SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: March 31, 2001
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 (I.R.S. Employer
incorporation or organization) Identification No.)
625 MADISON AVENUE, NEW YORK, NEW YORK 10022
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 212-527-4000
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 __
The number of shares outstanding of the registrant's common stock was 1,000
shares as of March 31, 2001, all of which were held by an affiliate, Revlon,
Inc., an indirect majority owned subsidiary of Mafco Holdings Inc.
Total Pages - 17
REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
MARCH 31, DECEMBER 31,
ASSETS 2001 2000
--------------- ---------------
Current assets: (Unaudited)
Cash and cash equivalents ..................................... $ 30.2 $ 56.3
Trade receivables, less allowances of $15.0 ...................
and $16.1, respectively.................................. 213.1 220.3
Inventories.................................................... 187.2 184.7
Prepaid expenses and other .................................... 70.9 68.5
--------------- ---------------
Total current assets..................................... 501.4 529.8
Property, plant and equipment, net .................................. 206.1 221.7
Other assets ........................................................ 141.3 146.3
Intangible assets, net............................................... 204.3 206.1
--------------- ---------------
Total assets ............................................ $ 1,053.1 $ 1,103.9
=============== ===============
LIABILITIES AND STOCKHOLDER'S DEFICIENCY
Current liabilities:
Short-term borrowings - third parties. ........................ $ 31.4 $ 30.7
Accounts payable .............................................. 89.2 86.3
Accrued expenses and other..................................... 291.9 309.9
--------------- ---------------
Total current liabilities................................ 412.5 426.9
Long-term debt - third parties....................................... 1,558.2 1,539.0
Long-term debt - affiliates.......................................... 24.1 24.1
Other long-term liabilities.......................................... 219.4 217.6
Stockholder's deficiency:
Preferred stock, par value $1.00 per share;
1,000 shares authorized, 546 shares of
Series A Preferred Stock issued and outstanding.......... 54.6 54.6
Common Stock, par value $1.00 per share; 1,000
shares authorized, issued and outstanding................ - -
Capital deficiency............................................. (230.8) (230.8)
Accumulated deficit since June 24, 1992........................ (944.4) (897.7)
Accumulated other comprehensive loss........................... (40.5) (29.8)
--------------- ---------------
Total stockholder's deficiency........................... (1,161.1) (1,103.7)
--------------- ---------------
Total liabilities and stockholder's deficiency........... $ 1,053.1 $ 1,103.9
=============== ===============
See Accompanying Notes to Unaudited Consolidated Condensed Financial Statements.
2
REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(DOLLARS IN MILLIONS)
THREE MONTHS ENDED
MARCH 31,
-------------------------------------
2001 2000
---------------- ----------------
Net sales............................................. $ 323.3 $ 448.8
Cost of sales......................................... 131.4 175.2
---------------- ----------------
Gross profit..................................... 191.9 273.6
Selling, general and administrative expenses ......... 186.9 252.7
Restructuring costs................................... 14.6 9.5
---------------- ----------------
Operating (loss) income.......................... (9.6) 11.4
---------------- ----------------
Other expenses (income):
Interest expense................................. 35.2 39.4
Interest income.................................. (0.9) (0.4)
Amortization of debt issuance costs.............. 1.8 2.5
Foreign currency gains, net...................... (0.4) (0.5)
Gain on sale of product line, net................ - (6.2)
Miscellaneous, net............................... 0.8 0.5
---------------- ----------------
Other expenses, net......................... 36.5 35.3
---------------- ----------------
Loss before income taxes.............................. (46.1) (23.9)
Provision for income taxes............................ 0.6 3.7
---------------- ----------------
Net loss.............................................. $ (46.7) $ (27.6)
================ ================
See Accompanying Notes to Unaudited Consolidated Condensed Financial Statements.
3
REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDER'S DEFICIENCY
AND COMPREHENSIVE LOSS
(DOLLARS IN MILLIONS)
ACCUMULATED
OTHER TOTAL
PREFERRED CAPITAL ACCUMULATED COMPREHENSIVE STOCKHOLDER'S
STOCK DEFICIENCY DEFICIT LOSS (a) DEFICIENCY
----------- ------------- ------------ ----------------- -------------
Balance, January 1, 2000........................ $ 54.6 $ (230.8) $ (768.8) $ (68.1) $ (1,013.1)
Comprehensive income:
Net loss........................... (27.6) (27.6)
Currency translation adjustment.... 45.1 (b) 45.1
-------------
Total comprehensive income................. 17.5
---------- ------------ ----------- -------------- -------------
Balance, March 31, 2000......................... $ 54.6 $ (230.8) $ (796.4) $ (23.0) $ (995.6)
========== ============ =========== ============== =============
Balance, January 1, 2001........................ $ 54.6 $ (230.8) $ (897.7) $ (29.8) $ (1,103.7)
Comprehensive loss:
Net loss........................... (46.7) (46.7)
Currency translation adjustment ... (11.8) (11.8)
Revaluation of forward currency
contracts........................ 1.1 1.1
-------------
Total comprehensive loss................... (57.4)
---------- ------------ ----------- -------------- -------------
Balance, March 31, 2001......................... $ 54.6 $ (230.8) $ (944.4) $ (40.5) $ (1,161.1)
========== ============ =========== ============== =============
- --------------------
(a) Accumulated other comprehensive loss includes revaluation's of forward
currency contracts of $1.1 as of March 31, 2001, unrealized losses on
marketable securities of $3.8 as of March 31, 2000, cumulative net
translation losses of $38.0 and $14.3 as of March 31, 2001 and 2000,
respectively, and adjustments for the minimum pension liability of $3.6
and $4.9 as of March 31, 2001 and 2000, respectively.
