ------------- --------- --------------
$24.00 to $29.88 855.1 9.16 $ 24.06
31.00 to 33.88 36.0 9.79 31.88
-----
24.00 to 33.88 891.1 9.19 24.37
=====
F-21
12.1997 :
YEAR ENDED DECEMBER 31, 1997
- -----------------------------------------------------------
WEIGHTED
NUMBER AVERAGE WEIGHTED
RANGE OF OUTSTANDING YEARS AVERAGE
EXERCISE PRICES (000) REMAINING EXERCISE PRICE
- ---------------- ------------- ----------- --------------
$24.00 to $29.88 817.9 8.17 $ 24.05
31.38 to 33.88 1,067.8 9.02 31.40
34.88 to 50.75 393.7 9.38 36.10
-------------
24.00 to 50.75 2,279.4 8.78 29.57
=============
15. RELATED PARTY TRANSACTIONS
TRANSFER AGREEMENTS
In June 1992, Revlon, Inc. and Products Corporation entered into an
asset transfer agreement with Holdings and certain of its wholly owned
subsidiaries (the "Asset Transfer Agreement"), and Revlon, Inc. and Products
Corporation entered into a real property asset transfer agreement with Holdings
(the "Real Property Transfer Agreement" and, together with the Asset Transfer
Agreement, the "Transfer Agreements"), and pursuant to such agreements, on June
24, 1992 Holdings transferred assets to Products Corporation and Products
Corporation assumed all the liabilities of Holdings, other than certain
specifically excluded assets and liabilities (the liabilities excluded are
referred to as the "Excluded Liabilities"). Holdings retained certain small brands that
historically had not been profitable ("the Retained
Brands").Brands. Holdings agreed to indemnify Revlon, Inc. and Products Corporation
against losses arising from the Excluded Liabilities, and Revlon, Inc. and
Products Corporation agreed to indemnify Holdings against losses arising from
the liabilities assumed by Products Corporation. The amounts reimbursed by
Holdings to Products Corporation for the Excluded Liabilities for 1997, 1996
and 1995 were $0.4, $1.4 and 1994 were $1.4,
$4.0, and $7.4, respectively.
BENEFIT PLANS ASSUMPTION AGREEMENT
Holdings, Products Corporation and Revlon, Inc. entered into a benefit
plans assumption agreement dated as of July 1, 1992 pursuant to which Products
Corporation assumed all rights, liabilities and obligations under all of
Holdings' benefit plans, arrangements and agreements, including obligations
under the Revlon Employees' Retirement Plan and the Revlon Employees' Savings
and Investment Plan. Products Corporation was substituted for Holdings as
sponsor of all such plans theretofore sponsored by Holdings.
OPERATING SERVICES AGREEMENT
In June 1992, Revlon, Inc., Products Corporation and Holdings entered
into an operating services agreement (as amended and restated, and as
subsequently amended, the "Operating Services Agreement") pursuant to which
Products Corporation manufactures, markets, distributes, warehouses and
administers, including the collection of accounts receivable, the Retained
Brands for Holdings. Pursuant to the Operating Services Agreement, Products
Corporation is reimbursed an amount equal to all of its and Revlon, Inc.'s
direct and indirect costs incurred in connection with furnishing such services,
net of the amounts collected by Products Corporation with respect to the
Retained Brands, payable quarterly. The net amounts reimbursed by Holdings to
Products Corporation for such direct and indirect costs for 1997, 1996 and 1995
were $1.4, $5.1 and 1994
were $5.1, $8.6, and $11.5, respectively. Holdings also pays Products Corporation
a fee equal to 5% of the net sales of the Retained Brands, payable quarterly.
The fees paid by Holdings to Products Corporation pursuant to the Operating
Services Agreement for services with respect to the Retained Brands for 1997,
1996 1995 and 19941995 were approximately $0.3, $0.6 $1.7 and $1.9,$1.7, respectively.
