e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
FORM 10-Q
(Mark One)
| |
|
|
|
x
|
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
|
|
|
|
For the quarterly period ended
March 31, 2011
|
|
|
|
OR
|
|
o
|
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
|
|
|
|
For the transition period
from
to
|
Commission File Number: 1-11178
REVLON, INC.
(Exact name of registrant as specified in its charter)
| |
|
|
Delaware
(State or other jurisdiction of
incorporation or organization)
|
|
13-3662955
(I.R.S. Employer
Identification No.)
|
|
|
|
|
237 Park Avenue, New York, New York
(Address of principal executive offices)
|
|
10017
(Zip Code)
|
212-527-4000
(Registrant’s 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):
| |
|
|
|
|
|
|
|
Large accelerated
filer o
|
|
Accelerated
filer x
|
|
Non-accelerated
filer o
|
|
Smaller reporting
company o
|
(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, 2011,
49,050,628 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
| |
|
|
|
|
|
|
|
|
|
PART I — Financial Information
|
|
Item 1.
|
|
Financial Statements
|
|
|
|
|
|
|
|
Consolidated Balance Sheets as of March 31,
2011 (Unaudited) and December 31, 2010
|
|
|
2
|
|
|
|
|
Unaudited Consolidated Statements of Operations for
the Three Months Ended March 31, 2011 and 2010
|
|
|
3
|
|
|
|
|
Unaudited Consolidated Statement of
Stockholders’ Deficiency and Comprehensive Income (Loss)
for the Three Months Ended March 31, 2011
|
|
|
4
|
|
|
|
|
Unaudited Consolidated Statements of Cash Flows for
the Three Months Ended March 31, 2011 and 2010
|
|
|
5
|
|
|
|
|
Notes to Unaudited Consolidated Financial Statements
|
|
|
6
|
|
|
Item 2.
|
|
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
|
|
|
23
|
|
|
Item 3.
|
|
Quantitative and Qualitative Disclosures About Market Risk
|
|
|
35
|
|
|
Item 4.
|
|
Controls and Procedures
|
|
|
36
|
|
|
PART II — Other Information
|
|
Item 1.
|
|
Legal Proceedings
|
|
|
42
|
|
|
Item 1A.
|
|
Risk Factors
|
|
|
43
|
|
|
Item 5.
|
|
Exhibits
|
|
|
44
|
|
|
|
|
Signatures
|
|
|
45
|
|
| EX-31.1 |
| EX-31.2 |
| EX-32.1 |
| EX-32.2 |
1
PART I
FINANCIAL INFORMATION
|
|
|
Item 1.
|
Financial
Statements
|
| |
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
|
2011
|
|
|
2010
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
61.2
|
|
|
$
|
76.7
|
|
|
Trade receivables, less allowance for doubtful accounts of $3.1
as of both March 31, 2011 and December 31, 2010
|
|
|
182.4
|
|
|
|
197.5
|
|
|
Inventories
|
|
|
130.2
|
|
|
|
115.0
|
|
|
Deferred income taxes — current
|
|
|
41.0
|
|
|
|
39.6
|
|
|
Prepaid expenses and other
|
|
|
54.1
|
|
|
|
47.3
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
468.9
|
|
|
|
476.1
|
|
|
Property, plant and equipment, net
|
|
|
104.0
|
|
|
|
106.2
|
|
|
Deferred income taxes — noncurrent
|
|
|
225.1
|
|
|
|
229.4
|
|
|
Other assets
|
|
|
113.4
|
|
|
|
92.3
|
|
|
Goodwill, net
|
|
|
194.1
|
|
|
|
182.7
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,105.5
|
|
|
$
|
1,086.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ DEFICIENCY
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
Short-term borrowings
|
|
$
|
6.4
|
|
|
$
|
3.7
|
|
|
Current portion of long-term debt
|
|
|
8.0
|
|
|
|
8.0
|
|
|
Accounts payable
|
|
|
98.1
|
|
|
|
88.3
|
|
|
Accrued expenses and other
|
|
|
223.7
|
|
|
|
218.5
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
336.2
|
|
|
|
318.5
|
|
|
Long-term debt
|
|
|
1,099.6
|
|
|
|
1,100.9
|
|
|
Long-term debt — affiliates
|
|
|
58.4
|
|
|
|
58.4
|
|
|
Redeemable preferred stock
|
|
|
48.2
|
|
|
|
48.1
|
|
|
Long-term pension and other post-retirement plan liabilities
|
|
|
192.9
|
|
|
|
201.5
|
|
|
Other long-term liabilities
|
|
|
56.7
|
|
|
|
55.7
|
|
|
Stockholders’ deficiency:
|
|
|
|
|
|
|
|
|
|
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, 2011 and December 31,
2010, respectively
|
|
|
—
|
|
|
|
—
|
|
|
Class A Common Stock, par value $.01 per share:
900,000,000 shares authorized; 49,997,902 and
50,000,497 shares issued as of March 31, 2011 and
December 31, 2010, respectively
|
|
|
0.5
|
|
|
|
0.5
|
|
|
Additional paid-in capital
|
|
|
1,012.8
|
|
|
|
1,012.0
|
|
|
Treasury stock, at cost: 667,150 and 532,838 shares of
Class A Common Stock as of March 31, 2011 and
December 31, 2010, respectively
|
|
|
(8.5
|
)
|
|
|
(7.2
|
)
|
|
Accumulated deficit
|
|
|
(1,541.0
|
)
|
|
|
(1,551.4
|
)
|
|
Accumulated other comprehensive loss
|
|
|
(150.3
|
)
|
|
|
(150.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders’ deficiency
|
|
|
(686.5
|
)
|
|
|
(696.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ deficiency
|
|
$
|
1,105.5
|
|
|
$
|
1,086.7
|
|
|
|
|
|
|
|
|
|
|
|
See Accompanying Notes to Unaudited Consolidated Financial
Statements
2
| |
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
March 31,
|
|
|
|
|
2011
|
|
|
2010
|
|
|
|
|
Net sales
|
|
$
|
333.2
|
|
|
$
|
305.5
|
|
|
Cost of sales
|
|
|
113.3
|
|
|
|
108.7
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
219.9
|
|
|
|
196.8
|
|
|
Selling, general and administrative expenses
|
|
|
175.2
|
|
|
|
151.4
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
44.7
|
|
|
|
45.4
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expenses (income):
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
22.6
|
|
|
|
21.3
|
|
|
Interest expense — preferred stock dividend
|
|
|
1.6
|
|
|
|
1.6
|
|
|
Interest income
|
|
|
(0.1
|
)
|
|
|
(0.2
|
)
|
|
Amortization of debt issuance costs
|
|
|
1.4
|
|
|
|
1.7
|
|
|
Loss on early extinguishment of debt, net
|
|
|
—
|
|
|
|
9.7
|
|
|
Foreign currency losses, net
|
|
|
0.3
|
|
|
|
3.8
|
|
|
Miscellaneous, net
|
|
|
0.8
|
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expenses, net
|
|
|
26.6
|
|
|
|
38.2
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
18.1
|
|
|
|
7.2
|
|
|
Provision for income taxes
|
|
|
7.7
|
|
|
|
5.0
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
10.4
|
|
|
$
|
2.2
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income per common share
|
|
$
|
0.20
|
|
|
$
|
0.04
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income per common share
|
|
$
|
0.20
|
|
|
$
|
0.04
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
52,153,722
|
|
|
|
51,872,502
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
52,282,309
|
|
|
|
52,286,722
|
|
|
|
|
|
|
|
|
|
|
|
See Accompanying Notes to Unaudited Consolidated Financial
Statements
3
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
Other
|
|
|
Total
|
|
|
|
|
Common
|
|
|
Paid-In-
|
|
|
Treasury
|
|
|
Accumulated
|
|
|
Comprehensive
|
|
|
Stockholders’
|
|
|
|
|
Stock
|
|
|
Capital
|
|
|
Stock
|
|
|
Deficit
|
|
|
Loss
|
|
|
Deficiency
|
|
|
|
|
Balance, January 1, 2011
|
|
$
|
0.5
|
|
|
$
|
1,012.0
|
|
|
$
|
(7.2
|
)
|
|
$
|
(1,551.4
|
)
|
|
$
|
(150.3
|
)
|
|
$
|
(696.4
|
)
|
|
Treasury stock acquired, at
cost(a)
|
|
|
|
|
|
|
|
|
|
|
(1.3
|
)
|
|
|
|
|
|
|
|
|
|
|
(1.3
|
)
|
|
Stock-based compensation amortization
|
|
|
|
|
|
|
0.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.8
|
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.4
|
|
|
|
|
|
|
|
10.4
|
|
|
Currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.9
|
)
|
|
|
(0.9
|
)
|
|
Amortization of pension related costs, net of
tax(b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.9
|
|
|
|
0.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2011
|
|
$
|
0.5
|
|
|
$
|
1,012.8
|
|
|
$
|
(8.5
|
)
|
|
$
|
(1,541.0
|
)
|
|
$
|
(150.3
|
)
|
|
$
|
(686.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Pursuant to the share withholding provisions of the Third
Amended and Restated Revlon, Inc. Stock Plan (the “Stock
Plan”), during the first quarter of 2011, certain
employees, in lieu of paying withholding taxes on the vesting of
certain restricted stock, authorized the withholding of an
aggregate 134,312 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 $9.85, 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 $1.3 million. |
| |
|
(b) |
|
See Note 2, “Pension and Post-retirement
Benefits,” and Note 6, “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 arising during the first
quarter of 2011. |
See Accompanying Notes to Unaudited Consolidated Financial
Statements
4
| |
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
March 31,
|
|
|
|
|
2011
|
|
|
2010
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
10.4
|
|
|
$
|
2.2
|
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
15.2
|
|
|
|
14.4
|
|
|
Amortization of debt discount
|
|
|
0.8
|
|
|
|
0.3
|
|
|
Stock compensation amortization
|
|
|
0.8
|
|
|
|
1.3
|
|
|
Provision for deferred income taxes
|
|
|
2.2
|
|
|
|
0.2
|
|
|
Loss on early extinguishment of debt, net
|
|
|
—
|
|
|
|
9.7
|
|
|
Amortization of debt issuance costs
|
|
|
1.4
|
|
|
|
1.7
|
|
|
Pension and other post-retirement expense
|
|
|
1.3
|
|
|
|
3.8
|
|
|
Change in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
Decrease in trade receivables
|
|
|
19.1
|
|
|
|
6.7
|
|
|
(Increase) decrease in inventories
|
|
|
(11.5
|
)
|
|
|
3.5
|
|
|
Increase in prepaid expenses and other current assets
|
|
|
(7.4
|
)
|
|
|
(9.8
|
)
|
|
Increase in accounts payable
|
|
|
7.0
|
|
|
|
8.8
|
|
|
Increase in accrued expenses and other current liabilities
|
|
|
1.5
|
|
|
|
8.7
|
|
|
Pension and other post-retirement plan contributions
|
|
|
(8.8
|
)
|
|
|
(5.8
|
)
|
|
Purchase of permanent displays
|
|
|
(8.9
|
)
|
|
|
(10.7
|
)
|
|
Other, net
|
|
|
1.0
|
|
|
|
(3.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
24.1
|
|
|
|
31.2
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(2.4
|
)
|
|
|
(3.1
|
)
|
|
Acquisitions
|
|
|
(39.0
|
)
|
|
|
—
|
|
|
Proceeds from the sale of certain assets
|
|
|
—
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(41.4
|
)
|
|
|
(3.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in short-term borrowings and overdraft
|
|
|
4.3
|
|
|
|
(13.0
|
)
|
|
Borrowings under the 2010 Revolving Credit Facility, net
|
|
|
—
|
|
|
|
10.5
|
|
|
Repayments under the 2006 Term Loan Facility
|
|
|
—
|
|
|
|
(815.0
|
)
|
|
Borrowings under the 2010 Term Loan Facility
|
|
|
—
|
|
|
|
786.0
|
|
|
Repayment of long-term debt
|
|
|
(2.0
|
)
|
|
|
—
|
|
|
Payment of financing costs
|
|
|
—
|
|
|
|
(15.4
|
)
|
|
Other financing activities
|
|
|
(0.3
|
)
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
2.0
|
|
|
|
(47.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
(0.2
|
)
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
|
(15.5
|
)
|
|
|
(18.7
|
)
|
|
Cash and cash equivalents at beginning of period
|
|
|
76.7
|
|
|
|
54.5
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
61.2
|
|
|
$
|
35.8
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental schedule of cash flow information:
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
14.5
|
|
|
$
|
12.5
|
|
|
Preferred stock dividends
|
|
|
1.6
|
|
|
|
1.6
|
|
|
Income taxes, net of refunds
|
|
|
2.2
|
|
|
|
2.5
|
|
|
Supplemental schedule of non-cash investing and financing
activities:
|
|
|
|
|
|
|
|
|
|
Treasury stock received to satisfy minimum tax withholding
liabilities
|
|
$
|
1.3
|
|
|
$
|
2.4
|
|
See Accompanying Notes to Unaudited Consolidated Financial
Statements
5
|
|
|
(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 Company’s 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, women’s hair color, beauty
tools, anti-perspirant deodorants, fragrances, skincare and
other beauty care products. The Company’s 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 management’s 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, deferred tax valuation allowances, 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 obligations for
the Company’s pension and other post-retirement plans,
including the expected long term return on pension plan assets
and the discount rate used to value the Company’s 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, 2010 filed with the
Securities and Exchange Commission (the “SEC”) on
February 17, 2011 (the “2010
Form 10-K”).
