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, 2002
OR
- --- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from__________________ to _______________
Commission file number 33-59650
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, 2002, all of which were held by an affiliate, Revlon,
Inc., an indirect majority owned subsidiary of Mafco Holdings Inc.
Total Pages - 24
REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
MARCH 31, DECEMBER 31,
ASSETS 2002 2001
--------------- ---------------
(Unaudited)
Current assets:
Cash and cash equivalents........................................ $ 67.5 $ 103.3
Marketable securities............................................ - 2.2
Trade receivables, less allowances of $14.6
and $16.1, respectively.................................... 189.8 203.9
Inventories...................................................... 167.6 157.9
Prepaid expenses and other....................................... 52.9 50.6
--------- ---------
Total current assets....................................... 477.8 517.9
Property, plant and equipment, net..................................... 139.8 142.8
Other assets........................................................... 133.6 132.2
Intangible assets, net................................................. 198.1 198.5
--------- ---------
Total assets............................................... $ 949.3 $ 991.4
========= =========
LIABILITIES AND STOCKHOLDER'S DEFICIENCY
Current liabilities:
Short-term borrowings - third parties............................ $ 22.3 $ 17.5
Accounts payable................................................. 86.2 87.0
Accrued expenses and other....................................... 278.5 281.2
--------- ---------
Total current liabilities.................................. 387.0 385.7
Long-term debt - third parties ........................................ 1,625.9 1,619.5
Long-term debt - affiliates............................................ 24.1 24.1
Other long-term liabilities............................................ 252.5 250.9
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............................................... (214.8) (214.8)
Accumulated deficit since June 24, 1992.......................... (1,113.3) (1,067.5)
Accumulated other comprehensive loss............................. (66.7) (61.1)
--------- ---------
Total stockholder's deficiency............................. (1,340.2) (1,288.8)
--------- ---------
Total liabilities and stockholder's deficiency............. $ 949.3 $ 991.4
========= =========
See Accompanying Notes to Unaudited Consolidated Condensed Financial Statements.
2
REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
(DOLLARS IN MILLIONS)
THREE MONTHS ENDED
MARCH 31,
-------------------------------------
2002 2001
---------------- ----------------
Net sales.......................................................... $ 275.4 $ 313.6
Cost of sales...................................................... 109.0 131.6
----------- -----------
Gross profit.................................................. 166.4 182.0
Selling, general and administrative expenses....................... 166.4 176.6
Restructuring costs................................................ 4.0 14.6
----------- -----------
Operating loss................................................ (4.0) (9.2)
----------- -----------
Other expenses (income):
Interest expense.............................................. 39.2 35.2
Interest income............................................... (0.5) (0.9)
Amortization of debt issuance costs........................... 1.9 1.8
Foreign currency gains, net................................... (0.6) (0.4)
Loss on sale of assets, net................................... 1.0 -
Miscellaneous, net............................................ 0.7 0.8
----------- -----------
Other expenses, net...................................... 41.7 36.5
----------- -----------
Loss before income taxes........................................... (45.7) (45.7)
Provision for income taxes......................................... 0.1 0.5
----------- -----------
Net loss.......................................................... $ (45.8) $ (46.2)
=========== ===========
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, 2001................................. $ 54.6 $ (213.8) $ (915.3) $ (29.8) $ (1,104.3)
Net distribution from affiliate..................... (0.3)(b) (0.3)
Comprehensive loss:
Net loss.................................... (46.2) (46.2)
Currency translation adjustment............. (11.8) (11.8)
Revaluation of forward currency contracts... 1.1 1.1
----------
Total comprehensive loss............................ (56.9)
------- --------- -------- -------- -----------
Balance, March 31, 2001.................................. $ 54.6 $ (214.1) $ (961.5) $ (40.5) $ (1,161.5)
======= ========= ======== ======== ==========
Balance, January 1, 2002................................. $ 54.6 $ (214.8) $ 1,067.5) $ (61.1) $ (1,288.8)
Comprehensive loss:
Net loss.................................... (45.8) (45.8)
Currency translation adjustment............. (5.4) (5.4)
Revaluation of forward currency contracts... (0.2) (0.2)
----------
Total comprehensive loss............................ (51.4)
------- --------- -------- -------- -----------
Balance, March 31, 2002................................. $ 54.6 $ (214.8) $(1,113.3) $ (66.7) $ (1,340.2)
======= ========= ======== ======== ==========
- --------------------
(a) Accumulated other comprehensive loss includes unrealized losses (gains)
on revaluations of forward currency contracts of $0.2 and $(1.1) as of
March 31, 2002 and 2001, respectively, cumulative net translation losses
of $20.4 and $38.0 as of March 31, 2002 and 2001, respectively, and
adjustments for the minimum pension liability of $46.1 and $3.6 as of
March 31, 2002 and 2001, respectively.
(b) Represents net distributions in capital from the Charles of the Ritz business.
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: 2002 2001
------------- --------------
Net loss........................................................................ $ (45.8) $ (46.2)
Adjustments to reconcile net loss to net cash
(used for) provided by operating activities:
Depreciation and amortization.............................................. 25.9 31.4
Loss on sale of assets, net................................................ 1.0 -
Change in assets and liabilities, net of acquisitions and dispositions:
Decrease in trade receivables......................................... 12.2 2.9
Increase in inventories............................................... (11.1) (6.1)
Increase in prepaid expenses and
other current assets..................................... (3.5) (3.9)
(Decrease) increase in accounts payable............................... (0.3) 4.1
Increase (decrease) in accrued expenses and other
current liabilities...................................... 1.4 (18.1)
Purchase of permanent displays........................................ (14.9) (12.4)
Other, net............................................................ (6.6) 2.7
---------- ----------
Net cash used for operating activities.......................................... (41.7) (45.6)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures............................................................ (1.9) (4.9)
Sale of marketable securities................................................... 1.8 -
---------- ----------
Net cash used for investing activities.......................................... (0.1) (4.9)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in short-term borrowings - third parties........................... 5.1 1.4
Proceeds from the issuance of long-term debt - third parties.................... 7.1 88.2
Repayment of long-term debt - third parties..................................... (1.2) (65.1)
Net distribution from affiliate................................................. - (0.3)
Payment of debt issuance costs.................................................. - (2.4)
---------- ----------
Net cash provided by financing activities....................................... 11.0 21.8
---------- ----------
Effect of exchange rate changes on cash and cash equivalents.................... (5.0) 2.6
---------- ----------
Net decrease in cash and cash equivalents.................................. (35.8) (26.1)
Cash and cash equivalents at beginning of period........................... 103.3 56.3
---------- ----------
Cash and cash equivalents at end of period................................. $ 67.5 $ 30.2
========== ==========
Supplemental schedule of cash flow information:
Cash paid during the period for:
Interest ............................................................. $ 38.4 $ 47.7
Income taxes, net of refunds.......................................... 0.5 0.5
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 accounting principles generally accepted
in the United States. 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, 2001.
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.