REIMBURSEMENT AGREEMENTS
Revlon, Inc., Products Corporation and MacAndrews Holdings have
entered into reimbursement agreements (the "Reimbursement Agreements") pursuant
to which (i) MacAndrews Holdings is obligated to provide (directly or through
affiliates) certain professional and administrative services, including
employees, to Revlon, Inc. and its subsidiaries, including Products
Corporation, and purchase services from third party providers, such as
insurance and legal and accounting services, on behalf of Revlon, Inc. and its
subsidiaries, including Products Corporation, to the extent requested by
Products Corporation, and (ii) Products Corporation is obligated to provide
certain professional and administrative services, including employees, to
MacAndrews Holdings (and its affiliates) and purchase services from third party
providers, such as insurance and legal and accounting services, on behalf of
MacAndrews Holdings (and its affiliates) to the extent requested by MacAndrews
Holdings, provided that in each case the performance of such
F-24
services does not cause an unreasonable burden to MacAndrews Holdings or
Products Corporation, as the case may be. Products CorporationThe Company reimburses MacAndrews
Holdings for the allocable costs of the services purchased for or provided to
Products Corporationthe Company and its subsidiaries and for reasonable out-of-pocket expenses
incurred in connection with the provision of such services. MacAndrews Holdings
(or such affiliates) reimburses Products Corporationthe Company for the allocable costs of the
services purchased for or provided to MacAndrews Holdings (or such affiliates)
and for the reasonable out-of-pocket expenses incurred in connection with the
purchase or provision of such services. In addition, in connection with certain
insurance coverage provided by MacAndrews Holdings, Products Corporation
obtained F-22
letters of credit under the Special LC Facility (which aggregated
approximately $26.4$27.7 as of December 31, 1996)1997) to support certain self-funded
risks of MacAndrews Holdings and its affiliates, including Revlon, Inc.,the Company,
associated with such insurance coverage. The costs of such letters of credit
are allocated among, and paid by, the affiliates of MacAndrews Holdings,
including Revlon,
Inc.,the Company, which participate in the insurance coverage to which the
letters of credit relate. The Company expects that these self-funded risks will
be paid in the ordinary course and, therefore, it is unlikely that such letters
of credit will be drawn upon. MacAndrews Holdings has agreed to indemnify
Revlon, Inc.
and Products Corporation to the extent amounts are drawn under any of such letters
of credit with respect to claims for which neither Revlon, Inc. nor Products
Corporation is not responsible. The net amounts reimbursed by MacAndrews Holdings
to Products
Corporationthe Company for the services provided under the Reimbursement Agreements for
1997, 1996 and 1995 were $4.0, $2.2 and 1994 were $2.2, $3.0, and $1.6, respectively. Each of Revlon,
Inc. and Products Corporation, on the one hand, and MacAndrews Holdings, on the
other, has agreed to indemnify the other party for losses arising out of the
provision of services by it under the Reimbursement Agreements other than
losses resulting from its willful misconduct or gross negligence. The
Reimbursement Agreements may be terminated by either party on 90 days' notice.
The Company does not intend to request services under the Reimbursement
Agreements unless their costs would be at least as favorable to the Company as
could be obtained from unaffiliated third parties.
TAX SHARING AGREEMENT
Holdings, Revlon, Inc., Products Corporation and certain of its
subsidiaries and Mafco Holdings are parties to the Tax Sharing Agreement, which
is described in Note 9.12. Since the payments to be made by Products Corporation under the Tax Sharing
Agreement will be determined by the amount of taxes that Products Corporation
would otherwise have to pay if it were to file separate federal, state or local
income tax returns, the Tax Sharing Agreement will benefit Mafco Holdings to
the extent Mafco Holdings can offset the taxable income generated by Products
Corporation against losses and tax credits generated by Mafco Holdings and its
other subsidiaries.
