color innovation brands people customers
Revlon, Inc. 2002 Annual Report
Dear Shareholders:
Your company accomplished a great deal in the past year.
We strengthened the Revlon organization, developed and market-tested a
strategy for sustainable growth, and began to achieve positive initial results in the
marketplace that confirm we are heading in the right direction.
We recognize that there is a lot of work to be done. We believe that the path upon
which we have embarked reflects the right actions to position this Company for
long-term, profitable growth.
Our plan involves three distinct phases:
1. Cost Rationalization
2. Stabilization and Growth
3. Accelerated Growth
The Cost Rationalization phase was largely completed in 2001 and involved
consolidating production locations to reduce costs and taking actions to reduce other
expenses.
In 2002, we completed extensive consumer research and evaluated our brands
and business operations in detail. Based upon this critical
insight, we developed
detailed action plans for the Stabilization and Growth phase of our plan. Finally, we
established three principal objectives that will guide us as we move forward:
1. Creating and developing the most consumer-preferred brands.
2. Becoming a most valuable partner to our retailers.
3. Becoming a top company where people choose to work.
We made significant progress against our objectives during 2002. A key
indicator of progress in the United States is that our market share of Revlon Color
Cosmetics, as measured by ACNielsen, increased from approximately sixteen per-
cent in the fourth quarter of 2001 and first quarter 2002 to approximately eighteen
percent in the fourth quarter of 2002. This performance was driven by a twelve
percent increase in dollar consumption of our products in Nielsen measured retail
stores in the fourth quarter of 2002 compared to the fourth quarter of 2001.
Other highlights of our progress include:
Creating and developing the most consumer-preferred brands:
We conducted extensive research and comprehensive in-market testing, in order to
gain critical insight into our consumers’ preferences and needs and re-ignite their
passion for the Revlon brand. The objective of creating a 360o brand experience for
our consumers through consistency of brand positioning and messaging is now being
brought to life. We are doing this through new and increased advertising and
marketing programs, as well as new packaging and increased effectiveness of our
wall displays at retail. These consumer-based strategies will also have positive
implications for our haircolor, haircare, skincare, implements and fragrance busi-
nesses. Additionally, these strategies will also benefit our important international
business, which is already capitalizing on a number of the new products launched
initially in the U.S.
Creating excitement for the Revlon brand is: Revlon LipGlide, a breakthrough lip
gloss that provides full coverage in a gloss. LipGlide ranked as the #3 new
product in the U.S. color cosmetics category for the year 2002 and has achieved
comparable results in key markets outside the U.S. New products were also
added to the ColorStay franchise in early 2003 with launches in the face, eye, lip
and nail segments — all with breakthrough claims and strong early results. Revlon
also launched Moisturous Lipcolor, a 24-shade line of refreshing, hydrating
lipcolor, backed by a unique triple-patented technology, that instantly infuses lips
with 100% moisturization.
For the Almay brand, similar consumer research and testing is being completed to
reinvigorate growth. Dynamic new products and new and increased advertising have
already been launched. Almay Bright Eyes, an exciting new line of eye products
that creates the illusion of bigger, brighter-looking eyes, launched in early 2003.
The line-up includes Bright Eyes Color Cream Shadow, Bright Eyes Mascara,
and Bright Eyes Defining Color Duo Eyeliner. Almay Nearly Naked, also recently
introduced, is a super lightweight liquid foundation captured in a revolutionary
touch-pad delivery system—the first of its kind offered to the mass market.
The brands and these new products are off to a great start. We intend to continue to
improve our 360° branding and new product development processes during 2003 to
ensure that we are the leaders in marketing and producing the next generation of
successful new products.
Becoming a most valuable partner to our retailers:
Listening more effectively and gaining a better understanding of the needs of our
customers have enabled us to create and better capitalize on our marketing programs
at retail. By better aligning each of our functional areas, we are better equipped to
support our customers’ needs in order to build and profitably grow our business.
One example of the progress we have made in our ability to execute exciting programs
with our retail partners was our global promotional partnership to support the 20th
James Bond film, starring Revlon spokesperson Halle Berry. This promotion received
solid support from our retail partners and was well received in the marketplace.
As we move forward, we are committed to ensuring world-class execution and
innovative customer solutions, while offering the most innovative products presented
in the most consumer exciting manner in-store.
Becoming a top company where people choose to work:
Our senior leadership team made developing the organization one of the Company’s
three principal objectives because we understand the role that a strong, motivated
organization plays in the long-term success of a company. People across the
Company are working hard to make Revlon a great place to work where everybody
counts and everybody leads. We have started implementing leadership practices,
talent development and management processes, and new ways of working that are
designed to enable our people to be successful and help us deliver profitable results.
At Revlon, we are committed to providing our people with the tools they need to be
successful and an environment in which they can thrive.
Summary
Significant progress has been made in the past year against all three of our principal
objectives. Continuing this progress required incremental resources, which Revlon
secured from our principal shareholder, MacAndrews & Forbes, in early Febru-
ary 2003. This investment will be used to help fund this heavy investment phase of our
plan and to help establish a solid platform for accelerated growth as we move forward.
As we look back over 2002, we clearly exited the year a much different company than
the one that entered it. We have a sound plan and we are making progress against it.
We are beginning to grow and we have attracted resources needed to execute our
plan. We are making the investments necessary to position Revlon for long-term,
profitable growth.
All our progress would not have been possible without the dedication and hard work
of the Revlon associates around the world. I thank them and all of our stakeholders,
who have contributed to our progress throughout the year.
Jack L. Stahl
President and Chief Executive Officer
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, 2002
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from __________________ to __________________
Commission file numbe r 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 require ments for the past 90
days. Yes X No ___
Indicate by check mark if disclosure of delinque nt filers pursuant to Ite m 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 amendme nt to this Form 10-K. [X]
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the
Securities Exchange Act of 1934). Yes ___ No X
As of December 31, 2002, 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 LLC, a Delaware limited liability company and 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 June 28, 2002, the last business day of
the registrant's most recently completed second fiscal quarter) was approximately $43,887,368.
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"), which 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 sold worldwide and
marketed under such well-known brand names as Revlon, ColorStay, Revlon Age Defying, Skinlights and Ultima
II, as well as Almay, in cosmetics; Almay Kinetin, Vitamin C Absolutes, Eterna 27, Ultima II and Jeanne
Gatineau in skin care; Charlie in fragrances; and High Dimension, Flex, Mitchum, Colorsilk, Jean Naté and
Bozzano in personal care products.
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 leading market
positions in a number of its principal product categories in the U.S. mass-market distribution channel, 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 U.S., including in Australia, Canada, Mexico and South Africa. The
Company's products are sold in more than 100 countries across five continents.
All U.S. 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 U.S.
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, ACNielsen's data does not reflect sales volume from Wal-Mart, Inc.
The Company's Plan
The Company's plan consists of three main components: (1) the cost rationalization phase; (2) the
stabilization and growth phase; and (3) the accelerated growth phase.
Phase 1 -- Cost Rationalization
In 1999 and 2000, the Company faced a number of strategic challenges. Accordingly, through 2001 the
Company focused its plan on lowering costs and improving operating efficiency.
During 2001, the Company implemented several key elements of this phase of its plan. For example, the
Company:
•
reduced departmental general and administrative expenses in the Company's operations;
•
reduced manufacturing and warehousing square footage by approximately 55% during the period from
November 2000 to December 31, 2001;
• closed the Company's in-house advertising division and consolidated all advertising for the Company's
Revlon and Almay brands with two prominent advertising agencies (and further consolidated into a single
agency in 2002); and
•
implemented revised trade terms with the Company's U.S. customers intended to increase sell-through of
the Company's products, reduce merchandise returns and claims for damages and drive market growth.
The Company believes that the actions taken during 2000 and 2001 lowered the Company's cost structure
overall and improved the Company's manufacturing and operating efficiency, creating a platform for the
stabilization and growth stage of the Company's plan.
Phase 2 -- Stabilization and Growth
In February 2002, the Company announced the appointment of Jack L. Stahl, former president and chief
operating officer of The Coca-Cola Company, as the Company's new President and Chief Executive Officer.
Following the appointment of Mr. Stahl, the Company undertook an extensive review and evaluation of the
Company's business to establish specific integrated objectives and actions to advance the next stage in the
Company's plan. As a result of this review, the Company established three principal objectives:
• creating and developing the most consumer-preferred brands;
• becoming the most valuable partner to the Company's retailers; and
• becoming a top company where people choose to work.
The Company also conducted detailed evaluations and research of the strengths of the Revlon brand (and
the Company is continuing to conduct similar evaluations and research for the Company's other major brands); the
Company's advertising and promotional efforts; the Company's relationships with the Company's retailers and
consumers; its retail in-store presence; and the strength and skills of the Company's organization. As a result, the
Company developed the following key actions and investments to support the stabilization and growth phase of its
plan:
•
•
Increase advertising and media spending and effectiveness. The Company expects to increase its media
spending and advertising support. The Company will also seek to improve the effectiveness of its
marketing, including its advertising, by, among other things, ensuring consistent messaging and imagery in
its advertising, in the graphics included in the Company's wall displays and in other marketing materials.
Increase the marketing effectiveness of the Company's wall displays. Beginning in the first quarter of 2003,
the Company intends to make significant improvements to its retail wall displays by streamlining its
product assortment and reconfiguring product placement, which the Company believes will optimize cross-
selling among the Company's various product categories on the wall displays and make the wall displays
easier to merchandise and stock. The Company also intends to continue to roll out its new wall displays,
which the Company began in 2002. In addition, the Company intends to enhance merchandiser coverage to
improve customer's stock levels and continue to develop the Company's tamper evident program to reduce
damages. The Company also intends to work with its retail customers to improve replenishment of the
Company's products on the wall displays and to minimize out-of-stocks at its customers.
• Adopt revised pricing strategies. The Company believes that it can increase sales by selectively adjusting
prices on certain SKUs to better align the Company's pricing with product benefits and competitive
benchmarks.
• Further strengthen the Company's new product development process. The Company is developing a new
cross-functional new product development process intended to optimize the Company's ability to bring to
market its new product offerings to ensure that the Company has products in key trend categories.
•
Implement a comprehensive program to develop and train the Company's employees. The Company is
implementing a comprehensive program
leadership and
communication skills of its employees, which the Company will regularly assess as part of its goal to
become a top company where people choose to work.
the management,
further develop
to
2
In December 2002, the Company announced that it would accelerate the implementation of the stabilization
and growth phase of its plan. The Company recorded charges of approximately $100 million in the fourth quarter of
2002 and currently expects to record additional charges not to exceed $60 million during 2003 and 2004. These
charges relate to various aspects of the stabilization and growth phase of the Company's plan, primarily stemming
from higher sales returns and inventory writedowns from a selective reduction of SKUs, reduced distribution of the
Ultima II brand, higher allowances stemming from selective price adjustments on certain products, higher
professional expenses associated with the development of, research in relation to, and execution of the stabilization
and growth phase of the Company's plan, and writedowns associated with reconfiguring existing wall displays at the
Company's retail customers.
Phase 3 -- Accelerated Growth
The Company intends to capitalize on the actions taken during the stabilization and growth phase of the
Company's plan, with the objective of increasing revenues and profitability over the long term.
Recent Developments
In December 2002, the Company's principal stockholder, MacAndrews & Forbes Holdings Inc.
("MacAndrews Holdings"), a corporation wholly owned indirectly through Mafco Holdings Inc. ("Mafco Holdings"
and, collectively with MacAndrews Holdings, "MacAndrews & Forbes"), by Ronald O. Perelman, proposed
providing the Company with up to $150 million in cash in order to help fund a portion of the costs and expenses
associated with implementing the stabilization and growth phase of the Company's plan and for general corporate
purposes. The Company's Board of Directors appointed a special committee of independent directors to evaluate the
proposal made by MacAndrews & Forbes. The special committee reviewed and considered the proposal and
negotiated enhancements to the terms of the proposal. In February 2003, the enhanced proposal was recommended
to the Company's Board of Directors by the special committee of the Company's Board of Directors and approved
by the Company's full board.
In connection with MacAndrews & Forbes' enhanced proposal, in February 2003 the Company entered into
an investment agreement with MacAndrews & Forbes (the "Investment Agreement") pursuant to which the
Company will undertake a $50 million equity rights offering (the "Rights Offering") that will allow its stockholders
to purchase additional shares of the Company's Class A common stock, with a par value of $0.01 per share ("Class
A Common Stock"). Pursuant to the Rights Offering, the Company will distribute to each stockholder of record of
its Class A Common Stock and its Class B common stock, with a par value of $0.01 per share ("Class B Common
Stock," together with the Class A Common Stock, the "Common Stock"), as of the close of business on a record
date to be set by the Board of Directors, at no charge, a pro rata number of transferable subscription rights for each
share of Common Stock owned. The subscription rights will enable the holders to purchase their pro rata portion of
such number of shares of Class A Common Stock equal to (a) $50 million divided by (b) the subscription price,
which will be equal to the greater of (1) $2.30, representing 80% of the closing price per share of the Company's
Class A Common Stock on the New York Stock Exchange ("NYSE") on January 30, 2003, and (2) 80% of the
closing price per share of its Class A Common Stock on the NYSE on the record date of the Rights Offering. Such
number may be adjusted in an equitable manner to avoid fractional rights and/or shares of Class A Common Stock
and to ensure that the gross proceeds from the Rights Offering equals $50 million.
Pursuant to the over-subscription privilege, each rights holder that exercises its basic subscription privilege
in full may also subscribe for additional shares of Class A Common Stock at the same subscription price per share,
to the extent that other stockholders do not exercise their subscription rights in full. If an insufficient number of
shares is available to fully satisfy the over-subscription privilege requests, the available shares will be sold pro rata
among subscription rights holders who exercised their over-subscription privilege based on the number of shares
each subscription rights holder subscribed for under the basic subscription privilege.
As a Revlon stockholder, MacAndrews & Forbes will receive its pro rata subscription rights and would also
be entitled to exercise an over-subscription privilege. However, MacAndrews & Forbes has agreed not to exercise
either its basic or its over-subscription privileges. Instead, MacAndrews & Forbes has agreed to purchase the shares
of the Company’s Class A Common Stock that it would otherwise have been entitled to receive pursuant to its basic
subscription privilege (equal to approximately 83% of the rights distributed in the Rights Offering, or $41.5 million)
3
in a private placement direct from the Company. In addition, if any shares remain following the exercise of the basic
subscription privileges and the over-subscription privileges by other right holders, MacAndrews & Forbes will back-
stop the Rights Offering by purchasing the remaining shares of Class A Common Stock offered but not purchased
by other stockholders (approximately 17%, or an additional $8.5 million), also in a private placement.
In addition, in accordance with the enhanced proposal, MacAndrews & Forbes has also provided a $100
million term loan to Products Corporation (the "MacAndrews & Forbes $100 million term loan"). If, prior to the
consummation of the Rights Offering, Products Corporation has fully drawn the MacAndrews & Forbes $100
million term loan and the implementation of the stabilization and growth phase of the Company's plan causes the
Company to require some or all of the $50 million of funds that the Company would raise from the Rights Offering,
MacAndrews & Forbes has agreed to advance the Company these funds prior to closing the Rights Offering by
purchasing up to $50 million of newly-issued shares of the Company's Series C preferred stock which would be
redeemed with the proceeds the Company receives from the Rights Offering (this investment in the Company's
Series C preferred stock (which is non-voting, non-dividend paying and non-convertible) is referred to as the "$50
million Series C preferred stock investment"). The MacAndrews & Forbes $100 million term loan has a final
maturity date of December 1, 2005 and interest on such loan of 12.0% is not payable in cash, but will accrue and be
added to the principal amount each quarter and be paid in full at final maturity. The Company expects that it will
issue the subscription rights and consummate the Rights Offering in the second quarter of 2003, subject to the
effectiveness of the registration statement (which the Company filed with the Securities and Exchange Commission
(the "Commission") on February 5, 2003). Based on this expectation, the Company anticipates that Products
Corporation will be required to draw on the MacAndrews & Forbes $100 million term loan before the Rights
Offering is consummated in order to continue the implementation of the stabilization and growth phase of the
Company's plan and for general corporate purposes. However, the Company does not currently anticipate that it will
require that MacAndrews & Forbes make the $50 million Series C preferred stock investment.
Additionally, MacAndrews & Forbes has also agreed to provide Products Corporation with an additional
$40 million line of credit during 2003, which amount will increase to $65 million on January 1, 2004 (the
"MacAndrews & Forbes $40-65 million line of credit") (the MacAndrews & Forbes $100 million term loan and the
MacAndrews & Forbes $40-65 million line of credit are referred to as the "Mafco Loans" and the Rights Offering
and the Mafco Loans are referred to as the "M&F Investments") and which will be available to Products Corporation
through December 31, 2004, provided that the MacAndrews & Forbes $100 million term loan is fully drawn and
MacAndrews & Forbes has purchased an aggregate of $50 million of the Company's Series C preferred stock (or if
the Company has consummated the Rights Offering and redeemed any outstanding shares of Series C preferred
stock). The MacAndrews & Forbes $40-65 million line of credit will bear interest payable in cash at a rate of the
lesser of (i) 12.0% and (ii) 0.25% less than the rate payable from time to time on Eurodollar loans under Products
Corporation's Credit Agreement discussed below (and as hereinafter defined) (which rate, after giving effect to the
amendment in February 2003 to Products Corporation's Credit Agreement, is 8.25% as of March 1, 2003). The
Company does not expect that Products Corporation will draw on the MacAndrews & Forbes $40-65 million line of
credit during 2003.
In connection with the transactions with MacAndrews & Forbes described above, and as a result of the
Company's operating results for the fourth quarter of 2002 and the effect of the acceleration of the Company's
implementation of the stabilization and growth phase of its plan, as discussed above, Products Corporation entered
into an amendment in February 2003 of its Credit Agreement with its bank lenders and secured waivers of
compliance with certain covenants under the Credit Agreement. In particular, EBITDA (as defined in the Credit
Agreement) was $35.2 million for the four consecutive fiscal quarters ended December 31, 2002, which was less
than the minimum of $210 million required under the EBITDA covenant of the Credit Agreement for that period
and the Company's leverage ratio was 5.09:1.00, which was in excess of the maximum ratio of 1.4:1.00 permitted
under the leverage ratio covenant of the Credit Agreement for that period. Accordingly, the Company sought and
secured waivers of compliance with these covenants for the fourth quarter of 2002 and, in light of the Company's
expectation that the continued implementation of the stabilization and growth phase of the Company's plan would
affect the ability of Products Corporation to comply with these covenants during 2003, the Company also secured an
amendment to eliminate the EBITDA and leverage ratio covenants for the first three quarters of 2003 and a waiver
of compliance with such covenants for the fourth quarter of 2003 expiring on January 31, 2004.
4
The amendment to the Credit Agreement also included the substitution of a minimum liquidity covenant
requiring the Company to maintain a minimum of $20 million of liquidity from all available sources at all times
through January 31, 2004 and certain other amendments to allow for the M&F Investments and the implementation
of the stabilization and growth phase of the Company's plan, including specific exceptions from the limitations
under the indebtedness covenant to permit the MacAndrews & Forbes $100 million term loan and the MacAndrews
& Forbes $40-65 million line of credit and to exclude the proceeds from the M&F Investments from the mandatory
prepayment provisions of the Credit Agreement, and to increase the maximum limit on capital expenditures (as
defined in the Credit Agreement) from $100 million to $115 million for 2003. The amendment also increased the
applicable margin on loans under the existing credit agreement by 0.5%, the incremental cost of which to the
Company, assuming the Credit Agreement is fully drawn, would be $1.1 million from February 5, 2003 through the
end of 2003.