In November 2001, the FASB Emerging Issues Task Force (the "EITF")
reached consensus on EITF Issue 01-9 entitled, "Accounting for Consideration
Given by a Vendor to a Customer or a Reseller of the Vendor's Products" (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 adopted the earlier portion
of these new Guidelines (formerly EITF Issue 00-14) addressing certain sales
incentives effective January 1, 2001, and accordingly, all prior period
financial statements reflect the implementation of the earlier portion of the
Guidelines. The second portion of the Guidelines (formerly EITF Issue 00-25)
addresses vendor income statement characterization of consideration to a
purchaser of the vendor's products or services, including the classification of
slotting fees, cooperative advertising arrangements and buy-downs. Certain
promotional payments that were classified in SG&A expenses are now classified as
a reduction of net sales. The impact of the adoption of the second portion of
the Guidelines on the consolidated financial statements reduced both net sales
and SG&A expenses by equal and offsetting amounts. The adoption did not have any
impact on the Company's reported operating loss or net loss. The Company adopted
the second portion of the Guidelines effective January 1, 2002, and accordingly,
all prior period financial statements reflect the implementation of the second
portion of the Guidelines.
In July 2001, the FASB issued Statement No. 141, Business Combinations,
and Statement No. 142, Goodwill and Other Intangible Assets. Statement 141
requires that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001, as well as all purchase method
business combinations completed after June 30, 2001. Statement 141 also
specifies criteria that must be met in order for intangible assets acquired in a
purchase method business combination to be recognized and reported apart from
goodwill. Statement 142 requires that goodwill and intangible assets with
indefinite useful lives no longer be amortized, but instead tested for
impairment at least annually in accordance with the provisions of Statement 142.
Statement 142 requires that intangible assets with finite useful lives be
amortized over their respective estimated useful lives to their estimated
residual values, and reviewed for impairment in accordance with SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived
6
REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS)
Assets. The Company adopted the provisions of Statement 141 in July 2001 and
Statement 142 effective January 1, 2002. In connection with the adoption of
Statement 142, the Company performed a transitional goodwill impairment test as
required and has determined that no goodwill impairment existed at March 31,
2002. The Company has also evaluated the lives of all of its intangible assets.
As a result of this evaluation the Company has determined that none of its
intangible assets, other than goodwill, have indefinite lives and that the
existing useful lives are appropriate. (See Note 4).
In October 2001, the FASB issued Statement No. 144, Accounting for
Impairment or Disposal of Long-Lived Assets. Statement 144 addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
The Statement also extends the reporting requirements to report separately as
discontinued operations, components of an entity that have either been disposed
of or classified as held for sale. The Company has adopted the provisions of
Statement 144 effective January 1, 2002 and such adoption had no effect on its
financial statements.
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,
2002 2001
--------- ------------
Raw materials and supplies...... $ 52.5 $ 44.9
Work-in-process................. 12.1 10.1
Finished goods.................. 103.0 102.0
-------- ---------
$ 167.6 $ 157.0
======== =========
(3) OTHER ASSETS
The Company capitalizes the cost of permanent display fixtures and
amortizes such cost over the estimated useful life of the assets of three to
five years. Beginning in the first quarter of 2002, the Company decided to
roll-out new permanent display units, replacing existing permanent display
fixtures at an accelerated rate. As a result, the useful lives of those
permanent display fixtures to be replaced was shortened to their new estimated
useful lives, resulting in accelerated amortization of $2.8 during the
three-month period ended March 31, 2002.
(4) INTANGIBLE ASSETS, NET
Intangible assets, net of $198.1 and $198.5 at March 31, 2002 and
December 31, 2001, respectively, consists of trademarks, net, patents, net and
goodwill, net. The amounts outstanding for these intangible assets at March 31,
2002 and December 31, 2001 were as follows: for trademarks, net, $6.6 and $6.8,
respectively; for patents, net, $5.6 and $5.8, respectively; and for goodwill,
net, $185.9 at both March 31, 2002 and December 31, 2001. Amortization expense
for the three-months ended March 31, 2002 and 2001 was $0.4 and $2.3,
respectively. Amortization of goodwill ceased on January 1, 2002 upon adoption
of Statement 142. Excluding amortization expense related to goodwill of $1.9
recognized during the three-months ended March 31, 2001, net loss would have
been $44.3. The Company's intangible assets other than goodwill continue to be
subject to amortization, which is anticipated to be approximately $1.6 annually
through December 31, 2007.
7
REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS)
(5) RESTRUCTURING AND OTHER COSTS, NET
During the third quarter of 2000, the Company initiated a new
restructuring program in line with the original restructuring plan developed in
late 1998, designed to improve profitability by reducing personnel and
consolidating manufacturing facilities. The 2000 restructuring program 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 program 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 previous restructuring
programs, as well as the 2000 restructuring program, principally for additional
employee severance and other personnel benefits, relocation and to consolidate
worldwide operations.
In the first quarter of 2002, the Company continued to implement the
2000 restructuring program and recorded a charge of $4.0, principally for
additional employee severance and other personnel benefits, relocation and other
costs related to the consolidation of worldwide operations.
In connection with the 2000 restructuring program, termination benefits
for 2,349 employees were included in the Company's restructuring charges of
which 2,100 employees have been terminated as of March 31, 2002. The remaining
employees from the 2000 restructuring program are expected to be terminated
within one year from the date of their notification.
Details of the activity described above during the three-month period
ended March 31, 2002 are as follows:
BALANCE UTILIZED, NET BALANCE
AS OF ------------------------ AS OF
1/1/02 EXPENSES, NET CASH NONCASH 3/31/02
----------- ----------------- ---------- --------- ----------
Employee severance and other
personnel benefits..................... $ 15.1 $ 3.0 $ (5.7) $ - $ 12.4
Relocation................................... - 0.1 (0.1) - -
Leases and equipment write-offs.............. 7.4 0.7 (0.6) - 7.5
Other obligations............................ 0.3 0.2 (0.1) - 0.4
-------- --------- --------- -------- ---------
$ 22.8 $ 4.0 $ (6.5) $ - $ 20.3
======== ========= ========= ======== =========
In connection with the 2000 restructuring program, in the beginning of
the fourth quarter of 2000, the Company decided to consolidate its manufacturing
facility in Phoenix, Arizona into its manufacturing facility in Oxford, North
Carolina. The plan was to relocate substantially all of the Phoenix equipment to
the Oxford facility and commence production there over a period of approximately
nine months which would allow the Company to fully staff the Oxford facility and
to produce enough inventory through a combination of production in the Phoenix
and Oxford facilities to meet supply chain demand as the Phoenix facility
production lines were dismantled, moved across the country, and placed into
service at the Oxford facility. Substantially all production at the Phoenix
facility ceased by June 30, 2001, and the facility was sold. The useful life of
the facility and production assets which would not be relocated to the Oxford
facility was shortened at the time the decision was made to the nine-month
period in which the Phoenix facility would continue production. The Company
began depreciating the net book value of the Phoenix facility and production
equipment in excess of its estimated salvage value over the estimated nine-month
useful life.
8
REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS)
This resulted in the recognition of increased depreciation through March 31,
2001 of $6.2, which is included in cost of sales.
(6) 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.
During the first quarter of 2002, to reflect the integration of
management reporting responsibilities, the Company reclassified Puerto Rico's
results from its international operations to its United States operations. The
geographic information reflects this change for both the 2002 and 2001 periods.
