SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 2001
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from __________________ to __________________
Commission file number 1-11178
REVLON, INC.
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of
incorporation or organization)
625 Madison Avenue, New York, New York
(Address of principal executive offices)
13-3662955
(I.R.S. Employer
Identification No.)
10022
(Zip Code)
Registrant’s telephone number, including area code: (212) 527-4000
Securities registered pursuant to Section 12(b) or 12(g) of the Act:
Title of each class
Name of each exchange
on which registered
Class A Common Stock
New York Stock Exchange
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes X No ____
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not
contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]
As of December 31, 2001, 20,516,135 shares of Class A Common Stock and 31,250,000 shares of Class B
Common Stock were outstanding. 11,650,000 shares of Class A Common Stock and all of the shares of Class B
Common Stock were held by REV Holdings Inc., an indirectly wholly-owned subsidiary of Mafco Holdings Inc.
The aggregate market value of the registrant’s Class A Common Stock held by non-affiliates (using the New
York Stock Exchange closing price as of December 31, 2001) was approximately $59,048,459.
Item 1. Description of Business
Background
Part I
Revlon, Inc. (and together with its subsidiaries, the “Company”) conducts its business exclusively through
its direct subsidiary, Revlon Consumer Products Corporation (“Products Corporation”) manufactures, markets and
sells an extensive array of cosmetics and skin care, fragrances and personal care products. Revlon is one of the
world's best-known names in cosmetics and is a leading mass-market cosmetics brand. 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 marketed under such well-known brand names
as Revlon, ColorStay, Revlon Age Defying, and Skinlights, as well as Almay and Ultima II in cosmetics; Almay
Kinetin, Vitamin C Absolutes, Eterna 27, Ultima II and Jeanne Gatineau in skin care; Charlie and Fire & Ice in
fragrances; and High Dimension, Flex, Mitchum, Colorsilk, Jean Naté and Bozzano in personal care products. To
further strengthen its consumer brand franchises, the Company markets each core brand with a distinct and uniform
global image, including packaging and advertising, while retaining the flexibility to tailor products to local and regional
preferences.
The Company was founded by Charles Revson, who revolutionized the cosmetics industry by introducing nail
enamels matched to lipsticks in fashion colors over 70 years ago. Today, the Company has the number three position in
the color cosmetics category in the U.S. mass-market distribution channel and leading market positions in a number of
its principal product categories, including the lip, face makeup and nail enamel categories. The Company also has
leading market positions in several product categories in certain markets outside of the United States, including in
Australia, Canada, Mexico and South Africa. The Company’s products are sold in more than 100 countries across five
continents.
All United States market share and market position data herein for the Company’s brands are based upon
retail dollar sales, which are derived from ACNielsen data. ACNielsen measures retail sales volume of products sold in
the United States mass-market distribution channel. Such data represent ACNielsen’s estimates based upon data
gathered by ACNielsen from market samples and are therefore subject to some degree of variance. Additionally, as of
August 4, 2001, AC Nielsen’s data does not reflect sales volume from Wal-Mart, Inc.
Recent Developments
On November 26, 2001 Products Corporation issued and sold $363 million in aggregate principal amount
of 12% Senior Secured Notes due 2005 (the “12% Notes”) at 96.569%, in a private placement, receiving gross
proceeds of $350.5 million.
On November 30, 2001 Products Corporation entered into a new credit agreement (the “2001 Credit
Agreement"). The 2001 Credit Agreement provides up to $250.0 million in credit facilities comprised of $117.9
million in a term loan facility and $132.1 million in a multi-currency revolving credit facility (the issuance of the
12% Notes and the 2001 Credit Agreement are referred to herein as the “2001 Refinancing Transactions”). The
proceeds from the offering of the 12% Notes along with borrowings under the 2001 Credit Agreement were used to
repay all amounts outstanding under the 1997 Credit Agreement (as hereinafter defined) and to pay fees and
expenses incurred in connection with the 2001 Refinancing Transactions, and the balance is available for general
corporate purposes. On or before February 25, 2002, Products Corporation is required to file a registration
statement with the Securities and Exchange Commission (the “Commission”) with respect to an offer to exchange
the 12% Notes for registered notes with substantially the same terms (the “Exchange Offer”).
Products Corporation’s obligations under the 12% Notes are secured on a second-priority basis by
substantially the same collateral that secures the 2001 Credit Agreement on a first-priority basis, which includes, with
certain limited exceptions, Products Corporation’s capital stock, substantially all of Products Corporation’s non-real
property assets in the United States, Products Corporation’s facility in Oxford, North Carolina, the capital stock of
Products Corporation’s domestic subsidiaries and 66% of the capital stock of Products Corporation’s first-tier foreign
subsidiaries.
F-2
Effective February 14, 2002, Jeffrey M. Nugent, the Company's former President and Chief Executive
Officer, resigned from employment with the Company. On February 19, 2002, the Company announced its
appointment of Jack L. Stahl as its President and Chief Executive Officer.
Products
The Company manufactures and markets a variety of products worldwide. The following table sets forth the
Company’s principal brands and certain selected products.
BRAND
COSMETICS
SKIN CARE
FRAGRANCES
Eterna 27
Vitamin C Absolutes
Revlon Absolutes
Charlie
Ciara
Fire & Ice
Absolutely Fabulous
PERSONAL
CARE
PRODUCTS
High Dimension
Colorsilk
Frost & Glow
ColorStay
Flex
Outrageous
Aquamarine
Mitchum
Lady Mitchum
Hi & Dri
Jean Naté
Revlon Beauty
Tools
Almay Kinetin
Almay MilkPlus
Almay
Glowtion
Vital Radiance
CHR
LightCaptor-C
U II Sheer Scent
Ultimately U
Revlon
Almay
Ultima II
Revlon
ColorStay
Revlon Age Defying
Super Lustrous
Moon Drops
New Complexion
Absolutely Fabulous
Line & Shine
Skinlights
Super Top Speed
Shine Control Mattifying
High Dimension
Illuminance
Wet/Dry
Everylash
StreetWear
Almay
Time-Off
Amazing
One Coat
Skin Stays Clean
Beyond Powder
Organic Fluoride Plus
Ultima II
Beautiful Nutrient
Wonderwear
Full Moisture
Glowtion
Pucker & Pout
Ultimate Edition
Significant
Regional Brands
Jeanne Gatineau
Cutex
Jeanne Gatineau
Bozzano
Juvena
Cosmetics and Skin Care. The Company sells a broad range of cosmetics and skin care products designed to
fulfill specifically identified consumer needs, principally priced in the upper range of the mass-market distribution
channel, including lip makeup, nail color and nail care products, eye and face makeup and skin care products such as
lotions, cleansers, creams, toners and moisturizers. Many of the Company's products incorporate patented,
patent-pending or proprietary technology.
F-3
The Company markets several different lines of Revlon lip makeup (which includes lipstick, lip gloss and
liner). The Company's ColorStay lipcolor, which uses patented transfer-resistant technology that provides long wear,
is produced in approximately 38 shades. ColorStay Liquid Lip and ColorStay Lip Shine, a patented lip technology
introduced in 1999, is produced in approximately 64 shades and builds on the strengths of the ColorStay foundation by
offering long-wearing benefits in a new product form, which enhances comfort and shine. Super Lustrous lipstick is
produced in approximately 70 shades. Moon Drops, a moisturizing lipstick, is produced in approximately 30 shades.
Line & Shine utilizes an innovative product form, combining lipliner and lip gloss in one package, and is produced in
approximately 8 shades. Revlon MoistureStay uses patented technology to moisturize the lips even after the color
wears off, and is produced in approximately 40 shades. In 2001, the Company launched Absolutely Fabulous
Lipcream, a new premium line of emollient-rich lip color which is produced in 30 shades.
The Company's nail color and nail care lines include enamels, cuticle preparations and enamel removers. The
Company's flagship Revlon nail enamel is produced in approximately 64 shades and uses a patented formula that
provides consumers with improved wear, application, shine and gloss in a toluene-free and formaldehyde-free formula.
In 2001, the Company launched Super Top Speed nail enamel, currently available in approximately 48 shades,
containing a patented speed drying polymer formula which sets in 60 seconds. Revlon has the number two position
in nail enamel in the United States mass-market distribution channel. The Company also sells Cutex nail polish
remover and nail care products in certain countries outside the United States.
The Company sells face makeup, including foundation, powder, blush and concealers, under such Revlon
brand names as Revlon Age Defying, which is targeted for women in the over 35 age bracket; ColorStay, which uses
patented transfer-resistant technology that provides long wear and won’t rub off benefits; and New Complexion, for
consumers in the 18 to 34 age bracket. In 2001, the Company launched Skinlights skin brighteners, that brightens skin
with sheer washes of color, which created an entirely new category in color cosmetics.
The Company's eye makeup products include mascaras, eyeliners, eye shadows and brow color. ColorStay
eyecolor, mascara and brow color, Everylash mascara, Softstroke eyeliners and Revlon Wet/Dry eye shadows are
targeted for women in the 18 to 49 age bracket. In 2001, the Company launched Illuminance, an eye shadow that
“brightens up eyes”, and High Dimension mascara and eyeliners.
The Company's Almay brand consists of a complete line of hypo-allergenic, dermatologist-tested,
fragrance-free cosmetics and skin care products targeted for consumers who want "a good, healthy for you,” hypo-
allergenic product. Almay products include lip makeup, nail color, eye and face makeup and skin care products. The
Almay brand flagship One Coat franchise consists of lip makeup and eye makeup products including mascara and
eye shadow. The Company also sells Skin Stays Clean liquid and compact foundation makeup with its patented
“clean pore complex.” The Almay Amazing Lasting Collection features long-wearing mascaras and foundations. In
2001, the Company launched Almay Kinetin Skincare Advanced Anti-Aging Series featuring Kinetin, in a patented
technology.
The Company’s StreetWear brand consists of a quality, value-priced line of nail enamels, mascaras, lip and
eye liners, lip glosses and body accessories that are targeted for the young, beauty savvy consumer.
The Company's premium-priced cosmetics and skin care products are sold under the Ultima II brand name,
which is the Company's flagship premium-priced brand sold throughout the world. Ultima II products include lip
makeup, eye and face makeup and skin care products including Glowtion, a line of skin brighteners that combines skin
care and color; Full Moisture foundation and lipcolor, Vital Radiance, CHR and LightCaptor-C skin care products;
the Beautiful Nutrient collection, a complete line of nourishing makeup that provides advanced nutrient protection
against dryness; and Wonderwear. The Wonderwear collection includes a long-wearing foundation that uses
patented technology, cheek and eyecolor products that use proprietary technology providing long wear, and
Wonderwear lipstick, which uses patented transfer-resistant technology.
The Company sells Revlon Beauty Tools, which include nail and eye grooming tools such as clippers,
scissors, files, tweezers and eye lash curlers. Revlon Beauty Tools are sold individually and in sets under the Revlon
brand name and are the number one brand in the United States mass-market distribution channel.
F-4
The Company's skin care products, including moisturizers, are sold under brand names including Eterna 27,
Vitamin C Absolutes, Revlon Absolutes, Almay Kinetin, Almay Milk-Plus, and Ultima II Glowtion, Ultima II
CHR, Ultima II LightCaptor-C and Vital Radiance. In addition, the Company sells skin care products in
international markets under internationally recognized brand names and under various regional brands, including the
Company's premium-priced Jeanne Gatineau. In 2001, the Company launched Almay Kinetin Skincare Advanced
Anti-Aging Series featuring Kinetin, a patented technology.
Personal Care Products. The Company sells a broad line of personal care consumer products, which
complements its core cosmetics lines and enables the Company to meet the consumer's broader beauty care needs. In
the mass-market distribution channel, the Company sells haircare, antiperspirant and other personal care products,
including the Flex and Aquamarine haircare lines throughout the world and the Bozzano and Juvena brands in Brazil;
as well as Colorsilk, Frost & Glow and ColorStay hair coloring lines throughout most of the world; and the
Mitchum, Lady Mitchum and Hi & Dri antiperspirant brands throughout the world. The Company also markets
hypo-allergenic personal care products, including moisturizers and antiperspirants, under the Almay brand. In 2001,
the Company launched its High Dimension hair color, a revolutionary 10-minute home permanent hair color,
compared to many of our competitors’ home permanent hair color which require two to three times as long.
Fragrances. The Company sells a selection of moderately priced and premium-priced fragrances, including
perfumes, eau de toilettes, colognes and body sprays. The Company's portfolio includes fragrances such as Charlie,
Ciara, Fire & Ice and Absolutely Fabulous.
Marketing
The Company markets extensive consumer product lines at a range of retail prices primarily through the mass-
market distribution channel and outside the U.S. also markets select premium lines through demonstrator-assisted
channels. Each line is distinctively positioned and is marketed globally with consistently recognizable logos,
packaging and advertising. The Company's existing product lines are carefully tailored, and new product lines are
developed, to target specific consumer needs as measured by focus groups and other market research techniques.
The Company undertook a comprehensive review of its advertising strategy in late 2000 and early 2001.
This resulted in a shift from the historical use of an in-house advertising division to create and execute advertising to
the use of outside agencies to develop advertising campaigns for a number of the Company’s key new product
launches and to bring new energy to the Revlon and Almay brands, respectively. Additionally in 2002 the
Company will consolidate all of its advertising for the Revlon and Almay brands into a single advertising agency.
The Company believes that this shift to a leading outside agency will increase the effectiveness and relevance of its
worldwide advertising, as well as result in more efficient media placement.
The Company uses print and television advertising and point-of-sale merchandising, including displays and
samples. The Company's marketing emphasizes a uniform global image and product for its portfolio of core brands,
including Revlon, ColorStay, Revlon Age Defying, Almay, Ultima II, Flex, Charlie, and Mitchum. The Company
coordinates advertising campaigns with in-store promotional and other marketing activities. The Company develops
jointly with retailers carefully tailored advertising, point-of-purchase and other focused marketing programs. The
Company uses network and spot television advertising, national cable advertising and print advertising in major
general interest, women's fashion and women's service magazines, as well as coupons, magazine inserts and
point-of-sale testers. The Company also uses cooperative advertising programs with some retailers, supported by
Company-paid or Company-subsidized demonstrators, and coordinated in-store promotions and displays.
The Company also has developed unique marketing materials such as the "Revlon Report," a glossy, color
pamphlet distributed on merchandising units, which highlights seasonal and other fashion and color trends, describes
the Company's products that address those trends and contains coupons, rebate offers and other promotional material to
encourage consumers to try the Company's products. Other marketing materials designed to introduce the Company's
newest products to consumers and encourage trial and purchase include point-of-sale testers on the Company's display
units that provide information about, and permit consumers to test, the Company's products, thereby achieving the
benefits of an in-store demonstrator without the corresponding cost, magazine inserts containing samples of the
Company's newest products, trial-size products and "shade samplers," which are collections of trial-size products in
different shades. Additionally, in 2001 the Company relaunched its website devoted to the Revlon brand,
www.revlon.com, and launched a new website for its Almay product lineup, www.almay.com. Each of these websites
F-5
feature current product and promotional information for the Revlon and Almay brands, respectively, and are updated
regularly to stay current with the Company’s new product launches and other advertising and promotional campaigns.
New Product Development and Research and Development
it
that
is an
The Company believes
innovative and
industry
technologically-advanced consumer products. The Company's marketing and research and development groups
identify consumer needs and shifts in consumer preferences in order to develop new products, tailor line extensions
and promotions and redesign or reformulate existing products to satisfy such needs or preferences. The Company's
research and development group comprises departments specialized in the technologies critical to the Company's
various product categories, as well as an advanced technology department that promotes inter-departmental,
cross-functional research on a wide range of technologies to develop new and innovative products. The Company
independently develops substantially all of its new products.
the development of
leader
in
As part of the Company’s 2001 strategic plan, one of the Company’s key objectives was to reinvigorate the
Company’s brands by developing a pipeline of innovative new products. In 2001, the Company created one of its
most extensive line-ups of new products since the development and introduction of ColorStay in the mid-1990s,
with major new product launches including: Skinlights skin brighteners, that brightens skin with sheer washes of
color, which created an entirely new category in color cosmetics; Absolutely Fabulous Lipcream, a new premium line
of emollient-rich lip color; and Super Top Speed nail enamel, currently available in 48 shades, containing a patented
speed drying polymer formula which sets in 60 seconds. In 2001, the Company launched Illuminance, an eye shadow
that “brightens up eyes.” Also in 2001, the Company launched Almay Kinetin Skincare Advanced Anti-Aging
Series featuring Kinetin, in a patented technology, and High Dimension hair color, a revolutionary 10-minute home
permanent hair color, compared to many of the Company’s competitors’ home permanent hair color which require
two to three times as long.
The Company believes that its Edison, New Jersey facility is one of the most extensive cosmetics research and
development facilities in the United States. The scientists at the Edison facility are responsible for all of the Company's
new product research worldwide, performing research for new products, ideas, concepts and packaging. The research
and development group at the Edison facility also performs extensive safety and quality tests on the Company's
products, including toxicology, microbiology and package testing. Additionally, quality control testing is performed at
each manufacturing facility.
As of December 31, 2001, the Company employed approximately 160 people in its research and development
activities, including specialists in pharmacology, toxicology, chemistry, microbiology, engineering, biology,
dermatology and quality control. In 2001, 2000 and 1999, the Company spent approximately $24.4 million, $27.3
million and $32.9 million, respectively, on research and development activities.
Manufacturing and Related Operations and Raw Materials
Since late 2000, the Company completed a number of measures related to rationalizing its global
manufacturing capacity, which are designed to substantially reduce costs and increase operating efficiencies. The
Company sold or closed approximately 55% of its manufacturing and distribution facility square footage, including:
•
•
•
•
•
the sale of the Company’s Phoenix, Arizona facility in May 2001 (a portion of which the
Company leased back through the end of 2001);
the shutdown of the Company’s manufacturing facility in Mississauga, Canada;
the sale of the Company’s manufacturing facility in Maesteg, Wales (UK) in July 2001; as part of
this sale the Company entered into a long-term supply agreement with the purchaser pursuant to
which the purchaser manufactures and supplies to the Company cosmetics and personal care
products for sale throughout Europe;
the closure of the Company’s manufacturing facilities in Auckland, New Zealand (which was
completed in late 2000), which manufacturing activities were consolidated into the Company’s
facility in Australia; and
the sale of the Company’s manufacturing facility in São Paulo, Brazil in July 2001 (which was
completed as part of the sale of the Company’s Colorama brand); as part of this sale the purchaser
manufactures for the Company in Brazil.
F-6
In connection with the sale of the Phoenix facility and the closing of the Canadian facility, the Company
consolidated North American manufacturing into its Oxford, North Carolina facility, which consolidation was
completed in late 2001. Revlon Beauty Tools for sale throughout the world are manufactured and/or assembled at the
Company's Irvington, New Jersey facility.
During 2001, cosmetics and personal care products also were produced at the Company's facilities in
Venezuela, Brazil (which was sold as noted above), France and South Africa and personal care products in Mexico.
The Company continually reviews its manufacturing needs against its manufacturing capacity for opportunities to
reduce costs and produce more efficiently.
The Company purchases raw materials and components throughout the world. The Company continuously
pursues reductions in cost of goods through the global sourcing of raw materials and components from qualified
vendors, utilizing its large purchasing capacity to maximize cost savings. The global sourcing of raw materials and
components from accredited vendors also ensures the quality of the raw materials and components. The Company
believes that alternate sources of raw materials and components exist and does not anticipate any significant shortages
of, or difficulty in obtaining, such materials.
Distribution
The Company's products are sold in more than 100 countries across five continents. The Company's
worldwide sales force had approximately 500 people as of December 31, 2001, including a dedicated sales force for
cosmetics, skin care, fragrance and personal care products in the mass-market distribution channel in the U.S. In
addition, the Company utilizes sales representatives and independent distributors to serve specialized markets and
related distribution channels.
United States and Canada. Net sales in the United States and Canada accounted for approximately 68% of
the Company's 2001 net sales, a majority of which were made in the mass-market distribution channel. The Company
also sells a broad range of consumer products to United States Government military exchanges and commissaries. The
Company licenses its trademarks to select manufacturers for products that the Company believes have the potential to
extend the Company's brand names and image. As of December 31, 2001, 11 licenses were in effect relating to 14
product categories to be marketed principally in the mass-market distribution channel. Pursuant to such licenses, the
Company retains strict control over product design and development, product quality, advertising and use of its
trademarks. These licensing arrangements offer opportunities for the Company to generate revenues and cash flow
through royalties.
As part of its strategy to increase consumption of the Company's products at retail, the Company has
increased the number of retail merchandisers who stock and maintain the Company's point of sale retail displays to
insure high selling SKUs are in stock and to insure the optimal presentation of the Company's product in retail
outlets. Additionally, the Company has upgraded the technology available to its sales force to provide real-time
information regarding inventory levels and other relevant information.
The Company also intends to update its retail presence and is evaluating and testing in retail stores a new
merchandising wall that is designed to help drive impulse purchases by consumers. The Company also intends to
update the image of the Revlon brand through the introduction of new graphics and package designs.
International. Net sales outside the United States and Canada accounted for approximately 32% of the
Company's 2001 net sales. The ten largest countries in terms of these sales, which include the United Kingdom,
Mexico, Australia, Brazil, France, South Africa, Venezuela, Hong Kong, Argentina and Italy, accounted for
approximately 25% of the Company's net sales in 2001. The Company distributes its products through drug
stores/chemists, hypermarkets/mass volume retailers and variety stores. The Company also distributes outside the
United States through department stores and specialty stores such as perfumeries. At December 31, 2001, the
Company actively sold its products through wholly-owned subsidiaries established in 20 countries outside of the
United States and through a large number of distributors and licensees elsewhere around the world.
F-7
Customers
The Company's principal customers include large mass volume retailers and chain drug stores, including such
well-known retailers as Wal-Mart, Target, Kmart, Walgreen, Rite Aid, CVS, Eckerd, Albertsons Drugs and Longs in
the United States, Boots in the United Kingdom, and Wal-Mart internationally. Wal-Mart and its affiliates worldwide
accounted for approximately 19.9% of the Company's 2001 consolidated net sales, before the EITF Issue 01-9
adjustment. As a result of the Company’s dispositions of certain non-core assets, including certain international
businesses, the Company expects that for future periods a small number of other customers will, in the aggregate,
account for a large portion of the Company’s net sales. Although the Company’s loss of Wal-Mart or one or more
other customers that may account for a significant portion of the Company’s sales, or any significant decrease in sales
to any of these customers, could have a material adverse effect on the Company’s business, financial condition or
results of operations. The Company has no reason to believe that any such loss of customer or decrease in sales will
occur. In January 2002, Kmart Corporation filed a bankruptcy petition for reorganization under Chapter 11 of the U.S.
Bankruptcy Code. Less than 5% of the Company’s 2001 net sales were made to Kmart. The Company plans to
continue doing business with Kmart for the foreseeable future and accordingly, based upon the information currently
available, believes that Kmart’s bankruptcy proceedings will not have a material adverse effect on the Company’s
business, financial condition or results of operations.
Competition
The consumer products business is highly competitive, characterized by vigorous competition throughout the
world. The Company competes on the basis of numerous factors, including brand recognition, product quality,
performance and price and the extent to which consumers are educated on product benefits, each of which have a
marked influence on consumers' choices among competing products and brands. Advertising, promotion,
merchandising and packaging, and the timing of new product introductions and line extensions, also have a significant
impact on buying decisions, and the structure and quality of the Company’s sales force affect product reception,
in-store position, permanent display space and inventory levels in retail outlets. The Company has experienced declines
in its market shares in the U.S. mass market in various product categories since late 1998 and there can be no assurance
that such declines will not continue. In addition, the Company competes in selected product categories against a
number of multinational companies, some of which are larger and have substantially greater resources than the
Company, and which may therefore have the ability to spend more aggressively on advertising and marketing and have
more flexibility to respond to changing business and economic conditions than the Company. Certain of the
Company’s competitors have increased their spending on discounting and promotional activities in U.S. mass-market
cosmetics. In addition to products sold in the mass-market and demonstrator-assisted distribution channels, the
Company's products also compete with similar products sold door-to-door or through mail order or telemarketing by
representatives of direct sales companies. The Company's principal competitors include L'Oréal S.A., The Procter &
Gamble Company, Unilever N.V. and The Estée Lauder Companies Inc.
Patents, Trademarks and Proprietary Technology
The Company's major trademarks are registered in the United States and in well over 100 other countries, and
the Company considers trademark protection to be very important to its business. Significant trademarks include
Revlon, ColorStay, Revlon Age Defying, Skinlights, Absolutely Fabulous, High Dimension, Frost & Glow,
Illuminance, Flex, Cutex (outside the U.S.), Mitchum, Eterna 27, Ultima II, Almay, Almay Kinetin, Charlie, Jean
Naté, Fire & Ice, Moon Drops, Super Lustrous, Wonderwear and Colorsilk.
The Company utilizes certain proprietary or patented technologies in the formulation or manufacture of a
number of the Company's products, including ColorStay lipcolor and cosmetics, ColorStay hair color, classic Revlon
nail enamel, Skinlights skin brightener, High Dimension hair color, Super Top Speed nail enamel, Revlon Age
Defying foundation and cosmetics, New Complexion makeup, Wonderwear foundation and lipstick, Almay Kinetin
skin care, Time-Off makeup, Amazing Lasting cosmetics, Almay One Coat eye makeup and cosmetics and Vital
Radiance skin care products. The Company also protects certain of its packaging and component concepts through
design patents. The Company considers its proprietary technology and patent protection to be important to its business.
F-8
Government Regulation
The Company is subject to regulation by the Federal Trade Commission and the Food and Drug
Administration (the "FDA") in the United States, as well as various other federal, state, local and foreign regulatory
authorities. The Oxford, North Carolina manufacturing facility is registered with the FDA as a drug manufacturing
establishment, permitting the manufacture of cosmetics that contain over-the-counter drug ingredients such as
sunscreens. Compliance with federal, state, local and foreign laws and regulations pertaining to discharge of materials
into the environment, or otherwise relating to the protection of the environment, has not had, and is not anticipated to
have, a material effect upon the capital expenditures, earnings or competitive position of the Company. State and local
regulations in the United States that are designed to protect consumers or the environment have an increasing influence
on the Company’s product claims, contents and packaging.
Industry Segments, Foreign and Domestic Operations
The Company operates in a single segment. Certain geographic, financial and other information of the
Company is set forth in Note 18 of the Notes to Consolidated Financial Statements of the Company.
Employees
As of December 31, 2001, the Company employed the equivalent of approximately 6,000 full-time persons.
As of December 31, 2001, approximately 130 of such employees in the United States were covered by collective
bargaining agreements. The Company believes that its employee relations are satisfactory. Although the Company has
experienced minor work stoppages of limited duration in the past in the ordinary course of business, such work
stoppages have not had a material effect on the Company's results of operations or financial condition.
Item 2. Properties
The following table sets forth as of December 31, 2001 the Company's major manufacturing, research and
warehouse/distribution facilities, all of which are owned except where otherwise noted.
Location
Use
Approximate Floor
Space Sq. Ft.
Oxford, North Carolina..................... Manufacturing, warehousing, distribution and office
Edison, New Jersey............................. Research and office (leased)
Irvington, New Jersey......................... Manufacturing, warehousing and office
Caracas, Venezuela............................. Manufacturing, distribution and office
Kempton Park, South Africa.............. Warehousing, distribution and office (leased)
Canberra, Australia............................. Warehousing, distribution and office
Isando, South Africa........................... Manufacturing, warehousing, distribution and office
1,012,000
175,000
96,000
145,000
127,000
125,000
94,000
During 2001, Products Corporation sold or closed its facilities in Phoenix, Arizona and Mississauga,
Canada (and consolidated the cosmetics manufacturing operations into the Company’s Oxford, North Carolina
facility), Maesteg, Wales (UK), São Paulo, Brazil, and New Zealand (see “Manufacturing and Related Operations
and Raw Materials”). In addition to the facilities described above, the Company owns and leases additional facilities
in various areas throughout the world, including the lease for the Company's executive offices in New York, New York
(346,000 square feet, of which approximately 6,000 square feet were sublet to affiliates of the Company and
approximately 171,000 square feet were sublet to unaffiliated third parties as of December 31, 2001). Management
considers the Company's facilities to be well-maintained and satisfactory for the Company's operations, and believes
that the Company's facilities and third party contractual supplier arrangements provide sufficient capacity for its current
and expected production requirements.
F-9
Item 3. Legal Proceedings
The Company is involved in various routine legal proceedings incident to the ordinary course of its business.
The Company believes that the outcome of all pending legal proceedings in the aggregate is unlikely to have a material
adverse effect on the business or consolidated financial condition of the Company.
On April 17, 2000, the plaintiffs in the six purported class actions filed in October and November 1999 by
each of Thomas Comport, Boaz Spitz, Felix Ezeir and Amy Hoffman, Ted Parris, Jerry Krim and Dan Gavish
individually and allegedly on behalf of others similarly situated to them against Revlon, Inc., certain of its present
and former officers and directors and the parent of Revlon, Inc., REV Holdings Inc. (“REV Holdings”), alleging
among other things, violations of Rule 10b-5 under the Securities Exchange Act of 1934, filed an amended
complaint, which consolidated all of the actions under the caption “In Re Revlon, Inc. Securities Litigation” and
limited the alleged class to security purchasers during the period from October 29, 1997 through October 1, 1998.
In June 2000, the defendants moved to dismiss the amended complaint, which motion was denied in substantial part
in March 2001. The Company believes the allegations contained in the amended complaint are without merit and is
vigorously defending against them.
