e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
FORM 10-Q
(Mark One)
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x
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
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For the quarterly period ended
March 31, 2010
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OR
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
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For the transition period from
to
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Commission File
Number: 1-11178
REVLON, INC.
(Exact name of registrant as specified in its charter)
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Delaware
(State or other jurisdiction of
incorporation or organization)
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13-3662955
(I.R.S. Employer
Identification No.)
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237 Park Avenue, New York, New York
(Address of principal executive offices)
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10017
(Zip Code)
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212-527-4000
(Registrants telephone number, including area code)
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 o
Indicate by check mark whether the
registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of
Regulation S-T
(§ 232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant
was required to submit and post such
files). Yes o No o
Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the
definitions of large accelerated filer,
accelerated filer and smaller reporting
company in Rule
12b-2 of the
Exchange Act. (Check one):
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Large accelerated
filer o
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Accelerated
filer x
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Non-accelerated
filer o
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Smaller reporting
company o
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(Do not check if a smaller reporting company)
Indicate by check mark whether the
registrant is a shell company (as defined in
Rule 12b-2
of the
Act). Yes o No x
As of March 31, 2010,
48,769,593 shares of Class A Common Stock,
3,125,000 shares of Class B Common Stock and
9,336,905 shares of Preferred Stock were outstanding. At
such date 37,544,640 shares of Class A Common Stock
were beneficially owned by MacAndrews & Forbes
Holdings Inc. and certain of its affiliates and all of the
shares of Class B Common Stock were owned by REV Holdings
LLC, a Delaware limited liability company and an indirectly
wholly-owned subsidiary of MacAndrews & Forbes
Holdings Inc.
REVLON,
INC. AND SUBSIDIARIES
INDEX
1
PART I
FINANCIAL INFORMATION
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Item 1.
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Financial
Statements
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REVLON,
INC. AND SUBSIDIARIES
(dollars in millions, except share and per share
amounts)
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March 31,
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December 31,
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2010
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2009
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(Unaudited)
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ASSETS
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Current assets:
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Cash and cash equivalents
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$
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35.8
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$
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54.5
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Trade receivables, less allowance for doubtful accounts of $3.7
and $3.8 as of March 31, 2010 and December 31, 2009,
respectively
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167.5
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181.7
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Inventories
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115.6
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119.2
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Prepaid expenses and other
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52.3
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48.2
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Total current assets
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371.2
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403.6
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Property, plant and equipment, net
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110.3
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111.7
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Other assets
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101.7
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96.3
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Goodwill, net
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182.6
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182.6
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Total assets
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$
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765.8
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$
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794.2
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LIABILITIES AND STOCKHOLDERS DEFICIENCY
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Current liabilities:
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Short-term borrowings
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$
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2.1
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$
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0.3
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Current portion of long-term debt
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18.5
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13.6
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Accounts payable
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73.5
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82.4
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Accrued expenses and other
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213.2
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213.0
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Total current liabilities
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307.3
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309.3
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Long-term debt
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1,104.6
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1,127.8
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Long-term debt affiliates
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58.4
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58.4
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Redeemable preferred stock
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48.0
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48.0
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Long-term pension and other post-retirement plan liabilities
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210.8
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216.3
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Other long-term liabilities
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63.9
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68.0
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Stockholders deficiency:
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Class B Common Stock, par value $.01 per share:
200,000,000 shares authorized; 3,125,000 shares issued
and outstanding as of March 31, 2010 and December 31,
2009, respectively
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Class A Common Stock, par value $.01 per share:
900,000,000 shares authorized; 50,015,690 and
50,021,063 shares issued as of March 31, 2010 and
December 31, 2009, respectively
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0.5
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0.5
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Additional paid-in capital
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1,008.5
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1,007.2
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Treasury stock, at cost: 528,717 and 385,677 shares of
Class A Common Stock as of March 31, 2010 and
December 31, 2009, respectively
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(7.1
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)
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(4.7
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)
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Accumulated deficit
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(1,876.5
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)
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(1,878.7
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)
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Accumulated other comprehensive loss
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(152.6
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)
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(157.9
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Total stockholders deficiency
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(1,027.2
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(1,033.6
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Total liabilities and stockholders deficiency
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$
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765.8
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$
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794.2
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See Accompanying Notes to Unaudited Consolidated Financial
Statements
2
(dollars in millions, except share and per share
amounts)
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Three Months Ended
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March 31,
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2010
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2009
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Net sales
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$
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305.5
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$
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303.3
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Cost of sales
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108.7
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111.0
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Gross profit
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196.8
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192.3
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Selling, general and administrative expenses
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151.4
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160.2
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Restructuring costs and other, net
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0.5
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Operating income
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45.4
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31.6
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Other expenses (income):
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Interest expense
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21.3
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24.1
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Interest expense preferred stock dividends
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1.6
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Interest income
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(0.2
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)
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(0.2
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)
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Amortization of debt issuance costs
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1.7
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1.4
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Loss (gain) on early extinguishment of debt, net
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9.7
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(7.0
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)
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Foreign currency losses, net
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3.8
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2.4
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Miscellaneous, net
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0.3
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0.2
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Other expenses, net
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38.2
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20.9
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Income from continuing operations before income taxes
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7.2
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10.7
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Provision for (benefit from) income taxes
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5.0
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(2.0
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Net income
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$
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2.2
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$
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12.7
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Basic income per common share
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$
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0.04
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$
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0.25
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Diluted income per common share
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$
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0.04
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$
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0.25
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Weighted average number of common shares outstanding:
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Basic
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51,872,502
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51,522,434
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Diluted
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52,286,722
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51,526,486
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See Accompanying Notes to Unaudited Consolidated Financial
Statements
3
(dollars in millions)
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Accumulated
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Additional
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Other
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Total
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Common
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Paid-In-
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Treasury
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Accumulated
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Comprehensive
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Stockholders
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Stock
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Capital
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Stock
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Deficit
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Loss
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Deficiency
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Balance, January 1, 2010
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$
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0.5
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$
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1,007.2
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$
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(4.7
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)
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$
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(1,878.7
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)
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$
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(157.9
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)
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$
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(1,033.6
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)
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Treasury stock acquired, at
cost(a)
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(2.4
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(2.4
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Stock option compensation
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1.3
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1.3
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Comprehensive income:
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Net income
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2.2
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2.2
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Revaluation of financial derivative
instruments(b)
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1.7
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1.7
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Currency translation adjustment
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0.8
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0.8
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Amortization of pension related
costs(c)
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2.8
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2.8
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Total comprehensive income
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7.5
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Balance, March 31, 2010
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$
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0.5
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$
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1,008.5
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$
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(7.1
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)
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$
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(1,876.5
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)
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$
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(152.6
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)
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$
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(1,027.2
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)
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(a) |
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Pursuant to the share withholding provisions of the Third
Amended and Restated Revlon, Inc. Stock Plan (the Stock
Plan), during the first quarter of 2010, certain
employees, in lieu of paying withholding taxes on the vesting of
certain restricted stock, authorized the withholding of an
aggregate 143,040 shares of Revlon, Inc. Class A
Common Stock to satisfy the minimum statutory tax withholding
requirements related to such vesting. These shares were recorded
as treasury stock using the cost method, at a weighted average
price per share of $17.01 and $17.02, based on the closing price
of Revlon, Inc. Class A Common Stock as reported on the
NYSE consolidated tape on the respective vesting dates, for a
total of $2.4 million. |
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(b) |
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See Note 5, Comprehensive Income, and
Note 9, Financial Instruments, in this
Form 10-Q
for details regarding the net amount of hedge accounting
derivative losses recognized due to the Companys use of
derivative financial instruments and a reversal of net amounts
accumulated in Accumulated Other Comprehensive Loss due to the
discontinuance of hedge accounting on the 2008 Interest Rate
Swap (as hereinafter defined) as a result of the 2010
Refinancing (as hereinafter defined). |
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(c) |
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See Note 2, Pension and Post-retirement
Benefits, and Note 5, Comprehensive
Income, in this
Form 10-Q
for details on the change in Accumulated Other Comprehensive
Loss as a result of the amortization of unrecognized prior
service costs and actuarial losses (gains) arising during the
first quarter of 2010. |
See Accompanying Notes to Unaudited Consolidated Financial
Statements
4
(dollars in millions)
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Three Months Ended
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March 31,
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2010
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2009
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CASH FLOWS FROM OPERATING ACTIVITIES:
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Net income
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$
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2.2
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$
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12.7
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Adjustments to reconcile net income to net cash provided by
operating activities:
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Depreciation and amortization
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14.4
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15.5
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Amortization of debt discount
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0.3
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0.2
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Stock compensation amortization
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1.3
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2.0
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Loss (gain) on early extinguishment of debt, net
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9.7
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(7.0
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)
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Amortization of debt issuance costs
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1.7
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1.4
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Gain on sale of certain assets
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(1.6
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)
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Pension and other post-retirement expense
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3.8
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7.4
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Change in assets and liabilities:
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Decrease in trade receivables
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6.7
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6.7
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Decrease (increase) in inventories
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3.5
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(0.2
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)
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Increase in prepaid expenses and other current assets
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(9.1
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)
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(6.6
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)
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Increase in accounts payable
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8.8
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16.2
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Increase (decrease) in accrued expenses and other current
liabilities
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8.7
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(10.5
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)
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Pension and other post-retirement plan contributions
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(5.8
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)
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(4.6
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)
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Purchase of permanent displays
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(10.7
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)
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(11.9
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)
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Other, net
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(4.3
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)
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(2.4
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)
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Net cash provided by operating activities
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31.2
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17.3
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CASH FLOWS FROM INVESTING ACTIVITIES:
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Capital expenditures
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(3.3
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)
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(2.1
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)
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Proceeds from the sale of certain assets
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0.1
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2.3
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Net cash (used in) provided by investing activities
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(3.2
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)
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0.2
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CASH FLOWS FROM FINANCING ACTIVITIES:
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Net decrease in short-term borrowings and overdraft
|
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(13.0
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)
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(4.0
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)
|
Borrowings under the 2006 Revolving Credit Facility, net
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|
|
|
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4.0
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Borrowings under the 2010 Revolving Credit Facility, net
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10.5
|
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|
|
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Repayments under the 2006 Term Loan Facility
|
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|
(815.0
|
)
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Borrowings under the 2010 Term Loan Facility
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786.0
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|
|
|
|
|
Repayment of long-term debt
|
|
|
|
|
|
|
(35.3
|
)
|
Payment of financing costs
|
|
|
(15.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(46.9
|
)
|
|
|
(35.3
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM DISCONTINUED OPERATIONS ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net cash used in discontinued operating activities
|
|
|
|
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in discontinued operations
|
|
|
|
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
0.2
|
|
|
|
(1.4
|
)
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
|
(18.7
|
)
|
|
|
(19.3
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
54.5
|
|
|
|
52.8
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
35.8
|
|
|
$
|
33.5
|
|
|
|
|
|
|
|
|
|
|
Supplemental schedule of cash flow information:
|
|
|
|
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
12.5
|
|
|
$
|
18.5
|
|
Preferred stock dividends
|
|
$
|
1.6
|
|
|
$
|
|
|
Income taxes, net of refunds
|
|
$
|
2.5
|
|
|
$
|
2.3
|
|
Supplemental schedule of non-cash investing and financing
activities:
|
|
|
|
|
|
|
|
|
Treasury stock received to satisfy minimum tax withholding
liabilities
|
|
$
|
2.4
|
|
|
$
|
0.6
|
|
See Accompanying Notes to Unaudited Consolidated Financial
Statements
5
(except where otherwise noted, all tabular amounts in
millions, except share and per share amounts)
|
|
(1)
|
Description
of Business and Basis of Presentation
|
Revlon, Inc. (and together with its subsidiaries, the
Company) conducts its business exclusively through
its direct wholly-owned operating subsidiary, Revlon Consumer
Products Corporation (Products Corporation) and its
subsidiaries. Revlon, Inc. is a direct and indirect
majority-owned subsidiary of MacAndrews & Forbes
Holdings Inc. (MacAndrews & Forbes
Holdings and, together with certain of its affiliates
other than the Company, MacAndrews &
Forbes), a corporation wholly-owned by Ronald O. Perelman.
The Companys vision is glamour, excitement and innovation
through high-quality products at affordable prices. The Company
operates in a single segment and manufactures, markets and sells
an extensive array of cosmetics, womens hair color, beauty
tools, anti-perspirants/deodorants, fragrances, skincare and
other beauty care products. The Companys principal
customers include large mass volume retailers and chain drug and
food stores in the U.S., as well as certain department stores
and other specialty stores, such as perfumeries, outside the
U.S. The Company also sells beauty products to
U.S. military exchanges and commissaries and has a
licensing business pursuant to which the Company licenses
certain of its key brand names to third parties for the
manufacture and sale of complementary beauty-related products
and accessories in exchange for royalties.
The accompanying Consolidated Financial Statements are
unaudited. In managements opinion, all adjustments
necessary for a fair presentation have been made. The Unaudited
Consolidated Financial Statements include the accounts of the
Company after the elimination of all material intercompany
balances and transactions.
The preparation of financial statements in conformity with
U.S. generally accepted accounting principles requires
management to make estimates and assumptions that affect amounts
of assets and liabilities and disclosures of contingent assets
and liabilities as of the date of the financial statements and
reported amounts of revenues and expenses during the periods
presented. Actual results could differ from these estimates.
Estimates and assumptions are reviewed periodically and the
effects of revisions are reflected in the consolidated financial
statements in the period they are determined to be necessary.
Significant estimates made in the accompanying Unaudited
Consolidated Financial Statements include, but are not limited
to, allowances for doubtful accounts, inventory valuation
reserves, expected sales returns and allowances, certain
assumptions related to the recoverability of intangible and
long-lived assets, reserves for estimated tax liabilities,
restructuring costs, certain estimates and assumptions used in
the calculation of the net periodic benefit costs and the
projected benefit obligation for the Companys pension and
other post-retirement plans, including the expected long term
return on pension plan assets and the discount rate used to
value the Companys pension benefit obligations. The
Unaudited Consolidated Financial Statements should be read in
conjunction with the consolidated financial statements and
related notes contained in Revlon, Inc.s Annual Report on
Form 10-K
for the year ended December 31, 2009 filed with the
Securities and Exchange Commission (the SEC) on
February 25, 2010 (the 2009
Form 10-K).
The Companys results of operations and financial position
for interim periods are not necessarily indicative of those to
be expected for a full year.
Effective for periods beginning January 1, 2010, the
Company is reporting Canada separately (previously Canada was
included in the Europe region) and is reporting South Africa as
part of the Europe, Middle East and Africa region (previously
South Africa was included in the Asia Pacific region). As a
result, prior year amounts have been reclassified to conform to
this presentation.
6
REVLON,
INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in
millions, except share and per share amounts)
|
|
(2)
|
Pension
and Post-retirement Benefits
|
In May 2009, and effective December 31, 2009, Products
Corporation amended its U.S. qualified defined benefit
pension plan (the Revlon Employees Retirement Plan),
covering a substantial portion of the Companys employees
in the U.S., to cease future benefit accruals under such plan
after December 31, 2009. Products Corporation also amended
its non-qualified pension plan (the Revlon Pension Equalization
Plan) to similarly cease future benefit accruals under such plan
after December 31, 2009. In connection with such
amendments, all benefits accrued under such plans through
December 31, 2009 will remain in effect and no additional
benefits will accrue after December 31, 2009, other than
interest credits on participant account balances under the cash
balance program of the Companys U.S. pension plans.
Also, service credits for vesting and early retirement
eligibility will continue to accrue in accordance with the terms
of the respective plans. (The plan amendments described above in
this Note 2 are hereinafter referred to as the May
2009 Pension Plan Amendments.)
In May 2009, Products Corporation also amended, effective
December 31, 2009, its qualified and non-qualified defined
contribution savings plans for its
U.S.-based
employees, creating a new discretionary profit sharing component
under such plans that will enable the Company, should it elect
to do so, to make discretionary profit sharing contributions.
The Company will determine in the fourth quarter of each year
whether and, if so, to what extent, profit sharing contributions
would be made for the following year. On December 31, 2009,
the Company announced that the discretionary profit sharing
contribution during 2010 will be 5% of eligible compensation, to
be credited on a quarterly basis. (The savings plan amendments
described above are hereinafter referred to as the May
2009 Savings Plan Amendments and, together with the May
2009 Pension Plan Amendments, as the May 2009 Plan
Amendments.)
In the three months ended March 31, 2010, the Company
recognized lower pension expense primarily due to the impact of
the May 2009 Plan Amendments which ceased future benefit
accruals under the Revlon Employees Retirement Plan and
the Revlon Pension Equalization Plan after December 31,
2009.
The components of net periodic benefit cost for the pension and
the other post-retirement benefit plans for the first quarter of
2010 and 2009, respectively, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
Post-retirement
|
|
|
|
Pension Plans
|
|
|
Benefit Plans
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
Net periodic benefit costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
0.4
|
|
|
$
|
2.1
|
|
|
$
|
|
|
|
$
|
|
|
Interest cost
|
|
|
8.5
|
|
|
|
8.6
|
|
|
|
0.2
|
|
|
|
0.2
|
|
Expected return on plan assets
|
|
|
(8.1
|
)
|
|
|
(6.7
|
)
|
|
|
|
|
|
|
|
|
Amortization of prior service cost
|
|
|
|
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
Amortization of actuarial loss
|
|
|
2.7
|
|
|
|
3.3
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.5
|
|
|
|
7.2
|
|
|
|
0.3
|
|
|
|
0.2
|
|
Portion allocated to Revlon Holdings LLC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3.5
|
|
|
$
|
7.2
|
|
|
$
|
0.3
|
|
|
$
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company expects net periodic benefit costs for the pension
and the other post-retirement benefit plans to be approximately
$15 million for all of 2010, compared with
$27.3 million in 2009. The Company currently expects to
contribute approximately $25 million in the aggregate to
its pension plans and other post-retirement benefit plans in
2010. During the first quarter of 2010, $5.6 million and
$0.2 million were contributed to the Companys pension
plans and other post-retirement benefit plans, respectively.
7
REVLON,
INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in
millions, except share and per share amounts)
Relevant aspects of the qualified defined benefit pension plans,
nonqualified pension plans and other post-retirement benefit
plans sponsored by Products Corporation are disclosed in Revlon,
Inc.s 2009
Form 10-K.
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Raw materials and supplies
|
|
$
|
38.1
|
|
|
$
|
42.7
|
|
Work-in-process
|
|
|
11.6
|
|
|
|
12.0
|
|
Finished goods
|
|
|
65.9
|
|
|
|
64.5
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
115.6
|
|
|
$
|
119.2
|
|
|
|
|
|
|
|
|
|
|
|
|
(4)
|
Basic and
Diluted Earnings Per Common Share
|
Shares used in basic earnings per share are computed using the
weighted average number of common shares outstanding during each
period. Shares used in diluted earnings per share include the
dilutive effect of unvested restricted shares and outstanding
stock options under the Stock Plan using the treasury stock
method. For the first quarter of 2010 and 2009, options to
purchase 1,169,177 and 1,352,373 shares, respectively, of
Revlon, Inc. Class A common stock, par value of $0.01 per
share (the Class A Common Stock), that could
potentially dilute basic earnings per share in the future were
excluded from the calculation of diluted earnings per common
share as their effect would have been anti-dilutive since their
exercise price was in excess of the NYSE closing price of the
Class A Common Stock during the period.
For the first quarter of 2010 and 2009, 303,160 and
1,380,042 shares, respectively, of unvested restricted
stock that could potentially dilute basic earnings per share in
the future were excluded from the calculation of diluted
earnings per common share as their effect would be anti-dilutive.
The components of basic and diluted earnings per share for the
first quarter of 2010 and 2009, respectively, are as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(shares in millions)
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
2.2
|
|
|
$
|
12.7
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding Basic
|
|
|
51.87
|
|
|
|
51.52
|
|
Effect of dilutive restricted stock
|
|
|
0.42
|
|
|
|
0.01
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding Diluted
|
|
|
52.29
|
|
|
|
51.53
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
0.04
|
|
|
$
|
0.25
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
0.04
|
|
|
$
|
0.25
|
|
|
|
|
|
|
|
|
|
|
8
REVLON,
INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in
millions, except share and per share amounts)
The components of comprehensive income for the first quarter of
2010 and 2009, respectively, are as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Net income
|
|
$
|
2.2
|
|
|
$
|
12.7
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
Revaluation of financial derivative
instruments(a)
|
|
|
1.7
|
|
|
|
0.1
|
|
Currency translation adjustment
|
|
|
0.8
|
|
|
|
0.3
|
|
Amortization of pension related
costs(b)
|
|
|
2.8
|
|
|
|
3.2
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income
|
|
|
5.3
|
|
|
|
3.6
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$
|
7.5
|
|
|
$
|
16.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The amount for the three months ended March 31, 2010
relates to (1) the reclassification of an unrecognized loss
of $0.8 million on the 2008 Interest Rate Swap (as
hereinafter defined) from Accumulated Other Comprehensive Loss
into earnings due to the discontinuance of hedge accounting as a
result of the 2010 Refinancing (See Note 9, Financial
Instruments, in this Form 10-Q) and (2) the
reversal of amounts recorded in Accumulated Other Comprehensive
Loss pertaining to a net settlement payment of $0.9 million
on the 2008 Interest Rate Swap. The amount for the three months
ended March 31, 2009 relates to (1) net unrealized
losses of $0.2 million on the 2008 Interest Rate Swap and
the interest rate swap which expired in September 2009 (the
2007 Interest Rate Swap) (See Note 11,
Financial Instruments, to the Consolidated Financial
Statements in Revlon, Inc.s 2009
Form 10-K)
and (2) the reversal of amounts recorded in Accumulated
Other Comprehensive Loss pertaining to net settlement receipts
of $0.8 million and net settlement payments of
$1.1 million on the 2008 Interest Rate Swap and the 2007
Interest Rate Swap. |
|
(b) |
|
The amounts represent the change in Accumulated Other
Comprehensive Loss as a result of the amortization of actuarial
losses arising during the first quarter of 2010 and 2009,
respectively, related to the Companys pension and other
post-retirement benefit plans. |
|
|
(6)
|
Restructuring
Costs and Other, Net
|
In May 2009 the Company announced a worldwide restructuring (the
May 2009 Program), which involved consolidating
certain functions; reducing layers of management, where
appropriate, to increase accountability and effectiveness;
streamlining support functions to reflect the new organizational
structure; and further consolidating the Companys office
facilities in New Jersey.