THREE MONTHS ENDED
GEOGRAPHIC AREAS: MARCH 31,
------------------------------
2002 2001
------------ ------------
Net sales:
United States............................... $ 187.0 $ 202.5
Canada...................................... 9.4 10.0
------------ ------------
United States and Canada.................... 196.4 212.5
International............................... 79.0 101.1
------------ ------------
$ 275.4 $ 313.6
============ ============
MARCH 31, DECEMBER 31,
2002 2001
------------ ------------
Long-lived assets:
United States............................... $ 353.4 $ 353.3
Canada...................................... 2.6 2.5
------------ ------------
United States and Canada.................... 356.0 355.8
International............................... 115.5 117.7
------------ ------------
$ 471.5 $ 473.5
============ ============
THREE MONTHS ENDED
CLASSES OF SIMILAR PRODUCTS: MARCH 31,
------------------------------
2002 2001
------------ ------------
Net sales:
Cosmetics, skin care and fragrances......... $ 175.4 $ 206.6
Personal care............................... 100.0 107.0
------------ ------------
$ 275.4 $ 313.6
============ ============
(7) DISPOSITION
In February 2002, Products Corporation completed the disposition of its
subsidiaries that operated its marketing, sales and distribution business in
Belgium, the Netherlands and Luxembourg ("Benelux"). As part of this sale,
Products Corporation entered into a long-term distribution agreement with the
purchaser pursuant to which the purchaser distributes the Company's products in
Benelux. The purchase price consisted principally of the assumption of certain
liabilities and a deferred purchase price contingent
9
REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS)
upon future results of up to approximately $3.3, which could be received over
approximately a seven-year period. In connection with the disposition, the
Company recognized a pre-tax and after-tax loss of $1.0.
(8) DERIVATIVE FINANCIAL INSTRUMENTS
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 certain intercompany payments denominated in foreign
currencies, which have maturities of less than one year. The unrecognized income
(loss) on the revaluation of forward currency contracts is recognized in cost of
sales upon the recognition of the underlying inventory cost or transactions
being hedged. During 2002, the Company 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. The notional
amount of forward foreign exchange contracts outstanding at March 31, 2002 was
$32.5. The Company recorded an accrued liability of $0.2 on the balance sheet
and a debit of $0.2 in Other Comprehensive Loss for the fair value effects of
the foreign currency forward exchange contracts outstanding at March 31, 2002.
(9) GUARANTOR FINANCIAL INFORMATION
The 12% Senior Secured Notes due 2005 (the "12% Notes"), which were
issued in November 2001, are jointly and severally, fully and unconditionally
guaranteed by the domestic subsidiaries of Products Corporation that guarantee
Products Corporation's 2001 Credit Agreement (as hereinafter defined) (the
"Guarantor Subsidiaries", with Products Corporation's subsidiaries that do not
guarantee the 12% Notes being the "Non-Guarantor Subsidiaries"). The
Supplemental Guarantor Condensed Consolidating Financial Data presented below
presents the balance sheets, statements of operations and statements of cash
flow data (i) for Products Corporation and the Guarantor Subsidiaries and the
Non-Guarantor Subsidiaries on a consolidated basis (which is derived from
Products Corporation's historical reported financial information); (ii) for
Products Corporation as the "Parent Company", alone (accounting for its
Guarantor Subsidiaries and the Non-Guarantor Subsidiaries on an equity basis
under which the investments are recorded by each entity owning a portion of
another entity at cost, adjusted for the applicable share of the subsidiary's
cumulative results of operations, capital contributions and distributions, and
other equity changes); (iii) for the Guarantor Subsidiaries alone; and (iv) for
the Non-Guarantor Subsidiaries alone. Additionally, Products Corporation's 12%
Notes are fully and unconditionally guaranteed by Revlon, Inc. The unaudited and
audited consolidating condensed balance sheets, unaudited consolidating
condensed statement of operations and unaudited consolidating condensed
statements of cash flow for Revlon, Inc. have not been included in the
accompanying Supplemental Guarantor Condensed Consolidating Financial Data as
such information is not materially different than those of Products Corporation.
UNAUDITED CONSOLIDATING CONDENSED BALANCE SHEETS
AS OF MARCH 31, 2002
(DOLLARS IN MILLIONS)
NON-
PARENT GUARANTOR GUARANTOR
ASSETS CONSOLIDATED ELIMINATIONS COMPANY SUBSIDIARIES SUBSIDIARIES
--------------- -------------- -------------- -------------- ----------------
Current assets................................. $ 477.8 $ - $ 265.9 $ 21.9 190.0
Intercompany receivables....................... - (1,329.2) 748.3 387.8 193.1
Investment in subsidiaries..................... - 174.4 (145.1) (40.7) 11.4
Property, plant and equipment, net............. 139.8 - 126.8 3.1 9.9
Other assets................................... 133.6 - 74.2 6.6 52.8
Intangible assets, net......................... 198.1 - 161.7 3.4 33.0
--------------- -------------- -------------- -------------- ----------------
Total assets.............................. $ 949.3 $ (1,154.8) $ 1,231.8 $ 382.1 $ 490.2
=============== ============== ============== ============== ================
LIABILITIES AND STOCKHOLDER'S DEFICIENCY
Current liabilities............................ $ 387.0 $ - $ 271.0 $ 22.1 $ 93.9
Intercompany payables.......................... - (1,329.2) 414.8 569.3 345.1
Long-term debt................................. 1,650.0 - 1,642.8 3.5 3.7
Other long-term liabilities.................... 252.5 - 243.4 9.1 -
--------------- -------------- -------------- -------------- ----------------
Total liabilities.............................. 2,289.5 (1,329.2) 2,572.0 604.0 442.7
Stockholder's deficiency....................... (1,340.2) 174.4 (1,340.2) (221.9) 47.5
--------------- -------------- -------------- -------------- ----------------
Total liabilities and stockholder's deficiency. $ 949.3 $ (1,154.8) $ 1,231.8 $ 382.1 $ 490.2
=============== ============== ============== ============== ================
10
REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
CONSOLIDATING CONDENSED BALANCE SHEETS
AS OF DECEMBER 31, 2001
(DOLLARS IN MILLIONS)
NON-
PARENT GUARANTOR GUARANTOR
ASSETS CONSOLIDATED ELIMINATIONS COMPANY SUBSIDIARIES SUBSIDIARIES
--------------- -------------- -------------- -------------- -----------------
Current assets................................. $ 517.9 $ - $ 294.9 $ 28.2 $ 194.8
Intercompany receivables....................... - (1,404.5) 769.1 387.1 248.3
Investment in subsidiaries..................... - 177.5 (148.3) (28.5) (0.7)
Property, plant and equipment, net............. 142.8 - 131.1 3.3 8.4
Other assets................................... 132.2 - 69.5 6.7 56.0
Intangible assets, net......................... 198.5 - 161.9 3.4 33.2
--------------- -------------- -------------- -------------- -----------------
Total assets.............................. $ 991.4 $ (1,227.0) $ 1,278.2 $ 400.2 $ 540.0
=============== ============== ============== ============== =================
LIABILITIES AND STOCKHOLDER'S DEFICIENCY
Current liabilities............................ $ 385.7 $ - $ 257.5 $ 21.2 $ 107.0
Intercompany payables.......................... - (1,404.5) 425.5 560.7 418.3
Long-term debt................................. 1,643.6 - 1,642.2 - 1.4
Other long-term liabilities.................... 250.9 - 241.8 9.1 -
--------------- -------------- -------------- -------------- -----------------
Total liabilities.............................. 2,280.2 (1,404.5) 2,567.0 591.0 526.7
Stockholder's deficiency....................... (1,288.8) 177.5 (1,288.8) (190.8) 13.3
--------------- -------------- -------------- -------------- -----------------
Total liabilities and stockholder's deficiency. $ 991.4 $ (1,227.0) $ 1,278.2 $ 400.2 $ 540.0