F-25
FINANCING REIMBURSEMENT AGREEMENT
Holdings and Products Corporation entered into a financing
reimbursement agreement (the "Financing Reimbursement Agreement") in 1992,
which expired on June 30, 1996, pursuant to which Holdings agreed to reimburse
Products Corporation for Holdings' allocable portion of (i) the debt issuance
cost and advisory fees related to the capital restructuring of Holdings, and
(ii) interest expense attributable to the higher cost of funds paid by Products
Corporation under the credit agreement in effect at that time as a result of
additional borrowings for the benefit of Holdings in connection with the
assumption of certain liabilities by Products Corporation under the Asset
Transfer Agreement and the repurchase of Old Senior Subordinated Notescertain subordinated notes from
affiliates. The amount of interest to be reimbursed by Holdings for 1994 was
approximately $0.8 and was evidenced by noninterest-bearing promissory notes
originally due and payable on June 30, 1995. In February 1995, the $13.3 in
notes then payable by Holdings to Products Corporation under the Financing
Reimbursement Agreement was offset against a $25.0 note payable by Products
Corporation to Holdings and Holdings agreed not to demand payment under the
resulting $11.7 note payable by Products Corporation so long as any
indebtedness remained outstanding under the Former
Credit Agreement.credit agreement then in effect. In
February 1995, the Financing Reimbursement Agreement was amended and extended
to provide that Holdings would reimburse Products Corporation for a portion of
the debt issuance costs and advisory fees related to the Former Credit Agreementcredit agreement then
in effect (which portion was approximately $4.7 and was evidenced by a
noninterest-bearing promissory note payable on June 30, 1996) and 1 1/2 % per
annum of the average balance outstanding under the Former
Credit Agreementcredit agreement then in
effect and the average balance outstanding under working capital borrowings
from affiliates through June 30, 1996 and such amounts were evidenced by a
noninterest-bearing promissory note payable on June 30, 1996. The amount of
interest to be reimbursed by Holdings for 1995 was approximately $4.2. As of
December 31, 1995, the aggregate amount of notes payable by Holdings under the
Financing Reimbursement Agreement was $8.9. In June 1996, $10.9 in notes due to
Products Corporation, which included $2.0 of interest reimbursement from
Holdings in 1996, under the Financing Reimbursement Agreement from
Holdings was offset
against an $11.7 demand note payable by Products Corporation to Holdings. The Financing Reimbursement Agreement expired on June
30, 1996.
OTHER
Pursuant to a lease dated April 2, 1993 (the "Edison Lease"), Holdings
leases to Products Corporation the Edison research and development facility for
a term of up to 10 years with an annual rent, of $1.4 and certain shared
F-23
operating expenses payable by Products Corporation which, together with the
annual rent are not to exceed $2.0 per year. Pursuant to an assumption
agreement dated February 18, 1993, Holdings agreed to assume all costs and
expenses of the ownership and operation of the Edison facility as of January 1,
1993, other than (i) the operating expenses for which Products Corporation is
responsible under the Edison Lease and (ii) environmental claims and compliance
costs relating to matters which occurred prior to January 1, 1993 up to an
amount not to exceed $8.0 (the amount of such claims and costs for which
Products Corporation is responsible, the "Environmental Limit"). In addition,
pursuant to such assumption agreement, Products Corporation agreed to indemnify
Holdings for environmental claims and compliance costs relating to matters
which occurred prior to January 1, 1993 up to an amount not to exceed the
Environmental Limit and Holdings agreed to indemnify Products Corporation for
environmental claims and compliance costs relating to matters which occurred
prior to January 1, 1993 in excess of the Environmental Limit and all such
claims and costs relating to matters occurring on or after January 1, 1993.
Pursuant to an occupancy agreement, during 1997, 1996 and 1995 Products
Corporation rented from Holdings a portion of the administration building
located at the Edison facility and space for a retail store of Products
Corporation. Products Corporation provides certain administrative services,
including accounting, for Holdings with respect to the Edison facility pursuant
to which Products Corporation pays on behalf of Holdings costs associated with
the Edison facility and is reimbursed by Holdings for such costs, less the
amount owed by Products Corporation to Holdings pursuant to the Edison Lease
and the occupancy agreement. The net amount reimbursed by Holdings to Products
Corporation for such costs with respect to the Edison facility for 1997, 1996
and 1995 was $0.7, $1.1 and 1994 was
$1.1, $1.2, respectively.
During 1997, a subsidiary of Products Corporation sold an inactive
subsidiary to an affiliate for approximately $1.0.
Effective July 1, 1997, Holdings contributed to Products Corporation
substantially all of the assets and $2.1, respectively.liabilities of the Bill Blass business not
already owned by Products Corporation. The contributed assets approximated the
contributed liabilities and were accounted for at historical cost in a manner
similar to that of a pooling of interests and, accordingly, prior period
financial statements were restated as if the contribution took place
F-26
prior to the beginning of the earliest period presented.