(b) Accumulated other comprehensive loss and comprehensive income as of
March 31, 2000 each include a reclassification adjustment of $48.3 for
realized losses on foreign currency adjustments associated with the sale
of the Company's worldwide professional products line.
See Accompanying Notes to Unaudited Consolidated Condensed Financial Statements.
4
REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(DOLLARS IN MILLIONS)
THREE MONTHS ENDED
MARCH 31,
-------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES: 2001 2000
------------- --------------
Net loss........................................................................ $ (46.7) $ (27.6)
Adjustments to reconcile net loss to net cash
(used for) provided by operating activities:
Depreciation and amortization.............................................. 31.4 33.1
Gain on sale of product line, net.......................................... - (6.2)
Change in assets and liabilities, net of acquisitions and dispositions:
Decrease in trade receivables......................................... 3.1 16.7
(Increase) decrease in inventories.................................... (6.1) 6.2
(Increase) decrease in prepaid expenses and
other current assets..................................... (3.9) 4.8
Increase in accounts payable.......................................... 4.1 9.8
Decrease in accrued expenses and other
current liabilities...................................... (18.1) (38.0)
Purchase of permanent displays........................................ (12.4) (14.9)
Other, net............................................................ 2.7 (0.7)
------------- --------------
Net cash used for operating activities.......................................... (45.9) (16.8)
------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures............................................................ (4.9) (3.4)
Net proceeds from the sale of product line and certain assets .................. - 293.4
------------- --------------
Net cash (used for) provided by investing activities............................ (4.9) 290.0
------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in short-term borrowings - third parties................ 1.4 (5.1)
Proceeds from the issuance of long-term debt - third parties.................... 88.2 49.1
Repayment of long-term debt - third parties .................................... (65.1) (313.7)
Payment of debt issuance costs.................................................. (2.4) -
------------- --------------
Net cash provided by (used for) financing activities............................ 22.1 (269.7)
------------- --------------
Effect of exchange rate changes on cash and cash equivalents.................... 2.6 (1.1)
------------- --------------
Net (decrease) increase in cash and cash equivalents....................... (26.1) 2.4
Cash and cash equivalents at beginning of period........................... 56.3 25.4
------------- --------------
Cash and cash equivalents at end of period. ............................... $ 30.2 $ 27.8
============= ==============
Supplemental schedule of cash flow information:
Cash paid (received) during the period for:
Interest .. .......................................................... $ 47.7 $ 53.0
Income taxes, net of refunds. ........................................ 0.5 (0.3)
See Accompanying Notes to Unaudited Consolidated Condensed Financial Statements.
5
REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS)
(1) BASIS OF PRESENTATION
Revlon Consumer Products Corporation ("Products Corporation" and,
together with its subsidiaries, the "Company") 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.
The accompanying Consolidated Condensed Financial Statements are
unaudited. In management's opinion, all adjustments (consisting of only normal
recurring accruals) necessary for a fair presentation have been made.
The Unaudited Consolidated Condensed Financial Statements include the
accounts of the Company after elimination of all material intercompany balances
and transactions. The Company has made a number of estimates and assumptions
relating to the assets and liabilities, the disclosure of contingent assets and
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. The Unaudited
Consolidated Condensed Financial Statements should be read in conjunction with
the consolidated financial statements and related notes contained in the
Company's Annual Report on Form 10-K for the year ended December 31, 2000.
The results of operations and financial position, including working
capital, for interim periods are not necessarily indicative of those to be
expected for a full year.
Prior to January 1, 2001, advertising and promotion expenses estimated
for a full year were charged to earnings for interim reporting purposes in
proportion to the relationship that net sales for such period bore to estimated
full year net sales. As a result, for the first quarter of 2000, disbursements
and commitments for advertising and promotion exceeded advertising and promotion
expenses by $21.1 and such amount was deferred. Effective January 1, 2001, the
Company recognizes advertising and promotional expenses during the quarter in
which they are incurred.
In May 2000, the FASB Emerging Issues Task Force (the "EITF") reached a
consensus on new guidelines entitled, "Accounting for Certain Sales Incentives"
(the "Guidelines"), which addresses when sales incentives and discounts should
be recognized, as well as where the related revenues and expenses should be
classified in the financial statements. The Company has adopted these new
Guidelines effective January 1, 2001 and accordingly the accompanying Unaudited
Consolidated Condensed Financial Statements reflect the implementation of the
EITF Guidelines for all periods presented.
On January 1, 2001, the Company adopted SFAS 133, "Accounting for
Derivative Instruments and Hedging Activities," as amended. The standard
requires the recognition of all derivative instruments on the balance sheet as
either assets or liabilities measured at fair value. Changes in fair value are
recognized immediately in earnings unless the derivatives qualify as hedges of
future cash flows. For derivatives qualifying as hedges of future cash flows,
the effective portion of changes in fair value is recorded as a component of
Other Comprehensive Income and recognized in earnings when the hedged
transaction is recognized in earnings. Any ineffective portion of changes in
fair value is recognized in earnings as it occurs. There was no cumulative
effect recognized for adopting this accounting change.