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
PERSONAL
CARE
PRODUCTS
High Dimension
Colorsilk
Frost & Glow
Flex
Outrageous
Aquamarine
Mitchum
Hi & Dri
Jean Naté
Revlon Beauty
Tools
Revlon
Almay
Revlon
ColorStay
ColorStay Overtime
Stay Natural
Always On
Revlon Age Defying
Super Lustrous
New Complexion
Skinlights
High Dimension
Illuminance
Lipglide
Moisturous
Almay
Time-Off
Amazing Lasting
One Coat
Skin Stays Clean
Organic Fluoride Plus
Lip Vitality
Clear Complexion
Skin Smoothing
Foundation Pure Tints
Almay Kinetin
Almay Milk Plus
Almay
Other Brands Ultima II
Jeanne Gatineau
Cutex
Ultima II
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.
5
The Company markets several different lines of Revlon lip makeup (which address different segments of
the lip makeup category). The Company's ColorStay lipcolor uses patented transfer-resistant technology that
provides long wear. ColorStay Overtime Lipcolor is a patented lip technology introduced in 2002 that builds on
the strengths of the ColorStay franchise by offering long-wearing benefits in a new product form, which enhances
comfort and shine. Super Lustrous lipstick is the Company's flagship wax-based lipcolor. Moon Drops, a
moisturizing lipstick, is produced in approximately 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 uses a patented formula that provides consumers with improved wear,
application, shine and gloss in a toluene-free and formaldehyde-free formula. The Company's Super Top Speed nail
enamel contains a patented speed drying polymer formula, which sets in 60 seconds. The Company also sells Cutex
nail polish remover and nail care products in certain countries outside the U.S.
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; New Complexion, for
consumers in the 18-to-34 age bracket; and Skinlights skin brighteners that brighten skin with sheer washes of
color.
The Company's eye makeup products include mascaras, eyeliners, eye shadows and brow color. ColorStay
eyecolor, mascara and brow color, Softstroke eyeliners and Revlon Wet/Dry eye shadows are targeted for women
in the 18-to-49 age bracket. The Company's eye products also include Illuminance, an eye shadow that gives a
luminous finish, and High Dime nsion mascara and eyeliners. In 2002, the Company launched ColorStay
Overtime lash tint, a patented product that wears for up to three days.
The Company's Almay brand consists of a line of hypo-allergenic, dermatologist-tested, fragrance-free
cosmetics and skin care products. Almay products include lip makeup, nail care, 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. The Company also sells Skin Stays Clean liquid foundation makeup with its patented "clean pore
complex." The Almay Amazing Lasting Collection features long-wearing mascaras and foundations. The Almay
Kinetin Skincare Advanced Anti-Aging Series features a patented technology. In 2002, the Company launched
Almay Kinetin Skin Smoothing foundation and Almay Lip Vitality lipstick with a patented 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 U.S. mass-market distribution channel.
The Company's skin care products, including moisturizers, are sold under brand names including Eterna
27, Revlon Vitamin C Absolutes, Revlon Absolutes, Almay Kinetin, Almay Milk Plus and Ultima II. 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 brand.
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 a portion of the world and the Bozzano and Juvena
brands in Brazil; as well as Colorsilk and Frost & Glow hair coloring lines throughout most of the world; and the
Mitchum and Hi & Dri antiperspirant brands. The Company also markets hypo-allergenic personal care products,
including moisturizers and antiperspirants, under the Almay brand. The Company's High Dime nsion hair color is a
revolutionary 10-minute home permanent hair color.
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 and Ciara.
6
Marketing
The Company markets extensive consumer product lines at a range of retail prices primarily through the
through
the U.S. also markets select premium
lines
mass-market distribution channel and outside
demonstrator-assisted channels.
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 consolidated all of its advertising for the Revlon and Almay brands into a single advertising agency
intended to increase the effectiveness 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, 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 distributes unique marketing materials such as the "Revlon Report," which highlights
seasonal and other fashion and color trends, describes the Company's products that address those trends and can
include 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 wall displays 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, the Company maintains separate websites, www.revlon.com and www.almay.com devoted to the
Revlon and Almay brands, respectively. Each of these websites 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 Developme nt
The Company believes that it is an industry leader in
the development of innovative and
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. In connection with the stabilization and growth phase
of the Company's plan, the Company is developing a new cross-functional new product development process
intended to optimize the Company's ability to bring to market its new product offerings to ensure that the Company
has products in key trend categories.
The Company operates an extensive cosmetics research and development facility in Edison, New Jersey.
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.
7
As of December 31, 2002, 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 2002, 2001 and 2000, the Company spent approximately $23.3
million, $24.4 million and $27.3 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 facilities in Phoenix, Arizona; Maesteg, South Wales; and São Paulo, Brazil; and the
closure of the Company's manufacturing operations in Canada and New Zealand.
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 2002, cosmetics and personal care products also were produced at the Company's facilities in
Venezuela, France, South Africa and China and personal care products in Mexico and at third-party owned facilities
in Maesteg, South Wales, São Paulo, Brazil, Buenos Aires, Argentina and Samutprakarn, Thailand. 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 400 people as of December 31, 2002, 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 U.S. and Canada accounted for approximately 68% of the
Company's 2002 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 U.S. 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, 2002, 13 licenses were in effect relating to
17 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 wall displays
intended to ensure that high-selling SKUs are in stock and to ensure the optimal presentation of the Company's
products in retail outlets. Additionally, the Company continues to upgrade the technology available to its sales force
to provide real-time information regarding inventory levels and other relevant information.
8
International. Net sales outside the U.S. and Canada accounted for approximately 32% of the Company's
2002 net sales. The ten largest countries in terms of these sales, which include the United Kingdom, Australia,
South Africa, Mexico, Brazil, Hong Kong, Japan, Italy, France and China, accounted for approximately 25% of the
Company's net sales
through drug stores/chemists,
hypermarkets/mass volume retailers and variety stores. The Company also distributes outside the U.S. through
department stores and specialty stores such as perfumeries. At December 31, 2002, the Company actively sold its
products through wholly-owned subsidiaries established in 17 countries outside of the U.S. and through a large
number of distributors and licensees elsewhere around the world.
The Company distributes
its products
in 2002.
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 U.S., Boots in the United Kingdom, Watsons in the Far East and Wal-Mart internationally. Wal-Mart
and its affiliates worldwide accounted for approximately 22.5% of the Company's 2002 consolidated net sales. The
Company expects that Wal-Mart and a small number of other customers will, in the aggregate, continue to account
for a large portion of the Company's net sales. Although the loss of Wal-Mart or one or more of the Company's
other customers that may account for a significant portion of the Company's sales, or any significant decrease in
sales to these customers or any significant decrease in retail display space in any of these customers' stores, 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 customers or decrease in sales will occur. In January 2002, Kmart
Corporation filed a petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code. On January 24, 2003,
Kmart announced that it had filed its proposed plan of reorganization with the U.S. Bankruptcy Court and that it was
positioned to emerge from bankruptcy on or about April 30, 2003. Throughout 2002 and continuing into 2003 Kmart
continued to close underperforming stores. Kmart accounted for less than 5% of the Company's net sales in 2002.
Although the Company plans to continue doing business with Kmart for the foreseeable future and, based upon the
information currently available, believes that Kmart's bankruptcy proceedings and store closings will not have a
material adverse effect on the Company's business, financial condition or results of operations, there can be no
assurances that further deterioration, if any, in Kmart's financial condition will not have such an effect on the
Company. In January 2003, J.C. Penney Corp. announced that it will be discontinuing color cosmetics in most of its
stores. J.C. Penney carries the Company's Ultima II brand, however the Company's sales to J.C. Penney accounted
for less than 1% of the Company's total sales during 2002. Accordingly, the Company does not believe that this
discontinuance will have a material adverse effect on the Company's future business, financial condition or results of
operations.
Competition
The consumer products business is highly competitive. The Company competes on the basis of numerous
factors. Brand recognition, product quality, performance and price, product availability at the retail stores and the
extent to which consumers are educated on product benefits 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, as well as consumer consumption of the Company's products, affect in-store
position, retail display space and inventory levels in retail outlets. The Company has experienced declines in its
market share in the U.S. mass-market in color cosmetics since the end of the first half of 1998 through the first half
of 2002, including a decline in its color cosmetics market share from 32.0% in the second quarter of 1998 to 22.3%
in the second quarter of 2002. However, for the second half of 2002 and for the full year 2002, the market share for
the Company's Revlon branded color cosmetics in the U.S. mass-market increased over the prior year. There can be
no assurance that declines in market share will not occur in the future or that the Company’s recent share increases
will continue. In addition, the Company competes in selected product categories against a number of multinational
manufacturers, 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 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 advertising and promotional activities in U.S. mass-market cosmetics.
In addition to products sold in the mass-market and demonstrator-assisted channels, the Company's products also
compete with similar products sold door-to-door or through mail-order or telemarketing by representatives of direct
9
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 U.S. 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, High Dimension, Frost & Glow, Illuminance, Flex, Cutex
(outside the U.S.), Mitchum, Eterna 27, Almay, Almay Kinetin, Ultima II, Charlie, Jean Naté, Moon Drops,
Super Lustrous and Colorsilk.
The Company utilizes certain proprietary, patent pending or patented technologies in the formulation or
manufacture of a number of the Company's products, including ColorStay cosmetics, classic Revlon nail enamel,
Skinlights skin brightener, High Dime nsion hair color, Super Top Speed nail enamel, Revlon Age Defying
foundation and cosmetics, New Complexion makeup, Almay Kinetin skin care, Time-Off makeup, Amazing
Lasting cosmetics and Almay One Coat cosmetics. 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.
Governme nt 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 Company's capital expenditures, earnings or competitive position.
State and local regulations in the U.S. 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, 2002, the Company employed approximately 6,000 people. As of December 31, 2002,
approximately 130 of such employees in the U.S. 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.
10
Item 2. Properties
The following table sets forth as of December 31, 2002 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
Mexico City, Mexico.......................... Manufacturing, distribution 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
150,000
145,000
127,000
125,000
94,000
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 5,000 square feet were sublet to affiliates of the Company and
approximately 174,000 square feet were sublet to unaffiliated third parties as of December 31, 2002). 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. The Company is exploring plans to relocate its executive offices to a
new location in New York City.
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. (a Delaware corporation and the
predecessor of REV Holdings LLC, a Delaware limited liability company ("REV Holdings")), alleging among other
things, violations of Rule 10b-5 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), 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 December 2002, the defendants, including the Company, entered into an agreement in principle
to settle the litigation. The final written agreement reflecting this agreement in principle, which was executed in
January 2003 and which remains subject to approval by the court, provides that the defendants will obtain complete
releases from the participating members of the alleged class. In connection with this tentative settlement and a
related settlement of the defendants' insurance claim for this matter and the Gavish matter described below (the
"Insurance Settlement"), the Company recorded the settlement in the fourth quarter of 2002.
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
11
present and former officers and directors and REV Holdings violated, among other things, Rule 10b-5 under the
Exchange Act. 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. In light of the Insurance Settlement, the Company does not expect to
incur any further expense in this matter.
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, 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 combined outstanding shares of Revlon, Inc. Common Stock, and (iii) all of the
outstanding 4,333 shares of Series B Convertible Preferred Stock ("Series B 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).
Based on the shares referenced in clauses (i), (ii) and (iii) above, Mr. Perelman through Mafco Holdings (through
REV Holdings) had at December 31, 2002 approximately 97% of the combined voting power of the outstanding
shares of the Company's Common Stock entitled to vote at its 2003 Annual Meeting of Stockholders. The
remaining 8,866,135 shares of Revlon, Inc.'s Class A Common Stock outstanding at December 31, 2002 are owned
by the public and are listed and traded on the NYSE. As of December 31, 2002, there were 805 holders of record of
Revlon, Inc.'s Class A Common Stock. No dividends were declared or paid during 2002 or 2001. The terms of the
2001 Credit Agreement, the Mafco Loans, the 8 5/8% Notes, the 8 1/8% Notes, the 9% Notes and the 12% Notes
(each as hereinafter defined) currently restrict the ability of Products Corporation to pay dividends or make
distributions to Revlon, Inc., except in limited circumstances. See the Consolidated Financial Statements of the
Company and the Notes thereto.
The table below shows the Company's high and low quarterly stock prices of the Company's Class A
Common Stock on the NYSE for the years ended December 31, 2002 and 2001.
High....................................................................
Low ....................................................................
$
High....................................................................
Low ....................................................................
$
1st
Quarter
6.60
3.82
1st
Quarter
6.15
4.42
2002 Quarterly Stock Prices(1)
2nd
Quarter
6.15
4.35
$
3rd
Quarter
5.16
2.99
$
2001 Quarterly Stock Prices(1)
2nd
Quarter
7.25
4.34
$
3rd
Quarter
8.95
4.77
$
4th
Quarter
4.55
2.10
4th
Quarter
7.25
5.05
$
$
(1) Represents the closing price per share of the Company's Class A Common Stock on the NYSE, the
exchange on which such shares are listed. The Company's stock trading symbol is "REV".
12
Item 6. Selected Financial Data
The Consolidated Statements of Operations Data for each of the years in the five-year period ended
December 31, 2002 and the Balance Sheet Data as of December 31, 2002, 2001, 2000, 1999 and 1998 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."
2002
Year Ended December 31,
2000
2001
1999
1998
(dollars in millions, except per share amounts)
Statements of Operations Data
(a)(b)(c)(l):
Net sales.................................................... $ 1,119.4
Operating (loss) income............................
Loss from continuing operations ..............
Basic and diluted loss from continuing
operations per common share............ $ (5.49)
(114.9)(d)(k)
(286.5)
$ 1,277.6
$ 1,409.4
$ 1,629.8
$ 2,064.1
16.1(e)
(153.7)(i)
15.9(f)
(129.7)
(212.0)(g)
(370.9)
124.7(h)
(79.0)(j)
$ (2.94)
$ (2.49)
$ (7.12)
$ (1.52)
Weighted average number of common
shares outstanding: (m)
Basic and diluted ...............................
52.2
52.2
52.2
52.1
52.1
2002
2001
December 31,
2000
(in millions)
1999
1998
Balance Sheet Data(b)(c):
Total assets ............................................... $ 939.5
Long-term debt, including current
portion ............................................... 1,750.1
Total stockholders' deficiency .................. (1,640.8)
$ 997.6
$ 1,101.8
$ 1,558.9
$ 1,831.0
1,643.6
(1,282.7)
1,563.1
(1,106.7)
1,772.1
(1,015.0)
1,660.0
(647.7)
(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 (including 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
first portion of these new Guidelines effective January 1, 2001. The Company adopted the second portion of these
new Guidelines (formerly EITF Issue 00-25) addressing certain sales incentives effective January 1, 2002, and
accordingly, all prior period financial statements reflect the implementation of the Guidelines.
(b) 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.
(c) 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.
(d) Includes restructuring costs and other, net and additional consolidation costs associated with the shutdown of the
Company's Phoenix and Canada facilities of $13.6 million and $1.6 million, respectively, and executive separation
costs of $9.4 million. (See Note 2 to the Consolidated Financial Statements).
13
(e) 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).
(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 a loss of $3.6 million from early extinguishments of debt.
(j) Includes a loss of $51.7 million from early extinguishments of debt.
(k) Includes expenses of $104.2 million (of which $99.3 million was recorded in the fourth quarter of 2002) related
to the acceleration of the implementation of the stabilization and growth phase of the Company's plan.
(l) In July 2001, the FASB issued Statement No. 142, "Goodwill and Other Intangible Assets". Statement No. 142
requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead be tested
for impairment at least annually in accordance with the provisions of Statement No. 142. Statement No. 142
requires that intangible assets with finite useful lives be amortized over their respective estimated useful lives to
their estimated residual values, and reviewed for impairment in accordance with SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets". The Company adopted the provisions of Statement No. 142
effective January 1, 2002. In connection with the adoption of Statement No. 142, the Company performed a
transitional goodwill impairment test as required by such rule and determined that no goodwill impairment existed at
January 1, 2002. Amortization of goodwill ceased on January 1, 2002, upon adoption of Statement No. 142.
Amortization expense for goodwill was $7.7 million in 2001, $9.0 million in 2000, $12.8 million in 1999 and $12.1
million in 1998.
(m) Represents the weighted average number of common shares outstanding for the period. (See Note 1 to the
Consolidated Financial Statements).
14
Item 7. Manage ment'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.
As discussed in further detail under "Recent Developments", the Company has accelerated the
implementation of the stabilization and growth phase of its three-part plan, which, following detailed evaluations
and research, is based on the following key actions and investments: (i) increasing advertising and media spending
and effectiveness; (ii) increasing the marketing effectiveness of the Company's wall displays, by among other things,
reconfiguring wall displays at its existing retail customers, streamlining its product assortment and reconfiguring
product placement on its wall displays and rolling out the new wall displays, which it began in 2002; (iii) selectively
adjusting prices on certain SKUs; (iv) further strengthening the Company's new product development process; and
(v) implementing a comprehensive program to develop and train the Company's employees. Based upon the
responses of its retail customers and the M&F Investments, the Company determined to accelerate the
implementation of the stabilization and growth phase of its plan.
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 (the
"Product Line and Brands Sold"). 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.
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 second portion of these new Guidelines (formerly
EITF Issue 00-25) addressing certain sales incentives effective January 1, 2002, and accordingly, all prior period
financial statements reflect the implementation of the second portion of the Guidelines.
During the first quarter of 2002, to reflect the integration of management reporting responsibilities, the
Company reclassified Puerto Rico's results from its international operations to its U.S. operations. During the third
quarter of 2002, the Company reclassified its South African operations from the European region to the Far East
region to reflect the management organization responsibility for that country. Accordingly, management's
discussion and analysis data reflect these changes for all periods presented.
Discussion of Critical Accounting Policies:
In the ordinary course of its 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 U.S. Actual results could differ significantly
from those estimates and assumptions. The Company believes that the following discussion addresses the
Company's most critical accounting policies, which are those that are most important to the portrayal of the
Company's financial condition and results and require management's most difficult, subjective and complex
judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.
Sales Returns:
The Company allows customers to return their unsold products when they meet certain Company-
established criteria as outlined in the Company's trade terms. The Company regularly reviews and revises, when
deemed necessary, its estimates of sales returns based primarily upon actual returns, planned product
discontinuances, and promotional sales, which would permit customers to return items based upon the Company's
15
trade terms. The Company records estimated sales returns as a reduction to sales and cost of sales, and an increase in
accrued liabilities and inventories. Returned products which are recorded as inventories are valued based upon the
amount that the Company expects to realize upon their subsequent disposition. The physical condition and
marketability of the returned products are the major factors considered by the Company in estimating realizable
value. Cost of sales includes the cost of refurbishment of returned products. Actual returns, as well as realized
values on returned products, may differ significantly, either favorably or unfavorably, from the Company's estimates
if factors such as product discontinuances, customer inventory levels or competitive conditions differ from the
Company's estimates and expectations and, in the case of actual returns, if economic conditions differ significantly
from the Company's estimates and expectations.
Trade Support Costs:
In order to support the retail trade, the Company has various performance-based arrangements with retailers
to reimburse them for all or a portion of their promotional activities related to the Company's products. The
Company regularly reviews and revises, when deemed necessary, estimates of costs to the Company for these
promotions based on estimates of what has been incurred by the retailers. Actual costs incurred by the Company
may differ significantly if factors such as the level and success of the retailers' programs, as well as retailer
participation levels, differ from the Company's estimates and 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 the
amounts that the Company may ultimately realize upon the disposition of inventories if future economic conditions,
customer inventory levels, product discontinuances, return levels or competitive conditions differ from the
Company's estimates and expectations.