A purported class action lawsuit was filed on September 27, 2000, in the United States District Court for
the Southern District of New York on behalf of Dan Gavish, Tricia Fontan and Walter Fontan individually and
allegedly on behalf of all others similarly situated who purchased the securities of Revlon, Inc. and REV Holdings
between October 2, 1998 and September 30, 1999 (the "Second Gavish Action"). In November 2001, plaintiffs
amended their complaint. The amended complaint alleges, among other things, that Revlon, Inc., certain of its
present and former officers and directors and REV Holdings violated, among other things, Rule 10b-5 under the
Securities Exchange Act of 1934. In December 2001, the defendants moved to dismiss the amended complaint. The
Company believes the allegations in the amended complaint are without merit and, if its motion to dismiss is not
granted, intends to vigorously defend against them.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of security holders during the fourth quarter of the fiscal year covered by
this report.
PART II
Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters
MacAndrews & Forbes Holdings Inc. (“MacAndrews Holdings”), a corporation wholly owned indirectly
through Mafco Holdings Inc. (“Mafco Holdings” and, collectively with MacAndrews Holdings, “MacAndrews &
Forbes”), which is indirectly wholly owned by Ronald O. Perelman, through REV Holdings, beneficially owns (i)
11,650,000 shares of the Class A Common Stock of Revlon, Inc. (representing approximately 57% of the outstanding
shares of Class A Common Stock of Revlon, Inc.), (ii) all of the outstanding 31,250,000 shares of Class B Common
Stock of Revlon, Inc., which together with the shares referenced in clause (i) above represent approximately 83% of the
outstanding shares of Revlon, Inc. common stock, and (iii) all of the outstanding 4,333 shares of Series B Convertible
Preferred Stock of Revlon, Inc. (each of which is entitled to 100 votes and each of which is convertible into 100 shares
of Class A Common Stock, which conversion rights are subject to approval by Revlon, Inc.’s stockholders at its 2002
Annual Meeting of Stockholders). Based on the shares referenced in clauses (i), (ii) and (iii) above, Mr. Perelman
through Mafco Holdings (through REV Holdings) has approximately 97% of the combined voting power of the
outstanding shares of the Company entitled to vote at its 2002 Annual Meeting of Stockholders. The remaining
8,866,135 shares of Revlon, Inc.’s Class A Common Stock outstanding at December 31, 2001 are owned by the public.
As of December 31, 2001, there were 792 holders of record of Revlon, Inc.’s Class A Common Stock. No dividends
were declared or paid during 2001 or 2000. The terms of the 2001 Credit Agreement, the 8 5/8% Notes, the 8 1/8%
Notes, the 9% Notes (each as hereinafter defined) and the 12% Notes currently restrict the ability of Products
Corporation to pay dividends or make distributions to Revlon, Inc. See the Consolidated Financial Statements of the
Company and the Notes thereto.
F-10
The table below shows the Company’s high and low quarterly stock prices for the years ended December 31,
2001 and 2000.
High...................................................................... $
Low......................................................................
High...................................................................... $
1st
Quarter
6.15
4.42
1st
Quarter
11.00
$
$
Low......................................................................
6.8125
2001 Quarterly Stock Prices (1)
2nd
Quarter
3rd
Quarter
$
7.25
4.34
$
8.95
4.77
2000 Quarterly Stock Prices (1)
2nd
Quarter
9.75
6.00
$
3rd
Quarter
8.125
5.875
$
4th
Quarter
7.25
5.05
4th
Quarter
7.375
3.72
(1) Represents the closing price per share on the New York Stock Exchange (the “NYSE”), the exchange on
which shares of the Company’s Class A Common Stock are listed. The Company’s symbol is REV.
Item 6. Selected Financial Data
The Consolidated Statements of Operations Data for each of the years in the five-year period ended December
31, 2001 and the Balance Sheet Data as of December 31, 2001, 2000, 1999, 1998 and 1997 are derived from the
Consolidated Financial Statements of the Company, which have been audited by KPMG LLP, independent certified
public accountants. The Selected Consolidated Financial Data should be read in conjunction with the Consolidated
Financial Statements of the Company and the Notes to the Consolidated Financial Statements and “Management’s
Discussion and Analysis of Financial Condition and Results of Operations.”
F-11
2001
2000
Year Ended December 31,
1999
(in millions)
1998
1997
Statements of Operations Data (a) (b) (c) (e):
Net sales........................................................ $
Operating income (loss).................................
(Loss) income from continuing operations....
1,321.5
$
16.1 (d)
(150.1)
1,447.8
15.9
(129.7)
(f)
Basic (loss) income from continuing
operations per common share.................. $
(2.87)
$
(2.49)
Diluted (loss) income from continuing
operations per common share.................. $
(2.87)
$
(2.49)
$
$
$
1,709.9
(212.0)
(370.9)
(g)
$
2,149.7
$
2,156.4
124.7 (h)
(27.3)
214.2 (i)
56.6
(7.12)
(7.12)
$
$
(0.52)
(0.52)
$
$
Weighted average number of
common shares outstanding: (j)
Basic......................................................
Diluted...................................................
52.2
52.2
52.2
52.2
52.1
52.1
52.1
52.1
1.09
1.08
52.0
52.4
2001
2000
December 31,
1999
(in millions)
1998
1997
Balance Sheet Data (b) (e):
Total assets.................................................... $
Long-term debt, including current portion.....
Total stockholders' deficiency.......................
997.6
1,643.6
(1,282.7)
$
1,101.8
1,563.1
(1,106.7)
$
1,558.9
1,772.1
(1,015.0)
$
$
1,831.0
1,660.0
(647.7)
1,757.6
1,425.2
(458.8)
(a) In November 2001, the FASB Emerging Issues Task Force (the “EITF”) reached consensus on EITF Issue 01-9
entitled, “Accounting for Consideration Given by a Vendor to a Customer or a Reseller of the Vendor’s Products” (the
“Guidelines”), which addresses when sales incentives and discounts should be recognized, as well as where the related
revenues and expenses should be classified in the financial statements. The Company adopted the earlier portion of
these new Guidelines (formerly EITF Issue 00-14) addressing certain sales incentives effective January 1, 2001, and
accordingly, all prior period financial statements reflect the implementation of the earlier portion of the Guidelines.
(b) In September 2001, Revlon, Inc. acquired from Revlon Holdings Inc. (“Holdings”), an affiliate and an indirect
wholly owned subsidiary of Mafco Holdings, and contributed to Products Corporation all of the assets and liabilities of
the Charles of the Ritz business. The transaction has been accounted for at historical cost in a manner similar to that of
a pooling of interests and, accordingly, all prior period financials statements presented have been restated as if the
acquisition took place at the beginning of such periods. (See Note 15 to the Consolidated Financial Statements).
(c) On July 16, 2001, the Company completed the disposition of the Colorama brand in Brazil. Accordingly, the
selected financial data includes the results of operations of the Colorama brand through the date of disposition.
(d) Includes restructuring costs and other, net, and additional consolidation costs associated with the shutdown of the
Phoenix and Canada facilities of $38.1 million and $43.6 million, respectively. (See Note 2 to the Consolidated
Financial Statements).
(e) On March 30, 2000 and May 8, 2000, the Company completed the dispositions of its worldwide professional
products line and the Plusbelle brand in Argentina, respectively. Accordingly, the selected financial data include the
results of operations of the professional products line and the Plusbelle brand through the dates of their respective
dispositions.
F-12
(f) Includes restructuring costs and other, net, and additional consolidation costs associated with the shutdown of the
Phoenix facility of $54.1 million and $4.9 million, respectively. (See Note 2 to the Consolidated Financial Statements).
(g) Includes restructuring costs and other, net of $40.2 million and executive separation costs of $22.0 million. (See
Note 2 to the Consolidated Financial Statements).
(h) Includes restructuring costs and other, net, aggregating $35.8 million.
(i)Includes restructuring costs and other, net, of $3.6 million.
(j) Represents the weighted average number of common shares outstanding for the period. (See Note 1 to the
Consolidated Financial Statements).
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
(dollars in millions)
Overview
The Company operates in a single segment and manufactures, markets and sells an extensive array of
cosmetics and skin care, fragrances and personal care products. In addition, the Company has a licensing group.
On March 30, 2000, May 8, 2000, and July 16, 2001 Products Corporation completed the dispositions of its
worldwide professional products line, Plusbelle brand in Argentina and Colorama brand in Brazil, respectively.
Accordingly, the Consolidated Condensed Financial Statements include the results of operations of the professional
products line and the Plusbelle and Colorama brands through the dates of their respective dispositions.
During the first quarter of 2001, to reflect the integration of management reporting responsibilities, the
Company reclassified Canada’s results from its international operations to its United States operations.
Management’s discussion and analysis data reflects this change for all periods presented.
In November 2001, the EITF reached consensus on EITF Issue 01-9, which addresses when sales incentives
and discounts should be recognized, as well as where the related revenues and expenses should be classified in the
financial statements. The Company adopted the earlier portion of these new Guidelines (formerly EITF Issue 00-14)
addressing certain sales incentives effective January 1, 2001, and accordingly, all prior period financial statements
reflect the implementation of the earlier portion of the Guidelines.
In September 2001, Revlon, Inc. acquired from Holdings and contributed to Products Corporation all of the
assets and liabilities of the Charles of the Ritz business. The transaction has been accounted for at historical cost in a
manner similar to that of a pooling of interests and, accordingly, all prior period financials statements presented have
been restated as if the acquisition took place at the beginning of such periods.
Discussion of Critical Accounting Policies:
In the ordinary course of business, the Company has made a number of estimates and assumptions relating to
the reporting of results of operations and financial condition in the preparation of its financial statements in conformity
with accounting principles generally accepted in the United States of America. Actual results could differ significantly
from those estimates under different assumptions and conditions. The Company believes that the following discussion
addresses the Company’s most critical accounting policies, which are those that are most important to the portrayal of
the Company’s financial condition and results and require management’s most difficult, subjective and complex
judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.
Sales Returns:
The Company allows customers to return their unsold products when they meet certain Company-
established criteria as outlined in the Company’s trade terms. The Company regularly reviews and revises when
deemed necessary its estimates of sales returns based primarily upon actual returns, planned product
F-13
discontinuances, and promotional sales, which would permit customers to return items based upon the Company’s
trade terms. The Company records estimated sales returns as a reduction to sales, cost of sales and accounts
receivable and an increase to inventory. Cost of sales includes the cost of refurbishment of returned products.
Returned products which are recorded as inventories are valued based upon expected realizablity. The physical
condition and marketability of the returned products are the major factors considered by the Company in estimating
realizable value. Actual returns, as well as realized values on returned products, may differ significantly, either
favorably or unfavorably, from our estimates if factors such as economic conditions, customer inventory levels or
competitive conditions differ from our expectations.
Trade Support Costs:
In order to support the retail trade, the Company has various performance-based arrangements with retailers
to reimburse them for all or a portion of their promotional activities related to the Company’s products. The
Company regularly reviews and revises, when deemed necessary, estimates of costs to the Company for these
promotions based on estimates of what has been incurred by the retailers. Actual costs incurred by the Company
may differ significantly if factors such as the level and success of the retailers’ programs or other conditions differ
from our expectations.
Inventories:
Inventories are stated at the lower of cost or market value. Cost is principally determined by the first-in,
first-out method. The Company records adjustments to the value of inventory based upon its forecasted plans to sell its
inventories. The physical condition (e.g., age and quality) of the inventories is also considered in establishing its
valuation. These adjustments are estimates, which could vary significantly, either favorably or unfavorably, from actual
requirements if future economic conditions, customer inventory levels or competitive conditions differ from our
expectations.
Property, Plant and Equipment and Other Assets:
Property, plant and equipment is recorded at cost and is depreciated on a straight-line basis over the estimated
useful lives of such assets. Changes in circumstances such as technological advances, changes to the Company’s
business model or changes in the Company’s capital strategy can result in the actual useful lives differing from the
Company’s estimates. In those cases where the Company determines that the useful life of property, plant and
equipment should be shortened, the Company would depreciate the net book value in excess of the salvage value, over
its revised remaining useful life thereby increasing depreciation expense. Factors such as changes in the planned use of
fixtures or software or closing of facilities could result in shortened useful lives.
Long-lived assets, including fixed assets and intangibles other than goodwill, are reviewed by the Company
for impairment whenever events or changes in circumstances indicate that the carrying amount of any such asset may
not be recoverable. The estimate of cash flow is based upon, among other things, certain assumptions about expected
future operating performance. The Company’s estimates of undiscounted cash flow may differ from actual cash flow
due to, among other things, technological changes, economic conditions, changes to its business model or changes in its
operating performance. If the sum of the undiscounted cash flows (excluding interest) is less than the carrying value,
the Company recognizes an impairment loss, measured as the amount by which the carrying value exceeds the fair
value of the asset.
Pension Benefits:
The Company sponsors pension and other retirement plans in various forms covering substantially all
employees who meet eligibility requirements. Several statistical and other factors which attempt to anticipate future
events are used in calculating the expense and liability related to the plans. These factors include assumptions about
the discount rate, expected return on plan assets and rate of future compensation increases as determined by the
Company, within certain guidelines. In addition, the Company’s actuarial consultants also use subjective factors such
as withdrawal and mortality rates to estimate these factors. The actuarial assumptions used by the Company may differ
materially from actual results due to changing market and economic conditions, higher or lower withdrawal rates or
longer or shorter life spans of participants. These differences may result in a significant impact to the amount of
F-14
pension expense recorded by the Company. Due to decreases in interest rates and declines in the income of assets in
the plans, it is expected that the pension expense for 2002 will be significantly higher than in recent years.
Results of Operations
In order to provide a more meaningful comparison of results from operations, the Company’s discussion is
presented on an ongoing operations basis. The following table sets forth certain summary unaudited data for the
Company for each of the last three years reconciling the Company’s actual as reported results to the ongoing
operations, after giving effect to the following: (i) the disposition of the worldwide professional products line, and
the Plusbelle and Colorama brands, assuming such transactions occurred on January 1, 1999; (ii) the elimination of
restructuring costs in the period incurred; and (iii) the elimination of additional costs associated with the closing of
the Phoenix and Canada facilities that were included in cost of sales and selling, general and administrative expenses
(“SG&A”) and executive severance costs that were included in selling, general and administrative expenses in the
period incurred (after giving effect thereto, the “Ongoing Operations”). The adjustments are based upon available
information and certain assumptions that our management believes are reasonable and do not represent pro forma
adjustments prepared in accordance with Regulation S-X. The summary unaudited data for the Ongoing Operations
does not purport to represent the results of operations or our financial position that actually would have occurred had
the foregoing transactions referred to in (i) above been consummated on January 1, 1999.
Year Ended December 31, 2001:
Product line,
brands and
facilities
sold
Restructuring
costs and
other, net
Ongoing
operations
As reported
Net sales............................................................................ $
1,321.5
$
(16.4)
$
-
$
1,305.1
Gross profit.......................................................................
Selling, general and administrative expenses....................
Restructuring costs and other, net.....................................
777.3
723.1
38.1
(6.5)
(9.1)
-
38.2
(5.4)
(38.1)
809.0
708.6
-
Year Ended December 31, 2000:
Product line,
brands and
facilities
sold
Restructuring
costs and
other, net
Ongoing
operations
As reported
Net sales............................................................................ $
1,447.8
$
(144.1)
$
-
$
1,303.7
Gross profit.......................................................................
Selling, general and administrative expenses....................
Restructuring costs and other, net.....................................
873.5
803.5
54.1
(77.8)
(72.2)
-
4.9
-
(54.1)
800.6
731.3
-
Year Ended December 31, 1999:
Product line,
brands and
facilities
sold
Restructuring
costs and
other, net
Ongoing
operations
As reported
Net sales............................................................................ $
1,709.9
$
(441.1)
$
-
$
1,268.8
Gross profit.......................................................................
Selling, general and administrative expenses....................
Restructuring costs and other, net.....................................
983.6
1,155.4
40.2
(261.3)
(231.8)
(3.9)
-
(22.0)
(36.3)
722.3
901.6
-
F-15
Year ended December 31, 2001 compared with year ended December 31, 2000
Net sales
Net sales were $1,321.5 and $1,447.8 for 2001 and 2000, respectively, a decrease of $126.3, or 8.7% on a
reported basis (a decrease of 6.0% on a constant U.S. dollar basis). The decline in consolidated net sales for year ended
2001 as compared with the year ended 2000 is primarily due to the sale of the worldwide professional products line and
the Plusbelle brand in Argentina in the first and third quarters of 2000, respectively, and the Colorama brand in Brazil
in July of 2001.
Net sales of the Ongoing Operations were $1,305.1 and $1,303.7 for 2001 and 2000, respectively (an increase
of 2.6% on a constant U.S. dollar basis).
United States and Canada. Net sales in the United States and Canada were $901.0 for 2001 compared with
$895.8 for 2000, an increase of $5.2, or 0.6%. Net sales of the Company’s Ongoing Operations in the United States
and Canada were $901.0 for 2001, compared with $860.1 for 2000, an increase of $40.9, or 4.8%. The increase for
2001 of 4.8%, was driven primarily by lower sales returns and allowances of $55.7 as a result of the Company’s
revised trade terms, which was partially offset by reduced sales volume of $14.8. This volume decline is net of
$14.0 of increased sales in the fourth quarter of 2001 resulting from the decision by major U.S. retail customers to
shift planned plan-o-gram timing for 2002 new products.
International. Net sales in the Company’s international operations were $420.5 for the 2001, compared with
$552.0 for 2000, a decrease of $131.5, or 23.8% on a reported basis (a decrease of 17.7% on a constant U.S. dollar
basis). The decline for year ended 2001 as compared with the year ended 2000 is primarily due to the sale of the
worldwide professional products line and the Plusbelle brand in Argentina in 2000, respectively, and the Colorama
brand in Brazil in July of 2001.
Net sales in the Company’s international Ongoing Operations (“Ongoing International Operations”) were
$404.1 and $443.6 for 2001 and 2000, respectively, a decrease of $39.5, or 8.9%, on a reported basis (a decrease of
2.4% on a constant U.S. dollar basis).
Ongoing International Operations sales are divided by the Company into three geographic regions. In
Europe and Africa, which comprises Europe, the Middle East and Africa, net sales decreased by 8.8% on a reported
basis to $160.2 for 2001, as compared with 2000 (a decrease of 1.6% on a constant U.S. dollar basis). In Latin
America, which comprises Mexico, Central America, South America and Puerto Rico, net sales decreased by 7.4%
on a reported basis to $131.9 for 2001, as compared with 2000 (a decrease of 2.1% on a constant U.S. dollar basis).
In the Far East, net sales decreased by 10.8% on a reported basis to $112.0 for 2001, as compared with 2000 (a
decrease of 3.9% on a constant U.S. dollar basis). Net sales in the Company’s international operations may be
adversely affected by weak economic conditions, political uncertainties, adverse currency fluctuations, and
competitive activities.
The decrease in net sales for 2001, as compared to 2000, for Ongoing International Operations on a
comparable currency basis, was primarily due to the increased competitive activity in Japan, Hong Kong and
Australia (which factor the Company estimates contributed to an approximately 1.9% reduction in net sales), a
reduction in sales volume in certain tourist related markets in Latin America (which factor the Company estimates
contributed to an approximately 0.9% reduction in net sales), the conversion of an operation to a distributor in 2001
(which factor the Company estimates contributed to an approximately 0.9% reduction in net sales) and difficulties in
the economy and increased sales returns in the Company’s Argentine operation (which factor the Company
estimates contributed to an approximately 1.4% reduction in net sales), offset by increased new products in China,
Brazil, South Africa and Mexico (which factor the Company estimates contributed to an approximately 3.1%
increase in net sales).
F-16
Gross profit
Gross profit was $777.3 for 2001, compared with $873.5 for 2000. As a percentage of net sales, gross
profit margins were 58.8% for 2001 compared with 60.3% for 2000. The decline in gross profit and gross profit
margin in 2001 compared to 2000 is due to $38.2 ($6.1 of which represents increased depreciation recorded for the
Phoenix facility – See Note 2) and $4.9 of additional consolidation costs associated with the shutdown of the
Phoenix and Canada facilities in 2001 and 2000, respectively. This decline is partially offset by the improvement in
sales returns and allowances and the dispositions of lower margin businesses. Gross profit and gross profit margin
for Ongoing Operations were $809.0 and 62.0%, respectively, in 2001 compared with gross profit and gross profit
margin of $800.6 and 61.4% in 2000. The increase in gross profit margin for 2001 is primarily related to the
improvement in sales returns and allowances versus 2000.
SG&A expenses
SG&A expenses were $723.1for 2001, compared with $803.5 for 2000. SG&A expenses for the Ongoing
Operations, which excludes $5.4 of additional consolidation costs associated with the shutdown of the Phoenix and
Canada facilities in 2001, were $708.6 for 2001, compared with $731.3 for 2000. The decrease in SG&A expenses
for our Ongoing Operations for 2001, as compared to the comparable 2000 period, is due primarily to the reduction
of departmental general and administrative expenses from $332.1 in 2000 to $283.0 for 2001 as a result of the
Company’s restructuring efforts, partially offset by an increase in brand support expenses from $332.9 for the 2000
to $350.7 for 2001.
Restructuring costs
In the first quarter of 2000, the Company recorded a charge of $9.5 relating to the 1999 restructuring
program that began in the fourth quarter of 1999. The Company continued to implement the 1999 restructuring
program during the second quarter of 2000 during which it recorded a charge of $5.1.
During the third quarter of 2000, the Company continued to re-evaluate its organizational structure. As
part of this re-evaluation, the Company initiated a new restructuring program in line with the original restructuring
plan developed in late 1998, designed to improve profitability by reducing personnel and consolidating
manufacturing facilities. The Company recorded a charge of $13.7 in the third quarter of 2000 for programs begun
in such quarter, as well as for the expanded scope of programs previously commenced. The 2000 restructuring
program focused on the Company’s plans to close its manufacturing operations in Phoenix, Arizona and
Mississauga, Canada and to consolidate its cosmetics production into its plant in Oxford, North Carolina. The 2000
restructuring program also includes the remaining obligation for excess leased real estate in the Company’s
headquarters, consolidation costs associated with the Company closing its facility in New Zealand, and the
elimination of several domestic and international executive and operational positions, each of which were effected to
reduce and streamline corporate overhead costs. In the fourth quarter of 2000, the Company recorded a charge of
$25.8 related to the 2000 restructuring program, principally for additional employee severance and other personnel
benefits and to consolidate worldwide operations.
In the first, second, third and fourth quarters of 2001, the Company recorded charges of $14.6, $7.9, $3.0
and $12.6, respectively, related to the 2000 restructuring program, principally for additional employee severance and
other personnel benefits, relocation and other costs related to the consolidation of worldwide operations. The charge
in the fourth quarter of 2001 also was for an adjustment to previous estimates of approximately $6.6.
The Company anticipates annualized savings of approximately $25 to $30 relating to the restructuring
charges recorded during 2001.
Other expenses (income)
Interest expense was $140.5 for 2001 compared with $144.5 for 2000. The decrease in interest expense for
2001, as compared to 2000, is primarily due to the repayment of borrowings under the 1997 Credit Agreement with
the net proceeds from the disposition of the worldwide professional products line, the Plusbelle brand in Argentina
F-17
and the Colorama brand in Brazil and by lower interest rates under the Credit Agreement, partially offset by interest
on the 12% Notes (which were issued in November 2001).
Sale of product line, brands and facilities, net
Described below are the principal sales of certain brands and facilities entered into by Products
Corporations during 2001:
In December 2001, Products Corporation sold a facility in Puerto Rico for approximately $4. In connection
with such disposition, the Company recorded a pre-tax and after-tax gain on the sale of $3.1 in the fourth quarter of
2001.
In July 2001, Products Corporation completed the disposition of the Colorama brand of cosmetics and hair
care products, as well as Products Corporation’s manufacturing facility located in São Paulo, Brazil, for
approximately $57. Products Corporation used $22 of the net proceeds, after transaction costs and retained
liabilities, to permanently reduce commitments under the 1997 Credit Agreement. In connection with such
disposition, the Company recognized a pre-tax and after-tax loss of $6.7.
In July 2001, Products Corporation completed the disposition of its subsidiary that owned and operated its
manufacturing facility in Maesteg, Wales (UK), including all production equipment. As part of this sale, Products
Corporation entered into a long-term supply agreement with the purchaser pursuant to which the purchaser
manufactures and supplies to Products Corporation cosmetics and personal care products for sale throughout
Europe. The purchase price was approximately $20.0, $10.0 of which was received on the closing date and $10.0 is
to be received over a six-year period, a portion of which is contingent upon certain future events. In connection with
such disposition, the Company recognized a pre-tax and after-tax loss of $8.6.
In May 2001, Products Corporation sold its Phoenix, Arizona facility for approximately $7 and leased it
back through the end of 2001. After recognition of increased depreciation in the first quarter of 2001, the Company
recorded a loss on the sale of $3.7 in the second quarter of 2001, which is included in SG&A expenses.
In April 2001, Products Corporation sold land in Minami Aoyama near Tokyo, Japan and related rights for
the construction of a building on such land (the “Aoyama Property”) for approximately $28. In connection with
such disposition, the Company recognized a pre-tax and after-tax loss of $0.8 during the second quarter of 2001.
Provision for income taxes
The provision for income taxes was $4.1 for 2001 compared with $8.6 for 2000. The decrease in the
provision for income taxes for 2001, as compared 2000, was attributable to adjustments to certain deferred tax assets
and higher taxes associated with the worldwide professional products line in the first quarter of 2000 and lower
taxable income in 2001 in certain markets outside the United States.
Extraordinary item
The extraordinary loss of $3.6 (net of taxes) in 2001 resulted primarily from the write-off of financing costs
in connection with the 2001 Refinancing Transactions.
Year ended December 31, 2000 compared with year ended December 31, 1999
Net sales
Net sales were $1,447.8 and $1,709.9 for 2000 and 1999, respectively, a decrease of $262.1, or 15.3% on a
reported basis (a decrease of 12.8% on a constant U.S. dollar basis). The decline in consolidated net sales for the year
2000 as compared with 1999 is primarily due to the sale of the worldwide professional products line and the Plusbelle
brand in Argentina.
Net sales of the Ongoing Operations were $1,303.7 and $1,268.8 for 2000 and 1999, respectively, an increase
of $34.9, or 2.8% on a reported basis (an increase of 4.9% on a constant U.S. dollar basis).
F-18
United States and Canada. Net sales in the United States and Canada were $895.8 for 2000 compared with
$954.8 for 1999, a decrease of $59.0, or 6.2%. Net sales of the Company’s Ongoing Operations in the United States
and Canada were $860.1 for 2000 compared with $796.2 for 1999, an increase of $63.9, or 8.0%. The increase in
net sales is primarily due to a decline in sales returns and allowances for 2000 of $174.2. This decline was partially
offset by $110.3 of lower shipments due to (i) a reduction of overall U.S. customer inventories, and (ii) reduced
consumer demand for the Company’s cosmetics due in part to fewer new product introductions in 2000 compared to
1999.
International. Net sales in the Company’s international operations were $552.0 for 2000, compared with
$755.1 for 1999, a decrease of $203.1, or 26.9% on a reported basis (a decrease of 22.1% on a constant U.S. dollar
basis). The decrease was primarily due to the sale of the worldwide professional products line and the Plusbelle brand
in Argentina.
Net sales of the Company’s Ongoing International Operations were $443.6 and $472.6 for 2000 and 1999,
respectively, a decrease of $29.0, or 6.1%, on a reported basis (a decrease of 0.9% on a constant U.S. dollar basis).
Ongoing International Operations sales are divided by the Company into three geographic regions. In
Europe and Africa, which comprises Europe, the Middle East and Africa, net sales decreased by 9.2% on a reported
basis to $175.7 for 2000, as compared with 1999 (an increase of 0.2% on a constant U.S. dollar basis). In Latin
America, which comprises Mexico, Central America, South America and Puerto Rico, net sales increased by 3.4%
on a reported basis to $142.4 for 2000, as compared with 1999 (a increase of 3.8% on a constant U.S. dollar basis).
In the Far East, net sales decreased by 11.2% on a reported basis to $125.5 for 2000, as compared with 1999 (a
decrease of 7.2% on a constant U.S. dollar basis). Net sales in the Company’s international operations may be
adversely affected by weak economic conditions, political and economic uncertainties, adverse currency
fluctuations, and competitive activities.
The decrease in net sales for 2000, as compared to 1999 for Ongoing International Operations on a
comparable currency basis, was primarily due to a reduction in sales volume in Japan, Hong Kong and France due to
the exit of certain product lines (which factor the Company estimates contributed to approximately 2.9% of the
decrease in net sales on a constant U.S. dollar basis), offset by increased new product and promotional activity in
South Africa, Mexico, Brazil, Argentina and Italy.
Gross profit
Gross profit was $873.5 for 2000, compared with $983.6 for 1999. As a percentage of net sales, gross
profit margins were 60.3% for 2000 compared with 57.5% for 1999. Gross profit and gross profit margin for the
Ongoing Operations, which excludes $4.9 of additional costs associated with the consolidation of worldwide
operations, were $800.6 and 61.4%, respectively, in 2000 compared with gross profit and gross profit margin of
$722.3 and 56.9%, respectively, in 1999. The increase in gross profit margin for 2000 is primarily related to the
improvement in sales returns and allowances versus 1999. This improvement was partially offset by a 4.4%
increase in manufacturing costs as a percentage of net shipments due to lower shipments in the U.S. as discussed
above.