The Company formally designates and documents each financial instrument
as a hedge of a specific underlying exposure as well as the risk management
objectives and strategies for entering into the hedge transaction upon
inception. The Company also formally assesses upon inception and quarterly
6
REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS)
thereafter whether the financial instruments used in hedging transactions are
effective in offsetting changes in the fair value or cash flows of the hedged
items.
The Company uses derivative financial instruments, primarily forward
foreign exchange contracts, to reduce the exposure of adverse effects of
fluctuating foreign currency exchange rates. These contracts, which have been
designated as cash flow hedges, were entered into primarily to hedge anticipated
inventory purchases and other intercompany payments denominated in foreign
currencies and have maturities of less than one year. The unrecognized income on
the revaluation of forward currency contracts will be recognized in earnings by
December 31, 2001. The Company has entered into these contracts with a
counterparty that is a major financial institution, and accordingly the Company
believes that the risk of counterparty nonperformance is remote.
In accordance with the provisions of the statement, the Company
recorded an asset of $1.1 on the balance sheet and a credit of $1.1 in Other
Comprehensive Loss for the fair value effects of the foreign currency forward
exchange contracts outstanding at March 31, 2001. The amount of the hedges'
ineffectiveness as of March 31, 2001 recorded in the Unaudited Consolidated
Condensed Statements of Operations was not significant.
Certain amounts in the prior year financial statements have been
reclassified to conform to the current year's presentation.
(2) INVENTORIES
MARCH 31, DECEMBER 31,
2001 2000
--------- -------------
Raw materials and supplies............. $ 56.3 $ 56.2
Work-in-process........................ 11.4 9.4
Finished goods......................... 119.5 119.1
--------- -------------
$ 187.2 $ 184.7
========= =============
(3) RESTRUCTURING COSTS, NET
In the fourth quarter of 1999, the Company began a new restructuring
program principally for additional employee severance and other personnel
benefits and to restructure certain operations outside the United States,
including certain operations in Japan (the "1999 Restructuring Plan"). In the
first quarter of 2000, the Company recorded a charge of $9.5 relating to the
1999 Restructuring Plan.
During the third quarter of 2000, the Company continued to re-evaluate
its organizational structure. As part of this re-evaluation, the Company
developed a new restructuring plan designed to improve profitability by reducing
personnel and consolidating manufacturing facilities (the "2000 Restructuring
Plan"). The 2000 Restructuring Plan focused on the Company's plans to close its
manufacturing operations in Phoenix, Arizona and Mississauga, Canada and to
consolidate its cosmetics production into its plant in Oxford, North Carolina.
The 2000 Restructuring Plan also includes the remaining obligation for excess
leased real estate in the Company's headquarters, consolidation costs associated
with the Company closing its facility in New Zealand, and the elimination of
several domestic and international executive and operational positions, both of
which were effected to reduce and streamline corporate overhead costs. In the
first quarter of 2001, the Company recorded a charge of $14.6 related to the
2000 Restructuring Plan, principally for additional employee severance and other
personnel benefits and to consolidate worldwide operations.
In connection with the 1999 Restructuring Plan and the 2000
Restructuring Plan, 403 employees and 1,812 employees, respectively, were
included in the Company's restructuring charges. Of the 1,812 employees for whom
severance and other personnel benefits were included in the 2000 Restructuring
Plan,
7
REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS)
the Company had terminated 709 employees by March 31, 2001. Substantially
all the employees from the 1999 Restructuring Plan have been terminated as of
March 31, 2001.
Details of the activity described above during the three month period
ended March 31, 2001, are as follows:
BALANCE UTILIZED, NET BALANCE
AS OF ------------------------- AS OF
1/1/01 EXPENSES, NET CASH NONCASH 3/31/01
----------- --------------- --------- ----------- ----------
Employee severance and other
personnel benefits................... $ 28.6 $ 12.7 $ (12.6) $ - $ 28.7
Factory, warehouse, office
and other costs....................... 7.4 1.9 (1.4) (0.8) 7.1
----------- ----------- ----------- --------- ----------
$ 36.0 $ 14.6 $ (14.0) $ (0.8) $ 35.8
=========== =========== =========== ========= ==========
(4) GEOGRAPHIC INFORMATION
The Company manages its business on the basis of one reportable
operating segment. 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 and
liabilities are affected by fluctuations in foreign currency exchange rates. The
Company's operations in Brazil have accounted for approximately 5.2% and 4.3% of
the Company's net sales for the first quarter of 2001 and 2000, respectively.
8
REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS)
(5) SUBSEQUENT EVENTS
In the fourth quarter of 2000, Products Corporation listed for sale
land in Minami Aoyama near Tokyo, Japan and related rights for the construction
of a building on such land (the "Aoyama Property"). In April 2001, Products
Corporation completed the disposition of the Aoyama Property for approximately
$28. The proceeds will be used for general corporate purposes, including
payments to fund the Company's restructuring plans.