=============== ============== ============== ============== =================
UNAUDITED CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
FOR THE QUARTER ENDED MARCH 31, 2002
(DOLLARS IN MILLIONS)
NON-
PARENT GUARANTOR GUARANTOR
CONSOLIDATED ELIMINATIONS COMPANY SUBSIDIARIES SUBSIDIARIES
-------------- -------------- -------------- -------------- -----------------
Net sales....................................... $ 275.4 $ (30.1) $ 182.9 $ 40.8 $ 81.8
Cost of sales................................... 109.0 (30.1) 66.8 33.1 39.2
-------------- -------------- -------------- -------------- -----------------
Gross profit.............................. 166.4 - 116.1 7.7 42.6
Selling, general and administrative expenses.... 166.4 - 113.2 8.8 44.4
Restructuring costs............................. 4.0 - 2.7 0.1 1.2
-------------- -------------- -------------- -------------- -----------------
Operating (loss) income................... (4.0) - 0.2 (1.2) (3.0)
-------------- -------------- -------------- -------------- -----------------
Other expenses (income):
Interest expense, net..................... 38.7 - 38.2 0.4 0.1
Loss on sale of assets, net............... 1.0 - - - 1.0
Miscellaneous, net........................ 2.0 - 1.5 (7.8) 8.3
Equity in earnings of subsidiaries........ - (33.3) 8.7 24.1 0.5
-------------- -------------- -------------- -------------- -----------------
Other expenses, net.................. 41.7 (33.3) 48.4 16.7 9.9
-------------- -------------- -------------- -------------- -----------------
Loss before income taxes........................ (45.7) 33.3 (48.2) (17.9) (12.9)
Provision (benefit) for income taxes............ 0.1 - (2.4) 2.2 0.3
-------------- -------------- -------------- -------------- -----------------
Net loss........................................ (45.8) 33.3 (45.8) (20.1) (13.2)
============== ============== ============== ============== =================
11
REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS)
UNAUDITED CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
FOR THE QUARTER ENDED MARCH 31, 2002
(DOLLARS IN MILLIONS)
NON-
PARENT GUARANTOR GUARANTOR
CONSOLIDATED ELIMINATIONS COMPANY SUBSIDIARIES SUBSIDIARIES
-------------- -------------- -------------- -------------- -----------------
Net sales..................................... $ 313.6 $ (33.6) $ 197.1 $ 31.6 $ 118.5
Cost of sales................................. 131.6 (33.6) 77.7 24.9 62.6
-------------- -------------- -------------- -------------- -----------------
Gross profit............................ 182.0 - 119.4 6.7 55.9
Selling, general and administrative expenses.. 176.6 - 110.2 8.2 58.2
Restructuring costs........................... 14.6 - 8.7 0.6 5.3
-------------- -------------- -------------- -------------- -----------------
Operating (loss) income................. (9.2) - 0.5 (2.1) (7.6)
-------------- -------------- -------------- -------------- -----------------
Other expenses (income):
Interest expense, net................... 34.3 - 28.2 4.9 1.2
Loss on sale of assets, net............. - - - - -
Miscellaneous, net...................... 2.2 - 5.0 (7.4) 4.6
Equity in earnings of subsidiaries...... - (27.4) 13.9 13.0 0.5
-------------- -------------- -------------- -------------- -----------------
Other expenses, net................ 36.5 (27.4) 47.1 10.5 6.3
-------------- -------------- -------------- -------------- -----------------
Loss before income taxes...................... (45.7) 27.4 (46.6) (12.6) (13.9)
Provision (benefit) for income taxes.......... 0.5 - (0.4) 0.7 0.2
-------------- -------------- -------------- -------------- -----------------
Net loss...................................... (46.2) 27.4 (46.2) (13.3) (14.1)
============== ============== ============== ============== =================
UNAUDITED CONSOLIDATING CONDENSED STATEMENT OF CASH FLOW
FOR THE QUARTER ENDED MARCH 31, 2002
(DOLLARS IN MILLIONS)
NON-
PARENT GUARANTOR GUARANTOR
CONSOLIDATED ELIMINATIONS COMPANY SUBSIDIARIES SUBSIDIARIES
------------ ------------- ---------- ------------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash (used for) provided by operating activities......... $ (41.7) $ - $ (23.7) $ 1.4 $ (19.4)
------------ ------------- ---------- ------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures......................................... (1.9) - (1.3) - (0.6)
Sale of marketable securities................................ 1.8 - 1.8 - -
------------ ------------- ---------- ------------- ------------
Net cash (used for) provided by investing activities......... (0.1) - 0.5 - (0.6)
------------ ------------- ---------- ------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in short-term borrowings - third parties........ 5.1 - - 2.0 3.1
Proceeds from the issuance of long-term debt - third parties. 7.1 - - 3.5 3.6
Repayment of long-term debt - third parties.................. (1.2) - - - (1.2)
Other........................................................ - - (9.8) (14.9) 24.7
------------ ------------- ---------- ------------- ------------
Net cash provided by (used for) financing activities......... 11.0 - (9.8) (9.4) 30.2
------------ ------------- ---------- ------------- ------------
Effect of exchange rate changes on cash and cash equivalents. (5.0) - - (0.1) (4.9)
------------ ------------- ---------- ------------- ------------
Net (decrease) increase in cash and cash equivalents... (35.8) - (33.0) (8.1) 5.3
Cash and cash equivalents at beginning of period....... 103.3 - 55.0 10.1 38.2
------------ ------------- ---------- ------------- ------------
Cash and cash equivalents at end of period............. $ 67.5 $ - $ 22.0 $ 2.0 $ 43.5
============ ============= ========== ============= ============
12
REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS)
UNAUDITED CONSOLIDATING CONDENSED STATEMENT OF CASH FLOW
FOR THE QUARTER ENDED MARCH 31, 2001
(DOLLARS IN MILLIONS)
NON-
PARENT GUARANTOR GUARANTOR
CONSOLIDATED ELIMINATIONS COMPANY SUBSIDIARIES SUBSIDIARIES
------------- ------------ ---------- ------------ -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash used for operating activities....................... $ (45.6) $ - $ (42.7) $ (0.6) $ (2.3)
------------- ------------ ---------- ------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures......................................... (4.9) - (3.6) (0.8) (0.5)
------------- ------------ ---------- ------------ -------------
Net cash used for investing activities....................... (4.9) - (3.6) (0.8) (0.5)
------------- ------------ ---------- ------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in short-term borrowings - third parties........ 1.4 - - - 1.4
Proceeds from the issuance of long-term debt - third parties. 88.2 - 72.2 5.9 10.1
Repayment of long-term debt - third parties.................. (65.1) - (31.2) (2.3) (31.6)
Other........................................................ - - (16.3) (3.9) 20.2
Net distribution from affiliate.............................. (0.3) - - (0.3) -
Payment of debt issuance costs............................... (2.4) - (2.4) - -
------------- ------------ ---------- ------------ -------------
Net cash provided by (used for) financing activities......... 21.8 - 22.3 (0.6) 0.1
------------- ------------ ---------- ------------ -------------
Effect of exchange rate changes on cash and cash equivalents. 2.6 - - (0.1) 2.7
------------- ------------ ---------- ------------ -------------
Net (decrease) increase in cash and cash equivalents... (26.1) - (24.0) (2.1) -
Cash and cash equivalents at beginning of period....... 56.3 - 10.7 2.9 42.7
------------- ------------ ---------- ------------ -------------
Cash and cash equivalents at end of period............. $ 30.2 $ - $ (13.3) $ 0.8 $ 42.7
============= ============ ========== ============ =============
13
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 July 16, 2001 Products Corporation completed the disposition of the
Colorama brand in Brazil. Accordingly, the Unaudited Consolidated Condensed
Financial Statements include the results of operations of the Colorama brand
through the date of its disposition.