SG&A expenses
SG&A expenses were $803.5 for 2000, compared with $1,155.4 for 1999. As a percentage of net sales,
SG&A expenses were 55.5% for 2000 compared with 67.6% for 1999. SG&A expenses for the Ongoing
Operations, which excludes $22 of separation costs of various executives terminated in 1999, were $731.3 in 2000,
or 56.1% percent of net sales, compared with $901.6 or 71.1% of net sales in 1999. The decrease in SG&A
expenses as a percentage of net sales during 2000 primarily reflects reduced brand support as a percentage of net
sales from 33.8% in 1999 to 25.5% in 2000 and a decline in departmental and other SG&A expenses of $67.1 or
16.9 % primarily due to the favorable impact of the Company’s restructuring efforts.
F-19
Restructuring costs and other, net
In late 1998, the Company developed a strategy to reduce overall costs and streamline operations. To
execute against this strategy, the Company began to develop a restructuring plan and executed the plan in several
phases, which has resulted in several restructuring charges being recorded.
In the fourth quarter of 1998, the Company began to execute the 1998 restructuring program which was
designed to realign and reduce personnel, exit excess leased real estate, realign and consolidate regional activities,
reconfigure certain manufacturing operations and exit certain product lines. During the nine-month period ended
September 30, 1999, the Company continued to execute the 1998 restructuring program and recorded an additional
net charge of $20.5 principally for employee severance and other personnel benefits and obligations for excess
leased real estate primarily in the United States. Additionally, in 1999, the Company exited a non-core business for
which it recorded a charge of $1.6, which was included in restructuring costs and other, net.
In the fourth quarter of 1999, the Company continued to restructure its organization and began a new
program in line with its original restructuring plan developed in late 1998, principally for additional employee
severance and other personnel benefits and to restructure certain operations outside the United States, including
certain operations in Japan, resulting in a charge of $18.1. Additionally, during the fourth quarter of 1999 the
Company recorded a charge of $22.0 for executive separation costs to SG&A related to this new program. In the
first quarter of 2000, the Company recorded a charge of $9.5 relating to the 1999 restructuring program that began in
the fourth quarter of 1999. The Company continued to implement the 1999 restructuring program during the second
quarter of 2000 during which it recorded a charge of $5.1.
During the third quarter of 2000, the Company continued to re-evaluate its organizational structure. As
part of this re-evaluation, the Company initiated a new restructuring program in line with the original restructuring
plan developed in late 1998, designed to improve profitability by reducing personnel and consolidating
manufacturing facilities. The Company recorded a charge of $13.7 in the third quarter of 2000 for programs begun
in such quarter, as well as the expanded scope of programs previously commenced. The 2000 restructuring program
focused on the Company’s plans to close its manufacturing operations in Phoenix, Arizona and Mississauga, Canada
and to consolidate its cosmetics production into its plant in Oxford, North Carolina. The 2000 restructuring program
also includes the remaining obligation for excess leased real estate in the Company’s headquarters, consolidation
costs associated with the Company closing its facility in New Zealand, and the elimination of several domestic and
international executive and operational positions, each of which were effected to reduce and streamline corporate
overhead costs. In the fourth quarter of 2000, the Company recorded a charge of $25.8 related to the 2000
restructuring program, principally for additional employee severance and other personnel benefits and to consolidate
worldwide operations.
Other expenses (income)
Interest expense was $144.5 for 2000 compared with $147.9 for 1999. The decrease in interest expense for
2000 as compared with 1999 is primarily due to the repayment of borrowings under the 1997 Credit Agreement with
the net proceeds from the disposition of the worldwide professional product line and the Plusbelle brand in
Argentina, partially offset by higher interest rates under the 1997 Credit Agreement.
Foreign currency losses (gains), net, were $1.6 for 2000 compared with $(0.5) for 1999. Foreign currency
losses, net for 2000, consisted primarily of losses in certain markets in Latin America.
Sale of product line, brands and facilities, net
On May 8, 2000, Products Corporation completed the disposition of the Plusbelle brand in Argentina. In
connection with the disposition, the Company recognized a pre-tax and after-tax loss of $4.8 (See Note 3 to the
Consolidated Financial Statements).
On March 30, 2000, Products Corporation completed the disposition of its worldwide professional products
line, including professional hair care for use in and resale by professional salons, ethnic hair and personal care
F-20
products, Natural Honey skin care and certain regional toiletries brands. In connection with the disposition, the
Company recognized a pre-tax and after-tax gain of $14.8 (See Note 3 to the Consolidated Financial Statements).
Provision for income taxes
The provision for income taxes was $8.6 for 2000 compared with $9.1 for 1999. The decrease for 2000
compared with 1999 was primarily attributable to lower taxable income in 2000 in certain markets outside the
United States.
Financial Condition, Liquidity and Capital Resources
Net cash used for operating activities was $86.5, $84.0 and $81.8 for 2001, 2000 and 1999, respectively.
The slight increase in net cash used for operating activities for 2001 compared to 2000 resulted primarily from a
higher net loss and changes in working capital, partially offset by lower purchases of permanent displays. The slight
increase in net cash used for operating activities for 2000 compared with 1999 resulted primarily from changes in
working capital, partially offset by a lower net loss and lower purchases of permanent displays.
Net cash provided by (used for) investing activities was $87.2, $322.1 and $(40.7) for 2001, 2000 and 1999,
respectively. Net cash provided by investing activities for 2001 consisted of net proceeds from the sale of the
Company’s Colorama brand in Brazil, the Company’s subsidiary in Maesteg, Wales (UK), the Aoyama Property in
Japan, the Phoenix facility and a facility in Puerto Rico, partially offset by capital expenditures. Net cash provided by
investing activities for 2000 consisted of proceeds from the sale of the Company’s worldwide professional products
line and the Plusbelle brand in Argentina, partially offset by cash used for capital expenditures. Net cash used for
investing activities in 1999 related principally to capital expenditures. Net cash used for investing activities for
2001, 2000 and 1999 included capital expenditures of $15.1, $19.0 and $42.3, respectively. Investing activities in
1999 included substantial upgrades to the Company’s management information systems.
Net cash provided by (used for) financing activities was $46.3, $(203.7) and $117.5 for 2001, 2000 and 1999,
respectively. Net cash provided by financing activities for 2001 included cash drawn under the 2001 and 1997 Credit
Agreements and proceeds from the issuance of the 12% Notes, partially offset by the repayment of borrowings under
the 1997 Credit Agreement (as hereinafter defined) with the net proceeds from the disposition of the Colorama brand in
Brazil, and subsequently with proceeds from the issuance of the 12% Notes and proceeds from the 2001 Credit
Agreement and payment of debt issuance costs in connection with the issuance of the 12% Notes and the 2001 Credit
Agreement (as hereinafter defined). Net cash used for financing activities for 2000 included repayments of borrowings
under the Credit Agreement with the net proceeds from the disposition of the worldwide professional products line and
the Plusbelle brand in Argentina and the repayment of Products Corporation’s Japanese yen-denominated credit
agreement (the “Yen Credit Agreement”), partially offset by cash drawn under the 1997 Credit Agreement. Net cash
provided by financing activities for 1999 included cash drawn under the 1997 Credit Agreement, partially offset by
repayments of borrowings under the Credit Agreement, redemption of the Products Corporation’s 9 ½% Senior
Notes due 1999 and repayments under the Yen Credit Agreement.
On November 26, 2001, Products Corporation issued and sold $363 in aggregate principal amount of 12%
Notes in a private placement, receiving gross proceeds of $350.5. Products Corporation used the proceeds from the
12% Notes and borrowings under the 2001 Credit Agreement to repay outstanding indebtedness under Products
Corporation’s 1997 Credit Agreement and to pay fees and expenses incurred in connection with the 2001
Refinancing Transactions, and the balance is available for general corporate purposes. On or before February 25,
2002, Products Corporation expects to file a registration statement with the Commission with respect to the
Exchange Offer.
On November 30, 2001, Products Corporation entered into the 2001 Credit Agreement with a syndicate of
lenders, whose individual members change from time to time, which agreement amended and restated the credit
agreement entered into by Products Corporation in May 1997 (as amended, the “1997 Credit Agreement”; the 2001
Credit Agreement and the 1997 Credit Agreement are sometimes referred to as the “Credit Agreement”), and which
matures on May 30, 2005. As of December 31, 2001, the 2001 Credit Agreement provided up to $250.0, which is
comprised of a $117.9 term loan facility (the “Term Loan Facility”) and a $132.1 multi-currency revolving credit
facility (the “Multi-Currency Facility”). At December 31, 2001, the Term Loan Facility was fully drawn and $103.5
was available under the Multi-Currency Facility, including the letters of credit. The 2001 Credit Agreement
F-21
contains minimum EBITDA levels for the four consecutive quarters ending March 31, 2002 of $180, June 30, 2002
through September 30, 2002 of $185, December 31, 2002 through September 30, 2003 of $210, December 31, 2003
through September 30, 2004 of $230 and December 31, 2004 and thereafter of $250, as well as leverage ratio and
capital expenditure covenants and, negative covenants consistent with the 1997 Credit Agreement with certain
exceptions. The Credit Facilities (other than loans in foreign currencies) bear interest as of December 31, 2001 at a
rate equal to, at Products Corporation’s option, either (A) the Alternate Base Rate plus 3.75% (which was 4.75% at
December 31, 2001); or (B) the Eurodollar Rate plus 4.75% (which was 3.00% at December 31, 2001), which
margins are higher than those under the 1997 Credit Agreement. Loans in foreign currencies bear interest in certain
limited circumstances or if mutually acceptable to Products Corporation and the relevant foreign lenders at the Local
Rate and otherwise at the Eurocurrency Rate, in each case plus 4.75% (which was 3.49% at December 31, 2001).
Products Corporation pays a commitment fee of 0.75% of the average daily unused portion of the Multi-Currency
Facility. Under the Multi-Currency Facility, the Company pays (i) to foreign lenders a fronting fee of 0.25% per
annum on the aggregate principal amount of specified Local Loans (which fee is retained by the foreign lenders out
of the portion of the Applicable Margin payable to such foreign lender), (ii) to foreign lenders an administrative fee
of 0.25% per annum on the aggregate principal amount of specified Local Loans, (iii) to the multi-currency lenders a
letter of credit commission equal to (a) the Applicable Margin for Eurodollar Rate loans (adjusted for the term that
the letter of credit is outstanding) times (b) the aggregate undrawn face amount of letters of credit and (c) to the
issuing lender a letter of credit fronting fee of 0.25% per annum of the aggregate undrawn face amount of letters of
credit (which fee is a portion of the Applicable Margin).
The Company's principal sources of funds are expected to be cash flow generated from operations (before
interest), cash on hand and available borrowings under the Multi-Currency Facility of the 2001 Credit Agreement.
The Credit Agreement, Products Corporation’s 12% Notes, Products Corporation’s 8 5/8% Notes due 2008 (the “8
5/8% Notes”), Products Corporation’s 8 1/8% Notes due 2006 (the “8 1/8% Notes”) and Products Corporation’s 9%
Notes due 2006 (the “9% Notes”) contain certain provisions that by their terms limit Products Corporation’s and/or
its subsidiaries' ability to, among other things, incur additional debt. The Company's principal uses of funds are
expected to be the payment of operating expenses, working capital, purchases of permanent displays and capital
expenditure requirements, expenses in connection with the Company’s restructuring programs referred to above and
debt service payments.
The Company estimates that cash payments related to the restructuring programs referred to in Note 2 to
the Consolidated Financial Statements and executive separation costs will be $20 to $25 in 2002. Pursuant to a tax
sharing agreement, Revlon, Inc. may be required to make tax sharing payments to Mafco Holdings as if Revlon, Inc.
were filing separate income tax returns, except that no payments are required by Revlon, Inc. if and to the extent that
Products Corporation is prohibited under the Credit Agreement from making tax sharing payments to Revlon, Inc.
The Credit Agreement prohibits Products Corporation from making any tax sharing payments other than in respect
of state and local income taxes. Revlon, Inc. currently anticipates that, as a result of net operating tax losses and
prohibitions under the Credit Agreement, no cash federal tax payments or cash payments in lieu of federal taxes
pursuant to the tax sharing agreement will be required for 2002.
Products Corporation enters into forward foreign exchange contracts and option contracts from time to time
to hedge certain cash flows denominated in foreign currencies. There were no forward foreign exchange or option
contracts outstanding at December 31, 2001.
F-22
The Company expects that cash flows from operations before interest, cash on hand and available
borrowings under the Multi-Currency Facility of the 2001 Credit Agreement will be sufficient to enable the
Company to meet its anticipated cash requirements during 2002 on a consolidated basis, including for debt service
and expenses in connection with the Company’s restructuring programs. However, there can be no assurance that
the combination of cash flow from operations, cash on hand and available borrowings under the Multi-Currency
Facility of the 2001 Credit Agreement will be sufficient to meet the Company's cash requirements on a consolidated
basis. Additionally, in the event of a decrease in demand for its products or reduced sales, such development, if
significant, could reduce the Company’s cash flow from operations and could adversely affect the Company’s
ability to achieve certain financial covenants under the 2001 Credit Agreement, including the minimum EBITDA
covenant, and in such event the Company could be required to take measures, including reducing discretionary
spending. If the Company is unable to satisfy such cash requirements, the Company could be required to adopt one
or more alternatives, such as reducing or delaying purchases of permanent displays, reducing or delaying capital
expenditures, delaying or revising restructuring programs, restructuring indebtedness, selling assets or operations, or
seeking capital contributions or loans from affiliates of the Company or issuing additional shares of capital stock of
Revlon, Inc. Products Corporation has received a commitment from an affiliate that is prepared to provide, if
necessary, additional financial support to Products Corporation of up to $40 on appropriate terms through December
31, 2003. There can be no assurance that any of such actions could be effected, that they would enable the
Company to continue to satisfy its capital requirements or that they would be permitted under the terms of the
Company's various debt instruments then in effect. Revlon, Inc., as a holding company, will be dependent on the
earnings and cash flow of, and dividends and distributions from, Products Corporation to pay its expenses and to pay
any cash dividend or distribution on Revlon, Inc.’s Class A Common Stock that may be authorized by the Board of
Directors of Revlon, Inc. The terms of the Credit Agreement, the 12% Notes, the 8 5/8% Notes, the 8 1/8% Notes
and the 9% Notes generally restrict Products Corporation from paying dividends or making distributions, except that
Products Corporation is permitted to pay dividends and make distributions to Revlon, Inc., among other things, to
enable Revlon, Inc. to pay expenses incidental to being a public holding company, including, among other things,
professional fees such as legal and accounting, regulatory fees such as Commission filing fees and other
miscellaneous expenses related to being a public holding company and, subject to certain limitations, to pay
dividends or make distributions in certain circumstances to finance the purchase by Revlon, Inc. of its Class A
Common Stock in connection with the delivery of such Class A Common Stock to grantees under the Revlon, Inc.
Amended and Restated 1996 Stock Plan (the “Amended Stock Plan”).
The Company is currently developing and testing a new design for its permanent display units and, subject
to a number of factors including results from tests, the Company currently plans to begin installing them at certain
customers’ doors during 2002. If we proceed with such installation, we may need to accelerate the amortization of
our existing display units beginning in 2002. The scope of any display unit replacements has not yet been
determined and, therefore, the amount of additional amortization cannot be precisely calculated. However, we
estimate if we proceed with the installation of new displays that additional amortization will be in the range of $12
to $18 during 2002. The Company estimates that purchases of permanent displays for 2002 will be $45 to $60.
Additionally, the Company is evaluating its management information systems to determine if the current
system should be replaced with an Enterprise Resource Planning (“ERP”) System intended to provide benefits to the
Company in excess of the related purchase and implementation costs. If we determine to implement the ERP
System, certain existing information systems would be amortized on an accelerated basis. Based upon the estimated
time required to implement an ERP System, the Company currently estimates that it would record additional
amortization of its current information system in the range of $15 to $25 during 2002 if it proceeds with the
implementation of an ERP System. The Company estimates that capital expenditures for 2002 will be $15 to $25.
In the first quarter of 2002, the Company expects to record a charge of approximately $6 related to
separation costs for certain former senior executives of the Company.
F-23
Disclosures about Contractual Obligations and Commercial Commitments
The SEC has encouraged all public companies to aggregate all contractual commitments and commercial
obligations that affect financial condition and liquidity as of December 31, 2001. To respond to this, the Company
has included the following table:
Payments Due by Period
(dollars in millions)
Contractual Obligations
Long-term Debt
Total
$1,643.6
Less than 1
year
$1.3
1-3 years
$492.8
4-5 years
$499.6
After 5 years
$649.9
Capital Lease Obligations
Operating Leases
Nil
67.1
Unconditional Purchase
Obligations
194.5 (a)
Nil
26.1
52.8
Nil
23.1
69.5
Nil
7.0
41.8
Nil
10.9
30.4
Other Long-term Obligations
33.4 (b)
16.2
11.5
1.5
4.2
Total Contractual Cash
Obligations
$1,938.6
$96.4
$596.9
$549.9
$695.4
(a) Includes primarily $145.5 relating to fixed annual purchase commitments over the eight-year term of the supply
agreement which the Company entered into in connection with the sale of its manufacturing facility in Maesteg,
Wales (UK), $13.4 relating to fixed purchase commitments under an agreement which the Company entered
into in connection with the sale of the Company’s manufacturing facility in São Paulo, Brazil, and the balance
of $35.6 consists of other fixed purchase commitments for finished goods, raw materials and components.
(b) Such amounts exclude severance and other contractual commitments related to restructuring, which are
discussed under “Restructuring Costs”.
Euro Conversion
As part of the European Economic and Monetary Union, a single currency (the “Euro”) has replaced the
national currencies of the principal European countries (other than the United Kingdom) in which the Company
conducts business and manufacturing. The conversion rates between the Euro and the participating nations’
currencies were fixed as of January 1, 1999, with the participating national currencies being removed from
circulation between January 1, 2002 and June 30, 2002 and replaced by Euro notes and coinage. Under the
regulations governing the transition to a single currency, there is a “no compulsion, no prohibition” rule, which
states that no one can be prevented from using the Euro after January 1, 2002 and no one is obliged to use the Euro
before July 2002. In keeping with this rule, the Company expects to begin using the Euro for invoicing and
payments by the end of the second quarter of 2002. Based upon the information currently available, the Company
does not expect that the transition to the Euro will have a material adverse effect on the business or consolidated
financial condition of the Company.
Effect of New Accounting Standards
In November of 2001, the EITF reached consensus on the Guidelines, the second portion of which
(formerly EITF Issue 00-25) addresses vendor income statement characterization of consideration to a purchaser of
the vendor’s products or services, including the classification of slotting fees, cooperative advertising arrangements
and buy-downs. Certain promotional payments that are currently classified in SG&A expenses will be classified as a
reduction of net sales. The impact of the adoption of the second portion of the Guidelines on the consolidated
financial statements will reduce both net sales and SG&A expenses by equal and offsetting amounts of $43.9 in
2001, $38.4 in 2000 and $80.1 in 1999, respectively. The adoption will not have any impact on the Company’s
F-24
reported operating income or net loss. The Company has adopted the second portion of the Guidelines effective
January 1, 2002.
In July 2001, the FASB issued Statement No. 141, Business Combinations, and Statement No. 142,
Goodwill and Other Intangible Assets. Statement 141 requires that the purchase method of accounting be used for
all business combinations initiated after June 30, 2001 as well as all purchase method business combinations
completed after June 30, 2001. Statement 141 also specifies criteria that must be met in order for intangible assets
acquired in a purchase method business combination to be recognized and reported apart from goodwill. Statement
142 will require that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead
tested for impairment at least annually in accordance with the provisions of Statement 142. Statement 142 will also
require that intangible assets with definite useful lives be amortized over their respective estimated useful lives to
their estimated residual values, and reviewed for impairment in accordance with SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. The Company adopted the provisions of Statement 141 immediately
and Statement 142 effective January 1, 2002.
As of January 1, 2002, the Company expects to have unamortized goodwill in the amount of approximately
$186, and unamortized identifiable intangible assets in the amount of approximately $13. Amortization expense
related to goodwill was $7.1 for the year ended December 31, 2001. Any transitional impairment losses will be
required to be recognized as the cumulative effect of a change in accounting principle. The Company has made a
preliminary estimate of the impact of these Statements and has determined that these Statements will not have a
significant effect from impairment on its financial statements.
In August 2001, the FASB issued Statement No. 143, Accounting for Asset Retirement Obligations.
Statement 143 requires recording the fair market value of an asset retirement obligation as a liability in the period in
which a legal obligation associated with the retirement of tangible long-lived assets is incurred. The Statement also
requires recording the contra asset to the initial obligation as an increase to the carrying amount of the related long-
lived asset and depreciation of that cost over the life of the asset. The liability is then increased at the end of each
period to reflect the passage of time and changes in the initial fair value measurement. The Company is required to
adopt the provisions of Statement 143 effective January 1, 2003 and has not yet determined the extent of its impact,
if any.
In October 2001, the FASB issued Statement No. 144, Accounting for Impairment or Disposal of Long-
Lived Assets. Statement 144 addresses financial accounting and reporting for the impairment or disposal of long-
lived assets. The Statement also extends the reporting requirements to report separately as discontinued operations,
components of an entity that have either been disposed of or classified as held for sale. The Company has adopted
the provisions of Statement 144 effective January 1, 2002 and such adoption did not have a significant effect on its
financial statements.
Forward-Looking Statements
This Annual Report on Form 10-K for the year ended December 31, 2001, as well as other public
documents and statements of the Company, contain forward-looking statements that involve risks and uncertainties.
The Company’s actual results may differ materially from those discussed in such forward-looking statements. Such
statements include, without limitation, the Company’s expectations and estimates (whether qualitative or
quantitative) as to: the introduction of new products; the Company’s plans to update its retail presence, evaluate, test
and install new display walls (and the Company’s estimates of the costs of such new displays, the effects of such
plans on the accelerated amortization of existing displays and the estimated amount of such amortization) and the
Company’s plans to update the image of the Revlon brand through the introduction of new graphics and package
designs; its future financial performance; the effect on sales of political and/or economic conditions, adverse
currency fluctuations and competitive activities; the possible implementation of a new ERP System, the costs and
benefits of such system and the effects of the adoption of such system on the accelerated amortization of existing
information systems if the Company proceeds with such system; restructuring activities, restructuring costs, the
timing of such payments and annual savings and other benefits from such activities; the charges, the cash cost and
the savings resulting from plant shutdowns, dispositions and outsourcing; the effects of revised trade terms for its
U.S. customers, including reduced returns; cash flow from operations, cash on hand and availability of borrowings
under the 2001 Credit Agreement, the sufficiency of such funds to satisfy the Company’s cash requirements in 2002,
and the availability of funds from capital contributions or loans from affiliates of the Company and the sale of
F-25
additional shares of Revlon, Inc.; uses of funds, including for the purchases of permanent displays, capital
expenditures (and the Company’s estimates of the amounts of such expenses) and restructuring costs (and the
Company’s estimates of the amounts of such costs); the availability of raw materials and components and, with
respect to Europe, products, including that the Company's facilities and third party contractual supplier arrangements
will provide sufficient capacity for the Company’s current and expected production requirements; matters
concerning market-risk sensitive instruments; the effects of transition to the Euro; the effects of the adoption of
certain accounting principles, including the Company’s estimates of the amounts of unamortized goodwill and
identifiable intangible assets; and the effects of the loss of one or more customers, including, without limitation,
Wal-Mart, and the status of the Company’s relationship with its customers. Statements that are not historical facts,
including statements about the Company’s beliefs and expectations, are forward-looking statements. Forward-
looking statements can be identified by, among other things, the use of forward-looking language, such as
“believes,” “expects,” “estimates,” “projects,” “forecast,” “may,” “will,” “should,” “seeks,” “plans,” “scheduled to,”
“anticipates” or “intends” or the negative of those terms, or other variations of those terms or comparable language,
or by discussions of strategy or intentions. Forward-looking statements speak only as of the date they are made, and
except for the Company’s ongoing obligations to disclose material information under the U.S. federal securities
laws, the Company undertakes no obligation to publicly update any forward-looking statements, whether as a result
of new information, future events or otherwise. Investors are advised, however, to consult any additional
disclosures the Company makes in its Quarterly Reports on Form 10-Q, Annual Report on Form 10-K and Current
Reports on Form 8-K to the Commission (which, among other places, can be found on the Commission’s website at
http://www.sec.gov), as well as on the Company’s website at www.revloninc.com. The information available from
time to time on such website shall not be deemed incorporated by reference into this Annual Report on Form 10-K.
A number of important factors could cause actual results to differ materially from those contained in any forward-
looking statement. In addition to factors that may be described in the Company’s filings with the Commission,
including this filing, the following factors, among others, could cause the Company’s actual results to differ
materially from those expressed in any forward-looking statements made by the Company: (i) difficulties or delays
in developing and introducing new products or failure of customers to accept new product offerings; (ii) difficulties
or delays or unanticipated costs associated with the Company’s test and possible implementation of new display
walls and new graphics and package designs; (iii) changes in consumer preferences, including reduced consumer
demand for the Company’s color cosmetics and other current products; (iv) effects of and changes in political and/or
economic conditions, including inflation and monetary conditions, and in trade, monetary, fiscal and tax policies in
international markets; (v) actions by competitors, including business combinations, technological breakthroughs,
new product offerings, promotional spending and marketing and promotional successes, including increases in
market share; (vi) unanticipated costs or difficulties or delays in completing projects associated with the Company’s
strategic plan, including in connection with the implementation of a new ERP System; (vii) difficulties, delays or
unanticipated costs or less than expected savings and other benefits resulting from the Company’s restructuring
activities; (viii) difficulties or delays in implementing, higher than expected charges and cash costs or lower than
expected savings from the shutdown, disposition, outsourcing and consolidation of manufacturing operations; (ix)
difficulties or delays in achieving the intended results of the revised trade terms, including, without limitation, lower
returns or unexpected consequences from the revised trade terms including the possible effect on sales; (x) lower
than expected cash flow from operations, the inability to secure capital contributions or loans from affiliates of the
Company or sell additional shares of Revlon, Inc. or the unavailability of funds under the 2001 Credit Agreement;
(xi) higher than expected operating expenses, working capital expenses, permanent display costs, capital
expenditures, restructuring costs or debt service payments; (xii) difficulties or delays in sourcing raw materials or
components, and with respect to Europe, products; (xiii) interest rate or foreign exchange rate changes affecting the
Company and its market sensitive financial instruments; (xiv) difficulties, delays or unanticipated costs associated
with the transition to the Euro; (xv) unanticipated effects of the Company’s adoption of certain new accounting
standards; and (xvi) combinations among significant customers or the loss, insolvency or failure to pay debts by a
significant customer or customers. Factors other than those listed above could cause the Company’s results to differ
materially from expected results. This discussion is provided as permitted by the Private Securities Litigation
Reform Act of 1995.
Inflation
In general, costs are affected by inflation and the effects of inflation may be experienced by the Company in
future periods. Management believes, however, that such effects have not been material to the Company during the
past three years in the United States or foreign non-hyperinflationary countries. The Company operates in certain
countries around the world, such as Argentina, Brazil, Venezuela and Mexico that have experienced hyperinflation. In
F-26
hyperinflationary foreign countries, the Company attempts to mitigate the effects of inflation by increasing prices in
line with inflation, where possible, and efficiently managing its working capital levels.
Subsequent Events
In February 2002, Products Corporation completed the disposition of its subsidiaries that operated its
marketing, sales and distribution business in Belgium, the Netherlands and Luxembourg (“Benelux”). As part of
this sale, Products Corporation entered into a long-term distribution agreement with the purchaser pursuant to which
the purchaser distributes the Company’s products in Benelux. The purchase price consisted principally of the
assumption of certain liabilities and deferred contingent purchase price of up to approximately $3.3 to be received
over approximately a seven-year period. In connection with the disposition, the Company does not anticipate a
significant gain or loss.
Effective February 14, 2002, Jeffrey M. Nugent, the Company's former President and Chief Executive
Officer, resigned from employment with the Company. On February 19, 2002, the Company announced its
appointment of Jack L. Stahl as its President and Chief Executive Officer.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Sensitivity
The Company has exposure to changing interest rates, primarily in the United States. The Company’s
policy is to manage interest rate risk through the use of 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. There were
no such derivative financial instruments outstanding at December 31, 2001. The table below provides information
about the Company’s indebtedness that is sensitive to changes in interest rates. The table presents cash flows with
respect to principal on indebtedness and related weighted average interest rates by expected maturity dates.
Weighted average variable rates are based on implied forward rates in the yield curve at December 31, 2001. The
information is presented in U.S. dollar equivalents, which is the Company’s reporting currency.
Exchange Rate Sensitivity
The Company manufactures and sells its products in a number of countries throughout the world and, as a
result, is exposed to movements in foreign currency exchange rates. In addition, a portion of the Company’s
borrowings are denominated in foreign currencies, which are also subject to market risk associated with exchange
rate movement. The Company from time to time hedges major foreign currency cash exposures generally through
foreign exchange forward and option contracts. The contracts are entered into with major financial institutions to
minimize counterparty risk. These contracts generally have a duration of less than twelve months and are primarily
against the U.S. dollar. In addition, the Company enters into foreign currency swaps to hedge intercompany
financing transactions.
The Company does not hold or issue financial instruments for trading purposes. There were no derivative
instruments outstanding as of December 31, 2001.
F-27
As referred to above, on November 26, 2001 Products Corporation issued and sold the 12% Notes and on
November 30, 2001 refinanced its 1997 Credit Agreement.
Debt
Short-term variable rate (various currencies)..
Average interest rate (a) ...........................
Long-term fixed rate ($US) ............................