The $20.8 million of charges related to the May 2009
Program has been or is expected to be paid out as follows:
$11.0 million paid in 2009, $7.1 million expected to
be paid in 2010 and the balance of $2.7 million expected to
be paid thereafter.
During the first quarter of 2009, the Company recorded net
charges of $0.5 million in restructuring costs and other,
net, of which $1.2 million related to charges for employee
severance and other employee-related termination costs in the
U.K., Mexico and Argentina (together with the May 2009 Program,
the 2009 Programs) and $0.9 million related to
the 2008 Programs (as hereinafter defined). These restructuring
charges were partially offset by income in the first quarter of
2009 of $1.6 million related to the sale of a facility in
Argentina.
9
REVLON,
INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in
millions, except share and per share amounts)
The Company recorded restructuring costs related to various
other restructuring plans during 2008 (the 2008
Programs). (See Note 3, Restructuring Costs and
Other, Net, to the Consolidated Financial Statements in
Revlon, Inc.s 2009
Form 10-K.)
Details of the movements in the restructuring accrual for the
2008 Programs and 2009 Programs during the first quarter of 2010
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
|
|
|
|
|
|
|
|
|
|
|
|
Balance
|
|
|
|
as of
|
|
|
(Income)
|
|
|
|
|
|
|
|
|
as of
|
|
|
|
January 1,
|
|
|
Expenses,
|
|
|
Utilized, Net
|
|
|
March 31,
|
|
|
|
2010
|
|
|
Net
|
|
|
Cash
|
|
|
Noncash
|
|
|
2010
|
|
|
Employee severance and other personnel benefits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 Programs
|
|
$
|
0.3
|
|
|
$
|
|
|
|
$
|
(0.2
|
)
|
|
$
|
|
|
|
$
|
0.1
|
|
2009 Programs
|
|
|
7.6
|
|
|
|
|
|
|
|
(3.2
|
)
|
|
|
|
|
|
|
4.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.9
|
|
|
|
|
|
|
|
(3.4
|
)
|
|
|
|
|
|
|
4.5
|
|
Lease exit
|
|
|
2.3
|
|
|
|
|
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
2.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restructuring costs and other, net
|
|
$
|
10.2
|
|
|
$
|
|
|
|
$
|
(3.6
|
)
|
|
$
|
|
|
|
$
|
6.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7)
|
Geographic,
Financial and Other Information
|
The Company manages its business on the basis of one reportable
operating segment. As of March 31, 2010, the Company had
operations established in 14 countries outside of the
U.S. and its products are sold throughout the world.
Generally, net sales by geographic area are presented by
attributing revenues from external customers on the basis of
where the products are sold.
In the tables below, certain prior year amounts have been
reclassified to conform to the current periods
presentation.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Geographic area:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
182.1
|
|
|
|
60%
|
|
|
$
|
191.0
|
|
|
|
63%
|
|
Outside of the United States
|
|
|
123.4
|
|
|
|
40%
|
|
|
|
112.3
|
|
|
|
37%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
305.5
|
|
|
|
|
|
|
$
|
303.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Long-lived assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
312.1
|
|
|
|
79%
|
|
|
$
|
308.6
|
|
|
|
79%
|
|
Outside of the United States
|
|
|
82.5
|
|
|
|
21%
|
|
|
|
82.0
|
|
|
|
21%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
394.6
|
|
|
|
|
|
|
$
|
390.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
REVLON,
INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in
millions, except share and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Classes of similar products:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Color cosmetics
|
|
$
|
193.7
|
|
|
|
63
|
%
|
|
$
|
193.3
|
|
|
|
64
|
%
|
Beauty care and fragrance
|
|
|
111.8
|
|
|
|
37
|
%
|
|
|
110.0
|
|
|
|
36
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
305.5
|
|
|
|
|
|
|
$
|
303.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8)
|
Fair
Value Measurements
|
The Fair Value Measurements and Disclosures Topic of the FASB
Accounting Standards Codification (the Fair Value
Measurements and Disclosures Topic) clarifies the
definition of fair value of assets and liabilities, establishes
a framework for measuring the fair value of assets and
liabilities and expands the disclosures on fair value
measurements. The Company adopted the provisions of the Fair
Value Measurements and Disclosures Topic with respect to
financial assets and liabilities effective January 1, 2008
and with respect to non-financial assets and liabilities
effective as of January 1, 2009, neither of which had a
material impact on the Companys results of operations
and/or
financial condition.
The fair value framework under the Fair Value Measurements and
Disclosures Topic requires the categorization of assets and
liabilities into three levels based upon the assumptions used to
price the assets or liabilities. Level 1 provides the most
reliable measure of fair value, whereas Level 3, if
applicable, generally would require significant management
judgment. The three levels for categorizing assets and
liabilities fair value measurement requirements are as follows:
|
|
|
|
|
Level 1: Fair valuing the asset or liability using
observable inputs, such as quoted prices in active markets for
identical assets or liabilities;
|
|
|
|
Level 2: Fair valuing the asset or liability using inputs
other than quoted prices that are observable for the applicable
asset or liability, either directly or indirectly, such as
quoted prices for similar (as opposed to identical) assets or
liabilities in active markets and quoted prices for identical or
similar assets or liabilities in markets that are not
active; and
|
|
|
|
Level 3: Fair valuing the asset or liability using
unobservable inputs that reflect the Companys own
assumptions regarding the applicable asset or liability.
|
11
REVLON,
INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in
millions, except share and per share amounts)
As of March 31, 2010, the fair values of the Companys
financial assets and liabilities, namely its FX Contracts (as
hereinafter defined), 2008 Interest Rate Swap and Revlon,
Inc.s Series A Preferred Stock, par value $0.01 per
share (the Preferred Stock), are categorized as
presented in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FX
Contracts(a)
|
|
$
|
0.4
|
|
|
$
|
|
|
|
$
|
0.4
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair value
|
|
$
|
0.4
|
|
|
$
|
|
|
|
$
|
0.4
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 Interest Rate
Swap(b)
|
|
$
|
0.9
|
|
|
$
|
|
|
|
$
|
0.9
|
|
|
$
|
|
|
FX
Contracts(a)
|
|
|
1.3
|
|
|
|
|
|
|
|
1.3
|
|
|
|
|
|
Redeemable Preferred
Stock(c)
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities at fair value
|
|
$
|
2.4
|
|
|
$
|
|
|
|
$
|
2.2
|
|
|
$
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The fair value of the Companys FX Contracts was measured
based on observable market transactions of spot and forward
rates at March 31, 2010. (See Note 9, Financial
Instruments, in this Form 10-Q.) |
|
(b) |
|
The fair value of the Companys 2008 Interest Rate Swap was
measured based on the three- month U.S. Dollar LIBOR index at
the last receipt date, or January 19, 2010. |
|
(c) |
|
In October 2009, Revlon, Inc. consummated its voluntary exchange
offer (as amended, the Exchange Offer) in which,
among other things, Revlon, Inc. issued to stockholders (other
than MacAndrews & Forbes) 9,336,905 shares of its
Preferred Stock in exchange for the same number of shares of
Class A Common Stock tendered in the Exchange Offer. Upon
consummation of the Exchange Offer, Revlon, Inc. initially
recorded the Preferred Stock as a long-term liability at a fair
value of $47.9 million, which was comprised of two
components: |
|
|
|
|
|
Liquidation Preference: Upon initial valuation
of the Preferred Stock, the total amount to be paid by Revlon,
Inc. at maturity is approximately $48.6 million, which
represents the $5.21 liquidation preference for each of the
9,336,905 shares of Preferred Stock issued in the Exchange
Offer (the Liquidation Preference). The Liquidation
Preference was initially measured at fair value based on the
yield to maturity of the $48.6 million portion of the
Senior Subordinated Term Loan (as hereinafter defined) that was
contributed to Revlon, Inc. by MacAndrews & Forbes
(the Contributed Loan), adjusted for an estimated
average subordination premium for subordinated note issues. The
Liquidation Preference is subsequently measured at the present
value of the amount to be paid at maturity, accruing interest
cost using the rate implicit at the issuance date since both the
amount to be paid and the maturity date are fixed.
|
|
|
|
Change of Control Amount: Holders of the
Preferred Stock are entitled to receive upon a change of control
transaction (as defined in the certificate of designation of the
Preferred Stock) through October 8, 2012, a pro rata
portion of the equity value received in such transaction, capped
at an amount that would provide aggregate cash payments of
$12.00 per share over the term of the Preferred Stock. If the
equity value received in the change of control transaction is
greater than or equal to $12.00 per share, then each holder of
Preferred Stock will be entitled to receive an amount equal to
$12.00 minus the Liquidation Preference minus any paid
and/or
accrued and unpaid dividends on the Preferred Stock. If the per
share equity value received in the change of control transaction
is less than $12.00, then each holder of Preferred Stock is
entitled to receive an amount
|
12
REVLON,
INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in
millions, except share and per share amounts)
|
|
|
|
|
equal to such per share equity value minus the Liquidation
Preference minus any paid
and/or
accrued and unpaid dividends on the Preferred Stock. If the per
share equity value received in the change of control transaction
does not exceed the Liquidation Preference plus any paid
and/or
accrued and unpaid dividends, then each holder of the Preferred
Stock is not entitled to an additional payment upon any such
change of control transaction (the foregoing payments being the
Change of Control Amount). The fair value of the
Change of Control Amount of the Preferred Stock, which is deemed
to be a Level 3 liability, is based on the Companys
assessment of the likelihood of the occurrence of specified
change of control transactions within three years of the
consummation of the Exchange Offer. There was no change in the
fair value of the Change in Control Amount from the initial
valuation performed upon the October 2009 consummation of the
Exchange Offer through March 31, 2010.
|
|
|
(9)
|
Financial
Instruments
|
The fair value of the Companys debt, including the current
portion of long-term debt and Preferred Stock, is based on the
quoted market prices for the same issues or on the current rates
offered for debt of similar remaining maturities. The estimated
fair value of such debt and Preferred Stock at March 31,
2010 was approximately $1,248.9 million, which was more
than the carrying value of such debt and Preferred Stock at
March 31, 2010 of $1,229.5 million. The estimated fair
value of such debt and Preferred Stock at December 31, 2009
was approximately $1,241.4 million, which was less than the
carrying value of such debt and Preferred Stock at
December 31, 2009 of $1,247.8 million.
The carrying amounts of cash and cash equivalents, marketable
securities, trade receivables, notes receivable, accounts
payable and short-term borrowings approximate their fair-values.
Products Corporation also maintains standby and trade letters of
credit for various corporate purposes under which Products
Corporation is obligated, of which approximately
$21.8 million and $12.2 million (including amounts
available under credit agreements in effect at that time) were
maintained at March 31, 2010 and December 31, 2009,
respectively. Included in these amounts is approximately
$9.3 million at both March 31, 2010 and
December 31, 2009 in standby letters of credit which
support Products Corporations self-insurance programs. The
estimated liability under such programs is accrued by Products
Corporation.
Derivative
Financial Instruments
The Company uses derivative financial instruments, primarily
(1) foreign currency forward exchange contracts (FX
Contracts) intended for the purpose of managing foreign
currency exchange risk by reducing the effects of fluctuations
in foreign currency exchange rates on the Companys net
cash flows and (2) interest rate swap transactions,
intended for the purpose of managing interest rate risk by
fixing the interest rate on a portion of Products
Corporations indebtedness.
While the Company may be exposed to credit loss in the event of
the counterpartys non-performance, the Companys
exposure is limited to the net amount that Products Corporation
would have received, if any, from the counterparty over the
remaining balance of the terms of the FX Contracts and the 2008
Interest Rate Swap. The Company does not anticipate any
non-performance and, furthermore, even in the case of any
non-performance by the counterparty, the Company expects that
any such loss would not be material.
Foreign
Currency Forward Exchange Contracts
The FX Contracts are entered into primarily to hedge the
anticipated net cash flows resulting from inventory purchases
and intercompany payments denominated in currencies other than
the local currencies of the Companys foreign and domestic
operations and generally have maturities of less than one year.
13
REVLON,
INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in
millions, except share and per share amounts)
The U.S. dollar notional amount of the FX Contracts
outstanding at March 31, 2010 and December 31, 2009
was $37.5 million and $54.3 million, respectively.
Interest
Rate Swap Transaction
As of March 31, 2010, the Company had one
floating-to-fixed
interest rate swap transaction, which expired in April 2010,
with a notional amount of $150.0 million initially relating
to indebtedness under Products Corporations former 2006
Term Loan Facility (as hereinafter defined) (prior to its
complete refinancing in March 2010) and which also related
through its expiration in April 2010 to a notional amount of
$150.0 million relating to indebtedness under Products
Corporations 2010 Term Loan Facility (as hereinafter
defined) (the 2008 Interest Rate Swap). Under the
terms of the 2008 Interest Rate Swap, Products Corporation was
required to pay to the counterparty a quarterly fixed interest
rate of 2.66% on the $150.0 million notional amount under
the 2008 Interest Rate Swap (which, based upon the
4.0% applicable margin, effectively fixed the interest rate
on such notional amounts at 6.66% for the
2-year term
of such swap), commencing in July 2008, while receiving a
variable interest rate payment from the counterparty equal to
three-month U.S. dollar LIBOR, which was approximately
0.25% on the latest receipt date, or January 19, 2010.
As of March 31, 2010, the fair value of the 2008 Interest
Swap was $(0.9) million. The 2008 Interest Rate Swap was
initially designated as a cash flow hedge of the variable
interest rate payments on Products Corporations former
2006 Term Loan Facility (prior to its complete refinancing in
March 2010) under the Derivatives and Hedging Topic of the
FASB Accounting Standards Codification (the Derivatives
and Hedging Topic). However, as a result of the 2010
Refinancing (as hereinafter defined in Note 10,
Long-term Debt and Redeemable Preferred Stock, in
this Form 10-Q), effective March 11, 2010 (the closing
date of the 2010 Refinancing), the 2008 Interest Rate Swap no
longer met the criteria specified under the Derivatives and
Hedging Topic to allow for the deferral of the effective portion
of unrecognized hedging gains or losses in other comprehensive
income since the scheduled variable interest payment specified
on the date originally documented at the inception of the hedge
will not occur. As a result, as of March 11, 2010, the
Company reclassified an unrecognized loss of $0.8 million
from Accumulated Other Comprehensive Loss into earnings.
Quantitative
Information Derivative Financial
Instruments
The effects of the Companys derivative instruments on its
consolidated financial statements were as follows:
(a) Fair Value of Derivative Financial Instruments in
Consolidated Balance Sheet:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Values of Derivative Instruments
|
|
|
|
Assets
|
|
|
Liabilities
|
|
|
|
Balance
|
|
March 31,
|
|
|
December 31,
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
Sheet
|
|
2010
|
|
|
2009
|
|
|
Balance Sheet
|
|
2010
|
|
|
2009
|
|
Derivatives:
|
|
Classification
|
|
Fair Value
|
|
|
Fair Value
|
|
|
Classification
|
|
Fair Value
|
|
|
Fair Value
|
|
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 Interest Rate
Swap(a)
|
|
Prepaid expenses
|
|
$
|
|
|
|
$
|
|
|
|
Accrued expenses
|
|
$
|
|
|
|
$
|
1.8
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 Interest Rate
Swap(b)
|
|
Prepaid expenses
|
|
|
|
|
|
|
|
|
|
Accrued expenses
|
|
|
0.9
|
|
|
|
|
|
FX
Contracts(c)
|
|
Prepaid expenses
|
|
|
0.4
|
|
|
|
0.1
|
|
|
Accrued expenses
|
|
|
(1.3
|
)
|
|
|
1.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.4
|
|
|
$
|
0.1
|
|
|
|
|
$
|
(0.4
|
)
|
|
$
|
3.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
REVLON,
INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in
millions, except share and per share amounts)
|
|
|
(a) |
|
Effective March 11, 2010 (the closing date of the 2010
Refinancing), the 2008 Interest Rate Swap was no longer
designated as a cash flow hedge. (See Interest Rate Swap
Transaction in this Note 9.) |
|
|
|
(b) |
|
The fair value of the 2008 Interest Rate Swap at March 31,
2010 and December 31, 2009 was determined by using the
three-month U.S. Dollar LIBOR index at the latest receipt date,
or January 19, 2010, and October 16, 2009,
respectively. |
|
|
|
(c) |
|
The fair values of the FX Contracts at March 31, 2010 and
December 31, 2009 were determined by using observable
market transactions of spot and forward rates at March 31,
2010 and December 31, 2009, respectively. |
(b) Effects of Derivative Financial Instruments on Income
and Other Comprehensive Income (Loss) (OCI):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Instruments Gain (Loss) Effect on Consolidated
|
|
|
Statement of Operations as of March 31,
|
|
|
Amount of
|
|
|
|
Amount of
|
|
|
Gain (Loss)
|
|
|
|
Gain (Loss)
|
|
|
Recognized
|
|
|
|
Reclassified
|
|
|
in
|
|
Income Statement
|
|
from OCI
|
|
|
OCI
|
|
Classification
|
|
to Income
|
|
|
(Effective
|
|
of Gain (Loss)
|
|
(Effective
|
|
|
Portion)
|
|
Reclassified from
|
|
Portion)
|
|
|
2010
|
|
2009
|
|
OCI to Income
|
|
2010
|
|
2009
|
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 Interest Rate
Swap(a)
|
|
$
|
|
|
|
$
|
(5.3
|
)
|
|
Interest expense
|
|
$
|
(0.9
|
)
|
|
$
|
(0.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of
|
|
|
|
Amount of
|
|
|
Gain (Loss)
|
|
|
|
Gain (Loss)
|
|
|
Recognized
|
|
|
|
Recognized
|
|
|
in Foreign
|
|
Income Statement
|
|
in Interest
|
|
|
Currency
|
|
Classification
|
|
Expense
|
|
|
Gains
|
|
of Gain (Loss)
|
|
(Ineffective
|
|
|
(Losses), Net
|
|
Reclassified from
|
|
Portion)
|
|
|
2010
|
|
2009
|
|
OCI to Income
|
|
2010
|
|
2009
|
|
Derivatives not designated as hedging instruments:
|
FX Contracts
|
|
$
|
(0.5
|
)
|
|
$
|
0.9
|
|
|
Interest expense
|
|
$
|
|
|
|
$
|
|
|
2008 Interest Rate
Swap(a)
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(0.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(0.5
|
)
|
|
$
|
0.9
|
|
|
|
|
$
|
(0.8
|
)
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Effective March 11, 2010 (the closing date of the 2010
Refinancing), the 2008 Interest Rate Swap was no longer
designated as a cash flow hedge. (See Interest Rate Swap
Transaction in this Note 9.) |
15
REVLON,
INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in
millions, except share and per share amounts)
|
|
(10)
|
Long-term
Debt and Redeemable Preferred Stock
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010 Term Loan Facility due 2015, net of
discounts(a)
|
|
$
|
786.1
|
|
|
$
|
|
|
2006 Term Loan Facility due
2012(a)
|
|
|
|
|
|
|
815.0
|
|
2010 Revolving Credit Facility due
2014(a)
|
|
|
10.5
|
|
|
|
|
|
93/4% Senior
Secured Notes due 2015, net of
discounts(b)
|
|
|
326.5
|
|
|
|
326.4
|
|
Senior Subordinated Term Loan due
2014(c)
|
|
|
58.4
|
|
|
|
58.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,181.5
|
|
|
|
1,199.8
|
|
Less current portion
|
|
|
(18.5
|
)
|
|
|
(13.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
1,163.0
|
|
|
|
1,186.2
|
|
|
|
|
|
|
|
|
|
|
Redeemable Preferred
Stock(d)
|
|
|
48.0
|
|
|
|
48.0
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,211.0
|
|
|
$
|
1,234.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
On March 11, 2010 the Company consummated the 2010
Refinancing. The 2010 Refinancing, among other things, extended
the maturity of Products Corporations 2006 Term Loan
Facility and 2006 Revolving Credit Facility, each due January
2012, by entering into the 2010 Term Loan Facility due March
2015 and the 2010 Revolving Credit Facility due March 2014,
respectively. (See below under Recent Debt Reduction
Transactions in this Note 10.) |
|
|
|
(b) |
|
See Note 9, Long-Term Debt and Redeemable Preferred
Stock, to the Consolidated Financial Statements in Revlon,
Inc.s 2009
Form 10-K
for certain details regarding Products Corporations
93/4% Senior
Secured Notes which mature on November 15, 2015 (the
93/4%
Senior Secured Notes) . |
|
|
|
(c) |
|
See Note 9, Long-Term Debt and Redeemable Preferred
Stock, to the Consolidated Financial Statements in Revlon,
Inc.s 2009
Form 10-K
for certain details regarding the $58.4 million principal
amount of Senior Subordinated Term Loan which remains owing from
Products Corporation to MacAndrews & Forbes (the
Non Contributed Loan), which matures on
October 8, 2014. |
|
|
|
(d) |
|
See Note 9, Long-Term Debt and Redeemable Preferred
Stock, to the Consolidated Financial Statements in Revlon,
Inc.s 2009
Form 10-K
for certain details regarding Revlon, Inc.s redeemable
Preferred Stock. |
Recent
Debt Reduction Transactions
Refinancing of the 2006 Term Loan and Revolving Credit
Facilities: In March 2010, Products Corporation
consummated a credit agreement refinancing (the 2010
Refinancing) consisting of the following transactions:
|
|
|
|
|
The 2010 Refinancing included refinancing Products
Corporations term loan facility, which was scheduled to
mature on January 15, 2012 and had $815.0 million
aggregate principal amount outstanding at December 31, 2009
(the 2006 Term Loan Facility), with a
5-year,
$800.0 million term loan facility due March 11, 2015
(the 2010 Term Loan Facility) under a second amended
and restated term loan agreement dated March 11, 2010 (the
2010 Term Loan Agreement), among Products
Corporation, as borrower, the lenders party thereto, Citigroup
Global Markets Inc. (CGMI), J.P. Morgan
Securities Inc. (JPM Securities), Banc of America
Securities LLC (BAS) and Credit Suisse Securities
(USA) LLC (Credit Suisse), as joint lead arrangers,
CGMI, JPM Securities, BAS, Credit Suisse and Natixis, New York
Branch (Natixis), as joint bookrunners, JPMorgan
Chase Bank, N.A. and Bank of America, N.A. as co-syndication
agents, Credit Suisse and
|
16
REVLON,
INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in
millions, except share and per share amounts)
|
|
|
|
|
Natixis as co-documentation agents, and Citicorp USA, Inc.