During the first quarter of 2002, to reflect the integration of
management reporting responsibilities, the Company reclassified Puerto Rico's
results from its international operations to its United States operations.
Management's discussion and analysis data reflects this change for both the 2002
and 2001 periods.
Discussion of Critical Accounting Policies:
In the ordinary course of business, the Company has made a number of
estimates and assumptions relating to the reporting of results of operations and
financial condition in the preparation of its financial statements in conformity
with accounting principles generally accepted in the United States of America.
Actual results could differ significantly from those estimates and assumptions.
The Company believes that the following discussion addresses the Company's most
critical accounting policies, which are those that are most important to the
portrayal of the Company's financial condition and results and require
management's most difficult, subjective and complex judgments, often as a result
of the need to make estimates about the effect of matters that are inherently
uncertain.
Sales Returns:
The Company allows customers to return their unsold products when they
meet certain Company-established criteria as outlined in the Company's trade
terms. The Company regularly reviews and revises, when deemed necessary, its
estimates of sales returns based primarily upon actual returns, planned product
discontinuances, and promotional sales, which would permit customers to return
items based upon the Company's trade terms. The Company records estimated sales
returns as a reduction to sales, cost of sales and accounts receivable and an
increase to inventory. Cost of sales includes the cost of refurbishment of
returned products. Returned products which are recorded as inventories are
valued based upon expected realizability. The physical condition and
marketability of the returned products are the major factors considered by the
Company in estimating realizable value. Actual returns, as well as realized
values on returned products, may differ significantly, either favorably or
unfavorably, from our estimates if factors such as product discontinuances,
customer inventory levels or competitive conditions differ from our estimates
and expectations and, in the case of actual returns, if economic conditions
differ significantly from our estimates and expectations.
Trade Support Costs:
In order to support the retail trade, the Company has various
performance-based arrangements with retailers to reimburse them for all or a
portion of their promotional activities related to the Company's products. The
Company regularly reviews and revises, when deemed necessary, estimates of costs
to the Company for these promotions based on estimates of what has been incurred
by the retailers. Actual costs incurred by the Company may differ significantly
if factors such as the level and success of the retailers' programs or other
conditions differ from our estimates and expectations.
14
REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
Inventories:
Inventories are stated at the lower of cost or market value. Cost is
principally determined by the first-in, first-out method. The Company records
adjustments to the value of inventory based upon its forecasted plans to sell
its inventories. The physical condition (e.g., age and quality) of the
inventories is also considered in establishing its valuation. These adjustments
are estimates, which could vary significantly, either favorably or unfavorably,
from actual requirements if future economic conditions, customer inventory
levels, product discontinuances or competitive conditions differ from our
estimates and expectations.
Property, Plant and 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. Changes in
circumstances such as technological advances, changes to the Company's business
model, changes in the planned use of fixtures or software or closing of
facilities or changes in the Company's capital strategy can result in the actual
useful lives differing from the Company's estimates.
Long-lived assets, including fixed assets, permanent display units and
intangibles other than goodwill, are reviewed by the Company for impairment
whenever events or changes in circumstances indicate that the carrying amount of
any such asset may not be recoverable. The estimate of cash flow is based upon,
among other things, certain assumptions about expected future operating
performance. The Company's estimates of undiscounted cash flow may differ from
actual cash flow due to, among other things, technological changes, economic
conditions, changes to its business model or changes in its operating
performance. If the sum of the undiscounted cash flows (excluding interest) is
less than the carrying value, the Company recognizes an impairment loss,
measured as the amount by which the carrying value exceeds the fair value of the
asset. In those cases where the Company determines that the useful life of other
long-lived assets should be shortened, the Company would depreciate the net book
value in excess of the salvage value (after testing for impairment as described
above) over the revised remaining useful life of such asset thereby increasing
amortization expense.
Pension Benefits:
The Company sponsors pension and other retirement plans in various
forms covering substantially all employees who meet eligibility requirements.
Several statistical and other factors which attempt to anticipate future events
are used in calculating the expense and liability related to the plans. These
factors include assumptions about the discount rate, expected return on plan
assets and rate of future compensation increases as determined by the Company,
within certain guidelines. In addition, the Company's actuarial consultants also
use subjective factors such as withdrawal and mortality rates to estimate these
factors. The actuarial assumptions used by the Company may differ materially
from actual results due to changing market and economic conditions, higher or
lower withdrawal rates or longer or shorter life spans of participants. These
differences may result in a significant impact to the amount of pension expense
recorded by the Company. Due to decreases in interest rates and declines in the
income of assets in the plans, it is expected that the pension expense for 2002
will be significantly higher than in recent years.
15
REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
RESULTS OF OPERATIONS
In order to provide a more meaningful comparison of results from
operations, the Company's discussion is presented on an "ongoing operations"
basis. The following table sets forth certain summary unaudited data for the
Company for the quarters ended March 31, 2002 and March 31, 2001 reconciling the
Company's actual "as reported results" to the ongoing operations, after giving
effect to the following: (i) the disposition of the Colorama brand, assuming
such transaction occurred on January 1, 2001; (ii) the elimination of
restructuring costs in the period incurred; and (iii) the elimination of
additional costs associated with the closing of the Phoenix and Canada
facilities that were included in cost of sales and selling, general and
administrative expenses ("SG&A") and executive severance costs that were
included in SG&A expenses in the period incurred (after giving effect thereto,
the "Ongoing Operations"). The adjustments are based upon available information
and certain assumptions that our management believes are reasonable and do not
represent pro forma adjustments prepared in accordance with Regulation S-X. The
summary unaudited data for the Ongoing Operations does not purport to represent
the results of operations or our financial position that actually would have
occurred had the foregoing transactions referred to in (i) above been
consummated on January 1, 2001.
QUARTER ENDED MARCH 31, 2002:
- ---------------------------
BRANDS AND RESTRUCTURING
AS FACILITIES COSTS AND ONGOING
REPORTED SOLD OTHER, NET OPERATIONS
---------------- ----------------- ---------------- -----------------
Net sales..................................... $ 275.4 $ - $ - $ 275.4
Gross profit.................................. 166.4 - 0.7 167.1
SG&A expenses................................. 166.4 - (6.6) 159.8
Restructuring costs and other, net............ 4.0 - (4.0) -
QUARTER ENDED MARCH 31, 2001:
- ----------------------------
BRANDS AND RESTRUCTURING
AS FACILITIES COSTS AND ONGOING
REPORTED SOLD OTHER, NET OPERATIONS
---------------- ----------------- ---------------- -----------------
Net sales..................................... $ 313.6 $ (9.8) $ - $ 303.8
Gross profit.................................. 182.0 (4.2) 6.4 184.2
SG&A expenses................................. 176.6 (3.5) (1.7) 171.4
Restructuring costs and other, net............ 14.6 - (14.6) -
Net sales
Net sales were $275.4 and $313.6 for the first quarters of 2002 and
2001, respectively, a decrease of $38.2, or 12.2% on a reported basis (a
decrease of 9.0% on a constant U.S. dollar basis).