The Company’s results of operations and financial position
for interim periods are not necessarily indicative of those to
be expected for a full year.
Certain prior year amounts in the Consolidated Financial
Statements have been reclassified to conform to the current
period’s 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
|
The components of net periodic benefit cost for the pension and
the other post-retirement benefit plans for the first quarter of
2011 and 2010, respectively, are as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
Post-retirement
|
|
|
|
|
Pension Plans
|
|
|
Benefit Plans
|
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
|
|
Net periodic benefit costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
0.3
|
|
|
$
|
0.4
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Interest cost
|
|
|
8.1
|
|
|
|
8.5
|
|
|
|
0.2
|
|
|
|
0.2
|
|
|
Expected return on plan assets
|
|
|
(8.7
|
)
|
|
|
(8.1
|
)
|
|
|
—
|
|
|
|
—
|
|
|
Amortization of prior service cost
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Amortization of actuarial loss
|
|
|
1.3
|
|
|
|
2.7
|
|
|
|
0.1
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1.0
|
|
|
$
|
3.5
|
|
|
$
|
0.3
|
|
|
$
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In the first quarter of 2011, the Company recognized lower net
periodic benefit costs, as compared to the first quarter of
2010, primarily due to the increase in the fair value of pension
plan assets at December 31, 2010, partially offset by a
decrease in the weighted-average discount rate. The Company
expects net periodic benefit costs for the pension and the other
post-retirement benefit plans to be approximately
$5 million for all of 2011, compared with $9.3 million
in 2010.
During the first quarter of 2011, $8.5 million and
$0.3 million were contributed to the Company’s pension
plans and other post-retirement benefit plans, respectively. The
Company currently expects to contribute approximately
$30 million in the aggregate to its pension plans and other
post-retirement benefit plans in 2011.
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 2010
Form 10-K.
On March 17, 2011, the Company acquired certain net assets,
including trademarks and other intellectual property, inventory,
certain receivables and manufacturing equipment, related to
Sinful Colors cosmetics, Wild and Crazy cosmetics, freshMinerals
cosmetics and freshcover cosmetics, which products are sold
principally in the U.S. mass retail channel (the
“Sinful Colors Acquisition”). The Company paid
$39.0 million of total consideration for the Sinful Colors
Acquisition in cash, which included the $38.0 million
purchase price and a $1.0 million adjustment based on
working capital at closing. The results of operations related to
such acquired assets are included in the Company’s
consolidated financial statements commencing on the date of
acquisition. Pro forma results of operations have not been
presented, as the impact on the Company’s consolidated
financial results would not have been material.
The Company accounted for the Sinful Colors Acquisition as a
business combination during the first quarter of 2011 and,
accordingly, the total consideration of $39.0 million has
been allocated on a
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)
preliminary basis to the net assets acquired based on their
respective estimated fair values at March 17, 2011 as
follows:
| |
|
|
|
|
|
Recognized amounts of assets acquired and liabilities assumed:
|
|
|
|
|
|
Trade receivables
|
|
$
|
2.9
|
|
|
Inventories
|
|
|
3.3
|
|
|
Property, plant and equipment, net
|
|
|
0.4
|
|
|
Intangible assets
|
|
|
22.8
|
|
|
Accounts payable
|
|
|
(0.9
|
)
|
|
Accrued expenses and other
|
|
|
(0.9
|
)
|
|
|
|
|
|
|
|
Fair value of net assets acquired
|
|
|
27.6
|
|
|
Goodwill
|
|
|
11.4
|
|
|
|
|
|
|
|
|
Total consideration
|
|
$
|
39.0
|
|
|
|
|
|
|
|
The allocation of the total consideration of $39.0 million
includes intangible assets of $22.8 million and goodwill of
$11.4 million, all of which is expected to be deductible
for income tax purposes. The Company, however, is in the process
of completing its assessment of the fair value of assets
acquired and liabilities assumed in the Sinful Colors
Acquisition. As a result, the fair value of the net assets
acquired is provisional pending completion of the final
valuation of such net assets.
| |
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
|
2011
|
|
|
2010
|
|
|
|
|
Raw materials and supplies
|
|
$
|
45.7
|
|
|
$
|
39.7
|
|
|
Work-in-process
|
|
|
11.2
|
|
|
|
9.9
|
|
|
Finished goods
|
|
|
73.3
|
|
|
|
65.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
130.2
|
|
|
$
|
115.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5)
|
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 2011 and 2010, options to
purchase 944,676 and 1,169,177 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 2011 and 2010, 151,537 and
303,160 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.
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 basic and diluted earnings per share for the
first quarter of 2011 and 2010, respectively, are as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
March 31,
|
|
|
|
|
2011
|
|
|
2010
|
|
|
|
|
(shares in millions)
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
10.4
|
|
|
$
|
2.2
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding — Basic
|
|
|
52.15
|
|
|
|
51.87
|
|
|
Effect of dilutive restricted stock
|
|
|
0.13
|
|
|
|
0.42
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding — Diluted
|
|
|
52.28
|
|
|
|
52.29
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
0.20
|
|
|
$
|
0.04
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
0.20
|
|
|
$
|
0.04
|
|
|
|
|
|
|
|
|
|
|
|
The components of comprehensive income for the first quarter of
2011 and 2010, respectively, are as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
March 31,
|
|
|
|
|
2011
|
|
|
2010
|
|
|
|
|
Net income
|
|
$
|
10.4
|
|
|
$
|
2.2
|
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
Revaluation of financial derivative
instruments(a)
|
|
|
—
|
|
|
|
1.7
|
|
|
Currency translation adjustment
|
|
|
(0.9
|
)
|
|
|
0.8
|
|
|
Amortization of pension-related costs, net of
tax(b)
|
|
|
0.9
|
|
|
|
2.8
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income
|
|
|
—
|
|
|
|
5.3
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$
|
10.4
|
|
|
$
|
7.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 10,
“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. |
| |
|
(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 2011 and 2010,
respectively, related to the Company’s pension and other
post-retirement benefit plans. |
|
|
|
(7)
|
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
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)
accountability and effectiveness; streamlining support functions
to reflect the new organizational structure; and further
consolidating the Company’s office facilities in New Jersey.
The $20.5 million of charges related to the May 2009
Program have been or are expected to be paid out as follows:
$11.0 million paid in 2009, $6.9 million paid in 2010,
$1.6 million expected to be paid in 2011 (of which
$0.5 million was paid during the first quarter of
2011) and the balance of $1.0 million expected to be
paid thereafter.