(CUSA), as administrative agent and collateral agent.
|
|
|
|
|
|
The 2010 Refinancing also included refinancing Products
Corporations 2006 revolving credit facility, which was
scheduled to mature on January 15, 2012 and had nil
outstanding borrowings at December 31, 2009, with a
4-year,
$140.0 million asset-based, multi-currency revolving credit
facility due March 11, 2014 (the 2010 Revolving
Credit Facility and, together with the 2010 Term Loan
Facility, the 2010 Credit Facilities) under a second
amended and restated revolving credit agreement dated
March 11, 2010 (the 2010 Revolving Credit
Agreement and, together with the 2010 Term Loan Agreement,
the 2010 Credit Agreements), among Products
Corporation, as borrower, the lenders party thereto, CGMI and
Wells Fargo Capital Finance, LLC (WFS), as joint
lead arrangers, CGMI, WFS, BAS, JPM Securities and Credit
Suisse, as joint bookrunners, and CUSA, as administrative agent
and collateral agent.
|
|
|
|
Products Corporation used the approximately $786 million of
proceeds from the 2010 Term Loan Facility, which was drawn in
full on the March 11, 2010 closing date and issued to
lenders at 98.25% of par, plus approximately $31 million of
available cash and approximately $20 million then drawn on
the 2010 Revolving Credit Facility to refinance in full the
$815.0 million of outstanding indebtedness under its 2006
Term Loan Facility and to pay approximately $7 million of
accrued interest and approximately $15 million of fees and
expenses incurred in connection with consummating the 2010
Refinancing, of which approximately $9 million was
capitalized.
|
2010
Revolving Credit Facility
Availability under the 2010 Revolving Credit Facility varies
based on a borrowing base that is determined by the value of
eligible accounts receivable and eligible inventory in the
U.S. and the U.K. and eligible real property and equipment
in the U.S. from time to time.
In each case subject to borrowing base availability, the 2010
Revolving Credit Facility is available to:
(i) Products Corporation in revolving credit loans
denominated in U.S. dollars;
(ii) Products Corporation in swing line loans denominated
in U.S. dollars up to $30.0 million;
(iii) Products Corporation in standby and commercial
letters of credit denominated in U.S. dollars and other
currencies up to $60.0 million; and
(iv) Products Corporation and certain of its international
subsidiaries designated from time to time in revolving credit
loans and bankers acceptances denominated in
U.S. dollars and other currencies.
If the value of the eligible assets is not sufficient to support
the $140.0 million borrowing base under the 2010 Revolving
Credit Facility, Products Corporation will not have full access
to the 2010 Revolving Credit Facility. Products
Corporations ability to make borrowings under the 2010
Revolving Credit Facility is also conditioned upon the
satisfaction of certain conditions precedent and Products
Corporations compliance with other covenants in the 2010
Revolving Credit Agreement.
Borrowings under the 2010 Revolving Credit Facility bear
interest at a rate equal to, at Products Corporations
option, either (i) the Eurodollar Rate plus 3.00% per annum
or (ii) the Alternate Base Rate plus 2.00% per annum.
17
REVLON,
INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in
millions, except share and per share amounts)
Prior to the termination date of the 2010 Revolving Credit
Facility, revolving loans are required to be prepaid (without
any permanent reduction in commitment) with:
(i) the net cash proceeds from sales of Revolving Credit
First Lien Collateral (as defined below) by Products Corporation
or any of its subsidiary guarantors (other than dispositions in
the ordinary course of business and certain other
exceptions); and
(ii) the net proceeds from the issuance by Products
Corporation or any of its subsidiaries of certain additional
debt, to the extent there remains any such proceeds after
satisfying Products Corporations repayment obligations
under the 2010 Term Loan Facility.
Products Corporation pays to the lenders under the 2010
Revolving Credit Facility a commitment fee of 0.75% of the
average daily unused portion of the 2010 Revolving Credit
Facility, which fee is payable quarterly in arrears. Under the
2010 Revolving Credit Facility, Products Corporation also pays:
(i) to foreign lenders a fronting fee of 0.25% per annum on
the aggregate principal amount of specified Local Loans (as
defined in the 2010 Revolving Credit Agreement) (which fee is
retained by foreign lenders out of the portion of the Applicable
Margin payable to such foreign lender);
(ii) to foreign lenders an administrative fee of 0.25% per
annum on the aggregate principal amount of specified Local Loans;
(iii) to the multi-currency lenders a letter of credit
commission equal to the product of (a) the Applicable
Margin (as defined in the 2010 Revolving Credit Agreement) for
revolving credit loans that are Eurodollar Rate (as defined in
the 2010 Revolving Credit Agreement) loans (adjusted for the
term that the letter of credit is outstanding) and (b) the
aggregate undrawn face amount of letters of credit; and
(iv) to the issuing lender, a letter of credit fronting fee
of 0.25% per annum of the aggregate undrawn face amount of
letters of credit, which fee is a portion of the Applicable
Margin.
Under certain circumstances, Products Corporation will have the
right to request that the 2010 Revolving Credit Facility be
increased by up to $60.0 million, provided that the lenders
are not committed to provide any such increase.
Under certain circumstances if and when the difference between
(i) the borrowing base under the 2010 Revolving Credit
Facility and (ii) the amounts outstanding under the 2010
Revolving Credit Facility is less than $20.0 million for a
period of two consecutive days or more, and until such
difference is equal to or greater than $20.0 million for a
period of 30 consecutive business days, the 2010 Revolving
Credit Facility requires Products Corporation to maintain a
consolidated fixed charge coverage ratio (the ratio of EBITDA
minus Capital Expenditures to Cash Interest Expense for such
period, as each such term is defined in the 2010 Revolving
Credit Facility) of 1.0 to 1.0.
The 2010 Revolving Credit Facility matures on March 11,
2014.
2010
Term Loan Facility
Under the 2010 Term Loan Facility, Eurodollar Loans (as defined
in the 2010 Term Loan Agreement) bear interest at the Eurodollar
Rate (as defined in the 2010 Term Loan Agreement) plus 4.00% per
annum (provided that in no event shall the Eurodollar Rate be
less than 2.00% per annum) and Alternate Base Rate (as defined
in the 2010 Term Loan Agreement) loans bear interest at the
Alternate Base Rate plus 3.00% per annum (provided that in no
event shall the Alternate Base Rate be less than 3.00% per
annum).
Prior to the termination date of the 2010 Term Loan Facility, on
June 30, September 30, December 31 and March 31 of
each year (commencing June 30, 2010), Products Corporation
is required to repay
18
REVLON,
INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in
millions, except share and per share amounts)
$2.0 million of the principal amount of the term loans
outstanding under the 2010 Term Loan Facility on each respective
date. In addition, the term loans under the 2010 Term Loan
Facility are required to be prepaid with:
(i) the net cash proceeds in excess of $10.0 million
for each
12-month
period ending on March 31 received during such period from sales
of Term Loan First Lien Collateral (as defined below) by
Products Corporation or any of its subsidiary guarantors
(subject to a reinvestment right for 365 days and carryover
of unused annual basket amounts up to a maximum of
$25.0 million and subject to certain specified dispositions
of up to an additional $25.0 million in the aggregate);
(ii) the net proceeds from the issuance by Products
Corporation or any of its subsidiaries of certain additional
debt; and
(iii) 50% of Products Corporations excess cash
flow (as defined under the 2010 Term Loan Agreement),
commencing with excess cash flow for the 2011 fiscal year
payable in the first quarter of 2012.
Any such prepayments are applied to reduce Products
Corporations future regularly scheduled term loan
amortization payments, to be applied in the direct order of
maturity to the remaining installments thereof or as otherwise
directed by Products Corporation.
The 2010 Term Loan Facility contains a financial covenant
limiting Products Corporations first lien senior secured
leverage ratio (the ratio of Products Corporations Senior
Secured Debt that has a lien on the collateral which secures the
2010 Term Loan Facility that is not junior or subordinated to
the liens securing the 2010 Term Loan Facility (excluding debt
outstanding under the 2010 Revolving Credit Facility) to EBITDA,
as each such term is defined in the 2010 Term Loan Facility), to
4.0 to 1.0 for each period of four consecutive fiscal quarters
ending during the period from March 31, 2010 to the March
2015 maturity date of the 2010 Term Loan Facility.
Under certain circumstances, Products Corporation will have the
right to request the 2010 Term Loan Facility to be increased by
up to $300.0 million, provided that the lenders are not
committed to provide any such increase.
The 2010 Term Loan Facility matures on March 11, 2015.
Provisions
Applicable to the 2010 Revolving Credit Facility and the 2010
Term Loan Facility
The 2010 Credit Facilities are supported by, among other things,
guarantees from Revlon, Inc. and, subject to certain limited
exceptions, Products Corporations domestic subsidiaries.
The obligations of Products Corporation under the 2010 Credit
Facilities and the obligations under such guarantees are secured
by, subject to certain limited exceptions, substantially all of
the assets of Products Corporation and the guarantors, including:
(i) mortgages on owned real property, including Products
Corporations facility in Oxford, North Carolina;
(ii) the capital stock of Products Corporation and the
subsidiary guarantors and 66% of the voting capital stock and
100% of the non-voting capital stock of Products
Corporations and the subsidiary guarantors
first-tier,
non-U.S. subsidiaries;
(iii) intellectual property and other intangible property
of Products Corporation and the subsidiary guarantors; and
(iv) inventory, accounts receivable, equipment, investment
property and deposit accounts of Products Corporation and the
subsidiary guarantors.
19
REVLON,
INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in
millions, except share and per share amounts)
The liens on inventory, accounts receivable, deposit accounts,
investment property (other than the capital stock of Products
Corporation and its subsidiaries), real property, equipment,
fixtures and certain intangible property related to the
foregoing (the Revolving Credit First Lien
Collateral) secure the 2010 Revolving Credit Facility on a
first priority basis, the 2010 Term Loan Facility on a second
priority basis and Products Corporations
93/4% Senior
Secured Notes due November 2015 (the
93/4% Senior
Secured Notes) and the related guarantees on a third
priority basis. The liens on the capital stock of Products
Corporation and its subsidiaries, intellectual property and
intangible property (other than intangible property included in
the Revolving Credit First Lien Collateral) (the Term Loan
First Lien Collateral) secure the 2010 Term Loan Facility
on a first priority basis and the 2010 Revolving Credit Facility
and the
93/4% Senior
Secured Notes and the related guarantees on a second priority
basis. Such arrangements are set forth in the Third Amended and
Restated Intercreditor and Collateral Agency Agreement, dated
March 11, 2010, by and among Products Corporation and CUSA,
as administrative agent and as collateral agent for the benefit
of the secured parties for the 2010 Term Loan Facility, 2010
Revolving Credit Facility and the
93/4% Senior
Secured Notes (the 2010 Intercreditor Agreement).
The 2010 Intercreditor Agreement also provides that the liens
referred to above may be shared from time to time, subject to
certain limitations, with specified types of other obligations
incurred or guaranteed by Products Corporation, such as foreign
exchange and interest rate hedging obligations and foreign
working capital lines.
Each of the 2010 Credit Facilities contains various restrictive
covenants prohibiting Products Corporation and its subsidiaries
from:
(i) incurring additional indebtedness or guarantees, with
certain exceptions;
(ii) making dividend and other payments or loans to Revlon,
Inc. or other affiliates, with certain exceptions, including
among others:
(a) exceptions permitting Products Corporation to pay
dividends or make other payments to Revlon, Inc. to enable it
to, among other things, pay expenses incidental to being a
public holding company, including, among other things,
professional fees such as legal, accounting and insurance fees,
regulatory fees, such as SEC filing fees and NYSE listing fees,
and other expenses related to being a public holding company;
(b) subject to 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 Third Amended and Restated Revlon, Inc.
Stock Plan
and/or the
payment of withholding taxes in connection with the vesting of
restricted stock awards under such plan;
(c) subject to certain limitations, to pay dividends or
make other payments to finance the purchase, redemption or other
retirement for value by Revlon, Inc. of stock or other equity
interests or equivalents in Revlon, Inc. held by any current or
former director, employee or consultant in his or her capacity
as such; and
(d) subject to certain limitations, to make other
restricted payments to affiliates of Products Corporation in
amounts up to $5.0 million per year ($10.0 million in
2010), other restricted payments in an aggregate amount not to
exceed $20.0 million and other restricted payments based
upon certain financial tests;
(iii) creating liens or other encumbrances on Products
Corporations or its subsidiaries assets or revenues,
granting negative pledges or selling or transferring any of
Products Corporations or its subsidiaries assets,
all subject to certain limited exceptions;
(iv) with certain exceptions, engaging in merger or
acquisition transactions;
20
REVLON,
INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in
millions, except share and per share amounts)
(v) prepaying indebtedness and modifying the terms of
certain indebtedness and specified material contractual
obligations, subject to certain exceptions;
(vi) making investments, subject to certain
exceptions; and
(vii) entering into transactions with affiliates of
Products Corporation involving aggregate payments or
consideration in excess of $10.0 million other than upon
terms that are not materially less favorable when taken as a
whole to Products Corporation or its subsidiaries as terms that
would be obtainable at the time for a comparable transaction or
series of similar transactions in arms length dealings
with an unrelated third person and where such payments or
consideration exceed $20.0 million, unless such transaction
has been approved by all of the independent directors of
Products Corporation, subject to certain exceptions.
The events of default under each of the 2010 Credit Facilities
include customary events of default for such types of
agreements, including, among others:
(i) nonpayment of any principal, interest or other fees
when due, subject in the case of interest and fees to a grace
period;
(ii) non-compliance with the covenants in such 2010 Credit
Facilities or the ancillary security documents, subject in
certain instances to grace periods;
(iii) the institution of any bankruptcy, insolvency or
similar proceedings by or against Products Corporation, any of
Products Corporations subsidiaries or Revlon, Inc.,
subject in certain instances to grace periods;
(iv) default by Revlon, Inc. or any of its subsidiaries
(A) in the payment of certain indebtedness when due
(whether at maturity or by acceleration) in excess of
$25.0 million in aggregate principal amount or (B) in
the observance or performance of any other agreement or
condition relating to such debt, provided that the amount of
debt involved is in excess of $25.0 million in aggregate
principal amount, or the occurrence of any other event, the
effect of which default referred to in this subclause (iv)
is to cause or permit the holders of such debt to cause the
acceleration of payment of such debt;
(v) in the case of the 2010 Term Loan Facility, a cross
default under the 2010 Revolving Credit Facility, and in the
case of the 2010 Revolving Credit Facility, a cross default
under the 2010 Term Loan Facility;
(vi) the failure by Products Corporation, certain of
Products Corporations subsidiaries or Revlon, Inc. to pay
certain material judgments;
(vii) a change of control such that (A) Revlon, Inc.
shall cease to be the beneficial and record owner of 100% of
Products Corporations capital stock, (B) Ronald O.
Perelman (or his estate, heirs, executors, administrator or
other personal representative) and his or their controlled
affiliates shall cease to control Products
Corporation, and any other person or group of persons owns,
directly or indirectly, more than 35% of the total voting power
of Products Corporation, (C) any person or group of persons
other than Ronald O. Perelman (or his estate, heirs, executors,
administrator or other personal representative) and his or their
controlled affiliates shall control Products
Corporation or (D) during any period of two consecutive
years, the directors serving on Products Corporations
Board of Directors at the beginning of such period (or other
directors nominated by at least a majority of such continuing
directors) shall cease to be a majority of the directors;
(viii) Revlon, Inc. shall have any meaningful assets or
indebtedness or shall conduct any meaningful business other than
its ownership of Products Corporation and such activities as are
customary
21
REVLON,
INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in
millions, except share and per share amounts)
for a publicly traded holding company which is not itself an
operating company, in each case subject to limited
exceptions; and
(ix) the failure of certain of Products Corporations
affiliates which hold Products Corporations or its
subsidiaries indebtedness to be party to a valid and
enforceable agreement prohibiting such affiliate from demanding
or retaining payments in respect of such indebtedness, subject
to certain exceptions, including exceptions as to Products
Corporations Senior Subordinated Term Loan.
If Products Corporation is in default under the senior secured
leverage ratio under the 2010 Term Loan Facility or the
consolidated fixed charge coverage ratio under the 2010
Revolving Credit Facility, Products Corporation may cure such
default by issuing certain equity securities to, or receiving
capital contributions from, Revlon, Inc. and applying such cash
which is deemed to increase EBITDA for the purpose of
calculating the applicable ratio. This cure right may be
exercised by Products Corporation two times in any four-quarter
period.
Products Corporation was in compliance with all applicable
covenants under the 2010 Credit Agreements upon closing the 2010
Refinancing and as of March 31, 2010. At March 31,
2010, the aggregate principal amount outstanding under the 2010
Term Loan Facility was $800.0 million and availability
under the $140.0 million 2010 Revolving Credit Facility,
based upon the calculated borrowing base less $21.8 million
of outstanding undrawn letters of credit and $10.5 million
then drawn on the 2010 Revolving Credit Facility, was
$87.2 million.
The provision for income taxes represents federal, foreign,
state and local income taxes. The effective rate differs from
statutory rates due to the effect of state and local income
taxes, tax rates in foreign jurisdictions, utilization of tax
loss carryforwards and certain nondeductible expenses. The
Companys tax provision (benefit) changes quarterly based
on recurring and non-recurring factors including, but not
limited to, the geographical mix of earnings, enacted tax
legislation, foreign and state and local income taxes, tax audit
settlements, the ultimate disposition of deferred tax assets
relating to stock-based compensation and the interaction of
various global tax strategies. In addition, changes in judgment
from the evaluation of new information resulting in the
recognition, derecognition
and/or
remeasurement of a tax position taken in a prior annual period
are recognized in the quarter in which any such change occurs.
For the first quarter of 2010 and 2009, the Company recorded a
provision for (benefit from) income taxes for continuing
operations of $5.0 million and $(2.0) million,
respectively. The increase in the provision for income taxes was
primarily attributable to the favorable resolution of tax
matters in certain foreign jurisdictions in the first quarter of
2009 and higher taxable income for taxable subsidiaries in
certain foreign jurisdictions in the first quarter of 2010.
The Company remains subject to examination of its income tax
returns in various jurisdictions including, without limitation,
the U.S. (federal), for tax years ended December 31,
2006 through December 31, 2009, and Australia and South
Africa, for tax years ended December 31, 2005 through
December 31, 2009.
|
|
(12)
|
Guarantor
Financial Information
|
Products Corporations
93/4% Senior
Secured Notes are fully and unconditionally guaranteed on a
senior secured basis by Revlon, Inc. and Products
Corporations domestic subsidiaries (other than certain
immaterial subsidiaries) that guarantee Products
Corporations obligations under its 2010 Credit Agreements
(the Guarantor Subsidiaries).
22
REVLON,
INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in
millions, except share and per share amounts)
The following Condensed Consolidating Financial Statements
present the financial information as of March 31, 2010 and
December 31, 2009, and for the three months ended
March 31, 2010 and 2009 for (i) Products Corporation
on a stand-alone basis; (ii) the Guarantor Subsidiaries on
a stand-alone basis; (iii) the subsidiaries of Products
Corporation that do not guarantee Products Corporations
93/4% Senior
Secured Notes (the Non-Guarantor Subsidiaries) on a
stand-alone basis; and (iv) Products Corporation, the
Guarantor Subsidiaries and the Non-Guarantor Subsidiaries on a
consolidated basis. The Condensed Consolidating Financial
Statements are presented on the equity method, under which the
investments in subsidiaries are recorded at cost and adjusted
for the applicable share of the subsidiarys cumulative
results of operations, capital contributions, distributions and
other equity changes. The principal elimination entries
eliminate investments in subsidiaries and intercompany balances
and transactions.