Property, Plant and Equipment and Other Assets:
Property, plant and equipment is recorded at cost and is depreciated on a straight-line basis over the
estimated useful lives of such assets. Changes in circumstances such as technological advances, changes to the
Company's business model, changes in the planned use of fixtures or software or closing of facilities or changes in
the Company's capital strategy can result in the actual useful lives differing from the Company's estimates.
Included in other assets are permanent wall displays, which are recorded at cost and amortized on a
straight-line basis over the estimated useful lives of such assets. Intangibles other than goodwill are recorded at cost
and amortized on a straight-line basis over the estimated useful lives of such assets.
Long-lived assets, including fixed assets, permanent wall displays 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. If the undiscounted cash flows (excluding interest) from the use
and eventual disposition of the asset 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. The estimate of
undiscounted 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. In those cases where the Company determines that the useful life of other long-lived assets should be
shortened, the Company would depreciate the net book value in excess of the salvage value (after testing for
impairment as described above), over the revised remaining useful life of such asset thereby increasing amortization
expense. Additionally, goodwill is reviewed for impairment at least annually. The Company recognizes an
impairment loss to the extent that carrying value exceeds the fair value of the asset.
16
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 estimate 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, among other things. Differences from these
assumptions may result in a significant impact to the amount of pension expense recorded by the Company. Due to
decreases in interest rates and declines in the income of assets in the plans, it is expected that the pension expense
for 2003 will be approximately $10 higher than in 2002.
Results of Operations
Year ended December 31, 2002 compared with year ended December 31, 2001
Net sales
Net sales were $1,119.4 and $1,277.6 for 2002 and 2001, respectively, a decrease of $158.2, or 12.4%, and
a decrease of 10.4% after excluding the impact of currency fluctuations.
United States and Canada. Net sales in the U.S. and Canada were $760.1 for 2002, compared with $870.3
for 2001, a decrease of $110.2, or 12.7%. Of this decrease, $100.6 was due to increased sales returns and
allowances related to the Company's plan to selectively reduce SKUs and reduced distribution of the Ultima II
brand, sales allowances for selective price adjustments on certain SKUs related to the stabilization and growth phase
of the Company's plan, and higher sales returns and allowances not directly related to the stabilization and growth
phase of the Company's plan. In addition, brand support increased by $37.0. These factors were partially offset by
an increase in sales volume of $21.6 and an increase in licensing revenues of $5.8, primarily stemming from the
prepayment by a licensee of certain minimum royalties.
International. Net sales in the Company's international operations were $359.3 for 2002, compared with
$407.3 for 2001, a decrease of $48.0, or 11.8%, and a decrease of 5.2% after excluding the impact of currency
fluctuations. Net sales in 2001 include $16.4 of net sales related to the Colorama brand.
Sales in the Company's international operations are divided by the Company into three geographic regions.
In Europe, which is comprised of Europe and the Middle East, net sales decreased by $11.3, or 9.5%, to $107.8 for
2002, as compared with 2001. The decrease in the European region is primarily due to the conversion of the
Company's Benelux and Israeli businesses to distributors (which factor the Company estimates contributed to an
approximate 8.5% reduction in net sales for the region), production disruption at the Company's third party
manufacturer in Maesteg, Wales (which factor the Company estimates contributed to an approximate 5.6%
reduction in net sales for the region) and increased competitive activity in Italy (which factor the Company estimates
contributed to an approximate 2.3% reduction in net sales for the region). Such factors were partially offset by
increased sales volume in the U.K. (which factor the Company estimates contributed to an approximate 6.7%
increase in net sales for the region) and impact from favorable currency fluctuations (which factor the Company
estimates contributed to an approximate 2.7% increase in net sales for the region).
In Latin America, which is comprised of Mexico, Central America and South America, net sales decreased
by $46.9, or 33.3%, to $94.1 for 2002, as compared with 2001. The decrease in the Latin American region is
primarily due to the impact of adverse currency fluctuations (which factor the Company estimates contributed to an
approximate 19.0% reduction in net sales for the region), the sale of the Colorama brand (which factor the Company
estimates contributed to an approximate 10.6% reduction in net sales for the region), the effect of political and
economic difficulties in Venezuela (which factor the Company estimates contributed to an approximate 6.4%
reduction in net sales for the region), and increased competitive activity in Mexico (which factor the Company
17
estimates contributed to an approximate 5.4% reduction in net sales for the region). Such factors were partially
offset by sales tax increases and increased sales volume in Brazil (which factor the Company estimates contributed
to an approximate 6.3% increase in net sales for the region) and increased sales volume in distributor markets in
Latin America (which factor the Company estimates contributed to an approximate 2.6% increase in net sales for the
region).
In the Far East and Africa, net sales increased by $10.2, or 6.9%, to $157.4 for 2002, as compared with
2001. The increase in the Far East region is primarily due to increased sales volume in South Africa, China, Hong
Kong and distributor markets in the Far East (which factor the Company estimates contributed to an approximate
9.6% increase in net sales for the region). Such factors were partially offset by the impact of adverse currency
fluctuations (which factor the Company estimates contributed to an approximate 2.8% reduction in net sales for the
region) and increased competitive activity in Australia and New Zealand (which factor the Company estimates
contributed to an approximate 0.9% reduction in net sales for the region).
Net sales in the Company's international operations may be adversely affected by weak economic
conditions, political uncertainties, adverse currency fluctuations, and competitive activities. During 2002, the
Company experienced significant adverse currency fluctuations in Argentina, Brazil, Venezuela and South Africa.
During 2002, the Company continued to experience production difficulties with its principal third party
manufacturer for Europe and certain other international markets which operates the Maesteg facility. To rectify this
situation, on October 31, 2002 Products Corporation and such manufacturer terminated the long-term supply
agreement and entered into a new, more flexible agreement. This new agreement has significantly reduced volume
commitments and, among other things, Products Corporation agreed to loan such supplier approximately $2.0. To
address the past production difficulties, under the new arrangement, the supplier can earn performance-based
payments of approximately $6.3 over a 4-year period contingent upon the supplier achieving specific production
service level objectives. During 2002, the Company accrued $1.6 as a result of such supplier meeting the required
production service level objectives. Under the new arrangement, Products Corporation also intends to source certain
products from its Oxford facility and other suppliers. The Company expects that under the new supply arrangement,
the production difficulties at the Maesteg facility will be resolved during the first half of 2003.
Gross profit
Gross profit was $615.7 for 2002, compared with $733.4 for 2001. As a percentage of net sales, gross profit
margins were 55.0% for 2002, compared with 57.4% for 2001. The decrease in gross profit margin in 2002
compared to the comparable 2001 period is due to the implementation of various aspects of the stabilization and
growth phase of the Company's plan, referred to above in the discussion of the Company's net sales and higher sales
returns and allowances not directly related to such plan, which combined equal $127.1, and higher brand support of
$30.8 in 2002. These factors were partially offset by lower additional consolidation costs of $36.7 associated with
the 2001 shutdown of the Company's Phoenix and Canada facilities, an increase in licensing revenue of $5.8 in 2002
due to the prepayment of certain minimum royalties, and $1.7 in respect of an insurance claim for certain losses in
Latin America.
SG&A expenses
SG&A expenses were $717.0 for 2002, compared with $679.2 for 2001. The increase in SG&A expenses
for 2002, as compared to 2001, is due primarily to higher personnel-related expenses (including executive separation
costs) and higher professional fees (including expenses related to the stabilization and growth phase of the
Company's plan and costs related to litigation) of $42.0, higher wall display amortization of $8.9 due to the
accelerated amortization associated with the roll out of the Company's new wall displays which the Company began
in 2002 and accelerated amortization charges of $4.0 and a write-off of $2.2, both of which relate to certain
information systems as a result of the Company's decision to, among other things, upgrade its information systems.
These factors were partially offset by the elimination of goodwill amortization of $7.7, lower distribution costs of
$7.3, the elimination of SG&A expenses of $9.1 related to the Colorama brand and $5.3 of additional consolidation
costs in 2001 associated with the shutdown of the Company's Phoenix and Canada facilities, and $0.7 in respect of
an insurance claim for certain losses in Latin America.
18
Restructuring costs
During the third quarter of 2000, the Company initiated a new restructuring program in line with the
original restructuring plan developed in late 1998, designed to improve profitability by reducing personnel and
consolidating manufacturing facilities. The 2000 restructuring program focused on the Company's plans to close its
manufacturing operations in Phoenix, Arizona and Mississauga, Canada and to consolidate its cosmetics production
into its plant in Oxford, North Carolina. The 2000 restructuring program also includes the remaining obligation for
excess leased real estate in the Company's headquarters, consolidation costs associated with the Company closing its
facility in New Zealand, and the elimination of several domestic and international executive and operational
positions, each of which were effected to reduce and streamline corporate overhead costs. During 2001, the
Company continued to implement the 2000 restructuring program and recorded a charge of $38.1, principally for
additional employee severance and other personnel benefits and relocation and other costs related to the
consolidation of the Company's worldwide operations.
During 2002, the Company continued to implement the 2000 restructuring program, as well as other
restructuring actions, and recorded charges of $13.6, principally for additional employee severance and other
personnel benefits, primarily resulting from reductions in the Company's worldwide sales force and relocation and
other costs related to the consolidation of the Company's worldwide operations.
The Company anticipates annualized savings of approximately $10 to $12 relating to the restructuring
charges recorded during 2002.
Other expenses (income)
Interest expense was $159.0 for 2002, compared with $140.5 for 2001. The increase in interest expense for
2002, as compared to 2001, is primarily due to the repayment of a portion of the Credit Agreement with the 12%
Notes (which were issued in late November 2001 and which have a higher interest rate than the Credit Agreement)
and higher overall outstanding borrowings.
Sale of assets and brand, net
In February 2002, Products Corporation completed the disposition of its Benelux business. As part of this
sale, Products Corporation entered into a long-term distribution agreement with the purchaser pursuant to which the
purchaser distributes the Company's products in Benelux. The purchase price consisted principally of the
assumption of certain liabilities and a deferred purchase price contingent upon future results of up to approximately
$4.7, which could be received over approximately a seven-year period. In connection with the disposition, the
Company recognized a pre-tax and after-tax net loss of $1.0 in the first quarter of 2002.
In July 2001, Products Corporation completed the disposition of the Colorama brand in Brazil. In
connection with the disposition the Company recognized a pre-tax and after-tax loss of $6.5, $6.3 of which was
recorded in the second quarter of 2001. Additionally, the Company recognized a pre-tax and after-tax net loss on
the disposition of land in Minami Aoyama near Tokyo, Japan (the "Aoyama Property") and related rights for the
construction of a building on such land of $0.8 during the second quarter of 2001.
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
manufactured and supplied to Products Corporation cosmetics and personal care products for sale throughout
Europe. In connection with such disposition, the Company recognized a pre-tax and after-tax net loss of $8.6 in
2001. The supply agreement was subsequently terminated and certain aspects of the purchase agreement were
revised. (See Note 3 to the Consolidated Financial Statements).
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 net gain on the sale of $3.1 in the fourth quarter
of 2001.
19
Loss on early extinguishment of debt
The loss on early extinguishment of debt of $3.6 in 2001 resulted primarily from the write-off of financing
costs in connection with Products Corporation entering into the 2001 Credit Agreement (as hereinafter defined).
Provision for income taxes
The provision for income taxes was $4.8 for 2002, compared with $4.1 for 2001. The increase in the
provision for income taxes for 2002, as compared to 2001, was attributable to higher taxable income in certain
markets outside the U.S., which was partially offset by the recognition of tax benefits of approximately $0.9 relating
to the carryback of alternative minimum tax losses resulting from tax legislation enacted in the first quarter of 2002.
Year ended December 31, 2001 compared with year ended December 31, 2000
Net sales
Net sales were $1,277.6 and $1,409.4 for 2001 and 2000, respectively, a decrease of $131.8, or 9.4%, and a
decrease of 5.9% after excluding the impact of currency fluctuations.
United States and Canada. Net sales in the U.S. and Canada were $870.3 for 2001, compared with $874.0
for 2000, a decrease of $3.7, or 0.4%. Net sales in 2000 include net sales of $35.8 related to the Product Line and
Brands Sold. The decline for 2001, as compared with the comparable 2000 period, was primarily due to net sales of
$35.8 related to the Product Line and Brands Sold, higher sales allowances of $13.7 and reduced sales volume of
$16.5. This volume decline is net of $14.0 of increased sales in the fourth quarter of 2001 resulting from the
decision by the Company's major U.S. retail customers to shift planned plan-o-gram timing for 2002 new products
into the fourth quarter of 2001, mostly offset by lower sales returns of $60.2 as a result of the Company's revised
trade terms.
International. Net sales in the Company's international operations were $407.3 for the 2001, compared
with $535.4 for 2000, a decrease of $128.1, or 23.9%, and a decrease of 16.8% after excluding the impact of
currency fluctuations. Net sales in 2001 and 2000 include net sales of $16.4 and $108.3, respectively, related to the
Product Line and Brands Sold.
Sales in the Company's international operations are divided by the Company into three geographic regions.
In Europe, which is comprised of Europe and the Middle East, net sales decreased by $49.3 to $119.1 for 2001, or
by 29.3%, as compared with 2000. The decrease in the European region is primarily due to the Product Line and
Brands Sold (which factor the Company estimates contributed to an approximate 20.8% reduction in net sales for
the region), the conversion of the Company's Israeli business to a distributor (which factor the Company estimates
contributed to an approximate 2.8% reduction in net sales for the region) and the unfavorable impact of adverse
currency fluctuations (which factor the Company estimates contributed to an approximate 3.7% reduction in net
sales for the region).
In Latin America, which comprises Mexico, Central America and South America, net sales decreased by
$54.5, or 27.9%, to $141.0 for 2001, as compared with 2000. The decrease in the Latin American region is primarily
due to the Product Line and Brands Sold (which factor the Company estimates contributed to an approximate 15.1%
reduction in net sales for the region) and the impact of adverse currency fluctuations (which factor the Company
estimates contributed to an approximate 9.2% reduction in net sales for the region).
In the Far East and Africa, net sales decreased by $24.3, or 14.1%, to $147.2 for 2001, as compared with
2000. The decrease in the Far East region is primarily due to the impact of adverse currency fluctuations (which
factor the Company estimates contributed to an approximate 9.1% reduction in net sales for the region) and the
Product Line and Brands Sold (which factor the Company estimates contributed to an approximate 3.1% reduction
in net sales for the region).
20
Net sales in the Company's international operations may be adversely affected by weak economic
conditions, political uncertainties, adverse currency fluctuations, and competitive activities.
Gross profit
Gross profit was $733.4 for 2001, compared with $835.1 for 2000. As a percentage of net sales, gross profit
margins were 57.4% for 2001, compared with 59.3% for 2000. The decline in gross profit and gross profit margin in
2001 compared to 2000 is primarily due to the incremental gross profit of $71.3 in 2000 which was related to the
Product Line and Brands Sold and higher additional consolidation costs of $33.3 in 2001 associated with the 2001
shutdown of the Company's Phoenix and Canada facilities ($6.1 of which represents increased depreciation recorded
for the Phoenix facility – See Note 2 to the Consolidated Financial Statements). These factors were partially offset
by the improvement in sales returns and allowances in 2001 and the dispositions of lower margin businesses in
2001.
SG&A expenses
SG&A expenses were $679.2 for 2001, compared with $765.1 for 2000. The decrease in SG&A expenses
for 2001, as compared to the comparable 2000 period, is due primarily to incremental SG&A expenses of $63.1 in
2000 related to the Product Line and Brands Sold and the Company's restructuring efforts to reduce personnel and
related costs in 2001. These factors were partially offset by an increase in brand support expenses of $12.4 in 2001
and $5.4 of additional consolidation costs associated with the shutdown of the Company's Phoenix and Canada
facilities in 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.
During 2001, the Company recorded a charge of $38.1 related to the 2000 restructuring program,
principally for additional employee severance and other personnel benefits and relocation and other costs related to
the consolidation of the Company's worldwide operations. Included in the $38.1 charge for 2001 was an adjustment
in the fourth quarter of 2001 to previous estimates of approximately $6.6.
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
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).
21
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 net 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 (as hereinafter defined). In
connection with such disposition, the Company recognized a pre-tax and after-tax net 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 discussed above, in
October 2002, after experiencing production difficulties with this supplier, Products Corporation and such supplier
terminated their long-term supply agreement, revised certain aspects of the purchase agreement and entered into a
new, more flexible supply agreement with significantly reduced volume commitments. In connection with such
disposition, the Company recognized a pre-tax and after-tax net loss of $8.6 in 2001. (See Note 3 to the
Consolidated Financial Statements).
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 pre-tax and after-tax net 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 the Aoyama Property in Japan for approximately $28. In
connection with such disposition, the Company recognized a pre-tax and after-tax net loss of $0.8 during the second
quarter of 2001.
Loss on early extinguishment of debt
The loss on early extinguishment of $3.6 in 2001 resulted primarily from the write-off of financing costs in
connection with Products Corporation entering into the 2001 Credit Agreement.
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 U.S.
Financial Condition, Liquidity and Capital Resources
Net cash used for operating activities was $112.3, $86.5 and $84.0 for 2002, 2001 and 2000, respectively.
The increase in net cash used for operating activities for 2002 compared to 2001 resulted primarily from a higher net
loss, partially offset by lower inventories and an increase in accrued expenses and other, mainly associated with the
Company's implementation of various aspects of the stabilization and growth phase of its plan. In addition,
purchases of permanent wall displays increased in 2002 due to the roll out of the Company's newly-reconfigured
wall displays. 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 wall displays.
22
Net cash (used for) provided by investing activities was $(14.2), $87.2 and $322.1 for 2002, 2001 and
2000, respectively. Net cash used for investing activities for 2002 consisted primarily of capital expenditures. 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 provided by (used for) financing activities was $110.3, $46.3 and $(203.7) for 2002, 2001 and
2000, respectively. Net cash provided by financing activities for 2002 included cash drawn under the Credit
Agreement, partially offset by the repayment of borrowings under the Credit Agreement and payment of debt
issuance costs. Net cash 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 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. 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, partially offset by cash drawn under the 1997 Credit Agreement.
On November 26, 2001, Products Corporation issued and sold $363 in aggregate principal amount of 12%
Senior Secured Notes due 2005 (the "Original 12% Notes") in a private placement, receiving gross proceeds of
$350.5. Products Corporation used the proceeds from the Original 12% Notes and borrowings under the 2001 Credit
Agreement to repay outstanding indebtedness under Products Corporation's 1997 Credit Agreement and to pay fees
and expenses incurred in connection with entering into the 2001 Credit Agreement and the issuance of the Original
12% Notes, and the balance was available for general corporate purposes. On June 21, 2002, the Original 12%
Notes were exchanged for new 12% Senior Secured Exchange Notes due 2005 which have substantially identical
terms as the Original 12% Notes (the "12% Notes"), except that the 12% Notes are registered with the Commission
under the Securities Act of 1933 (as amended, the "Securities Act") and the transfer restrictions and registration
rights applicable to the Original 12% Notes do not apply to the 12% Notes.
On November 30, 2001, Products Corporation entered into a 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 (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, 2002, the 2001 Credit
Agreement provided up to $248.7, which is comprised of a $116.6 term loan facility (the "Term Loan Facility") and
a $132.1 multi-currency revolving credit facility (the "Multi-Currency Facility"). At December 31, 2002, the Term
Loan Facility was fully drawn and $0.3 was available under the Multi-Currency Facility, including the letters of
credit.