In the fourth quarter of 1996, a subsidiary of Products Corporation and certain of its
subsidiaries
purchased an inactive subsidiary from an affiliate for net cash consideration
of approximately $3.0 in a series of transactions in which Products Corporation
expects to realize foreign tax benefits in future years.
Effective January 1, 1996, Products Corporation acquired from Holdings
substantially all of the assets of Tarlow in consideration for the assumption
of substantially all of the liabilities and obligations of Tarlow. Net
liabilities assumed were approximately $3.4. 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 have been restated as if the acquisition took place at the beginning
of the earliest period. Products Corporation paid $4.1 to Holdings which was
accounted for as an increase in capital deficiency. A nationally recognized
investment banking firm rendered its written opinion that the terms of the
purchase are fair from a financial standpoint to Products Corporation.
Effective January 1, 1994, Products Corporation sold the inventory,
contracts, dedicated tools, dies and molds, intellectual property and a license
agreement relating to the NEW ESSENTIALS brand to Holdings for $2.2
(representing the net book value of such brand which Products Corporation
believes approximated its fair market value at the time of sale), and the
Operating Services Agreement was amended to include NEW ESSENTIALS as a
Retained Brand.
During 1996, 1995 and 1994, Products Corporation leasedleases certain facilities to MacAndrews & Forbes
or its affiliates pursuant to occupancy agreements and leases includingleases. These included
space at Products Corporation's New York headquarters and at Products
Corporation's offices in London during 1997, 1996 and Tokyo.1995; in Tokyo during
1996 and 1995 and in Hong Kong during 1997. The rent paid by MacAndrews &
Forbes or its affiliates to Products Corporation for 1997, 1996 and 1995 was
$3.8, $4.6 and 1994 was $4.6, $5.3, and $4.1, respectively.
In July 1995, Products Corporation borrowed from Holdings
approximately $0.8, representing certain amounts received by Holdings relating
to an arbitration arising out of the sale by Holdings of certain of its
businesses. In 1995, Products Corporation borrowed from Holdings approximately
$5.6, representing certain amounts received by Holdings from the sale by
Holdings of certain of its businesses. In June 1997, Products Corporation
borrowed from Holdings approximately $0.5, representing certain amounts
received by Holdings from the sale of a brand and inventory relating thereto.
Such amounts are evidenced by noninterest-bearing promissory notes. Holdings
agreed not to demand payment under such notes so long as any indebtedness
remains outstanding under the Credit Agreement.
The Credit Agreement is supported by, among other things, guarantees
from Holdings and certain of its subsidiaries. The obligations under such
guarantees are secured by, among other things, (i) the capital stock and
certain assets of certain subsidiaries of Holdings and (ii) a mortgage on
Holdings' Edison, New Jersey facility.
Products Corporation borrows funds from its affiliates from time to
time to supplement its working capital borrowings. No such borrowings were
outstanding as of December 31, 1997, 1996 1995 or 1994.1995. The interest rates for such
borrowings are more favorable to Products Corporation than interest rates under
the Credit Agreement and, for
F-24
borrowings occurring prior to the execution of
the Credit Agreement, the credit facility in effect at the time of such
borrowing. The amount of interest paid by Products Corporation for such
borrowings for 1997, 1996 and 1995 was $0.6, $0.5 and 1994 was $0.5,
$1.2, and $1.1, respectively.
In November 1993, Products Corporation assigned to Holdings a lease
for warehouse space in New Jersey (the "N.J. Warehouse") between Products
Corporation and a trust established for the benefit of certain family members
of the Chairman of the Executive Committee. The N.J. Warehouse had become
vacant as a result of divestitures and restructuring of Products Corporation.
The lease has annual lease payments of approximately $2.3 and terminates on
June 30, 2005. In consideration for Holdings assuming all liabilities and
obligations under the lease, Products Corporation paid Holdings $7.5 (for which
a liability was previously recorded) in three installments of $2.5 each in
January 1994, January 1995 and January 1996. A nationally recognized investment
banking firm rendered its written opinion that the terms of the lease transfer
were fair from a financial standpoint to Products Corporation. During 1996 1995 and
1994,1995, Products Corporation paid certain costs associated with the N.J.