In March 2001, Products Corporation entered into an agreement to sell
its Phoenix facility and lease it back for a certain period of time. On May 1,
2001, Products Corporation completed the disposition of the Phoenix facility for
approximately $7. The proceeds will be used for general corporate purposes,
including payments to fund the Company's restructuring plans.
9
REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
OVERVIEW
The Company operates in a single segment and manufactures, markets and
sells an extensive array of cosmetics and skin care, fragrances and personal
care products. In addition, the Company has a licensing group.
On March 30, 2000 and May 8, 2000, Products Corporation completed the
dispositions of its worldwide professional products line and Plusbelle brand in
Argentina, respectively. Accordingly, the Unaudited Consolidated Condensed
Financial Statements include the results of operations of the professional
products line and Plusbelle brand through the dates of their respective
dispositions.
During the first quarter of 2001, to reflect the integration of
management reporting responsibilities, the Company has reclassified Canada's
results from its international operations to its United States operations.
Management's discussion and analysis data reflects this change for both the
2001 and 2000 periods.
RESULTS OF OPERATIONS
Net sales
Net sales were $323.3 and $448.8 for the first quarters of 2001 and
2000, respectively, a decrease of $125.5, or 28.0% on a reported basis (a
decrease of 25.2% on a constant U.S. dollar basis). The decline in consolidated
net sales for the first quarter of 2001 as compared with the first quarter of
2000 is primarily due to the sale of the worldwide professional products line
and the Plusbelle brand in Argentina in the first and second quarters of 2000,
respectively.
Net sales, excluding the worldwide professional products line and the
Plusbelle brand in Argentina, were $323.3 and $355.4 for the first quarter of
2001 and 2000, respectively, a decrease of $32.1, or 9.0% on a reported basis
(a decrease of 6.2% on a constant U.S. dollar basis). The decline is primarily
due to decreased promotional sales volume, the effect of lower advertising
spending, and the effect of delayed reset of permanent in store wall displays
by certain retailers in the U.S.
United States and Canada. Net sales in the United States and Canada
were $218.4 for the first quarter of 2001 compared with $268.9 for the first
quarter of 2000, a decrease of $50.5, or 18.8%. Net sales, excluding the United
States and Canada portion of the worldwide professional products line, were
$218.4 for the first quarter of 2001 compared with $233.1 for the first quarter
of 2000, a decrease of $14.7, or 6.3%. The decline in sales for the first
quarter of 2001 is primarily due to decreased promotional sales volume, the
effect of lower advertising spending, and the effect of delayed reset of
permanent in store wall displays by certain retailers in the U.S.
International. Net sales in the Company's international operations were
$104.9 for the first quarter of 2001 compared with $179.9 for the first quarter
of 2000, a decrease of $75.0, or 41.7% on a reported basis (a decrease of 36.0%
on a constant U.S. dollar basis). The decrease was primarily due to the sale of
the worldwide professional products line and the Plusbelle brand in Argentina in
the first and second quarters of 2000, respectively.
Net sales outside the United States and Canada, excluding the worldwide
professional products line and the Plusbelle brand in Argentina, were $104.9 for
the first quarter of 2001 compared with $122.3 for the first quarter of 2000, a
decrease of $17.4, or 14.2%, on a reported basis (a decrease of 6.3% on a
constant U.S. dollar basis). The decrease in net sales for the first quarter of
2001 on a reported basis also reflects the unfavorable effect on sales of a
stronger U.S. dollar against certain foreign currencies. The decrease in net
sales for the first quarter of 2001 on a constant U.S. dollar basis is primarily
due to
10
REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
increased competitive activity in certain markets outside the U.S. Sales
outside the United States and Canada are divided by the Company into three
geographic regions. In Europe, which comprises Europe, the Middle East and
Africa, net sales decreased by 13.1% on a reported basis to $39.1 for the first
quarter of 2001 as compared with the first quarter of 2000 (a decrease of 3.5%
on a constant U.S. dollar basis). In the Western Hemisphere, which comprises
Mexico, Central America, South America and Puerto Rico, net sales decreased by
6.6% on a reported basis to $41.0 for the first quarter of 2001 as compared with
the first quarter of 2000 (a decrease of 0.2% on a constant U.S. dollar basis).
The Company's operations in Brazil are significant. In Brazil, net sales were
$16.8 on a reported basis for the first quarter of 2001 compared with $19.1 for
the first quarter of 2000, a decrease of $2.3, or 12.0% (an increase of 0.9% on
a constant U.S. dollar basis). In the Far East, net sales decreased by 25.7% on
a reported basis to $24.8 for the first quarter of 2001 as compared with the
first quarter of 2000 (a decrease of 18.3% on a constant U.S. dollar basis). Net
sales in the Company's international operations, including the Company's
operations in Brazil, may be adversely affected by weak economic conditions,
political and economic uncertainties, adverse currency fluctuations, and
competitive activities.
Cost of sales
As a percentage of net sales, cost of sales was 40.6% for the first
quarter of 2001 compared with 39.0% for the first quarter of 2000. Excluding the
worldwide professional products line and the Plusbelle brand in Argentina in
2000 and $6.4 of additional consolidation costs in 2001, which primarily
resulted from accelerated depreciation associated with the shutdown of the
Phoenix facility, cost of sales as a percentage of net sales was 38.7% for the
first quarter of 2001 compared with 38.8% for the first quarter of 2000.