In connection with the transactions with MacAndrews & Forbes described in "Recent Developments," and
as a result of the Company's operating results for the fourth quarter of 2002 and the effect of acceleration of the
Company's implementation of the stabilization and growth phase of its plan, Products Corporation entered into an
amendment in February 2003 of its Credit Agreement and secured waivers of compliance with certain covenants
under the Credit Agreement. In particular, EBITDA (as defined in the Credit Agreement) was $35.2 for the four
consecutive fiscal quarters ended December 31, 2002, which was less than the minimum of $210 required under the
EBITDA covenant of the Credit Agreement for that period and the Company's leverage ratio was 5.09:1.00, which
was in excess of the maximum ratio of 1.4:1.00 permitted under the leverage ratio covenant of the Credit Agreement
for that period. Accordingly, the Company sought and secured waivers of compliance with these covenants for the
fourth quarter of 2002 and, in light of the Company's expectation that the continued implementation of the
stabilization and growth phase of the Company’s plan would affect the ability of Products Corporation to comply
with these covenants during 2003, the Company also secured an amendment to eliminate the EBITDA and leverage
ratio covenants for the first three quarters of 2003 and a waiver of compliance with such covenants for the fourth
quarter of 2003 expiring on January 31, 2004.
23
The amendment to the Credit Agreement also included the substitution of a minimum liquidity covenant
requiring the Company to maintain a minimum of $20 in liquidity from all available sources at all times through
January 31, 2004 and certain other amendments to allow for the M&F Investments and the implementation of the
stabilization and growth phase of the Company's plan, including specific exceptions from the limitations under the
indebtedness covenant to permit the MacAndrews & Forbes $100 million term loan and the MacAndrews & Forbes
$40-65 million line of credit and to exclude the proceeds from the M&F Investments from the mandatory
prepayment provisions of the Credit Agreement, and to increase the maximum limit on capital expenditures and
permanent display purchases from $100 to $115 for 2003. The amendment also increased the applicable margin on
loans under the Credit Agreement by 0.5%, the incremental cost of which to the Company, assuming the Credit
Agreement is fully drawn, would be $1.1 from February 5, 2003 through the end of 2003. As of March 7, 2003, the
Company had approximately $213 of available liquidity from all available sources.
As discussed under "Recent Developments", pursuant to the Investment Agreement MacAndrews & Forbes
agreed, among other things, (i) to purchase such shares of Revlon, Inc.'s Class A Common Stock represented by its
pro rata share of the rights distributed in the Rights Offering (approximately 83%, or $41.5) and to back-stop the
Rights Offering by purchasing the remaining shares of Class A Common Stock offered to, but not purchased by,
other stockholders (approximately 17%, or an additional $8.5), (ii) to provide Products Corporation with the
MacAndrews & Forbes $100 million term loan (the terms and conditions of which the parties agreed to on February
5, 2003), (iii) if, prior to the consummation of the Rights Offering, Products Corporation has fully drawn the
MacAndrews & Forbes $100 million term loan and the implementation of the stabilization and growth phase of the
Company's plan causes the Company to require some or all of the $50 of funds that the Company would raise from
the Rights Offering, MacAndrews & Forbes would advance the Company these funds prior to closing the Rights
Offering by making the $50 million Series C preferred stock investment, which would be redeemed with the
proceeds the Company receives from the Rights Offering, and (iv) to provide Products Corporation with the
MacAndrews & Forbes $40-65 million line of credit (the terms and conditions of which the parties agreed to on
February 5, 2003), provided that the MacAndrews & Forbes $100 million term loan is fully drawn and MacAndrews
& Forbes had made the $50 million Series C preferred stock investment (or if the Company has consummated the
Rights Offering and redeemed any outstanding shares of Series C preferred stock).
The Company's principal sources of funds are expected to be operating revenues, cash on hand, the
proceeds from the Rights Offering (which may be advanced to the Company as a result of the $50 million Series C
preferred stock investment prior to the consummation of the Rights Offering if Products Corporation has fully drawn
the MacAndrews & Forbes $100 million term loan) and funds available for borrowing under the Credit Agreement
and the Mafco Loans. The Company expects that the Rights Offering will be consummated in the second quarter of
2003, subject to the effectiveness of the registration statement, which the Company filed with the Commission on
February 5, 2003. Based on this expectation, the Company anticipates that Products Corporation will draw on the
MacAndrews & Forbes $100 million term loan before the Rights Offering is consummated in order to continue the
implementation of the stabilization and growth phase of the Company's plan and for general corporate purposes.
However, the Company currently does not anticipate that, based upon a second quarter 2003 closing of the Rights
Offering, it will require that MacAndrews & Forbes make the $50 million Series C preferred stock investment. The
Credit Agreement, the Mafco Loans, 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, including
expenses in connection with the stabilization and growth phase of the Company's plan, purchases of permanent wall
displays, capital expenditure requirements, including costs in connection with the ERP System (as hereinafter
defined), payments in connection with the Company's restructuring programs referred to below and debt service
payments.
The Company currently estimates that charges related to the implementation of the stabilization and growth
phase of the Company's plan will not exceed $60 during 2003 and 2004. In addition, the Company currently
estimates that the cash payments related to this phase of the plan for charges recorded in 2002 will be approximately
$75 during 2003 and 2004.
24
The Company developed a new design for its wall displays (which the Company refined as part of the
stabilization and growth phase of its plan) and began installing them at certain customers' retail stores during 2002.
The Company is also reconfiguring existing wall displays at its retail customers on an accelerated basis.
Accordingly, the Company has accelerated the amortization of its existing wall displays. The installation of these
newly-reconfigured wall displays resulted in accelerated amortization in 2002 of approximately $11. The Company
estimates that purchases of wall displays for 2003 will be approximately $75 to $85.
The Company estimates that capital expenditures for 2003 will be approximately $25 to $30. 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 $10 to $15 in 2003.
The Company has evaluated its management information systems and determined, among other things, to
upgrade to an Enterprise Resource Planning ("ERP") System. As a result of this decision, certain existing
information systems are being amortized on an accelerated basis. Based upon the estimated time required to
implement an ERP System and related IT actions, the Company expects that it will record additional amortization
charges for its current information system in 2002 through 2005. The additional amortization recorded in 2002 was
$4. The Company expects that the additional amortization for 2003 will be approximately $5.
The Company expects that operating revenues, cash on hand, proceeds from the Rights Offering (which
may be advanced to the Company as a result of the $50 million Series C preferred stock investment prior to the
consummation of the Rights Offering if Products Corporation has fully drawn the MacAndrews & Forbes $100
million term loan) and funds available for borrowing under the Credit Agreement and the Mafco Loans will be
sufficient to enable the Company to cover its operating expenses, including cash requirements in connection with the
Company's operations, the stabilization and growth phase of the Company's plan, cash requirements in connection
with the Company's restructuring programs referred to above and the Company's debt service requirements for 2003.
The Mafco Loans and the proceeds from the Rights Offering are intended to help fund the stabilization and growth
phase of the Company's plan and to decrease the risk that would otherwise exist if the Company were to fail to meet
its debt and ongoing obligations as they became due in 2003. However, there can be no assurance that such funds
will be sufficient to meet the Company's cash requirements on a consolidated basis. If the Company's anticipated
level of revenue growth is not achieved because, for example, of decreased consumer spending in response to weak
economic conditions or weakness in the cosmetics category, increased competition from the Company's competitors
or the Company's marketing plans are not as successful as anticipated, or if the Company's expenses associated with
implementation of the stabilization and growth phase of the Company's plan exceed the anticipated level of
expenses, the Company's current sources of funds may be insufficient to meet the Company's cash requirements.
Additionally, in the event of a decrease in demand for Products Corporation's products or reduced sales or lack of
increases in demand and sales as a result of the Company's plan, such development, if significant, could reduce
Products Corporation's operating revenues and could adversely affect Products Corporation's ability to achieve
certain financial covenants under the Credit Agreement 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
from these sources, the Company could be required to adopt one or more alternatives, such as delaying the
implementation of or revising aspects of the stabilization and growth phase of its plan, reducing or delaying
purchases of wall displays or advertising or promotional expenses, reducing or delaying capital spending, delaying,
reducing or revising restructuring programs, restructuring indebtedness, selling assets or operations, seeking
additional capital contributions or loans from MacAndrews & Forbes, the Company's other affiliates and/or third
parties, selling additional equity securities of Revlon, Inc. or reducing other discretionary spending. The Company
has substantial debt maturing in 2005 which will require refinancing, consisting of $246.3 (assuming the maximum
amount is borrowed) under the Credit Agreement and $363.0 of 12% Notes, as well as amounts, if any, borrowed
under the MacAndrews & Forbes $100 million term loan and the MacAndrews & Forbes $40-65 million line of
credit.
The Company expects that Products Corporation will need to seek a further amendment to the Credit
Agreement or a waiver of the EBITDA and leverage ratio covenants under the Credit Agreement prior to the
expiration of the existing waiver on January 31, 2004 because the Company does not expect that its operating
results, including after giving effect to various actions under the stabilization and growth phase of the Company's
plan, will allow Products Corporation to satisfy those covenants for the four consecutive fiscal quarters ending
December 31, 2003. The minimum EBITDA required to be maintained by Products Corporation under the Credit
25
Agreement is $230 for each of the four consecutive fiscal quarters ending on December 31, 2003 (which covenant
was waived through January 31, 2004), March 31, 2004, June 30, 2004 and September 30, 2004 and $250 for any
four consecutive fiscal quarters ending December 31, 2004 and thereafter and the leverage ratio covenant under the
Credit Agreement will permit a maximum ratio of 1.10:1.00 for any four consecutive fiscal quarters ending on or
after December 31, 2003 (which limit was waived through January 31, 2004 for the four fiscal quarters ending
December 31, 2003). In addition, after giving effect to the amendment, the Credit Agreement also contains a $20
minimum liquidity covenant. While the Company expects that Products Corporation's bank lenders will consent to
such amendment or waiver request, there can be no assurance that they will or that they will do so on terms that are
favorable to the Company. If the Company is unable to secure such amendment or waiver, it could be required to
refinance the Credit Agreement or repay it with proceeds from sale of assets or operations, or additional capital
contributions or loans from MacAndrews & Forbes or the Company's other affiliates or third parties, or the sale of
additional equity securities of Revlon, Inc. In the event that Products Corporation were unable to secure such a
waiver or amendment and Products Corporation were not able to refinance or repay the Credit Agreement, Products
Corporation’s inability to meet the financial covenants for the four consecutive fiscal quarters ending December 31,
2003 would constitute an event of default under Products Corporation’s Credit Agreement, which would permit the
bank lenders to accelerate the Credit Agreement, which in turn would constitute an event of default under the
indentures governing Products Corporation’s debt if the amount accelerated exceeds $25.0 and such default remains
uncured within 10 days of notice from the trustee under the applicable indenture.
There can be no assurance that the Company would be able to take any of the actions referred to in the
preceding two paragraphs because of a variety of commercial or market factors or constraints in the Company's debt
instruments, including, for example, Products Corporation's inability to reach agreement with its bank lenders on
refinancing terms that are acceptable to the Company before the waiver of its financial covenants expires on January
31, 2004, market conditions being unfavorable for an equity or debt offering, or that the transactions may not be
permitted under the terms of the Company's various debt instruments then in effect, because of restrictions on the
incurrence of debt, incurrence of liens, asset dispositions and related party transactions. In addition, such actions, if
taken, may not enable the Company to satisfy its cash requirements if the actions do not generate a sufficient amount
of additional capital.
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 Mafco Loans, 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 fees, 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 (as may be amended and restated from time to time, the "Amended Stock
Plan").
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 2003.
As a result of dealing with suppliers and vendors in a number of foreign countries, Products Corporation
enters into foreign currency forward exchange contracts and option contracts from time to time to hedge certain cash
flows denominated in foreign currencies. There were foreign currency forward exchange contracts with a notional
amount of $10.8 outstanding at December 31, 2002. The fair value of foreign currency forward exchange contracts
outstanding at December 31, 2002 was nil.
26
Disclosures about Contractual Obligations and Comme rcial Commitments
The following table aggregates all contractual commitments and commercial obligations that affect the
Company's financial condition and liquidity position as of December 31, 2002:
Payments Due by Period
(dollars in millions)
1-3 years
$1,100.2
4-5 years
$649.9
After 5 years
Nil
Contractual Obligations
Long-term Debt
Capital Lease Obligations
Operating Leases
Unconditional Purchase
Obligations
Total
$1,750.1
4.1
56.7
103.8(a)
Less than 1
year
Nil
$1.8
21.3
48.9
2.3
17.5
54.9
Other Long-term Obligations
49.0(b)
25.6
23.4
Nil
7.1
Nil
Nil
Nil
$10.8
Nil
Nil
Total Contractual Cash
Obligations
$1,963.7
$97.6
$1,198.3
$657.0
$10.8
(a) Consists of purchase commitments for finished goods, raw materials, components and services pursuant to
enforceable and legally binding obligations which include all significant terms, including fixed or minimum
quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the
transaction.
(b) Consists primarily of obligations related to insurance, employment contracts and other personnel service
contracts. Such amounts exclude severance and other contractual commitments related to restructuring, which
are discussed under "Restructuring Costs".
Off-Balance Sheet Transactions
The Company does not maintain any off-balance sheet transactions, arrangements, obligations or other
relationships with unconsolidated entities or others that are reasonable likely to have a material current or future
effect on the Company's financial condition, changes in financial condition, revenues or expenses, results of
operations, liquidity, capital expenditures or capital resources.
Senior Financial Officer Code of Ethics
The Company has a written Code of Business Conduct (the "Code") that includes a code of ethics (the
"Senior Financial Officer Code of Ethics") that applies to the Company's Chief Executive Officer and senior
financial officers (including the Company's Chief Financial Officer, Controller and persons performing similar
functions) (collectively, the "Senior Financial Officers"). The Company will provide a copy of the Senior Financial
Officer Code of Ethics, without charge, upon written request to Robert K. Kretzman, Senior Vice President, General
Counsel and Corporate Secretary, Revlon, Inc., 625 Madison Avenue, New York NY, 10022. If the Company
changes the Senior Financial Officer Code of Ethics in any material respect or waives any provision of the Senior
Financial Officer Code of Ethics for any of its Senior Financial Officers, the Company expects to provide the public
with notice of any such change or waiver by publishing an appropriate description of such event on its corporate
website, www.revloninc.com, or by other appropriate means as required or permitted under applicable rules of the
Commission.
27
Effect of New Accounting Standards
In August 2001, the FASB issued Statement No. 143, "Accounting for Asset Retirement Obligations".
Statement No. 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. This
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 No. 143 effective January 1, 2003 and has determined that it will not
have a significant effect on the Company's financial statements or disclosures.
In July 2002, the FASB issued Statement No. 146, "Accounting for Costs Associated with Exit or Disposal
Activities". This statement nullifies EITF Issue No. 94-3, "Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." Statement No.
146 requires that a liability for the fair value of costs associated with an exit or disposal activity be recognized when
the liability is incurred. The provisions of Statement No. 146 are effective for exit or disposal activities initiated
after December 31, 2002 and thus became effective for the Company on January 1, 2003. The Company will
continue to apply the provisions of EITF Issue 94-3 to any exit activities that have been initiated under an exit plan
that met the criteria of EITF Issue 94-3 before the adoption of Statement No. 146. The adoption of Statement No.
146 is not currently expected to have a material effect on the financial position, results of operations or cash flows of
the Company upon adoption.
In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others." Interpretation No. 45
requires the guarantor to recognize a liability for the contingent and non-contingent component of a guarantee;
which means (a) the guarantor has undertaken an obligation to stand ready to perform in the event that specified
triggering events or conditions occur and (b) the guarantor has undertaken a contingent obligation to make future
payments if such triggering events or conditions occur. The initial measurement of this liability is the fair value of
the guarantee at inception. The Company is required to recognize the liability even if it is not probable that
payments will be required under the guarantee or if the guarantee was issued with a premium payment or as part of a
transaction with multiple elements. Interpretation No. 45 also requires additional disclosures related to guarantees
that have certain specified characteristics. The Company was required to adopt, and has adopted the disclosure
provisions of Interpretation No. 45 in its financial statements as of and for the year ended December 31, 2002.
Additionally, the recognition and measurement provisions of Interpretation No. 45 are effective for all guarantees
entered into or modified after December 31, 2002. The Company has evaluated the effect of the recognition and
measurement provisions of this Interpretation. The adoption of this Interpretation is not anticipated to have a
material effect on the Company's financial statements or disclosures.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation,
Transition and Disclosure". SFAS No. 148 provides alternative methods of transition for a voluntary change to the
fair value based method of accounting for stock-based employee compensation. Should the Company elect to
transition to fair value recognition of stock-based employee compensation, not all of the alternatives outlined in
SFAS No. 148 will be available after December 31, 2002. The Company has included the disclosure requirements
of SFAS No. 148 in its consolidated financial statements and is currently evaluating the impact of the fair value
transition alternatives.
Inflation
In general, the Company's 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 and in foreign non-hyperinflationary countries. The
Company operates in certain countries around the world, such as Argentina, Brazil, Venezuela and Mexico that have
in the past experienced hyperinflation. In 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.
28
Subsequent Event
See "Recent Developments."
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Sensitivity
The Company has exposure to changing interest rates, primarily in the U.S. 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, 2002. 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, 2002. 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.
29
The Company does not hold or issue financial instruments for trading purposes. The following table
presents the information required by Item 7A of Form 10-K as of December 31, 2002:
Expected maturity date for the year ended December 31,
2003
2004
2005
2006
2007
Thereafter
Total
(dollars in millions)
Fair Value
Dec. 31,
2002
$ 25.0
6.0%
$ 499.7
8.6%
$649.9
8.6%
$ 353.3
12.0%
215.9*
7.6%
7.2*
9.4%
$ 25.0
$ 25.0
1,502.9
989.0
215.9
215.9
7.2
7.2
$ 25.0
$
-
$ 576.4
$ 499.7
$
-
$649.9
$1,751.0
$1,237.1
Average
Contractual
Rate $/FC
0.8706
1.5340
1.5942
0.5154
0.6249
1.2250
0.6159
0.6213
Original
US Dollar
Notional
Amount
Contract
Value
Dec. 31,
2002
Fair Value
Dec. 31,
2002
$
$
1.1
1.1
3.6
0.9
2.4
0.3
0.7
0.7
10.8
$
$
1.3
1.0
3.6
0.8
2.4
0.3
0.7
0.7
10.8
$
$
0.2
(0.1)
-
(0.1)
-
-
-
-
-
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 ...........................................
Forward Contracts
Buy Euro/Sell USD............................
Sell British Pounds/Buy USD............
Buy British Pounds/Sell USD............
Sell Australian Dollars/Buy USD ......
Sell Canadian Dollars/Buy USD........
Buy Australian Dollars/Sell New
Zealand Dollars .........................
Buy British Pounds/Sell Euros...........
Sell British Pounds/Buy Euros...........
Total forward contracts ......................
____________________
(a)
*
Weighted average variable rates are based upon implied forward rates from the yield curves at December 31, 2002.
Represents Products Corporation's Credit Agreement which matures in May 2005.
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.
30
Item 10. Directors and Executive Officers of the Registrant
PART III
The following table sets forth certain information concerning the Directors and executive officers of the
Company. Each Director holds office until his successor is duly elected and qualified or until his resignation or
removal, if earlier.
NAME
POSITION
Ronald O. Perelman
Jack L. Stahl
Douglas H. Greeff
Paul E. Shapiro
Donald G. Drapkin
Professor Meyer Feldberg
Howard Gittis
Vernon E. Jordan, Jr.
Edward J. Landau
Linda Gosden Robinson
Terry Semel
Martha Stewart
Chairman of the Board, Chairman of the Executive Committee
of the Board and Director
President, Chief Executive Officer and Director
Executive Vice President and Chief Financial Officer
Executive Vice President and Chief Administrative Officer
Director
Director
Director
Director
Director
Director
Director
Director
The name, age (as of December 31, 2002), principal occupation for the last five years, and selected
biographical information for each of the Directors and executive officers of the Company are set forth below.