23
REVLON,
INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in
millions, except share and per share amounts)
Consolidating
Condensed Balance Sheets
As of March 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Products
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
|
|
|
|
|
|
|
Corporation
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1.7
|
|
|
$
|
0.3
|
|
|
$
|
33.8
|
|
|
$
|
|
|
|
$
|
35.8
|
|
Trade receivables, less allowances for doubtful accounts
|
|
|
82.1
|
|
|
|
11.4
|
|
|
|
74.0
|
|
|
|
|
|
|
|
167.5
|
|
Inventories
|
|
|
70.7
|
|
|
|
4.1
|
|
|
|
40.8
|
|
|
|
|
|
|
|
115.6
|
|
Prepaid expenses and other
|
|
|
67.7
|
|
|
|
5.6
|
|
|
|
26.3
|
|
|
|
|
|
|
|
99.6
|
|
Intercompany receivables
|
|
|
885.5
|
|
|
|
463.3
|
|
|
|
301.6
|
|
|
|
(1,650.4
|
)
|
|
|
|
|
Investment in subsidiaries
|
|
|
(257.0
|
)
|
|
|
(210.6
|
)
|
|
|
|
|
|
|
467.6
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
93.4
|
|
|
|
0.9
|
|
|
|
16.0
|
|
|
|
|
|
|
|
110.3
|
|
Other assets
|
|
|
61.6
|
|
|
|
2.3
|
|
|
|
31.7
|
|
|
|
|
|
|
|
95.6
|
|
Goodwill, net
|
|
|
150.6
|
|
|
|
30.0
|
|
|
|
2.0
|
|
|
|
|
|
|
|
182.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,156.3
|
|
|
$
|
307.3
|
|
|
$
|
526.2
|
|
|
$
|
(1,182.8
|
)
|
|
$
|
807.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS DEFICIENCY
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term borrowings
|
|
$
|
|
|
|
$
|
1.6
|
|
|
$
|
0.5
|
|
|
$
|
|
|
|
$
|
2.1
|
|
Current portion of long-term debt
|
|
|
18.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18.5
|
|
Accounts payable
|
|
|
45.4
|
|
|
|
4.6
|
|
|
|
23.5
|
|
|
|
|
|
|
|
73.5
|
|
Accrued expenses and other
|
|
|
141.2
|
|
|
|
7.6
|
|
|
|
60.8
|
|
|
|
|
|
|
|
209.6
|
|
Intercompany payables
|
|
|
512.9
|
|
|
|
629.5
|
|
|
|
508.0
|
|
|
|
(1,650.4
|
)
|
|
|
|
|
Long-term debt
|
|
|
1,104.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,104.6
|
|
Long-term debt affiliates
|
|
|
107.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
107.0
|
|
Other long-term liabilities
|
|
|
209.7
|
|
|
|
14.4
|
|
|
|
50.6
|
|
|
|
|
|
|
|
274.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
2,139.3
|
|
|
|
657.7
|
|
|
|
643.4
|
|
|
|
(1,650.4
|
)
|
|
|
1,790.0
|
|
Stockholders deficiency
|
|
|
(983.0
|
)
|
|
|
(350.4
|
)
|
|
|
(117.2
|
)
|
|
|
467.6
|
|
|
|
(983.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and Stockholders deficiency
|
|
$
|
1,156.3
|
|
|
$
|
307.3
|
|
|
$
|
526.2
|
|
|
$
|
(1,182.8
|
)
|
|
$
|
807.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
REVLON,
INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in
millions, except share and per share amounts)
Consolidating
Condensed Balance Sheets
As of December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Products
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
|
|
|
|
|
|
|
Corporation
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
27.4
|
|
|
$
|
0.4
|
|
|
$
|
26.7
|
|
|
$
|
|
|
|
$
|
54.5
|
|
Trade receivables, less allowances for doubtful accounts
|
|
|
81.1
|
|
|
|
15.5
|
|
|
|
85.1
|
|
|
|
|
|
|
|
181.7
|
|
Inventories
|
|
|
76.2
|
|
|
|
3.5
|
|
|
|
39.5
|
|
|
|
|
|
|
|
119.2
|
|
Prepaid expenses and other
|
|
|
60.1
|
|
|
|
4.3
|
|
|
|
26.5
|
|
|
|
|
|
|
|
90.9
|
|
Intercompany receivables
|
|
|
876.1
|
|
|
|
458.8
|
|
|
|
299.8
|
|
|
|
(1,634.7
|
)
|
|
|
|
|
Investment in subsidiaries
|
|
|
(254.0
|
)
|
|
|
(215.1
|
)
|
|
|
|
|
|
|
469.1
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
94.3
|
|
|
|
1.1
|
|
|
|
16.3
|
|
|
|
|
|
|
|
111.7
|
|
Other assets
|
|
|
56.8
|
|
|
|
2.7
|
|
|
|
30.4
|
|
|
|
|
|
|
|
89.9
|
|
Goodwill, net
|
|
|
150.6
|
|
|
|
30.0
|
|
|
|
2.0
|
|
|
|
|
|
|
|
182.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,168.6
|
|
|
$
|
301.2
|
|
|
$
|
526.3
|
|
|
$
|
(1,165.6
|
)
|
|
$
|
830.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS DEFICIENCY
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term borrowings
|
|
$
|
|
|
|
$
|
|
|
|
$
|
0.3
|
|
|
$
|
|
|
|
$
|
0.3
|
|
Current portion of long-term debt
|
|
|
13.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13.6
|
|
Accounts payable
|
|
|
55.8
|
|
|
|
5.0
|
|
|
|
21.6
|
|
|
|
|
|
|
|
82.4
|
|
Accrued expenses and other
|
|
|
133.2
|
|
|
|
9.5
|
|
|
|
66.2
|
|
|
|
|
|
|
|
208.9
|
|
Intercompany payables
|
|
|
510.2
|
|
|
|
625.6
|
|
|
|
498.9
|
|
|
|
(1,634.7
|
)
|
|
|
|
|
Long-term debt
|
|
|
1,127.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,127.8
|
|
Long-term debt affiliates
|
|
|
107.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
107.0
|
|
Other long-term liabilities
|
|
|
214.8
|
|
|
|
15.7
|
|
|
|
53.8
|
|
|
|
|
|
|
|
284.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
2,162.4
|
|
|
|
655.8
|
|
|
|
640.8
|
|
|
|
(1,634.7
|
)
|
|
|
1,824.3
|
|
Stockholders deficiency
|
|
|
(993.8
|
)
|
|
|
(354.6
|
)
|
|
|
(114.5
|
)
|
|
|
469.1
|
|
|
|
(993.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and Stockholders deficiency
|
|
$
|
1,168.6
|
|
|
$
|
301.2
|
|
|
$
|
526.3
|
|
|
$
|
(1,165.6
|
)
|
|
$
|
830.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25
REVLON,
INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in
millions, except share and per share amounts)
Consolidating
Condensed Statement of Operations
For the Three Months Ended March 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Products
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
|
|
|
|
|
|
|
Corporation
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Net sales
|
|
$
|
208.5
|
|
|
$
|
13.3
|
|
|
$
|
115.8
|
|
|
$
|
(32.1
|
)
|
|
$
|
305.5
|
|
Cost of sales
|
|
|
90.6
|
|
|
|
6.0
|
|
|
|
44.2
|
|
|
|
(32.1
|
)
|
|
|
108.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
117.9
|
|
|
|
7.3
|
|
|
|
71.6
|
|
|
|
|
|
|
|
196.8
|
|
Selling, general and administrative expenses
|
|
|
91.0
|
|
|
|
9.2
|
|
|
|
49.5
|
|
|
|
|
|
|
|
149.7
|
|
Restructuring costs and other, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
26.9
|
|
|
|
(1.9
|
)
|
|
|
22.1
|
|
|
|
|
|
|
|
47.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expenses (income):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany interest, net
|
|
|
0.8
|
|
|
|
(0.4
|
)
|
|
|
1.1
|
|
|
|
|
|
|
|
1.5
|
|
Interest expense
|
|
|
21.3
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
21.4
|
|
Interest income
|
|
|
|
|
|
|
|
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
(0.2
|
)
|
Amortization of debt issuance costs
|
|
|
1.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.4
|
|
Loss on early extinguishment of debt, net
|
|
|
9.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9.7
|
|
Foreign currency (gains) losses, net
|
|
|
(4.5
|
)
|
|
|
(0.4
|
)
|
|
|
8.7
|
|
|
|
|
|
|
|
3.8
|
|
Miscellaneous, net
|
|
|
(7.0
|
)
|
|
|
(3.5
|
)
|
|
|
10.8
|
|
|
|
|
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expenses, net
|
|
|
21.7
|
|
|
|
(4.2
|
)
|
|
|
20.4
|
|
|
|
|
|
|
|
37.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes
|
|
|
5.2
|
|
|
|
2.3
|
|
|
|
1.7
|
|
|
|
|
|
|
|
9.2
|
|
Provision for income taxes
|
|
|
|
|
|
|
0.7
|
|
|
|
4.3
|
|
|
|
|
|
|
|
5.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
5.2
|
|
|
|
1.6
|
|
|
|
(2.6
|
)
|
|
|
|
|
|
|
4.2
|
|
Equity in (loss) income of subsidiaries
|
|
|
(1.0
|
)
|
|
|
(4.0
|
)
|
|
|
|
|
|
|
5.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
4.2
|
|
|
$
|
(2.4
|
)
|
|
$
|
(2.6
|
)
|
|
$
|
5.0
|
|
|
$
|
4.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26
REVLON,
INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in
millions, except share and per share amounts)
Consolidating
Condensed Statement of Operations
For the Three Months Ended March 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Products
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
|
|
|
|
|
|
|
Corporation
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Net sales
|
|
$
|
215.2
|
|
|
$
|
14.5
|
|
|
$
|
104.3
|
|
|
$
|
(30.7
|
)
|
|
$
|
303.3
|
|
Cost of sales
|
|
|
93.3
|
|
|
|
6.2
|
|
|
|
42.2
|
|
|
|
(30.7
|
)
|
|
|
111.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
121.9
|
|
|
|
8.3
|
|
|
|
62.1
|
|
|
|
|
|
|
|
192.3
|
|
Selling, general and administrative expenses
|
|
|
103.2
|
|
|
|
8.1
|
|
|
|
47.2
|
|
|
|
|
|
|
|
158.5
|
|
Restructuring costs and other, net
|
|
|
0.8
|
|
|
|
0.4
|
|
|
|
(0.7
|
)
|
|
|
|
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
17.9
|
|
|
|
(0.2
|
)
|
|
|
15.6
|
|
|
|
|
|
|
|
33.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expenses (income):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany interest, net
|
|
|
(1.1
|
)
|
|
|
(0.5
|
)
|
|
|
1.6
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
24.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24.1
|
|
Interest income
|
|
|
|
|
|
|
|
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
(0.2
|
)
|
Amortization of debt issuance costs
|
|
|
1.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.4
|
|
Gain on repurchases of debt
|
|
|
(7.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7.0
|
)
|
Foreign currency losses (gains), net
|
|
|
0.6
|
|
|
|
(0.1
|
)
|
|
|
1.9
|
|
|
|
|
|
|
|
2.4
|
|
Miscellaneous, net
|
|
|
(21.2
|
)
|
|
|
11.4
|
|
|
|
10.0
|
|
|
|
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expenses, net
|
|
|
(3.2
|
)
|
|
|
10.8
|
|
|
|
13.3
|
|
|
|
|
|
|
|
20.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes
|
|
|
21.1
|
|
|
|
(11.0
|
)
|
|
|
2.3
|
|
|
|
|
|
|
|
12.4
|
|
(Benefit from) provision for income taxes
|
|
|
(21.5
|
)
|
|
|
22.0
|
|
|
|
(2.6
|
)
|
|
|
|
|
|
|
(2.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
42.6
|
|
|
|
(33.0
|
)
|
|
|
4.9
|
|
|
|
|
|
|
|
14.5
|
|
Equity in (loss) income of subsidiaries
|
|
|
(28.1
|
)
|
|
|
5.4
|
|
|
|
|
|
|
|
22.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
14.5
|
|
|
$
|
(27.6
|
)
|
|
$
|
4.9
|
|
|
$
|
22.7
|
|
|
$
|
14.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27
REVLON,
INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in
millions, except share and per share amounts)
Consolidating
Condensed Statement of Cash Flow
For the Three Months Ended March 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Products
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
|
|
|
|
|
|
|
Corporation
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
$
|
24.5
|
|
|
$
|
(0.7
|
)
|
|
$
|
7.0
|
|
|
$
|
|
|
|
$
|
30.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(2.9
|
)
|
|
|
|
|
|
|
(0.4
|
)
|
|
|
|
|
|
|
(3.3
|
)
|
Proceeds from the sale of certain assets
|
|
|
|
|
|
|
|
|
|
|
0.1
|
|
|
|
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(2.9
|
)
|
|
|
|
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
(3.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in short-term borrowings and
overdraft
|
|
|
(13.8
|
)
|
|
|
0.6
|
|
|
|
0.2
|
|
|
|
|
|
|
|
(13.0
|
)
|
Borrowings under the 2010 Revolving Credit Facility, net
|
|
|
10.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.5
|
|
Repayments under the 2006 Term Loan Facility
|
|
|
(815.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(815.0
|
)
|
Borrowings under the 2010 Term Loan Facility
|
|
|
786.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
786.0
|
|
Payment of financing costs
|
|
|
(15.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(47.3
|
)
|
|
|
0.6
|
|
|
|
0.2
|
|
|
|
|
|
|
|
(46.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
0.2
|
|
|
|
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(25.7
|
)
|
|
|
(0.1
|
)
|
|
|
7.1
|
|
|
|
|
|
|
|
(18.7
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
27.4
|
|
|
|
0.3
|
|
|
|
26.8
|
|
|
|
|
|
|
|
54.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
1.7
|
|
|
$
|
0.2
|
|
|
$
|
33.9
|
|
|
$
|
|
|
|
$
|
35.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28
REVLON,
INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in
millions, except share and per share amounts)
Consolidating
Condensed Statement of Cash Flow
For the Three Months Ended March 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Products
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
|
|
|
|
|
|
|
Corporation
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
$
|
19.9
|
|
|
$
|
2.8
|
|
|
$
|
(5.4
|
)
|
|
$
|
|
|
|
$
|
17.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(1.6
|
)
|
|
|
|
|
|
|
(0.5
|
)
|
|
|
|
|
|
|
(2.1
|
)
|
Proceeds from the sale of certain assets including a non-core
trademark
|
|
|
|
|
|
|
|
|
|
|
2.3
|
|
|
|
|
|
|
|
2.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities
|
|
|
(1.6
|
)
|
|
|
|
|
|
|
1.8
|
|
|
|
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in short-term borrowings and
overdraft
|
|
|
(4.7
|
)
|
|
|
|
|
|
|
0.7
|
|
|
|
|
|
|
|
(4.0
|
)
|
Borrowings under the 2006 Revolving Credit Facility, net
|
|
|
4.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.0
|
|
Repayment of long-term debt
|
|
|
(35.2
|
)
|
|
|
|
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
(35.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(35.9
|
)
|
|
|
|
|
|
|
0.6
|
|
|
|
|
|
|
|
(35.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in discontinued operations
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
(1.4
|
)
|
|
|
|
|
|
|
(1.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(17.7
|
)
|
|
|
2.8
|
|
|
|
(4.4
|
)
|
|
|
|
|
|
|
(19.3
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
18.7
|
|
|
|
0.9
|
|
|
|
33.2
|
|
|
|
|
|
|
|
52.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
1.0
|
|
|
$
|
3.7
|
|
|
$
|
28.8
|
|
|
$
|
|
|
|
$
|
33.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29
REVLON,
INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS
(all tabular amounts in millions, except share and per share
amounts)
|
|
Item 2.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
Overview
Overview
of the Business
The Company is providing this overview in accordance with the
SECs December 2003 interpretive guidance regarding
Managements Discussion and Analysis of Financial Condition
and Results of Operations.
Revlon, Inc. (and together with its subsidiaries, the
Company) conducts its business exclusively through
its direct wholly-owned operating subsidiary, Revlon Consumer
Products Corporation (Products Corporation) and its
subsidiaries. Revlon, Inc. is a direct and indirect
majority-owned subsidiary of MacAndrews & Forbes
Holdings Inc. (MacAndrews & Forbes
Holdings and together with certain of its affiliates other
than the Company, MacAndrews & Forbes), a
corporation wholly-owned by Ronald O. Perelman.
The Companys vision is glamour, excitement and innovation
through high-quality products at affordable prices. The Company
operates in a single segment and manufactures, markets and sells
an extensive array of cosmetics, womens hair color, beauty
tools, anti-perspirants/deodorants, fragrances, skincare and
other beauty care products. The Company is one of the
worlds leading cosmetics companies in the mass retail
channel (as hereinafter defined). The Company believes that its
global brand name recognition, product quality and marketing
experience have enabled it to create one of the strongest
consumer brand franchises in the world.
The Companys products are sold worldwide and marketed
under such brand names as Revlon, including the Revlon
ColorStay, Revlon Super Lustrous and Revlon
Age Defying franchises, as well as the Almay
brand, including the Almay Intense i-Color and
Almay Smart Shade franchises, in cosmetics; Revlon
Colorsilk womens hair color; Revlon in beauty
tools; Mitchum anti-perspirants/deodorants; Charlie
and Jean Naté in fragrances; and
Ultima II and Gatineau in skincare.
The Companys principal customers include large mass volume
retailers and chain drug and food stores (collectively, the
mass retail channel) in the U.S., as well as certain
department stores and other specialty stores, such as
perfumeries, outside the U.S. The Company also sells beauty
products to U.S. military exchanges and commissaries and
has a licensing business pursuant to which the Company licenses
certain of its key brand names to third parties for
complementary beauty-related products and accessories in
exchange for royalties.
The Company was founded by Charles Revson, who revolutionized
the cosmetics industry by introducing nail enamels matched to
lipsticks in fashion colors over 75 years ago. Today, the
Company has leading market positions in a number of its
principal product categories in the U.S. mass retail
channel, including color cosmetics (face, lip, eye and nail
categories), womens hair color, beauty tools and
anti-perspirants/deodorants. The Company also has leading market
positions in several product categories in certain foreign
countries, including Australia, Canada and South Africa.
Effective for periods beginning January 1, 2010, the
Company is reporting Canada separately (previously Canada was
included in the Europe region) and is reporting South Africa as
part of the Europe, Middle East and Africa region (previously
South Africa was included in the Asia Pacific region). As a
result, prior year amounts have been reclassified to conform to
this presentation.
30
REVLON,
INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS
(all tabular amounts in millions, except share and per share
amounts)
Overview
of the Companys Business Strategy
The Companys strategic goal is to profitably grow our
business. The business strategies employed by the Company to
achieve this goal are:
1. Building our strong brands. We
continue to build our strong brands by focusing on innovative,
high-quality, consumer-preferred brand offering; effective
consumer brand communication; appropriate levels of advertising
and promotion; and superb execution with our retail partners.
2. Developing our organizational
capability. We continue to develop our
organizational capability through attracting, retaining and
rewarding highly capable people and through performance
management, development planning, succession planning and
training.
3. Driving our company to act
globally. We continue to drive common global
processes which are designed to provide the most efficient
allocation of our resources.
4. Increasing our operating profit and cash
flow. We continue to focus on increasing our
operating profit and cash flow.
5. Improving our capital
structure. We continue to improve our capital
structure by focusing on strengthening our balance sheet and
reducing debt.
Overview
of Net Sales and Earnings Results
Consolidated net sales in the first quarter of 2010 were
$305.5 million, an increase of $2.2 million, or 0.7%,
compared to $303.3 million in the first quarter of 2009.
Excluding the favorable impact of foreign currency fluctuations
of $9.0 million, consolidated net sales decreased by 2.2%
in the first quarter of 2010. Excluding the favorable impact of
foreign currency fluctuations, lower net sales in the
U.S. and the Companys Europe, Middle East and Africa,
Asia Pacific and Canada regions were partially offset by higher
net sales in the Latin America region.
Consolidated net income for the first quarter of 2010 was
$2.2 million, compared to $12.7 million in the first
quarter of 2009. The decline in consolidated net income in the
first quarter of 2010, compared to the first quarter of 2009,
was primarily due to:
|
|
|
|
|
a $9.7 million loss on the early extinguishment of debt in
the first quarter of 2010, as compared to the $7.0 million
gain related to the early extinguishment of debt in the first
quarter of 2009;
|
|
|
|
a $7.0 million increase in the provision for income
taxes; and
|
|
|
|
$1.4 million of higher foreign currency losses;
|
with the foregoing partially offset by:
|
|
|
|
|
$8.8 million of lower SG&A expenses; and
|
|
|
|
$4.5 million of higher gross profit primarily due to a
$2.3 million improvement in cost of sales and favorable
foreign currency fluctuations.
|
31
REVLON,
INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS
(all tabular amounts in millions, except share and per share
amounts)
Overview
of Financing Activities
Refinancing of the 2006 Term Loan and Revolving Credit
Facilities: In March 2010, Products Corporation
consummated a credit agreement refinancing (the 2010
Refinancing) consisting of the following transactions:
The 2010 Refinancing included refinancing Products
Corporations term loan facility, which was scheduled to
mature on January 15, 2012 and had $815.0 million
aggregate principal amount outstanding at December 31, 2009
(the 2006 Term Loan Facility), with a
5-year,
$800.0 million term loan facility due March 11, 2015
(the 2010 Term Loan Facility) under a second amended
and restated term loan agreement dated March 11, 2010 (the
2010 Term Loan Agreement), among Products
Corporation, as borrower, the lenders party thereto, Citigroup
Global Markets Inc. (CGMI), J.P. Morgan
Securities Inc. (JPM Securities), Banc of America
Securities LLC (BAS) and Credit Suisse Securities
(USA) LLC (Credit Suisse), as joint lead arrangers,
CGMI, JPM Securities, BAS, Credit Suisse and Natixis, New York
Branch (Natixis), as joint bookrunners, JPMorgan
Chase Bank, N.A. and Bank of America, N.A. as co-syndication
agents, Credit Suisse and Natixis as co-documentation agents,
and Citicorp USA, Inc. (CUSA), as administrative
agent and collateral agent.
The 2010 Refinancing also included refinancing Products
Corporations 2006 revolving credit facility, which was
scheduled to mature on January 15, 2012 and had nil
outstanding borrowings at December 31, 2009, with a
4-year,
$140.0 million asset-based, multi-currency revolving credit
facility due March 11, 2014 (the 2010 Revolving
Credit Facility and, together with the 2010 Term Loan
Facility, the 2010 Credit Facilities) under a second
amended and restated revolving credit agreement dated
March 11, 2010 (the 2010 Revolving Credit
Agreement and, together with the 2010 Term Loan Agreement,
the 2010 Credit Agreements), among Products
Corporation, as borrower, the lenders party thereto, CGMI and
Wells Fargo Capital Finance, LLC (WFS), as joint
lead arrangers, CGMI, WFS, BAS, JPM Securities and Credit
Suisse, as joint bookrunners, and CUSA, as administrative agent
and collateral agent.