Net sales from Ongoing Operations were $275.4 and $303.8 for the first
quarters of 2002 and 2001, respectively, a decrease of $28.4, or 9.3% on a
reported basis (a decrease of 6.3% on a constant U.S. dollar basis).
United States and Canada. Net sales in the United States and Canada on
both an as reported and Ongoing Operations basis were $196.4 for the first
quarter of 2002 compared with $212.5 for the first quarter of 2001, a decrease
of $16.1, or 7.6%. The decrease for the first quarter of 2002 of 7.6% was driven
primarily by lower shipments to our retail customers as a result of the decision
by two major U.S.
16
REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
retailers to shift the timing of plan-o-gram resets for certain 2002 new
products (this resulted in shipments of approximately $14.0 of 2002 new products
in the fourth quarter of 2001) and to a lesser extent higher promotional
activity and increased competitive activity.
International. Net sales in the Company's international operations
were $79.0 for the first quarter of 2002, compared with $101.1 for the first
quarter of 2001, a decrease of $22.1, or 21.9% on a reported basis (a decrease
of $11.6, or 12.7% on a constant U.S. dollar basis).
Net sales in the Company's international Ongoing Operations ("Ongoing
International Operations") were $79.0 and $91.3 for the first quarters of 2002
and 2001, respectively, a decrease of $12.3, or 13.5%, on a reported basis (a
decrease of $3.0, or 3.6% on a constant U.S. dollar basis).
Ongoing International Operations sales are divided by the Company into
three geographic regions. In Europe and Africa, which is comprised of Europe,
the Middle East and Africa, net sales decreased by $6.0, or 15.8% on a reported
basis to $32.0 for the first quarter of 2002, as compared with the first quarter
of 2001 (a decrease of $2.0, or 5.9% on a constant U.S. dollar basis). In Latin
America, which is comprised of Mexico, Central America and South America, net
sales decreased by $6.1, or 21.1% on a reported basis to $22.8 for the first
quarter of 2002, as compared with the first quarter of 2001 (a decrease of $1.4,
or 5.7% on a constant U.S. dollar basis). In the Far East, net sales decreased
by $0.2, or 0.8% on a reported basis to $24.2 for the first quarter of 2002, as
compared with the first quarter of 2001 (an increase of $0.4, or 1.7% on a
constant U.S. dollar basis). Net sales in the Company's international operations
may be adversely affected by weak economic conditions, political uncertainties,
adverse currency fluctuations, and competitive activities.
The decrease in net sales for the first quarter of 2002, as compared to
the first quarter of 2001, for Ongoing International Operations on a comparable
currency basis, was primarily due to political and economic difficulties in
Argentina and Venezuela (which factor the Company estimates contributed to an
approximately 2.9% reduction in net sales on a constant dollar basis),
conversion of the Company's Benelux business to a distributor and lower sales to
certain other European distributors (which factor the Company estimates
contributed to an approximately 5.3% reduction in net sales on a constant dollar
basis), partially offset by increased new product sales and distribution in the
U.K., China, Hong Kong and France (which factor the Company estimates
contributed to an approximately 4.6% increase in net sales on a constant dollar
basis).
Gross profit
Gross profit was $166.4 for the first quarter of 2002, compared with
$182.0 for the first quarter of 2001. As a percentage of net sales, gross profit
margins were 60.4% for the first quarter of 2002 compared with 58.0% for the
first quarter of 2001. Gross profit and gross profit margin for Ongoing
Operations were $167.1 and 60.7%, respectively, in the first quarter of 2002
compared with gross profit and gross profit margin of $184.2 and 60.6% in the
first quarter of 2001. The improvement in gross profit margin on an ongoing
basis in the first quarter of 2002 compared to the first quarter of 2001 is due
to favorable product mix and reduced overhead costs as a result of the shutdown
of the Phoenix and Canada facilities in 2001, partially offset by higher
promotional activity. Gross profit from Ongoing Operations for the first quarter
of 2001 excludes $6.4 ($6.2 of which represents increased depreciation recorded
for the Phoenix facility - See Note 5) of additional consolidation costs
associated with the shutdown of the Phoenix and Canada facilities in 2001 and
$4.2 of gross profit from the Colorama brand in Brazil.
17
REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
SG&A expenses
SG&A expenses were $166.4 for the first quarter of 2002, compared with
$176.6 for the first quarter of 2001. SG&A expenses for Ongoing Operations were
$159.8 for the first quarter of 2002, which excludes $6.5 of executive
separation costs, compared with $171.4 for the first quarter of 2001, which
excludes $1.7 of additional consolidation costs associated with the shutdown of
the Phoenix and Canada facilities in 2001 and $3.5 of SG&A expenses of the
Colorama brand in Brazil. The decrease in SG&A expenses for Ongoing Operations
for the first quarter of 2002, as compared to the comparable 2001 period, is due
primarily to the reduction of departmental and other general and administrative
expenses from $83.6 in the first quarter of 2001 to $72.1 for the first quarter
of 2002, primarily as a result of the Company's restructuring efforts and the
elimination of goodwill amortization of $1.9, as well as decreases in
distribution costs of $2.5. The decrease in SG&A expenses for Ongoing Operations
was partially offset by an increase in brand support expenses from $72.0 for the
first quarter of 2001 to $74.4 for the first quarter of 2002, including
accelerated amortization expense of $2.8 associated with the roll-out of the
Company's new permanent display units.
Restructuring costs
During the third quarter of 2000, the Company initiated a new
restructuring program in line with the original restructuring plan developed in
late 1998, designed to improve profitability by reducing personnel and
consolidating manufacturing facilities. The 2000 restructuring program 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 program 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 previous restructuring
programs, as well as the 2000 restructuring program, principally for additional
employee severance and other personnel benefits, relocation and to consolidate
worldwide operations.
In the first quarter of 2002, the Company continued to implement the
2000 restructuring program and recorded a charge of $4.0, principally for
additional employee severance and other personnel benefits, relocation and other
costs related to the consolidation of worldwide operations.
The Company anticipates annualized savings of approximately $4 to $6
relating to the restructuring charges recorded during the first quarter of 2002.
Other expenses (income)
Interest expense was $39.2 for the first quarter of 2002 compared with
$35.2 for the first quarter of 2001. The increase in interest expense for the
first quarter of 2002, as compared to the first quarter of 2001, is primarily
due to the interest on the 12% Notes (which were issued in late November 2001),
partially offset by lower average outstanding borrowings and lower interest
rates under the Credit Agreement.
Sale of assets, net
In February 2002, Products Corporation completed the disposition of its
Benelux business. As part of this sale, Products Corporation entered into a
long-term distribution agreement with the purchaser
18
REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
pursuant to which the purchaser distributes the Company's products in Benelux.