Average interest rate .................................
Long-term variable rate ($US)........................
Average interest rate (a)............................
Long-term variable rate (various currencies)...
Average interest rate (a) ...........................
Total debt .......................................................
Expected maturity date for year ended December 31,
2003
2002
(US dollar equivalent in millions)
2004
2005
2006 Thereafter
Fair Value
Dec. 31,
2001
Total
$17.5
5.9%
17.5$
-$
-$
$499.6
8.6%
$
649.9
8.6%
$
17.5
$
17.5
1,500.3
976.2
117.9
117.9
1.3
1.3
$
499.6
$
649.9
$
1,637.0
$
1,112.9
$350.8
12.0%
117.9
9.9%
1.3
9.4%
$
470.0
(a) Weighted average variable rates are based upon implied forward rates from the yield curves at December 31, 2001.
Item 8. Financial Statements and Supplementary Data
Reference is made to the Index on page F-1 of the Consolidated Financial Statements of the Company and the
Notes thereto contained herein.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.
Item 10. Directors and Executive Officers of the Registrant
PART III
Information concerning Directors and Executive Officers of the Registrant is contained in Revlon, Inc.’s
Proxy Statement for the 2002 Annual Meeting of Stockholders, which will be mailed to stockholders on or before
April 29, 2002 and is incorporated herein by reference.
Item 11. Executive Compensation
Information with respect to Executive Compensation is contained in Revlon, Inc.’s Proxy Statement for the
2002 Annual Meeting of Stockholders, which will be mailed to stockholders on or before April 29, 2002 and is
incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information with respect to Security Ownership of Certain Beneficial Owners and Management is
contained in Revlon, Inc.’s Proxy Statement for the 2002 Annual Meeting of Stockholders, which will be mailed to
stockholders on or before April 29, 2002 and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
Information with respect to Certain Relationships and Related Transactions is contained in Revlon, Inc.’s
Proxy Statement for the 2002 Annual Meeting of Stockholders, which will be mailed to stockholders on or before
April 29, 2002 and is incorporated herein by reference.
F-28
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) List of documents filed as part of this Report:
(1) Consolidated Financial Statements and Independent Auditors’ Report included herein:
See Index on page F-1
(2) Financial Statement Schedule:
See Index on page F-1
All other schedules are omitted as they are inapplicable or the required information is furnished in the
Consolidated Financial Statements of the Company or the Notes thereto.
(3) List of Exhibits:
EXHIBIT NO.
DESCRIPTION
3.
3.1
3.2
3.3
4.
4.1
4.2
4.3
4.4
4.5
4.6
Certificate of Incorporation and By-laws.
Amended and Restated Certificate of Incorporation of Revlon, Inc. dated March 4, 1996
(incorporated by reference to Exhibit 3.4 to the Quarterly Report on Form 10-Q of Revlon, Inc.
for the quarterly period ended March 31, 1996).
Amended and Restated By-laws of Revlon, Inc., dated as of June 30, 2001 (incorporated by
reference to Exhibit 3.2 to the Quarterly Report on Form 10-Q of Revlon, Inc. for the quarterly
period ended June 30, 2001 (the "Revlon 2001 Second Quarter Form 10-Q")).
Certificate of the Designations, Powers, Preferences and Rights of Series B Convertible
Preferred Stock of Revlon, Inc. (incorporated by reference to Exhibit 3.2 to the Registration
Statement on Form S-8 of Revlon, Inc. filed with the Commission on October 11, 2001, File
No. 333-71378).
Instruments defining the right of security holders, including indentures.
Indenture, dated as of November 26, 2001, among Products Corporation, the Guarantors party
thereto, including Revlon, Inc., as parent guarantor, and Wilmington Trust Company, as trustee,
relating to the 12% Senior Secured Notes due 2005 (incorporated by reference to Exhibit 4.2 to
the Current Report on Form 8-K of Products Corporation filed with the Commission on
November 30, 2001 (the "Products Corporation November 2001 Form 8-K")).
Revlon Pledge Agreement, dated as of November 30, 2001, between Revlon, Inc., as pledgor, in
favor of Wilmington Trust Company, as note collateral agent (the "Note Collateral Agent")
(incorporated by reference to Exhibit 4.2 to the Annual Report on Form 10-K of Products
Corporation for the year ended December 31, 2001 (the "Products Corporation 2001 Form
10-K")).
Company Pledge Agreement (Domestic), dated as of November 30, 2001, between Products
Corporation, as pledgor, in favor of Wilmington Trust Company, as Note Collateral Agent
(incorporated by reference to Exhibit 4.3 to the Products Corporation 2001 Form 10-K).
Subsidiary Pledge Agreement (Domestic), dated as of November 30, 2001, between RIROS
Corporation, as pledgor, in favor of Wilmington Trust Company, as Note Collateral Agent
(incorporated by reference to Exhibit 4.4 to the Products Corporation 2001 Form 10-K).
Subsidiary Pledge Agreement (Domestic), dated as of November 30, 2001, between Revlon
International Corporation, as pledgor, in favor of Wilmington Trust Company, as Note
Collateral Agent (incorporated by reference to Exhibit 4.5 to the Products Corporation 2001
Form 10-K).
Subsidiary Pledge Agreement (Domestic), dated as of November 30, 2001, between PPI Two
C
f Wil
C ll
l A
l d
N
C
T
f
i
i
i
F-29
EXHIBIT NO.
DESCRIPTION
4.7
4.8
4.9
4.10
4.11
4.12
4.13
4.14
4.15
4.16
4.17
4.18
4.19
Corporation, as pledgor, in favor of Wilmington Trust Company, as Note Collateral Agent
(incorporated by reference to Exhibit 4.6 to the Products Corporation 2001 Form 10-K).
Company Pledge Agreement (International), dated as of November 30, 2001, between Products
Corporation, as pledgor, in favor of Wilmington Trust Company, as Note Collateral Agent
(incorporated by reference to Exhibit 4.7 to the Products Corporation 2001 Form 10-K).
Subsidiary Pledge Agreement (International), dated as of November 30, 2001, between RIROS
Corporation, as pledgor, in favor of Wilmington Trust Company, as Note Collateral Agent
(incorporated by reference to Exhibit 4.8 to the Products Corporation 2001 Form 10-K).
Subsidiary Pledge Agreement (International), dated as of November 30, 2001, between Revlon
International Corporation, as pledgor, in favor of Wilmington Trust Company, as Note
Collateral Agent (incorporated by reference to Exhibit 4.9 to the Products Corporation 2001
Form 10-K).
Subsidiary Pledge Agreement (International), dated as of November 30, 2001, between PPI
Two Corporation, as pledgor, in favor of Wilmington Trust Company, as Note Collateral Agent
(incorporated by reference to Exhibit 4.10 to the Products Corporation 2001 Form 10-K).
Company Security Agreement, dated as of November 30, 2001, between Products Corporation,
as grantor, in favor of Wilmington Trust Company, as Note Collateral Agent (incorporated by
reference to Exhibit 4.11 to the Products Corporation 2001 Form 10-K).
Subsidiary Security Agreement, dated as of November 30, 2001, among Almay, Inc.,
Carrington Parfums Ltd., Charles of the Ritz Group Ltd., Charles Revson Inc., Cosmetics &
More, Inc., North America Revsale Inc., Pacific Finance & Development Corp., PPI Two
Corporation, Prestige Fragrances, Ltd., Revlon Consumer Corp., Revlon Government Sales,
Inc., Revlon International Corporation, Revlon Products Corp., Revlon Real Estate Corporation,
RIROS Corporation, RIROS Group Inc. and RIT Inc., each as grantor, in favor of Wilmington
Trust Company, as Note Collateral Agent (incorporated by reference to Exhibit 4.12 to the
Products Corporation 2001 Form 10-K).
Company Copyright Security Agreement, dated as of November 30, 2001, between Products
Corporation, as grantor, in favor of Wilmington Trust Company, as Note Collateral Agent
(incorporated by reference to Exhibit 4.13 to the Products Corporation 2001 Form 10-K).
Company Patent Security Agreement, dated as of November 30, 2001, between Products
Corporation, as grantor, in favor of Wilmington Trust Company, as Note Collateral Agent
(incorporated by reference to Exhibit 4.14 to the Products Corporation 2001 Form 10-K).
Company Trademark Security Agreement, dated as of November 30, 2001, between Products
Corporation, as grantor, in favor of Wilmington Trust Company, as Note Collateral Agent
(incorporated by reference to Exhibit 4.15 to the Products Corporation 2001 Form 10-K).
Subsidiary Trademark Security Agreement, dated as of November 30, 2001, between Charles
Revson Inc., as grantor, in favor of Wilmington Trust Company, as Note Collateral Agent
(incorporated by reference to Exhibit 4.16 to the Products Corporation 2001 Form 10-K).
Subsidiary Trademark Security Agreement, dated as of November 30, 2001, between Charles of
the Ritz Group, Ltd., as grantor, in favor of Wilmington Trust Company, as Note Collateral
Agent (incorporated by reference to Exhibit 4.17 to the Products Corporation 2001 Form 10-K).
Deed of Trust, Assignment of Rents and Leases and Security Agreement, dated as of November
30, 2001, between Products Corporation and First American Title Insurance Company for the
use and benefit of Wilmington Trust Company, as Note Collateral Agent (incorporated by
reference to Exhibit 4.18 to the Products Corporation 2001 Form 10-K).
Amended and Restated Collateral Agency Agreement, dated as of May 30, 1997, and further
amended and restated as of November 30, 2001, between Products Corporation, JPMorgan
Chase Bank, as bank agent and as administrative agent, and Wilmington Trust Company, as
trustee and as Note Collateral Agent (incorporated by reference to Exhibit 4.19 to the Products
Corporation 2001 Form 10-K).
F-30
EXHIBIT NO.
DESCRIPTION
4.20
4.21
4.22
4.23
4.24
4.25
10.
10.1
10.2
10.3
10.4
10.5
10.6
Indenture, dated as of February 1, 1998, between Revlon Escrow Corp. ("Revlon Escrow") and
U.S. Bank Trust National Association (formerly known as First Trust National Association), as
Trustee, relating to the 8 1/8% Senior Notes due 2006 (the "8 1/8% Senior Notes
Indenture")(incorporated by reference to Exhibit 4.1 to the Registration Statement on Form S-1
of Products Corporation filed with the Commission on March 12, 1998, File No. 333-47875 (the
"Products Corporation 1998 Form S-1")).
Indenture, dated as of February 1, 1998, between Revlon Escrow and U.S. Bank Trust National
Association (formerly known as First Trust National Association), as Trustee, relating to the 8
5/8% Senior Subordinated Notes Due 2008 (the "8 5/8% Senior Subordinated Notes
Indenture")(incorporated by reference to Exhibit 4.3 to the Products Corporation 1998 Form
S-1).
First Supplemental Indenture, dated April 1, 1998, among Products Corporation, Revlon
Escrow, and the Trustee, amending the 8 1/8% Senior Notes Indenture (incorporated by
reference to Exhibit 4.2 to the Products Corporation 1998 Form S-1).
First Supplemental Indenture, dated March 4, 1998, among Products Corporation, Revlon
Escrow, and the Trustee, amending the 8 5/8% Senior Subordinated Notes Indenture
(incorporated by reference to Exhibit 4.4 to the Products Corporation 1998 Form S-1).
Indenture, dated as of November 6, 1998, between Products Corporation and U.S. Bank Trust
National Association, as Trustee, relating to Products Corporation's 9% Senior Notes due 2006
(incorporated by reference to Exhibit 4.13 to the Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 1998 of Revlon, Inc.).
Second Amended and Restated Credit Agreement, dated as of November 30, 2001, among
Products Corporation, the subsidiaries of Products Corporation parties thereto, the lenders
parties thereto, the Co-Agents parties thereto, Citibank, N.A., as documentation agent, Lehman
Commercial Paper Inc., as syndication agent, J.P. Morgan Securities Inc., as sole arranger and
bookrunner, and JPMorgan Chase Bank, as administrative agent (incorporated by reference to
Exhibit 4.1 to the Products Corporation November 2001 Form 8-K).
Material Contracts.
Asset Transfer Agreement, dated as of June 24, 1992, among Holdings, National Health Care
Group, Inc., Charles of the Ritz Group Ltd., Products Corporation and Revlon, Inc.
(incorporated by reference to Exhibit 10.1 to Amendment No. 1 to the Revlon, Inc. Registration
Statement on Form S-1 filed with the Commission on June 29, 1992, File No. 33-47100).
Tax Sharing Agreement, entered into as of June 24, 1992, among Mafco Holdings, Revlon, Inc.,
Products Corporation and certain subsidiaries of Products Corporation as amended and restated
as of January 1, 2001 (incorporated by reference to Exhibit 10.2 to the Products Corporation
2001 Form 10-K).
Employment Agreement, dated as of November 2, 1999, between Products Corporation and
Jeffrey M. Nugent (the "Nugent Employment Agreement")(incorporated by reference to Exhibit
10.10 to the Annual Report on Form 10-K for the year ended December 31, 1999 of Revlon,
Inc. (the "Revlon 1999 Form 10-K")).
Amendment, dated June 15, 2001, to the Nugent Employment Agreement dated as of November
2, 1999 (incorporated by reference to Exhibit 10.18 to the Revlon 2001 Second Quarter Form
10-Q).
Employment Agreement, amended and restated as of May 9, 2000, between Products
Corporation and Douglas H. Greeff (the "Greeff Employment Agreement")(incorporated by
reference to Exhibit 10.22 to the Quarterly Report on Form 10-Q for the quarterly period ended
June 30, 2000 of Revlon, Inc.).
Amendment dated June 18, 2001 to the Greeff Employment Agreement (incorporated by
reference to Exhibit 10.6 to the Products Corporation 2001 Form 10-K).
F-31
EXHIBIT NO.
DESCRIPTION
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
Employment Agreement, effective as of August 1, 2001, between Products Corporation and
Paul E. Shapiro (incorporated by reference to Exhibit 10.7 to the Products Corporation 2001
Form 10-K).
Revlon Executive Bonus Plan (Amended and Restated as of June 18, 2001) (incorporated by
reference to Exhibit 10.8 to the Products Corporation 2001 Form 10-K).
Amended and Restated Revlon Pension Equalization Plan, amended and restated as of
December 14, 1998 (incorporated by reference to Exhibit 10.15 to the Annual Report on Form
10-K for year ended December 31, 1998 of Revlon, Inc.).
Executive Supplemental Medical Expense Plan Summary dated July 1991 (incorporated by
reference to Exhibit 10.18 to the Registration Statement on Form S-1 of Revlon, Inc. filed with
the Commission on May 22, 1992, File No. 33-47100).
Benefit Plans Assumption Agreement, dated as of July 1, 1992, by and among Holdings,
Revlon, Inc. and Products Corporation (incorporated by reference to Exhibit 10.25 to the
Annual Report on Form 10-K for the year ended December 31, 1992 of Products Corporation).
Revlon Amended and Restated Executive Deferred Compensation Plan dated as of August 6,
1999 (incorporated by reference to Exhibit 10.27 to the Quarterly Report on Form 10-Q of
Revlon, Inc. for the quarterly period ended September 30, 1999).
Revlon Executive Severance Policy effective January 1, 1996 (incorporated by reference to
Exhibit 10.23 to the Amendment No. 3 to the Registration Statement on Form S-1 of Revlon,
Inc. filed with the Commission on February 5, 1996, File No. 33-99558).
Revlon, Inc. Third Amended and Restated 1996 Stock Plan (amended and restated as of May
10, 2000) (incorporated by reference to Exhibit 10.16 to the Revlon 2001 Second Quarter Form
10-Q).
Purchase Agreement, dated as of February 18, 2000, by and among Revlon, Inc., Products
Corporation, REMEA 2 B.V., Revlon Europe, Middle East and Africa, Ltd., Revlon
International Corporation, Europeenne de Produits de Beaute S.A., Deutsche Revlon GmbH &
Co. K.G., Revlon Canada, Inc., Revlon de Argentina, S.A.I.C., Revlon South Africa
(Proprietary) Limited, Revlon (Suisse) S.A., Revlon Overseas Corporation C.A., CEIL
-Comercial, Exportadora, Industrial Ltda., Revlon Manufacturing Ltd., Revlon Belgium N.V.,
Revlon (Chile) S.A., Revlon (Hong Kong) Limited, Revlon, S.A., Revlon Nederland B.V.,
Revlon New Zealand Limited, European Beauty Products S.p.A. and Beauty Care Professional
Products Luxembourg, S.a.r.l. (incorporated by reference to Exhibit 10.19 to the Revlon 1999
Form 10-K).
Purchase and Sale Agreement dated as of July 31, 2001 by and between Holdings and Revlon,
Inc. (incorporated by reference to Exhibit 10.6 to the Products Corporation 2001 Form 10-K).
21.
Subsidiaries.
*21.1
Subsidiaries of Revlon, Inc.
23.
Consents of Experts and Counsel.
*23.1
Consent of KPMG LLP.
24.
*24.1
*24.2
*24.3
Powers of Attorney.
Power of Attorney executed by Ronald O. Perelman.
Power of Attorney executed by Donald G. Drapkin.
Power of Attorney executed by Howard Gittis.
F-32
EXHIBIT NO.
DESCRIPTION
*24.4
*24.5
*24.6
*24.7
*24.8
*24.9
*24.10
Power of Attorney executed by Edward J. Landau.
Power of Attorney executed by Meyer Feldberg.
Power of Attorney executed by Vernon E. Jordan, Jr.
Power of Attorney executed by Jerry W. Levin.
Power of Attorney executed by Linda Gosden Robinson.
Power of Attorney executed by Terry Semel.
Power of Attorney executed by Martha Stewart.
____________________
* Filed herewith.
(b)
Reports on Form 8-K.
Form 8-K filed on November 30, 2001 to report the issuance by Products Corporation of $363 million in
principal amount of its 12% Notes in a private placement and the completion of the refinancing of the 1997 Credit
Agreement by entering into the 2001 Credit Agreement.
F-33
REVLON, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
Page
Independent Auditors’ Report .................................................................................................................................. .F-2
Audited Financial Statements:
Consolidated Balance Sheets as of December 31, 2001 and 2000 .................................................................... .F-3
Consolidated Statements of Operations for each of the years in the three-year
period ended December 31, 2001 ................................................................................................................. .F-4
Consolidated Statements of Stockholders’ Deficiency and Comprehensive Loss for each of the years in
the three-year period ended December 31, 2001 .......................................................................................... .F-5
Consolidated Statements of Cash Flows for each of the years in the three-year
period ended December 31, 2001 ................................................................................................................. .F-6
Notes to Consolidated Financial Statements ...................................................................................................... .F-7
Financial Statement Schedules:
Schedule II--Valuation and Qualifying Accounts.............................................................................................. .F-42
F-34
INDEPENDENT AUDITORS’ REPORT
The Board of Directors and Stockholders
Revlon, Inc.:
We have audited the accompanying consolidated balance sheets of Revlon, Inc. and its subsidiaries
as of December 31, 2001 and 2000, and the related consolidated statements of operations,
stockholders’ deficiency and comprehensive loss and cash flows for each of the years in the
three-year period ended December 31, 2001. In connection with our audits of the consolidated
financial statements we have also audited the financial statement schedule as listed on the index on
page F-1. These consolidated financial statements and financial statement schedule are the
responsibility of the Company’s management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United
States of America. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material
respects, the financial position of Revlon, Inc. and its subsidiaries as of December 31, 2001 and
2000 and the results of their operations and their cash flows for each of the years in the three-year
period ended December 31, 2001, in conformity with accounting principles generally accepted in
the United States of America. Also in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
KPMG LLP
New York, New York
February 25, 2002
F-35
REVLON, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in millions, except per share data)
Current assets:
ASSETS
Cash and cash equivalents..............................................................
Marketable securities......................................................................
Trade receivables, less allowances of $15.4
and $16.1, respectively...........................................................
Inventories......................................................................................
Prepaid expenses and other............................................................
Total current assets.................................................................
Property, plant and equipment, net........................................................
Other assets...........................................................................................
Intangible assets, net.............................................................................
Total assets.............................................................................
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Short-term borrowings - third parties.............................................
Accounts payable...........................................................................
Accrued expenses and other...........................................................
Total current liabilities...........................................................
Long-term debt - third parties ..............................................................
Long-term debt - affiliates.....................................................................
Other long-term liabilities.....................................................................
Stockholders' deficiency:
Preferred stock, par value $.01 per share; 20,000,000
shares authorized, 546 shares of Series A Preferred Stock
issued and outstanding............................................................
Preferred stock, par value $.01 per share; 20,000,000
shares authorized, 4,333 shares of Series B Convertible
Preferred Stock issued and outstanding..................................
Class B Common Stock, par value $.01 per share; 200,000,000
shares authorized, 31,250,000 issued and outstanding...........
Class A Common Stock, par value $.01 per share; 350,000,000
shares authorized, 20,516,135 and 20,115,935 issued and
outstanding, respectively........................................................
Capital deficiency...........................................................................
Accumulated deficit since June 24, 1992.......................................
Accumulated other comprehensive loss.........................................
Total stockholders' deficiency................................................
Total liabilities and stockholders' deficiency..........................
December 31,
2001
December 31,
2000
$
$
$
$
103.3
2.2
203.9
157.9
45.6
512.9
142.8
143.4
198.5
997.6
17.5
87.0
281.3
385.8
1,619.5
24.1
250.9
$
$
$
56.3
-
220.5
184.8
66.1
527.7
221.7
146.3
206.1
1,101.8
30.7
86.3
310.7
427.7
1,539.0
24.1
217.7
54.6
54.6
-
0.3
-
0.3
0.2
(201.3)
(1,075.4)
(61.1)
(1,282.7)
997.6
$
0.2
(210.3)
(921.7)
(29.8)
(1,106.7)
1,101.8
See Accompanying Notes to Consolidated Financial Statements.
F-36
REVLON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in millions, except per share data)
Year Ended December 31,
2000
2001
1999
Net sales...............................................................................................
Cost of sales.........................................................................................
Gross profit.....................................................................................
Selling, general and administrative expenses.......................................
Restructuring costs and other, net........................................................
$
$
1,321.5
544.2
777.3
723.1
38.1
$
1,447.8
574.3
873.5
803.5
54.1
1,709.9
726.3
983.6
1,155.4
40.2
Operating income (loss)..................................................................
16.1
15.9
(212.0)
Other expenses (income):
Interest expense..............................................................................
Interest income...............................................................................
Amortization of debt issuance costs...............................................
Foreign currency losses (gains), net...............................................
Loss (gain) on sale of product line, brands and facilities, net.........
Miscellaneous, net..........................................................................
Other expenses, net..................................................................
140.5
(3.9)
6.2
2.2
14.4
2.7
162.1
144.5
(2.1)
5.6
1.6
(10.8)
(1.8)
137.0
147.9
(2.8)
4.3
(0.5)
0.9
-
149.8
Loss before income taxes and extraordinary item................................
(146.0)
(121.1)
(361.8)
Provision for income taxes...................................................................
4.1
8.6
9.1
Loss before extraordinary item.............................................................
(150.1)
(129.7)
(370.9)
Extraordinary item - early extinguishment of debt, net of tax..............
(3.6)
-
-
Net loss................................................................................................. $
(153.7)
$
(129.7)
$
(370.9)
Basic and diluted loss per common share:
Loss before extraordinary item...................................................... $
Extraordinary items.......................................................................
Net loss per common share...........................................................
$
(2.87)
(0.07)
(2.94)
$
$
(2.49)
-
(2.49)
$
$
(7.12)
-
(7.12)
Weighted average number of common shares outstanding:
Basic and diluted...........................................................................
52,199,349
52,166,980
52,073,558
See Accompanying Notes to Consolidated Financial Statements.
F-37
REVLON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY AND COMPREHENSIVE LOSS
(dollars in millions)
Balance, January 1, 1999............................................. $
Issuance of common stock.....................................
Net distribution from affiliate.................................
Comprehensive loss:
Net loss........................................................
Adjustment for minimum
pension liability.............................
Revaluation of marketable securities...........
Currency translation adjustment...................
Total comprehensive loss.......................................
Balance, December 31, 1999.......................................
Issuance of common stock.....................................
Net distribution from affiliate.................................
Comprehensive loss:
Net loss........................................................
Adjustment for minimum
pension liability.............................
Loss on marketable securities......................
Currency translation adjustment...................
Total comprehensive loss.......................................
Balance, December 31, 2000.......................................
Net distribution from affiliate.................................
Capital contribution from indirect parent................
Comprehensive loss:
Net loss........................................................
Adjustment for minimum
pension liability.............................
Revaluation of forward currency contracts..
Currency translation adjustment...................
Total comprehensive loss.......................................
Accumulated
Other
Preferred Common
Stock
Stock
Capital
Deficiency
Accumulated Comprehensive
Deficit
Loss (a)
54.6 $
0.5
$
(209.1)
0.1
(1.0)
$
(421.1)
$
(72.6)
$
(c)
(370.9)
27.6
(0.8)
(22.3)
54.6
0.5
(210.0)
1.1
(1.4)
(c)
(792.0)
(68.1)
(129.7)
1.3
3.8 (b)
33.2 (b)
54.6
0.5
(210.3)
(1.0)
10.0
(c)
(921.7)
(29.8)
(153.7)
(42.5)
0.1
11.1
(b)
Total
Stockholders'
Deficiency
(647.7)
0.1
(1.0)
(370.9)
27.6
(0.8)
(22.3)
(366.4)
(1,015.0)
1.1
(1.4)
(129.7)
1.3
3.8
33.2
(91.4)
(1,106.7)
(1.0)
10.0
(153.7)
(42.5)
0.1
11.1
(185.0)
Balance, December 31, 2001....................................... $
54.6 $
0.5
$
(201.3)
$
(1,075.4)
$
(61.1)
$
(1,282.7)
____________________
(a) Accumulated other comprehensive loss includes unrealized gains on revaluations of forward currency contracts of $0.1 for 2001,
unrealized losses on marketable securities of $3.8 for 1999, cumulative net translation losses of $15.1, $26.2 and $59.4 for 2001, 2000
and 1999, respectively, and adjustments for the minimum pension liability of $46.1, $3.6 and $4.9 for 2001, 2000 and 1999, respectively.
(b) The currency translation adjustment as of December 31, 2001 and December 31, 2000 includes a reclassification adjustment of $7.1
and $48.3, respectively, for realized lossses on foreign currency adjustments associated primarily with the sale of the Colorama brand
in Brazil and the sale of the Company's worldwide professional products line and for marketable securities, respectively. Accumulated
other comprehensive loss as of December 31, 2000 also includes $3.8 in realized losses on marketable securities.
(c) Represents net distributions in capital from the Charles of the Ritz business (See Note 15).
See Accompanying Notes to Consolidated Financial Statements.
F-38
REVLON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in millions)
Year Ended December 31,
2000
(129.7)
$
$
2001
(153.7)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ..................................................................................................... $
Adjustments to reconcile net loss to net cash
(used for) provided by operating activities:
Depreciation and amortization.............................................................
Extraordinary items.............................................................................
Gain on sale of marketable securities..................................................
Loss (gain) on sale of certain assets, net..............................................
Change in assets and liabilities, net of acquisitions and dispositions:
Decrease in trade receivables.......................................................
Decrease (increase) in inventories................................................
(Increase) decrease in prepaid expenses and
other current assets.....................................................
Increase (decrease) in accounts payable.......................................
(Decrease) increase in accrued expenses and other
current liabilities.........................................................
Purchase of permanent displays....................................................
Other, net …………………………….........................................
Net cash used for operating activities........................................................
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures..................................................................................
Acquisition of technology rights...............................................................
Proceeds from the sale of certain assets....................................................
Net cash provided by (used for) investing activities..................................
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in short-term borrowings - third parties...............
Proceeds from the issuance of long-term debt - third parties....................
Repayment of long-term debt - third parties..............................................
Net proceeds from issuance of common stock..........................................
Net distribution from affiliate....................................................................
Proceeds from the issuance of debt - affiliates..........................................
Repayment of debt - affiliates...................................................................
Payment of debt issuance costs.................................................................
Net cash provided by (used for) financing activities.................................
Effect of exchange rate changes on cash and cash equivalents.................
Net increase (decrease) in cash and cash equivalents..........................
Cash and cash equivalents at beginning of period...............................
Cash and cash equivalents at end of period.........................................
Supplemental schedule of cash flow information:
Cash paid during the period for:
Interest .........................................................................................
Income taxes, net of refunds.........................................................
Supplemental schedule of noncash financing activities:
Noncash capital contribution from indirect parent pursuant to the
$
$
115.1
3.6
(2.2)
14.4
5.9
10.2
(2.3)
4.4
(42.5)
(44.0)
4.6
(86.5)
(15.1)
-
102.3
87.2
(11.3)
698.5
(614.0)
-
(1.0)
-
-
(25.9)
46.3
-
47.0
56.3
103.3
134.6
3.4
$
$
amended tax sharing agreement..................................................
$
10.0
$
Issuance of common stock..................................................................