SG&A expenses
SG&A expenses were $186.9 for the first quarter of 2001 compared with
$252.7 for the first quarter of 2000. Excluding the worldwide professional
products line and the Plusbelle brand in Argentina in 2000 and $1.7 of
additional consolidation costs in 2001 associated with the shutdown of the
Phoenix facility, SG&A expenses were $185.2 for the first quarter of 2001
compared with $200.9 for the first quarter of 2000. The decrease in SG&A
expenses during the first quarter of 2001 is due primarily to the reduction of
departmental general and administrative expenses from $93.7 in the first quarter
of 2000 to $79.5 in the first quarter of 2001 as a result of the Company's
restructuring efforts.
Restructuring costs and other, net
In the fourth quarter of 1999, the Company began a new restructuring
program principally for additional employee severance and other personnel
benefits and to restructure certain operations outside the United States,
including certain operations in Japan (the "1999 Restructuring Plan"). In the
first quarter of 2000, the Company recorded a charge of $9.5 relating to the
1999 Restructuring Plan.
During the third quarter of 2000, the Company continued to re-evaluate its
organizational structure. As part of this re-evaluation, the Company developed a
new restructuring plan designed to improve profitability by reducing personnel
and consolidating manufacturing facilities (the "2000 Restructuring Plan"). The
2000 Restructuring Plan focused on the Company's plans to close its
manufacturing operations in Phoenix, Arizona and Mississauga, Canada and to
consolidate its cosmetics production into its plant in Oxford, North Carolina.
The 2000 Restructuring Plan also includes the remaining obligation for excess
leased real estate in the Company's headquarters, consolidation costs associated
with the Company closing its facility in New Zealand, and the elimination of
several domestic and international executive and operational positions, both of
which were effected to reduce and streamline corporate overhead costs. In the
first quarter of 2001, the Company recorded a charge of $14.6 related to the
2000 Restructuring Plan, principally for additional employee severance and other
personnel benefits and to consolidate worldwide operations. The Company
anticipates that it will recognize approximately $35 to $40 of costs to
implement this plan during 2001.
11
REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
The Company anticipates annual savings of approximately $10 to $15
relating to the restructuring charges recorded during the first quarter of 2001
in connection with the 2000 Restructuring Plan.
Other expenses (income)
Interest expense was $35.2 for the first quarter of 2001 compared with
$39.4 for the first quarter of 2000. The decrease in interest expense for the
first quarter of 2001 as compared with the first quarter of 2000 is primarily
due to the repayment of borrowings under the Credit Agreement (as hereinafter
defined) with the net proceeds from the disposition of the worldwide
professional products line and the Plusbelle brand in Argentina, partially
offset by higher interest rates under the Credit Agreement.
Amortization of debt issuance costs was $1.8 for the first quarter of
2001 compared with $2.5 for the first quarter of 2000. The decrease in the
amortization of debt issuance costs for the first quarter of 2001 as compared
with the first quarter of 2000 is primarily due to the write-off of a portion of
such costs in connection with the sale of the worldwide professional products
line and the Plusbelle brand in Argentina.
Sale of product line
On March 30, 2000, Products Corporation completed the disposition of
its worldwide professional products line, including professional hair care for
use in and resale by professional salons, ethnic hair and personal care
products, Natural Honey skin care and certain regional toiletries brands. In
connection with the disposition, the Company recognized a pre-tax and after-tax
gain of $6.2.
Provision for income taxes
The provision for income taxes was $0.6 for the first quarter of 2001
compared with $3.7 for the first quarter of 2000. The decrease in the provision
for income taxes for the first quarter of 2001 as compared to the first quarter
of 2000 was attributable to adjustments to certain deferred tax assets and
higher taxes associated with the worldwide professional products line in the
first quarter of 2000 and lower taxable income in the first quarter of 2001 in
certain markets outside the United States.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Net cash used for operating activities was $45.9 and $16.8 for the
first quarters of 2001 and 2000, respectively. The increase in net cash used for
operating activities for the first quarter of 2001 compared with the first
quarter of 2000 resulted primarily from a higher net loss and changes in working
capital.
Net cash (used for) provided by investing activities was $(4.9) and
$290.0 for the first quarters of 2001 and 2000, respectively. Net cash used for
investing activities for the first quarter of 2001 consisted of capital
expenditures. Net cash provided by investing activities in the first quarter of
2000 consisted of proceeds from the sale of the Company's worldwide professional
products line, partially offset by cash used for capital expenditures.
Net cash provided by (used for) financing activities was $22.1 and
$(269.7) for the first quarters of 2001 and 2000, respectively. Net cash
provided by financing activities for the first quarter of 2001 included cash
drawn under the Credit Agreement, partially offset by the repayment of
borrowings under the Credit Agreement and payment of debt issuance costs. Net
cash used for financing activities for the first quarter of 2000 included
repayments of borrowings under the Credit Agreement with the net proceeds from
the disposition of the worldwide professional products line and the repayment of
Products Corporation's Japanese yen-denominated credit agreement, partially
offset by cash drawn under the Credit Agreement.