Details of the movements in the restructuring accrual for the
May 2009 Program during the first quarter of 2011 are as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
|
|
|
|
|
|
|
|
|
|
|
|
Balance
|
|
|
|
|
as of
|
|
|
(Income)
|
|
|
|
|
|
|
|
|
as of
|
|
|
|
|
January 1,
|
|
|
Expenses,
|
|
|
Utilized, Net
|
|
|
March 31,
|
|
|
|
|
2011
|
|
|
Net
|
|
|
Cash
|
|
|
Noncash
|
|
|
2011
|
|
|
|
|
Employee severance and other personnel benefits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 2009 Program
|
|
$
|
1.0
|
|
|
$
|
—
|
|
|
$
|
(0.4
|
)
|
|
$
|
—
|
|
|
$
|
0.6
|
|
|
Lease exit
|
|
|
1.6
|
|
|
|
—
|
|
|
|
(0.1
|
)
|
|
|
—
|
|
|
|
1.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restructuring costs and other, net
|
|
$
|
2.6
|
|
|
$
|
—
|
|
|
$
|
(0.5
|
)
|
|
$
|
—
|
|
|
$
|
2.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8)
|
Geographic,
Financial and Other Information
|
The Company manages its business on the basis of one reportable
operating segment. As of March 31, 2011, 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 period’s
presentation.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
March 31,
|
|
|
|
|
2011
|
|
|
2010
|
|
|
|
|
Geographic area:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
186.2
|
|
|
|
56%
|
|
|
$
|
182.1
|
|
|
|
60%
|
|
|
Outside of the United States
|
|
|
147.0
|
|
|
|
44%
|
|
|
|
123.4
|
|
|
|
40%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
333.2
|
|
|
|
|
|
|
$
|
305.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
|
2011
|
|
|
2010
|
|
|
|
|
Long-lived assets — net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
361.6
|
|
|
|
88%
|
|
|
$
|
331.5
|
|
|
|
87%
|
|
|
Outside of the United States
|
|
|
49.9
|
|
|
|
12%
|
|
|
|
49.7
|
|
|
|
13%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
411.5
|
|
|
|
|
|
|
$
|
381.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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,
|
|
|
|
|
2011
|
|
|
2010
|
|
|
|
|
Classes of similar products:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Color cosmetics
|
|
$
|
215.1
|
|
|
|
65%
|
|
|
$
|
193.7
|
|
|
|
63%
|
|
|
Beauty care and fragrance
|
|
|
118.1
|
|
|
|
35%
|
|
|
|
111.8
|
|
|
|
37%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
333.2
|
|
|
|
|
|
|
$
|
305.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9)
|
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 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
Company’s own assumptions regarding the applicable asset or
liability.
|
As of March 31, 2011, the fair values of the Company’s
financial assets and liabilities, namely its FX Contracts (as
hereinafter defined) 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FX
Contracts(a)
|
|
$
|
0.1
|
|
|
$
|
—
|
|
|
$
|
0.1
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair value
|
|
$
|
0.1
|
|
|
$
|
—
|
|
|
$
|
0.1
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FX
Contracts(a)
|
|
$
|
1.8
|
|
|
$
|
—
|
|
|
$
|
1.8
|
|
|
$
|
—
|
|
|
Redeemable Preferred
Stock(b)
|
|
|
0.2
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities at fair value
|
|
$
|
2.0
|
|
|
$
|
—
|
|
|
$
|
1.8
|
|
|
$
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The fair value of the Company’s FX Contracts was measured
based on observable market transactions of spot and forward
rates at March 31, 2011. (See Note 10, “Financial
Instruments,” in this
Form 10-Q.) |
| |
|
(b) |
|
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, |
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)
|
|
|
|
|
|
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 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 Company’s
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, 2011.
|
|
|
|
(10)
|
Financial
Instruments
|
The fair value of the Company’s 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,
2011 was approximately $1,262.8 million, which was more
than the carrying value of such debt and Preferred Stock at
March 31, 2011 of $1,214.2 million. The estimated fair
value of such debt and Preferred Stock at December 31, 2010
was approximately $1,259.6 million, which was more than the
carrying value of such debt and Preferred Stock at
December 31, 2010 of $1,215.4 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
$21.2 million (including amounts available under credit
agreements in effect at that time) were maintained at both
March 31, 2011 and
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)
December 31, 2010. Included in these amounts is
approximately $9.1 million at both March 31, 2011 and
December 31, 2010 in standby letters of credit which
support Products Corporation’s 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 Company’s net
cash flows and (2) interest rate hedging transactions
intended for the purpose of managing interest rate risk
associated with Products Corporation’s variable rate
indebtedness.
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 Company’s foreign and domestic
operations and generally have maturities of less than one year.
The U.S. dollar notional amount of the FX Contracts
outstanding at March 31, 2011 and December 31, 2010
was $48.6 million and $46.0 million, respectively.
While the Company may be exposed to credit loss in the event of
the counterparty’s non-performance, the Company’s
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. 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.
Interest
Rate Swap Transaction
Prior to its expiration in April 2010, the Company’s
floating-to-fixed
interest rate swap had a notional amount of $150.0 million
initially relating to indebtedness under Products
Corporation’s 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 Corporation’s 2010 Term Loan
Facility (as hereinafter defined in Note 11,
“Long-Term Debt and Redeemable Preferred Stock”) (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.
The 2008 Interest Rate Swap was initially designated as a cash
flow hedge of the variable interest rate payments on Products
Corporation’s 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 11, “Long-term Debt and Redeemable Preferred
Stock”), 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 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.
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)
Quantitative
Information — Derivative Financial
Instruments
The effects of the Company’s 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
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
|
Balance Sheet
|
|
2011
|
|
|
2010
|
|
|
Balance Sheet
|
|
2011
|
|
|
2010
|
|
|
Derivatives:
|
|
Classification
|
|
Fair Value
|
|
|
Fair Value
|
|
|
Classification
|
|
Fair Value
|
|
|
Fair Value
|
|
|
|
|
Derivatives not designated as hedging instruments:
|
|
FX
Contracts(a)
|
|
Prepaid expenses
|
|
$
|
0.1
|
|
|
$
|
0.2
|
|
|
Accrued expenses
|
|
$
|
1.8
|
|
|
$
|
2.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.1
|
|
|
$
|
0.2
|
|
|
|
|
$
|
1.8
|
|
|
$
|
2.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The fair values of the FX Contracts
at March 31, 2011 and December 31, 2010 were
determined by using observable market transactions of spot and
forward rates at March 31, 2011 and December 31, 2010,
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
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (Loss)
|
|
|
|
|
Amount of
|
|
|
|
|
Reclassified
|
|
|
|
|
Gain (Loss)
|
|
|
Income Statement
|
|
from OCI
|
|
|
|
|
Recognized in
|
|
|
Classification
|
|
to Income
|
|
|
|
|
OCI (Effective
|
|
|
of Gain (Loss)
|
|
(Effective
|
|
|
|
|
Portion)
|
|
|
Reclassified from
|
|
Portion)
|
|
|
|
|
2011
|
|
|
2010
|
|
|
OCI to Income
|
|
2011
|
|
|
2010
|
|
|
|
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 Interest Rate
Swap(a)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Interest expense
|
|
$
|
—
|
|
|
$
|
(0.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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)
|
|
|
|
|
2011
|
|
|
2010
|
|
|
OCI to Income
|
|
2011
|
|
|
2010
|
|
|
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FX Contracts
|
|
$
|
(0.6
|
)
|
|
$
|
(0.5
|
)
|
|
Interest expense
|
|
$
|
—
|
|
|
$
|
—
|
|
|
2008 Interest Rate
Swap(a)
|
|
|
—
|
|
|
|
—
|
|
|
Interest expense
|
|
|
—
|
|
|
|
(0.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(0.6
|
)
|
|
$
|
(0.5
|
)
|
|
|
|
$
|
—
|
|
|
$
|
(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 10.)
|
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)
|
|
|
(11)
|
Long-term
Debt and Redeemable Preferred Stock
|
| |
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
|
2011
|
|
|
2010
|
|
|
|
|
2010 Term Loan Facility due 2015, net of
discounts(a)
|
|
$
|
780.6
|
|
|
$
|
782.0
|
|
|
2010 Revolving Credit Facility due
2014(a)
|
|
|
—
|
|
|
|
—
|
|
|
93/4% Senior
Secured Notes due 2015, net of
discounts(b)
|
|
|
327.0
|
|
|
|
326.9
|
|
|
Senior Subordinated Term Loan due
2014(c)
|
|
|
58.4
|
|
|
|
58.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,166.0
|
|
|
|
1,167.3
|
|
|
Less current portion
|
|
|
(8.0
|
)
|
|
|
(8.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,158.0
|
|
|
|
1,159.3
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable Preferred
Stock(d)
|
|
|
48.2
|
|
|
|
48.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,206.2
|
|
|
$
|
1,207.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
In March 2010 Products Corporation refinanced (i) its 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”) and (ii) its 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” and such refinancing
transactions being the “2010 Refinancing”). See
Note 9, “Long-Term Debt and Redeemable Preferred
Stock,” to the Consolidated Financial Statements in Revlon,
Inc.’s 2010 Form
10-K for
certain details regarding the 2010 Credit Agreements. |
| |
|
(b) |
|
See Note 9, “Long-Term Debt and Redeemable Preferred
Stock,” to the Consolidated Financial Statements in Revlon,
Inc.’s 2010
Form 10-K
for certain details regarding Products Corporation’s
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 2010
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 2010
Form 10-K
for certain details regarding Revlon, Inc.’s redeemable
Preferred Stock. |
2010
Bank Credit Agreements
See Note 9, “Long-Term Debt and Redeemable Preferred
Stock,” to the Consolidated Financial Statements in Revlon,
Inc.’s 2010
Form 10-K
for certain details regarding the 2010 Credit Agreements.
Products Corporation was in compliance with all applicable
covenants under the 2010 Credit Agreements upon closing the 2010
Refinancing and as of March 31, 2011. At March 31,
2011, the aggregate principal amount outstanding under the 2010
Term Loan Facility was $792.0 million and availability
under the $140.0 million 2010 Revolving Credit Facility,
based upon the calculated borrowing base less $21.2 million
of outstanding undrawn letters of credit and nil then drawn on
the 2010 Revolving Credit Facility, was $106.4 million.
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)
The provision for income taxes represents federal, foreign,
state and local income taxes. The effective rate differs from
the applicable federal statutory rate due to the effect of state
and local income taxes, tax rates and income in foreign
jurisdictions, utilization of tax loss carryforwards, dividends
among affiliates, certain nondeductible expenses and certain
other items. The Company’s 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, 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
re-measurement 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 2011 and 2010, the Company recorded a
provision for income taxes of $7.7 million and
$5.0 million, respectively. The $2.7 million increase
in the provision for income taxes for the first quarter of 2011,
as compared to the first quarter of 2010, was primarily
attributable to the reduction of the Company’s deferred tax
valuation allowance on its net U.S. deferred income tax
assets at December 31, 2010, which resulted in a higher
effective tax rate in the U.S. for the first quarter of
2011, as well as higher taxable income for taxable subsidiaries
in certain foreign jurisdictions and the U.S. in the first
quarter of 2011. (See Note 12, “Income Taxes,” to
the Consolidated Financial Statements in Revlon, Inc.’s
2010
Form 10-K.)
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,
2007 through December 31, 2009, and Australia and South
Africa, for tax years ended December 31, 2006 through
December 31, 2009.
|
|
|
(13)
|
Guarantor
Financial Information
|
Products Corporation’s
93/4% Senior
Secured Notes are fully and unconditionally guaranteed on a
senior secured basis by Revlon, Inc. and Products
Corporation’s domestic subsidiaries (other than certain
immaterial subsidiaries) that guarantee Products
Corporation’s obligations under its 2010 Credit Agreements
(the “Guarantor Subsidiaries”).
The following Condensed Consolidating Financial Statements
present the financial information as of March 31, 2011 and
December 31, 2010, and for the three months ended
March 31, 2011 and 2010 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 Corporation’s
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 subsidiary’s cumulative
results of operations, capital contributions, distributions and
other equity changes. The principal elimination entries
eliminate investments in subsidiaries and intercompany balances
and transactions.