Mr. Perelman (59) has been Chairman of the Board of Directors of the Company and of the Company's
wholly-owned subsidiary, Products Corporation, since June 1998, Chairman of the Executive Committee of the
Board of the Company and of Products Corporation since November 1995, and a Director of the Company and of
Products Corporation since their respective formations in 1992. Mr. Perelman has been Chairman of the Board and
Chief Executive Officer of MacAndrews & Forbes and various of its affiliates since 1980. Mr. Perelman is also
Chairman of the Executive Committee of the Board of Directors of M&F Worldwide Corp. ("M&F Worldwide")
and Chairman of the Board of Directors of Panavision Inc. ("Panavision"). Mr. Perelman is also a Director of the
following companies which file reports pursuant to the Exchange Act: M&F Worldwide and Panavision.
Mr. Stahl (49) has been President and Chief Executive Officer of the Company and Products Corporation
since February 2002 and a Director of the Company and Products Corporation since March 2002. Mr. Stahl served
as President and Chief Operating Officer of The Coca-Cola Company ("Coca-Cola") from February 2000 to March
2001. Prior to that, Mr. Stahl held various senior executive positions at Coca-Cola where he began his career in
1979. Mr. Stahl is also a Director of the United Negro College Fund and a trustee of Claremont University.
Mr. Greeff (46) has been Executive Vice President and Chief Financial Officer of the Company and of
Products Corporation since May 2000. From September 1998 to May 2000, he was Managing Director, Fixed
Income Global Loans, and Co-head of Leverage Finance at Salomon Smith Barney Inc. From January 1994 until
August 1998, Mr. Greeff was Managing Director, Global Loans and Head of Leverage and Acquisition Finance at
Citibank N.A.
Mr. Shapiro (61) has been Executive Vice President and Chief Administrative Officer of the Company
since August 2001 and of Products Corporation since September 2001. From June 1998 until July 2001, he was
Executive Vice President and Chief Administrative Officer of Sunbeam Corporation ("Sunbeam") and The Coleman
Company, Inc. ("Coleman"). Mr. Shapiro served as a Director of Coleman from June 1998 until July 2001. Mr.
Shapiro previously held the position of Executive Vice President of Coleman from July 1997 until its acquisition by
Sunbeam in March 1998. From January 1994, before joining Coleman, he was Executive Vice President and Chief
Administrative Officer of Marvel Entertainment Group, Inc. Mr. Shapiro is a member of the Board of Directors of
Toll Brothers, Inc., which files reports pursuant to the Exchange Act.
31
Mr. Drapkin (54) has been a Director of the Company and of Products Corporation since their respective
formations in 1992. He has been Vice Chairman of the Board of MacAndrews & Forbes and various of its affiliates
since 1987. Mr. Drapkin was a partner in the law firm of Skadden, Arps, Slate, Meagher & Flom for more than five
years prior to 1987. Mr. Drapkin is also a Director of the following companies which file reports pursuant to the
Exchange Act: Anthracite Capital, Inc., BlackRock Asset Investors, The Molson Companies Limited, Panavision,
Playboy Enterprises, Inc., SIGA Technologies, Inc. and Warnaco Group, Inc.
Professor Feldberg (60) has been a Director of the Company since February 1997. Professor Feldberg has
been the Dean of Columbia Business School, New York City, for more than the past five years. Professor Feldberg
is also a Director of the following companies which file reports pursuant to the Exchange Act: Federated
Department Stores, Inc., PRIMEDIA Inc. ("PRIMEDIA"), Sappi Limited and Select Medical Corporation. In
addition, UBS Global Asset Management (US) Inc. (formerly known as Brinson Advisors, Inc.) is a wholly-owned
subsidiary of UBS AG and Professor Feldberg is also a director or trustee of 34 investment companies (consisting of
55 portfolios) for which UBS Global Asset Management, Inc., UBS Paine Webber Inc. or one of its affiliates serves
as investment advisor, sub-advisor or manager (the "UBS Investment Companies"). In addition to being a member
of the Company's Audit Committee, Professor Feldberg also serves as Chairman of the Audit Committee of
PRIMEDIA and is a member of the Audit Committee of each of the UBS Investment Companies.
Mr. Gittis (68) has been a Director of the Company and of Products Corporation since their respective
formations in 1992 and Vice Chairman of Products Corporation since June 2002. He has been Vice Chairman of the
Board of MacAndrews & Forbes and various of its affiliates since 1985. Mr. Gittis is also a Director of the
following companies which file reports pursuant to the Exchange Act: Jones Apparel Group, Inc., Loral Space &
Communications Ltd. and M&F Worldwide.
Mr. Jordan (67) has been a Director of the Company since June 1996. Mr. Jordan has been a Senior
Managing Director of Lazard Freres & Co., LLC since January 2000. Since January 2000, Mr. Jordan has been Of
Counsel at the Washington, D.C. law firm of Akin Gump Strauss Hauer & Feld LLP and was a Senior Partner of
such firm for more than five years prior thereto. Mr. Jordan is also a Director of the following companies which file
reports pursuant to the Exchange Act: America OnLine Latin America, Inc., American Express Company, Asbury
Automotive Group, Inc., Callaway Golf Company, Clear Channel Communications, Inc., Dow Jones & Company,
J.C. Penney Company, Sara Lee Corporation and Xerox Corporation. He is also a trustee of Howard University.
Mr. Landau (72) has been a Director of the Company since June 1996. Prior to his retirement in January
2003, Mr. Landau was Of Counsel at the law firm of Wolf, Block, Schorr and Solis-Cohen LLP since February
1998, and was a Senior Partner of Lowenthal, Landau, Fischer & Bring, P.C., a predecessor to such firm, for more
than five years prior to that date. He has been a Director of Products Corporation since June 1992.
Ms. Robinson (49) has been a Director of the Company since June 1996. Ms. Robinson has been Chairman
of Robinson Lerer & Montgomery, LLC, a New York City strategic communications consulting firm, since May
1996. Ms. Robinson was Chief Executive Officer of Robinson Lerer & Montgomery from May 1996 until January
2002. In March 2000, Robinson Lerer & Montgomery was acquired by Young & Rubicam Inc. ("Y&R") and Ms.
Robinson has served as Vice Chairman of Y&R since March 2000. In October 2000, Y&R was acquired by the
WPP Group plc. For more than five years prior to May 1996, she was Chairman of the Board and Chief Executive
Officer of Robinson Lerer Sawyer Miller Group or its predecessors. Ms. Robinson is also a member of the NYU
Hospitals Center Board of Trustees.
Mr. Se mel (59) has been a Director of the Company since June 1996. Mr. Semel has been Chairman and
Chief Executive Officer of Yahoo! Inc. ("Yahoo!") since May 2001. Mr. Semel has been Chairman of Windsor
Media, Inc., Los Angeles, a diversified media company, since October 1999. He was Chairman of the Board and
Co-Chief Executive Officer of the Warner Bros. Division of Time Warner Entertainment LP ("Warner Brothers"),
Los Angeles, from March 1994 until October 1999 and of Warner Music Group, Los Angeles, from November 1995
until October 1999. For more than ten years prior to that he was President of Warner Brothers or its predecessor,
Warner Bros. Inc. Mr. Semel is also a Director of the following companies which file reports pursuant to the
Exchange Act: Yahoo! and Polo Ralph Lauren Corporation.
32
Ms. Stewart (61) has been a Director of the Company since June 1996. Ms. Stewart is the Chairman of the
Board and Chief Executive Officer of Martha Stewart Living Omnimedia, Inc., New York City (formerly Martha
Stewart Living Omnimedia, LLC, New York City). She is an author, founder of the magazine "Martha Stewart
Living," creator of a syndicated daily television series, a syndicated newspaper column and a catalog company, and
has been a lifestyle consultant and lecturer for more than twenty years. Ms. Stewart is also a Director of Martha
Stewart Living Omnimedia, Inc., which files reports pursuant to the Exchange Act.
Compensation of Directors
Directors who currently are not receiving compensation as officers or employees of the Company or any of
its affiliates ("Non-Employee Directors") are paid an annual retainer fee of $35,000, payable in quarterly
installments, and a fee of $1,000 for each meeting of the Board of Directors or any committee thereof that they
attend. In addition, on December 17, 2002, the Compensation and Stock Plan Committee of the Board of Directors
(the "Compensation Committee"), consisting of Messrs. Gittis, Drapkin, Landau and Semel, granted awards under
the Amended Stock Plan ("Awards") of options to purchase 7,500 shares of the Company's Class A Common Stock
to each of the Company's Non-Employee Directors, which options consist of non-qualified options having a term of
10 years, vest 25% on each anniversary of the grant date and will become 100% vested on the fourth anniversary of
the grant date, and have an exercise price equal to $3.45, the per share closing price on the NYSE of the Company's
Class A Common Stock on the grant date.
Effective January 1, 2003, in recognition of their increased responsibilities, members of the Audit
Committee, consisting of Messrs. Feldberg and Landau (Chairman) and Ms. Robinson, are paid an annual Audit
Committee retainer fee of $10,000, in addition to any annual retainer fee for Board membership, and a per meeting
fee of $1,500 for each meeting of the Audit Committee that they attend.
On December 17, 2002, the Company's Board of Directors appointed a special committee of independent
directors (the "Special Committee") to evaluate MacAndrews & Forbes' proposal for the M&F Investments. The
Board designated Messrs. Feldberg and Landau and Ms. Robinson as the members of the Special Committee, which
was authorized to evaluate the proposed M&F Investments between the Company and MacAndrews & Forbes. The
Special Committee retained independent legal counsel and an investment advisor to assist in its evaluation. The
Special Committee held 10 meetings between December 17, 2002 and January 31, 2003. On January 31, 2003, the
Compensation Committee approved a one-time retainer fee of $25,000 per member of the Special Committee, as
well as a per meeting fee of $2,000 for each meeting of the Special Committee that they attended.
33
Item 11. Executive Compe nsation
The following table sets forth information for the years indicated concerning the compensation awarded to,
earned by or paid to the persons who served as Chief Executive Officer of the Company during 2002 and the four
most highly paid executive officers (see footnote (a) below), other than the Chief Executive Officer, who served as
executive officers of the Company during 2002 (collectively, the "Named Executive Officers"), for services
rendered in all capacities to the Company and its subsidiaries during such periods.
Summary Compe nsation Table
Annual Compensation (a)
Long-Term
Compensation
Awards
Name And Principal Position
Jack L. Stahl .........................................
Year
2002
Salary
($)
1,125,000
Bonus
($)
1,300,000
Other Annual
Compensation
($)
82,999
Restricted
Stock
Awards
($) (b)
3,060,000
Securities
Unde rlying
Options
400,000
All Other
Annual
Compensation
($)
3,966,746
President and Chief
Executive Officer(c)
Douglas H. Greeff .................................
Executive Vice President
and Chief Financial Officer (d)
Paul E. Shapiro ......................................
Executive Vice President and
Chief Administrative Officer (e)
Jeffrey M. Nugent .................................
Former President and
2002
2001
2000
2002
2001
811,365
731,375
422,500
500,000
207,692
600,960
511,200
450,000
225,000
500,000
16,670
16,513
7,868
72,092
5,671
183,600
153,000
--
--
153,000
75,000
50,000
100,000
200,000
100,000
8,974
8,786
--
--
--
2002
2001
2000
170,000
1,150,000
1,000,000
--
(f)
500,000
31,986
333,078
430,948
-
306,000
--
--
75,000
100,000
1,632,593
194,953
489,454
Chief Executive Officer (f)
____________________
(a) The amounts shown in Annual Compensation for 2002, 2001 and 2000 reflect salary, bonus and other annual
compensation (including perquisites and other personal benefits valued in excess of $50,000) and amounts
reimbursed for payment of taxes awarded to, earned by or paid to the persons listed for services rendered to the
Company and its subsidiaries. For the periods reported, the Company had an Executive Bonus Plan in which
executives participated (including Messrs. Stahl, Greeff and Shapiro) (see "Employment Agreements and
Termination of Employment Arrangements"). The Executive Bonus Plan provided for payment of cash
compensation upon the achievement of predetermined business and personal performance objectives during the
calendar year which are established by the Compensation Committee. The Company did not have any
"executive officers" during 2002 other than Messrs. Stahl, Greeff, Shapiro and Nugent. Accordingly, for 2002
the Company is reporting the compensation of Messrs. Stahl, Greeff, Shapiro and Nugent. On February 19,
2002, the Company announced its appointment of Jack L. Stahl as its President and Chief Executive Officer.
Mr. Shapiro's compensation is reported for 2002 and 2001 only because he did not serve as an executive officer
of the Company prior to 2001. Effective February 14, 2002, Jeffrey M. Nugent, the Company's former
President and Chief Executive Officer, ceased employment with the Company.
(b) See footnotes (c), (d), (e) and (f) below for information concerning the number, value and vesting schedules on
restricted stock awards to the Named Executive Officers under the Amended Stock Plan. The options granted to
the Named Executive Officers during 2002 pursuant to the Amended Stock Plan are discussed below under
"Option Grants in the Last Fiscal Year."
(c) Mr. Stahl became President and Chief Executive Officer of the Company during February 2002. Mr. Stahl
received a guaranteed bonus of $1,300,000 in respect of 2002 pursuant to the terms of his employment
agreement. The amount shown for Mr. Stahl under Other Annual Compensation for 2002 includes $82,999 in
respect of gross ups for taxes on imputed income arising out of (i) personal use of a Company-provided
automobile, (ii) premiums paid or reimbursed by the Company in respect of life insurance, (iii) reimbursements
for mortgage principal and interest payments pursuant to Mr. Stahl's employment agreement and (iv) relocation
expenses paid or reimbursed by the Company in 2002. The amount shown under All Other Compensation for
2002 reflects (i) $7,350 in Company-paid relocation expenses, (ii) $13,081 in respect of life insurance
premiums, (iii) $79,315 of additional compensation in respect of interest and principal payments on a mortgage
loan which Products Corporation made to Mr. Stahl to purchase a principal residence in the New York
34
metropolitan area pursuant to his employment agreement (See "Employment Agreements and Termination of
Employment Arrangements"), (iv) $6,000 in respect of matching contributions under the Revlon Employees'
Savings, Investment and Profit Sharing Plan, (v) $15,000 in respect of matching contributions under the Revlon
Excess Savings Plan for Key Employees, and (vi) $3,846,000 for imputed income in connection with receipt of
an Award of restricted stock reflected in the Summary Compensation Table as to which he made an election
pursuant to Section 83(b) of the Internal Revenue Code. On February 17, 2002 (the "Stahl Grant Date"), Mr.
Stahl was awarded a grant of 470,000 shares of restricted stock under the Amended Stock Plan and 530,000
shares of restricted stock under the Revlon, Inc. 2002 Supplemental Stock Plan (the "Supplemental Stock
Plan"). The value of the restricted stock Awards to Mr. Stahl reflected in the table are based on $3.06, the per
share closing price of the Company's Class A Common Stock on the NYSE on December 31, 2002. Provided
Mr. Stahl remains continuously employed by the Company, his 2002 restricted stock Award will vest as to one-
third of the restricted shares on the day after which such 20-day average of the closing price of the Company's
Class A Common Stock on the NYSE equals or exceeds $20.00 per share, an additional one-third of such
restricted shares will vest on the day after which such 20-day average closing price equals or exceeds $25.00
per share and the balance will vest on the day after which such 20-day average closing price equals or exceeds
$30.00 per share, provided (i) subject to clause (ii) below, no portion of Mr. Stahl's restricted stock Award will
vest until the second anniversary of the Stahl Grant Date, unless such 20-day average closing price has equaled
or exceeded $25.00 per share, (ii) all of the shares of restricted stock awarded to Mr. Stahl will vest immediately
in the event of a "change in control" as defined in Mr. Stahl's restricted stock agreement and (iii) on June 18,
2004, restrictions shall lapse as to 250,000 shares of such restricted stock, on the fourth anniversary of the Stahl
Grant Date restrictions shall lapse as to an additional 250,000 shares of such restricted stock and on the fifth
anniversary of the Stahl Grant Date, restrictions shall lapse as to 500,000 shares of such restricted stock as to
which restrictions had not previously lapsed. In the event that, prior to the fifth anniversary of the Stahl Grant
Date, and subject to clause (ii) of the prior sentence, Mr. Stahl's employment with the Company terminates (a)
as a result of Mr. Stahl's disability, (b) is terminated by Mr. Stahl with "good reason" or (c) is terminated by the
Company other than for "cause" (as each such term is defined or described in Mr. Stahl's employment
agreement), restrictions shall lapse with respect to an additional number of shares of restricted stock, if any,
such that the aggregate number of shares of restricted stock as to which restrictions shall have lapsed will equal
the greater of (i) 250,000 and (ii) the product of (X) 1,000,000 and (Y) a fraction, the numerator of which is the
number of full calendar months during which Mr. Stahl was employed after the Stahl Grant Date (disregarding
service prior to March 1, 2002) and the denominator of which is 60. In addition, if Mr. Stahl's employment is
terminated by Mr. Stahl for "good reason" or is terminated by the Company other than for "cause" or
"disability" (as each such term is defined or described in Mr. Stahl's employment agreement) during the 120-
day period immediately preceding the date of a "change in control" (as defined in Mr. Stahl's restricted stock
agreement), then the shares of restricted stock previously forfeited upon such termination of employment will
be reinstated and the restrictions relating thereto will lapse and such shares will be deemed fully vested as of the
date of the change in control. In the event that cash or any in-kind distributions are made in respect of the
Company's Common Stock prior to the lapse of the restrictions relating to any of Mr. Stahl's restricted stock as
to which the restrictions have not lapsed, such dividends will be held by the Company and paid to Mr. Stahl
when, and if, the restrictions on such restricted stock lapse (other than the subscription rights that the Company
intends to offer in the Rights Offering, which Mr. Stahl has waived).
(d) Mr. Greeff served as Executive Vice President and Chief Financial Officer of the Company during 2000, 2001
and 2002. In 2002, Mr. Greeff received a bonus of $600,960, of which $200,960 was paid pursuant to the terms
of his employment agreement as a special bonus in respect of a loan payment (see "Employment Agreements
and Termination of Employment Arrangements") and the balance of $400,000 was a discretionary bonus paid in
respect of 2002 pursuant to the Revlon Executive Bonus Plan. The amount shown for Mr. Greeff under Other
Annual Compensation for 2002 includes $16,670 in respect of gross ups for taxes on imputed income arising
out of personal use of a Company-provided automobile. The amount shown under All Other Compensation for
2002 reflects (i) $2,974 in respect of life insurance premiums and (ii) $6,000 in respect of matching
contributions under the Revlon Employees' Savings, Investment and Profit Sharing Plan. On September 17,
2002 (the "2002 Grant Date"), Mr. Greeff was awarded a grant of 60,000 shares of restricted stock under the
Amended Stock Plan. The value of the 2002 restricted stock Award to Mr. Greeff reflected in the table is based
on $3.06, the per share closing price of the Company's Class A Common Stock on the NYSE on December 31,
2002. Provided Mr. Greeff remains continuously employed by the Company, his 2002 restricted stock Award
will vest as to one-third of the restricted shares on the day after which the 20-day average of the closing price of
35
the Company's Class A Common Stock on the NYSE equals or exceeds $20.00 per share, an additional one-
third of such restricted shares will vest on the day after which such 20-day average closing price equals or
exceeds $25.00 per share and the balance will vest on the day after which such 20-day average closing price
equals or exceeds $30.00 per share, provided (i) subject to clause (ii) below, no portion of Mr. Greeff's 2002
restricted stock Award will vest until the second anniversary of the 2002 Grant Date, (ii) all of the shares of
restricted stock awarded to Mr. Greeff in 2002 will vest immediately in the event of a "change in control" (as
defined in Mr. Greeff's restricted stock agreement) and (iii) all of the shares of restricted stock granted to Mr.