Warehouse on behalf of Holdings and was reimbursed by Holdings for such
amounts. The amounts reimbursed by Holdings to Products Corporation for such
costs were $0.2 $0.2 and $0.3$0.2 for 1996 1995 and 1994,1995, respectively.
During 1997, 1996 1995 and 1994,1995, Products Corporation used an airplane
which was
owned by a corporation of which Messrs. Gittis, Drapkin and, during 1995 and
1996, Levin were the sole stockholders.stockholders, for which Products Corporation paid
approximately $0.2, $0.2 and $0.4 for 1997, 1996 and $0.51995, respectively.
F-27
During 1997, Products Corporation purchased products from an
affiliate, for the usage of the airplanewhich it paid approximately $0.9.
During 1997, Products Corporation provided licensing services to an
affiliate, for 1996, 1995 and 1994, respectively.
As of December 31, 1996, Mr. Levin no longer holds an ownership interest in the
corporation that owned the airplane.
Consolidated Cigar, anwhich Products Corporation has been paid approximately $0.7.
An affiliate of Products Corporation , assembles lipstick cases for
Products Corporation. Products Corporation paid approximately $1.0,$0.9, $1.0 and
$0.6$1.0 for such services for 1997, 1996 and 1995, and 1994,
respectively.
During 1994, Products Corporation was retained by an affiliate,
Meridian, to act as licensing agent for Meridian's trademarks. Products
Corporation will receive a percentage of any royalties generated by such
licenses. No royalties were earned by Meridian for 1994, 1995 or 1996. However,
Meridian paid Products Corporation approximately $0.1 in 1994 for reimbursement
of expenses incurred in connection with such licensing activities.
In January 1995, Products Corporation agreed to license certain of its
trademarks to Guthy-Renker Corporation ("Guthy-Renker"), a corporation in which
anformer affiliate of MacAndrews & Forbes held a 37.5% equity interest, to be used by
Guthy-Renker in connection with the marketing and sale of hair extensions and
hair pieces.Forbes. The amount paid by Guthy-Renker to
Products Corporation pursuant to such license for 1995 was less than $0.1. In connection with this licensing
arrangement, Guthy-Renker agreed to use Products Corporation as its exclusive
supplier of hair extensions and hair pieces. Guthy-RenkerThe
affiliate purchased $1.1 of wigs from Products Corporation during 1995.
Products Corporation terminated the license with Guthy-Renkerthe affiliate during 1995.
13.16. COMMITMENTS AND CONTINGENCIES
The Company currently leases manufacturing, executive, including
research and development, and sales facilities and various types of equipment
under operating lease agreements. Rental expense was $57.3, $51.7 $49.3 and $51.0$49.3 for
the years ended December 31, 1997, 1996 1995 and 1994,1995, respectively. Minimum rental
commitments under all noncancelable leases, including those pertaining to idled
facilities and the Edison research and development facility, with remaining
lease terms in excess of one year from December 31, 19961997 aggregated $230.0;$201.1;
such commitments for each of the five years subsequent to December 31, 19961997 are
$37.9, $36.4, $31.2, $28.6$43.2, $39.8, $34.6, $29.3 and $25.6,$26.7, respectively. Such amounts exclude the
minimum rentals to be received in the future under noncancelable subleases of
$16.1.$4.2.
The Company and its subsidiaries are defendants in litigation and
proceedings involving various matters. In the opinion of the Company's
management, based upon advice of its counsel handling such litigation and
proceedings, adverse outcomes, if any, will not result in a material effect on
the Company's consolidated financial condition or results of operations.