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)
Consolidating
Condensed Balance Sheets
As of March 31, 2011
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
|
Products
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
|
|
|
|
|
|
|
|
Corporation
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
9.2
|
|
|
$
|
0.3
|
|
|
$
|
51.7
|
|
|
$
|
—
|
|
|
$
|
61.2
|
|
|
Trade receivables, less allowances for doubtful accounts
|
|
|
76.7
|
|
|
|
17.0
|
|
|
|
88.7
|
|
|
|
—
|
|
|
|
182.4
|
|
|
Inventories
|
|
|
79.5
|
|
|
|
7.0
|
|
|
|
43.7
|
|
|
|
—
|
|
|
|
130.2
|
|
|
Deferred income taxes — current
|
|
|
35.0
|
|
|
|
—
|
|
|
|
5.7
|
|
|
|
—
|
|
|
|
40.7
|
|
|
Prepaid expenses and other
|
|
|
77.8
|
|
|
|
5.7
|
|
|
|
26.9
|
|
|
|
—
|
|
|
|
110.4
|
|
|
Intercompany receivables
|
|
|
889.6
|
|
|
|
440.8
|
|
|
|
333.7
|
|
|
|
(1,664.1
|
)
|
|
|
—
|
|
|
Investment in subsidiaries
|
|
|
(180.9
|
)
|
|
|
(186.3
|
)
|
|
|
—
|
|
|
|
367.2
|
|
|
|
—
|
|
|
Property, plant and equipment, net
|
|
|
87.3
|
|
|
|
0.9
|
|
|
|
15.8
|
|
|
|
—
|
|
|
|
104.0
|
|
|
Deferred income taxes — noncurrent
|
|
|
209.9
|
|
|
|
—
|
|
|
|
2.5
|
|
|
|
—
|
|
|
|
212.4
|
|
|
Other assets
|
|
|
53.8
|
|
|
|
27.0
|
|
|
|
27.9
|
|
|
|
—
|
|
|
|
108.7
|
|
|
Goodwill, net
|
|
|
150.6
|
|
|
|
41.4
|
|
|
|
2.1
|
|
|
|
—
|
|
|
|
194.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,488.5
|
|
|
$
|
353.8
|
|
|
$
|
598.7
|
|
|
$
|
(1,296.9
|
)
|
|
$
|
1,144.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDER’S DEFICIENCY
|
|
Short-term borrowings
|
|
$
|
—
|
|
|
$
|
4.3
|
|
|
$
|
2.1
|
|
|
$
|
—
|
|
|
$
|
6.4
|
|
|
Current portion of long-term debt
|
|
|
8.0
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
8.0
|
|
|
Accounts payable
|
|
|
55.4
|
|
|
|
8.1
|
|
|
|
32.5
|
|
|
|
—
|
|
|
|
96.0
|
|
|
Accrued expenses and other
|
|
|
148.6
|
|
|
|
8.6
|
|
|
|
64.6
|
|
|
|
—
|
|
|
|
221.8
|
|
|
Intercompany payables
|
|
|
522.3
|
|
|
|
612.0
|
|
|
|
529.8
|
|
|
|
(1,664.1
|
)
|
|
|
—
|
|
|
Long-term debt
|
|
|
1,099.6
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,099.6
|
|
|
Long-term debt — affiliates
|
|
|
107.0
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
107.0
|
|
|
Other long-term liabilities
|
|
|
191.9
|
|
|
|
8.6
|
|
|
|
49.1
|
|
|
|
—
|
|
|
|
249.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
2,132.8
|
|
|
|
641.6
|
|
|
|
678.1
|
|
|
|
(1,664.1
|
)
|
|
|
1,788.4
|
|
|
Stockholder’s deficiency
|
|
|
(644.3
|
)
|
|
|
(287.8
|
)
|
|
|
(79.4
|
)
|
|
|
367.2
|
|
|
|
(644.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholder’s deficiency
|
|
$
|
1,488.5
|
|
|
$
|
353.8
|
|
|
$
|
598.7
|
|
|
$
|
(1,296.9
|
)
|
|
$
|
1,144.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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)
Consolidating
Condensed Balance Sheets
As of December 31, 2010
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
|
Products
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
|
|
|
|
|
|
|
|
Corporation
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
20.5
|
|
|
$
|
0.1
|
|
|
$
|
56.1
|
|
|
$
|
—
|
|
|
$
|
76.7
|
|
|
Trade receivables, less allowances for doubtful accounts
|
|
|
91.0
|
|
|
|
14.9
|
|
|
|
91.6
|
|
|
|
—
|
|
|
|
197.5
|
|
|
Inventories
|
|
|
76.6
|
|
|
|
2.4
|
|
|
|
36.0
|
|
|
|
—
|
|
|
|
115.0
|
|
|
Deferred income taxes — current
|
|
|
34.4
|
|
|
|
—
|
|
|
|
5.9
|
|
|
|
—
|
|
|
|
40.3
|
|
|
Prepaid expenses and other
|
|
|
72.5
|
|
|
|
3.2
|
|
|
|
22.4
|
|
|
|
—
|
|
|
|
98.1
|
|
|
Intercompany receivables
|
|
|
895.1
|
|
|
|
432.0
|
|
|
|
331.1
|
|
|
|
(1,658.2
|
)
|
|
|
—
|
|
|
Investment in subsidiaries
|
|
|
(229.8
|
)
|
|
|
(184.7
|
)
|
|
|
—
|
|
|
|
414.5
|
|
|
|
—
|
|
|
Property, plant and equipment, net
|
|
|
89.4
|
|
|
|
0.6
|
|
|
|
16.2
|
|
|
|
—
|
|
|
|
106.2
|
|
|
Deferred income taxes — noncurrent
|
|
|
214.0
|
|
|
|
—
|
|
|
|
2.6
|
|
|
|
—
|
|
|
|
216.6
|
|
|
Other assets
|
|
|
55.8
|
|
|
|
4.2
|
|
|
|
27.3
|
|
|
|
—
|
|
|
|
87.3
|
|
|
Goodwill, net
|
|
|
150.6
|
|
|
|
30.0
|
|
|
|
2.1
|
|
|
|
—
|
|
|
|
182.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,470.1
|
|
|
$
|
302.7
|
|
|
$
|
591.3
|
|
|
$
|
(1,243.7
|
)
|
|
$
|
1,120.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDER’S DEFICIENCY
|
|
Short-term borrowings
|
|
$
|
—
|
|
|
$
|
1.8
|
|
|
$
|
1.9
|
|
|
$
|
—
|
|
|
$
|
3.7
|
|
|
Current portion of long-term debt
|
|
|
8.0
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
8.0
|
|
|
Accounts payable
|
|
|
54.3
|
|
|
|
4.4
|
|
|
|
25.8
|
|
|
|
—
|
|
|
|
84.5
|
|
|
Accrued expenses and other
|
|
|
140.1
|
|
|
|
9.0
|
|
|
|
67.1
|
|
|
|
—
|
|
|
|
216.2
|
|
|
Intercompany payables
|
|
|
516.4
|
|
|
|
613.4
|
|
|
|
528.4
|
|
|
|
(1,658.2
|
)
|
|
|
—
|
|
|
Long-term debt
|
|
|
1,100.9
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,100.9
|
|
|
Long-term debt — affiliates
|
|
|
107.0
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
107.0
|
|
|
Other long-term liabilities
|
|
|
200.5
|
|
|
|
9.1
|
|
|
|
47.6
|
|
|
|
—
|
|
|
|
257.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
2,127.2
|
|
|
|
637.7
|
|
|
|
670.8
|
|
|
|
(1,658.2
|
)
|
|
|
1,777.5
|
|
|
Stockholder’s deficiency
|
|
|
(657.1
|
)
|
|
|
(335.0
|
)
|
|
|
(79.5
|
)
|
|
|
414.5
|
|
|
|
(657.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholder’s deficiency
|
|
$
|
1,470.1
|
|
|
$
|
302.7
|
|
|
$
|
591.3
|
|
|
$
|
(1,243.7
|
)
|
|
$
|
1,120.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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)
Consolidating
Condensed Statement of Operations
For the Three Months Ended March 31, 2011
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
|
Products
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
|
|
|
|
|
|
|
|
Corporation
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
|
Net sales
|
|
$
|
219.2
|
|
|
$
|
17.9
|
|
|
$
|
136.5
|
|
|
$
|
(40.4
|
)
|
|
$
|
333.2
|
|
|
Cost of sales
|
|
|
94.4
|
|
|
|
8.1
|
|
|
|
51.2
|
|
|
|
(40.4
|
)
|
|
|
113.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
124.8
|
|
|
|
9.8
|
|
|
|
85.3
|
|
|
|
—
|
|
|
|
219.9
|
|
|
Selling, general and administrative expenses
|
|
|
103.8
|
|
|
|
9.0
|
|
|
|
60.3
|
|
|
|
—
|
|
|
|
173.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
21.0
|
|
|
|
0.8
|
|
|
|
25.0
|
|
|
|
—
|
|
|
|
46.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expenses (income):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany interest, net
|
|
|
—
|
|
|
|
(0.3
|
)
|
|
|
1.8
|
|
|
|
—
|
|
|
|
1.5
|
|
|
Interest expense
|
|
|
22.4
|
|
|
|
0.1
|
|
|
|
0.1
|
|
|
|
—
|
|
|
|
22.6
|
|
|
Interest income
|
|
|
—
|
|
|
|
—
|
|
|
|
(0.1
|
)
|
|
|
—
|
|
|
|
(0.1
|
)
|
|
Amortization of debt issuance costs
|
|
|
1.1
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1.1
|
|
|
Foreign currency (gains) losses, net
|
|
|
0.3
|
|
|
|
0.3
|
|
|
|
(0.3
|
)
|
|
|
—
|
|
|
|
0.3
|
|
|
Miscellaneous, net
|
|
|
(9.3
|
)
|
|
|
(4.6
|
)
|
|
|
14.7
|
|
|
|
—
|
|
|
|
0.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expenses, net
|
|
|
14.5
|
|
|
|
(4.5
|
)
|
|
|
16.2
|
|
|
|
—
|
|
|
|
26.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes
|
|
|
6.5
|
|
|
|
5.3
|
|
|
|
8.8
|
|
|
|
—
|
|
|
|
20.6
|
|
|
Provision for income taxes
|
|
|
2.8
|
|
|
|
1.4
|
|
|
|
4.4
|
|
|
|
—
|
|
|
|
8.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
3.7
|
|
|
|
3.9
|
|
|
|
4.4
|
|
|
|
—
|
|
|
|
12.0
|
|
|
Equity in income (loss) of subsidiaries
|
|
|
8.3
|
|
|
|
2.1
|
|
|
|
—
|
|
|
|
(10.4
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
12.0
|
|
|
$
|
6.0
|
|
|
$
|
4.4
|
|
|
$
|
(10.4
|
)
|
|
$
|
12.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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)
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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)
Consolidating
Condensed Statement of Cash Flow
For the Three Months Ended March 31, 2011
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
|
Products
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
|
|
|
|
|
|
|
|
Corporation
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities
|
|
$
|
(8.5
|
)
|
|
$
|
36.7
|
|
|
$
|
(4.1
|
)
|
|
$
|
—
|
|
|
$
|
24.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(2.3
|
)
|
|
|
—
|
|
|
|
(0.1
|
)
|
|
|
—
|
|
|
|
(2.4
|
)
|
|
Acquisitions
|
|
|
—
|
|
|
|
(39.0
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(39.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(2.3
|
)
|
|
|
(39.0
|
)
|
|
|
(0.1
|
)
|
|
|
—
|
|
|
|
(41.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in short-term borrowings and overdraft
|
|
|
1.6
|
|
|
|
2.5
|
|
|
|
0.2
|
|
|
|
—
|
|
|
|
4.3
|
|
|
Repayment of long-term debt
|
|
|
(2.0
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(2.0
|
)
|
|
Other financing activities
|
|
|
(0.1
|
)
|
|
|
—
|
|
|
|
(0.2
|
)
|
|
|
—
|
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(0.5
|
)
|
|
|
2.5
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
—
|
|
|
|
—
|
|
|
|
(0.2
|
)
|
|
|
—
|
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(11.3
|
)
|
|
|
0.2
|
|
|
|
(4.4
|
)
|
|
|
—
|
|
|
|
(15.5
|
)
|
|
Cash and cash equivalents at beginning of period
|
|
|
20.5
|
|
|
|
0.1
|
|
|
|
56.1
|
|
|
|
—
|
|
|
|
76.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
9.2
|
|
|
$
|
0.3
|
|
|
$
|
51.7
|
|
|
$
|
—
|
|
|
$
|
61.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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)
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
|
|
|
(2.8
|
)
|
|
|
—
|
|
|
|
(0.3
|
)
|
|
|
—
|
|
|
|
(3.1
|
)
|
|
Proceeds from the sale of certain assets
|
|
|
—
|
|
|
|
—
|
|
|
|
0.1
|
|
|
|
—
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(2.8
|
)
|
|
|
—
|
|
|
|
(0.2
|
)
|
|
|
—
|
|
|
|
(3.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
)
|
|
Other financing activities
|
|
|
(0.1
|
)
|
|
|
—
|
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(47.4
|
)
|
|
|
0.6
|
|
|
|
0.1
|
|
|
|
—
|
|
|
|
(46.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
0.4
|
|
|
|
26.7
|
|
|
|
—
|
|
|
|
54.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
1.7
|
|
|
$
|
0.3
|
|
|
$
|
33.8
|
|
|
$
|
—
|
|
|
$
|
35.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22
REVLON,
INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATION
(all tabular amounts in millions, except share and per share
amounts)
|
|
|
Item 2.