Products Corporation used the approximately $786 million of
proceeds from the 2010 Term Loan Facility, which was drawn in
full on the March 11, 2010 closing date and issued to
lenders at 98.25% of par, plus approximately $31 million of
available cash and approximately $20 million then drawn on
the 2010 Revolving Credit Facility to refinance in full the
$815.0 million of outstanding indebtedness under the 2006
Term Loan Facility and to pay approximately $7 million of
accrued interest and approximately $15 million of fees and
expenses incurred in connection with consummating the 2010
Refinancing, of which approximately $9 million was
capitalized.
Results
of Operations
In the tables, all amounts are in millions and numbers in
parentheses ( ) denote unfavorable variances.
Net
sales:
Consolidated net sales in the first quarter of 2010 were
$305.5 million, an increase of $2.2 million, or 0.7%,
compared to $303.3 million in the first quarter of 2009.
Excluding the favorable impact of foreign currency fluctuations
of $9.0 million, consolidated net sales decreased by 2.2%
in the first quarter of 2010. The decline in consolidated net
sales, excluding the favorable impact of foreign currency
fluctuations, was primarily driven by lower net sales of
Almay color cosmetics and Revlon beauty tools, due
to the cycling of the 2009 launches of Almay Pure Blends
and Revlon Pedi-Expert, respectively, partially
offset by higher
32
REVLON,
INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS
(all tabular amounts in millions, except share and per share
amounts)
net sales of Revlon ColorSilk hair color and Revlon
color cosmetics. Net sales of Revlon color cosmetics
increased primarily due to lower promotional allowances and the
benefit of new product launches in the U.S. in the first quarter
of 2010 as compared with the first quarter of 2009. Net sales in
the first quarter of 2009 benefited from higher pipeline
shipments of second half 2009 new color cosmetics products in
the U.S.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
Change
|
|
|
XFX
Change(a)
|
|
|
|
2010
|
|
|
2009
|
|
|
$
|
|
|
%
|
|
|
$
|
|
|
%
|
|
|
United States
|
|
$
|
182.1
|
|
|
$
|
191.0
|
|
|
$
|
(8.9
|
)
|
|
|
(4.7
|
)%
|
|
$
|
(8.9
|
)
|
|
|
(4.7
|
)%
|
Asia Pacific
|
|
|
45.9
|
|
|
|
41.6
|
|
|
|
4.3
|
|
|
|
10.3
|
|
|
|
(1.2
|
)
|
|
|
(2.9
|
)
|
Europe, Middle East and Africa
|
|
|
42.9
|
|
|
|
38.3
|
|
|
|
4.6
|
|
|
|
12.0
|
|
|
|
(1.8
|
)
|
|
|
(4.7
|
)
|
Latin America
|
|
|
20.0
|
|
|
|
19.5
|
|
|
|
0.5
|
|
|
|
2.6
|
|
|
|
5.8
|
|
|
|
29.7
|
|
Canada
|
|
|
14.6
|
|
|
|
12.9
|
|
|
|
1.7
|
|
|
|
13.2
|
|
|
|
(0.7
|
)
|
|
|
(5.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Net Sales
|
|
$
|
305.5
|
|
|
$
|
303.3
|
|
|
$
|
2.2
|
|
|
|
0.7
|
%
|
|
$
|
(6.8
|
)
|
|
|
(2.2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
XFX excludes the impact of foreign currency fluctuations. |
United
States
In the U.S., net sales in the first quarter of 2010 were
$182.1 million, a decrease of $8.9 million, or 4.7%,
compared to $191.0 million in the first quarter of 2009,
primarily driven by lower net sales of Almay color
cosmetics and Revlon beauty tools, due to the cycling of
the 2009 launches of Almay Pure Blends and Revlon
Pedi-Expert, respectively, partially offset by higher net
sales of Revlon color cosmetics and Revlon ColorSilk
hair color. Net sales of Revlon color cosmetics
increased primarily due to lower promotional allowances and the
benefit of new product launches in the first quarter of 2010 as
compared with the first quarter of 2009. Net sales in the first
quarter of 2009 benefited from higher pipeline shipments of
second half 2009 new color cosmetics products.
Asia
Pacific
In Asia Pacific, net sales in the first quarter of 2010
increased 10.3% to $45.9 million, compared to
$41.6 million in the first quarter of 2009. Excluding the
favorable impact of foreign currency fluctuations, net sales
decreased $1.2 million, or 2.9%, primarily driven by lower
net sales of Revlon color cosmetics. From a country
perspective, lower net sales in Australia and Japan (which
together contributed approximately 7.0 percentage points to
the decrease in the regions net sales in the first quarter
of 2010, as compared with the first quarter of 2009) were
partially offset by higher net sales in China (which offset by
approximately 3.0 percentage points the regions net
sales in the first quarter of 2010, as compared with the first
quarter of 2009).
Europe,
Middle East and Africa
In Europe, the Middle East and Africa, net sales in the first
quarter of 2010 increased 12.0% to $42.9 million, compared
to $38.3 million in the first quarter of 2009. Excluding
the favorable impact of foreign currency fluctuations, net sales
decreased $1.8 million, or 4.7%, primarily driven by lower
net sales of Revlon color cosmetics and Revlon
skincare. From a country perspective, net sales were lower
in the U.K. and certain distributor markets (which together
contributed approximately 4.3 percentage points to the
decrease in the regions net sales in the first quarter of
2010, as compared with the first quarter of 2009).
Latin
America
In Latin America, net sales in the first quarter of 2010
increased 2.6% to $20.0 million, compared to
$19.5 million in the first quarter of 2009. Excluding the
unfavorable impact of foreign currency fluctuations
33
REVLON,
INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS
(all tabular amounts in millions, except share and per share
amounts)
(including the unfavorable impact of the January 2010
devaluation of Venezuelas local currency relative to the
U.S. dollar), net sales increased $5.8 million, or
29.7%, primarily driven by higher net sales of Revlon
ColorSilk hair color, Revlon color cosmetics and
other beauty care products throughout the Latin America region.
Higher selling prices in Venezuela, given market conditions and
inflation, accounted for approximately half of the
$5.8 million increase in net sales in the region.
Canada
In Canada, net sales in the first quarter of 2010 increased
13.2% to $14.6 million, compared to $12.9 million in
the first quarter of 2009. Excluding the favorable impact of
foreign currency fluctuations, net sales decreased
$0.7 million, or 5.4%, primarily due to lower net sales of
Revlon beauty tools.
Gross
profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
March 31,
|
|
|
|
|
2010
|
|
2009
|
|
Change
|
|
Gross profit
|
|
$
|
196.8
|
|
|
$
|
192.3
|
|
|
$
|
4.5
|
|
Percentage of net sales
|
|
|
64.4
|
%
|
|
|
63.4
|
%
|
|
|
1.0
|
%
|
The 1.0 percentage point increase in gross profit as a
percentage of net sales for the first quarter of 2010, compared
to the first quarter of 2009, was primarily due to:
|
|
|
|
|
lower allowances on color cosmetics, which increased gross
profit as a percentage of net sales by 1.4 percentage
points;
|
|
|
|
favorable foreign currency fluctuations which resulted in lower
cost of goods in most international markets on goods purchased
from the Companys facility in Oxford, North Carolina,
which increased gross profit as a percentage of net sales by
1.0 percentage points;
|
|
|
|
decreased inventory obsolescence charges, which increased gross
profit as a percentage of net sales by 0.6 percentage
points; and
|
|
|
|
favorable manufacturing efficiencies, primarily as a result of
lower labor and material costs, partially offset by unfavorable
overhead absorption, which combined increased gross profit as a
percentage of net sales by 0.5 percentage points;
|
with the foregoing partially offset by:
|
|
|
|
|
unfavorable changes in sales mix, which reduced gross profit as
a percentage of net sales by 1.2 percentage points; and
|
|
|
|
the unfavorable impact of cost of goods as a result of the
devaluation of Venezuelas local currency relative to the
U.S. dollar as inventory is carried at historical dollar
cost resulting in higher inventory value based on the exchange
rate prior to such devaluation, which reduced gross profit as a
percentage of net sales by 0.7 percentage points.
|
SG&A
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
March 31,
|
|
|
|
|
2010
|
|
2009
|
|
Change
|
|
SG&A expenses
|
|
$
|
151.4
|
|
|
$
|
160.2
|
|
|
$
|
8.8
|
|
34
REVLON,
INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS
(all tabular amounts in millions, except share and per share
amounts)
The $8.8 million decrease in SG&A expenses for the
first quarter of 2010, as compared to the first quarter of 2009,
was driven primarily by:
|
|
|
|
|
$8.4 million of lower advertising expenses primarily as a
result of achieving lower advertising rates; and
|
|
|
|
$4.9 million of lower compensation expenses as a result of
the May 2009 Program;
|
with the foregoing partially offset by:
|
|
|
|
|
unfavorable foreign currency fluctuations of $2.8 million.
|
Consistent with the Companys business strategy to build
our strong brands, the Company currently intends to support its
brands with increased advertising spending (as defined in Note
1, Summary of Significant Accounting Policies
Advertising, to the Consolidated Financial Statements in
Revlon, Inc.s Annual Report on
Form 10-K
for the year ended December 31, 2009 filed with the SEC on
February 25, 2010 (the 2009
Form 10-K))
in the second quarter of 2010, as compared to the second quarter
of 2009.
Restructuring
costs and other, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
March 31,
|
|
|
|
|
2010
|
|
2009
|
|
Change
|
|
Restructuring costs and other, net
|
|
$
|
|
|
|
$
|
0.5
|
|
|
$
|
0.5
|
|
In May 2009 the Company announced a worldwide restructuring (the
May 2009 Program), which involved consolidating
certain functions; reducing layers of management, where
appropriate, to increase accountability and effectiveness;
streamlining support functions to reflect the new organizational
structure; and further consolidating the Companys office
facilities in New Jersey.
The $20.8 million of charges related to the May 2009
Program have been or will be paid out as follows:
$11.0 million paid in 2009, $7.1 million expected to
be paid in 2010 and the balance of $2.7 million expected to
be paid thereafter. The May 2009 Program delivered savings of
approximately $15 million in 2009 and the Company expects
annualized savings of approximately $30 million in 2010 and
thereafter (inclusive of the approximately $15 million in
2009).
During the first quarter of 2009, the Company recorded net
charges of $0.5 million to restructuring costs and other,
net, of which $1.2 million related to charges for employee
severance and other employee-related termination costs in the
U.K., Mexico and Argentina (together with the May 2009 Program,
the 2009 Programs) and $0.9 million related to
the Companys 2008 restructuring programs (the 2008
Programs). These restructuring charges were partially
offset by income in the first quarter of 2009 of
$1.6 million related to the sale of a facility in Argentina.
For a further discussion of the Companys 2008 Programs,
see Note 3, Restructuring Costs and Other, Net,
to the Consolidated Financial Statements in Revlon, Inc.s
2009
Form 10-K.
Interest
expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
March 31,
|
|
|
|
|
2010
|
|
2009
|
|
Change
|
|
Interest expense
|
|
$
|
21.3
|
|
|
$
|
24.1
|
|
|
$
|
2.8
|
|
Interest expense preferred stock dividends
|
|
|
1.6
|
|
|
|
|
|
|
|
(1.6
|
)
|
35
REVLON,
INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS
(all tabular amounts in millions, except share and per share
amounts)
The decrease in interest expense was due to lower debt levels
during the first quarter of 2010, as compared to the first
quarter of 2009. Interest expense throughout the remainder of
2010 will be impacted by higher weighted average borrowing rates
as a result of the 2010 Refinancing.
In accordance with the terms of the certificate of designation
of the Preferred Stock, on January 8, 2010, Revlon, Inc.
paid to holders of record of the Preferred Stock at the close of
business on December 28, 2009 the regular dividend on the
Preferred Stock at an annual rate of 12.75% of the $5.21 per
share liquidation preference (the Regular Dividend)
in the amount of $0.167434 per share for the period from
October 8, 2009 through and including January 8, 2010.
In addition, on April 8, 2010, Revlon, Inc. paid to holders
of record of the Preferred Stock at the close of business on
March 26, 2010 the Regular Dividend in the amount of
$0.163794 per share for the period from January 8, 2010
through and including April 8, 2010. As of March 31,
2010, the Company accrued $1.4 million in interest expense
related to the quarterly Regular Dividend on the Preferred Stock
which was paid in April 2010.
Loss
(gain) on early extinguishment of debt, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
March 31,
|
|
|
|
|
2010
|
|
2009
|
|
Change
|
|
Loss (gain) on early extinguishment of debt, net
|
|
$
|
9.7
|
|
|
$
|
(7.0
|
)
|
|
$
|
(16.7
|
)
|
As a result of the 2010 Refinancing, the Company recognized a
loss on the extinguishment of debt of $9.7 million during
the first quarter of 2010, primarily due to $5.9 million of
fees and expenses which were expensed as incurred in connection
with the 2010 Refinancing, as well as the write-off of
$3.8 million of unamortized deferred financing fees in
connection with such refinancing.
In March 2009, Products Corporation used $16.5 million of
cash to repurchase an aggregate principal amount of
$23.9 million of its
91/2% Senior
Notes (prior to their complete refinancing in November 2009 with
the
93/4% Senior
Secured Notes), and paid an additional $1.2 million of
accrued and unpaid interest and fees through the respective
dates of the repurchases. As a result of these repurchases, the
Company recorded a gain of $7.0 million during the first
quarter of 2009, which was net of the write-off of the ratable
portion of unamortized debt discount and deferred financing fees.
Foreign
currency losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
March 31,
|
|
|
|
|
2010
|
|
2009
|
|
Change
|
|
Foreign currency losses
|
|
$
|
3.8
|
|
|
$
|
2.4
|
|
|
$
|
(1.4
|
)
|
The increase in foreign currency losses during the first quarter
of 2010, as compared to the first quarter of 2009, was primarily
driven by:
|
|
|
|
|
a $2.8 million one-time foreign currency loss related to
the required re-measurement of the balance sheet of the
Companys subsidiary in Venezuela (Revlon
Venezuela) during the first quarter of 2010 to reflect the
impact of the devaluation of Venezuelas local currency
relative to the U.S. dollar, as Venezuela has been
designated as a highly inflationary economy effective
January 1, 2010 (See Financial Condition, Liquidity
and Capital Resources Impact of Foreign Currency
Translation Venezuela in this
Form 10-Q); and
|
|
|
|
foreign currency losses related to the Companys
outstanding foreign currency forward exchange contracts
(FX Contracts) for the first quarter of 2010, as
compared to foreign currency gains related to the Companys
FX Contracts for the first quarter of 2009;
|
36
REVLON,
INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS
(all tabular amounts in millions, except share and per share
amounts)
with the foregoing partially offset by:
|
|
|
|
|
the favorable impact of the revaluation of certain
U.S. dollar-denominated intercompany payables from the
Companys foreign subsidiaries during the first quarter of
2010.
|
Provision
for (benefit from) income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
March 31,
|
|
|
|
|
2010
|
|
2009
|
|
Change
|
|
Provision for (benefit from) income taxes
|
|
$
|
5.0
|
|
|
$
|
(2.0
|
)
|
|
$
|
(7.0
|
)
|
The increase in the tax provision for the first quarter of 2010,
as compared to the first quarter of 2009, was primarily
attributable to the favorable resolution of tax matters in
certain foreign jurisdictions in the first quarter of 2009 and
higher taxable income for taxable subsidiaries in certain
foreign jurisdictions in the first quarter of 2010.
Financial
Condition, Liquidity and Capital Resources
At March 31, 2010, the Company had a liquidity position
(excluding cash in compensating balance accounts), of
$120.6 million, consisting of cash and cash equivalents
(net of any outstanding checks) of $33.4 million, as well
as $87.2 million in available borrowings under the 2010
Revolving Credit Facility.
Cash
Flows
At March 31, 2010, the Company had cash and cash
equivalents of $35.8 million, compared with
$33.5 million at March 31, 2009. The following table
summarizes the Companys cash flows from operating,
investing and financing activities for March 31, 2010 and
March 31, 2009, respectively:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31,
|
|
|
2010
|
|
2009
|
|
Net cash provided by operating activities
|
|
$
|
31.2
|
|
|
$
|
17.3
|
|
Net cash (used in) provided by investing activities
|
|
|
(3.2
|
)
|
|
|
0.2
|
|
Net cash used in financing activities
|
|
|
(46.9
|
)
|
|
|
(35.3
|
)
|
Operating
Activities
Net cash provided by operating activities in the first quarter
of 2010 was $31.2 million, as compared to
$17.3 million in the first quarter of 2009. This
improvement in cash provided by operating activities in the
first quarter of 2010, compared to the first quarter of 2009,
was primarily driven by improved operating income, lower
incentive compensation payments and lower interest payments,
partially offset by restructuring payments made in the first
quarter of 2010.
Investing
Activities
Net cash (used in) provided by investing activities was
$(3.2) million and $0.2 million for the first quarters
of 2010 and 2009, respectively. Net cash used in investing
activities for the first quarter of 2010 included
$3.3 million of cash used for capital expenditures. Net
cash provided by investing activities for the first quarter of
2009 included $2.3 million in net proceeds from the sale of
certain assets, offset by cash used for capital expenditures of
$2.1 million.
37
REVLON,
INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS
(all tabular amounts in millions, except share and per share
amounts)
Financing
Activities
Net cash used in financing activities was $46.9 million and
$35.3 million for the first quarters of 2010 and 2009,
respectively. Net cash used in financing activities for the
first quarter of 2010 included the March 2010 refinancing of the
$815.0 million remaining aggregate principal amount of
Products Corporations 2006 Term Loan Facility, partially
offset by Products Corporations issuance of the
$800.0 million aggregate principal amount of the 2010 Term
Loan Facility, or $786.0 million net of discounts, and net
borrowings of $10.5 million under the 2010 Revolving Credit
Facility. Net cash used in financing activities for the first
quarter of 2010 also included payment of financing costs of
$15.4 million, which is comprised of (i) the payment
of $13.4 million of the $15.1 million of fees incurred
in connection with the 2010 Refinancing; (ii) the payment
of $1.6 million of the $25.0 million of fees incurred
in connection with the refinancing of Product Corporations
91/2% Senior
Notes in November 2009 with the
93/4% Senior
Secured Notes due November 2015; and (iii) the payment of
$0.4 million of the $6.6 million of fees incurred in
connection with Revlon, Inc.s consummation of the
voluntary exchange offer in October 2009.
Net cash used in financing activities for the first quarter of
2009 included debt reduction payments of $35.3 million,
which was comprised of the repayment of $18.7 million in
principal amount of Products Corporations former 2006 Term
Loan Facility (prior to its complete refinancing in March 2010
with the 2010 Term Loan Facility) and repurchases of
$23.9 million in aggregate principal amount of Products
Corporations
91/2% Senior
Notes (prior to their complete refinancing in November 2009 with
the
93/4% Senior
Secured Notes) at a purchase price of $16.5 million.
Long-Term
Debt Instruments
For further detail regarding Products Corporations
long-term debt instruments, see Note 9, Long-Term
Debt and Redeemable Preferred Stock, to the Consolidated
Financial Statements in Revlon, Inc.s 2009
Form 10-K.
2010
Bank Credit Agreements
In March 2010, Products Corporation consummated the 2010
Refinancing, which included refinancing its 2006 Term Loan
Facility with the 2010 Term Loan Facility and Products
Corporations 2006 Revolving Credit Facility with the 2010
Revolving Credit Facility.
2010
Revolving Credit Facility
Availability under the 2010 Revolving Credit Facility varies
based on a borrowing base that is determined by the value of
eligible accounts receivable and eligible inventory in the
U.S. and the U.K. and eligible real property and equipment
in the U.S. from time to time.
In each case subject to borrowing base availability, the 2010
Revolving Credit Facility is available to:
(i) Products Corporation in revolving credit loans
denominated in U.S. dollars;
(ii) Products Corporation in swing line loans denominated
in U.S. dollars up to $30.0 million;
(iii) Products Corporation in standby and commercial
letters of credit denominated in U.S. dollars and other
currencies up to $60.0 million; and
(iv) Products Corporation and certain of its international
subsidiaries designated from time to time in revolving credit
loans and bankers acceptances denominated in
U.S. dollars and other currencies.
38
REVLON,
INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS
(all tabular amounts in millions, except share and per share
amounts)
If the value of the eligible assets is not sufficient to support
the $140.0 million borrowing base under the 2010 Revolving
Credit Facility, Products Corporation will not have full access
to the 2010 Revolving Credit Facility. Products
Corporations ability to make borrowings under the 2010
Revolving Credit Facility is also conditioned upon the
satisfaction of certain conditions precedent and Products
Corporations compliance with other covenants in the 2010
Revolving Credit Agreement.
Borrowings under the 2010 Revolving Credit Facility bear
interest at a rate equal to, at Products Corporations
option, either (i) the Eurodollar Rate plus 3.00% per annum
or (ii) the Alternate Base Rate plus 2.00% per annum.
Prior to the termination date of the 2010 Revolving Credit
Facility, revolving loans are required to be prepaid (without
any permanent reduction in commitment) with:
(i) the net cash proceeds from sales of Revolving Credit
First Lien Collateral (as defined below) by Products Corporation
or any of its subsidiary guarantors (other than dispositions in
the ordinary course of business and certain other
exceptions); and
(ii) the net proceeds from the issuance by Products
Corporation or any of its subsidiaries of certain additional
debt, to the extent there remains any such proceeds after
satisfying Products Corporations repayment obligations
under the 2010 Term Loan Facility.