-
F-39
1999
(370.9)
126.1
-
-
1.6
187.2
(22.3)
12.6
10.8
20.5
(66.5)
19.1
(81.8)
(42.3)
-
1.6
(40.7)
12.3
574.5
(464.9)
0.1
(1.0)
67.1
(67.1)
(3.5)
117.5
(4.3)
(9.3)
34.7
25.4
146.1
8.2
-
-
126.9
-
-
(13.2)
29.1
32.8
18.8
(21.0)
(80.7)
(51.4)
4.4
(84.0)
(19.0)
(3.0)
344.1
322.1
(2.7)
339.1
(538.7)
-
(1.4)
-
-
-
(203.7)
(3.5)
30.9
25.4
56.3
141.3
4.7
-
1.1
$
$
$
REVLON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions, except per share data)
1. Significant Accounting Policies
Principles of Consolidation and Basis of Presentation:
Revlon, Inc. (and together with its subsidiaries, the “Company”) conducts its business
exclusively through its direct subsidiary, Revlon Consumer Products Corporation and its
subsidiaries (“Products Corporation”). The Company manufactures and sells an extensive array of
cosmetics and skin care, fragrances and personal care products. Prior to March 30, 2000, the
Company sold professional products for use in and resale by professional salons. On March 30,
2000, the Company sold its professional products line and on May 8, 2000 sold the Plusbelle brand
in Argentina. On July 16, 2001 the Company sold the Colorama brand in Brazil. (See Note 3). The
Company’s principal customers include large mass volume retailers and chain drug stores, as well
as certain department stores and other specialty stores, such as perfumeries. The Company also
sells consumer products to United States military exchanges and commissaries and has a licensing
group.
Unless the context otherwise requires, all references to the Company mean Revlon, Inc.
and its subsidiaries. Revlon, Inc., as a public holding company, has no business operations of its
own and its only material asset has been all of the outstanding capital stock of Products
Corporation. As such, its net (loss) income has historically consisted predominantly of its equity in
the net (loss) income of Products Corporation and in 2001, 2000 and 1999 included approximately
$2.6, $1.7 and $1.2, respectively, in expenses incidental to being a public holding company.
The Consolidated Financial Statements include the accounts of the Company after
elimination of all material intercompany balances and transactions. Further, the Company has
made a number of estimates and assumptions relating to the reporting of assets and liabilities, the
disclosure of liabilities and the reporting of revenues and expenses to prepare these financial
statements in conformity with generally accepted accounting principles. Actual results could differ
from those estimates.
The Company is an indirect majority owned subsidiary of MacAndrews & Forbes Holdings
Inc. (“MacAndrews Holdings”), a corporation wholly owned indirectly through Mafco Holdings
Inc. (“Mafco Holdings” and, together with MacAndrews Holdings, “MacAndrews & Forbes”) by
Ronald O. Perelman.
EITF
reached
consensus
In November 2001, the FASB Emerging Issues Task Force (the
“EITF”)
entitled,
on
“Accounting for Consideration Given by a Vendor to a Customer
or a Reseller of the Vendor’s Products” (the “Guidelines”),
which addresses when sales incentives and discounts should be
recognized, as well as where the related revenues and expenses
should be classified in the financial statements.
The Company
adopted the earlier portion of these new Guidelines (formerly
EITF
incentives
effective January 1, 2001, and accordingly, all prior period
financial statements reflect the implementation of the earlier
addressing
certain
00-14)
Issue
sales
Issue
01-9
F-40
and
selling,
portion of the Guidelines. The impact on net sales, gross
expenses
profit
(“SG&A”) as a result of adopting the earlier portion of these
new Guidelines was $46.8, $67.2 and $67.2 and $154.5, $193.5
and $193.5 in 2000 and 1999, respectively.
The Company
adopted the second portion of the Guidelines (formerly EITF
Issue 00-25) effective January 1, 2002.
administrative
(See Note 19).
general
and
Effective
from
Holdings (as hereinafter defined) all the assets and liabilities
of the Charles of the Ritz brand (which Revlon, Inc. contributed
to Products Corporation).
(See Note 15).
September
acquired
Revlon,
2001,
Inc.
Certain amounts in the prior year financial statements have
been reclassified to conform to the current year’s presentation.
Cash and Cash Equivalents:
Cash equivalents (primarily investments in time deposits, which have original maturities of
three months or less) are carried at cost, which approximates fair value. Approximately $15.3 and
$22.2 was restricted and supported short-term borrowings at December 31, 2001 and 2000,
respectively. (See Note 8).
Inventories:
Inventories are stated at the lower of cost or market value. Cost is principally determined
by the first-in, first-out method.
Property, Plant and Equipment and Other Assets:
Property, plant and equipment is recorded at cost and is depreciated on a straight-line basis
over the estimated useful lives of such assets as follows: land improvements, 20 to 40 years;
buildings and improvements, 5 to 45 years; machinery and equipment, 3 to 17 years; and office
furniture and fixtures and capitalized software, 2 to 12 years. Leasehold improvements are
amortized over their estimated useful lives or the terms of the leases, whichever is shorter. Repairs
and maintenance are charged to operations as incurred, and expenditures for additions and
improvements are capitalized.
Long-lived assets, including fixed assets and intangibles other than goodwill, are reviewed
for impairment whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. If events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable, the Company estimates the undiscounted future cash
flows (excluding interest) resulting from the use of the asset and its ultimate disposition. If the
sum of the undiscounted cash flows (excluding interest) is less than the carrying value, the
Company recognizes an impairment loss, measured as the amount by which the carrying value
exceeds the fair value of the asset.
At the beginning of the fourth quarter in 2000, the Company decided to consolidate its
manufacturing facility in Phoenix, Arizona into its manufacturing facility in Oxford, North
F-41
Carolina, which was completed in late 2001. As a result, the Company depreciated the net book
value of the facility in excess of its estimated salvage value over its remaining useful life.
Included in other assets are permanent displays amounting to approximately $91.8 and
$111.6 (net of amortization of $62.6 and $68.3) as of December 31, 2001 and 2000, respectively,
which are amortized over 3 to 5 years. In addition, the Company has included in other assets
charges related to the issuance of its debt instruments amounting to approximately $33.3 and $19.0
(net of amortization of $6.2 and $5.6) as of December 31, 2001 and 2000, respectively, which are
amortized over the terms of the related debt instruments.
Intangible Assets Related to Businesses Acquired:
Intangible assets related to businesses acquired principally
represent goodwill, the majority of which has been amortized on a
The Company evaluates, when
straight-line basis over 40 years.
intangible
circumstances
its
When
assets on the basis of undiscounted cash flow projections.
impairment is indicated, the Company writes down recorded amounts
of goodwill to the estimated amount of undiscounted cash flows.
Accumulated amortization aggregated $117.1 and $110.0 at December
31, 2001 and 2000, respectively.
recoverability
warrant,
the
of
Revenue Recognition:
These incentive costs are
The Company recognizes net sales upon shipment of
merchandise. Net sales is comprised of gross revenues less
expected returns, trade discounts and customer allowances, which
include costs associated with off-invoice mark-downs and other
price reductions, as well as coupons.
recognized at the later of the date on which the Company
recognizes the related revenue or the date on which the Company
offers the incentive.
reduction to sales, cost of sales and accounts receivable and an
increase to inventory.
refurbishment of returned products.
reflects the costs associated with free products, buy-one-get-one
free, trial-size items, gift-with-purchase and other types of
incentives.
the date the Company recognizes the related revenue or the date
on which the Company offers the incentive.
The Company adopted
the second portion of EITF Issue 01-9 (formerly EITF Issue 00-25)
effective January 1, 2002. (See Note 19).
These incentive costs are recognized on the later of
The Company records sales returns as a
Cost of sales includes the cost of
Additionally, cost of sales
F-42
Income Taxes:
Income taxes are calculated using the liability method in accordance with the provisions of
Statement of Financial Accounting Standards (“SFAS”) No. 109, “Accounting for Income Taxes.”
Revlon, Inc., for federal income tax purposes, is included in the affiliated group of which
Mafco Holdings is the common parent, and Revlon, Inc.’s federal taxable income and loss is
included in such group’s consolidated tax return filed by Mafco Holdings. Revlon, Inc. also may
be included in certain state and local tax returns of Mafco Holdings or its subsidiaries. For all
periods presented, federal, state and local income taxes are provided as if the Company filed its
own income tax returns. On June 24, 1992, Revlon Holdings Inc. (“Holdings”), an affiliate and
indirect wholly owned subsidiary of Mafco Holdings, the Company and certain of its subsidiaries
and Mafco Holdings entered into a tax sharing agreement, which is described in Notes 12 and 15.
Pension and Other Postretirement and Postemployment Benefits:
The Company sponsors pension and other retirement plans in various forms covering
substantially all employees who meet eligibility requirements. For plans in the United States, the
minimum amount required pursuant to the Employee Retirement Income Security Act, as
amended, is contributed annually. Various subsidiaries outside the United States have retirement
plans under which funds are deposited with trustees or reserves are provided.
The Company accounts for benefits such as severance, disability and health insurance
provided to former employees prior to their retirement when it is probable that a liability has been
incurred and the amount of such liability can be reasonably estimated.
Research and Development:
Research and development expenditures are expensed as incurred. The amounts charged
against earnings in 2001, 2000 and 1999 were $24.4, $27.3 and $32.9, respectively.
Foreign Currency Translation:
Assets and liabilities of foreign operations are generally translated into United States
dollars at the rates of exchange in effect at the balance sheet date. Income and expense items are
generally translated at the weighted average exchange rates prevailing during each period
presented. Gains and losses resulting from foreign currency transactions are included in the results
of operations. Gains and losses resulting from translation of financial statements of foreign
subsidiaries and branches operating in non-hyperinflationary economies are recorded as a
component of accumulated other comprehensive loss until either sale or upon complete or
substantially complete liquidation by the Company of its investment in a foreign entity. Foreign
subsidiaries and branches operating in hyperinflationary economies translate non-monetary assets
and liabilities at historical rates and include translation adjustments in the results of operations.
Sale of Subsidiary Stock:
The Company recognizes gains and losses on sales of subsidiary stock in its Consolidated
Statements of Operations.
F-43
Basic and Diluted (Loss) Income per Common Share and Classes of Stock:
outstanding
The basic (loss) income per common share has been computed
based upon the weighted average number of shares of common stock
Diluted (loss)
outstanding during each of the periods presented.
income per common share has been computed based upon the weighted
The
average number of shares of common stock outstanding.
Company’s
stock
represent the only potential dilutive common stock outstanding.
The number of shares used in the calculation of basic and diluted
loss per common share was the same in each period presented, as
it does not include any incremental shares that would have been
the
exercise
outstanding
issuance
those
of
incremental shares would have been antidilutive.
For each period
presented, the amount of loss used in the calculation of diluted
loss per common share was the same as the amount of loss used in
the calculation of basic loss per common share.
of
because
restricted
stock
the
restricted
assuming
options
options
effect
stock
stock
and
the
of
or
The Revlon, Inc. Class A Common Stock, par value $.01 per share (the “Class A
Common Stock”) and the Revlon, Inc. Class B Common Stock, par value $.01 per share (the
“Class B Common Stock”) (collectively with the Class A Common Stock, the “Common Stock”),
vote as a single class on all matters, except as otherwise required by law, with each share of
Class A Common Stock entitling its holder to one vote and each share of the Class B Common
Stock entitling its holder to ten votes. All of the shares of Class B Common Stock are owned by
REV Holdings Inc. (“REV Holdings”), an indirect wholly-owned subsidiary of Mafco Holdings.
Mafco Holdings beneficially owns shares of Common Stock having approximately 97.3% of the
combined voting power of the outstanding shares of Common Stock. The holders of the
Company’s two classes of common stock are entitled to share equally in the earnings of the
Company from dividends, when and if declared by the Board. Each outstanding share of Class B
Common Stock is convertible into one share of Class A Common Stock.
The Company designated 1,000 shares of Preferred Stock as the Series A Preferred Stock, of which 546
shares are outstanding and held by REV Holdings. The holder of Series A Preferred Stock is not entitled to receive
any dividends. The Series A Preferred Stock is entitled to a liquidation preference of $100,000 per share before any
distribution is made to the holders of Common Stock. The holder of the Series A Preferred Stock does not have any
voting rights, except as required by law. The Series A Preferred Stock may be redeemed at any time by the
Company, at its option, for $100,000 per share. However, the terms of Products Corporation’s various debt
agreements currently restrict Revlon, Inc.’s ability to effect such redemption by generally restricting the amount of
dividends or distributions Products Corporation can pay to Revlon, Inc.
The Company designated 4,333 shares of Preferred Stock as
the Series B Convertible Preferred Stock (the “Series B Preferred
Stock”), all of which are outstanding and held by REV Holdings.
The Series B Preferred Stock is entitled to receive dividends if
the Company declares or pays any dividends on the Company’s Class
A Common Stock in an amount per share of Series B Preferred Stock
as if the shares of Series B Preferred Stock had been converted
such
the
into
dividend.
The Series B Preferred Stock is entitled to a
liquidation preference of $720.0554 per share plus the amount of
declared but unpaid dividends as of the date of any liquidation,
Company’s
entitled
Common
Stock
Class
to
A
F-44
dissolution or winding up of the Company before any distributions
Each of the outstanding
are made to the holders of Common Stock.
4,333 shares of Series B Preferred Stock of Revlon, Inc. is
entitled to 100 votes and is convertible into 100 shares of Class
A Common Stock.
Such conversion rights are subject to approval
by Revlon, Inc.’s stockholders at its 2002 Annual Meeting of
Stockholders. At its option, the Company may redeem the Series B
Preferred Stock at any time at least 30 days after stockholder
approval of the conversion rights for $720.0554 per share.
debt
However,
agreements currently restrict Revlon, Inc.’s ability to effect
such redemption by generally restricting the amount of dividends
or distributions Products Corporation can pay to Revlon, Inc.
Corporation’s
Products
various
terms
the
of
Stock-Based Compensation:
SFAS No. 123, “Accounting for Stock-Based Compensation,” encourages, but does not
require companies to record compensation cost for stock-based employee compensation plans at
fair value. The Company has chosen to account for stock-based compensation plans using the
intrinsic value method prescribed in Accounting Principles Board (“APB”) Opinion No. 25,
“Accounting for Stock Issued to Employees,” and related interpretations including FASB
Interpretation No. 44, “Accounting for Certain Transactions Involving Stock Compensation, an
Interpretation of APB No. 25” issued in March 2000. Accordingly, compensation cost for stock
options issued to employees is measured as the excess, if any, of the quoted market price of the
Company’s stock at the date of the grant over the amount an employee must pay to acquire the
stock. (See Note 14).
Derivative Financial Instruments:
On January 1, 2001, the Company adopted SFAS 133,
Changes in fair value are
The standard requires the recognition of all
“Accounting for Derivative Instruments and Hedging Activities,”
as amended.
derivative instruments on the balance sheet as either assets or
liabilities measured at fair value.
recognized immediately in earnings unless the derivatives qualify
as hedges of future cash flows.
hedges of future cash flows, the effective portion of changes in
fair value is recorded as a component of Other Comprehensive
Income and recognized in earnings when the hedged transaction is
recognized in earnings.
the extent that the change in fair value of the hedges does not
completely offset the change in the anticipated net payments
being hedged) is recognized in earnings as it occurs.
no cumulative effect recognized for adopting this accounting
change.
Any ineffective portion (representing
For derivatives qualifying as
There was
The Company formally designates and documents each financial
instrument as a hedge of a specific underlying exposure as well
as the risk management objectives and strategies for entering
into the hedge transaction upon inception.
formally assesses upon inception and quarterly thereafter whether
the financial instruments used in hedging transactions are
The Company also
F-45
effective in offsetting changes in the fair value or cash flows
of the hedged items.
The Company uses derivative financial instruments, primarily
forward foreign exchange contracts, to reduce the exposure of
adverse effects of fluctuating foreign currency exchange rates.
These contracts, which have been designated as cash flow hedges,
were entered into primarily to hedge anticipated inventory
purchases and certain intercompany payments denominated in
foreign currencies, which have maturities of less than one year.
The unrecognized income (loss) on the revaluation of forward
currency contracts is recognized in cost of sales upon expiration
of the contract.
Throughout 2001, the Company entered into these
contracts with a counterparty that is a major financial
institution, and accordingly the Company believes that the risk
of counterparty nonperformance is remote. There were no
derivative financial instruments outstanding at December 31,
2001.
The amount of the hedges’ ineffectiveness as of December 31,
2001 recorded in the Consolidated Statements of Operations was
not significant.
Advertising and Promotion:
Costs associated with advertising and promotion are expensed in the year incurred. Television advertising
production costs are expensed the first time the advertising takes place. Advertising and promotion expenses were
$272.9, $268.7 and $352.2 for 2001, 2000 and 1999, respectively.
The Company has various arrangements with customers to reimburse them for a portion of their advertising
costs, which provide advertising benefits to the Company. Additionally, from time to time the Company may pay fees
to customers in order to expand or maintain shelf space for its products. The costs that the Company incurs for
“cooperative” advertising programs, end cap replacement, shelf replacement costs and slotting fees are expensed as
incurred and are currently included in SG&A expenses on the Company’s Consolidated Statements of Operations. The
Company adopted the second portion of EITF Issue 01-9 (formerly EITF Issue 00-25) effective January 1, 2002. (See
Note 19).
Distribution Costs:
Costs, such as freight and handling costs, associated with distribution are expensed within SG&A when
incurred. Distribution costs were $65.9, $78.4 and $102.9 for 2001, 2000 and 1999, respectively.
2. Restructuring Costs and Other, Net
In late 1998, the Company developed a strategy to reduce
overall costs and streamline operations.
strategy, the Company began to develop a restructuring plan and
executed the plan in several phases, which has resulted in
several restructuring charges being recorded.
To execute against this
In the fourth quarter of 1998, the Company began to execute
the 1998 restructuring program which was designed to realign and
reduce personnel, exit excess leased real estate, realign and
consolidate regional activities, reconfigure certain
manufacturing operations and exit certain product lines.
During
F-46
the nine-month period ended September 30, 1999, the Company
continued to execute the 1998 restructuring program and recorded
an additional net charge of $20.5 principally for employee
severance and other personnel benefits and obligations for excess
leased real estate primarily in the United States.
Additionally,
in 1999, the Company exited a non-core business for which it
recorded a charge of $1.6, which was included in restructuring
costs and other, net.
In the fourth quarter of 1999, the Company continued to
restructure its organization and began a new program in line with
its original restructuring plan developed in late 1998,
principally for additional employee severance and other personnel
benefits and to restructure certain operations outside the United
States, including certain operations in Japan, resulting in a
charge of $18.1.
the Company recorded a charge of $22.0 to SG&A for executive
separation costs related to this new program.
quarter of 2000, the Company recorded a charge of $9.5 relating
to the 1999 restructuring program that began in the fourth
quarter of 1999.
restructuring program during the second quarter of 2000 during
which it recorded a charge of $5.1.
Additionally, during the fourth quarter of 1999
The Company continued to implement the 1999
In the first
of
The
programs
previously
facilities.
manufacturing
consolidating
manufacturing
During the third quarter of 2000, the Company continued to
re-evaluate its organizational structure.
As part of this re-
evaluation, the Company initiated a new restructuring program
in line with the original restructuring plan developed in late
1998, designed to improve profitability by reducing personnel
and
Company
recorded a charge of $13.7 in the third quarter of 2000 for
programs begun in such quarter, as well as for the expanded
scope
2000
restructuring program focused on the Company’s plans to close
and
its
cosmetics
Mississauga,
production into its plant in Oxford, North Carolina.
The 2000
restructuring program also includes the remaining obligation
for excess leased real estate in the Company’s headquarters,
consolidation costs associated with the Company closing its
facility in New Zealand, and the elimination of several
operational
domestic
and
reduce
positions,
streamline corporate overhead costs. In the fourth quarter of
2000, the Company recorded a charge of $25.8 related to the
additional
2000
to
and
employee
consolidate worldwide operations.
restructuring
severance
principally
personnel
in
consolidate
operations
to
for
benefits
international
commenced.
executive
Phoenix,
effected
program,
Arizona
and
to
Canada
other
which
each
were
its
and
and
The
and
of
recorded
In the first, second, third and fourth quarters of 2001, the
Company
$12.6,
$14.6,
program,
respectively,
2000
principally for additional employee severance and other personnel
benefits, relocation and other costs related to the consolidation
of worldwide operations. The charge in the fourth quarter of 2001
charges
to
restructuring
related
$7.9,
$3.0
and
the
of
F-47
also was for an adjustment to previous estimates of approximately
$6.6.
employees
In connection with the 1999 restructuring program
and the 2000 restructuring program, termination benefits for
were
403
included in the Company’s restructuring charges of which 394
and 2,009 employees have been terminated as of December 31,
2001.
The remaining employees from the 2000 restructuring
program are expected to be terminated within one year from
the date of their notification.
respectively,
employees,
2,188
and
F-48
Details of the activity described above during 2001, 2000
and 1999 are as follows:
Balance
Beginning
of Year
Expenses, Net
Cash
Noncash
Utilized, Net
Balance
End
of Year
2001
Employee severance and other
personnel benefits.................................. $
Relocation.....................................................
Leases and equipment write-offs...................
Other obligations...........................................
$
2000
Employee severance and other
personnel benefits.................................. $
Relocation.....................................................
Leases and equipment write-offs...................
Other obligations...........................................
$
1999
Employee severance and other
personnel benefits.................................. $
Relocation.....................................................
Leases and equipment write-offs...................
Other obligations...........................................
Other.............................................................
$
28.6
-
5.9
1.5
36.0
24.6
-
7.6
1.8
34.0
24.9
-
12.1
-
-
37.0
$
$
$
$
$
$
27.5
3.8
5.6
1.2
38.1
44.6
-
6.9
2.6
54.1
35.3
-
1.5
1.8
1.6
40.2
$
$
$
$
$
$
(41.0)
(3.8)
(4.0)
(2.4)
(51.2)
(39.5)
-
(3.4)
(2.9)
(45.8)
(35.6)
-
(4.6)
-
(1.6)
(41.8)
$
$
$
$
$
$
-
-
(0.1)
-
(0.1)
(1.1)
-
(5.2)
-
(6.3)
-
-
(1.4)
-
-
(1.4)
$
$
$
$
$
$
15.1
-
7.4
0.3
22.8
28.6
-
5.9
1.5
36.0
24.6
-
7.6
1.8
-
34.0
In connection with the 2000 restructuring program, in the
beginning of the fourth quarter of 2000, the Company decided to
consolidate its manufacturing facility in Phoenix, Arizona into
The plan
its manufacturing facility in Oxford, North Carolina.
was to relocate substantially all of the Phoenix equipment to the
Oxford facility and commence production there over a period of
approximately nine months which would allow the Company to fully
staff the Oxford facility and to produce enough inventory through
a combination of production in the Phoenix and Oxford facilities
to meet supply chain demand as the Phoenix facility production
lines were dismantled, moved across the country, and placed into
service at the Oxford facility.
Substantially all production at
the Phoenix facility ceased by June 30, 2001, and the facility
was sold.
which would not be relocated to the Oxford facility was shortened
at the time the decision was made to the nine-month period in
which the Phoenix facility would continue production.
Company began depreciating the net book value of the Phoenix
facility and production equipment in excess of its estimated
salvage value over the estimated nine-month useful life.
The useful life of the facility and production assets
This
The
F-49
resulted in the recognition of increased depreciation through
June 30, 2001 of $6.1, which is included in cost of sales.
to the sale of the Phoenix facility in the second quarter of
2001, there was no additional increased depreciation charged
subsequent to June 30, 2001.
Due
As of December 31, 2001, 2000 and 1999, the unpaid balance
of the restructuring costs are included in accrued expenses
and other and other long-term liabilities in the Company’s
The remaining balance at
Consolidated Balance Sheets.
December 31, 2001 for employee severance and other personnel
benefits of $15.1 are expected to be paid by the end of
2002, lease and equipment obligations of $7.4 are expected
to be paid by the end of 2008 and other obligations of $0.3
are expected to be paid by the end of 2002.
F-50
3. Dispositions
Described below are the principal sales of a product line,
Products
entered
into
and
by
certain
facilities
Corporations during 2001 and 2000:
brands
its
and
skin
care
Honey
2000,
30,
of
certain
Products
products
regional
worldwide
completed
Corporation
professional
Corporation’s
the
On March
disposition
line,
including professional hair care for use in and resale by
professional salons, ethnic hair and personal care products,
Natural
toiletries
brands, for $315 in cash, before adjustments, plus $10 in
purchase price payable in the future, contingent upon the
purchasers’ achievement of certain rates of return on their
The disposition involved the sale of certain of
investment.
Products
world
subsidiaries
devoted to the professional products line, as well as assets
being
dedicated
disposed.
was
purchased by a company formed by CVC Capital Partners, the
Colomer family and other investors, led by Carlos Colomer, a
former manager of the line that was sold, following arms’-
length negotiation of the terms of the purchase agreement,
the
including
consideration.
the
Company recognized a pre-tax and after-tax gain of $13.4,
$14.8 of which was recorded in 2000 and $1.4 of additional
costs
2001.
Approximately $150.3 of the Net Proceeds (as defined in the
Credit Agreement) were used to reduce the aggregate commitment
under the 1997 Credit Agreement (as hereinafter defined).
determination
In
primarily
professional
amount
disposition,
or
worldwide
exclusively
throughout
connection
of
with
recorded
products
quarter
fourth
lines
line
the
the
the
the
the
the
was
The
to
of
in
of
8,
On
May
2000,
Products
the
disposition of the Plusbelle brand in Argentina for $46.2 in
Approximately $20.7 of the Net Proceeds were used to
cash.
aggregate
reduce
Credit
the
Agreement.
In connection with the disposition, the Company
recognized a pre-tax and after-tax loss of $4.8.
Corporation
commitment
completed
under
1997
the
In April 2001, Products Corporation sold land in Minami Aoyama near Tokyo, Japan and
related rights for the construction of a building on such land (the “Aoyama Property”) for
approximately $28. In connection with such disposition, the Company recognized a pre-tax and
after-tax loss of $0.8 during the second quarter of 2001.
In May 2001, Products Corporation sold its Phoenix, Arizona
facility for approximately $7 and leased it back through the
end of 2001.
After recognition of increased depreciation in
the first quarter of 2001, the Company recorded a loss on the
sale of $3.7 in the second quarter of 2001, which is included
in SG&A expenses.
In July 2001, Products Corporation completed the disposition of the Colorama brand of cosmetics and hair
care products as well as Products Corporation’s manufacturing facility located in São Paulo, Brazil, for
F-51
approximately $57. Products Corporation used $22 of the net proceeds, after transaction costs and retained
liabilities, to permanently reduce commitments under the 1997 Credit Agreement. In connection with such
disposition, the Company recognized a pre-tax and after-tax loss of $6.7.
In July 2001, Products Corporation completed the disposition of its
subsidiary that owned and operated its manufacturing facility in
Maesteg, Wales (UK), including all production equipment.
As part
of this sale, Products Corporation entered into a long-term
which the
supply agreement
Corporation
purchaser
cosmetics and personal care products for sale throughout Europe.
The purchase price was approximately $20.0, $10.0 of which was
received on the closing date and $10.0 is to be received over a
six-year period, a portion of which is contingent upon certain
future events.
In connection with such disposition, the Company
recognized a pre-tax and after-tax loss of $8.6.
with the
manufactures and
purchaser
supplies
pursuant to
Products
to
In December 2001, Products Corporation sold a facility in
Puerto Rico for approximately $4. In connection with such
disposition, the Company recorded a pre-tax and after-tax gain on
the sale of $3.1 in the fourth quarter of 2001.
F-52
The following represents summary unaudited pro forma information of the Company’s results of operations,
which excludes the results of operations of the Colorama brand, the worldwide professional products line and the
Plusbelle brand in Argentina as if the transactions occurred January 1, 2000.
Net sales........................................................................................
Operating income ........................................................................
4. Inventories
Raw materials and supplies...........................................................
Work-in-process...........................................................................
Finished goods..............................................................................
5. Prepaid Expenses and Other
Prepaid expenses...........................................................................
Asset held for sale.........................................................................
Other.............................................................................................
Year Ended December 31,
2001
1,305.1
18.7
$
2000
1,303.7
10.3
December 31,
2001
2000
44.9
10.1
102.9
157.9
$
$
56.2
9.4
119.2
184.8
December 31,
2001
2000
22.4
3.4
19.8
45.6
$
$
22.8
29.0
14.3
66.1
$
$
$
$
$
In the fourth quarter of 2000, Products Corporation listed the Aoyama Property for sale.
The Company recorded a charge, included in selling, general and administrative expenses, of
approximately $9.4 to reduce the net book value of the asset held for sale to its estimated net
realizable value of ¥3.3 billion. (See Note 3).
6. Property, Plant and Equipment, Net
Land and improvements.......................................................................
Buildings and improvements...............................................................
Machinery and equipment....................................................................
Office furniture and fixtures and capitalized software.........................
Leasehold improvements.....................................................................
Construction-in-progress.....................................................................
Accumulated depreciation...................................................................
December 31,
2001
2000
2.4
79.8
112.5
108.8
18.3
10.5
332.3
(189.5)
142.8
$
$
13.5
129.3
179.2
107.0
22.7
11.2
462.9
(241.2)
221.7
$
$
Depreciation expense for the years ended December 31, 2001, 2000 and 1999 was $36.8,
$42.4 and $45.9, respectively.
F-53
7. Accrued Expenses and Other
Advertising and promotional costs and accrual for sales returns............
Compensation and related benefits.........................................................
Interest....................................................................................................
Taxes, other than federal income taxes...................................................
Restructuring costs..................................................................................
Other.......................................................................................................
December 31,
2001
2000
129.8
61.6
40.2
5.5
18.9
25.3
281.3
$
$
121.8
70.5
39.9
5.6
32.2
40.7
310.7
$
$
8. Short-term Borrowings
Products Corporation had outstanding short-term bank borrowings (excluding borrowings
under the Credit Agreement (as hereinafter defined)) aggregating $17.5 and $30.7 at December 31,
2001 and 2000, respectively. Interest rates on amounts borrowed under such short-term lines at
December 31, 2001 and 2000 ranged from 3.0% to 5.6% and from 5.5% to 10.3%, respectively,
excluding Latin American countries in which the Company had outstanding borrowings of
approximately $1.2 and $4.9 at December 31, 2001 and 2000, respectively. Compensating
balances at December 31, 2001 and 2000 were approximately $15.3 and $22.2, respectively.