|
Management’s
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
SEC’s December 2003 interpretive guidance regarding
Management’s 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 Company’s 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, women’s hair color, beauty
tools, anti-perspirant deodorants, fragrances, skincare and
other beauty care products. The Company is one of the
world’s 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 Company’s 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 in women’s hair color; Revlon in
beauty tools; Mitchum in anti-perspirant deodorants;
Charlie and Jean Naté in fragrances; and
Ultima II and Gatineau in skincare.
The Company’s 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), women’s hair color, beauty tools and
anti-perspirant deodorants. The Company also has leading market
positions in several product categories in certain foreign
countries, including Australia, Canada and South Africa.
Overview
of the Company’s Business Strategy
The Company’s 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.
23
REVLON,
INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATION
(all tabular amounts in millions, except share and per share
amounts)
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 and
effective 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 2011 were
$333.2 million, an increase of $27.7 million, or 9.1%,
compared to $305.5 million in the first quarter of 2010.
Excluding the favorable impact of foreign currency fluctuations
of $6.2 million, consolidated net sales increased by 7.0%
in the first quarter of 2011. Higher net sales were realized
throughout all of the Company’s regions.
Consolidated net income for the first quarter of 2011 was
$10.4 million, compared to $2.2 million in the first
quarter of 2010. The increase in consolidated net income in the
first quarter of 2011, compared to the first quarter of 2010,
was primarily due to:
|
|
|
| |
•
|
$23.1 million of higher gross profit due to
$27.7 million of higher net sales, partially offset by
$4.6 million of higher cost of sales; and
|
| |
| |
•
|
a $9.7 million loss on the early extinguishment of debt in
the first quarter of 2010;
|
with the foregoing partially offset by:
|
|
|
| |
•
|
$23.8 million of higher SG&A expense, primarily driven
by $15.5 million of higher advertising expenses to support
the Company’s brands.
|
Impact
of the March 2011 Disaster in Japan
The Company is currently assessing the potential impact of the
March 2011 disaster in Japan and its aftermath on the
Company’s supply chain and its operations in Japan for the
remainder of 2011. These events did not have a material impact
on the Company’s net sales, operating profit and supply
chain in the first quarter of 2011. (See Item IA.
“Risk Factors”).
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 2011 were
$333.2 million, an increase of $27.7 million, or 9.1%,
compared to $305.5 million in the first quarter of 2010.
Excluding the favorable impact of foreign currency fluctuations
of $6.2 million, consolidated net sales increased by 7.0%
in the first quarter of 2011.
24
REVLON,
INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATION
(all tabular amounts in millions, except share and per share
amounts)
The increase in consolidated net sales, excluding the favorable
impact of foreign currency fluctuations, was primarily driven by
higher net sales of Revlon color cosmetics, as well as
fragrances and Almay color cosmetics, partially offset by
lower net sales of Revlon ColorSilk hair color.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
Change
|
|
|
XFX
Change(a)
|
|
|
|
|
2011
|
|
|
2010
|
|
|
$
|
|
|
%
|
|
|
$
|
|
|
%
|
|
|
|
|
United States
|
|
$
|
186.2
|
|
|
$
|
182.1
|
|
|
$
|
4.1
|
|
|
|
2.3
|
%
|
|
$
|
4.1
|
|
|
|
2.3
|
%
|
|
Asia Pacific
|
|
|
53.1
|
|
|
|
45.9
|
|
|
|
7.2
|
|
|
|
15.7
|
|
|
|
4.1
|
|
|
|
8.9
|
|
|
Europe, Middle East and Africa
|
|
|
49.7
|
|
|
|
42.9
|
|
|
|
6.8
|
|
|
|
15.9
|
|
|
|
4.8
|
|
|
|
11.2
|
|
|
Latin America
|
|
|
27.0
|
|
|
|
20.0
|
|
|
|
7.0
|
|
|
|
35.0
|
|
|
|
6.9
|
|
|
|
34.5
|
|
|
Canada
|
|
|
17.2
|
|
|
|
14.6
|
|
|
|
2.6
|
|
|
|
17.8
|
|
|
|
1.6
|
|
|
|
11.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Net Sales
|
|
$
|
333.2
|
|
|
$
|
305.5
|
|
|
$
|
27.7
|
|
|
|
9.1
|
%
|
|
$
|
21.5
|
|
|
|
7.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
XFX excludes the impact of foreign currency fluctuations. |
United
States
In the U.S., net sales in the first quarter of 2011 were
$186.2 million, an increase of $4.1 million, or 2.3%,
compared to $182.1 million in the first quarter of 2010,
primarily driven by higher net sales of Revlon and
Almay color cosmetics, partially offset by lower net
sales of Revlon ColorSilk hair color. Net sales of
Revlon color cosmetics increased in part due to lower
promotional allowances in the first quarter of 2011, as compared
to the first quarter of 2010.
Asia
Pacific
In Asia Pacific, net sales in the first quarter of 2011
increased 15.7% to $53.1 million, compared to
$45.9 million in the first quarter of 2010. Excluding the
favorable impact of foreign currency fluctuations, net sales
increased $4.1 million, or 8.9%, primarily driven by higher
net sales of Revlon color cosmetics. From a country
perspective, net sales increased in certain distributor markets
and China (which together contributed approximately
6.9 percentage points to the increase in the region’s
net sales in the first quarter of 2011, as compared with the
first quarter of 2010).
Europe,
Middle East and Africa
In Europe, the Middle East and Africa, net sales in the first
quarter of 2011 increased 15.9% to $49.7 million, compared
to $42.9 million in the first quarter of 2010. Excluding
the favorable impact of foreign currency fluctuations, net sales
increased $4.8 million, or 11.2%, primarily driven by
higher net sales of fragrances, Revlon color cosmetics
and Mitchum anti-perspirant deodorant. From a country
perspective, net sales increased in the U.K. and South Africa
(which together contributed approximately 8.6 percentage
points to the increase in the region’s net sales in the
first quarter of 2011, as compared with the first quarter of
2010).
Latin
America
In Latin America, net sales in the first quarter of 2011
increased 35.0% to $27.0 million, compared to
$20.0 million in the first quarter of 2010. Excluding the
favorable impact of foreign currency fluctuations, net sales
increased $6.9 million, or 34.5%, primarily driven by
higher net sales of Revlon color cosmetics, other beauty
care products, Almay color cosmetics and Revlon
ColorSilk hair color. From a country perspective, net sales
increased throughout the region. Higher net sales in Venezuela,
including the impact
25
REVLON,
INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATION
(all tabular amounts in millions, except share and per share
amounts)
of higher selling prices given market conditions and inflation,
accounted for approximately half of the $6.9 million
increase in net sales in the region.
Canada
In Canada, net sales in the first quarter of 2011 increased
17.8% to $17.2 million, compared to $14.6 million in
the first quarter of 2010. Excluding the favorable impact of
foreign currency fluctuations, net sales increased
$1.6 million, or 11.0%, primarily driven by higher net
sales of Revlon color cosmetics, partially offset by
lower net sales of Almay color cosmetics.