Products Corporation pays to the lenders under the 2010
Revolving Credit Facility a commitment fee of 0.75% of the
average daily unused portion of the 2010 Revolving Credit
Facility, which fee is payable quarterly in arrears. Under the
2010 Revolving Credit Facility, Products Corporation also pays:
(i) to foreign lenders a fronting fee of 0.25% per annum on
the aggregate principal amount of specified Local Loans (as
defined in the 2010 Revolving Credit Agreement) (which fee is
retained by foreign lenders out of the portion of the Applicable
Margin payable to such foreign lender);
(ii) to foreign lenders an administrative fee of 0.25% per
annum on the aggregate principal amount of specified Local Loans;
(iii) to the multi-currency lenders a letter of credit
commission equal to the product of (a) the Applicable
Margin (as defined in the 2010 Revolving Credit Agreement) for
revolving credit loans that are Eurodollar Rate (as defined in
the 2010 Revolving Credit Agreement) loans (adjusted for the
term that the letter of credit is outstanding) and (b) the
aggregate undrawn face amount of letters of credit; and
(iv) to the issuing lender, a letter of credit fronting fee
of 0.25% per annum of the aggregate undrawn face amount of
letters of credit, which fee is a portion of the Applicable
Margin.
Under certain circumstances, Products Corporation will have the
right to request that the 2010 Revolving Credit Facility be
increased by up to $60.0 million, provided that the lenders
are not committed to provide any such increase.
Under certain circumstances if and when the difference between
(i) the borrowing base under the 2010 Revolving Credit
Facility and (ii) the amounts outstanding under the 2010
Revolving Credit Facility is less than $20.0 million for a
period of two consecutive days or more, and until such
difference is equal to or greater than $20.0 million for a
period of 30 consecutive business days, the 2010 Revolving
Credit Facility requires Products Corporation to maintain a
consolidated fixed charge coverage ratio (the ratio of EBITDA
minus Capital Expenditures to Cash Interest Expense for such
period, as each such term is defined in the 2010 Revolving
Credit Facility) of 1.0 to 1.0.
The 2010 Revolving Credit Facility matures on March 11,
2014.
39
REVLON,
INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS
(all tabular amounts in millions, except share and per share
amounts)
2010
Term Loan Facility
Under the 2010 Term Loan Facility, Eurodollar Loans (as defined
in the 2010 Term Loan Agreement) bear interest at the Eurodollar
Rate (as defined in the 2010 Term Loan Agreement) plus 4.00% per
annum (provided that in no event shall the Eurodollar Rate be
less than 2.00% per annum) and Alternate Base Rate (as defined
in the 2010 Term Loan Agreement) loans bear interest at the
Alternate Base Rate plus 3.00% per annum (provided that in no
event shall the Alternate Base Rate be less than 3.00% per
annum).
Prior to the termination date of the 2010 Term Loan Facility, on
June 30, September 30, December 31 and March 31 of
each year (commencing June 30, 2010), Products Corporation
is required to repay $2.0 million of the principal amount
of the term loans outstanding under the 2010 Term Loan Facility
on each respective date. In addition, the term loans under the
2010 Term Loan Facility are required to be prepaid with:
(i) the net cash proceeds in excess of $10.0 million
for each
12-month
period ending on March 31 received during such period from sales
of Term Loan First Lien Collateral (as defined below) by
Products Corporation or any of its subsidiary guarantors
(subject to a reinvestment right for 365 days and carryover
of unused annual basket amounts up to a maximum of
$25.0 million and subject to certain specified dispositions
of up to an additional $25.0 million in the aggregate);
(ii) the net proceeds from the issuance by Products
Corporation or any of its subsidiaries of certain additional
debt; and
(iii) 50% of Products Corporations excess cash
flow (as defined under the 2010 Term Loan Agreement),
commencing with excess cash flow for the 2011 fiscal year
payable in the first quarter of 2012.
Any such prepayments are applied to reduce Products
Corporations future regularly scheduled term loan
amortization payments to be applied in the direct order of
maturity to the remaining installments thereof or as otherwise
directed by Products Corporation.
The 2010 Term Loan Facility contains a financial covenant
limiting Products Corporations first lien senior secured
leverage ratio (the ratio of Products Corporations Senior
Secured Debt that has a lien on the collateral which secures the
2010 Term Loan Facility that is not junior or subordinated to
the liens securing the 2010 Term Loan Facility (excluding debt
outstanding under the 2010 Revolving Credit Facility) to EBITDA,
as each such term is defined in the 2010 Term Loan Facility), to
4.0 to 1.0 for each period of four consecutive fiscal quarters
ending during the period from March 31, 2010 to the March
2015 maturity date of the 2010 Term Loan Facility.
Under certain circumstances, Products Corporation will have the
right to request the 2010 Term Loan Facility to be increased by
up to $300.0 million, provided that the lenders are not
committed to provide any such increase.
The 2010 Term Loan Facility matures on March 11, 2015.
Provisions
Applicable to the 2010 Revolving Credit Facility and the 2010
Term Loan Facility
The 2010 Credit Facilities are supported by, among other things,
guarantees from Revlon, Inc. and, subject to certain limited
exceptions, Products Corporations domestic subsidiaries.
The obligations of Products Corporation under the 2010 Credit
Facilities and the obligations under such guarantees are secured
by, subject to certain limited exceptions, substantially all of
the assets of Products Corporation and the guarantors. (See
Note 10, Long-Term Debt and Redeemable Preferred
Stock, to the Consolidated Financial Statements in this
Form 10-Q).
40
REVLON,
INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS
(all tabular amounts in millions, except share and per share
amounts)
Each of the 2010 Credit Facilities contains various restrictive
covenants prohibiting Products Corporation and its subsidiaries
from:
(i) incurring additional indebtedness or guarantees, with
certain exceptions;
(ii) making dividend and other payments or loans to Revlon,
Inc. or other affiliates, with certain exceptions, including
among others:
(a) exceptions permitting Products Corporation to pay
dividends or make other payments to Revlon, Inc. to enable it
to, among other things, pay expenses incidental to being a
public holding company, including, among other things,
professional fees such as legal, accounting and insurance fees,
regulatory fees, such as SEC filing fees and NYSE listing fees,
and other expenses related to being a public holding company;
(b) subject to 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 Third Amended and Restated Revlon, Inc.
Stock Plan
and/or the
payment of withholding taxes in connection with the vesting of
restricted stock awards under such plan;
(c) subject to certain limitations, to pay dividends or
make other payments to finance the purchase, redemption or other
retirement for value by Revlon, Inc. of stock or other equity
interests or equivalents in Revlon, Inc. held by any current or
former director, employee or consultant in his or her capacity
as such; and
(d) subject to certain limitations, to make other
restricted payments to affiliates of Products Corporation in
amounts up to $5.0 million per year ($10.0 million in
2010), other restricted payments in an aggregate amount not to
exceed $20.0 million and other restricted payments based
upon certain financial tests.
(iii) creating liens or other encumbrances on Products
Corporations or its subsidiaries assets or revenues,
granting negative pledges or selling or transferring any of
Products Corporations or its subsidiaries assets,
all subject to certain limited exceptions;
(iv) with certain exceptions, engaging in merger or
acquisition transactions;
(v) prepaying indebtedness and modifying the terms of
certain indebtedness and specified material contractual
obligations, subject to certain exceptions;
(vi) making investments, subject to certain
exceptions; and
(vii) entering into transactions with affiliates of
Products Corporation involving aggregate payments or
consideration in excess of $10.0 million other than upon
terms that are not materially less favorable when taken as a
whole to Products Corporation or its subsidiaries as terms that
would be obtainable at the time for a comparable transaction or
series of similar transactions in arms length dealings
with an unrelated third person and where such payments or
consideration exceed $20.0 million, unless such transaction
has been approved by all of the independent directors of
Products Corporation, subject to certain exceptions.
The events of default under each of the 2010 Credit Facilities
include customary events of default for such types of
agreements, including, among others:
(i) nonpayment of any principal, interest or other fees
when due, subject in the case of interest and fees to a grace
period;
41
REVLON,
INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS
(all tabular amounts in millions, except share and per share
amounts)
(ii) non-compliance with the covenants in such 2010 Credit
Facilities or the ancillary security documents, subject in
certain instances to grace periods;
(iii) the institution of any bankruptcy, insolvency or
similar proceedings by or against Products Corporation, any of
Products Corporations subsidiaries or Revlon, Inc.,
subject in certain instances to grace periods;
(iv) default by Revlon, Inc. or any of its subsidiaries
(A) in the payment of certain indebtedness when due
(whether at maturity or by acceleration) in excess of
$25.0 million in aggregate principal amount or (B) in
the observance or performance of any other agreement or
condition relating to such debt, provided that the amount of
debt involved is in excess of $25.0 million in aggregate
principal amount, or the occurrence of any other event, the
effect of which default referred to in this subclause (iv)
is to cause or permit the holders of such debt to cause the
acceleration of payment of such debt;
(v) in the case of the 2010 Term Loan Facility, a cross
default under the 2010 Revolving Credit Facility, and in the
case of the 2010 Revolving Credit Facility, a cross default
under the 2010 Term Loan Facility;
(vi) the failure by Products Corporation, certain of
Products Corporations subsidiaries or Revlon, Inc. to pay
certain material judgments;
(vii) a change of control such that (A) Revlon, Inc.
shall cease to be the beneficial and record owner of 100% of
Products Corporations capital stock, (B) Ronald O.
Perelman (or his estate, heirs, executors, administrator or
other personal representative) and his or their controlled
affiliates shall cease to control Products
Corporation, and any other person or group of persons owns,
directly or indirectly, more than 35% of the total voting power
of Products Corporation, (C) any person or group of persons
other than Ronald O. Perelman (or his estate, heirs, executors,
administrator or other personal representative) and his or their
controlled affiliates shall control Products
Corporation or (D) during any period of two consecutive
years, the directors serving on Products Corporations
Board of Directors at the beginning of such period (or other
directors nominated by at least a majority of such continuing
directors) shall cease to be a majority of the directors;
(viii) Revlon, Inc. shall have any meaningful assets or
indebtedness or shall conduct any meaningful business other than
its ownership of Products Corporation and such activities as are
customary for a publicly traded holding company which is not
itself an operating company, in each case subject to limited
exceptions; and
(ix) the failure of certain of Products Corporations
affiliates which hold Products Corporations or its
subsidiaries indebtedness to be party to a valid and
enforceable agreement prohibiting such affiliate from demanding
or retaining payments in respect of such indebtedness, subject
to certain exceptions, including exceptions as to Products
Corporations Senior Subordinated Term Loan.
If Products Corporation is in default under the senior secured
leverage ratio under the 2010 Term Loan Facility or the
consolidated fixed charge coverage ratio under the 2010
Revolving Credit Facility, Products Corporation may cure such
default by issuing certain equity securities to, or receiving
capital contributions from, Revlon, Inc. and applying such cash
which is deemed to increase EBITDA for the purpose of
calculating the applicable ratio. This cure right may be
exercised by Products Corporation two times in any four-quarter
period.
Products Corporation was in compliance with all applicable
covenants under the 2010 Credit Agreements upon closing the 2010
Refinancing and as of March 31, 2010. At March 31,
2010, the aggregate principal amount outstanding under the 2010
Term Loan Facility was $800.0 million and availability
under the
42
REVLON,
INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS
(all tabular amounts in millions, except share and per share
amounts)
$140.0 million 2010 Revolving Credit Facility, based upon
the calculated borrowing base less $21.8 million of
outstanding undrawn letters of credit and $10.5 million
then drawn on the 2010 Revolving Credit Facility, was
$87.2 million.
2006
Bank Credit Agreements
Prior to the 2010 Refinancing, under the 2006 Term Loan
Facility, Products Corporation, (i) in January 2009 made a
required quarterly amortization payment of $2.1 million and
(ii) in February 2009 repaid $16.6 million in
principal amount, satisfying the requirement under the 2006 Term
Loan Agreement to repay term loan indebtedness with 50% of its
2008 excess cash flow (as defined under such
agreement).
93/4% Senior
Secured Notes due 2015
For detail regarding the
93/4% Senior
Secured Notes, due November 2015, see Note 9,
Long-Term Debt and Redeemable Preferred Stock, to
the Consolidated Financial Statements in Revlon, Inc.s
2009
Form 10-K.
Products Corporation was in compliance with all applicable
covenants under its
93/4% Senior
Secured Notes as of March 31, 2010.
Senior
Subordinated Term Loan
For detail regarding Products Corporations Senior
Subordinated Term Loan from MacAndrews & Forbes (the
Senior Subordinated Term Loan), consisting of
(i) the $48.6 million of the $107.0 million
aggregate outstanding principal amount of the Senior
Subordinated Term Loan that was contributed to Revlon, Inc. by
MacAndrews & Forbes (the Contributed
Loan), which matures on October 8, 2013 and
(ii) the $58.4 million principal amount of the Senior
Subordinated Term Loan which remains owing from Products
Corporation to MacAndrews & Forbes (the
Non-Contributed Loan), which matures on
October 8, 2014. (See Note 9, Long-Term Debt and
Redeemable Preferred Stock, to the Consolidated Financial
Statements in Revlon, Inc.s 2009
Form 10-K.)
Interest
Rate Swap Transaction
As of March 31, 2010, the Company had one
floating-to-fixed
interest rate swap transaction, which expired in April 2010,
with a notional amount of $150.0 million initially relating
to indebtedness under Products Corporations former 2006
Term Loan Facility (prior to its complete refinancing in March
2010) and which also related through its expiration in
April 2010 to a notional amount of $150.0 million relating
to indebtedness under Products Corporations 2010 Term Loan
Facility (the 2008 Interest Rate Swap). Under the
terms of the 2008 Interest Rate Swap, Products Corporation was
required to pay to the counterparty a quarterly fixed interest
rate of 2.66% on the $150.0 million notional amount under
the 2008 Interest Rate Swap (which, based upon the 4.0%
applicable margin, effectively fixed the interest rate on such
notional amounts at 6.66% for the
2-year term
of such swap), commencing in July 2008, while receiving a
variable interest rate payment from the counterparty equal to
three-month U.S. dollar LIBOR, which was approximately
0.25% on the latest receipt date, or January 19, 2010.
As of March 31, 2010, the fair value of the 2008 Interest
Swap was $(0.9) million. The 2008 Interest Rate Swap was
initially designated as a cash flow hedge of the variable
interest rate payments on Products Corporations former
2006 Term Loan Facility (prior to its complete refinancing in
March 2010) under the Derivatives and Hedging Topic of the
FASB Accounting Standards Codification (the Derivatives
and Hedging Topic). However, as a result of the 2010
Refinancing, effective March 11, 2010 (the closing date of
the 2010 Refinancing), the 2008 Interest Rate Swap no longer met
the criteria specified under the Derivatives and Hedging Topic
to allow for the deferral of the effective portion of
unrecognized hedging gains or losses in other
43
REVLON,
INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS
(all tabular amounts in millions, except share and per share
amounts)
comprehensive income as the scheduled variable interest payment
specified on the date originally documented at the inception of
the hedge will not occur. As a result, as of March 11,
2010, the Company reclassified an unrecognized loss of
$0.8 million from Accumulated Other Comprehensive Loss into
earnings.
Impact
of Foreign Currency Translation
Venezuela
Highly-Inflationary Economy: Effective
January 1, 2010, Venezuela has been designated as a highly
inflationary economy under U.S. GAAP. As a result,
beginning January 1, 2010, the U.S. dollar is the
functional currency for the Companys subsidiary in
Venezuela. Through December 31, 2009, prior to Venezuela
being designated as highly inflationary, currency translation
adjustments of Revlon Venezuelas balance sheet were
reflected in shareholders equity as part of Other
Comprehensive Income; however subsequent to January 1,
2010, such adjustments are reflected in earnings.
Currency Devaluation: On January 8, 2010,
the Venezuelan government announced the devaluation of its local
currency (Bolivars) relative to the
U.S. dollar. The official exchange rate for non-essential
goods has changed from 2.15 to 4.30. The Company uses
Venezuelas official rate to translate the financial
statements of Revlon Venezuela. In the first quarter of 2010 the
devaluation had the impact of reducing reported net sales and
operating income by $5.4 million and $1.9 million,
respectively. Additionally, to reflect the impact of the
currency devaluation, a one-time foreign currency loss of
$2.8 million was recorded in January 2010 as a result of
the required re-measurement of Revlon Venezuelas balance
sheet. As Venezuela has been designated as a highly inflationary
economy effective January 1, 2010, this foreign currency
loss was reflected in earnings in the first quarter of 2010.
Sources
and Uses
The Companys principal sources of funds are expected to be
operating revenues, cash on hand and funds available for
borrowing under the 2010 Revolving Credit Facility and other
permitted lines of credit. The 2010 Credit Agreements, the
indenture governing Products Corporations
93/4% Senior
Secured Notes and the Senior Subordinated Term Loan Agreement
contain certain provisions that by their terms limit Products
Corporation and its subsidiaries ability to, among other
things, incur additional debt.
The Companys principal uses of funds are expected to be
the payment of operating expenses, including expenses in
connection with the continued execution of the Companys
business strategy, purchases of permanent wall displays, capital
expenditure requirements, payments in connection with the
Companys restructuring programs, severance not otherwise
included in the Companys restructuring programs, debt
service payments and costs, debt repurchases and regularly
scheduled pension and post-retirement benefit plan contributions
and benefit payments. The Companys cash contributions to
its pension and post-retirement benefit plans in the first
quarter of 2010 were $5.8 million. In accordance with the
minimum pension contributions required under the Employee
Retirement Income Security Act of 1974, as amended by the
Pension Protection Act of 2006 and as amended by the Worker,
Retiree and Employer Recovery Act of 2008, the Company expects
cash contributions to its pension and post-retirement benefit
plans to be approximately $25 million in the aggregate for
full year 2010. The Companys purchases of permanent wall
displays and capital expenditures in the first quarter of 2010
were $10.7 million and $3.3 million, respectively. The
Company expects purchases of permanent wall displays and capital
expenditures in the aggregate for full year 2010 to be
approximately $40 million and $20 million,
respectively, inclusive of amounts expended in the first quarter
of 2010. (See Restructuring Costs and Other, Net,
above in this
Form 10-Q
for discussion of the Companys expected uses of funds in
connection with its various restructuring programs.)
44
REVLON,
INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS
(all tabular amounts in millions, except share and per share
amounts)
The Company has undertaken, and continues to assess, refine and
implement, a number of programs to efficiently manage its cash
and working capital, including, among other things, programs
intended to reduce inventory levels over time; centralized
purchasing to secure discounts and efficiencies in procurement;
providing discounts to U.S. customers for more timely
payment of receivables; prudent management of accounts payable;
and targeted controls on general and administrative spending.
Continuing to execute the Companys business strategy could
include taking advantage of additional opportunities to
reposition, repackage or reformulate one or more brands or
product lines, launching additional new products, acquiring
businesses or brands, further refining the Companys
approach to retail merchandising
and/or
taking further actions to optimize its manufacturing, sourcing
and organizational size and structure. Any of these actions,
whose intended purpose would be to create value through
profitable growth, could result in the Company making
investments
and/or
recognizing charges related to executing against such
opportunities.
The Company may also, from time to time, seek to retire or
purchase its outstanding debt obligations in open market
purchases, in privately negotiated transactions or otherwise and
may seek to refinance some or all of its indebtedness based upon
market conditions. Any retirement or purchase of debt may be
funded with operating cash flows of the business or other
sources and will depend upon prevailing market conditions,
liquidity requirements, contractual restrictions and other
factors, and the amounts involved may be material.
The Company expects that operating revenues, cash on hand and
funds available for borrowing under the 2010 Revolving Credit
Facility and other permitted lines of credit will be sufficient
to enable the Company to cover its operating expenses for 2010,
including cash requirements in connection with the payment of
operating expenses, including expenses in connection with the
execution of the Companys business strategy, purchases of
permanent wall displays, capital expenditure requirements,
payments in connection with the Companys restructuring
programs (including, without limitation, the 2008 Programs and
the 2009 Programs), severance not otherwise included in the
Companys restructuring programs, debt service payments and
costs, debt repurchases and regularly scheduled pension and
post-retirement plan contributions and benefit payments.
There can be no assurance that available funds will be
sufficient to meet the Companys cash requirements on a
consolidated basis. If the Companys anticipated level of
revenues is not achieved because of, among other things,
decreased consumer spending in response to weak economic
conditions or weakness in the cosmetics category in the mass
retail channel; adverse changes in currency exchange rates;
decreased sales of the Companys products as a result of
increased competitive activities by the Companys
competitors; changes in consumer purchasing habits, including
with respect to shopping channels; retailer inventory
management, retailer space reconfigurations or reductions in
retailer display space; changes in retailer pricing or
promotional strategies; or less than anticipated results from
the Companys existing or new products or from its
advertising, promotional
and/or
marketing plans; or if the Companys expenses, including,
without limitation, for pension expense under its benefit plans,
advertising, promotional and marketing activities or for sales
returns related to any reduction of retail space, product
discontinuances or otherwise, exceed the anticipated level of
expenses, the Companys current sources of funds may be
insufficient to meet the Companys cash requirements.
Any such developments, if significant, could reduce the
Companys revenues and could adversely affect Products
Corporations ability to comply with certain financial
covenants under the 2010 Credit Agreements and in such event the
Company could be required to take measures, including, among
other things, reducing discretionary spending. (See also
Item 1A. Risk Factors in Revlon, Inc.s
2009
Form 10-K
for further discussion of certain risks associated with the
Companys business and indebtedness.)