The purchase price consisted principally of the assumption of certain
liabilities and a deferred purchase price contingent upon future results of up
to approximately $3.3, which could be received over approximately a seven-year
period. In connection with the disposition, the Company recognized a pre-tax and
after-tax loss of $1.0.
Provision for income taxes
The provision for income taxes was $0.1 for the first quarter of 2002,
compared with $0.5 for the first quarter of 2001. The decrease in the provision
for income taxes for the first quarter of 2002, as compared to the first quarter
of 2001, was primarily attributable to the recognition of tax benefits of
approximately $0.5 relating to the carryback of alternative minimum tax losses
resulting from new tax legislation enacted in the first quarter of 2002.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Net cash used for operating activities was $41.7 and $45.6 for the
first quarters of 2002 and 2001, respectively. The decrease in net cash used for
operating activities is due to changes in working capital, partially offset by
lower depreciation and amortization expenses in the 2002 period due to the
disposal of manufacturing facilities during 2001 and the elimination of goodwill
amortization, which was partially offset by accelerated amortization of
permanent display units and higher purchases of permanent displays.
Net cash used for investing activities was $0.1 and $4.9 for the first
quarter of 2002 and 2001, respectively. Net cash used for investing activities
for the first quarter of 2002 consisted of capital expenditures, partially
offset by the sale of marketable securities. Net cash used for investing
activities for the first quarter of 2001 consisted of capital expenditures. The
reduction in capital expenditures for the first quarter of 2002, as compared to
the first quarter of 2001, is due to the timing of such expenditures.
Net cash provided by financing activities was $11.0 and $21.8 for the
first quarters of 2002 and 2001, respectively. Net cash provided by financing
activities for the first quarter of 2002 included cash drawn under the 2001
Credit Agreement, partially offset by the repayment of borrowings under the 2001
Credit Agreement. Net cash provided by financing activities for the first
quarter of 2001 included borrowings under the 1997 Credit Agreement, partially
offset by repayments of borrowings under the 1997 Credit Agreement and payment
of debt issuance costs.
On November 26, 2001, Products Corporation issued and sold $363 in
aggregate principal amount of 12% Notes in a private placement, receiving gross
proceeds of $350.5. Products Corporation used the proceeds from the 12% Notes
and borrowings under the 2001 Credit Agreement to repay outstanding indebtedness
under Products Corporation's 1997 Credit Agreement and to pay fees and expenses
incurred in connection with entering into the 2001 Credit Agreement and the
issuance of the 12% Notes, and the balance was available for general corporate
purposes. On February 25, 2002, Products Corporation filed a registration
statement with the Securities and Exchange Commission (the "Commission") with
respect to an offer to exchange the 12% Notes for registered notes with
substantially the same terms (the "Exchange Offer"), which registration
statement became effective on May 13, 2002. The Exchange Offer will expire on
June 13, 2002, unless extended.
On November 30, 2001, Products Corporation entered into the 2001 Credit
Agreement with a syndicate of lenders, whose individual members change from time
to time, which agreement amended and restated the credit agreement entered into
by Products Corporation in May 1997 (as amended, the "1997 Credit Agreement";
the 2001 Credit Agreement and the 1997 Credit Agreement are sometimes referred
to as the "Credit Agreement"), and which matures on May 30, 2005. As of March
31, 2002, the 2001 Credit Agreement provided up to $250.0, which is comprised of
a $117.9 term loan facility (the "Term Loan
19
REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
Facility") and a $132.1 multi-currency revolving credit facility (the
"Multi-Currency Facility"). At March 31, 2002, the Term Loan Facility was fully
drawn and $97.6 was available under the MultiCurrency Facility, including the
letters of credit.
The Company's principal sources of funds are expected to be cash flow
generated from operations, cash on hand and available borrowings under the
Multi-Currency Facility of the Credit Agreement. The Credit Agreement, Products
Corporation's 12% Notes, 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
restructuring programs referred to above and debt service payments.
The Company estimates that cash payments related to the restructuring
programs referred to in Note 5 to the Unaudited Consolidated Condensed Financial
Statements and executive separation costs will be $25 to $30 in 2002. 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 2002.
Products Corporation enters into forward foreign exchange contracts and
option contracts from time to time to hedge certain cash flows denominated in
foreign currencies. There were forward foreign exchange contracts with a
notional amount of $32.5 and a fair value of $0.2 outstanding at March 31, 2002.
There were no option contracts outstanding at March 31, 2002.
The Company expects that cash flows from operations, cash on hand and
available borrowings under the Multi-Currency Facility of the Credit Agreement
will be sufficient to enable the Company to meet its anticipated cash
requirements during 2002 on a consolidated basis, including the payment of
operating expenses, working capital, purchases of permanent displays and capital
expenditure requirements, expenses in connection with the Company's
restructuring programs referred to above and debt service payments. However,
there can be no assurance that the combination of cash flow from operations,
cash on hand and available borrowings under the Multi-Currency Facility of the
Credit Agreement will be sufficient to meet the Company's cash requirements on a
consolidated basis. Additionally, in the event of a decrease in demand for its
products or reduced sales, such development, if significant, could reduce the
Company's cash flow from operations and could adversely affect the Company's
ability to achieve certain financial covenants under the Credit Agreement,
including the minimum EBITDA covenant, and in such event the Company could be
required to take measures, including reducing discretionary spending. 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 programs, restructuring indebtedness, selling
assets or operations, or seeking capital contributions or 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, 2003. 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
20
REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
the Credit Agreement, the 12% Notes, 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 Commission filing fees and other miscellaneous expenses related to
being a public holding company and, subject to certain limitations, 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.
The Company has developed a new design for its permanent display units
and has begun installing them at certain customers' retail stores during 2002.
Accordingly, the Company has accelerated the amortization of its existing
display units. The Company estimates the installation of these new displays will
result in accelerated amortization in the range of $10 to $15 during 2002. The
Company estimates that purchases of permanent displays for 2002 will be
approximately $60 to $65.
Additionally, the Company is evaluating its management information
systems to determine the scope and timing of upgrading to an Enterprise Resource
Planning ("ERP") System intended to provide benefits to the Company in excess of
the related purchase and implementation costs. If we determine to implement the
ERP System, certain existing information systems would be amortized on an
accelerated basis. Based upon the estimated time required to implement an ERP
System, the Company currently estimates that it would record additional
amortization of its current information system in the range of $15 to $25 during
2002 if it proceeds with the implementation of an ERP System.
The Company estimates that capital expenditures for 2002 will be
$15 to $25.
Disclosures about Contractual Obligations and Commercial Commitments
The SEC has encouraged all public companies to aggregate all
contractual commitments and commercial obligations that affect financial
condition and liquidity. To respond to this, the Company has included a table in
the Company's Annual Report of Form 10-K for the year ended December 31, 2001.
There have been no material changes to the table setting forth the Company's
contractual commitments and commercial obligations that affect financial
condition and liquidity which was set forth in the Company's Annual Report on
Form 10-K for the year ended December 31, 2001.
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 Report on Form 10-K for the year ended December
31, 2001 describes significant aspects of the Company's financial instrument
programs that have material market risk as of December 31, 2001. The following
table presents the information required by Item 7A as of March 31, 2002.