Gross
profit:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
March 31,
|
|
|
|
|
|
2011
|
|
2010
|
|
Change
|
|
|
|
Gross profit
|
|
|
$219.9
|
|
|
|
$196.8
|
|
|
|
$23.1
|
|
|
Percentage of net sales
|
|
|
66.0
|
%
|
|
|
64.4
|
%
|
|
|
1.6
|
%
|
The 1.6 percentage point increase in gross profit as a
percentage of net sales for the first quarter of 2011, compared
to the first quarter of 2010, was primarily due to:
|
|
|
| |
•
|
lower material costs, which increased gross profit as a
percentage of net sales by 0.9 percentage points;
|
| |
| |
•
|
the adjustment to cost of goods in the first quarter of 2010
resulting from the devaluation of Venezuela’s local
currency relative to the U.S. dollar, which adjustment did
not re-occur in 2011 and, therefore, impacted gross profit in
the first quarter of 2011 as a percentage of net sales by
0.6 percentage points, as compared to the first quarter of
2010;
|
| |
| |
•
|
favorable fixed overhead absorption, which increased gross
profit as a percentage of net sales by 0.5 percentage
points;
|
| |
| |
•
|
lower pension expenses within cost of goods of
$1.8 million, which increased gross profit as a percentage
of net sales by 0.5 percentage points; and
|
| |
| |
•
|
lower costs related to inventory obsolescence and sales returns,
which increased gross profit as a percentage of net sales by
0.5 percentage points;
|
with the foregoing partially offset by:
|
|
|
| |
•
|
the impact of product mix, which reduced gross profit as a
percentage of net sales by 1.6 percentage points.
|
SG&A
expenses:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
March 31,
|
|
|
|
|
|
2011
|
|
2010
|
|
Change
|
|
|
|
SG&A expenses
|
|
|
$175.2
|
|
|
|
$151.4
|
|
|
|
$(23.8
|
)
|
The $23.8 million increase in SG&A expenses for the
first quarter of 2011, as compared to the first quarter of 2010,
was driven primarily by:
|
|
|
| |
•
|
$15.5 million of higher advertising expenses to support the
Company’s brands as the Company continued to optimize its
brand support mix; and
|
26
REVLON,
INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATION
(all tabular amounts in millions, except share and per share
amounts)
|
|
|
| |
•
|
$2.9 million of unfavorable impact of foreign currency
fluctuations.
|
Interest
expense:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
March 31,
|
|
|
|
|
|
2011
|
|
2010
|
|
Change
|
|
|
|
Interest expense
|
|
|
$22.6
|
|
|
|
$21.3
|
|
|
|
$(1.3
|
)
|
|
Interest expense — preferred stock dividend
|
|
|
1.6
|
|
|
|
1.6
|
|
|
|
—
|
|
The $1.3 million increase in interest expense (excluding
interest expense related to the regular dividends on the
Preferred Stock) for the first quarter of 2011, as compared to
the first quarter of 2010, was due to higher weighted average
borrowing rates, primarily as a result of the 2010 Refinancing
(as hereinafter defined), partially offset by lower debt levels.
In accordance with the terms of the certificate of designation
of the Preferred Stock, during both the first quarters of 2011
and 2010, Revlon, Inc. recognized $1.6 million of interest
expense related to regular dividends on the Preferred Stock.
Loss
on early extinguishment of debt, net:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
March 31,
|
|
|
|
|
|
2011
|
|
2010
|
|
Change
|
|
|
|
Loss on early extinguishment of debt, net
|
|
|
$—
|
|
|
|
$9.7
|
|
|
|
$9.7
|
|
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.
Foreign
currency losses:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
|
|
2011
|
|
2010
|
|
Change
|
|
|
|
Foreign currency losses
|
|
|
$0.3
|
|
|
|
$3.8
|
|
|
|
$3.5
|
|
Foreign currency losses during the first quarter of 2010
included a $2.8 million one-time foreign currency loss
related to the required re-measurement of the balance sheet of
the Company’s subsidiary in Venezuela (“Revlon
Venezuela”) during the first quarter of 2010 to reflect the
impact of the devaluation of Venezuela’s local currency
relative to the U.S. dollar, as Venezuela was 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).
Provision
for income taxes:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
|
|
2011
|
|
2010
|
|
Change
|
|
|
|
Provision for income taxes
|
|
|
$7.7
|
|
|
|
$5.0
|
|
|
|
$(2.7
|
)
|
The $2.7 million increase in provision for income taxes for
the first quarter of 2011, as compared to the first quarter of
2010, was primarily attributable to a the reduction of the
Company’s deferred tax valuation
27
REVLON,
INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATION
(all tabular amounts in millions, except share and per share
amounts)
allowance on its net U.S. deferred income tax assets at
December 31, 2010, which resulted in a higher effective tax
rate in the U.S. for the first quarter of 2011, as well as
higher taxable income for taxable subsidiaries in certain
foreign jurisdictions and the U.S. in the first quarter of
2011. The increase in the provision for income taxes resulting
from the reduction of the Company’s deferred tax valuation
allowance on its net U.S. deferred income tax assets will
not affect the Company’s cash taxes paid in 2011, and such
increase will not affect the Company’s cash taxes paid
until the Company has fully used its U.S. tax loss
carryforwards. (See Note 12, “Income Taxes,” to
the Consolidated Financial Statements in Revlon, Inc.’s
2010
Form 10-K).
Financial
Condition, Liquidity and Capital Resources
At March 31, 2011, the Company had a liquidity position of
$162.5 million, consisting of cash and cash equivalents
(net of any outstanding checks) of $56.1 million, as well
as approximately $106.4 million in available borrowings
under the 2010 Revolving Credit Facility, based upon the
calculated borrowing base less $21.2 million of undrawn
outstanding letters of credit and nil then drawn under the 2010
Revolving Credit Facility at such date.
Cash
Flows
At March 31, 2011, the Company had cash and cash
equivalents of $61.2 million, compared with
$35.8 million at March 31, 2010. The following table
summarizes the Company’s cash flows from operating,
investing and financing activities for March 31, 2011 and
March 31, 2010, respectively:
| |
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2011
|
|
2010
|
|
|
|
Net cash provided by operating activities
|
|
$
|
24.1
|
|
|
$
|
31.2
|
|
|
Net cash used in investing activities
|
|
|
41.4
|
|
|
|
3.0
|
|
|
Net cash provided by (used in) financing activities
|
|
|
2.0
|
|
|
|
(47.1
|
)
|
Operating
Activities
Net cash provided by operating activities in the first quarter
of 2011 was $24.1 million, as compared to
$31.2 million in the first quarter of 2010. As compared to
the first quarter of 2010, cash provided by operating activities
in the first quarter of 2011 was impacted by unfavorable changes
in working capital, higher pension contributions and higher
interest payments, partially offset by lower permanent display
purchases.
In the ordinary course of business, the Company’s source or
use of cash from operating activities may vary on a quarterly
basis as a result of a number of factors, including the timing
of working capital flows.
Investing
Activities
Net cash used in investing activities was $41.4 million and
$3.0 million for the first quarters of 2011 and 2010,
respectively. Net cash used in investing activities for the
first quarter of 2011 included a cash payment of
$39.0 million for the Sinful Colors Acquisition (as
hereinafter defined) and $2.4 million of cash used for
capital expenditures. On March 17, 2011, the Company
acquired certain net assets, including trademarks and other
intellectual property, inventory, certain receivables and
manufacturing equipment, related to Sinful Colors cosmetics,
Wild and Crazy cosmetics, freshMinerals cosmetics and freshcover
cosmetics, which products are sold principally in the
U.S. mass retail channel (the “Sinful Colors
Acquisition”). Net cash used in investing activities for
the first quarter of 2010 included $3.1 million of cash
used for capital expenditures.
28
REVLON,
INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATION
(all tabular amounts in millions, except share and per share
amounts)
Financing
Activities
Net cash provided by (used in) financing activities was
$2.0 million and $(47.1) million for the first
quarters of 2011 and 2010, respectively. Net cash provided by
financing activities for the first quarter of 2011 included a
$2.0 million scheduled amortization payment on the 2010
Term Loan Facility.
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 Corporation’s 2006 bank Term Loan Facility (the
“2010 Refinancing”), partially offset by Products
Corporation’s 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 principally of (i) the payment of
$13.4 million of the $15.1 million of fees incurred in
connection with the 2010 Refinancing; and (ii) the payment
of $1.6 million of the $25.0 million of fees incurred
in connection with the refinancing of Product Corporation’s
91/2% Senior
Notes in November 2009 with the
93/4% Senior
Secured Notes due November 2015.
Long-Term
Debt Instruments
For further detail regarding Products Corporation’s
long-term debt instruments, see Note 9, “Long-Term
Debt and Redeemable Preferred Stock,” to the Consolidated
Financial Statements in Revlon, Inc.’s 2010
Form 10-K,
as well as “Management’s Discussion and Analysis of
Financial Condition and Results of Operations —
Financial Condition, Liquidity and Capital Resources” in
Revlon, Inc.’s 2010
Form 10-K.
2010
Bank Credit Agreements
For detail regarding the 2010 Bank Credit Agreements, see
Note 9, “Long-Term Debt and Redeemable Preferred
Stock,” to the Consolidated Financial Statements in Revlon,
Inc.’s 2010
Form 10-K,
as well as “Management’s Discussion and Analysis of
Financial Condition and Results of Operations —
Financial Condition, Liquidity and Capital Resources —
2010 Bank Credit Agreements” in Revlon, Inc.’s 2010
Form 10-K.
Products Corporation was in compliance with all applicable
covenants under the 2010 Credit Agreements upon closing the 2010
Refinancing and as of March 31, 2011. At March 31,
2011, the aggregate principal amount outstanding under the 2010
Term Loan Facility was $792.0 million and availability
under the $140.0 million 2010 Revolving Credit Facility,
based upon the calculated borrowing base less $21.2 million
of outstanding undrawn letters of credit and nil then drawn on
the 2010 Revolving Credit Facility, was $106.4 million.
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
2010
Form 10-K,
as well as “Management’s Discussion and Analysis of
Financial Condition and Results of Operations —
Financial Condition, Liquidity and Capital Resources —
93/4% Senior
Secured Notes due 2015” in Revlon, Inc.’s 2010
Form 10-K.
Products Corporation was in compliance with all applicable
covenants under its
93/4% Senior
Secured Notes as of March 31, 2011.
29
REVLON,
INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATION
(all tabular amounts in millions, except share and per share
amounts)
Senior
Subordinated Term Loan
For detail regarding Products Corporation’s 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 is due from Products Corporation to Revlon,
Inc. and 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 2010
Form 10-K,
as well as “Management’s Discussion and Analysis of
Financial Condition and Results of Operations —
Financial Condition, Liquidity and Capital Resources —
Senior Subordinated Term Loan” in Revlon, Inc.’s 2010
Form 10-K.
Interest
Rate Swap Transaction
Prior to its expiration in April 2010, the Company’s
floating-to-fixed
interest rate swap had a notional amount of $150.0 million
initially relating to indebtedness under Products
Corporation’s 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
Corporation’s 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.
The 2008 Interest Rate Swap was initially designated as a cash
flow hedge of the variable interest rate payments on Products
Corporation’s 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 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
During the first quarter of 2011 and 2010, the Company’s
subsidiary in Venezuela had net sales of approximately 3% and
2%, respectively, of the Company’s consolidated net sales.