F-25F-28
14.17. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the unaudited quarterly results of
operations:
YEAR ENDED DECEMBER 31, 1996
-----------------------------------
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
Net sales................................. $464.3 $517.9 $571.1 $613.7
Gross profit.............................. 311.4 347.2 378.1 404.6
(Loss) income before extraordinary item... (29.1) 1.5 21.7 31.1
Net (loss) income ........................ (35.7)(a) 1.5 21.7 31.1
YEAR ENDED DECEMBER 31, 1995(b)
-----------------------------------
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
Net sales................................. $412.2 $452.6 $514.5 $558.5
Gross profit.............................. 270.6 299.0 346.8 369.3
Net (loss) income......................... (33.4) (14.0) 3.4 3.8
YEAR ENDED DECEMBER 31, 1997
---------------------------------------------
1ST 2ND 3RD 4TH
QUARTER (b) QUARTER (b) QUARTER QUARTER
----------- ----------- --------- ---------
Net sales............................... $492.9 $572.4 $623.5 $702.1
Gross profit............................ 326.6 370.5 406.4 455.3
(Loss) income before extraordinary
item................................... (25.4) 9.4 33.1 42.6
Net (loss) income....................... (25.4) (5.5)(a) 33.1 42.6
YEAR ENDED DECEMBER 31, 1996 (b)
-------------------------------------------
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER
----------- --------- --------- ---------
Net sales............................... $464.8 $518.3 $571.7 $614.7
Gross profit............................ 311.7 347.5 378.4 405.4
(Loss) income before extraordinary
item................................... (29.0) 1.5 21.0 32.1
Net (loss) income....................... (35.6)(c) 1.5 21.0 32.1
(a) Includes a chargethe extraordinary charges of $6.6$14.9 resulting from the
write-off in the second quarter of 1997 of deferred financing costs associated
with the early extinguishment of borrowings and the Former Credit
Agreement prior to maturity.redemption of Products
Corporation's Sinking Fund Debentures.
(b) Effective JanuaryJuly 1, 1996,1997, Holdings contributed to Products
Corporation acquired from
Holdings substantially all of the assets of Tarlow in consideration for the
assumption of substantially alland liabilities of the Bill Blass
business not already owned by Products Corporation. The contributed assets
approximated the contributed liabilities and obligations of Tarlow.
Net liabilities assumed were approximately $3.4. 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 presented have beenwere restated as if the acquisitioncontribution took
place atprior to the beginning of the earliest period. Products Corporation paid $4.1 to Holdings
which was accounted for asperiod presented.
(c) Includes an increase to capital deficiency.
15.extraordinary charge of $6.6 resulting from the
write-off of deferred financing costs associated with the early extinguishment
of borrowings.
F-29
18. GEOGRAPHIC SEGMENTS
The Company operates inmanages its business on the basis of one reportable
segment. See Note 1 for a single business segment. Thebrief description of the Company's business. As of
December 31, 1997, the Company hashad operations basedestablished in 26 foreign countries
outside of the United States and its products are sold throughout the world.
The Company is exposed to the risk of changes in social, political and economic
conditions inherent in foreign operations and the Company's results of
operations and the value of its foreign assets are affected by fluctuations in
foreign currency exchange rates. The Company enters into
forward foreign exchange contracts to hedge certain cash flows denominated in
foreign currency. In addition, the Company's operations in Brazil (whichhave
accounted for approximately 5.5%, 6.1% and 6.1% of the Company's net sales for
1996)1997, 1996 and 1995, respectively. Net sales by geographic area are subject to hyperinflationary conditions. There can be no assurance as to the
future effect of changes in social, political and economic conditionspresented
by attributing revenues from external customers on the Company's business or financial condition.basis of where the
products are sold. During 1996, one customer and its affiliates accounted for
approximately 10.1% of the Company's consolidated net sales. Information
related to the Company's geographic segments for each of the years in the
three-year period ended December 31, 1996 with respect to operating results,
and as of December 31, 1996 and 1995 with respect to identifiable assets,This data is
presented below.
Operating profit (loss), as presented below, is operating income, net
foreign currency translation (gains) lossesin accordance with SFAS No. 131, "Disclosures about Segments of an
Enterprise and identifiable miscellaneous
income and expense; it excludes general corporate income and expenses, net
interest and investment income and expense, including amortization of debt
issuance costs, and income taxes. Export sales, including those to affiliates,
are not significant. Export sales to non-affiliates and related operating
profits are reflected in their geographic area of origin.