45
REVLON,
INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS
(all tabular amounts in millions, except share and per share
amounts)
If the Company is unable to satisfy its cash requirements from
the sources identified above or comply with its debt covenants,
the Company could be required to adopt one or more of the
following alternatives:
|
|
|
|
|
delaying the implementation of or revising certain aspects of
the Companys business strategy;
|
|
|
|
reducing or delaying purchases of wall displays or advertising,
promotional or marketing expenses;
|
|
|
|
reducing or delaying capital spending;
|
|
|
|
delaying, reducing or revising the Companys restructuring
programs;
|
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|
|
refinancing Products Corporations indebtedness;
|
|
|
|
selling assets or operations;
|
|
|
|
seeking additional capital contributions
and/or loans
from MacAndrews & Forbes, the Companys other
affiliates
and/or third
parties;
|
|
|
|
selling additional Revlon, Inc. equity securities or debt
securities of Revlon, Inc. or Products Corporation; or
|
|
|
|
reducing other discretionary spending.
|
There can be no assurance that the Company would be able to take
any of the actions referred to above because of a variety of
commercial or market factors or constraints in Products
Corporations debt instruments, including, without
limitation, market conditions being unfavorable for an equity or
debt issuance, additional capital contributions
and/or loans
not being available from affiliates
and/or third
parties, or that the transactions may not be permitted under the
terms of Products Corporations various debt instruments
then in effect, such as due to restrictions on the incurrence of
debt, incurrence of liens, asset dispositions and related party
transactions. In addition, such actions, if taken, may not
enable the Company to satisfy its cash requirements or enable
Products Corporation to comply with its debt covenants if the
actions do not generate a sufficient amount of additional
capital. (See also Item 1A. Risk Factors in
Revlon, Inc.s 2009
Form 10-K
for further discussion of certain risks associated with the
Companys business and indebtedness.)
Revlon, Inc. expects that the payment of the quarterly dividends
on its Preferred Stock will be funded by cash interest payments
to be received by Revlon, Inc. from Products Corporation on the
Contributed Loan, subject to Revlon, Inc. having sufficient
surplus or net profits in accordance with Delaware law.
Additionally, Revlon, Inc. expects to pay the liquidation
preference of the Preferred Stock on October 8, 2013 with
the cash payment to be received by Revlon, Inc. from Products
Corporation in respect of the maturity of the principal amount
outstanding under the Contributed Loan, subject to Revlon, Inc.
having sufficient surplus in accordance with Delaware law. The
payment of such interest and principal under the Contributed
Loan to Revlon, Inc. by Products Corporation is permissible
under the 2010 Credit Agreements, the Senior Subordinated Term
Loan Agreement and the
93/4% Senior
Secured Notes Indenture.
In accordance with the terms of the certificate of designation
of the Preferred Stock, on January 8, 2010, Revlon, Inc.
paid to holders of record of the Preferred Stock at the close of
business on December 28, 2009 the Regular Dividend in the
amount of $0.167434 per share for the period from
October 8, 2009 through and including January 8, 2010.
In addition, on April 8, 2010, Revlon, Inc. paid to holders
of record of the Preferred Stock at the close of business on
March 26, 2010 the Regular Dividend in the amount of
$0.163794 per share for the period from January 8, 2010
through and including April 8, 2010. As of March 31,
2010, the Company accrued $1.4 million in interest expense
related to the quarterly Regular Dividend on the Preferred Stock
which was paid in April 2010.
46
REVLON,
INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS
(all tabular amounts in millions, except share and per share
amounts)
Products Corporation enters into foreign currency forward
exchange contracts and option contracts from time to time to
hedge certain net cash flows denominated in currencies other
than the local currencies of the Companys foreign and
domestic operations. The foreign currency forward exchange
contracts are entered into primarily for the purpose of hedging
anticipated inventory purchases and certain intercompany
payments denominated in currencies other than the local
currencies of the Companys foreign and domestic operations
and generally have maturities of less than one year. There were
foreign currency forward exchange contracts with a notional
amount of $37.5 million outstanding at March 31, 2010.
The fair value of foreign currency forward exchange contracts
outstanding at March 31, 2010 was $(0.9) million.
Disclosures
about Contractual Obligations and Commercial
Commitments
As of March 31, 2010, there had been no material changes to
the Companys total contractual cash obligations, as set
forth in the contractual obligations and commercial commitments
table included in Revlon, Inc.s 2009
Form 10-K,
other than those entered into in connection with consummating
the 2010 Refinancing.
The following table reflects the impact of the 2010 Refinancing
on the Companys long-term debt obligations:
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|
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Payments Due by Period
|
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|
|
(dollars in millions)
|
Contractual Obligations
|
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|
|
2010
|
|
|
|
|
|
|
As of March 31, 2010
|
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|
Total
|
|
Q2-Q4
|
|
2011-2012
|
|
2013-2014
|
|
After 2014
|
Long-term debt, including current
portion(a)
|
|
|
$
|
1,140.5
|
|
|
$
|
6.0
|
|
|
$
|
16.0
|
|
|
$
|
26.5
|
|
|
$
|
1,092.0
|
|
Interest on long-term
debt(b)
|
|
|
|
428.9
|
|
|
|
69.1
|
|
|
|
160.6
|
|
|
|
158.2
|
|
|
|
41.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
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(a) |
|
The Company classified $18.5 million of long-term debt as a
current liability, which includes the $10.5 million drawn
on the 2010 Revolving Credit Facility at March 31, 2010.
Although the Company expects to temporarily repay the
$10.5 million of borrowings under the 2010 Revolving Credit
Facility during 2010, the Company is not contractually obligated
to repay such amount until March 11, 2014, which is the
maturity date of the 2010 Revolving Credit Facility. |
|
(b) |
|
Consists of interest primarily on the $330.0 million in
aggregate principal amount of the
93/4% Senior
Secured Notes and on the $800.0 million in aggregate
principal amount outstanding under the 2010 Term Loan Facility
through the respective maturity dates based upon assumptions
regarding the amount of debt outstanding under the 2010 Credit
Facilities and assumed interest rates. |
Off-Balance
Sheet Transactions
The Company does not maintain any off-balance sheet
transactions, arrangements, obligations or other relationships
with unconsolidated entities or others that are reasonably
likely to have a material current or future effect on the
Companys financial condition, changes in financial
condition, revenues or expenses, results of operations,
liquidity, capital expenditures or capital resources.
Discussion
of Critical Accounting Policies
For a discussion of the Companys critical accounting
policies, see Revlon, Inc.s 2009
Form 10-K.
47
REVLON,
INC. AND SUBSIDIARIES
(all tabular amounts in millions, except per share
amounts)
|
|
Item 3.
|
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 Companys policy is to manage market
risk through a combination of fixed and floating rate debt, the
use of foreign exchange forward contracts, interest rate swap
transactions 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 Revlon, Inc.s 2009
Form 10-K
(Item 7A) describes significant aspects of the
Companys financial instrument programs that have material
market risk as of December 31, 2009. The following table
presents the information required by Item 7A as of
March 31, 2010:
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|
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|
|
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|
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|
|
|
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|
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|
|
|
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|
|
|
|
|
|
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|
|
|
Expected Maturity Date for the year ended
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
Fair Value
|
|
|
|
(dollars in millions, except for rate information)
|
|
|
|
|
|
March 31,
|
|
Debt
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
Thereafter
|
|
|
Total
|
|
|
2010
|
|
|
Short-term variable rate (various currencies)
|
|
$
|
2.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2.1
|
|
|
$
|
2.1
|
|
Average interest
rate(a)
|
|
|
8.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term fixed rate third party ($US)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
48.6
|
(b)
|
|
|
|
|
|
$
|
330.0
|
|
|
|
378.6
|
|
|
|
389.0
|
|
Average interest rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12.75
|
%
|
|
|
|
|
|
|
9.75
|
%
|
|
|
|
|
|
|
|
|
Long-term fixed rate affiliates ($US)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
58.4
|
(c)
|
|
|
|
|
|
|
58.4
|
|
|
|
56.4
|
|
Average interest rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term variable rate third party ($US)
|
|
|
16.5
|
|
|
$
|
8.0
|
|
|
$
|
8.0
|
|
|
|
8.0
|
|
|
|
8.0
|
|
|
|
762.0
|
|
|
|
810.5
|
|
|
|
803.5
|
|
Average interest
rate(a)(d)
|
|
|
4.4
|
%
|
|
|
6.0
|
%
|
|
|
6.2
|
%
|
|
|
6.6
|
%
|
|
|
6.7
|
%
|
|
|
7.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
$
|
18.6
|
|
|
$
|
8.0
|
|
|
$
|
8.0
|
|
|
$
|
56.6
|
|
|
$
|
66.4
|
|
|
$
|
1,092.0
|
|
|
$
|
1,249.6
|
|
|
$
|
1,251.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Weighted average variable rates are based upon implied forward
rates from the U.S. Dollar LIBOR yield curves at March 31,
2010. |
|
(b) |
|
Represents the $48.6 million to be paid by Revlon, Inc. at
maturity for the Preferred Stock issued in the voluntary
exchange offer consummated in October 2009 (i.e., the earlier of
(i) October 8, 2013 and (ii) the consummation of
certain change of control transactions), subject to Revlon, Inc.
having sufficient surplus in accordance with Delaware law to
effect such payments. Annual cash dividends of 12.75% on the
Preferred Stock are payable quarterly over the four-year term of
the Preferred Stock, subject to Revlon, Inc. having sufficient
surplus or net profits in accordance with Delaware law to effect
such payments. |
|
(c) |
|
Represents the aggregate principal amount outstanding of the
Non-Contributed Loan as of March 31, 2010 which loan
matures on October 8, 2014 and bears interest at an annual
rate of 12%, which is payable in arrears in cash on
January 8, April 8, July 8, and October 8 of each
year. |
|
(d) |
|
Based upon the implied forward rate from the U.S. Dollar LIBOR
yield curve at March 31, 2010, this reflects the impact of
the 2008 Interest Rate Swap, covering $150.0 million
notional amount under the former 2006 Term Loan Facility through
the 2010 Refinancing and thereafter under the 2010 Term Loan
Facility, which resulted in an effective weighted average
interest rate of 7.1% at March 31, 2010. The 2010 Term Loan
Facility bears interest at the Eurodollar Rate (as defined in
the 2010 Term Loan Agreement) plus 4.00% per annum (provided
that in no event shall the Eurodollar Rate be less than 2.00%
per annum). |
48
REVLON,
INC. AND SUBSIDIARIES
(all tabular amounts in millions, except per share
amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Original
|
|
|
Contract
|
|
|
|
|
|
|
Contractual
|
|
|
US Dollar
|
|
|
Value
|
|
|
Fair Value
|
|
|
|
Rate
|
|
|
Notional
|
|
|
March 31,
|
|
|
March 31,
|
|
Forward Contracts
|
|
$/FC
|
|
|
Amount
|
|
|
2010
|
|
|
2010
|
|
|
Sell Canadian Dollars /Buy USD
|
|
|
0.9440
|
|
|
$
|
13.8
|
|
|
$
|
13.2
|
|
|
$
|
(0.6
|
)
|
Sell Australian Dollars/Buy USD
|
|
|
0.8652
|
|
|
|
8.7
|
|
|
|
8.3
|
|
|
|
(0.4
|
)
|
Sell British Pounds/Buy USD
|
|
|
1.5671
|
|
|
|
6.4
|
|
|
|
6.6
|
|
|
|
0.2
|
|
Sell South African Rand/Buy USD
|
|
|
0.1279
|
|
|
|
4.4
|
|
|
|
4.2
|
|
|
|
(0.2
|
)
|
Buy Australian Dollars/Sell New Zealand Dollars
|
|
|
1.2554
|
|
|
|
2.9
|
|
|
|
3.0
|
|
|
|
0.1
|
|
Sell Euros/Buy USD
|
|
|
1.4025
|
|
|
|
0.2
|
|
|
|
0.2
|
|
|
|
|
|
Sell New Zealand Dollars/Buy USD
|
|
|
0.7032
|
|
|
|
0.7
|
|
|
|
0.7
|
|
|
|
|
|
Sell Hong Kong Dollars/Buy USD
|
|
|
0.1288
|
|
|
|
0.4
|
|
|
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total forward contracts
|
|
|
|
|
|
$
|
37.5
|
|
|
$
|
36.6
|
|
|
$
|
(0.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected Maturity date for
|
|
|
Fair Value
|
|
|
|
the year ended December 31,
|
|
|
March 31,
|
|
Interest Rate Swap
Transaction(a)
|
|
2010
|
|
Total
|
|
|
2010
|
|
|
Notional Amount
|
|
$150.0
|
|
$
|
150.0
|
|
|
$
|
(0.9
|
)
|
Average Pay Rate
|
|
2.66%(b)
|
|
|
|
|
|
|
|
|
Average Receive Rate
|
|
3-month USD
LIBOR(b)
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
As of March 31, 2010, the Company had one
floating-to-fixed
interest rate swap, which expired on April 16, 2010, with a
notional amount of $150.0 million initially relating to
indebtedness under Products Corporations former 2006 Term
Loan Facility (prior to its complete refinancing in March 2010)
and which also related through its expiration in April 2010 to a
notional amount of $150.0 million relating to indebtedness
under Products Corporations 2010 Term Loan Facility. The
2008 Interest Rate Swap was initially designated as a cash flow
hedge of the variable interest rate payments on Products
Corporations former 2006 Term Loan Facility (prior to its
complete refinancing in March 2010) under the Derivatives and
Hedging Topic. However, as a result of the 2010 Refinancing,
effective March 11, 2010 (the closing date of the 2010
Refinancing), the 2008 Interest Rate Swap no longer met the
criteria specified under the Derivatives and Hedging Topic to
allow for the deferral of the effective portion of unrecognized
hedging gains or losses in other comprehensive income since the
scheduled variable interest payment specified on the date
originally documented at the inception of the hedge will not
occur. (See Financial Condition, Liquidity and Capital
Resources Interest Rate Swap Transaction in
this Form 10-Q.) |
|
(b) |
|
Under the terms of the 2008 Interest Rate Swap, Products
Corporation was required to pay to the counterparty a quarterly
fixed interest rate of 2.66% on the $150.0 million notional
amount (which, based upon the 4.0% applicable margin,
effectively fixed the interest rate on such notional amount at
6.66% for the
2-year term
of the swap), which commenced in July 2008, while receiving a
variable interest rate payment from the counterparty equal to
the three-month U.S. dollar LIBOR, which was approximately 0.25%
on the latest receipt date, or January 19, 2010. |
49
REVLON,
INC. AND SUBSIDIARIES
|
|
Item 4.
|
Controls
and Procedures
|
(a) Disclosure Controls and
Procedures. The Company maintains disclosure
controls and procedures that are designed to ensure that
information required to be disclosed in the Companys
reports under the Securities Exchange Act of 1934, as amended,
is recorded, processed, summarized and reported within the time
periods specified in the SECs rules and forms, and that
such information is accumulated and communicated to management,
including the Companys Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow timely decisions
regarding required disclosure. The Companys management,
with the participation of the Companys Chief Executive
Officer and Chief Financial Officer, has evaluated the
effectiveness of the Companys disclosure controls and
procedures as of the end of the three-month period covered by
this Quarterly Report on
Form 10-Q.
Based upon such evaluation, the Chief Executive Officer and
Chief Financial Officer have concluded that, as of the end of
such period, the Companys disclosure controls and
procedures were effective.
(b) Changes in Internal Control Over Financial
Reporting. There have not been any changes in
the Companys internal control over financial reporting
during the first quarter of 2010 that have materially affected,
or are reasonably likely to materially affect, the
Companys internal control over financial reporting.
Forward-Looking
Statements
This Quarterly Report on
Form 10-Q
for the quarter ended March 31, 2010, as well as other
public documents and statements of the Company, contain
forward-looking statements that involve risks and uncertainties,
which are based on the beliefs, expectations, estimates,
projections, assumptions, forecasts, plans, anticipations,
targets, outlooks, initiatives, visions, objectives, strategies,
opportunities, drivers, focus and intents of the Companys
management. While the Company believes that its estimates and
assumptions are reasonable, the Company cautions that it is very
difficult to predict the impact of known factors, and, of
course, it is impossible for the Company to anticipate all
factors that could affect its results. The Companys actual
results may differ materially from those discussed in such
forward-looking statements. Such statements include, without
limitation, the Companys expectations and estimates
(whether qualitative or quantitative) as to:
|
|
|
|
(i)
|
the Companys future financial performance;
|
|
|
(ii)
|
the effect on sales of decreased consumer spending in response
to weak economic conditions or weakness in the cosmetics
category in the mass retail channel; adverse changes in currency
exchange rates; decreased sales of the Companys products
as a result of increased competitive activities by the
Companys competitors, changes in consumer purchasing
habits, including with respect to shopping channels; retailer
inventory management; retailer space reconfigurations or
reductions in retailer display space; changes in retailer
pricing or promotional strategies; less than anticipated results
from the Companys existing or new products or from its
advertising, promotional
and/or
marketing plans; or if the Companys expenses, including,
without limitation, for pension expense under its benefit plans,
advertising, promotional and marketing activities or for sales
returns related to any reduction of retail space, product
discontinuances or otherwise, exceed the anticipated level of
expenses;
|
|
|
(iii)
|
the Companys belief that the continued execution of its
business strategy could include taking advantage of additional
opportunities to reposition, repackage or reformulate one or
more brands or product lines, launching additional new products,
acquiring businesses or brands, further refining its approach to
retail merchandising
and/or
taking further actions to optimize its manufacturing, sourcing
and organizational size and structure, any of which, whose
intended purpose would be to create value through profitable
growth, could result in the Company making investments
and/or
recognizing charges related to executing against such
opportunities;
|
50
REVLON,
INC. AND SUBSIDIARIES
|
|
|
|
(iv)
|
our expectations regarding our strategic goal to profitably grow
our business and as to the business strategies employed to
achieve this goal, which are: (a) continuing to build our
strong brands by focusing on innovative, high-quality,
consumer-preferred brand offering; effective consumer brand
communication; appropriate levels of advertising and promotion;
and superb execution with our retail partners;
(b) continuing to develop our organizational capability
through attracting, retaining and rewarding highly capable
people and through performance management, development planning,
succession planning and training; (c) continuing to drive
common global processes which are designed to provide the most
efficient allocation of our resources; (d) continuing to
focus on increasing our operating profit and cash flow; and
(e) continuing to improve our capital structure by focusing
on strengthening our balance sheet and reducing debt;
|
|
|
(v)
|
restructuring activities, restructuring costs and charges, the
timing of restructuring payments and the benefits from such
activities, including, without limitation, our expectation of
annualized savings of approximately $30 million in 2010 and
thereafter (inclusive of the approximately $15 million in
2009) from the May 2009 Program;
|
|
|
(vi)
|
the Companys expectation that operating revenues, cash on
hand and funds available for borrowing under Products
Corporations 2010 Revolving Credit Facility and other
permitted lines of credit will be sufficient to enable the
Company to cover its operating expenses for 2010, including the
cash requirements referred to in item (viii) below;
|
|
|
(vii)
|
the Companys expected principal sources of funds,
including operating revenues, cash on hand and funds available
for borrowing under Products Corporations 2010 Revolving
Credit Facility and other permitted lines of credit, as well as
the availability of funds from refinancing Products
Corporations indebtedness, selling assets or operations,
capital contributions
and/or loans
from MacAndrews & Forbes, the Companys other
affiliates
and/or third
parties
and/or the
sale of additional equity securities of Revlon, Inc. or
additional debt securities of Revlon, Inc. or Products
Corporation;
|
|
|
(viii)
|
the Companys expected principal uses of funds, including
amounts required for the payment of operating expenses,
including expenses in connection with the continued execution of
the Companys business strategy, payments in connection
with the Companys purchases of permanent wall displays,
capital expenditure requirements, restructuring programs,
severance not otherwise included in the Companys
restructuring programs, debt service payments and costs, debt
repurchases (including, without limitation, that the Company may
also, from time to time, seek to retire or purchase its
outstanding debt obligations in open market purchases, in
privately negotiated transactions or otherwise and may seek to
refinance some or all of its indebtedness based upon market
conditions) and regularly scheduled pension and post-retirement
benefit plan contributions and benefit payments, and its
estimates of the amount and timing of its operating expenses,
restructuring costs and payments, severance costs and payments,
debt service payments (including payments required under
Products Corporations debt instruments), debt repurchases,
cash contributions to the Companys pension plans and its
other post-retirement benefit plans and benefit payments in
2010, purchases of permanent wall displays and capital
expenditures;
|
|
|
(ix)
|
matters concerning the Companys market-risk sensitive
instruments, including the Companys expectations as to the
counterpartys performance, including that any loss arising
from the non-performance by the counterparty would not be
material;
|
|
|
(x)
|
the Companys plan to efficiently manage its cash and
working capital, including, among other things, programs to
reduce inventory levels over time; centralized purchasing to
secure discounts and efficiencies in procurement; providing
discounts to U.S. customers for more timely
|
51
REVLON,
INC. AND SUBSIDIARIES
payment of receivables; prudent management of accounts payable
and targeted controls on general and administrative spending;
|
|
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|
(xi)
|
the Companys expectations regarding its future pension
expense, cash contributions and benefit payments under its
benefit plans;
|
|
|
(xii)
|
the Companys expectation that the payment of the quarterly
dividends on the Preferred Stock will be funded by cash interest
payments to be received by Revlon, Inc. from Products
Corporation on the Contributed Loan, subject to Revlon, Inc.
having sufficient surplus or net profits in accordance with
Delaware law, and its expectation of paying the liquidation
preference of the Preferred Stock on October 8, 2013 with
the cash payment to be received by Revlon, Inc. from Products
Corporation in respect of the maturity of the Contributed Loan,
subject to Revlon, Inc. having sufficient surplus in accordance
with Delaware law;
|
|
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(xiii)
|
the Companys expectations that interest expense throughout
the remainder of 2010 will be impacted by higher weighted
average borrowing rates as a result of the 2010 Refinancing;
|
|
|
(xiv)
|
the Companys expectations that consistent with the
Companys business strategy to build our strong brands, the
Company currently intends to support its brands with increased
advertising spending (as defined in Revlon, Inc.s 2009
Form 10-K) in the second quarter of 2010, as compared to
the second quarter of 2009; and
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|
|
(xv)
|
the Companys expectations to temporarily repay the
$10.5 million of borrowings drawn at March 31, 2010
under the 2010 Revolving Credit Facility during 2010.