Greeff in 2002 which have not previously vested will fully vest on the third anniversary of the 2002 Grant Date.
No dividends will be paid on Mr. Greeff's unvested restricted stock granted in 2002. Mr. Greeff received a
bonus of $511,200 in respect of 2001, of which $211,200 was paid pursuant to the terms of his employment
agreement as a special bonus in respect of a loan payment (see "Employment Agreements and Termination of
Employment Arrangements") and the balance of $300,000 was paid in respect of 2001 pursuant to the Revlon
Executive Bonus Plan as a short-term cash bonus in recognition of the Company's successful refinancing of its
credit agreement in 2001 with a new 2001 Credit Agreement and issuing Products Corporation's new 12%
Senior Secured Notes. $150,000 of Mr. Greeff's bonus in respect of 2001 was paid in 2002 and the remaining
$150,000 was paid in 2003. The amount shown for Mr. Greeff under Other Annual Compensation for 2001
includes $16,513 in respect of gross ups for taxes on imputed income arising out of personal use of a Company-
provided automobile. The amounts shown under All Other Compensation for 2001 reflect (i) $4,436 in respect
of life insurance premiums and (ii) $4,350 in respect of matching contributions under the Revlon Employees'
Savings, Investment and Profit Sharing Plan. On June 18, 2001 (the "2001 Grant Date"), Mr. Greeff was
awarded a grant of 50,000 shares of restricted stock under the Amended Stock Plan. The value of the 2001
restricted stock Award to Mr. Greeff reflected in the table is based on $3.06, the per share closing price of the
Company's Class A Common Stock on the NYSE on December 31, 2002. Provided Mr. Greeff remains
continuously employed by the Company, his 2001 restricted stock Award will vest as to one-third of the
restricted shares 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 $20.00 per share, an additional one-third of such restricted
shares will vest on the day after which such 20-day average closing price equals or exceeds $25.00 per share
and the balance will vest on the day after which such 20-day average closing price equals or exceeds $30.00 per
share, provided (i) subject to clause (ii) below, no portion of Mr. Greeff's 2001 restricted stock Award will vest
until the second anniversary of the 2001 Grant Date, (ii) all of the shares of restricted stock awarded to Mr.
Greeff in 2001 will vest immediately in the event of a "change in control" (as defined in Mr. Greeff's restricted
stock agreement), and (iii) all of the shares of restricted stock awarded to Mr. Greeff in 2001 which have not
previously vested will fully vest on the third anniversary of the 2001 Grant Date. No dividends will be paid on
Mr. Greeff's unvested restricted stock granted in 2001. Mr. Greeff received a bonus of $450,000 in respect of
2000 pursuant to the terms of his employment agreement. The amount shown for Mr. Greeff under Other
Annual Compensation for 2000 includes $7,868 in respect of gross ups for taxes on imputed income arising out
of personal use of a Company-provided automobile.
(e) Mr. Shapiro served as Executive Vice President and Chief Administrative Officer of the Company during 2001
and 2002. Mr. Shapiro received a discretionary bonus of $225,000 in respect of 2002 pursuant to the Revlon
Executive Bonus Plan. The $72,092 shown for Mr. Shapiro under Other Annual Compensation for 2002
includes (i) $17,014 in respect of gross ups for taxes on imputed income arising out of personal use of a
Company-provided automobile, (ii) $18,908 in respect of health and country club membership reimbursements
and (iii) $20,450 relating to personal use of a Company car. Mr. Shapiro received a bonus of $500,000 in
respect of 2001 pursuant to the terms of his employment agreement. The amount shown for Mr. Shapiro under
Other Annual Compensation for 2001 includes $5,671 in respect of gross ups for taxes on imputed income
arising out of personal use of a Company-provided automobile. On the 2001 Grant Date, Mr. Shapiro was
awarded a grant of (subject to his election as an executive officer of the Company) 50,000 shares of restricted
stock under the Amended Stock Plan. The value of the 2001 restricted stock Award to Mr. Shapiro reflected in
the table is based on $3.06, the per share closing price of the Company's Class A Common Stock on the NYSE
on December 31, 2002. Provided Mr. Shapiro remains continuously employed by the Company, his 2001
restricted stock Award will vest as to one-third of the restricted shares 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 $20.00
per share, an additional one-third of such restricted shares will vest on the day after which such 20-day average
closing price equals or exceeds $25.00 per share and the balance will vest on the day after which such 20-day
average closing price equals or exceeds $30.00 per share, provided (i) subject to clause (ii) below, no portion of
36
Mr. Shapiro's 2001 restricted stock Award will vest until the second anniversary of the 2001 Grant Date, (ii) all
of the shares of restricted stock awarded to Mr. Shapiro in 2001 will vest immediately in the event of a "change
in control" (as defined in Mr. Shapiro's restricted stock agreement), and (iii) all of the shares of restricted stock
granted to Mr. Shapiro in 2001 which have not previously vested will fully vest on the third anniversary of the
2001 Grant Date. Mr. Shapiro will be considered to have been continuously employed by the Company if his
employment agreement is not extended beyond its initial term, which expires on July 31, 2003, or his
employment is terminated prior to June 18, 2003, unless (i) Mr. Shapiro terminates his employment other than
for "good reason" (as such term is defined in the Revlon Executive Severance Policy) or (ii) he is terminated by
the Company for "cause" (as such term is defined in Mr. Shapiro's employment agreement). No dividends will
be paid on Mr. Shapiro's unvested restricted stock granted in 2001.
(f) Mr. Nugent served as President and Chief Executive Officer of the Company during all of 2000 and 2001 and
part of 2002. Mr. Nugent ceased employment with the Company effective February 14, 2002 and was not
entitled to a bonus in respect of 2001 or 2002. The amount shown for Mr. Nugent under Other Annual
Compensation for 2002 includes $31,986 in respect of gross ups for taxes on imputed income arising out of (i)
personal use of a Company-provided automobile, (ii) premiums paid or reimbursed by the Company in respect
of life insurance and (iii) reimbursements for mortgage principal and interest payments pursuant to Mr.
Nugent's employment agreement. The amount shown under All Other Compensation for 2002 includes (i)
$33,933 in respect of life insurance premiums, (ii) $11,801 of additional compensation in respect of interest and
principal payments on a bank loan obtained by Mr. Nugent to purchase a principal residence in the New York
metropolitan area pursuant to his employment agreement and (iii) $1,586,859 pursuant to Mr. Nugent's
separation agreement. See "Employment Agreements and Termination of Employment Arrangements." The
amount shown for Mr. Nugent under Other Annual Compensation for 2001 includes $333,078 in respect of
gross ups for taxes on imputed income arising out of (i) personal use of a Company-provided automobile, (ii)
premiums paid or reimbursed by the Company in respect of life insurance, (iii) reimbursements for mortgage
principal and interest payments pursuant to Mr. Nugent's employment agreement and (iv) relocation expenses
paid or reimbursed by the Company in 2001. The amount shown under All Other Compensation for 2001
reflects (i) $15,289 in respect of Company-paid relocation expenses, (ii) $38,058 in respect of life insurance
premiums and (iii) $141,606 of additional compensation in respect of interest and principal payments on a bank
loan obtained by Mr. Nugent to purchase a principal residence in the New York metropolitan area pursuant to
his employment agreement. On the 2001 Grant Date, Mr. Nugent was awarded a grant of 100,000 shares of
restricted stock under the Amended Stock Plan. The value of the 2001 restricted stock Award to Mr. Nugent
reflected in the table is based on $3.06, the per share closing price of the Company's Class A Common Stock on
the NYSE on December 31, 2002. Such restricted shares were cancelled upon Mr. Nugent's resignation. Mr.
Nugent received a bonus of $500,000 in respect of 2000 pursuant to the terms of his employment agreement.
The amount shown for Mr. Nugent under Other Annual Compensation for 2000 includes $430,948 in respect of
gross ups for taxes on imputed income arising out of (i) personal use of a Company-provided automobile, (ii)
premiums paid or reimbursed by the Company in respect of life insurance, (iii) reimbursements for mortgage
principal and interest payments pursuant to Mr. Nugent's employment agreement and (iv) relocation expenses
paid or reimbursed by the Company in 2000. The amount shown under All Other Compensation for 2000
reflects (i) $17,369 in respect of life insurance premiums, (ii) $365,880 in respect of Company-paid relocation
expenses and (iii) $106,205 of additional compensation in respect of interest and principal payments on a bank
loan obtained by Mr. Nugent to purchase a principal residence in the New York metropolitan area pursuant to
his employment agreement.
37
OPTION GRANTS IN THE LAST FISCAL YEAR
During 2002, the following grants of stock options were made pursuant to the Amended Stock Plan to the
Named Executive Officers:
Name
Jack L. Stahl..................................
Douglas H. Greeff .........................
Paul E. Shapiro..............................
Number Of
Securities
Unde rlying
Options Granted
(#)
400,000
50,000
25,000
100,000
100,000
Jeffrey M. Nugent .........................
--
Individual Grants
Percent Of
Total Options
Granted To
Employees In
Fiscal Year
12.0%
1.5%
0.75%
3.0%
3.0%
--
Exercise Or
Base Price
($/Sh)
3.82
3.82
3.78
4.05
3.78
--
Expiration
Date
2/17/12
2/15/12
9/17/12
8/8/12
9/17/12
--
Grant
Date
Value (a)
Grant
Date
Present
Value
($)
1,173,080
130,279
61,521
273,245
246,083
--
The option granted during 2002 under the Amended Stock Plan to Mr. Stahl was awarded on the Stahl
Grant Date pursuant to his employment agreement, consists of non-qualified options having a term of 10 years and
has an exercise price equal to $3.82, the per share closing price on the NYSE of the Company's Class A Common
Stock on the Stahl Grant Date, as indicated on the table above. Provided Mr. Stahl continues his employment with
the Company, such options will become exercisable as to one-half of the shares 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 per
share and the balance will vest on the day after which such 20-day average closing price equals or exceeds $40.00
per share, provided (i) all of the shares underlying such option will vest immediately in the event of a "change in
control" (as defined in Mr. Stahl's stock option agreement) and (ii) all of the shares underlying such option will fully
vest on the fifth anniversary of the Stahl Grant Date, provided, however, that subject to clause (i) above, in the event
that Mr. Stahl's employment with the Company terminates as a result of (a) Mr. Stahl's "disability," (b) is terminated
by Mr. Stahl with "good reason" or (c) is terminated by the Company other than for "cause" (as each such term is
defined or described in Mr. Stahl's employment agreement), the option will become exercisable as of the date of
such termination with respect to an additional number of option shares, if any, such that the aggregate number of
option shares that have become exercisable pursuant to his stock option agreement will equal the greater of (X)
100,000 and (Y) the product of (A) 400,000 and (B) a fraction, the numerator of which is the number of full
calendar months during which Mr. Stahl was employed after the Stahl Grant Date (disregarding service prior to
March 1, 2002) and the denominator of which is 60. Messrs. Shapiro and Greeff were each awarded a grant of
options on the 2002 Grant Date which consist of non-qualified options having a term of 10 years, will vest 33.3% on
each anniversary of the 2002 Grant Date, will vest immediately in the event of a "change in control" (as defined in
each of Messrs. Shapiro's and Greeff's stock option agreements), will become 100% vested on the third anniversary
of the 2002 Grant Date and have an exercise price equal to $3.78, the per share closing price on the NYSE of the
Company's Class A Common Stock on the 2002 Grant Date, as indicated in the table above. The other options
granted to Mr. Greeff in 2002 under the Amended Stock Plan were awarded on February 15, 2002 pursuant to his
amended employment agreement, consist of non-qualified options having a term of 10 years, vest 25% on each
anniversary of the grant date, will become 100% vested on the fourth anniversary of the grant date and have an
exercise price equal to $3.82, the per share closing price on the NYSE of the Company's Class A Common Stock on
such grant date, as indicated in the table above. The other options granted to Mr. Shapiro in 2002 under the
Amended Stock Plan were awarded on August 8, 2002 pursuant to his employment agreement, consist of non-
qualified options having a term of 10 years, vest 25% on each anniversary of the grant date, will become 100%
vested on the fourth anniversary of the grant date and have an exercise price equal to $4.05, the per share closing
price on the NYSE of the Company's Class A Common Stock on such grant date, as indicated in the table above. On
the 2002 Grant Date, the Company also granted an option to purchase 100,000 shares of the Company's Class A
Common Stock pursuant to the Amended Stock Plan to Mr. Perelman, the Chairman of the Board of Directors of the
Company. Such option will vest 33.3% on each anniversary of the 2002 Grant Date, will vest immediately in the
38
event of a "change in control" (as defined in Mr. Perelman's stock option agreement), will become 100% vested on
the third anniversary of the 2002 Grant Date and has an exercise price of $3.78, the per share closing price on the
NYSE of the Company's Class A Common Stock on the 2002 Grant Date. Also on the 2002 Grant Date, the
Company granted 50,000 restricted shares of Class A Common Stock to Mr. Perelman pursuant to the Amended
Stock Plan. Provided Mr. Perelman continues to provide services as a director to the Company, such 2002 restricted
stock Award will vest as to one-third of the restricted shares 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 $20.00 per share, an additional one-
third of such restricted shares will vest on the day after which such 20-day average closing price equals or exceeds
$25.00 per share and the balance will vest on the day after which such 20-day average closing price equals or
exceeds $30.00 per share, provided (i) subject to clause (ii) below, no portion of such restricted stock Award will
vest until the second anniversary of 2002 Grant Date, (ii) all of the shares of such restricted stock Award will vest
immediately in the event of a "change in control" (as defined in Mr. Perelman's restricted stock agreement), and (iii)
all of the shares of such restricted stock Award will fully vest on the third anniversary of the 2002 Grant Date.
____________________
(a) Grant Date Present Values were calculated using the Black-Scholes option pricing model. The model as applied
used the Stahl Grant Date with respect to options granted to Mr. Stahl on such date, February 15, 2002 with
respect to options granted to Mr. Greeff on such date, August 8, 2002 with respect to options granted to Mr.
Shapiro on such date and the 2002 Grant Date with respect to options granted to Messrs. Greeff and Shapiro on
such date. Stock option models require a prediction about the future movement of stock price. The following
assumptions were made for purposes of calculating Grant Date Present Values: (i) a risk-free rate of return of
4.66% with respect to options granted to Mr. Stahl on the Stahl Grant Date, 4.66% with respect to options
granted to Mr. Greeff on February 15, 2002, 3.96% with respect to options granted to Mr. Shapiro on August 8,
2002 and 3.49% with respect to options granted to Messrs. Greeff and Shapiro on the 2002 Grant Date, which
were the rates as of the applicable grant dates for the U.S. Treasury Zero Coupon Bond issues with a remaining
term similar to the expected term of the options; (ii) stock price volatility of 71% based upon the volatility of
the stock price of the Company's Class A Common Stock; (iii) a constant dividend rate of zero percent; and (iv)
that the options normally would be exercised on the final day of their seventh year after grant. No adjustments
to the theoretical value were made to reflect the waiting period, if any, prior to vesting of the stock options or
the transferability (or restrictions related thereto) of the stock options. The real value of the options in the table
depends upon the actual performance of the Company's Class A Common Stock during the applicable period
and upon when they are exercised.
AGGREGATED OPTION EXERCISES IN LAST
FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
The following chart shows the number of stock options exercised during 2002 and the 2002 year-end value
of the stock options held by the Named Executive Officers:
Name
Shares
Acquired On
Exercise
During 2002
Value
Realized
During 2002
Number Of Securities
Unde rlying Unexercised
Options At Fiscal
Year-End
Exercisable/Unexercisable
At December 31, 2002 (#)
Value Of In-The-
Money Options
At Fiscal Year-End
Exercisable/
Unexercisable
At December 31,
2002 (a) ($)
--
--
--
--
Jack L. Stahl........................................
Douglas H. Greeff ...............................
Paul E. Shapiro....................................
Jeffrey M. Nugent ...............................
____________________
(a) Amounts shown represent the difference between the exercise price of the options (exercisable or unexercisable,
as the case may be) and the market value of the underlying shares of the Company's Class A Common Stock at
year end, calculated using $3.06, the December 31, 2002 per share closing price on the NYSE of the Company's
Class A Common Stock. The actual value, if any, an executive may realize upon exercise of a stock option
--/400,000
62,500/162,500
25,000/275,000
--/--
--
--
--
--
--
--
--
--
39
depends upon the amount by which the market price of shares of the Company's Class A Common Stock
exceeds the exercise price per share when the stock options are exercised.
Employment Agreements and Termination of Employment Arrange ments
Each of Messrs. Stahl, Greeff and Shapiro has a current executive employment agreement with Products
Corporation. Mr. Stahl's employment agreement provides that he will serve as President and Chief Executive Officer
at a base salary of not less than $1,300,000 per annum, and that he receive a bonus of not less than $1,300,000 in
respect of 2002 (which bonus was paid in February 2003) and grants of 1,000,000 shares of restricted stock and
400,000 options during 2002 (which grants were made on the Stahl Grant Date). At any time after February 28,
2002, Products Corporation may terminate Mr. Stahl's employment by 36 months' prior written notice of non-
renewal.
Mr. Greeff's employment agreement with Products Corporation, as amended, provides that he will serve as
Chief Financial Officer at a base salary of not less than $650,000 per annum and that he receive a grant of (i) 50,000
restricted shares in 2001 (which grant was made on the 2001 Grant Date), (ii) 50,000 options in 2001 (which grant
was made on March 26, 2001) and (iii) 50,000 options in 2002 (which grant was made on February 15, 2002). At
any time after May 8, 2003, Products Corporation may terminate Mr. Greeff's employment by 24 months' prior
written notice of non-renewal. During any such period after notice of non-renewal, Mr. Greeff would be deemed an
employee at will and would be eligible for severance under Products Corporation's Executive Severance Policy (see
"Executive Severance Policy").
Mr. Shapiro's employment agreement with Products Corporation provides that he will serve as Executive
Vice President and Chief Administrative Officer at a base salary of not less than $500,000 per annum and that he
receive a $500,000 bonus in respect of 2001 (which bonus was paid in 2002) and a grant of (i) 50,000 restricted
shares in 2001 (which grant was made on the 2001 Grant Date), (ii) 100,000 options in 2001 (which grant was made
on the 2001 Grant Date) and (iii) 100,000 options in 2002 (which grant was made on August 8, 2002). At any time
after July 31, 2003, either Products Corporation or Mr. Shapiro may terminate Mr. Shapiro's employment by
providing written notice of non-renewal.
Each of Messrs. Stahl's, Greeff's and Shapiro's employment agreement provides for participation in the
Revlon Executive Bonus Plan and other executive benefit plans on a basis equivalent to other senior executives of
the Company generally and for Company-paid supplemental disability insurance (except that Mr. Shapiro waived
Company-provided life insurance coverage). Mr. Stahl's agreement provides for Company-paid supplemental term
life insurance coverage with a death benefit of $10,000,000 during employment. The employment agreement for
each of Messrs. Stahl, Greeff and Shapiro provides for protection of Company confidential information and includes
a non-compete obligation.