At both March 31, 2011 and December 31, 2010, total
assets in the Company’s subsidiary in Venezuela were
approximately 3% of the Company’s total assets.
Highly-Inflationary Economy: Effective
January 1, 2010, Venezuela was 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 Company’s subsidiary in
Venezuela. Through December 31, 2009, prior to Venezuela
being designated as highly inflationary, currency translation
adjustments of Revlon Venezuela’s
30
REVLON,
INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATION
(all tabular amounts in millions, except share and per share
amounts)
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
and the official exchange rate for non-essential goods changed
from 2.15 to 4.30. The Company uses Venezuela’s 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 Venezuela’s balance sheet. As
Venezuela was designated as a highly inflationary economy
effective January 1, 2010, this foreign currency loss was
reflected in earnings in the first quarter of 2010.
In December 2010, the Venezuelan government announced a further
devaluation of Bolivars relative to the U.S. dollar for
essential goods from 2.60 to 4.30, effective December 31,
2010. Given that the Company has immaterial transactions for
essential goods, the further devaluation has not had, nor does
the Company expect it to have, a material impact on the
Company’s results of operations or financial condition.
Sources
and Uses
The Company’s 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 Corporation’s
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 Company’s principal uses of funds are expected to be
the payment of operating expenses, including expenses in
connection with the continued execution of the Company’s
business strategy, purchases of permanent wall displays, capital
expenditure requirements, payments in connection with the
Company’s restructuring programs, severance not otherwise
included in the Company’s restructuring programs, debt
service payments and costs, debt repurchases and regularly
scheduled pension and post-retirement benefit plan contributions
and benefit payments. The Company’s cash contributions to
its pension and post-retirement benefit plans in the first
quarter of 2011 were $8.8 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 $30 million in the aggregate for
full year 2011. The Company’s purchases of permanent wall
displays and capital expenditures in the first quarter of 2011
were $8.9 million and $2.4 million, respectively. The
Company expects purchases of permanent wall displays and capital
expenditures in the aggregate for full year 2011 to be
approximately $40 million and $20 million,
respectively, inclusive of amounts expended in the first quarter
of 2011. (See Note 7, “Restructuring Costs and Other,
Net,” in the Consolidated Financial Statements in this
Form 10-Q
for discussion of the Company’s expected uses of funds in
connection with its various restructuring programs).
The Company has undertaken, and continues to assess, refine and
implement a number of improvements to efficiently manage its
cash and working capital, including, among other things,
programs intended to optimize inventory levels over time;
centralized procurement to secure discounts and efficiencies;
prudent management of accounts receivable and accounts payable;
and controls on general and administrative spending. In the
ordinary course of business, the Company’s source or use of
cash from operating
31
REVLON,
INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATION
(all tabular amounts in millions, except share and per share
amounts)
activities may vary on a quarterly basis as a result of a
number of factors, including the timing of working capital flows.
Continuing to execute the Company’s 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 Company’s
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 2011,
including cash requirements in connection with the payment of
operating expenses, including expenses in connection with the
execution of the Company’s business strategy, purchases of
permanent wall displays, capital expenditure requirements,
payments in connection with the Company’s restructuring
programs (including, without limitation, the May 2009 Program),
severance not otherwise included in the Company’s
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 Company’s cash requirements on a
consolidated basis. If the Company’s 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
and/or
currency controls; decreased sales of the Company’s
products as a result of increased competitive activities by the
Company’s 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 Company’s existing or new products or from
its advertising, promotional
and/or
marketing plans; or if the Company’s 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 Company’s current sources of funds may be
insufficient to meet the Company’s cash requirements.
Any such developments, if significant, could reduce the
Company’s revenues and could adversely affect Products
Corporation’s 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
2010
Form 10-K,
as supplemented in Item 1A of this
Form 10-Q,
for further discussion of certain risks associated with the
Company’s business and indebtedness).
32
REVLON,
INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATION
(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 Company’s business strategy;
|
| |
| |
•
|
reducing or delaying purchases of wall displays or advertising,
promotional or marketing expenses;
|
| |
| |
•
|
reducing or delaying capital spending;
|
| |
| |
•
|
implementing new or revising existing restructuring programs;
|
| |
| |
•
|
refinancing Products Corporation’s indebtedness;
|
| |
| |
•
|
selling assets or operations;
|
| |
| |
•
|
seeking additional capital contributions
and/or loans
from MacAndrews & Forbes, the Company’s 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
Corporation’s 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 Corporation’s 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 2010
Form 10-K,
as supplemented in Item 1A of this
Form 10-Q,
for further discussion of certain risks associated with the
Company’s 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 (the $48.6 million portion of the Senior
Subordinated Term Loan that was contributed to Revlon, Inc. by
MacAndrews & Forbes), 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 10, 2011, Revlon, Inc.
paid to holders of record of the Preferred Stock at the close of
business on December 31, 2010 the Regular Dividend in the
amount of $0.171074 per share, or $1.6 million, for the
period from October 8, 2010 through January 10, 2011.
In addition, on April 8, 2011, Revlon, Inc. paid to holders
of record of the Preferred Stock at the close of business on
March 29, 2011 the Regular Dividend in the amount of
$0.160154 per share, or $1.5 million, for the period from
January 10, 2011 through April 8, 2011.
33
REVLON,
INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATION
(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 Company’s 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 Company’s foreign and domestic operations
and generally have maturities of less than one year. At
March 31, 2011, the notional amount and fair value of FX
Contracts outstanding was $48.6 million and
$(1.7) million, respectively.
Disclosures
about Contractual Obligations and Commercial
Commitments
As of March 31, 2011, there were no material changes to the
Company’s total contractual cash obligations, as set forth
in the contractual obligations and commercial commitments table
included in Revlon, Inc.’s 2010
Form 10-K.
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
Company’s 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 Company’s critical accounting
policies, see Revlon, Inc.’s 2010
Form 10-K.
Effect of
Recent Accounting Pronouncements
During the first quarter of 2011, there were no recent
accounting pronouncements applicable to the Company.
34
REVLON,
INC. AND SUBSIDIARIES
|
|
|
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 Company’s policy is to manage market
risk through a combination of fixed and floating rate debt. The
Company from time to time makes use of derivative financial
instruments to adjust its fixed and floating rate ratio. 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 2010
Form 10-K
(“Item 7A”) describes significant aspects of the
Company’s financial instrument programs that have material
market risk as of December 31, 2010. The following table
presents the information required by Item 7A as of
March 31, 2011:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected Maturity Date for the Year Ended
December 31,
|
|
|
|
|
|
Fair Value
|
|
|
|
|
(dollars in millions, except for rate information)
|
|
|
|
|
|
March 31,
|
|
|
Debt
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
2015
|
|
|
Thereafter
|
|
|
Total
|
|
|
2011
|
|
|
|
|
Short-term variable rate (various currencies)
|
|
$
|
6.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6.4
|
|
|
$
|
6.4
|
|
|
Average interest
rate(a)
|
|
|
6.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term fixed rate — third party ($US)
|
|
|
|
|
|
|
|
|
|
$
|
48.6
|
(b)
|
|
|
|
|
|
$
|
330.0
|
|
|
|
|
|
|
|
378.6
|
|
|
|
408.8
|
|
|
Average interest rate
|
|
|
|
|
|
|
|
|
|
|
12.75
|
%
|
|
|
|
|
|
|
9.75
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term fixed rate — affiliates ($US)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
58.4
|
(c)
|
|
|
|
|
|
|
|
|
|
|
58.4
|
|
|
|
60.0
|
|
|
Average interest rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term variable rate — third party ($US)
|
|
|
6.0
|
|
|
$
|
8.0
|
|
|
|
8.0
|
|
|
|
8.0
|
|
|
|
762.0
|
|
|
|
|
|
|
|
792.0
|
|
|
|
794.0
|
|
|
Average interest
rate(a)(d)
|
|
|
6.0
|
%
|
|
|
6.0
|
%
|
|
|
6.1
|
%
|
|
|
6.4
|
%
|
|
|
6.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
$
|
12.4
|
|
|
$
|
8.0
|
|
|
$
|
56.6
|
|
|
$
|
66.4
|
|
|
$
|
1,092.0
|
|
|
$
|
—
|
|
|
$
|
1,235.4
|
|
|
$
|
1,269.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Weighted average variable rates are based upon implied forward
rates from the U.S. Dollar LIBOR yield curves at March 31,
2011. |
| |
|
(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 $58.4 million aggregate principal amount
outstanding of the Non-Contributed Loan (the $58.4 million
portion of the Senior Subordinated Term Loan that remains owing
from Products Corporation to MacAndrews & Forbes) as
of March 31, 2011 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) |
|
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). |
35
REVLON,
INC. AND SUBSIDIARIES
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Original
|
|
|
Contract
|
|
|
|
|
|
|
|
Contractual
|
|
|
US Dollar
|
|
|
Value
|
|
|
Fair Value
|
|
|
|
|
Rate
|
|
|
Notional
|
|
|
March 31,
|
|
|
March 31,
|
|
|
Forward Contracts
|
|
$/FC
|
|
|
Amount
|
|
|
2011
|
|
|
2011
|
|
|
|
|
Sell Canadian Dollars /Buy USD
|
|
|
0.9900
|
|
|
$
|
17.0
|
|
|
$
|
16.4
|
|
|
$
|
(0.6
|
)
|
|
Sell Australian Dollars/Buy USD
|
|
|
0.9655
|
|
|
|
12.9
|
|
|
|
12.2
|
|
|
|
(0.7
|
)
|
|
Sell British Pounds/Buy USD
|
|
|
1.5627
|
|
|
|
7.2
|
|
|
|
7.0
|
|
|
|
(0.2
|
)
|
|
Sell South African Rand/Buy USD
|
|
|
0.1392
|
|
|
|
5.4
|
|
|
|
5.2
|
|
|
|
(0.2
|
)
|
|
Buy Australian Dollars/Sell New Zealand Dollars
|
|
|
1.3442
|
|
|
|
4.4
|
|
|
|
4.4
|
|
|
|
—
|
|
|
Sell Japanese Yen/Buy USD
|
|
|
0.0121
|
|
|
|
1.2
|
|
|
|
1.2
|
|
|
|
—
|
|
|
Sell New Zealand Dollars/Buy USD
|
|
|
0.7245
|
|
|
|
0.3
|
|
|
|
0.3
|
|
|
|
—
|
|
|
Sell Hong Kong Dollars/Buy USD
|
|
|
0.1283
|
|
|
|
0.2
|
|
|
|
0.2
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total forward contracts
|
|
|
|
|
|
$
|
48.6
|
|
|
$
|
46.9
|
|
|
$
|
(1.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 Company’s
reports under the Securities Exchange Act of 1934, as amended,
is recorded, processed, summarized and reported within the time
periods specified in the SEC’s rules and forms, and that
such information is accumulated and communicated to management,
including the Company’s Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow timely decisions
regarding required disclosure. The Company’s management,
with the participation of the Company’s Chief Executive
Officer and Chief Financial Officer, has evaluated the
effectiveness of the Company’s 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 Company’s disclosure controls and
procedures were effective.