|
Statements that are not historical facts, including statements
about the Companys 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 estimates, objectives,
visions, projects,
forecasts, focus, drive
towards, plans, targets,
strategies, opportunities,
assumptions, drivers,
believes, intends, outlooks,
initiatives, expects, scheduled
to, anticipates, seeks,
may, will or should or the
negative of those terms, or other variations of those terms or
comparable language, or by discussions of strategies, targets,
long-range plans, models or intentions. Forward-looking
statements speak only as of the date they are made, and except
for the Companys ongoing obligations 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 Revlon, Inc. made or may make in its 2009
Form 10-K,
and in its Quarterly Reports on
Form 10-Q
and Current Reports on
Form 8-K,
in each case filed with the SEC in 2010 (which, among other
places, can be found on the SECs website at
http://www.sec.gov,
as well as on the Companys corporate website at
www.revloninc.com). Except as expressly set forth in this
Form 10-Q,
the information available from time to time on such websites
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. (See also Item 1A. Risk Factors in
Revlon, Inc.s 2009
Form 10-K
for further discussion of risks associated with the
Companys business.) In addition to factors that may be
described in the Companys filings with the SEC, including
this filing, the following factors, among others, could cause
the Companys actual results to differ materially from
those expressed in any forward-looking statements made by the
Company:
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|
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(i)
|
unanticipated circumstances or results affecting the
Companys financial performance, including decreased
consumer spending in response to weak economic conditions or
weakness in the cosmetics category in the mass retail channel;
changes in consumer preferences, such as reduced consumer demand
for the Companys color cosmetics and other current
products, including new product launches; changes in consumer
purchasing habits, including with respect to shopping channels;
lower than expected retail customer acceptance or consumer
acceptance of, or less
|
52
REVLON,
INC. AND SUBSIDIARIES
|
|
|
|
|
than anticipated results from, the Companys existing or
new products; higher than expected pension expense
and/or cash
contributions under its benefit plans
and/or
benefit payments, advertising, promotional
and/or
marketing expenses or lower than expected results from the
Companys advertising, promotional
and/or
marketing plans; higher than expected sales returns or decreased
sales of the Companys existing or new products; actions by
the Companys customers, such as retailer inventory
management and greater than anticipated retailer space
reconfigurations or reductions in retail space
and/or
product discontinuances or a greater than expected impact from
retailer pricing or promotional strategies; and changes in the
competitive environment and actions by the Companys
competitors, including business combinations, technological
breakthroughs, new products offerings, increased advertising,
promotional and marketing spending and advertising, promotional
and/or
marketing successes by competitors, including increases in share
in the mass retail channel;
|
|
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(ii)
|
in addition to the items discussed in (i) above, the
effects of and changes in economic conditions (such as continued
volatility in the financial markets, inflation, monetary
conditions and foreign currency fluctuations, as well as in
trade, monetary, fiscal and tax policies in international
markets) and political conditions (such as military actions and
terrorist activities);
|
|
|
(iii)
|
unanticipated costs or difficulties or delays in completing
projects associated with the continued execution of the
Companys business strategy or lower than expected revenues
or the inability to create value through profitable growth as a
result of such strategy, including lower than expected sales, or
higher than expected costs, including as may arise from any
additional repositioning, repackaging or reformulating of one or
more brands or product lines, launching of new product lines,
including difficulties or delays, or higher than expected
expenses, including for sales returns, in launching its new
products, acquiring businesses or brands, further refining its
approach to retail merchandising,
and/or
difficulties, delays or increased costs in connection with
taking further actions to optimize the Companys
manufacturing, sourcing, supply chain or organizational size and
structure;
|
|
|
(iv)
|
difficulties, delays or unanticipated costs in achieving our
strategic goal to profitably grow our business and as to the
business strategies employed to achieve this goal, such as
(a) difficulties, delays or our inability to build our
strong brands, such as due to less than effective product
development, less than expected acceptance of our new or
existing products by consumers
and/or
retail customers, less than expected acceptance of our
advertising, promotional
and/or
marketing plans by our consumers
and/or
retail customers, less than expected investment in advertising,
promotional
and/or
marketing activities or greater than expected competitive
investment, less than expected acceptance of our brand
communication by consumers
and/or
retail partners, less than expected levels of advertising,
promotional
and/or
marketing activities for our new product launches
and/or less
than expected levels of execution with our retail partners or
higher than expected costs and expenses; (b) difficulties,
delays or the inability to develop our organizational
capability; (c) difficulties, delays or unanticipated costs
in connection with our plans to drive our company to act
globally, such as due to higher than anticipated levels of
investment required to support and build our brands globally or
less than anticipated results from our national and
multi-national brands; (d) difficulties, delays or
unanticipated costs in connection with our plans to improve our
operating profit and cash flow, such as difficulties, delays or
the inability to take actions intended to improve results in
sales returns, cost of goods sold, general and administrative
expenses, working capital management
and/or sales
growth;
and/or
(e) difficulties, delays or unanticipated costs in
consummating, or our inability to consummate, transaction to
improve our capital structure, strengthen our balance sheet
and/or
reduce debt, including higher than expected costs (including
interest rates);
|
|
|
(v)
|
difficulties, delays or unanticipated costs or less than
expected savings and other benefits resulting from the
Companys restructuring activities, such as less than
anticipated cost
|
53
REVLON,
INC. AND SUBSIDIARIES
reductions or other benefits from the 2009 Programs
and/or 2008
Programs and the risk that any of such programs may not satisfy
the Companys objectives;
|
|
|
|
(vi)
|
lower than expected operating revenues, cash on hand
and/or funds
available under the 2010 Revolving Credit Facility
and/or other
permitted lines of credit or higher than anticipated operating
expenses, such as referred to in clause (viii) below;
|
|
|
(vii)
|
the unavailability of funds under Products Corporations
2010 Revolving Credit Facility or other permitted lines of
credit, or from refinancing indebtedness, selling assets or
operations or from capital contributions
and/or loans
from MacAndrews & Forbes, the Companys other
affiliates
and/or third
parties
and/or the
sale of additional equity of Revlon, Inc. or debt securities of
Revlon, Inc. or Products Corporation;
|
|
|
(viii)
|
higher than expected operating expenses, sales returns, working
capital expenses, permanent wall display costs, capital
expenditures, restructuring costs, severance not otherwise
included in the Companys restructuring programs, debt
service payments, debt repurchases, regularly scheduled cash
pension plan contributions
and/or
post-retirement benefit plan contributions
and/or
benefit payments;
|
|
|
(ix)
|
interest rate or foreign exchange rate changes affecting the
Company and its market-risk sensitive financial instruments
and/or
difficulties, delays or the inability of the counterparty to
perform such transactions;
|
|
|
(x)
|
difficulties, delays or the inability of the Company to
efficiently manage its cash and working capital;
|
|
|
(xi)
|
lower than expected returns on pension plan assets
and/or lower
discount rates, which could result in higher than expected cash
contributions
and/or
pension expense;
|
|
|
(xii)
|
difficulties, delays or the inability of the Company to pay the
quarterly dividends or the liquidation preference on the
Preferred Stock, such as due to the unavailability of funds from
Products Corporation related to its payments to Revlon, Inc.
under the Contributed Loan or the unavailability of sufficient
surplus or net profits to make such dividend payments in
accordance with Delaware law or the unavailability of sufficient
surplus to make such liquidation preference payments in
accordance with Delaware law;
|
|
|
(xiii)
|
unexpected circumstances impacting the Companys
expectations that interest expense throughout the remainder of
2010 will be impacted by higher weighted average borrowing rates
as a result of the 2010 Refinancing;
|
|
|
|
|
(xiv)
|
lower than expected, or other unanticipated changes in,
advertising spending (as defined in Revlon, Inc.s 2009
Form 10-K) to support its brands in the second quarter of
2010, as compared to the second quarter of 2009; and/or
|
|
|
|
|
(xv)
|
unexpected circumstances or other difficulties, delays or the
inability of the Company to temporarily repay the
$10.5 million of borrowings drawn at March 31, 2010
under the 2010 Revolving Credit Facility during 2010, which the
Company is not contractually obligated to repay until
March 11, 2014, which is the maturity date of the 2010
Revolving Credit Facility.
|
Factors other than those listed above could also cause the
Companys results to differ materially from expected
results. This discussion is provided as permitted by the Private
Securities Litigation Reform Act of 1995.
Website
Availability of Reports and Other Corporate Governance
Information
The Company maintains a comprehensive corporate governance
program, including Corporate Governance Guidelines for Revlon,
Inc.s Board of Directors, Revlon, Inc.s Board
Guidelines for
54
REVLON,
INC. AND SUBSIDIARIES
Assessing Director Independence and charters for Revlon,
Inc.s Audit Committee, Nominating and Corporate Governance
Committee and Compensation Committee. Revlon, Inc. maintains a
corporate investor relations website, www.revloninc.com, where
stockholders and other interested persons may review, without
charge, among other things, Revlon, Inc.s corporate
governance materials and certain SEC filings (such as Revlon,
Inc.s annual reports on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K,
proxy statements, annual reports, Section 16 reports
reflecting certain changes in the stock ownership of Revlon,
Inc.s directors and Section 16 officers, and certain
other documents filed with the SEC), each of which are generally
available on the same business day as the filing date with the
SEC on the SECs website
http://www.sec.gov,
as well as on the Companys corporate website
http://www.revloninc.com.
In addition, under the section of the website entitled,
Corporate Governance, Revlon, Inc. posts printable
copies of the latest versions of its Corporate Governance
Guidelines, Board Guidelines for Assessing Director
Independence, charters for Revlon, Inc.s Audit Committee,
Nominating and Corporate Governance Committee and Compensation
Committee, as well as Revlon, Inc.s Code of Business
Conduct, which includes Revlon, Inc.s Code of Ethics for
Senior Financial Officers, and the Audit Committee Pre-Approval
Policy. If the Company changes the Senior Financial Officer Code
of Ethics in any material respect or waives any provision of the
Code of Business Conduct for its executive officers or
Directors, including waivers of the Senior Financial Officer
Code of Ethics for any of its Senior Financial Officers, the
Company expects to provide the public with notice of any such
change or waiver by publishing an appropriate description of
such event on its corporate website, www.revloninc.com, or by
other appropriate means as required or permitted under
applicable rules of the SEC. The Company does not currently
expect to make any such waivers. The business and financial
materials and any other statement or disclosure on, or made
available through, the websites referenced herein shall not be
deemed incorporated by reference into this report.
55
REVLON,
INC. AND SUBSIDIARIES
PART II
OTHER INFORMATION
|
|
Item 1.
|
Legal
Proceedings
|
The Company is involved in various routine legal proceedings
incident to the ordinary course of its business. The Company
believes that the outcome of all pending legal proceedings in
the aggregate is unlikely to have a material adverse effect on
the Companys business, financial condition
and/or its
results of operations.
As announced on October 8, 2009, the Company consummated
the Exchange Offer. On April 24, 2009, May 1, 2009,
May 5, 2009 and May 12, 2009, respectively, four
purported class actions were filed by each of Vern Mercier,
Arthur Jurkowitz, Suri Lefkowitz and T. Walter Heiser in the
Court of Chancery of the State of Delaware (the Chancery
Court). On May 4, 2009, a purported class action was
filed by Stanley E. Sullivan in the Supreme Court of New York,
New York County. Each such litigation was brought against
Revlon, Inc., Revlon, Inc.s then directors and
MacAndrews & Forbes, and challenged a merger proposal
made by MacAndrews & Forbes on April 13, 2009,
which would have resulted in MacAndrews & Forbes and
certain of its affiliates owning 100% of Revlon, Inc.s
outstanding Common Stock. Each action sought, among other
things, to enjoin the proposed transaction. On June 24,
2009, the Chancery Court consolidated the four Delaware actions
(the Initial Consolidated Action), and appointed
lead counsel for plaintiffs. As announced on August 10,
2009, an agreement in principle was reached to settle the
Initial Consolidated Action, as set forth in a Memorandum of
Understanding (as amended in September 2009, the
Settlement Agreement).
On December 24, 2009, an amended complaint was filed in the
Sullivan action alleging, among other things, that defendants
should have disclosed in the Companys Offer to Exchange
information regarding the Companys financial results for
the fiscal quarter ended September 30, 2009. On
January 6, 2010, an amended complaint was filed by
plaintiffs in the Initial Consolidated Action making allegations
similar to those in the amended Sullivan complaint. Revlon
initially believed that by filing the amended complaint,
plaintiffs in the Initial Consolidated Action had formally
repudiated the Settlement Agreement, and on January 8,
2010, defendants filed a motion to enforce the Settlement
Agreement. Thereafter, plaintiffs in the Initial Consolidated
Action confirmed their intention to proceed with confirmatory
discovery.
In addition to the amended complaints in the Initial
Consolidated Action and the Sullivan action, on
December 21, 2009, Revlon, Inc.s current directors, a
former director and MacAndrews & Forbes were named as
defendants in a purported class action filed in the Chancery
Court by Edward Gutman. Also on December 21, 2009, a second
purported class action was filed in the Chancery Court against
Revlon, Inc.s current directors and a former director by
Lawrence Corneck. The Gutman and Corneck actions make
allegations similar to those in the amended complaints in
Sullivan and the Initial Consolidated Action. On
January 15, 2010, the Chancery Court consolidated the
Gutman and Corneck actions with the Initial Consolidated Action
(the Initial Consolidated Action, as consolidated with the
Gutman and Corneck actions, is hereafter referred to as the
Consolidated Action). A briefing schedule was then
set to determine the leadership structure for plaintiffs in the
Consolidated Action.
On March 16, 2010, after hearing oral argument on the
leadership issue, the Chancery Court changed the leadership
structure for plaintiffs in the Consolidated Action. Thereafter,
newly appointed counsel for the plaintiffs in the Consolidated
Action and the defendants agreed that the defendants would
withdraw their motion to enforce the Settlement Agreement and
that merits discovery would proceed. Defendants agreed not to
withdraw any of the concessions that had been provided to the
plaintiffs as part of the Settlement Agreement. Plaintiffs
counsel has indicated that they will file an amended complaint
in the Consolidated Action.
On December 31, 2009, a purported class action was filed in
the U.S. District Court for the District of Delaware by
John Garofalo against Revlon, Inc., Revlon, Inc.s current
directors, a former director and MacAndrews & Forbes
alleging federal and state law claims stemming from the same
alleged failure to
56
REVLON,
INC. AND SUBSIDIARIES
disclose information that underlies the amended Sullivan and
Consolidated Action complaints. Defendants and plaintiffs have
agreed to stay proceedings in this action for 120 days to
permit plaintiffs to participate in the merits discovery in the
Consolidated Action.
Plaintiffs in each of these actions are seeking, among other
things, an award of damages and the costs and disbursements of
such actions, including a reasonable allowance for the fees and
expenses of each such plaintiffs attorneys and experts.
The Company believes the allegations contained in the amended
Sullivan complaint, the complaints in the Consolidated Action
and the Garofalo complaint, are without merit and intends to
vigorously defend against them.
In addition to the other information set forth in this report,
when evaluating the Companys business, investors should
carefully consider the risk factors discussed in Part I,
Item 1A. Risk Factors in Revlon, Inc.s
2009
Form 10-K.
|
|
|
4.1
|
|
Second Amended and Restated Term Loan Agreement dated as of
March 11, 2010 (the 2010 Term Loan Agreement),
among Products Corporation as borrower, the lenders party
thereto, Citicorp USA, Inc. (CUSA) as administrative
agent and collateral agent, JPMorgan Chase Bank, N.A. and Bank
of America, N.A. as co-syndication agents, Credit Suisse
Securities (USA) LLC (Credit Suisse) and Natixis,
New York Branch (Natixis) as co-documentation
agents, Citigroup Global Markets Inc. (CGMI),
J.P. Morgan Securities Inc. (JPM Securities),
Banc of America Securities LLC (BAS) and Credit
Suisse as joint lead arrangers, and CGMI, JPM Securities, BAS,
Credit Suisse and Natixis as joint bookrunners (incorporated by
reference to Exhibit 4.1 to the Current Report on
Form 8-K
of Products Corporation filed with the SEC on March 16,
2010 (the Products Corporation March 16, 2010
Form 8-K).
|
4.2
|
|
Second Amended and Restated Revolving Credit Agreement dated as
of March 11, 2010 (the 2010 Revolving Credit
Agreement and together with the 2010 Term Loan Agreement,
the 2010 Credit Agreements), among Products
Corporation as borrower, certain subsidiaries of Products
Corporation from time to time party thereto as local borrowing
subsidiaries, the lenders party thereto, CUSA as administrative
agent and collateral agent, CGMI and Wells Fargo Capital
Finance, LLC (Wells Fargo) as joint lead arrangers,
and CGMI, Wells Fargo, BAS, JPM Securities and Credit Suisse as
joint bookrunners (incorporated by reference to Exhibit 4.2
to the Products Corporation March 16, 2010
Form 8-K).
|
4.3
|
|
Third Amended and Restated Pledge and Security Agreement dated
as of March 11, 2010 among Revlon, Inc., Products
Corporation and certain domestic subsidiaries of Products
Corporation in favor of CUSA, as collateral agent for the
secured parties (incorporated by reference to Exhibit 4.3
to the Products Corporation March 16, 2010
Form 8-K).
|
4.4
|
|
Third Amended and Restated Intercreditor and Collateral Agency
Agreement, dated as of March 11, 2010, among CUSA, as
administrative agent for the lenders under the 2010 Credit
Agreements, U.S. Bank National Association, as trustee for
certain noteholders, CUSA, as collateral agent for the secured
parties, Revlon, Inc., Products Corporation and certain domestic
subsidiaries of Products Corporation (incorporated by reference
to Exhibit 4.4 to the Products Corporation March 16,
2010
Form 8-K).
|
4.5
|
|
Amended and Restated Guaranty, dated as of March 11, 2010,
by and among Revlon, Inc., Products Corporation and certain
domestic subsidiaries of Products Corporation, in favor of CUSA,
as collateral agent for the secured parties (incorporated by
reference to Exhibit 4.5 to the Products Corporation
March 16, 2010
Form 8-K).
|
4.6
|
|
Schedule of Borrowers; Denomination Currencies; Currency
Sublimits; Maximum Sublimits; and Local Fronting Lenders under
the 2010 Revolving Credit Agreement (incorporated by reference
to Exhibit 4.6 to the Products Corporation March 16,
2010
Form 8-K).
|
57
REVLON,
INC. AND SUBSIDIARIES
|
|
|
4.7
|
|
Form of Revolving Credit Note under the 2010 Revolving Credit
Agreement (incorporated by reference to Exhibit 4.7 to the
Products Corporation March 16, 2010
Form 8-K).
|
4.8
|
|
Third Amended and Restated Copyright Security Agreement, dated
as of March 11, 2010, among Products Corporation and CUSA,
as collateral agent for the secured parties (incorporated by
reference to Exhibit 4.8 to the Products Corporation
March 16, 2010
Form 8-K).
|
4.9
|
|
Third Amended and Restated Copyright Security Agreement, dated
as of March 11, 2010, among Almay, Inc. and CUSA, as
collateral agent for the secured parties (incorporated by
reference to Exhibit 4.9 to the Products Corporation
March 16, 2010
Form 8-K).
|
4.10
|
|
Third Amended and Restated Patent Security Agreement, dated as
of March 11, 2010, among Products Corporation and CUSA, as
collateral agent for the secured parties (incorporated by
reference to Exhibit 4.10 to the Products Corporation
March 16, 2010
Form 8-K).
|
4.11
|
|
Third Amended and Restated Trademark Security Agreement, dated
as of March 11, 2010, among Products Corporation and CUSA,
as collateral agent for the secured parties (incorporated by
reference to Exhibit 4.11 to the Products Corporation
March 16, 2010
Form 8-K).
|
4.12
|
|
Third Amended and Restated Trademark Security Agreement, dated
as of March 11, 2010, among Charles Revson Inc. and CUSA,
as collateral agent for the secured parties (incorporated by
reference to Exhibit 4.12 to the Products Corporation
March 16, 2010
Form 8-K).
|
4.13
|
|
Form of Term Loan Note under the 2010 Term Loan Agreement
(incorporated by reference to Exhibit 4.13 to the Products
Corporation March 16, 2010
Form 8-K).
|
4.14
|
|
Amended and Restated Term Loan Guaranty, dated as of
March 11, 2010, by Revlon, Inc., Products Corporation and
certain domestic subsidiaries of Products Corporation in favor
of CUSA, as collateral agent for the secured parties
(incorporated by reference to Exhibit 4.14 to the Products
Corporation March 16, 2010
Form 8-K).
|
*31.1
|
|
Certification of Alan T. Ennis, Chief Executive Officer, dated
April 29, 2010, pursuant to
Rule 13a-14(a)/15d-14(a)
of the Exchange Act.
|
*31.2
|
|
Certification of Steven Berns, Chief Financial Officer, dated
April 29, 2010, pursuant to
Rule 13a-14(a)/15d-14(a)
of the Exchange Act.
|
32.1
(furnished
herewith)
|
|
Certification of Alan T. Ennis, Chief Executive Officer, dated
April 29, 2010, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
|
32.2
(furnished
herewith)
|
|
Certification of Steven Berns, Chief Financial Officer, dated
April 29, 2010, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
|
58
REVLON,
INC. AND SUBSIDIARIES
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.
Dated: April 29, 2010
REVLON,
INC.
Registrant
|
|
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|
|
By: /s/ Steven Berns
|
|
|
|
By: /s/ Gina M. Mastantuono
|
|
|
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|
|
Steven Berns
|
|
|
|
Gina M. Mastantuono
|
Executive Vice President and
|
|
|
|
Senior Vice President,
|
Chief Financial Officer
|
|
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Corporate Controller and
|
|
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Chief Accounting Officer
|
59