Interest rates on compensating balances at December 31, 2001 and 2000 ranged from 2.1% to 4.0%
and 1.5% to 6.5%, respectively.
9. Long-term Debt
Credit facilities (a)..................................................................................
8 1/8% Senior Notes due 2006 (b)..........................................................
9% Senior Notes due 2006 (c)................................................................
8 5/8% Senior Subordinated Notes due 2008 (d)....................................
12% Senior Secured Notes due 2005 (e)................................................
Advances from Holdings (f)....................................................................
Less current portion................................................................................
December 31,
2001
119.2
249.6
250.0
649.9
350.8
24.1
1,643.6
-
1,643.6
2000
389.7
249.5
250.0
649.8
-
24.1
1,563.1
-
1,563.1
$
$
$
$
(a) On November 30, 2001, Products Corporation entered into
the Second Amended and Restated Credit Agreement (the “2001
Credit Agreement”) with a syndicate of lenders, whose individual
members change from time to time, which agreement amended and
restated the credit agreement entered into by Products
Corporation in May 1997 (the “1997 Credit Agreement”; the 2001
Credit Agreement and the 1997 Credit Agreement are sometimes
referred to as the “Credit Agreement”). On November 26, 2001, prior to closing on
the 2001 Credit Agreement, Products Corporation issued and sold in a private placement $363 in aggregate principal
amount of 12% Senior Secured Notes due 2005 (the "12% Notes") at a price of 96.569%, receiving gross proceeds
of $350.5 (see footnote (e) below) (the issuance of the 12% Notes and the 2001 Credit Agreement are referred to
herein as the “2001 Refinancing Transactions”). Products Corporation used the proceeds from the 12% Notes and
borrowings under the 2001 Credit Agreement to repay outstanding indebtedness under
F-54
Products Corporation’s 1997 Credit Agreement and to pay fees and
expenses incurred in connection with the 2001 Refinancing
Transactions, and the balance is available for general corporate
purposes.
of
in
and
and
certain
standby
letters
commercial
The 2001 Credit Agreement provides up to $250.0 and consists of a $117.9 term loan facility (the “Term
Loan Facility”) and a $132.1 multi-currency revolving credit facility (the “Multi-Currency Facility”) (the Term Loan
Facility and the Multi-Currency Facility being referred as the “Credit Facilities”). The Multi-Currency
Facility is available (i) to Products Corporation in revolving
credit loans denominated in U.S. dollars, (ii) to Products
Corporation
credit
denominated in U.S. dollars up to $50.0, $27.3 of which was
issued but undrawn at December 31, 2001 and (iii) to Products
subsidiaries
Corporation
designated from time to time in revolving credit loans and
bankers’
other
acceptances
dollars
currencies (the “Local Loans”).
At December 31, 2001 and 2000,
the Company had $117.9 and $106.2, respectively, outstanding
under the Term Loan Facility, $28.6 ($27.3 of which was issued
but
respectively,
outstanding under the Multi-Currency Facility, $0 and $62.3,
respectively,
acquisition
under
facility and $0 and $22.6, respectively, of issued but undrawn
letters of credit under the special standby letter of credit
facility (which latter two facilities were available under the
1997 Credit Agreement, but have been eliminated in the 2001
Credit Agreement).
international
denominated
outstanding
revolving
credit)
$221.2,
undrawn
letters
U.S.
and
the
and
its
of
in
of
to
in
in
The
pays
than
loans
Credit
(other
having
lenders
arrears.
Facilities
foreign
currencies) bear interest as of December 31, 2001 at a rate equal
to, at Products Corporation’s option, either (A) the Alternate
Base Rate plus 3.75%; or (B) the Eurodollar Rate plus 4.75%.
Loans in foreign currencies bear interest in certain limited
circumstances or if mutually acceptable to Products Corporation
and the relevant foreign lenders at the Local Rate and otherwise
at the Eurocurrency Rate, in each case plus 4.75%.
Products
Corporation
multi-currency
those
commitments a commitment fee of 0.75% of the average daily unused
portion of the Multi-Currency Facility, which fee is payable
quarterly
Facility,
Products Corporation pays (i) to foreign lenders a fronting fee
of 0.25% per annum on the aggregate principal amount of specified
Local Loans (which fee is retained by the foreign lenders out of
the portion of the Applicable Margin payable to such foreign
lender), (ii) to foreign lenders an administrative fee of 0.25%
per annum on the aggregate principal amount of specified Local
Loans, (iii) to the multi-currency lenders a letter of credit
commission equal to (a) the Applicable Margin for Eurodollar Rate
loans (adjusted for the term that the letter of credit is
outstanding) times (b) the aggregate undrawn face amount of
letters of credit and (c) to the issuing lender a letter of
credit fronting fee of 0.25% per annum of the aggregate undrawn
face amount of letters of credit (which fee is a portion of the
Applicable Margin).
Products Corporation also paid certain
facility and other fees to the lenders and agents upon closing of
Multi-Currency
Under
the
F-55
the 2001 Credit Agreement.
Prior to the termination date of the
2001 Credit Facilities, on each November 30 (commencing November
30, 2002) Products Corporation shall repay $1.25 in aggregate
principal amount of the Term Loan Facility.
In addition, prior
to its termination, the commitments under the Credit Facilities
will be reduced by: (i) the net proceeds in excess of $10.0 each
year received during such year from sales of assets by Products
Corporation or any of its subsidiaries (and in excess of an
additional $15.0 in the aggregate during the term with respect to
limited
certain specified
exceptions, (ii) certain proceeds from the sales of collateral
security granted to the lenders, and (iii) the net proceeds from
the issuance by Products Corporation or any of its subsidiaries
of certain additional debt. The 2001 Credit Agreement will
terminate on May 30, 2005.
The weighted average interest rates
on the Term Loan Facility, the Multi-Currency Facility and the
was
revolving
been
Credit
available
eliminated in the 2001 Credit Agreement) were 7.75% and 8.49% at
December 31,
at
December 31, 2000, respectively, and 9.9%, 8.1% and 9.8% at
December 31, 1999, respectively.
acquisition
the
under
dispositions),
respectively,
Agreement,
facility
facility
subject
certain
latter
(which
10.2%,
10.3%
2001,
9.7%
1997
but
and
has
to
and
The Credit Facilities are supported by guarantees from
Revlon, Inc. and, subject to certain limited exceptions, the
domestic subsidiaries of Products Corporation.
The obligations
of Products Corporation under the Credit Facilities and the
obligations under the aforementioned guarantees are secured, on a
first-priority basis (and therefore entitled to payment out of
the proceeds on any sale of the following collateral before the
12% Notes, which are secured on a second-priority basis), subject
to certain limited exceptions, primarily by (i) a mortgage on
Products Corporation’s facility in Oxford, North Carolina; (ii)
the capital stock of Products Corporation and its domestic
Products
subsidiaries
Corporation’s and its domestic subsidiaries’ first-tier foreign
subsidiaries; (iii) domestic intellectual property and certain
and
other
its
accounts
domestic
receivable, equipment and certain investment property of Products
Corporation and its domestic subsidiaries; and (v) the assets of
certain foreign subsidiary borrowers under the Multi-Currency
Credit
Facility
Agreement provides that the liens on the stock and property
referred to above may be shared from time to time, subject to
certain limitations, on a first-priority basis, with specified
types of other obligations incurred or guaranteed by Products
and
Corporation,
working capital lines, and on a second-priority basis with
Products Corporation’s obligations under the 12% Notes.
Corporation
inventory,
Products
domestic
subsidiaries;
obligations
intangibles
borrowings
interest
domestic
capital
hedging
support
only).
stock
their
rate
(iv)
such
The
the
66%
(to
of
as
of
of
The Credit Agreement contains various material restrictive
covenants prohibiting Products Corporation from (i) incurring
additional indebtedness or guarantees, with certain exceptions,
(ii) making dividend, tax sharing and other payments or loans to
F-56
or
with
other
certain
affiliates,
Revlon, Inc.
exceptions,
including among others, permitting Products Corporation to pay
dividends and make distributions to Revlon, Inc., among other
things, to enable Revlon, Inc. to pay expenses incidental to
being a public holding company, including, among other things,
professional fees such as legal and accounting, regulatory fees
such as Commission filing fees and other miscellaneous expenses
related to being a public holding company, and, subject to
certain limitations, to pay dividends or make distributions in
certain circumstances to finance the purchase by Revlon, Inc. of
its Class A Common Stock in connection with the delivery of such
common stock to grantees under the Revlon, Inc. Amended and
Restated 1996 Stock Plan (the “Amended Stock Plan”), (iii)
creating liens or other encumbrances on Products Corporation’s or
its domestic subsidiaries’ assets or revenues, granting negative
pledges or selling or transferring any of Products Corporation’s
or its domestic subsidiaries’ assets except in the ordinary
course of business, all subject to certain limited exceptions,
including among others, permitting Products Corporation to create
liens to secure Products Corporations’ obligations under the 12%
Notes, (iv) with certain exceptions, engaging in merger or
acquisition
and
specified
modifying
material contractual obligations, subject to certain limited
exceptions, (vi) making investments, subject to certain limited
exceptions, and (vii) entering into transactions with affiliates
of Products Corporation other than upon terms no less favorable
to Products Corporation or its subsidiaries than it would obtain
in an arms’-length transaction. In addition to the foregoing, the
Credit Agreement contains financial covenants requiring Products
levels,
Corporation
limiting the leverage ratio of Products Corporation, and limiting
the amount of capital expenditures.
indebtedness
and
(v)
certain
transactions,
indebtedness
cumulative
specified
prepaying
maintain
EBITDA
terms
the
of
to
The events of default under the Credit Agreement include a
Change of Control (as defined in the Credit Agreement) of
Products Corporation and other customary events of default for
such types of agreements.
Upon entering into the 2001 Credit Agreement, the Company recorded an extraordinary
charge of $3.6 for associated costs. (See Note 20).
In May 1997, Products Corporation entered into the 1997
Credit Agreement (as subsequently amended) with a syndicate of
lenders, whose individual members changed from time to time.
The
1997 Credit Agreement included, among other things, (i) a term to
May 2002, and (ii) an original credit facilities comprised of
five senior secured facilities: two term loan facilities, a
multi-currency facility, a revolving acquisition facility, which
was also available for general corporate purposes, and a special
standby letter of credit facility.
rates on the term loan facilities, multi-currency facility and
acquisition facility were 10.2%, 9.7% and 10.3% per annum,
respectively, at December 31, 2000.
The weighted average interest
F-57
(b) The 8 1/8% Notes due 2006 (the “8 1/8% Notes”) are senior unsecured obligations of
Products Corporation and rank pari passu in right of payment with all existing and future Senior
Debt (as defined in the indenture relating to the 8 1/8% Notes (the “8 1/8% Notes Indenture”)) of
Products Corporation, including the 12% Notes, 9% Notes and the indebtedness under the Credit
Agreement, and are senior to the 8 5/8% Notes and to all future subordinated indebtedness of
Products Corporation. The 8 1/8% Notes are effectively subordinated to the outstanding
indebtedness and other liabilities of Products Corporation’s subsidiaries. Interest is payable on
February 1 and August 1.
The 8 1/8% Notes may be redeemed at the option of Products
Corporation in whole or from time to time in part at any time on
or after February 1, 2002 at the redemption prices set forth in
the 8 1/8% Notes Indenture plus accrued and unpaid interest, if
any, to the date of redemption.
Upon a Change of Control (as defined in the 8 1/8% Notes
Indenture), Products Corporation will have the option to redeem
the 8 1/8% Notes in whole at a redemption price equal to the
principal amount thereof, plus accrued and unpaid interest, if
any, thereon to the date of redemption plus the Applicable
Premium (as defined in the 8 1/8% Notes Indenture) and, subject
to certain conditions, each holder of the 8 1/8% Notes will have
the right to require Products Corporation to repurchase all or a
portion of such holder’s 8 1/8% Notes at a price equal to 101% of
the principal amount thereof, plus accrued and unpaid interest,
if any, thereon to the date of repurchase.
The 8 1/8% Notes Indenture contains covenants that, among
other things, limit (i) the issuance of additional debt and
redeemable stock by Products Corporation, (ii) the incurrence of
liens, (iii) the issuance of debt and preferred stock by Products
Corporation’s subsidiaries, (iv) the payment of dividends on
capital stock of Products Corporation and its subsidiaries and
the redemption of capital stock of Products Corporation and
certain subordinated obligations, (v) the sale of assets and
subsidiary stock, (vi) transactions with affiliates and (vii)
consolidations, mergers and transfers of all or substantially all
The 8 1/8% Notes Indenture also
Products Corporation’s assets.
prohibits
from
subsidiaries.
prohibitions,
however, are subject to a number of important qualifications.
restrictions
these
of
on
limitations
certain
All
distributions
and
(c) The 9% Senior Notes due 2006 (the “9% Notes”) are senior unsecured obligations of
Products Corporation and rank pari passu in right of payment with all existing and future Senior
Debt (as defined in the indenture relating to the 9% Notes (the “9% Notes Indenture”)) of
Products Corporation, including the 12% Notes, 8 1/8% Notes and the indebtedness under the
Credit Agreement, and are senior to the 8 5/8% Notes and to all future subordinated indebtedness
of Products Corporation. The 9% Notes are effectively subordinated to outstanding indebtedness
and other liabilities of Products Corporation’s subsidiaries. Interest is payable on May 1 and
November 1.
F-58
The 9% Notes may be redeemed at the option of Products
Corporation in whole or from time to time in part at any time on
or after November 1, 2002 at the redemption prices set forth in
the 9% Notes Indenture plus accrued and unpaid interest, if any,
to the date of redemption.
In addition, at any time prior to
November 1, 2001, Products Corporation may redeem up to 35% of
the aggregate principal amount of the 9% Notes originally issued
at a redemption price of 109% of the principal amount thereof,
plus accrued and unpaid interest, if any, thereon to the date
Products
fixed
Corporation receives, the net cash proceeds of one or more Public
Equity Offerings (as defined in the 9% Notes Indenture), provided
that at least $162.5 aggregate principal amount of the 9% Notes
remains outstanding immediately after the occurrence of each such
redemption.
redemption,
extent
with,
and
the
for
to
Upon a Change in Control (as defined in the 9% Notes
Indenture), Products Corporation will have the option to redeem
the 9% Notes in whole at a redemption price equal to the
principal amount thereof, plus accrued and unpaid interest, if
any, thereon to the date of redemption plus the Applicable
Premium (as defined in the 9% Notes Indenture) and, subject to
certain conditions, each holder of the 9% Notes will have the
right to require Products Corporation to repurchase all or a
portion of such holder’s 9% Notes at a price equal to 101% of the
principal amount thereof, plus accrued and unpaid interest, if
any, thereon to the date of repurchase.
of
the
(i)
debt
limit
additional
Corporation’s
The 9% Notes Indenture contains covenants that, among other
things,
and
issuance
redeemable stock by Products Corporation, (ii) the incurrence
of liens, (iii) the issuance of debt and preferred stock by
Products
of
subsidiaries,
dividends on capital stock of Products Corporation and its
subsidiaries and the redemption of capital stock of Products
Corporation and certain subordinated obligations, (v) the sale
of
with
affiliates and (vii) consolidations, mergers and transfers of
The
all or substantially all Products Corporation’s assets.
9% Notes Indenture also prohibits certain restrictions on
distributions from subsidiaries.
All of these limitations and
prohibitions, however, are subject to a number of important
qualifications.
transactions
subsidiary
payment
stock,
assets
(vi)
(iv)
and
the
(d) The 8 5/8% Notes due 2008 (the “8 5/8% Notes”) are general unsecured obligations of
Products Corporation and are (i) subordinate in right of payment to all existing and future Senior
Debt (as defined in the indenture relating to the 8 5/8% Notes (the “8 5/8% Notes Indenture”)) of
Products Corporation, including the 12% Notes, 9% Notes, the 8 1/8% Notes and the
indebtedness under the Credit Agreement, (ii) pari passu in right of payment with all future
senior subordinated debt, if any, of Products Corporation and (iii) senior in right of payment to
all future subordinated debt, if any, of Products Corporation. The 8 5/8% Notes are effectively
subordinated to the outstanding indebtedness and other liabilities of Products Corporation’s
subsidiaries. Interest is payable on February 1 and August 1.
F-59
The 8 5/8% Notes may be redeemed at the option of Products
Corporation in whole or from time to time in part at any time on
or after February 1, 2003 at the redemption prices set forth in
the 8 5/8% Notes Indenture plus accrued and unpaid interest, if
any, to the date of redemption.
Upon a Change of Control (as defined in the 8 5/8% Notes
Indenture), Products Corporation will have the option to redeem
the 8 5/8% Notes in whole at a redemption price equal to the
principal amount thereof, plus accrued and unpaid interest, if
any, thereon to the date of redemption plus the Applicable
Premium (as defined in the 8 5/8% Notes Indenture) and, subject
to certain conditions, each holder of the 8 5/8% Notes will have
the right to require Products Corporation to repurchase all or a
portion of such holder’s 8 5/8% Notes at a price equal to 101% of
the principal amount thereof, plus accrued and unpaid interest,
if any, thereon to the date of repurchase.
The 8 5/8% Notes Indenture contains covenants that, among
other things, limit (i) the issuance of additional debt and
redeemable stock by Products Corporation, (ii) the incurrence of
liens, (iii) the issuance of debt and preferred stock by Products
Corporation’s subsidiaries, (iv) the payment of dividends on
capital stock of Products Corporation and its subsidiaries and
the redemption of capital stock of Products Corporation, (v) the
sale of assets and subsidiary stock, (vi) transactions with
affiliates, (vii) consolidations, mergers and transfers of all or
substantially all of Products Corporation’s assets and (viii) the
issuance of additional subordinated debt that is senior in right
The 8 5/8% Notes Indenture also
of payment to the 8 5/8% Notes.
certain
prohibits
from
subsidiaries.
prohibitions,
All
however, are subject to a number of important qualifications.
restrictions
these
of
on
limitations
distributions
and
(e) On November 26, 2001, prior to closing on the 2001 Credit Agreement, Products
Corporation issued and sold $363.0 in principal amount of 12% Notes in a private placement at a
price of 96.569%, receiving gross proceeds of $350.5. The effective interest rate on the 12% Notes
is 13.125%. On November 26, 2001, the proceeds of the 12% Notes were put into an escrow
account held by Wilmington Trust Company, which proceeds were released to Products
Corporation on November 30, 2001 upon satisfaction of certain conditions, principally Products
Corporation’s closing of the 2001 Credit Agreement, which occurred on November 30, 2001.
Products Corporation used the proceeds from the 12% Notes and borrowings under the 2001 Credit
Agreement to repay outstanding indebtedness under Products Corporation’s 1997 Credit
Agreement and to pay fees and expenses incurred in connection with the 2001 Refinancing
Transactions, and the balance is available for general corporate purposes. On or before February
25, 2002, Products Corporation expects to file a registration statement with the Securities and
Exchange Commission (the “Commission”) with respect to an offer to exchange the 12% Notes for
registered notes with substantially the same terms (the “Exchange Offer”).
The 12% Notes were issued pursuant to an Indenture, dated as of November 26, 2001 (the "12% Notes
Indenture"), among Products Corporation, the guarantors party thereto, including Revlon, Inc. as parent guarantor,
and Wilmington Trust Company, as trustee. The 12% Notes are supported by guarantees
F-60
from Revlon, Inc. and, subject to certain limited exceptions, Products Corporation's domestic subsidiaries. The
obligations of Products Corporation under the 12% Notes and the obligations under the aforementioned guarantees
are secured, on a second-priority basis, subject to certain limited
exceptions, primarily by (i) a mortgage on Products Corporation's facility in Oxford, North
Carolina; (ii) the capital stock of Products Corporation and its domestic subsidiaries and 66% of the capital stock of
Products Corporation's and its domestic subsidiaries’ first-tier foreign subsidiaries; (iii) domestic intellectual
property and certain other domestic intangibles of Products Corporation and its domestic subsidiaries; and (iv)
domestic inventory, accounts receivable, equipment and certain investment property of Products Corporation and its
domestic subsidiaries. Such liens are subject to certain limitations, which among
other things, limit the ability of holders of second-priority
liens from exercising any remedies against the collateral while
the Credit Agreement or any other first-priority lien remains in
effect.
The 12% Notes are senior secured obligations of Products
Corporation and rank pari passu in right of payment with all
existing and future Senior Debt (as defined in 12% Notes
Indenture) including the 8 1/8% Notes, the 9% Notes and the
indebtedness under the Credit Agreement, and are senior to the 8
5/8% Notes and all future subordinated indebtedness of Products
Corporation.
The 12% Notes are effectively subordinated to the
outstanding indebtedness and other liabilities of Products
Corporation’s subsidiaries.
Interest is payable on June 1 and December 1, beginning June 1,
2002.
The 12% Notes mature on December 1, 2005.
The 12% Notes may be redeemed at the option of Products
Corporation in whole or in part at any time at a redemption price
equal to the principal amount thereof, plus accrued and unpaid
interest, if any to the date of redemption, plus the Applicable
Premium (as defined in the 12% Notes Indenture).
Upon a Change in Control (as defined in the 12% Notes
Indenture), subject to certain conditions, each holder of the 12%
Notes will have the right to require Products Corporation to
repurchase all or a portion of such holder’s 12% Notes at a price
equal to 101% of the principal amount thereof, plus accrued and
unpaid interest, if any, thereon to the date of repurchase.
of
(i)
the
debt
limit
additional
Corporation’s
The 12% Notes Indenture contains covenants that, among other
things,
and
issuance
redeemable stock by Products Corporation, (ii) the incurrence
of liens, (iii) the issuance of debt and preferred stock by
of
subsidiaries,
Products
dividends on capital stock of Products Corporation and its
subsidiaries and the redemption of capital stock of Products
Corporation and certain subordinated obligations, (v) the sale
with
of
affiliates and (vii) consolidations, mergers and transfers of
all or substantially all Products Corporation’s assets.
The
12% Notes Indenture also prohibits certain restrictions on
All of these limitations and
distributions from subsidiaries.
prohibitions, however, are subject to a number of important
qualifications.
transactions
subsidiary
payment
stock,
assets
(iv)
(vi)
and
the
F-61
The 12% Notes Indenture, 8 1/8% Notes Indenture, the 8 5/8% Notes Indenture and the
9% Notes Indenture contain customary events of default for debt instruments of such type.
(f) During 1992, Holdings made an advance of $25.0 to Products Corporation, evidenced
by subordinated noninterest-bearing demand notes. The notes were subsequently adjusted by
offsets and additional amounts loaned by Holdings to Products Corporation. In 1998,
approximately $6.8 due to Products Corporation from Holdings was offset against the notes
payable to Holdings. At December 31, 2001, the balance of $24.1 is evidenced by
noninterest-bearing promissory notes payable to Holdings that are subordinated to Products
Corporation’s obligations under the Credit Agreement.
(g) Products Corporation borrows funds from its affiliates from time to time to supplement
its working capital borrowings. No such borrowings were outstanding as of December 31, 2001
and 2000. The interest rates for such borrowings are more favorable to Products Corporation than
interest rates under the Credit Agreement. The amount of interest paid by Products Corporation for
such borrowings for 2001, 2000 and 1999 was nil, nil and $0.5, respectively.
The aggregate amounts of long-term debt maturities (at December 31, 2001), in the years
2002 through 2006 are nil, nil, nil, $494.1 and $499.6, respectively, and $649.9 thereafter.
The Company expects that cash flows from operations before interest, cash on hand and
available borrowings under the Multi-Currency Facility of the 2001 Credit Agreement will be
sufficient to enable the Company to meet its anticipated cash requirements during 2002 on a
consolidated basis, including for debt service and expenses in connection with the Company’s
restructuring programs. However, there can be no assurance that the combination of cash flow
from operations, cash on hand and available borrowings under the Multi-Currency Facility of the
2001 Credit Agreement will be sufficient to meet the Company's cash requirements on a
consolidated basis. Additionally, in the event of a decrease in demand for its products or reduced
sales, such development, if significant, could reduce the Company’s cash flow from operations
and could adversely affect the Company’s ability to achieve certain financial covenants under the
2001 Credit Agreement, including the minimum EBITDA covenant, and in such event the
Company could be required to take measures, including reducing discretionary spending. If the
Company is unable to satisfy such cash requirements, the Company could be required to adopt one
or more alternatives, such as reducing or delaying purchases of permanent displays, reducing or
delaying capital expenditures, delaying or revising restructuring programs, restructuring
indebtedness, selling assets or operations, or seeking capital contributions or loans from affiliates
of the Company or issuing additional shares of capital stock of Revlon, Inc. Products Corporation
has received a commitment from an affiliate that is prepared to provide, if necessary, additional
financial support to Products Corporation of up to $40 on appropriate terms through December 31,
2003. There can be no assurance that any of such actions could be effected, that they would
enable the Company to continue to satisfy its capital requirements or that they would be
permitted under the terms of the Company’s various debt instruments then in effect. Revlon, Inc.,
as a holding company, will be dependent on the earnings and cash flow of, and dividends and
distributions from, Products Corporation to pay its expenses and to pay any cash dividend or
distribution on Revlon, Inc.’s Class A Common Stock that may be authorized by the Board of
Directors of Revlon, Inc. The terms of the Credit Agreement, the 12% Notes, the 8 5/8% Notes,
the 8 1/8% Notes and the 9% Notes generally restrict Products Corporation from paying
dividends or making distributions, except that Products Corporation is permitted to pay
F-62
dividends and make distributions to Revlon, Inc., among other things, to enable Revlon, Inc. to
pay expenses incidental to being a public holding company, including, among other things,
professional fees such as legal and accounting, regulatory fees such as Commission filing fees
and other miscellaneous expenses related to being a public holding company and, subject to
certain limitations, to pay dividends or make distributions in certain circumstances to finance the
purchase by Revlon, Inc. of its Class A Common Stock in connection with the delivery of such
Class A Common Stock to grantees under the Amended Stock Plan.
F-63
10. Guarantor Condensed Consolidating Financial Data
The 12% Notes are jointly and severally, fully and unconditionally guaranteed by the
domestic subsidiaries of Products Corporation that guarantee Products Corporation’s 2001 Credit
Agreement (the “Guarantor Subsidiaries”, with Products Corporation’s subsidiaries that do not
guarantee the 12% Notes being the “Non-Guarantor Subsidiaries”). The Supplemental Guarantor
Condensed Consolidating Financials Data presented below presents the balance sheets, statements
of operations and statements of cash flow data (i) for Products Corporation and the Guarantor
Subsidiaries and the Non-Guarantor Subsidiaries on a consolidated basis (which is derived from
Products Corporation’s historical reported financial information); (ii) for Products Corporation as
the “Parent Company”, alone (accounting for its Guarantor Subsidiaries and the Non-Guarantor
Subsidiaries on an equity basis under which the investments are recorded by each entity owning a
portion of another entity at cost, adjusted for the applicable share of the subsidiary’s cumulative
results of operations, capital contributions and distributions, and other equity changes); (iii) for the
Guarantor Subsidiaries alone; and (iv) for the Non-Guarantor Subsidiaries alone. Additionally,
Products Corporation’s 12% Notes are fully and unconditionally guaranteed by Revlon, Inc. The
balance sheet, statement of operations and statement of cash flow for Revlon, Inc. have not been
included in the accompanying Supplemental Guarantor Condensed Consolidating Financial Data
as such information is not materially different than those of Products Corporation.
Condensed Consolidating Balance Sheets
As of December 31, 2001
(dollars in millions)
ASSETS
Consolidated
Eliminations
Current assets.......................................................................
Intercompany receivables.....................................................
Investment in subsidiaries.....................................................
Property, plant and equipment, net.......................................
Other assets..........................................................................
Intangible assets, net.............................................................
Total assets...................................................................
LIABILITIES AND STOCKHOLDER'S DEFICIENCY
Current liabilities..................................................................
Intercompany payables.........................................................
Long-term debt.....................................................................
Other long-term liabilities....................................................
Total liabilities......................................................................
Stockholder's deficiency ......................................................
Total liabilities and stockholder's deficiency........................
$
$
$
$
517.9
-
-
142.8
132.2
198.5
991.4
385.7
-
1,643.6
250.9
2,280.2
(1,288.8)
991.4
$
$
$
$
-
(1,404.5)
177.5
-
-
-
(1,227.0)
-
(1,404.5)
-
-
(1,404.5)
177.5
(1,227.0)
Parent
Company
294.9
769.1
(148.3)
131.1
69.5
161.9
1,278.2
257.5
425.5
1,642.2
241.8
2,567.0
(1,288.8)
1,278.2
$
$
$
$
Guarantor
Subsidiaries
$
$
$
$
28.2
387.1
(28.5)
3.3
6.7
3.4
400.2
21.2
560.7
-
9.1
591.0
(190.8)
400.2
$
$
$
$
Non-
Guarantor
Subsidiaries
194.8
248.3
(0.7)
8.4
56.0
33.2
540.0
107.0
418.3
1.4
-
526.7
13.3
540.0
F-64
Condensed Consolidating Statement of Operations
For the Year Ended December 31, 2001
(dollars in millions)
Net sales.............................................................................................. $
Cost of sales........................................................................................
Gross profit...................................................................................
Selling, general and administrative expenses......................................
Restructuring costs and other, net........................................................