12
REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
In May 1997, Products Corporation entered into a credit agreement (as
subsequently amended, the "Credit Agreement") with a syndicate of lenders, whose
individual members change from time to time. As of March 31, 2001, the Credit
Agreement provides up to $518.5 and is comprised of five senior secured
facilities: $106.2 in two term loan facilities (the "Term Loan Facilities"), a
$300.0 multi-currency facility (the "Multi-Currency Facility"), a $62.3
revolving acquisition facility, which may also be used for general corporate
purposes (the "Acquisition Facility"), and a $50.0 special standby letter of
credit facility (the "Special LC Facility"). The Company under certain
circumstances and with the consent of a majority of the lenders may increase the
Acquisition Facility to $262.3. At March 31, 2001, the Company had $106.2
outstanding under the Term Loan Facilities, $240.4 outstanding under the
Multi-Currency Facility, $62.3 outstanding under the Acquisition Facility and
$23.8 of issued but undrawn letters of credit under the Special LC Facility. The
scheduled reductions of the Acquisition Facility are $48.8 during 2001. The
balance of the Acquisition Facility, along with the Term Loan Facilities, the
Multi-Currency Facility and the Special LC Facility mature in May 2002. In
January 2001 (effective December 31, 2000), Products Corporation and its bank
lenders entered into an amendment to the Credit Agreement, to (i) eliminate the
interest coverage ratio and leverage ratio covenants for 2001; (ii) add a
minimum cumulative EBITDA covenant for each quarter end during the year 2001;
(iii) modify the definition of EBITDA beginning with the quarterly period ended
December 31, 2000; (iv) limit the amount that Products Corporation may spend for
capital expenditures; (v) permit the sale of certain of Products Corporation's
non-core assets; (vi) permit Products Corporation to retain 100% of the Net
Proceeds from such asset sales; (vii) increase the "applicable margin" by 1/2 of
1%; and (viii) require Products Corporation to provide a mortgage on its
facility in Oxford, North Carolina as security for its obligations under the
Credit Agreement.
The Company's principal sources of funds are expected to be cash flow
generated from operations (before interest), net proceeds from the sale of
certain non-core assets and borrowings under the Credit Agreement. The Credit
Agreement, Products Corporation's 8 5/8% Notes due 2008 (the "8 5/8% Notes"),
Products Corporation's 8 1/8% Notes due 2006 (the "8 1/8% Notes") and Products
Corporation's 9% Notes due 2006 (the "9% Notes") contain certain provisions that
by their terms limit Products Corporation's and/or its subsidiaries' ability to,
among other things, incur additional debt. The Company's principal uses of funds
are expected to be the payment of operating expenses, working capital, purchases
of permanent displays and capital expenditure requirements, expenses in
connection with the Company's 2000 and 1999 Restructuring Plans referred to
above and debt service payments.
The Company estimates that purchases of permanent displays for 2001
will be $40 to $50 and capital expenditures for 2001 will be $13 to $17. The
Company estimates that cash payments related to the restructuring plans referred
to in Note 3 to the Unaudited Consolidated Condensed Financial Statements, plans
for 2001 and executive separation costs incurred in 1999 will be $60 to $80 in
2001. Pursuant to a tax sharing agreement, Products Corporation may be required
to make tax sharing payments to Revlon, Inc. (which in turn may be required to
make tax sharing payments to Mafco Holdings) 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 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 federal taxes pursuant to the
tax sharing agreement will be required for 2001.
Products Corporation enters into forward foreign exchange contracts and
option contracts from time to time to hedge certain cash flows denominated in
foreign currencies. Products Corporation had forward foreign exchange contracts
denominated in various currencies of approximately $65.9 and nil (U.S. dollar
equivalent) outstanding at March 31, 2001 and 2000, respectively. Such contracts
are entered into to hedge transactions predominantly occurring within twelve
months.
13
REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
The Company expects that cash flows from operations, net proceeds from
the sale of certain non-core assets (or financial support from an affiliate, if
such asset sales are not completed on a timely basis) and borrowings under the
Credit Agreement will be sufficient to enable the Company to meet its
anticipated cash requirements during 2001 on a consolidated basis, including for
debt service and expenses in connection with the Company's restructuring plans.
However, there can be no assurance that the combination of cash flow from
operations, net proceeds from the sale of certain non-core assets (or from such
financial support) and borrowings under the Credit Agreement will be sufficient
to meet the Company's cash requirements on a consolidated basis. If the Company
is unable to satisfy such cash requirements, the Company could be required to
adopt one or more alternatives, such as reducing or delaying purchases of
permanent displays, reducing or delaying capital expenditures, delaying or
revising restructuring plans, restructuring indebtedness, selling additional
assets or operations, or seeking capital contributions or additional loans from
Revlon, Inc. or other affiliates of the Company. Products Corporation has
received a commitment from an affiliate that is prepared to provide, if
necessary, additional financial support to Products Corporation of up to $40 on
appropriate terms through December 31, 2001. There can be no assurance that any
of such actions could be effected, that they would enable the Company to
continue to satisfy its capital requirements or that they would be permitted
under the terms of the Company's various debt instruments then in effect. The
terms of the Credit Agreement, the 8 5/8% Notes, the 8 1/8% Notes and the 9%
Notes generally restrict Products Corporation from paying dividends or making
distributions, except that Products Corporation is permitted to pay dividends
and make distributions to Revlon, Inc., among other things, to enable Revlon,
Inc. to pay expenses incidental to being a public holding company, including,
among other things, professional fees such as legal and accounting, regulatory
fees such as Securities and Exchange Commission (the "Commission") filing fees
and other miscellaneous expenses related to being a public holding company and
to pay dividends or make distributions in certain circumstances to finance the
purchase by Revlon, Inc. of its Class A Common Stock in connection with the
delivery of such Class A Common Stock to grantees under the Revlon, Inc. Amended
and Restated 1996 Stock Plan, provided that the aggregate amount of such
dividends and distributions taken together with any purchases of Revlon, Inc.