Mr. Stahl's employment agreement provides that in the event of termination of the term by Mr. Stahl for
breach by the Company of a material provision of such agreement for "good reason" (as defined in Mr. Stahl's
employment agreement), or by the Company prior to February 28, 2005 (otherwise than for "cause" or "disability"
as each such term is defined or described in Mr. Stahl's employment agreement), Mr. Stahl would be entitled, at his
election, to severance pursuant to Products Corporation's Executive Severance Policy (see "Executive Severance
Policy") (other than the six-month limit on lump sum payments provided for in such policy, which six-month limit
provision would not apply to Mr. Stahl) or continued payments of base salary through February 28, 2005 and
continued participation in the Company's life insurance plan, which life insurance coverage is subject to a limit of
two years, and medical plans subject to the terms of such plans through February 28, 2005 or until Mr. Stahl were
covered by like plans of another company, and continued Company-paid supplemental term life insurance. In
addition, Mr. Stahl's employment agreement provides that if he remains employed by Products Corporation or its
affiliates until age 60, then upon any subsequent retirement he will be entitled to a supplemental pension benefit in a
sufficient amount so that his annual pension benefit from all qualified and non-qualified pension plans of Products
Corporation and its affiliates, as well as any such plans of Mr. Stahl's past employers or their affiliates (expressed as
a straight life annuity), equals $500,000. If Mr. Stahl's employment were to terminate on or after February 28, 2003
and prior to February 28, 2004, then he would receive 8.33% of the supplemental pension benefit otherwise payable
pursuant to his employment agreement and thereafter an additional 8.33% would accrue as of each February 28th on
which Mr. Stahl is still employed (but in no event more than would have been payable to Mr. Stahl under the
40
foregoing provision had he retired at age 60). Mr. Stahl would not receive any supplemental pension benefit and any
amounts then being paid for supplemental pension benefits would immediately cease if he were to terminate his
employment prior to March 1, 2005 other than for "good reason" (as defined in Mr. Stahl's employment agreement),
or if he were to breach such agreement or be terminated by the Company for "cause" (as defined in Mr. Stahl's
employment agreement). Mr. Stahl's employment agreement provides for continuation of group life insurance and
executive medical insurance coverage in the event of permanent disability.
Mr. Greeff's employment agreement provides that in the event of termination of the term by Mr. Greeff for
breach by the Company of a material provision of such agreement or failure of the Compensation Committee to
adopt and implement the recommendations of management with respect to stock option grants, or by the Company
prior to May 8, 2003 (otherwise than for "cause" as defined in Mr. Greeff's employment agreement or disability),
Mr. Greeff would be entitled, at his election, to severance pursuant to the Executive Severance Policy (see
"Executive Severance Policy") (other than the six-month limit on lump sum payments provided for in the Executive
Severance Policy, which six-month limit provision would not apply to Mr. Greeff) or continued payments of base
salary through May 8, 2005 and continued participation in the Company's life insurance plan, which life insurance
coverage is subject to a limit of two years, and medical plans subject to the terms of such plans through May 8, 2005
or until Mr. Greeff were covered by like plans of another company, and continued Company-paid supplemental
disability insurance. In addition, Mr. Greeff's agreement provides that if he remains employed by Products
Corporation or its affiliates until age 62, then upon any subsequent retirement he will be entitled to a supplemental
pension benefit in a sufficient amount so that his annual pension benefit from all qualified and non-qualified pension
plans of Products Corporation and its affiliates, as well as any such plans of Mr. Greeff's past employers or their
affiliates (expressed as a straight life annuity), equals $400,000. If Mr. Greeff's employment were to terminate on or
after January 31, 2003 and prior to January 31, 2004, then he would receive 27.27% of the supplemental pension
benefit otherwise payable pursuant to his employment agreement and thereafter an additional 9.09% would accrue
as of each January 31st on which Mr. Greeff is still employed (but in no event more than would have been payable
to Mr. Greeff under the foregoing provision had he retired at age 62). Mr. Greeff would not receive any
supplemental pension benefit and would be required to reimburse the Company for any supplemental pension
benefits received if he were to terminate his employment prior to May 8, 2003 other than for "good reason" (as
defined in Mr. Greeff's employment agreement), or if he were to breach such agreement or be terminated by the
Company for "cause" (as defined in Mr. Greeff's employment agreement). Mr. Greeff's employment agreement
provides for continuation of group life insurance and executive medical insurance coverage in the event of
permanent disability.
Mr. Shapiro's employment agreement provides that in the event of termination of the term (i) by Mr.
Shapiro for breach by the Company of a material provision of such agreement or failure of the Compensation
Committee to adopt and implement the recommendations of management with respect to stock option or restricted
stock grants, (ii) by the Company prior to July 31, 2003 (otherwise than for "cause" as defined in Mr. Shapiro's
employment agreement or disability), or (iii) by Mr. Shapiro or the Company upon providing notice of non-renewal
of the term at any time on or after July 31, 2003, Mr. Shapiro would be entitled to continued payments of base salary
and monthly payments of one-twelfth of the maximum annual bonus to which he would be eligible under his
employment agreement, continued participation in the Company's medical plans, subject to the terms of such plans,
and continued Company-paid supplemental disability insurance through the later of January 31, 2005 or 18 months
after the effective date of termination. In addition, Mr. Shapiro's employment agreement provides that at age 65 he
will be entitled to a supplemental pension benefit in a sufficient amount so that his annual pension benefit from all
qualified and non-qualified pension plans of Products Corporation and its affiliates, as well as any such plans of Mr.
Shapiro's past employers or their affiliates (expressed as a straight life annuity), equals $400,000. Mr. Shapiro would
not receive any supplemental pension benefit and would be required to reimburse the Company for any
supplemental pension benefits received if he were to terminate his employment prior to July 31, 2003 other than for
"good reason" (as defined in Mr. Shapiro's employment agreement), or if he were to breach the agreement or be
terminated by the Company for "cause" (as defined in Mr. Shapiro's employment agreement). Mr. Shapiro's
employment agreement provides for continuation of executive medical insurance coverage in the event of permanent
disability.
Mr. Stahl's employment agreement provides that he is entitled to a loan from Products Corporation to
satisfy state, local and federal income taxes (including any withholding taxes) incurred by him as a result of his
making an election under Section 83(b) of the Internal Revenue Code in connection with the 1,000,000 shares of
41
restricted stock which were granted to him by the Company on the Stahl Grant Date. Mr. Stahl received such a loan
from Products Corporation in the amount of $1,800,000 in March 2002. Interest on such loan is payable at the
applicable federal rate required to avoid imputation of income tax liability. The full principal amount of such loan
and all accrued interest is due and payable on the fifth anniversary of the Stahl Grant Date, provided that if Mr. Stahl
terminates his employment for "good reason" or the Company terminates him other than for "disability" or "cause"
(as each such term is defined or described in Mr. Stahl's employment agreement), the outstanding balance of such
loan and all accrued interest would be forgiven. Such loan is secured by a pledge of the 1,000,000 shares of
restricted stock which were granted to Mr. Stahl on the Stahl Grant Date and such loan and pledge are evidenced by
a Promissory Note and a Pledge Agreement, each dated March 13, 2002. Mr. Stahl's employment agreement also
provides that he is entitled to a mortgage loan to cover the purchase of a principal residence in the New York
metropolitan area and/or a Manhattan apartment, in the principal amount of $2,000,000, which loan was advanced
by Products Corporation to Mr. Stahl on May 20, 2002. The principal of the mortgage loan is repayable on a
monthly basis during the period from June 1, 2002 through and including May 1, 2032, with interest at the
applicable federal rate, or 90 days after Mr. Stahl's employment with the Company terminates, whichever occurs
earlier. Pursuant to his employment agreement, Mr. Stahl is entitled to receive additional compensation payable on
a monthly basis equal to the amount repaid by him in respect of interest and principal on the mortgage loan, plus a
gross up for any taxes resulting from such additional compensation. If during the term of his employment
agreement, Mr. Stahl terminates his employment for "good reason" or the Company terminates his employment
other than for "disability" or "cause" (as each such term is defined or described in Mr. Stahl's employment
agreement), the mortgage loan from the Company would be forgiven in its entirety.
Mr. Greeff's employment agreement provides that he is entitled to a loan from Products Corporation in the
amount of $800,000 (which loan he received in 2000), with the principal to be payable in five equal installments of
$160,000, plus interest at the applicable federal rate, on each of May 9, 2001, May 9, 2002 (which installments were
repaid) and the three successive anniversaries thereafter, provided that the total principal amount of such loan and
any accrued but unpaid interest at the applicable federal rate (the "Loan Payment") shall be due and payable upon
the earlier of the January 15th immediately following the termination of Mr. Greeff's employment for any reason or
May 9, 2005. In addition, Mr. Greeff's employment agreement provides that he shall be entitled to a special bonus,
payable on each May 9th (which was paid on May 9, 2001 and May 9, 2002) and ending with May 9, 2005 equal to
the sum of the Loan Payment with respect to such year, provided that he is employed on each such May 9th, and
provided further that in the event that Mr. Greeff terminates his employment for "good reason" or is terminated for a
reason other than "cause" (as such terms are defined in Mr. Greeff's employment agreement), he shall be entitled to a
special bonus in the amount of $800,000 minus the sum of any special bonuses paid through the date of such
termination plus accrued but unpaid interest at the applicable federal rate. Notwithstanding the above, if Mr. Greeff
terminates his employment other than for "good reason" or the Company terminates his employment for "cause" (as
such terms are defined in Mr. Greeff's employment agreement), or if he breaches certain post-employment
covenants, any bonus described above shall be forfeited or repaid by Mr. Greeff, as the case may be.
Mr. Nugent resigned from his employment with the Company effective February 14, 2002 and entered into
a separation agreement with Products Corporation dated as of February 14, 2002 (the "Nugent Agreement"), which
provides that he receive a separation allowance at the rate of $1,300,000 per annum payable over the period from
February 15, 2002 to December 31, 2004 (the "Payment Period"), which allowance would be reduced on account of
any compensation earned by Mr. Nugent from employment or consulting services during the Payment Period.
Pursuant to the Nugent Agreement, the Company made an additional lump sum payment to Mr. Nugent in the
amount of $285,000 on April 15, 2002. Additionally, in the Nugent Agreement, Mr. Nugent and Products
Corporation agreed to an offset of obligations whereby Products Corporation canceled Mr. Nugent's obligation to
repay principal and interest on a loan in the amount of $500,000 that was made in installments of $400,000 in 1999
and $100,000 in 2000 pursuant to his employment agreement with Products Corporation effective as of November 2,
1999 (the "Nugent Employment Agreement"), in exchange for the cancellation of Products Corporation's obligation
to pay Mr. Nugent a special bonus on January 15, 2003 pursuant to the Nugent Employment Agreement. Mr.
Nugent's stock options were cancelled upon his resignation.
42
Executive Severance Policy
Products Corporation's Executive Severance Policy provides that upon termination of employment of
eligible executive employees, including Messrs. Stahl, Greeff and Shapiro, other than voluntary resignation or
termination by Products Corporation for good reason, in consideration for the executive's execution of a release and
confidentiality agreement and the Company's standard employee non-competition agreement, the eligible executive
will be entitled to receive, in lieu of severance under any employment agreement then in effect or under Products
Corporation's basic severance plan, a number of months of severance pay in semi-monthly installments based upon
such executive's grade level and years of service, reduced by the amount of any compensation from subsequent
employment, unemployment compensation or statutory termination payments received by such executive during the
severance period, and, in certain circumstances, by the actuarial value of enhanced pension benefits received by the
executive, as well as continued participation in medical and certain other benefit plans for the severance period (or
in lieu thereof, upon commencement of subsequent employment, a lump sum payment equal to the then present
value of 50% of the amount of base salary then remaining payable through the balance of the severance period).
Pursuant to the Executive Severance Policy, upon meeting the conditions set forth in such policy, as of December
31, 2002 Messrs. Stahl, Greeff and Shapiro would be entitled to severance pay equal to 18, 20 and 19 months' of
base salary, respectively, at the base salary rate in effect on the date of employment termination, plus continued
participation in the medical and dental plans for the same respective periods on the same terms as active employees.
Defined Benefit Plans
In accordance with the terms of the Revlon Employees' Retirement Plan (the "Retirement Plan"), the
following table shows the estimated annual retirement benefits payable (as of December 31, 2002) under the non-
cash balance program of the Retirement Plan (the "Non-Cash Balance Program") at normal retirement age (65) to a
person retiring with the indicated average compensation and years of credited service, on a straight life annuity
basis, after Social Security offset, including amounts attributable to the Revlon Pension Equalization Plan, as
amended (the "Pension Equalization Plan"), as described below.
Highest Consecutive
Five-Year Average
Compensation
During Final Ten Years ($)
600,000
700,000
800,000
900,000
1,000,000
1,100,000
1,200,000
1,300,000
1,400,000
1,500,000
2,000,000
2,500,000
Estimated Annual Straight Life Annuity Benefits At Retirement
With Indicated Years Of Credited Service ($) (a)
15
151,020
177,020
203,020
229,020
255,020
281,020
307,020
333,020
359,020
385,020
500,000
500,000
20
201,360
236,027
270,693
305,360
340,027
374,693
409,360
444,027
478,693
500,000
500,000
500,000
25
251,700
295,033
338,367
381,700
425,033
468,367
500,000
500,000
500,000
500,000
500,000
500,000
30
302,040
354,040
406,040
458,040
500,000
500,000
500,000
500,000
500,000
500,000
500,000
500,000
35
302,040
354,040
406,040
458,040
500,000
500,000
500,000
500,000
500,000
500,000
500,000
500,000
____________________
(a) The normal form of benefit for the Retirement Plan and the Pension Equalization Plan is a straight life annuity.
The Retirement Plan is intended to be a tax qualified defined benefit plan. Non-Cash Balance Program
benefits are a function of service and final average compensation. The Non-Cash Balance Program is designed to
provide an employee having 30 years of credited service with an annuity generally equal to 52% of final average
compensation, less 50% of estimated individual Social Security benefits. Final average compensation is defined as
average annual base salary and bonus (but not any part of bonuses in excess of 50% of base salary) during the five
consecutive calendar years in which base salary and bonus (but not any part of bonuses in excess of 50% of base
salary) were highest out of the last 10 years prior to retirement or earlier termination. Except as otherwise indicated,
43
credited service includes all periods of employment with the Company or a subsidiary prior to retirement or earlier
termination. Messrs. Stahl, Greeff and Shapiro do not participate in the Non-Cash Balance Program.
Effective January 1, 2001, Products Corporation amended the Retirement Plan to provide for a cash balance
program under the Retirement Plan (the "Cash Balance Program"). Under the Cash Balance Program, eligible
employees will receive quarterly credits to an individual cash balance bookkeeping account equal to 5% of their
compensation for the previous quarter. Interest credits, which commenced June 30, 2001, are allocated quarterly
(based on the yield of the 30-year Treasury bond for November of the preceding calendar year). Employees who as
of January 1, 2001 were at least age 45, had 10 or more years of service with the Company and whose age and years
of service totaled at least 60 were "grandfathered" and continue to participate in the Non-Cash Balance Program
under the same retirement formula described in the preceding paragraph. All other eligible employees had their
benefits earned (if any) under the Non-Cash Balance Program "frozen" on December 31, 2000 and began to
participate in the Cash Balance Program on January 1, 2001. The "frozen" benefits will be payable at normal
retirement age and will be reduced if the employee elects early retirement. Any employee who, as of January 1,
2001 was at least age 40 but not part of the "grandfathered" group will, in addition to the "basic" 5% quarterly pay
credits, receive quarterly "transition" pay credits of 3% of compensation each year for up to 10 years or until he/she
leaves employment with the Company, whichever is earlier. Messrs. Stahl, Greeff and Shapiro participate in the
Cash Balance Program. Mr. Nugent was and Mr. Greeff is eligible to receive basic and transition pay credits. As
they were not employed by the Company on January 1, 2001 (the date on which a "transition" employee was
determined), Messrs. Stahl and Shapiro are eligible to receive only basic pay credits. The estimated annual benefits
payable under the Cash Balance Program as a single life annuity (assuming Messrs. Stahl, Greeff and Shapiro
remain employed by the Company until age 65 at their current level of compensation) is $199,400 for Mr. Stahl,
$264,000 for Mr. Greeff and $17,700 for Mr. Shapiro. Messrs. Stahl's, Greeff's and Shapiro's total retirement
benefits will be determined in accordance with their respective employment agreements, each of which provides for
a guaranteed retirement benefit provided that certain conditions are met.
The Employee Retirement Income Security Act of 1974, as amended, places certain maximum limitations
upon the annual benefit payable under all qualified plans of an employer to any one individual. In addition, the
Omnibus Budget Reconciliation Act of 1993 limits the annual amount of compensation that can be considered in
determining the level of benefits under qualified plans. The Pension Equalization Plan, as amended effective
December 14, 1998, is a non-qualified benefit arrangement designed to provide for the payment by the Company of
the difference, if any, between the amount of such maximum limitations and the annual benefit that would be
payable under the Retirement Plan (including the Non-Cash Balance Program and the Cash Balance Program) but
for such limitations, up to a combined maximum annual straight life annuity benefit at age 65 under the Retirement
Plan and the Pension Equalization Plan of $500,000. Benefits provided under the Pension Equalization Plan are
conditioned on the participant's compliance with his or her non-competition agreement and on the participant not
competing with Products Corporation for one year after termination of employment.
The number of full years of service under the Retirement Plan and the Pension Equalization Plan as of
January 1, 2003 for Mr. Greeff is two years and for Mr. Shapiro is one year. Mr. Stahl did not have any years of
credited service as of January 1, 2003.
44
Item 12. Security Ownership of Certain Beneficial Owners and Manage ment and Related Stockholder
Matters
The following table sets forth as of December 31, 2002 the number of shares of the Company's Common
Stock beneficially owned, and the percent so owned, by (i) each person known to the Company to be the beneficial
owner of more than 5% of the outstanding shares of the Company's Common Stock, (ii) each director of the
Company, (iii) the Chief Executive Officer during 2002 and each of the other Named Executive Officers during
2002 and (iv) all directors and executive officers of the Company as a group. The number of shares owned are those
beneficially owned, as determined under the Commission's rules, and such information is not necessarily indicative
of beneficial ownership for any other purpose. Under such rules, beneficial ownership includes any shares of
Common Stock as to which a person has sole or shared voting power or investment power and any shares of
Common Stock which the person has the right to acquire within 60 days through the exercise of any option, warrant
or right, through conversion of any security or pursuant to the automatic termination of a power of attorney or
revocation of a trust, discretionary account or similar arrangement.
NAME AND ADDRESS
OF BENEFICIAL OWNER
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP
PERCENTAGE OF CLASS
Ronald O. Perelman ..............................................
43,989,583
83.02%
35 E. 62nd St.
New York, NY 10021
Donald G. Drapkin.................................................
Meyer Feldberg......................................................
Howard Gittis .........................................................
Douglas H. Greeff ..................................................
Vernon E. Jordan, Jr. .............................................
Edward J. Landau...................................................
Jeffrey M. Nugent ..................................................
Linda Gosden Robinson.........................................
Terry Semel............................................................
Paul E. Shapiro.......................................................
Jack L. Stahl...........................................................
Martha Stewart.......................................................
All Directors and Executive Officers as a
Group (12 Persons) ............................................
____________________
* Less than one percent.