21
REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
EXPECTED MATURITY DATE FOR THE YEAR ENDED MARCH 31, FAIR VALUE
------------------------------------------------------------- MARCH 31,
2002 2003 2004 2005 2006 THEREAFTER TOTAL 2002
------- ------ ------ ------ ----- ----------- --------- ---------
DEBT
- ----
Short-term variable rate (various currencies).. $ 22.3 $ 22.3 $ 22.3
Average interest rate (a) ............... 7.9%
Long-term fixed rate ($US) .................... $ 351.4 $ 499.5 $ 649.9 1,500.8 1,025.1
Average interest rate ................... 11.2% 8.6% 8.6%
Long-term variable rate ($US).................. 117.9* 117.9 117.9
Average interest rate (a)................ 9.9%
Long-term variable rate (various currencies)... 7.2* 7.2 7.2
Average interest rate (a) ............... 10.3%
------- ----- ------ ------- ------- ------- --------- ---------
Total debt .................................... $ 22.3 $ - $ - $ 476.5 $ 499.5 $ 649.9 $ 1,648.2 $ 1,172.5
======= ===== ====== ======= ======= ======= ========= =========
AVERAGE ORIGINAL CONTRACT
CONTRACTUAL US DOLLAR VALUE FAIR VALUE
RATE NOTIONAL MARCH 31, MARCH 31,
Forward Contracts $/FC AMOUNT 2002 2002
- ----------------- ----------- --------- ---------- ------------
Buy Euros/Sell USD ............................ 0.8728 $ 4.9 $ 4.9 $ -
Sell British Pounds/Buy USD ................... 1.4145 2.2 2.2 -
Sell Australian Dollars/Buy USD ............... 0.5208 5.6 5.5 (0.1)
Sell Canadian Dollars/Buy USD ................. 0.6261 12.6 12.6 -
Sell South African Rand/Buy USD ............... 0.0842 2.4 2.4 -
Buy Australian Dollars/
Sell New Zealand Dollars ................. 1.2196 1.8 1.8 -
Buy British Pounds/Sell Euros ................. 0.6141 3.0 2.9 (0.1)
----------- ------------ ------------
Total forward contracts ....................... $ 32.5 $ 32.3 $ (0.2)
=========== ============ ============
- --------------------
(a) Weighted average variable rates are based upon implied forward rates from
the yield curves at March 31, 2002.
* Represents Products Corporation's Credit Agreement which matures in May
2005.
EFFECT OF NEW ACCOUNTING STANDARD
In August 2001, the FASB issued Statement No. 143, Accounting for Asset
Retirement Obligations. Statement 143 requires recording the fair market value
of an asset retirement obligation as a liability in the period in which a legal
obligation associated with the retirement of tangible long-lived assets is
incurred. The Statement also requires recording the contra asset to the initial
obligation as an increase to the carrying amount of the related long-lived asset
and depreciation of that cost over the life of the asset. The liability is then
increased at the end of each period to reflect the passage of time and changes
in the initial fair value measurement. The Company is required to adopt the
provisions of Statement 143 effective January 1, 2003 and has not yet determined
the extent of its impact, if any.
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q for the quarter ended March 31,
2002, as well as other public documents and statements of the Company, contain
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 (whether qualitative or quantitative) as
to: the introduction of new products; the Company's plans to update its retail
presence and install new display walls (and the Company's estimates of the costs
of such new displays, the effects of such plans on the accelerated amortization
of existing displays and the estimated amount of such amortization); its future
financial performance; the effect on sales of political and/or economic
conditions, adverse currency fluctuations and competitive activities; the
possible implementation of a new ERP System, the costs and benefits of such
system and the effects of the adoption of such system on the accelerated
amortization of existing information systems if the Company proceeds with such
system; restructuring activities, restructuring costs, the timing of such
payments and annual savings and other
22
REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
benefits from such activities; the effects of the Company's trade terms for its
U.S. customers, including reduced returns cash flow from operations, cash on
hand and availability of borrowings under the 2001 Credit Agreement, the
sufficiency of such funds to satisfy the Company's cash requirements in 2002,
and the availability of funds from capital contributions or loans from Revlon,
Inc. or other affiliates of the Company; uses of funds, including for the
purchases of permanent displays, capital expenditures (and the Company's
estimates of the amounts of such expenses) and restructuring costs (and the
Company's estimates of the amounts of such costs); the availability of raw
materials and components and, with respect to Europe, products; matters
concerning market-risk sensitive instruments; the effects of the assumptions and
estimates underlying the Company's critical accounting policies; the effects of
the adoption of certain accounting principles; and the receipt, amount and
timing of the payment of contingent deferred purchase price in connection with
the sale of certain assets. 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 except for the Company's ongoing obligations to disclose material
information under the U.S. federal securities laws, the Company undertakes no
obligation to publicly update any forward-looking statements, whether as a
result of new information, future events or otherwise. Investors are advised,
however, to consult any additional disclosures the Company makes in its
Quarterly Reports on Form 10-Q, Annual Report on Form 10-K and Current Reports
on Form 8-K to the Commission (which, among other places, can be found on the
Commission's website at http://www.sec.gov), as well as on the Company's website
at www.revloninc.com. The information available from time to time on such
website shall not be deemed incorporated by reference into this Quarterly Report
on Form 10-Q. 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) difficulties or delays or unanticipated costs associated
with the Company's implementation of new display walls; (iii) changes in
consumer preferences, including reduced consumer demand for the Company's color
cosmetics and other current products; (iv) 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; (v) actions
by competitors, including business combinations, technological breakthroughs,
new product offerings, promotional spending and marketing and promotional
successes, including increases in market share; (vi) unanticipated costs or
difficulties or delays in completing projects associated with the Company's
strategic plan, including in connection with the implementation of a new ERP
System; (vii) difficulties, delays or unanticipated costs or less than expected
savings and other benefits resulting from the Company's restructuring
activities; (viii) difficulties or delays in achieving the intended results of
the Company's trade terms, including, without limitation, lower returns or
unexpected consequences from the Company's trade terms including the possible
effect on sales; (ix) 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 the unavailability of funds under the 2001 Credit
Agreement; (x) higher than expected operating expenses, working capital
expenses, permanent display costs, capital expenditures, restructuring costs or
debt service payments; (xi) difficulties, delays or unexpected costs in sourcing
raw materials or components, and with respect to Europe, products; (xii)
interest rate or foreign exchange rate changes affecting the Company and its
market sensitive financial instruments; (xiii) unanticipated effects of the
assumptions and estimates underlying the Company's critical accounting policies;
(xiv) unanticipated effects of the Company's adoption of certain new accounting
standards; (xv) combinations among significant customers or the loss, insolvency
or failure to pay debts by a significant customer or customers;
23
REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
and (xvi) difficulties or delays in receiving payment of certain contingent
deferred purchase price in connection with the sale of certain assets. Factors
other than those listed above could cause the Company's results to differ
materially from expected results. This discussion is provided as permitted by
the Private Securities Litigation Reform Act of 1995.
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 -
10.17 Employment Agreement dated as of February 17, 2002 between
Products Corporation and Jack L. Stahl. (Incorporated by reference to
Exhibit 10.17 to the Revlon, Inc. March 31, 2002 Form 10-Q).
(b) REPORTS ON FORM 8-K -
Form 8-K filed on May 13, 2002 to report that on May 9, 2002, Revlon,
Inc. announced its financial results for the fiscal quarter ended March 31,
2002.
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, 2002
24