1,321.5
544.2
777.3
720.5
38.1
Consolidated
$
Eliminations
(132.9)
(132.9)
-
-
-
$
Parent
Company
834.4
323.8
510.6
466.4
25.4
Guarantor
Subsidiaries
$
158.6
121.5
37.1
39.0
1.4
$
Non-
Guarantor
Subsidiaries
461.4
231.8
229.6
215.1
11.3
Operating income (loss)................................................................
18.7
-
18.8
(3.3)
Other expenses (income):
Interest expense, net.....................................................................
Loss (gain) on sale of product line, brands and facilities, net.......
Miscellaneous, net........................................................................
Equity in earnings of subsidiaries.................................................
Other expenses, net...............................................................
137.8
14.4
11.1
-
163.3
Loss before income taxes and extraordinary item...............................
(144.6)
Provision for income taxes..................................................................
4.0
Loss before extraordinary item.................................................................
(148.6)
Extraordinary item - early extinguishment of debt, net of tax.............
(3.6)
-
-
-
(102.4)
(102.4)
102.4
-
102.4
-
132.4
-
(17.0)
51.9
167.3
(148.5)
0.1
(148.6)
(3.6)
1.6
(0.4)
(12.7)
49.0
37.5
(40.8)
2.6
(43.4)
-
3.2
3.8
14.8
40.8
1.5
60.9
(57.7)
1.3
(59.0)
-
Net loss................................................................................................ $
(152.2)
$
102.4
$
(152.2)
$
(43.4)
$
(59.0)
Condensed Consolidating Statement of Cash Flow
For the Year Ended December 31, 2001
(dollars in millions)
Consolidated
Eliminations
Company
Subsidiaries
Subsidiaries
Parent
Guarantor
Non-
Guarantor
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash (used for) provided by operating activities........................... $
(86.5)
$
(1.0)
$
(45.1)
$
11.6
$
(52.0)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures............................................................................
Proceeds from the sale of certain assets..............................................
Net cash provided by (used for) investing activities............................
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in short-term borrowings - third parties.........
Proceeds from the issuance of long-term debt - third parties..............
Repayment of long-term debt - third parties........................................
Intercompany dividends and net change in intercompany obligations
Net distribution from affiliate..............................................................
Payment of debt issuance costs...........................................................
Net cash provided by (used for) financing activities...........................
Effect of exchange rate changes on cash and cash equivalents............
Net increase (decrease) in cash and cash equivalents...................
Cash and cash equivalents at beginning of period........................
Cash and cash equivalents at end of period.................................. $
(15.1)
102.3
87.2
(11.3)
698.5
(614.0)
-
(1.0)
(25.9)
46.3
-
47.0
56.3
103.3
$
-
-
-
-
-
-
1.0
-
-
1.0
-
-
-
-
(13.0)
6.7
(6.3)
-
657.5
(520.3)
(14.5)
(1.0)
(25.9)
95.8
-
44.4
10.7
55.1
$
$
(1.7)
56.8
55.1
1.6
22.9
(31.3)
(52.7)
-
-
(59.5)
-
7.2
2.9
10.1
$
(0.4)
38.8
38.4
(12.9)
18.1
(62.4)
66.2
-
-
9.0
-
(4.6)
42.7
38.1
F-65
Condensed Consolidating Balance Sheets
As of December 31, 2000
(dollars in millions)
ASSETS
Consolidated
Current assets.......................................................................
Intercompany receivables.....................................................
Investment in subsidiaries.....................................................
Property, plant and equipment, net.......................................
Other assets..........................................................................
Intangible assets, net.............................................................
Total assets...................................................................
LIABILITIES AND STOCKHOLDER'S DEFICIENCY
Current liabilities..................................................................
Intercompany payables.........................................................
Long-term debt.....................................................................
Other long-term liabilities....................................................
Total liabilities......................................................................
Stockholder's deficiency ......................................................
Total liabilities and stockholder's deficiency........................
$
$
$
$
530.1
-
-
221.7
146.3
206.1
1,104.2
427.7
-
1,563.1
217.7
2,208.5
(1,104.3)
1,104.2
Eliminations
$
-
(1,084.4)
186.7
-
(0.1)
-
(897.8)
$
$
$
0.4
(1,084.4)
-
-
(1,084.0)
186.2
(897.8)
Condensed Consolidating Statement of Operations
For the Year Ended December 31, 2000
(dollars in millions)
Net sales.................................................................................................... $
Cost of sales..............................................................................................
Gross profit........................................................................................
Selling, general and administrative expenses............................................
Restructuring costs and other, net.............................................................
Consolidated
1,447.8
574.3
873.5
801.8
54.1
$
Eliminations
(157.6)
(157.6)
-
-
-
$
$
$
$
$
Parent
Company
249.6
859.1
(111.6)
160.8
72.3
169.1
1,399.3
277.0
509.3
1,504.5
212.8
2,503.6
(1,104.3)
1,399.3
Guarantor
Subsidiaries
$
$
$
$
13.4
25.1
(79.0)
1.3
4.7
4.3
(30.2)
12.3
144.5
8.9
-
165.7
(195.9)
(30.2)
Parent
Company
795.3
288.8
506.5
415.7
19.8
Guarantor
Subsidiaries
$
152.8
116.3
36.5
71.2
1.4
$
$
$
$
$
Non-
Guarantor
Subsidiaries
267.1
200.2
3.9
59.6
69.4
32.7
632.9
138.0
430.6
49.7
4.9
623.2
9.7
632.9
Non-
Guarantor
Subsidiaries
657.3
326.8
330.5
314.9
32.9
Operating income (loss).....................................................................
17.6
-
71.0
(36.1)
(17.3)
Other expenses (income):
Interest expense, net...........................................................................
Loss (gain) on sale of product line, brands and facilities, net............
Miscellaneous, net..............................................................................
Equity in earnings of subsidiaries.......................................................
Other expenses, net.....................................................................
142.4
(10.8)
5.4
-
137.0
Loss before income taxes .........................................................................
(119.4)
-
-
-
(412.8)
(412.8)
412.8
Provision for income taxes........................................................................
8.6
-
119.6
(118.7)
(2.5)
224.9
223.3
(152.3)
(24.3)
12.3
(4.9)
(31.6)
186.7
162.5
10.5
112.8
39.5
1.2
164.0
(198.6)
(181.3)
26.6
6.3
Net loss..................................................................................................... $
(128.0)
$
412.8
$
(128.0)
$
(225.2)
$
(187.6)
F-66
Condensed Consolidating Statement of Cash Flow
For the Year Ended December 31, 2000
(dollars in millions)
Consolidated
Eliminations
Company
Subsidiaries
Subsidiaries
Parent
Guarantor
Non-
Guarantor
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash (used for) provided by operating activities................................. $
(84.0)
$
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures..................................................................................
Acquisition of technology rights...............................................................
Proceeds from the sale of certain assets....................................................
Net cash provided by investing activities..................................................
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in short-term borrowings - third parties...............
Proceeds from the issuance of long-term debt - third parties....................
Repayment of long-term debt - third parties.............................................
Intercompany dividends and net change in intercompany obligations......
Net distribution from affiliate...................................................................
Net cash (used for) provided by financing activities.................................
Effect of exchange rate changes on cash and cash equivalents.................
Net increase (decrease) in cash and cash equivalents.........................
Cash and cash equivalents at beginning of period..............................
Cash and cash equivalents at end of period........................................ $
(19.0)
(3.0)
344.1
322.1
(2.7)
339.1
(538.7)
-
(1.4)
(203.7)
(3.5)
30.9
25.4
56.3
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$
79.9
$
(40.1)
$
(123.8)
(12.9)
(3.0)
180.9
165.0
-
286.7
(428.6)
(78.0)
(1.4)
(221.3)
-
23.6
(12.8)
10.8
$
$
(1.1)
-
64.9
63.8
0.1
16.1
(15.8)
(26.8)
-
(26.4)
(0.1)
(2.8)
5.7
2.9
$
(5.0)
-
98.3
93.3
(2.8)
36.3
(94.3)
104.8
-
44.0
(3.4)
10.1
32.5
42.6
Condensed Consolidating Statement of Operations
For the Year Ended December 31, 1999
(dollars in millions)
Net sales..................................................................................................... $
Cost of sales...............................................................................................
Gross profit..........................................................................................
Selling, general and administrative expenses.............................................
Restructuring costs and other, net..............................................................
Consolidated
1,709.9
726.3
983.6
1,154.2
40.2
$
Eliminations
(176.4)
(176.4)
-
-
-
$
Parent
Company
748.3
322.6
425.7
580.5
23.2
Guarantor
Subsidiaries
$
166.1
131.4
34.7
78.7
0.1
$
Non-
Guarantor
Subsidiaries
971.9
448.7
523.2
495.0
16.9
Operating (loss) income......................................................................
(210.8)
-
(178.0)
(44.1)
11.3
Other expenses (income):
Interest expense, net............................................................................
Loss on sale of product line, brands and facilities, net........................
Miscellaneous, net...............................................................................
Equity in earnings of subsidiaries........................................................
Other expenses, net......................................................................
145.1
0.9
3.8
-
149.8
Loss before income taxes ..........................................................................
(360.6)
-
-
-
(162.2)
(162.2)
162.2
Provision for income taxes.........................................................................
9.1
-
122.5
0.9
(9.2)
86.3
200.5
(378.5)
(8.8)
5.0
-
(54.7)
77.2
27.5
(71.6)
7.5
17.6
-
67.7
(1.3)
84.0
(72.7)
10.4
Net loss.......................................................................................................$
(369.7)
$
162.2
$
(369.7)
$
(79.1)
$
(83.1)
F-67
Condensed Consolidating Statement of Cash Flow
For the Year Ended December 31, 1999
(dollars in millions)
Consolidated
Eliminations
Company
Subsidiaries
Subsidiaries
Parent
Guarantor
Non-
Guarantor
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash (used for) provided by operating activities.................................. $
(81.7)
$
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures...................................................................................
Proceeds from the sale of certain assets.....................................................
Net cash used for investing activities.........................................................
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in short-term borrowings - third parties.................................
Proceeds from the issuance of long-term debt - third parties.....................
(42.3)
1.6
(40.7)
12.3
574.5
Repayment of long-term debt - third parties...............................................
(464.9)
Intercompany dividends and net change in intercompany obligations.......
Net distribution from affiliate.....................................................................
Proceeds from the issuance of debt - affiliates...........................................
Repayment of debt - affiliates....................................................................
Payment of debt issuance costs..................................................................
Net cash provided by (used for) financing activities..................................
Effect of exchange rate changes on cash and cash equivalents..................
Net decrease in cash and cash equivalents..........................................
Cash and cash equivalents at beginning of period...............................
Cash and cash equivalents at end of period......................................... $
-
(1.0)
67.1
(67.1)
(3.5)
117.4
(4.3)
(9.3)
34.7
25.4
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$
(30.4)
$
5.7
$
(57.0)
(24.7)
1.6
(23.1)
-
392.7
(388.8)
51.9
(1.0)
67.1
(67.1)
(3.5)
51.3
-
(2.2)
(10.6)
(12.8)
$
$
(0.2)
-
(0.2)
-
32.7
(37.2)
(1.8)
-
-
-
-
(6.3)
(0.1)
(0.9)
6.7
5.8
$
(17.4)
-
(17.4)
12.3
149.1
(38.9)
(50.1)
-
-
-
-
72.4
(4.2)
(6.2)
38.6
32.4
11. Financial Instruments
The fair value of the Company’s long-term debt is based on the quoted market prices for
the same issues or on the current rates offered to the Company for debt of the same remaining
maturities. The estimated fair value of long-term debt at December 31, 2001 and 2000 was
approximately $524.1 and $393.6 less than the carrying values of $1,643.6 and $1,563.1,
respectively.
Products Corporation also maintains standby and trade letters of credit with certain banks
for various corporate purposes under which Products Corporation is obligated, of which
approximately $27.3 and $23.1 (including amounts available under credit agreements in effect at
that time) were maintained at December 31, 2001 and 2000, respectively. Included in these
amounts are $10.1 and $14.2, respectively, in standby letters of credit, which support Products
Corporation’s self-insurance programs. The estimated liability under such programs is accrued by
Products Corporation.
The carrying amounts of cash and cash equivalents, marketable securities, trade
receivables, notes receivable, accounts payable and short-term borrowings approximate their fair
values.
F-68
12. Income Taxes
In June 1992, Holdings, Revlon, Inc. and certain of its subsidiaries, and Mafco Holdings
entered into a tax sharing agreement (as subsequently amended, the “Tax Sharing Agreement”),
pursuant to which Mafco Holdings has agreed to indemnify Revlon, Inc. against federal, state or
local income tax liabilities of the consolidated or combined group of which Mafco Holdings (or a
subsidiary of Mafco Holdings other than Revlon, Inc. or its subsidiaries) is the common parent for
taxable periods beginning on or after January 1, 1992 during which Revlon, Inc. or a subsidiary of
Revlon, Inc. is a member of such group. Pursuant to the Tax Sharing Agreement, for all taxable
periods beginning on or after January 1, 1992, Revlon, Inc. will pay to Holdings, amounts equal to
the taxes that Revlon, Inc. would otherwise have to pay if it were to file separate federal, state or
local income tax returns (including any amounts determined to be due as a result of a
redetermination arising from an audit or otherwise of the consolidated or combined tax liability
relating to any such period which is attributable to Revlon, Inc.), except that Revlon, Inc. will not
be entitled to carry back any losses to taxable periods ending prior to January 1, 1992. No
payments are required by Revlon, Inc. if and to the extent Products Corporation is prohibited under
the Credit Agreement from making tax sharing payments to Revlon, Inc. The Credit Agreement
prohibits Products Corporation from making such tax sharing payments other than in respect of
state and local income taxes. Since the payments to be made under the Tax Sharing Agreement
will be determined by the amount of taxes that Revlon, Inc. would otherwise have to pay if it were
to file separate federal, state or local income tax returns, the Tax Sharing Agreement will benefit
Mafco Holdings to the extent Mafco Holdings can offset the taxable income generated by Revlon,
Inc. against losses and tax credits generated by Mafco Holdings and its other subsidiaries. The Tax
Sharing Agreement was amended, effective as of January 1, 2001, to eliminate a contingent
payment to Revlon, Inc. under certain circumstances in return for a $10 note with interest at 12%
and interest and principal payable by Mafco Holdings on December 31, 2005. As a result of net
operating tax losses and prohibitions under the Credit Agreement there were no federal tax
payments or payments in lieu of taxes pursuant to the Tax Sharing Agreement for 2001, 2000 or
1999. The Company has a liability of $0.9 to Holdings in respect of federal taxes for 1997 under
the Tax Sharing Agreement.
Pursuant to the asset transfer agreement referred to in Note 15, Products Corporation
assumed all tax liabilities of Holdings other than (i) certain income tax liabilities arising prior to
January 1, 1992 to the extent such liabilities exceeded reserves on Holdings’ books as of January 1,
1992 or were not of the nature reserved for and (ii) other tax liabilities to the extent such liabilities
are related to the business and assets retained by Holdings.
F-69
The Company’s loss before income taxes and the applicable provision (benefit) for income
taxes are as follows:
Loss before income taxes:
Domestic.............................................................................
Foreign................................................................................
Provision for income taxes:
Federal................................................................................
State and local.....................................................................
Foreign................................................................................
Current................................................................................
Deferred..............................................................................
Benefits of operating loss carryforwards............................
Carryforward utilization applied to goodwill......................
Effect of enacted change of tax rates..................................
Year Ended December 31,
2000
2001
$
$
$
$
$
$
(79.6)
(66.4)
(146.0)
-
0.4
3.7
4.1
7.7
-
(3.6)
-
-
4.1
$
$
$
$
$
$
(47.4)
(73.7)
(121.1)
-
0.4
8.2
8.6
8.5
0.8
(1.9)
0.7
0.5
8.6
$
$
$
$
$
$
1999
(289.1)
(72.7)
(361.8)
-
0.4
8.7
9.1
14.7
3.3
(8.8)
-
(0.1)
9.1
The effective tax rate on loss before income taxes is reconciled to the applicable statutory
federal income tax rate as follows:
Statutory federal income tax rate...............................................
State and local taxes, net of federal income tax benefit.............
Foreign and U.S. tax effects attributable to
operations outside the U.S..................................................
Nondeductible amortization expense.........................................
Change in valuation allowance..................................................
Sale of businesses......................................................................
Other..........................................................................................
Effective rate.............................................................................
Year Ended December 31,
2000
1999
2001
(35.0) %
0.2
0.6
1.5
29.0
10.0
(3.4)
2.9 %
(35.0) %
0.2
(35.0) %
0.1
1.9
2.0
10.7
26.8
0.5
7.1 %
1.9
1.0
34.6
-
(0.1)
2.5 %
F-70
The tax effects of temporary differences that give rise to significant portions of the deferred
tax assets and deferred tax liabilities at December 31, 2001 and 2000 are presented below:
Deferred tax assets:
Accounts receivable, principally due to doubtful accounts................................. $
Inventories...........................................................................................................
Net operating loss carryforwards - domestic.......................................................
Net operating loss carryforwards - foreign..........................................................
Accruals and related reserves..............................................................................
Employee benefits...............................................................................................
State and local taxes............................................................................................
Advertising, sales discounts and returns and coupon redemptions......................
Other...................................................................................................................
Total gross deferred tax assets.....................................................................
Less valuation allowance.............................................................................
Net deferred tax assets.................................................................................
Deferred tax liabilities:
Plant, equipment and other assets........................................................................
Other...................................................................................................................
Total gross deferred tax liabilities...............................................................
December 31,
2001
2000
$
2.9
9.9
237.4
128.2
10.1
36.7
12.2
27.6
24.9
489.9
(451.8)
38.1
(31.3)
(3.5)
(34.8)
2.6
10.8
225.7
119.6
15.6
41.2
13.1
28.3
29.6
486.5
(437.5)
49.0
(42.7)
(3.0)
(45.7)
3.3
Net deferred tax asset.................................................................................. $
3.3
$
In assessing the recoverability of its deferred tax assets,
management considers whether it is more likely than not that some
portion or all of the deferred tax assets will not be realized.
The ultimate realization of deferred tax assets is dependent upon
the generation of future taxable income during the periods in
which those temporary differences become deductible.
considers the scheduled reversal of deferred tax liabilities,
projected future taxable income, and tax planning strategies in
making this assessment.
taxable income for certain international markets and projections
for future taxable income over the periods in which the deferred
tax assets are deductible, management believes it is more likely
than not that the Company will realize the benefits of certain
deductible differences existing at December 31, 2001.
Based upon the level of historical
Management
The valuation allowance increased by $14.3 during 2001,
decreased by $6.3 during 2000 and increased by $60.8 during 1999.
During 2001, 2000 and 1999, certain of the Company’s foreign subsidiaries used operating
loss carryforwards to credit the current provision for income taxes by $3.6, $1.9, and $8.8,
respectively. Certain other foreign operations generated losses during 2001, 2000 and 1999 for
which the potential tax benefit was reduced by a valuation allowance. At December 31, 2001, the
Company had tax loss carryforwards of approximately $1,039.9 that expire in future years as
follows: 2002-$31.3; 2003-$23.8; 2004-$29.6; 2005-$45.7; 2006 and beyond-$749.7; unlimited-
$159.8. The Company could receive the benefit of such tax loss carryforwards only to the extent it
has taxable income during the carryforward periods in the applicable jurisdictions. In addition,
based upon certain factors, including the amount and nature of gains or losses recognized by
Mafco Holdings and its other subsidiaries included in the consolidated federal income tax return,
F-71
the amount of net operating loss carryforwards attributable to Mafco Holdings and such other
subsidiaries and the amounts of alternative minimum tax liability of Mafco Holdings and such
other subsidiaries, pursuant to the terms of the Tax Sharing Agreement, all or a portion of the
domestic operating loss carryforwards may not be available to the Company should the Company
cease being a member of the Mafco Holdings consolidated federal income tax return.
F-72
In February 2002, Products Corporation sold its Benelux operations. The effect of this
transaction reduced the amount of losses available for carryover by $21 (See Note 21).
Appropriate United States and foreign income taxes have been accrued on foreign earnings
that have been or are expected to be remitted in the near future. Unremitted earnings of foreign
subsidiaries which have been, or are currently intended to be, permanently reinvested in the future
growth of the business aggregated approximately nil at December 31, 2001, excluding those
amounts which, if remitted in the near future, would not result in significant additional taxes under
tax statutes currently in effect.
13. Postretirement Benefits
Pension:
A substantial portion of the Company’s employees in the United States are covered by
defined benefit pension plans. The Company uses September 30 as its measurement date for
plan obligations and assets.
Other Postretirement Benefits:
a
number
limited
The Company also has sponsored an unfunded retiree benefit
plan, which provides death benefits payable to beneficiaries
of
employees.
Participation in this plan is limited to participants enrolled
as of December 31, 1993.
The Company also administers a
medical insurance plan on behalf of Holdings, the cost of
which has been apportioned to Holdings.
The Company uses
September 30 as its measurement date for plan obligations and
assets.
employees
former
and
of
F-73
Information regarding the Company’s significant pension and
other postretirement plans at the dates indicated is as
follows:
Pension Plans
Other Postretirement
Benefits
December 31,
Change in Benefit Obligation:
Benefit obligation - September 30 of prior year.................... $
Service cost...........................................................................
Interest cost...........................................................................
Plan amendments...................................................................
Actuarial (loss) gain..............................................................
Curtailments..........................................................................
Benefits paid.........................................................................
Foreign exchange..................................................................
Plan participant contributions................................................
Disposition............................................................................
Settlements............................................................................
Benefit obligation - September 30 of current year................
Change in Plan Assets:
Fair value of plan assets - September 30 of prior year..........
Actual return on plan assets...................................................
Employer contributions.........................................................
Assets sold.............................................................................
Plan participant contributions................................................
Benefits paid.........................................................................
Foreign exchange..................................................................
Settlements............................................................................
Fair value of plan assets - September 30 of current year.......
Funded status of plans.................................................................
Amounts contributed to plans during fourth quarter...................
Unrecognized net loss (gain).......................................................
Unrecognized prior service cost..................................................
Unrecognized net asset...............................................................
Accrued benefit cost.............................................................. $
Amounts recognized in the Consolidated Balance Sheets
consist of:
Prepaid expenses................................................................... $
Other long-term liabilities.....................................................
Intangible asset......................................................................
Accumulated other comprehensive loss................................
Other long-term assets...........................................................
$
2001
(420.6)
(10.2)
(28.0)
11.1
(11.1)
7.1
22.3
1.6
(0.4)
3.3
2.1
(422.8)
343.4
(38.3)
8.1
(3.6)
0.4
(22.3)
(1.1)
(3.9)
282.7
(140.1)
1.4
69.7
(6.6)
(0.3)
(75.9)
4.4
(127.3)
0.5
46.1
0.4
(75.9)
$
$
$
$
2000
(418.2)
(12.0)
(29.2)
(1.5)
9.4
0.7
21.2
3.5
(0.7)
-
6.2
(420.6)
323.7
39.9
9.6
(2.8)
0.7
(21.2)
(3.1)
(3.4)
343.4
(77.2)
1.1
(1.6)
5.0
(0.5)
(73.2)
7.7
(85.5)
0.5
3.6
0.5
(73.2)
$
$
$
$
2001
2000
(9.7)
-
(0.8)
-
(1.0)
-
0.7
-
-
-
-
(10.8)
-
-
0.7
-
-
(0.7)
-
-
-
(10.8)
0.1
-
-
-
(10.7)
-
(10.7)
-
-
-
(10.7)
$
$
$
$
(9.2)
-
(0.7)
-
(0.4)
-
0.6
-
-
-
-
(9.7)
-
-
0.6
-
-
(0.6)
-
-
-
(9.7)
0.1
(1.1)
-
-
(10.7)
-
(10.7)
-
-
-
(10.7)
With respect to the above accrued benefit costs, the Company has recorded a receivable from affiliates of $1.2
and $1.0 at December 31, 2001 and 2000, respectively, relating to Holdings’ participation in the Company’s pension
plans and $1.3 and $1.4 at December 31, 2001 and 2000, respectively, for other postretirement benefits costs
attributable to Holdings.
F-74
The following weighted-average assumptions were used in accounting for the plans:
Discount rate...........................................................
Expected return on plan assets................................
Rate of future compensation increases....................
2001
5.8%
8.5
3.7
The components of net periodic benefit cost for the plans are as follows:
2001
7.0%
9.5
5.0
1999
7.5%
9.5
5.3
U.S. Plans
2000
7.5%
9.5
5.3
International Plans
2000
6.5%
9.0
4.5
1999
6.5%
9.2
4.5
Service cost............................................... $
Interest cost...............................................
Expected return on plan assets..................
Amortization of prior service cost............
Amortization of net transition asset..........
Amortization of actuarial loss (gain)........
Settlement gain.........................................
Curtailment loss (gain).............................
Portion allocated to Holdings...................
$
Pension Plans
Other Postretirement Benefits
Year Ended December 31,
2001
10.2
28.0
(30.8)
(0.9)
(0.2)
0.7
0.8
1.5
9.3
(0.3)
9.0
$
$
2000
12.0
29.2
(30.1)
1.7
(0.2)
1.0
(0.1)
(0.4)
13.1
(0.3)
12.8
$
$
1999
16.0
28.7
(26.6)
1.7
(0.2)
5.0
-
-
24.6
(0.3)
24.3
$
$
2001
-
0.8
-
-
-
(0.1)
-
-
0.7
-
0.7
$
$
2000
-
0.7
-
-
-
(0.1)
-
-
0.6
-
0.6
$
$
1999
0.1
0.7
-
-
-
(0.3)
-
-
0.5
0.1
0.6
the
Where
accumulated
the
benefit
related fair value of plan assets, the projected benefit
obligation, accumulated benefit obligation, and fair value of
plan assets for the Company’s pension plans are as follows:
obligation
exceeded
Projected benefit obligation................................................................................. $
Accumulated benefit obligation...........................................................................
Fair value of plan assets.......................................................................................
2001
419.6
402.9
280.0
14. Stock Compensation Plan
December 31,
2000
60.5
53.9
5.0
$
$
1999
61.2
53.0
0.7
Since March 5, 1996, Revlon, Inc. has had the Amended Stock Plan, which is a stock-based
compensation plan and is described below. Revlon, Inc. applies APB Opinion No. 25 and its
related interpretations in accounting for the Amended Stock Plan. Under APB Opinion No. 25,
because the exercise price of Revlon, Inc.’s employee stock options under the Amended Stock Plan
equals the market price of the underlying stock on the date of grant, no compensation cost has been
recognized. Had compensation cost for the Amended Stock Plan been determined consistent with
SFAS No. 123, Revlon, Inc.’s net loss and net loss per diluted share of $153.7 and $2.94,
respectively, for 2001, $129.7 and $2.49, respectively, for 2000, and $370.9 and $7.13,
respectively, for 1999 would have been changed to the pro forma amounts of $163.3 and $3.13,
respectively, for 2001, $140.7 and $2.70, respectively, for 2000, and $396.6 and $7.62,
respectively, for 1999. The fair value of each option grant is estimated on the date of the grant
using the Black-Scholes option-pricing model assuming no dividend yield, expected volatility of
approximately 68% in 2001, 69% in 2000 and 68% in 1999; weighted average risk-free interest
F-75
rate of 5.07% in 2001, 6.53% in 2000, and 5.48% in 1999; and a seven-year expected average life
for the Amended Stock Plan’s options issued in 2001, 2000 and 1999. The effects of applying
SFAS No. 123 in this pro forma disclosure are not necessarily indicative of future amounts.
Under the Amended Stock Plan, awards may be granted to employees and directors of
Revlon, Inc., and its subsidiaries for up to an aggregate of 8.5 million shares of Revlon, Inc.
Class A Common Stock. Non-qualified options granted under the Amended Stock Plan have a
term of 10 years during which the holder can purchase shares of Revlon, Inc. Class A Common
Stock at an exercise price, which must be not less than the market price on the date of the grant.
Option grants vest over service periods that range from one to five years, except as disclosed
below. Options granted in February 1999 with an original four-year vesting term were modified
in May 1999 to allow the options to become fully vested on the first anniversary date of the
grant. Options granted in May 2000 under the Amended Stock Plan vest 25% on each
anniversary of the grant date and will become 100% vested on the fourth anniversary of the grant
date; provided that an additional 25% of such options would vest on each subsequent anniversary
date of the grant if the Company achieved certain performance objectives relating to the
Company’s operating income for the fiscal year preceding such anniversary date, which
objectives were not achieved in 2000 or 2001. During each of 2001, 2000 and 1999, the
Company granted to Mr. Perelman, Chairman of the Executive Committee, options to purchase
225,000, 300,000 and 300,000, respectively, shares of Revlon, Inc. Class A Common Stock,
which grants will vest 25% on each anniversary date of the grant and will become 100% vested
on the fourth anniversary date of the grant date as to the 2001 grant, will vest in full on the fifth
anniversary of the grant date as to the 2000 grant and which vested 100% on the date of grant as
to the 1999 grant. At December 31, 2001, 2000 and 1999 there were 3,296,133, 3,009,908 and
1,850,050 options exercisable under the Amended Stock Plan, respectively.
A summary of the status of the Amended Stock Plan as of December 31, 2001, 2000 and
1999 and changes during the years then ended is presented below:
Outstanding at December 31, 1998......
Granted.................................................
Exercised..............................................
Forfeited...............................................
Outstanding at December 31, 1999......
Granted.................................................
Exercised..............................................
Forfeited...............................................
Outstanding at December 31, 2000......
Granted.................................................
Exercised..............................................