Class A Common Stock on the open market to satisfy matching obligations under
the excess savings plan may not exceed $6.0 per annum.
EURO CONVERSION
As part of the European Economic and Monetary Union, a single currency
(the "Euro") will replace the national currencies of the principal European
countries (other than the United Kingdom) in which the Company conducts business
and manufacturing. The conversion rates between the Euro and the participating
nations' currencies were fixed as of January 1, 1999, with the participating
national currencies to be removed from circulation between January 1, 2002 and
June 30, 2002 and replaced by Euro notes and coinage. During the transition
period from January 1, 1999 through December 31, 2001, public and private
entities as well as individuals may pay for goods and services using checks,
drafts, or wire transfers denominated either in the Euro or the participating
country's national currency. Under the regulations governing the transition to a
single currency, there is a "no compulsion, no prohibition" rule, which states
that no one can be prevented from using the Euro after January 1, 2002 and no
one is obliged to use the Euro before July 2002. In keeping with this rule, the
Company expects to either continue using the national currencies or the Euro for
invoicing or payments. Based upon the information currently available, the
Company does not expect that the transition to the Euro will have a material
adverse effect on the business or consolidated financial condition of the
Company.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has exposure to market risk both as a result of changing
interest rates and movements in foreign currency exchange rates. The Company's
policy is to manage market risk through a combination of fixed and floating rate
debt, the use of derivative financial instruments and foreign exchange forward
and option contracts. The Company does not hold or issue financial instruments
for trading purposes. The qualitative and quantitative information presented in
Item 7A of the Company's Annual
14
REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
Report on Form 10-K for the year ended December 31, 2000 describes significant
aspects of the Company's financial instrument programs that have material market
risk as of December 31, 2000. The following table presents the information
required by Item 7A as of March 31, 2001.
EXPECTED MATURITY DATE FOR YEAR ENDED MARCH 31, FAIR VALUE
----------------------------------------------------------------- MARCH 31,
2001 2002 2003 2004 THEREAFTER TOTAL 2001
-----------------------------------------------------------------------------
(US dollar equivalent in millions)
DEBT
- ---------------
Short-term variable rate (various currencies) ...... $ 31.4 $ 31.4 $ 31.4
Average interest rate(a) ..................... 8.4%
Long-term fixed rate ($US) ......................... $1,149.3 1,149.3 671.4
Average interest rate ........................ 8.6%
Long-term variable rate ($US) ...................... $ 372.1 * 372.1 372.1
Average interest rate(a) ..................... 7.4%
Long-term variable rate (various currencies) ....... 36.8 * 36.8 36.8
Average interest rate(a) ..................... 9.2%
------- -------- -------- --------- --------
Total debt ......................................... $ 31.4 $ 408.9 $1,149.3 $ 1,589.6 $1,111.7
======= ======== ======== ========= ========
AVERAGE ORIGINAL CONTRACT
CONTRACTUAL US DOLLAR VALUE FAIR VALUE
RATE NOTIONAL MARCH 31, MARCH 31,
FORWARD CONTRACTS $/FC AMOUNT 2001 2001
- ----------------- ----------- ----------- ---------- -----------
Buy Euros/Sell USD .................................... 0.9265 $ 1.9 $ 1.8 $ (0.1)
Sell British Pounds/Buy USD ........................... 1.4447 11.4 11.5 0.1
Sell Australian dollar/Buy USD ........................ 0.5274 14.1 15.2 1.1
Sell Japanese Yen/Buy USD ............................. 0.0082 29.4 29.4 0.0
Sell South African Rand/Buy USD ....................... 0.1253 3.4 3.5 0.1
Buy Australian dollars/Sell New Zealand dollars ....... 1.2455 2.3 2.2 (0.1)
Buy British Pounds/Sell Euros ......................... 0.6298 3.4 3.4 0.0
------ -------- ------
Total forward contracts ............................... $ 65.9 $ 67.0 $ 1.1
====== ======== ======
(a) Weighted average variable rates are based upon implied forward rates from
the yield curves at March 31, 2001.
* Represents the Company's Credit Agreement which matures in May 2002.
EFFECT OF NEW ACCOUNTING STANDARD
In April 2001, the EITF reached a consensus on EITF 00-25, "Vendor
Income Statement Characterization of Consideration to a Purchaser of the
Vendor's Products or Services." The consensus addresses the Statement of
Operations classification of consideration from a vendor to a reseller. While
the Company has not completed its evaluation of the effect of this consensus, it
is not expected to have a significant effect on the Company's consolidated
financial statements.