Identifiable assets, as presented below, are those assets used in each
geographic area. Corporate assets are principally cash and cash equivalents,
certain property and equipment and nonoperating assets.
F-26
Related Information," which the Company has retroactively
adopted for all periods presented.
GEOGRAPHIC AREAS YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
1997 1996 1995 1994
-------- -------- --------
GEOGRPAHIC AREAS
Net Sales:sales:
United States................................................ $1,282.2 $1,155.8 $1,019.8
Europe, Middle East and Africa............................... 404.1 357.1 320.7
Latin America, Canada and Puerto Rico........................ 297.2 259.5 253.4
Far East, Australia and other areas of the world............. 183.5 165.4 138.6States..................... $1,452.5 $1,259.7 $1,115.4
International..................... 938.4 909.8 824.6
-------- -------- --------
$2,167.0 $1,937.8 $1,732.5$2,390.9 $2,169.5 $1,940.0
======== ======== ========
Operating profit (loss):AS OF DECEMBER 31,
--------------------
1997 1996
-------- --------
Long-lived assets:
United States................................................States..................... $ 163.9570.6 $ 121.7555.0
International..................... 280.5 245.9
-------- --------
$ 85.7
Europe, Middle East and Africa............................... 9.9 7.6 16.2
Latin America, Canada and Puerto Rico........................ 23.3 14.9 18.3
Far East, Australia and other areas of the world............. 7.5 7.8 (3.7)851.1 $ 800.9
======== ========
YEAR ENDED DECEMBER 31,
-------------------------------
CLASSES OF SIMILAR PRODUCTS: 1997 1996 1995
-------- -------- --------
204.6 152.0 116.5
Unallocated expenses (income):
Interest expense............................................. 133.4 142.6 136.7
InterestNet sales:
Cosmetics, skin care and
net investment income........................... (3.4) (4.9) (6.3)
Amortization of debt issuance costs.......................... 8.3 11.0 8.4
Corporate expensesfragrances....................... $1,408.3 $1,262.0 $1,080.5
Personal care and miscellaneous, net.................... 15.6 18.1 28.9professional ... 982.6 907.5 859.5
-------- -------- --------
Income (loss) before income taxes............................ $ 50.7 $ (14.8) $ (51.2)$2,390.9 $2,169.5 $1,940.0
======== ======== ========
DECEMBER 31,
----------------------
1996 1995
-------- --------
Identifiable assets:
United States................................................ $ 944.1 $ 897.6
Europe, Middle East and Africa............................... 287.6 268.3
Latin America, Canada and Puerto Rico........................ 198.7 167.8
Far East, Australia and other areas of the world............. 130.6 127.0
Corporate.................................................... 61.1 74.6
-------- --------
$1,622.1 $1,535.3
======== ========
SKIN CARE,
COSMETICS PERSONAL CARE
AND AND
FRAGRANCES PROFESSIONAL TOTAL
---------- ------------ --------
CLASSES OF SIMILAR PRODUCTS19. SUBSEQUENT EVENT (UNAUDITED):
1996................................ $1,263.9 $903.1 $2,167.0
%
On February 2, 1998, an affiliate of the Company, Revlon Escrow Corp.,
issued notes in the aggregate amount of $900.0 (the "Notes"). The net sales...................... 58% 42% 100%
1995................................ $1,075.2 $862.6 $1,937.8
%proceeds
of net sales...................... 55% 45% 100%
1994................................ $884.8 $847.7 $1,732.5
%$880 (net of net sales...................... 51% 49% 100%
F-27
16. PENDING ACQUISITION
On November 27, 1996,discounts, fees and expenses) were deposited with an escrow
agent and substantially all of such proceeds will be used to fund the
redemptions by Products Corporation of its Senior Subordinated Notes and PFC entered into an
Agreement and Plan of Merger with Cosmetic Center pursuant to which PFC will
merge with and into Cosmetic Center, with Cosmetic Center surviving the
merger
(the "Merger"). In the Merger,Senior Notes, including prepayment premiums for early redemptions. Products
Corporation would receive newly issued
common stockwill assume the obligations of Cosmetic Center constituting between 74% and 84%Revlon Escrow Corp. under the Notes
upon consummation of such redemptions. In connection with the early redemptions
of the outstanding common stock. The Merger is subjectSenior Notes and Senior Subordinated Notes, the Company expects to
a numberrecord an extraordinary loss of significant
conditions, including obtaining financing for Cosmetic Center and approval of
the transaction by Cosmetic Center stockholders, among other conditions.