Forfeited...............................................
Outstanding at December 31, 2001......
Shares
(000)
3,764.5
Weighted Average
Exercise Price
$32.71
2,456.7
(5.8)
(444.2)
5,771.2
1,769.1
-
(936.8)
6,603.5
1,087.6
(0.2)
(788.8)
6,902.1
16.89
27.94
27.03
26.42
7.15
-
24.06
21.59
5.69
7.06
19.16
19.37
F-76
The weighted average grant date fair value of options granted during 2001, 2000 and 1999
approximated $3.82, $4.58 and $10.65, respectively.
F-77
The following table summarizes information about the Amended Stock Plan’s options
outstanding, at December 31, 2001:
Range
of
Exercise Prices
$4.00 to $6.88
7.06 to 10.44
15.00 to 24.00
24.13 to 31.94
34.00 to 53.56
4.00 to 53.56
Number
of Options
1,193.6
1,670.5
1,400.1
1,242.5
1,395.4
6,902.1
Outstanding
Weighted
Average
Years
Remaining
9.35
8.30
6.16
5.84
5.83
Exercisable
Weighted
Average
Exercise Price
$
5.49
7.80
18.03
28.40
38.39
Number
of Options
61.4
266.2
1,354.3
997.7
616.5
3,296.1
Weighted
Average
Exercise Price
4.81
$
7.10
18.10
29.43
35.43
The Amended Stock Plan also provides that restricted stock may be awarded to employees and directors of
Revlon, Inc. and its subsidiaries. On June 18, 2001 (the “Grant Date”), the Compensation Committee awarded 120,000
shares of restricted stock to Mr. Perelman as a director of the Company. The 2001 restricted stock awards are subject
to execution of a Restricted Stock Agreement by each grantee: Provided the grantee remains continuously employed
by the Company (or, in the case of Mr. Perelman, he continuously provides services as a director to the Company), the
2001 restricted stock awards will vest as to one-third of the restricted shares on the day after which the 20-day average
of the closing price of Revlon, Inc.’s Class A Common Stock on the New York Stock Exchange (the “NYSE”) equals
or exceeds $20.00, an additional one-third of such restricted shares will vest on the day after which the 20-day average
of the closing price of Revlon, Inc.’s Class A Common Stock on the NYSE equals or exceeds $25.00 and the balance
will vest on the day after which the 20-day average of the closing price of the Company’s Class A Common Stock on
the NYSE equals or exceeds $30.00, provided that (i) subject to clause (ii) below, no portion of the restricted stock
awards will vest until the second anniversary following the Grant Date, (ii) all of the shares of restricted stock will vest
immediately in the event of a "change of control" of Revlon, Inc., and (iii) all of the shares of restricted stock which
have not previously vested will fully vest on the third anniversary of the Grant Date. No dividends will be paid on
unvested restricted stock. At December 31, 2001, there were 670,000 shares of restricted stock outstanding, and
unvested, under the Amended Stock Plan.
15. Related Party Transactions
Transfer Agreements
In June 1992, Revlon, Inc. and Products Corporation entered into an asset transfer
agreement with Holdings and certain of its wholly-owned subsidiaries (the "Asset Transfer
Agreement"), and Revlon, Inc. and Products Corporation entered into a real property asset transfer
agreement with Holdings (the "Real Property Transfer Agreement" and, together with the Asset
Transfer Agreement, the "Transfer Agreements"), and pursuant to such agreements, on June 24,
1992 Holdings transferred assets to Products Corporation and Products Corporation assumed all
the liabilities of Holdings, other than certain specifically excluded assets and liabilities (the
liabilities excluded are referred to as the "Excluded Liabilities"). Certain consumer products lines
sold in demonstrator assisted distribution channels considered not integral to Revlon, Inc.’s
business and which historically had not been profitable (the "Retained Brands") and certain other
assets and liabilities were retained by Holdings. Holdings agreed to indemnify Revlon, Inc. and
Products Corporation against losses arising from the Excluded Liabilities, and Revlon, Inc. and
Products Corporation agreed to indemnify Holdings against losses arising from the liabilities
F-78
assumed by Products Corporation. The amounts reimbursed by Holdings to Products Corporation
for the Excluded Liabilities for 2001, 2000 and 1999 were $0.2, $0.4 and $0.5, respectively.
Certain assets and liabilities relating to divested businesses were transferred to Products
Corporation on the transfer date and any remaining balances as of December 31 of the applicable
year have been reflected in the Company’s Consolidated Balance Sheets as of such dates. At
December 31, 2001 and 2000, the amounts reflected in the Company’s Consolidated Balance
Sheets aggregated a net liability of $21.4 and $23.2, respectively, of which $3.0 and $4.8,
respectively, are included in accrued expenses and other and $18.4 is included in other long-term
liabilities as of both dates.
Reimbursement Agreements
Revlon, Inc., Products Corporation and MacAndrews Holdings have entered into
reimbursement agreements (the "Reimbursement Agreements") pursuant to which (i) MacAndrews
Holdings is obligated to provide (directly or through affiliates) certain professional and
administrative services, including employees, to Revlon, Inc. and its subsidiaries, including
Products Corporation, and purchase services from third party providers, such as insurance, legal
and accounting services and air transportation services, on behalf of Revlon, Inc. and its
subsidiaries, including Products Corporation, to the extent requested by Products Corporation, and
(ii) Products Corporation is obligated to provide certain professional and administrative services,
including employees, to MacAndrews Holdings (and its affiliates) and purchase services from third
party providers, such as insurance and legal and accounting services, on behalf of MacAndrews
Holdings (and its affiliates) to the extent requested by MacAndrews Holdings, provided that in
each case the performance of such services does not cause an unreasonable burden to MacAndrews
Holdings or Products Corporation, as the case may be. Products Corporation reimburses
MacAndrews Holdings for the allocable costs of the services purchased for or provided to Products
Corporation and its subsidiaries and for reasonable out-of-pocket expenses incurred in connection
with the provision of such services. MacAndrews Holdings (or such affiliates) reimburses
Products Corporation for the allocable costs of the services purchased for or provided to
MacAndrews Holdings (or such affiliates) and for the reasonable out-of-pocket expenses incurred
in connection with the purchase or provision of such services. The net amounts reimbursed by
MacAndrews Holdings
the
Reimbursement Agreements for 2001, 2000 and 1999, were $1.6, $0.9 and $0.5, respectively.
Each of Revlon, Inc. and Products Corporation, on the one hand, and MacAndrews Holdings, on
the other, has agreed to indemnify the other party for losses arising out of the provision of services
by it under the Reimbursement Agreements other than losses resulting from its willful misconduct
or gross negligence. The Reimbursement Agreements may be terminated by either party on 90
days' notice. Products Corporation does not intend to request services under the Reimbursement
Agreements unless their costs would be at least as favorable to Products Corporation as could be
obtained from unaffiliated third parties.
the services provided under
to Products Corporation for
Tax Sharing Agreement
Holdings, Revlon, Inc., Products Corporation and certain of its subsidiaries and Mafco
Holdings are parties to the Tax Sharing Agreement, which is described in Note 12. Since
payments to be made under the Tax Sharing Agreement will be determined by the amount of taxes
that Revlon, Inc. would otherwise have to pay if it were to file separate federal, state or local
F-79
income tax returns, the Tax Sharing Agreement will benefit Mafco Holdings to the extent Mafco
Holdings can offset the taxable income generated by Revlon, Inc. against losses and tax credits
generated by Mafco Holdings and its other subsidiaries. There were no cash payments in respect
of federal taxes made by Revlon, Inc. pursuant to the Tax Sharing Agreement for 2001, 2000 and
1999.
Registration Rights Agreement
Prior to the consummation of Revlon, Inc.’s initial public equity offering, Revlon, Inc. and
Revlon Worldwide Corporation (subsequently merged into REV Holdings), the then direct parent
of Revlon, Inc., entered into the Registration Rights Agreement pursuant to which REV Holdings
and certain transferees of Revlon, Inc.'s Common Stock held by REV Holdings (the "Holders")
have the right to require Revlon, Inc. to register all or part of the Company’s Class A Common
Stock owned by such Holders and the Company’s Class A Common Stock issuable upon
conversion of the Company’s Class B Common Stock owned by such Holders under the Securities
Act of 1933, as amended (the "Securities Act") (a "Demand Registration"); provided that Revlon,
Inc. may postpone giving effect to a Demand Registration up to a period of 30 days if Revlon, Inc.
believes such registration might have a material adverse effect on any plan or proposal by Revlon,
Inc. with respect to any financing, acquisition, recapitalization, reorganization or other material
transaction, or if Revlon, Inc. is in possession of material non-public information that, if publicly
disclosed, could result in a material disruption of a major corporate development or transaction
then pending or in progress or in other material adverse consequences to Revlon, Inc. In addition,
the Holders have the right to participate in registrations by Revlon, Inc. of its Class A Common
Stock (a "Piggyback Registration"). The Holders will pay all out-of-pocket expenses incurred in
connection with any Demand Registration. Revlon, Inc. will pay any expenses incurred in
connection with a Piggyback Registration, except for underwriting discounts, commissions and
expenses attributable to the shares of the Company’s Class A Common Stock sold by such
Holders.
Other
Pursuant to a lease dated April 2, 1993 (the "Edison
Lease"), Holdings leased to Products Corporation the Edison
research and development facility for a term of up to 10 years
with an annual rent of $1.4 and certain shared operating expenses
payable by Products Corporation, which, together with the annual
rent, were not to exceed $2.0 per year.
In August 1998, Holdings
sold the Edison facility to an unrelated third party, which
assumed substantially all liability for environmental claims and
compliance
in
connection with the sale Products Corporation terminated the
Edison Lease and entered into a new lease with the new owner.
through
Holdings
September 1, 2013 to the extent rent under the new lease exceeds
rent that would have been payable under the terminated Edison
Lease had it not been terminated.
The net amounts reimbursed by
Holdings to Products Corporation with respect to the Edison
facility for 2001, 2000 and 1999 were $0.2, $0.2 and $0.2,
respectively.
Corporation
facility,
indemnify
Products
relating
Edison
agreed
costs
and
the
to
to
F-80
Effective September 2001, Revlon, Inc. acquired from Holdings all the assets and liabilities
of the Charles of the Ritz business (which Revlon, Inc. contributed to Products Corporation in the
form of a capital contribution), in consideration for 400,000 newly issued shares of Revlon, Inc.’s
Class A Common Stock and 4,333 shares of newly issued voting (with 433,333 votes in the
aggregate) Series B Preferred Stock which are convertible into 433,333 shares in the aggregate of
Revlon, Inc.’s Class A Common Stock, which conversion rights are subject to approval by the
stockholders of Revlon, Inc. at the 2002 Annual Meeting. As Holdings and Products Corporation
are under common control, the transaction has been accounted for at historical cost in a manner
similar to that of a pooling of interests and, accordingly, all prior period financial statements
presented have been restated as if the acquisition took place at the beginning of such periods. An
investment banking firm rendered its written opinion that the terms of the transaction were fair
from a financial standpoint to Revlon, Inc. The effect of the acquisition was to increase both
operating income and net income by $2.3, $0.9 and $0.6 for 2001, 2000 and 1999, respectively.
The net equity (deficit) of the Charles of the Ritz business of $0.7 and $(0.6) is included in total
stockholder’s deficiency at December 31, 2001 and December 31, 2000, respectively.
During 2001, Products Corporation leased certain facilities to MacAndrews & Forbes or its
affiliates pursuant to occupancy agreements and leases. These included space at Products
Corporation's New York headquarters and through January 31, 2001 at Products Corporation's
offices in London. The rent paid to Products Corporation for 2001, 2000 and 1999 was $0.5, $0.9
and $1.1, respectively.
by,
among
supported
Products Corporation's Credit Agreement and the 12% Notes
from
other
are
Revlon, Inc., and, subject to certain limited exceptions,
all of the domestic subsidiaries of Products Corporation.
The obligations under such guarantees are secured by, among
other things, the capital stock of Products Corporation and,
subject to certain limited exceptions, the capital stock of
all of Products Corporation’s domestic subsidiaries and 66%
of the capital stock of Products Corporation’s and its
domestic subsidiaries’ first-tier foreign subsidiaries.
guarantees
things,
Products Corporation has received a commitment from
Mafco Holdings that it is prepared to provide, if necessary,
additional financial support to Products Corporation of up
to $40 on appropriate terms through December 31, 2003.
During 2000 and 1999, Products Corporation made advances of $0.1 and $0.4,
respectively, to Mr. Jeffrey Nugent, former President and CEO, pursuant to his employment
agreement for relocation expenses, which advances bear interest at the applicable federal rate.
During 2000, Products Corporation made an advance of $0.8 to Mr. Douglas Greeff, Executive Vice
President and CFO, pursuant to his employment agreement, which bears interest at the applicable federal rate, of
which $0.2 was repaid during 2001.
Mr. Nugent’s spouse provided consulting services in 2000 and
2001 for product and concept development, for which Products
Corporation paid her $0.1 in 2001.
During 1997, Products Corporation provided licensing services to a company that was its
F-81
affiliate during 1997 and part of 1998. In connection with the termination of the licensing
arrangement and its agreement to provide consulting services during 1998, Products Corporation
received payments of $2.0 in 1998 and an additional $1.0 in 1999.
A company that was an affiliate of the Company during part
of 1999 assembled lipstick cases for Products Corporation.
Products Corporation paid approximately $0.1 for such services
for 1999.
and
2000
2001,
During
made
1999,
payments of $0.1, $0.1 and $0.1, respectively, to a fitness
center, in which an interest is owned by members of the
immediate family of Mr. Donald Drapkin, who is a member of the
Company’s Board of Directors, for discounted health club dues
for an executive health program of Products Corporation.
Corporation
Products
During 2001 and 2000, Products Corporation made payments of
$0.3 and $0.2, respectively to Ms. Ellen Barkin (spouse of Mr.
Perelman) under an agreement pursuant to which she provided
voiceover
Company's
advertisements, which payments were competitive with industry
rates for similarly situated talent.
services
certain
the
for
of
The law firm, of which Mr. Edward Landau (a director) is Of
Counsel, Wolf, Block, Schorr and Solis-Cohen LLP, provided legal
services to the Company during 2001 and 2000, but did not provide
any such services in 1999 and it is anticipated that such firm
will continue to provide such services in 2002.
An investment bank of which Mr. Vernon Jordan became a
Managing Director in January 2000, Lazard Freres & Co. LLC,
provided investment banking services to Revlon, Inc. and its
subsidiaries during 2001.
During 2001, 2000 and 1999 Products Corporation placed
advertisements in magazines and other media operated by Martha
Stewart Living Omnimedia, Inc. (“MSLO”), which is controlled
by Ms. Stewart, who also serves as its Chairman and Chief
Executive Officer. The Company paid MSLO $2.1, $1.5 and $1.8
for such services in 2001, 2000 and 1999, respectively, which
fees were less than 1% of our estimate of MSLO’s consolidated
gross revenues for 2001, 2000 and 1999, respectively.
The
Company’s decision to place advertisements for its products in
MSLO’s magazines and other media was based upon their popular
appeal to women and the rates paid were competitive with
industry rates for similarly situated magazines and media.
During 2001, 2000 and 1999, Products Corporation obtained public relations and
advertising services from various subsidiaries of WPP Group plc (“WPP”). Ms. Robinson is
employed by one of WPP’s subsidiaries, however, Ms. Robinson is neither an executive officer
of, nor does she hold any material equity interest in, WPP. The Company paid WPP $2.0, $3.2
and $0.3 for such services in 2001, 2000 and 1999, which fees were less than 1% of our estimate
of WPP’s consolidated gross revenues for 2001, 2000 and 1999, respectively. The Company’s
F-82
decision to engage WPP was based upon their professional expertise in understanding the
advertising and public relations needs of the consumer packaged goods industry, as well as their
global presence in many of the international markets in which the Company operates, and the
rates paid were competitive with industry rates for similarly situated public relations and
advertising agencies.
In December 2001, Products Corporation employed in a junior
entry-level marketing position the daughter of the Chairman of
the Company’s Executive Committee, with compensation paid for
2001 of less than $5,000.
During 2001, Products Corporation employed in a junior
entry-level
Donald
Drapkin, who is a member of the Company’s Board of Directors,
with compensation paid for 2001 of less than $60,000.
marketing
daughter
position
the
Mr.
of
F-83
16. Commitments and Contingencies
The Company currently
leases manufacturing, executive, including research and
development, and sales facilities and various types of equipment under operating lease agreements.
Rental expense was $29.0, $33.0 and $42.8 for the years ended December 31, 2001, 2000 and
1999, respectively. Minimum rental commitments under all noncancelable leases, including those
pertaining to idled facilities, with remaining lease terms in excess of one year from December 31,
2001 aggregated $67.1; such commitments for each of the five years subsequent to December 31,
2001 are $26.1, $14.1, $5.2, $3.7 and $4.4, respectively. Such amounts exclude the minimum
rentals to be received by the Company in the future under noncancelable subleases of $10.7.
The Company has minimum purchase commitments with suppliers
of finished goods, raw materials and components.
The minimum
purchase commitments under these agreements aggregated $194.5;
such commitments for each of the five years subsequent to
December 31, 2001 are $52.8 $26.6, $21.6, $21.3 and $21.3,
respectively.
The Company and its subsidiaries are defendants in litigation and proceedings involving
various matters. In the opinion of the Company’s management, based upon advice of its counsel
handling such litigation and proceedings, adverse outcomes, if any, will not result in a material
effect on the Company’s consolidated financial condition or results of operations.
On April 17, 2000, the plaintiffs in the six purported
class actions filed in October and November 1999 by each of
Thomas Comport, Boaz Spitz, Felix Ezeir and Amy Hoffman, Ted
Parris, Jerry Krim and Dan Gavish individually and allegedly
on behalf of others similarly situated to them against
Revlon, Inc., certain of its present and former officers and
directors and the parent of Revlon, Inc., REV Holdings,
alleging among other things, violations of Rule 10b-5 under
the Securities Exchange Act of 1934, filed an amended
complaint, which consolidated all of the actions under the
caption “In Re Revlon, Inc. Securities Litigation” and
limited the alleged class to security purchasers during the
In
period from October 29, 1997 through October 1, 1998.
June 2000, the defendants moved to dismiss the amended
complaint, which motion was denied in substantial part in
March 2001.
The Company believes the allegations contained
in the amended complaint are without merit and is vigorously
defending against them.
A purported class action lawsuit was filed on September
27, 2000, in the United States District Court for the
Southern District of New York on behalf of Dan Gavish,
Tricia Fontan and Walter Fontan individually and allegedly
on behalf of all others similarly situated who purchased the
securities of Revlon, Inc. and REV Holdings between October
2, 1998 and September 30, 1999 (the "Second Gavish Action").
In November 2001, plaintiffs amended their complaint.
The
amended complaint alleges, among other things, that Revlon,
F-84
of
and
its
certain
present
Inc.,
and
directors and REV Holdings violated, among other things,
Rule 10b-5 under the Securities Exchange Act of 1934.
In
December 2001, the defendants moved to dismiss the amended
complaint.
The Company believes the allegations in the
amended complaint are without merit and, if its motion to
dismiss is not granted, intends to vigorously defend against
them.
officers
former
F-85
17. Quarterly Results of Operations (Unaudited)
The following is a summary of the unaudited quarterly results of operations:
Year Ended December 31, 2001
1st
Quarter
2nd
Quarter
3rd
Quarter
4th
Quarter (c)
Net sales....................................................................... $
324.1 $
337.7 $
327.2 $
Gross profit..................................................................
Net loss (a)...................................................................
192.5
(46.5)
194.7
(56.0)
197.4
(22.9)
332.5
192.7
(28.3)
Basic loss per common share:
Net loss per common share.................................. $
(0.89)
$
(1.07)
$
(0.44)
$
(0.54)
Diluted loss per common share:
Net loss per common share.................................. $
(0.89)
$
(1.07)
$
(0.44)
$
(0.54)
Year Ended December 31, 2000
1st
Quarter
2nd
Quarter
3rd
Quarter
4th
Quarter
Net sales....................................................................... $
449.6 $
339.8 $
344.8 $
Gross profit..................................................................
Net loss (b)...................................................................
274.1
(27.7)
210.1
(24.6)
216.8
(26.1)
313.6
172.5
(51.3)
Basic loss per common share:
Net loss per common share.................................. $
(0.53)
$
(0.47)
$
(0.50)
$
(0.98)
Diluted loss per common share:
Net loss per common share.................................. $
(0.53)
$
(0.47)
$
(0.50)
$
(0.98)
(a) Includes restructuring costs of $14.6, $7.9, $3.0 and $12.6 in the first, second, third and
fourth quarters, respectively. (See Note 2).
(b) Includes restructuring costs of $9.5, $5.1, $13.7 and $25.8 in the first, second, third
and fourth quarters, respectively. (See Note 2).
(c) In the fourth quarter of 2001, the Company recorded a charge of $6.9 related to
increased sales returns, trade spending and inventory adjustments in the Company’s Argentine
operations.
18. Geographic, Financial and Other Information
The Company manages its business on the basis of one reportable operating segment. See
Note 1 for a brief description of the Company’s business. As of December 31, 2001, the Company
had operations established in 20 countries outside of the United States and its products are sold
F-86
throughout the world. The Company is exposed to the risk of changes in social, political and
economic conditions inherent in foreign operations and the Company’s results of operations and
the value of its foreign assets are affected by fluctuations in foreign currency exchange rates. The
Company’s operations in Brazil have accounted for approximately 3.2%, 5.1% and 4.3% of the
Company’s net sales for 2001, 2000 and 1999, respectively. While the Company’s operations in
Brazil have historically been significant, as a result of the sale of the Company’s Colorama brand
in Brazil in July 2001, the Company’s ongoing operations in Brazil are no longer significant to the
Company’s consolidated ongoing operations. (See Note 3). Net sales by geographic area are
presented by attributing revenues from external customers on the basis of where the products are
sold. During 2001, 2000 and 1999, Wal-Mart and its affiliates worldwide accounted for
approximately 19.9%, 16.5% and 13.1%, respectively, of the Company’s consolidated net sales,
before the EITF Issue 01-9 adjustment. (See Note 1). As a result of the Company’s dispositions of
certain non-core assets, including certain international businesses, the Company expects that for
future periods a small number of other customers will, in the aggregate, account for a large portion
of the Company’s net sales. The Company’s loss of Wal-Mart or one or more other customers that
may account for a significant portion of the Company’s sales, or any significant decrease in sales
to any of these customers, could have a material adverse effect on the Company’s business,
financial condition or results of operations. The Company has no reason to believe that any such
loss of customer or decrease in sales will occur. In January 2002, Kmart Corporation filed a
bankruptcy petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code. Less than
5% of the Company’s 2001 net sales were made to Kmart. The Company plans to continue doing
business with Kmart for the foreseeable future and accordingly, based upon the information
currently available, believes that Kmart’s bankruptcy proceedings will not have a material adverse
effect on the Company’s business, financial condition, or results of operations.
During the first quarter of 2001, to reflect the integration of management reporting
responsibilities, the Company reclassified Canada’s results from its international operations to its
United States operations. The geographic information reflects this change for all periods
presented.
F-87
Geographic Areas:
Net sales:
United States................................................................
$
Canada.........................................................................
United States and Canada............................................
International.................................................................
$
Year Ended December 31,
2000
2001
852.2
48.8
901.0
420.5
1,321.5
$
$
842.8
53.0
895.8
552.0
1,447.8
$
$
1999
908.4
46.4
954.8
755.1
1,709.9
Long-lived assets:
December 31,
2001
2000
United States ...............................................................
$
364.5
$
2.5
367.0
117.7
484.7
$
398.8
8.1
406.9
167.2
574.1
Year Ended December 31,
2000
$
$
908.2
539.6
1,447.8
$
$
2001
859.4
462.1
1,321.5
1999
881.2
828.7
1,709.9
Canada.........................................................................
United States and Canada............................................
International.................................................................
Classes of Similar Products:
Net sales:
Cosmetics, skin care and fragrances............................
Personal care and professional....................................
$
$
$
F-88
19.
Effect of New Accounting Standard
In November of 2001, the EITF reached consensus on the
Guidelines, the second portion of which (formerly EITF Issue 00-
25) addresses vendor income statement characterization of
consideration to a purchaser of the vendor’s products or
services, including the classification of slotting fees,
cooperative advertising arrangements and buy-downs. Certain
promotional payments that are currently classified in SG&A
expenses be classified as a reduction of net sales. The impact of
the adoption of the second portion of the Guidelines on the
consolidated financial statements will reduce both net sales and
The adoption will
SG&A expenses by equal and offsetting amounts.
not have any impact on the Company’s reported operating income or
net loss.
Guidelines effective January 1, 2002.
The Company has adopted the second portion of the
The Company has quantified the reclassification for 2001,
2000 and 1999 as summarized below:
December 31, 2001
As
As
For the Year Ended
December 31, 2000
As
As
December 31, 1999
As
As
Reported
Adjusted
Reported
Adjusted
Reported
Adjusted
Net sales........................................ $
1,321.5 $
1,277.6 $
1,447.8 $
1,409.4 $
1,709.9 $
Cost of sales...................................
SG&A expenses.............................
Operating income (loss).................
544.2
723.1
16.1
544.2
679.2
16.1
574.3
803.5
15.9
574.3
765.1
15.9
726.3
1,155.4
(212.0)
1,629.8
726.3
1,075.3
(212.0)
20. Extraordinary Item
The extraordinary loss of $3.6 (net of taxes) in 2001
resulted primarily from the write-off of financing costs in
connection with the 2001 Refinancing Transactions.
21. Subsequent Events
In
2002,
February
Products
completed
Corporation
the
disposition of its subsidiaries that operated its marketing,
sales and distribution business in Belgium, the Netherlands
and Luxembourg (“Benelux”).
As part of this sale, Products
Corporation entered into a long-term distribution agreement
with the purchaser pursuant to which the purchaser distributes
price
the
consisted principally of the assumption of certain liabilities
and deferred contingent purchase price of up to approximately
$3.3 to be received over approximately a seven-year period.
In connection with the disposition, the Company does not
anticipate a significant gain or loss.
Company’s
Benelux.
products
purchase
The
in
F-89
Effective February 14, 2002, Jeffrey M. Nugent, the Company's former President and Chief
Executive Officer, resigned from employment with the Company. On February 19, 2002, the
Company announced its appointment of Jack L. Stahl as its President and Chief Executive Officer.
F-90
Schedule II
REVLON, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 2001, 2000 and 1999
(dollars in millions)
Balance at
Beginning
of Year
Charged to
Cost and
Expenses
Other
Deductions
Balance
at End
of Year
Year ended December 31, 2001:
Applied against asset accounts:
Allowance for doubtful accounts..................... $
Allowance for volume and early payment
discounts.................................................... $
7.6
8.5
Year ended December 31, 2000:
Applied against asset accounts:
Allowance for doubtful accounts..................... $
Allowance for volume and early payment
14.6
discounts.................................................... $
12.6
Year ended December 31, 1999:
Applied against asset accounts:
Allowance for doubtful accounts..................... $
Allowance for volume and early payment
14.0
discounts.................................................... $
14.5
$
$
$
$
$
$
3.5
30.0
(0.9)
34.2
7.7
42.5
$
$
$
$
$
$
(2.8)
(1) $
(31.4)
(2) $
(6.1)
(1) $
(38.3)
(2) $
8.3
7.1
7.6
8.5
(7.1)
(1) $
14.6
(44.4)
(2) $
12.6
Notes:
(1) Doubtful accounts written off, less recoveries, reclassifications and foreign currency translation adjustments.
(2) Discounts taken, reclassifications and foreign currency translation adjustments.
F-91
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Revlon, Inc.
(Registrant)
By: /s/ Paul E. Shapiro
----------------------------------------
Paul E. Shapiro
Executive Vice President,
Chief Administrative Officer and
Principal Executive Officer (a)
By: /s/ Douglas H. Greeff
----------------------------------------
Douglas H. Greeff
Executive Vice
President and
Chief Financial Officer
By: /s/ Laurence Winoker
----------------------------------------
Laurence Winoker
Senior Vice President,
Corporate Controller and
Treasurer
Dated: February 25, 2002
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed
by the following persons on behalf of the Registrant on February 25, 2002 and in the capacities
indicated.
Signature
Title
*
___________________________________
(Ronald O. Perelman)
*
___________________________________
(Howard Gittis)
/s/ Paul E. Shapiro
___________________________________
(Paul E. Shapiro)
*
___________________________________
(Donald G. Drapkin)
*
___________________________________
(Meyer Feldberg)
*
___________________________________
(Vernon E. Jordan)
Chairman of the Board and Director
Director
Executive Vice President, Chief Administrative Officer
and Principal Executive Officer (a)
Director
Director
Director
2
*
___________________________________
(Edward J. Landau)
*
___________________________________
(Jerry W. Levin)
*
___________________________________
(Linda Gosden Robinson)
*
___________________________________
(Terry Semel)
*
___________________________________
(Martha Stewart)
Director
Director
Director
Director
Director
(a)
Effective February 14, 2002, Jeffrey M. Nugent, the Company's former President and Chief
Executive Officer, resigned from employment with the Company. On February 19, 2002,
the Company announced its appointment of Jack L. Stahl as its President and Chief
Executive Officer.
*
Robert K. Kretzman, by signing his name hereto, does hereby sign this report on behalf of
the directors of the registrant after whose typed names asterisks appear, pursuant to powers of
attorney duly executed by such directors and filed with the Securities and Exchange Commission.
By: /s/ Robert K. Kretzman
Robert K. Kretzman
Attorney-in-fact
3