SEBSEQUENT EVENTS
In the fourth quarter of 2000, Products Corporation listed for sale the
Aoyama Property. In April 2001, Products Corporation completed the disposition
of the Aoyama Property for approximately $28. The proceeds will be used for
general corporate purposes, including payments to fund the Company's
restructuring plans.
In March 2001, Products Corporation entered into an agreement to sell
its Phoenix facility and lease it back for a certain period of time. On May 1,
2001, Products Corporation completed the disposition of the Phoenix facility for
approximately $7. The proceeds will be used for general corporate purposes,
including payments to fund the Company's restructuring plans.
FORWARD-LOOKING STATEMENTS
This quarterly report on Form 10-Q for the quarter ended March 31, 2001
as well as other public documents and statements of the Company contains
forward-looking statements that involve risks and uncertainties. The Company's
actual results may differ materially from those discussed in such
forward-looking statements. Such statements include, without limitation, the
Company's expectations and estimates as to: the introduction of new products;
future financial performance; the effect on sales of the reduction of overall
U.S. customer inventories including the timing thereof; the effect on sales of
political and/or economic conditions, adverse currency fluctuations and
competitive activities; the Company's estimate of restructuring activities,
restructuring costs and benefits; the Company's plans with respect to and
estimate of the timing of the shutdown of its Phoenix manufacturing operation,
the charges, the cash cost and the annual savings resulting from plant
shutdowns; the Company's expectation that its new trade terms for its U.S.
customers will increase consumption of its products, drive market growth, result
in more efficient ordering and shipping and reduce returns; the Company's
expectations regarding uses of funds including purchases of permanent displays
and capital expenditures; the availability of raw materials and components; the
Company's qualitative and quantitative estimates as to market risk sensitive
instruments; the Company's
15
REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
expectations about the effects of the transition to the Euro; the Company's
intent to pursue the sale of certain non-core assets; the Company's expectation
regarding sources of funds including cash flow from operations, the availability
of funds from currently available credit facilities, net proceeds from the sale
of certain non-core assets, capital contributions or loans from Revlon, Inc. or
other affiliates of the Company and the sale of additional assets or operations;
and the effect of the adoption of certain accounting standards. Statements that
are not historical facts, including statements about the Company's beliefs and
expectations, are forward-looking statements. Forward-looking statements can be
identified by, among other things, the use of forward-looking language, such as
"believes," "expects," "estimates," "projects," "forecast," "may," "will,"
"should," "seeks," "plans," "scheduled to," "anticipates" or "intends" or the
negative of those terms, or other variations of those terms or comparable
language, or by discussions of strategy or intentions. Forward-looking
statements speak only as of the date they are made, and the Company undertakes
no obligation to update them. A number of important factors could cause actual
results to differ materially from those contained in any forward-looking
statement. In addition to factors that may be described in the Company's filings
with the Commission, including this filing, the following factors, among others,
could cause the Company's actual results to differ materially from those
expressed in any forward-looking statements made by the Company: (i)
difficulties or delays in developing and introducing new products or failure of
customers to accept new product offerings; (ii) changes in consumer preferences,
including reduced consumer demand for the Company's color cosmetics and other
current products; (iii) unanticipated costs or difficulties or delays in
completing projects associated with the Company's strategy to improve operating
efficiencies; (iv) lower than expected cash flow from operations, the inability
to secure capital contributions or loans from Revlon, Inc. or other affiliates
of the Company or sell additional assets or operations or the availability of
funds under the Credit Agreement; (v) effects of and changes in political and/or
economic conditions, including inflation and monetary conditions, and in trade,
monetary, fiscal and tax policies in international markets, including but not
limited to Brazil; (vi) actions by competitors, including business combinations,
technological breakthroughs, new products offerings and marketing and
promotional successes; (vii) combinations among significant customers or the
loss, insolvency or failure to pay debts by a significant customer or customers;
(viii) lower than expected sales as a result of the reduction of overall U.S.
customer inventories; (ix) difficulties, delays or unanticipated costs or less
than expected savings and other benefits resulting from the Company's
restructuring activities; (x) difficulties or delays in implementing, higher
than expected charges and cash costs or lower than expected savings from the
shutdown of manufacturing operations in Phoenix; (xi) difficulties or delays in
implementing or achieving the intended results of the new trade terms including
increased consumption, market growth and lower returns or unexpected
consequences from the implementation of the new trade terms including the
possible effect on sales; (xii) interest rate or foreign exchange rate changes
affecting the Company and its market sensitive financial instruments; (xiii)
difficulties, delays or unanticipated costs associated with the transition to
the Euro; (xiv) difficulties or delays in sourcing raw materials or components;
(xv) difficulties or delays in pursuing the sale of one or more non-core assets,
the inability to consummate such sales or to secure the expected level of
proceeds from such sales; and (xvi) the effects of the adoption of certain new
accounting standards.
16
REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - NONE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS - NONE
(B) REPORTS ON FORM 8-K - NONE
S I G N A T U R E S
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, 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/ Douglas H. Greeff By:/s/ Laurence Winoker
- ------------------------------------ -----------------------------------------
Douglas H. Greeff Laurence Winoker
Executive Vice President Senior Vice President, Corporate
and Chief Financial Officer Controller and Treasurer
Dated: May 15, 2001