F-28up to $52 in 1998.
F-30
SCHEDULE II
REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
AND 1994
(DOLLARS IN MILLIONS)(dollars in millions)
BALANCE AT CHARGED TO OTHER BALANCE AT
BEGINNING OF YEAR COST AND OTHER ATEXPENSES DEDUCTIONS END OF YEAR
EXPENSES DEDUCTIONS OF YEAR----------------- ----------------- ---------- ---------- ---------- ------------------
YEAR ENDED DECEMBER 31, 1997:
Applied against assets accounts:
Allowance for doubtful accounts $12.9 $ 3.6 $ (4.5)(1) $12.0
Allowance for volume and early
payment discounts ............. $12.0 $46.8 $(44.9)(2) $13.9
YEAR ENDED DECEMBER 31, 1996:
Applied against asset accounts:
Allowance for doubtful accounts............................accounts $13.6 $ 7.1 $ (7.8)(1) $12.9
Allowance for volume and early
payment discounts...............................................discounts ............. $10.1 $43.8 $(41.9)(2) $12.0
YEAR ENDED DECEMBER 31, 1995:
Applied against asset accounts:
Allowance for doubtful accounts............................accounts $11.1 $ 5.5 $ (3.0)(1) $13.6
Allowance for volume and early
payment discounts...............................................discounts ............. $10.6 $33.3 $(33.8)(2) $10.1
YEAR ENDED DECEMBER 31, 1994:
Applied against asset accounts:
Allowance for doubtful accounts............................ $14.6 $ 4.6 $ (8.1)(1) $11.1
Allowance for volume and early payment
discounts............................................... $ 9.7 $26.0 $(25.1)(2) $10.6
- ----------------------------------
Notes:
(1) Doubtful accounts written off, less recoveries, reclassifications and
foreign currency translation adjustments.
(2) Discounts taken, reclassifications and foreign currency translation
adjustments.
F-29F-31
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Revlon Consumer Products Corporation
(Registrant)
By: /s/ George Fellows By: /s/ WilliamFrank J. FoxGehrmann By: /s/ Lawrence E. Kreider
-------------------------- ------------------------ ----------------------------------------------------- ---------------------------- ----------------------------
George Fellows WilliamFrank J. FoxGehrmann Lawrence E. Kreider
President, Senior Executive Vice Senior Vice President,
Chief Executive Officer President and Controller and
and Director Chief Financial Officer Chief Accounting Officer
and Director
Dated: February 24, 1997March 4, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant on
February 24, 1997March 4, 1998 and in the capacities indicated.
Signature Title
* Chairman of the Executive Committee of the
- ----------------------------------- Board and
__________________________________ Director
(Ronald O. Perelman)
* Chairman of the Board and Director
- -----------------------------------
(Jerry W. Levin)
/s/ George Fellows President, Chief Executive Officer and Director
- -----------------------------------
(George Fellows)
* Senior Executive Vice President and Director
- -----------------------------------
(Jerry W. Levin)
/s/ George Fellows President, Chief Executive Officer and
- ----------------------------------- Director
(George Fellows)
/s/ William J. Fox Senior Executive Vice President, Chief
- ----------------------------------- Financial Officer and Director
(William J. Fox)
* Director
- -----------------------------------
(Donald G. Drapkin)
* Director
- -----------------------------------
(Irwin Engelman)
(Table continued on next page)
* Director
- -----------------------------------
(Howard Gittis)
* Director
- -----------------------------------
(Edward J. Landau)
* Robert K. Kretzman, by signing his name hereto, does hereby sign this report
on behalf of the directors of the registrant after whose typed names asterisks
appear, pursuant to powers of attorney duly executed by such Directorsdirectors and
filed with the Securities and Exchange Commission.
By: /s/ Robert K. Kretzman
Robert K. Kretzman
Attorney-in-fact