(b) Changes in Internal Control Over Financial
Reporting. There have not been any changes in
the Company’s internal control over financial reporting
during the first quarter of 2011 that have materially affected,
or are reasonably likely to materially affect, the
Company’s internal control over financial reporting.
Forward-Looking
Statements
This Quarterly Report on
Form 10-Q
for the quarter ended March 31, 2011, 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 Company’s
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 Company’s actual
results may differ materially from those discussed in such
forward-looking statements. Such statements include, without
limitation, the Company’s expectations and estimates
(whether qualitative or quantitative) as to:
|
|
|
| |
(i)
|
the Company’s 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
and/or
currency controls; decreased sales of the Company’s
products as a result of increased competitive activities by the
Company’s 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
|
36
REVLON,
INC. AND SUBSIDIARIES
|
|
|
| |
|
pricing or promotional strategies; less than anticipated results
from the Company’s existing or new products or from its
advertising, promotional
and/or
marketing plans; or if the Company’s 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 Company’s 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;
|
|
|
|
| |
(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 and effective 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;
|
|
|
|
| |
(vi)
|
the Company’s expectation that operating revenues, cash on
hand and funds available for borrowing under Products
Corporation’s 2010 Revolving Credit Facility and other
permitted lines of credit will be sufficient to enable the
Company to cover its operating expenses for 2011, including the
cash requirements referred to in item (viii) below;
|
|
|
|
| |
(vii)
|
the Company’s expected principal sources of funds,
including operating revenues, cash on hand and funds available
for borrowing under Products Corporation’s 2010 Revolving
Credit Facility and other permitted lines of credit, as well as
the availability of funds from refinancing Products
Corporation’s indebtedness, selling assets or operations,
capital contributions
and/or loans
from MacAndrews & Forbes, the Company’s 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 Company’s expected principal uses of funds, including
amounts required for the payment of operating expenses,
including expenses in connection with the continued execution of
the Company’s business strategy, payments in connection
with the Company’s purchases of permanent wall displays,
capital expenditure requirements, restructuring programs,
severance not otherwise included in the Company’s
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
|
37
REVLON,
INC. AND SUBSIDIARIES
|
|
|
| |
|
Corporation’s debt instruments), debt repurchases, cash
contributions to the Company’s pension plans and its other
post-retirement benefit plans and benefit payments in 2011,
purchases of permanent wall displays and capital expenditures;
|
|
|
|
| |
(ix)
|
matters concerning the Company’s market-risk sensitive
instruments, as well as the Company’s expectations as to
the counterparty’s performance, including that any loss
arising from the non-performance by the counterparty would not
be material;
|
|
|
|
| |
(x)
|
the Company’s plan to efficiently manage its cash and
working capital, including, among other things, programs
intended to optimize inventory levels over time; centralized
procurement to secure discounts and efficiencies; prudent
management of accounts receivable and accounts payable; controls
on general and administrative spending; and the Company’s
belief that in the ordinary course of business, its source or
use of cash from operating activities may vary on a quarterly
basis as a result of a number of factors, including the timing
of working capital flows;
|
|
|
|
| |
(xi)
|
the Company’s expectations regarding its future pension
expense, cash contributions and benefit payments under its
benefit plans;
|
|
|
|
| |
(xii)
|
the Company’s 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 (the $48.6 million
portion of the Senior Subordinated Term Loan that was
contributed to Revlon, Inc. by MacAndrews & Forbes),
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 principal amount outstanding under the
Contributed Loan, subject to Revlon, Inc. having sufficient
surplus in accordance with Delaware law; and
|
|
|
|
| |
(xiii)
|
the Company’s expectations as to the future impact of the
further devaluation of Venezuelan Bolivars, including, without
limitation, that given that the Company has immaterial
transactions for essential goods, the Company’s
expectations that it will not have a material impact on the
Company’s results of operations or financial condition.
|
Statements that are not historical facts, including statements
about the Company’s beliefs and expectations, are
forward-looking statements. Forward-looking statements can be
identified by, among other things, the use of forward-looking
language such as “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 Company’s 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 the Company made or may make in its 2010
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 2011 (which, among other
places, can be found on the SEC’s website at
http://www.sec.gov,
as well as on the Company’s 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 2010
Form 10-K,
as supplemented in Item 1A of this
Form 10-Q,
for further discussion of risks associated with the
Company’s business). In addition to factors that may be
described in the Company’s filings with the SEC, including
this filing, the
38
REVLON,
INC. AND SUBSIDIARIES
following factors, among others, could cause the Company’s
actual results to differ materially from those expressed in any
forward-looking statements made by the Company:
|
|
|
| |
(i)
|
unanticipated circumstances or results affecting the
Company’s 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 Company’s 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 than anticipated results from, the
Company’s 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
Company’s advertising, promotional
and/or
marketing plans; higher than expected sales returns or decreased
sales of the Company’s existing or new products; actions by
the Company’s 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 Company’s
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;
|
|
|
|
| |
(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 and currency
controls, 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
Company’s 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 Company’s
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
|
39
REVLON,
INC. AND SUBSIDIARIES
|
|
|
| |
|
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, transactions 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
Company’s restructuring activities;
|
|
|
|
| |
(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 Corporation’s
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 Company’s 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 Company’s 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; and
|
|
|
|
| |
(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; and
|
|
|
|
| |
(xiii)
|
unexpected consequences related to the future impact of the
further devaluation of Bolivars.
|
Factors other than those listed above could also cause the
Company’s results to differ materially from expected
results. This discussion is provided as permitted by the Private
Securities Litigation Reform Act of 1995.
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 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
40
REVLON,
INC. AND SUBSIDIARIES
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 SEC’s website
http://www.sec.gov,
as well as on the Company’s 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. 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.
41
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 Company’s business, financial condition
and/or its
results of operations.
As previously announced, on October 8, 2009, the Company
consummated its voluntary exchange offer in which, among other
things, Revlon, Inc. issued to stockholders who elected to
exchange shares (other than MacAndrews & Forbes)
9,336,905 shares of its Preferred Stock in exchange for the
same number of shares of Revlon, Inc. Class A Common Stock
tendered in the Exchange Offer (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 lawsuit 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 (in
lieu of consummating such merger proposal, the Company
consummated the aforementioned Exchange Offer). Each action
sought, among other things, to enjoin the proposed merger
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 Company’s Offer to Exchange
for the Exchange Offer information regarding the Company’s
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.
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 the
Sullivan action 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.
42
REVLON,
INC. AND SUBSIDIARIES
On May 25, 2010, plaintiffs’ counsel in the
Consolidated Action filed an amended complaint alleging breaches
of fiduciary duties arising out of the Exchange Offer and that
defendants should have disclosed in the Company’s Offer to
Exchange information regarding the Company’s financial
results for the fiscal quarter ended September 30, 2009.
Merits discovery is proceeding 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 alleged
failure to disclose in the Offer to Exchange certain information
relating to the Company’s financial results for the fiscal
quarter ended September 30, 2009. The plaintiff in this
action advised defendants that he intends to file an amended
complaint by May 16, 2011. Otherwise, defendants and
plaintiff have agreed to stay proceedings in this action until
August 15, 2011 to permit plaintiff to participate in the
merits discovery in the Consolidated Action. A similar agreement
has been reached with the plaintiff in the Sullivan action with
the same stay period.
On May 11, 2010, a purported derivative action was filed in
the U.S. District Court for the District of Delaware by
Richard Smutek, derivatively and on behalf of Revlon, Inc.
against Revlon, Inc.’s current directors and
MacAndrews & Forbes alleging breach of fiduciary duty
in allowing the Exchange Offer to proceed and failing to
disclose in the Offer to Exchange certain information related to
the Company’s financial results for the fiscal quarter
ended September 30, 2009. On August 16, 2010,
defendants moved to dismiss the complaint. Briefing on
defendants’ motions to dismiss was completed on
December 10, 2010. Thereafter, the parties requested oral
argument on the motions to dismiss. The motions to dismiss are
currently pending along with two discovery motions. On
September 27, 2010, plaintiff filed a motion to compel
discovery. In response, defendants moved to strike
plaintiff’s motion to compel discovery or, in the
alternative, for an extension of time for defendants to respond
to plaintiff’s motion.
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 plaintiff’s attorneys and experts.
Because the Smutek action is styled as a derivative action on
behalf of the Company, any award of damages, costs and
disbursements would be made to and for the benefit of the
Company. The Company believes the allegations contained in the
amended Sullivan complaint, the amended complaint in the
Consolidated Action, the Garofalo complaint and the Smutek
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 Company’s business, investors should
carefully consider the risk factors discussed in Part I,
“Item 1A. Risk Factors” in Revlon, Inc.’s
2010
Form 10-K.
Further, investors should consider the following supplemental
risk factor:
The March 2011 disaster in Japan and its aftermath could
impact our global supply chain from Japan and our operations
within Japan, which could adversely affect the Company’s
business, financial condition
and/or
results of operations.
We are assessing the potential impact of these events on our
global supply chain and our operations in Japan. We purchase
materials from suppliers in Japan and from other suppliers who
source materials from suppliers in Japan. Any significant
interruption in the supply of materials from Japan could
adversely affect our global supply chain and our ability to
produce certain products, most of which are sold globally.
Additionally, we are monitoring the potential impact on the
consumption of our products and our retail customers in Japan,
including the potential for reduced consumer traffic in retail
stores, reduced consumer purchases, reduced orders from retail
customers and the impact of store closures
and/or
shortened hours. The Company’s subsidiary in Japan
accounted for approximately 2%, 2%, 2% and 5% of the
Company’s consolidated net sales, operating income, total
assets and operating cash flow, respectively, for the year
43
REVLON,
INC. AND SUBSIDIARIES
ended December 31, 2010. Any significant adverse affect on
our sales in Japan could adversely affect the Company’s
business, financial condition
and/or
results of operations.
| |
|
|
|
*31.1
|
|
Certification of Alan T. Ennis, Chief Executive Officer, dated
April 28, 2011, pursuant to
Rule 13a-14(a)/15d-14(a)
of the Exchange Act.
|
|
*31.2
|
|
Certification of Steven Berns, Chief Financial Officer, dated
April 28, 2011, 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 28, 2011, 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 28, 2011, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
|
44
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 28, 2011
REVLON,
INC.
Registrant
By: /s/ Steven Berns
Steven Berns
Executive Vice President and
Chief Financial Officer
45