(Class A, Class B and Series B Preferred)(1)
(Class A, Class B and Series B Preferred)
12,550 (Class A)(2)
5,625 (Class A)(3)
113,300 (Class A)(4)
177,500 (Class A)(5)
5,625 (Class A) (6)
5,725 (Class A)(7)
--
5,625 (Class A)(8)
10,625 (Class A)(9)
99,000 (Class A) (10)
160,000 (Class A) (11)
6,125 (Class A)(12)
*
*
*
*
*
*
*
*
*
*
*
*
12,907,950 (Class A)(13)
31,250,000 (Class B)
4,333 (Series B Preferred)
60.58%
100.0%
100.0%
(1) Mr. Perelman through Mafco Holdings (which through REV Holdings) beneficially owns (i) 11,650,000 shares
of the Company's Class A Common Stock, which represent approximately 57% of the outstanding shares of the
Company's Class A Common Stock, (ii) all of the outstanding 31,250,000 shares of the Company's Class B
Common Stock, which together with the shares referenced in subclause (i) above represent approximately 83%
of the outstanding shares of the Company's Common Stock, and (iii) all of the outstanding 4,333 shares of the
Company's Series B Preferred Stock, which are convertible into 433,333 shares of the Company's Class A
Common Stock. Based on the shares referenced in clauses (i), (ii) and (iii) above, Mr. Perelman through Mafco
Holdings (which through REV Holdings) had at December 31, 2002 approximately 97% of the combined voting
power of the outstanding shares of the Company's stock entitled to vote at the 2003 Annual Meeting. As of
December 31, 2002, 4,186,104 shares of the Company's Class A Common Stock owned by REV Holdings were
pledged by REV Holdings (the "Pledged Shares") to secure $80.5 million principal amount of REV Holdings'
12% Senior Secured Notes due 2004. From time to time, additional shares of the Company's Class A Common
Stock or shares of intermediate holding companies between the Company and Mafco Holdings may be pledged
to secure obligations of Mafco Holdings or its affiliates. A default under REV Holdings' obligations which are
secured by the Pledged Shares could cause a foreclosure with respect to such shares of the Company's Class A
Common Stock pledged by REV Holdings. Mr. Perelman also holds an option to acquire 300,000 shares of the
Company's Class A Common Stock, which option vested on February 12, 1999, an option to acquire 300,000
shares of the Company's Class A Common Stock, which option vested on April 4, 2002, and an additional
option to acquire 56,250 shares of the Company's Class A Common Stock, which option vested on June 18,
2002. Such vested options to acquire 656,250 shares of the Company's Class A Common Stock, together with
45
the Class A Common Stock, Class B Common Stock and Series B Preferred Stock beneficially owned by Mr.
Perelman, represents approximately 83% of the outstanding shares of the Company's Common Stock.
(2) Includes 12,050 shares which are held by trusts for Mr. Drapkin's children and 500 shares held by a minor son.
In all instances, beneficial ownership is disclaimed.
(3) Includes 1,875 shares which Mr. Feldberg may acquire under options which vested on May 22, 2001, 1,875
shares which Mr. Feldberg may acquire under options which vested on May 22, 2002 and 1,875 shares which
Mr. Feldberg may acquire under options which vested on July 13, 2002.
(4) Includes 113,300 shares held directly by Mr. Gittis.
(5) Includes 102,500 shares held directly by Mr. Greeff, 25,000 shares which Mr. Greeff may acquire under options
which vested on May 22, 2001, 25,000 shares which Mr. Greeff may acquire under options which vested on
May 22, 2002, 12,500 shares which Mr. Greeff may acquire under options which vested on March 26, 2002 and
12,500 shares which Mr. Greeff may acquire under options which vested on February 15, 2003.
(6) Includes 1,875 shares which Mr. Jordan may acquire under options which vested on May 22, 2001, 1,875 shares
which Mr. Jordan may acquire under options which vested on May 22, 2002 and 1,875 shares which Mr. Jordan
may acquire under options which vested on July 13, 2002.
(7) Includes 100 shares held directly by Mr. Landau, 1,875 shares which Mr. Landau may acquire under options
which vested on May 22, 2001, 1,875 shares which Mr. Landau may acquire under options which vested on
May 22, 2002 and 1,875 shares which Mr. Landau may acquire under options which vested on July 13, 2002.
(8) Includes 1,875 shares which Ms. Robinson may acquire under options which vested on May 22, 2001, 1,875
shares which Ms. Robinson may acquire under options which vested on May 22, 2002 and 1,875 shares which
Ms. Robinson may acquire under options which vested on July 13, 2002.
(9) Includes 2,000 shares owned by Mr. Semel's children as to which beneficial ownership is disclaimed, 3,000
shares owned jointly with Mr. Semel's wife, 1,875 shares which Mr. Semel may acquire under options which
vested on May 22, 2001, 1,875 shares which Mr. Semel may acquire under options which vested on May 22,
2002 and 1,875 shares which Mr. Semel may acquire under options which vested on July 13, 2002.
(10) Includes 74,000 shares held directly by Mr. Shapiro and 25,000 shares which Mr. Shapiro may acquire under
options which vested on June 18, 2002.
(11) Includes 150,000 shares held directly by Mr. Stahl and 10,000 shares held by his wife, as to which beneficial
ownership is disclaimed.
(12) Includes 500 shares owned indirectly by the Martha Stewart Inc. Defined Benefit Pension Plan, 1,875 shares
which Ms. Stewart may acquire under options which vested on May 22, 2001, 1,875 shares which Ms. Stewart
may acquire under options which vested on May 22, 2002 and 1,875 shares which Ms. Stewart may acquire
under options which vested on July 13, 2002.
(13) Includes only shares beneficially held by persons who were directors and executive officers of the Company as
of December 31, 2002.
46
EQUITY COMPENSATION PLAN INFORMATION
The following table sets forth as of December 31, 2002, with respect to all compensation plans of the
Company previously approved and not previously approved by its stockholders (i) the number of securities to be
issued upon the exercise of outstanding options, warrants and rights, (ii) the weighted-average exercise price of such
outstanding options, warrants and rights and (iii) the number of securities remaining available for future issuance
under such equity compensation plans, excluding securities reflected in item (i). A description of the Supplemental
Stock Plan follows the table.
Equity Compe nsation Plan Information
(a)
(b)
Number of securities to be
issued upon exercise of
outstanding options, warrants
and rights
Weighted-average exercise
price of outstanding options,
warrants and rights
(c)
Number of securities remaining
available for future issuance
under equity compensation
plans (excluding securities
reflected in column (a))
Plan Category
Previously Approved by
Stockholders:
Amended Stock Plan
Not Previously Approved by
Stockholders: (4)
Supplemental Stock Plan
____________________
(1) Includes 1,475,000 shares of restricted stock and 7,886,064 options issued under the Amended Stock Plan.
9,361,064 (1)
530,000 (2)
$12.83 (3)
1,064,986
N/A (3)
--
(2) Includes 530,000 shares of restricted stock issued under the Supplemental Stock Plan, the entire amount of
securities issuable under such plan.
(3) Weighted-average exercise price excludes restricted stock.
(4) The Supplemental Stock Plan was not required to be approved by the Company’s stockholders.
On February 17, 2002, the Company adopted the Supplemental Stock Plan, the purpose of which is to
provide Mr. Stahl, the sole eligible participant, with inducement awards to entice him to join the Company and to
enhance the Company's long-term performance and profitability. The Supplemental Stock Plan covers 530,000
shares of the Company's Class A Common Stock. Awards may be made under the Supplemental Stock Plan in the
form of stock options, stock appreciation rights and restricted or unrestricted stock. The terms of the Supplemental
Stock Plan and the grant of restricted shares to Mr. Stahl as described below are substantially the same as the
Amended Stock Plan and the grant of restricted shares to Mr. Stahl under such plan. On February 17, 2002, the
Compensation Committee granted Mr. Stahl an award of 530,000 restricted shares of Class A Common Stock, the
full amount of the shares of Class A Common Stock issuable under the Supplemental Stock Plan. Pursuant to the
terms of the Supplemental Stock Plan, such grant was made conditioned upon Mr. Stahl's execution of the
Company's standard employee confidentiality and non-competition agreement. See "Employment Agreements and
Termination of Employment Agreements."
47
Item 13. Certain Relationships and Related Transactions
MacAndrews & Forbes beneficially owns shares of the Company's Common Stock and Series B Preferred
Stock having approximately 97% of the combined voting power of the outstanding shares of Common Stock and
Series B Preferred Stock. As a result, MacAndrews & Forbes is able to elect the entire Board of Directors of the
Company and control the vote on all matters submitted to a vote of the Company's stockholders. MacAndrews &
Forbes is wholly owned by Ronald O. Perelman, Chairman of the Board of Directors of the Company.
Transfer Agreements
In June 1992, Revlon, Inc. and Products Corporation entered into an asset transfer agreement with Revlon
Holdings Inc. (a Delaware corporation which in 2002 converted into a Delaware limited liability company known as
Revlon Holdings LLC ("Holdings") and which is an affiliate and an indirect wholly-owned subsidiary of Mafco
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 of 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
assumed by Products Corporation. The amount reimbursed by Holdings to Products Corporation for the Excluded
Liabilities for 2002 was $0.5 million.
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 amount reimbursed by
MacAndrews Holdings to Products Corporation for the services provided under the Reimbursement Agreements for
2002 was $0.8 million. 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 Company participates in
MacAndrews & Forbes' directors and officers insurance program, which covers the Company as well as
MacAndrews & Forbes and its other affiliates. The limits of coverage are available on aggregate losses to any or all
of the participating companies and their respective directors and officers. The Company reimburses MacAndrews &
48
Forbes for its allocable portion of the premiums for such coverage which, the Company believes, is more favorable
than the premiums the Company could secure were it to secure stand-alone coverage. The amount paid by the
Company to MacAndrews & Forbes for premiums is included in the amounts paid under the Reimbursement
Agreement.
Tax Sharing Agreement
Revlon, Inc. and Products Corporation, for federal income tax purposes, are included in the affiliated group
of which Mafco Holdings is the common parent, and Revlon, Inc.'s and Products Corporation's federal taxable
income and loss are included in such group's consolidated tax return filed by Mafco Holdings. Revlon, Inc. and
Products Corporation also may be included in certain state and local tax returns of Mafco Holdings or its
subsidiaries. In June 1992, Holdings, Revlon, Inc., Products Corporation and certain of its subsidiaries, and Mafco
Holdings entered into a tax sharing agreement (as subsequently amended and restated, the "Tax Sharing
Agreement"), pursuant to which Mafco Holdings has agreed to indemnify Revlon, Inc. and Products Corporation
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. and Products Corporation or its subsidiaries) is the
common parent for taxable periods beginning on or after January 1, 1992 during which Revlon, Inc. and Products
Corporation or a subsidiary of Products Corporation is a member of such group. Pursuant to the Tax Sharing
Agreement, for all taxable periods beginning on or after January 1, 1992, Products Corporation will pay to Revlon,
Inc., which in turn will pay to Holdings, amounts equal to the taxes that Products Corporation 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 Products Corporation), except that Products Corporation will not
be entitled to carry back any losses to taxable periods ending prior to January 1, 1992. No payments are required by
Products Corporation or Revlon, Inc. if and to the extent Products Corporation is prohibited under the terms of its
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 Products
Corporation 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 Products Corporation 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 million 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 2002. Revlon, Inc. had a liability of $0.9 million to Holdings in respect of
alternative minimum taxes for 1997 under the Tax Sharing Agreement. However, as a result of tax legislation
enacted in the first quarter of 2002, Revlon, Inc. was able to recognize tax benefits of $0.9 million in 2002, which
completely offset this liability.
Investment Agreement and Mafco Loan Agreements
See the description of the M&F Investments under "Recent Developments."
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 a registration rights agreement (the "Registration Rights Agreement") and in February 2003, Revlon, Inc. and
MacAndrews Holdings entered into a joinder agreement to 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 Revlon, Inc.'s Class A Common Stock owned by such
Holders, including shares of Class A Common Stock purchased in connection with the Rights Offering and shares of
Class A Common Stock issuable upon conversion of Revlon, Inc.'s Class B Common Stock and Series B Preferred
Stock owned by such Holders under 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
49
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 Revlon, Inc.'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 million and certain
shared operating expenses payable by Products Corporation which, together with the annual rent, were not to exceed
$2.0 million 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 costs relating to the Edison facility, and in
connection with the sale Products Corporation terminated the Edison Lease and entered into a new lease with the
new owner. Holdings agreed to indemnify Products Corporation through 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 amount reimbursed by Holdings to Products Corporation with respect to the Edison facility for
2002 was $0.2 million.
During 2002, 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. The rent paid to Products Corporation for 2002 was $0.3 million.
The Credit Agreement and Products Corporation's 12% Notes are supported by, among other things,
guarantees from 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.
In March 2002, prior to the passage of the Sarbanes-Oxley Act of 2002, Products Corporation made an
advance of $1.8 million to Mr. Stahl pursuant to his employment agreement, which was entered into in February
2002, for tax assistance related to a grant of restricted stock provided to Mr. Stahl pursuant to such agreement,
which loan bears interest at the applicable federal rate. In May 2002, prior to the passage of the Sarbanes-Oxley Act
of 2002, Products Corporation made an advance of $2.0 million to Mr. Stahl pursuant to his employment agreement
in connection with the purchase of his principal residence in the New York City metropolitan area, which loan bears
interest at the applicable federal rate, $79,314 of which was repaid during 2002. Pursuant to his employment
agreement, Mr. Stahl receives from Products Corporation additional compensation payable on a monthly basis equal
to the amount actually paid by him in respect of interest and principal on such $2.0 million advance, plus a gross up
for any taxes payable by Mr. Stahl as a result of such additional compensation.
During 2000, Products Corporation made an advance of $0.8 million to Mr. Greeff, pursuant to his
employment agreement, which loan bears interest at the applicable federal rate. Mr. Greeff repaid $0.2 million
during 2002. Pursuant to his employment agreement, Mr. Greeff is entitled to receive bonuses from Products
Corporation, payable on each May 9th commencing on May 9, 2001 and ending with May 9, 2005, in each case
equal to the sum of the principal and interest on the advance repaid in respect of such year by Mr. Greeff, provided
that he is employed by Products Corporation on each such May 9th, which bonus installment was paid to Mr. Greeff
in May 2002.
In the Nugent Agreement, Mr. Nugent and Products Corporation agreed to an offset of obligations whereby
Products Corporation canceled Mr. Nugent's obligation to repay principal and interest on a loan in the amount of
$0.5 million that was made in installments of $0.4 million in 1999 and $0.1 million in 2000 pursuant to the Nugent
50
Employment Agreement, in exchange for the cancellation of Products Corporation's obligation to pay Mr. Nugent a
special bonus on January 15, 2003 pursuant to the Nugent Employment Agreement.
During 2002, Products Corporation made payments of $0.3 million to Ms. Ellen Barkin (spouse of Mr.
Perelman) under a written agreement pursuant to which she provides voiceover services for certain of the
Company's advertisements, which payments were competitive with industry rates for similarly situated talent.
The law firm of which Mr. Landau was Of Counsel to and from which he retired in January 2003, Wolf,
Block, Schorr and Solis-Cohen LLP, provided legal services to Products Corporation during 2002 and it is
anticipated that such firm may continue to provide such services in 2003.
During 2002, 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 MSLO's
Chairman and Chief Executive Officer. Products Corporation paid MSLO $2.5 million for such services in 2002,
which fees were less than 1% of the Company's estimate of MSLO's consolidated gross revenues for 2002. Products
Corporation'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 2002, Products Corporation obtained advertising, media buying and direct marketing 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. Products
Corporation paid WPP $1.1 million for such services in 2002, which fees were less than 1% of the Company's
estimate of WPP's consolidated gross revenues for 2002. Products Corporation 's decision to engage WPP was
based upon its professional expertise in understanding the advertising needs of the consumer packaged goods
industry, as well as its 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 advertising agencies.
During 2002, Products Corporation employed Mr. Perelman's daughter in a marketing position, with
compensation paid for 2002 of less than $80,000.
During 2002, Products Corporation employed Mr. Drapkin's daughter in a marketing position, with
compensation paid for 2002 of less than $80,000.
Item 14. Controls and Procedures
Evaluation of Disclosure Controls and Procedures:
The Company's Chief Executive Officer and Chief Financial Officer (who are its principal executive officer
and principal financial officer, respectively) have within 90 days prior to the filing date of this Annual Report on
Form 10-K (the "Evaluation Date"), evaluated the effectiveness of the Company's disclosure controls and procedures
(as defined in Rules 13a-14(c) and 15d-14(c) under the Exchange Act). Based upon such evaluation, the Chief
Executive Officer and Chief Financial Officer have concluded that such disclosure controls and procedures are
effective to ensure that information required to be disclosed by the Company in the reports filed or submitted by it
under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the
Commission's rules and that such information is accumulated and communicated to the Company's management,
including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions
regarding disclosure.
The Chief Executive Officer and Chief Financial Officer have determined that there were no significant
changes in the Company's internal controls or in other factors that could significantly affect the Company's internal
controls subsequent to the date of their evaluation, nor any significant deficiencies or material weaknesses in such
internal controls requiring corrective actions.
51
Forward-Looking Statements
This Annual Report on Form 10-K for the year ended December 31, 2002, as well as other public
documents and statements of the Company, contain forward-looking statements that involve risks and uncertainties.
The Company's actual results may differ materially from those discussed in such forward-looking statements. Such
statements include, without limitation, the Company's expectations and estimates (whether qualitative or
quantitative) as to:
(i)
(ii)
(iii)
(iv)
the Company's plans to update its retail presence and improve the marketing effectiveness of its
retail wall displays by installing newly-reconfigured wall displays and reconfiguring existing wall
displays at its retail customers (and its estimates of the costs of such wall displays, the effects of
such plans on the accelerated amortization of existing wall displays and the estimated amount of
such amortization);
the Company's plans to increase its advertising and media spending and improve the effectiveness
of its advertising;
the Company's plans to introduce new products and further strengthen its new product
development process;
the Company's plans to streamline its product assortment and reconfigure product placement on its
wall displays, selectively adjust prices on certain of its products, improve customers' stock levels
by enhancing merchandiser coverage and reduce damages by continuing to develop the
Company's tamper evident program;
(v)
the Company's plans to implement comprehensive programs to develop and train its employees;
(vi)
the Company's future financial performance;
(vii)
the effect on sales of political and/or economic conditions, adverse currency fluctuations and
competitive activities;
(viii)
the Company's plans to accelerate the implementation of the stabilization and growth phase of its
plan and the charges and the cash costs resulting from implementing such plan and the timing of
such costs, as well as the Company's expectations as to improved revenues over the long term as a
result of such phase of its plan;
(ix)
(x)
(xi)
restructuring activities, restructuring costs, the timing of restructuring payments and annual
savings and other benefits from such activities;
operating revenues, cash on hand, cash available from the Rights Offering and the $50 million
Series C preferred stock investment, if any, and availability of borrowings under the Mafco Loans
and Products Corporation's Credit Agreement being sufficient to satisfy the Company's cash
requirements in 2003, and the availability of funds from restructuring indebtedness, selling assets
or operations, capital contributions or loans from MacAndrews & Forbes, the Company's other
affiliates and/or third parties and the sale of additional shares of Revlon, Inc.;
the Company's uses of funds, including amounts required for the purchase and reconfiguration of
wall displays, increases in advertising and media, and the costs and expenses of the stabilization
and growth phase of the Company's plan and its estimates of operating expenses, working capital
expenses, wall display costs, capital expenditures, restructuring costs and debt service payments;
52
(xii)
the effects of a loss of one or more of the Company's customers, including, without limitation,
Wal-Mart, and the status of the Company's relationship with its customers;
(xiii)
the effects of competitive responses to the implementation of the Company's plan;
(xiv)
the availability of raw materials and components and, with respect to Europe, products;
(xv)
the supply arrangement with the Company's principal third party manufacturer for Europe being
flexible and that production difficulties with such supplier will be resolved during the first half of
2003;
(xvi) matters concerning the Company's market-risk sensitive instruments;
(xvii)
the effects of the assumptions and estimates underlying the Company's critical accounting
policies;
(xviii)
the effects of the Company's adoption of certain accounting principles;
(xix)
the Company's receipt, and the amount and timing of the payment of contingent deferred purchase
price in connection with the sale of certain assets;
(xx)
the Company's ability to consummate the Rights Offering and as to the timing thereof;
(xxi)
Products Corporation securing a further waiver or amendment of various provisions of its Credit
Agreement, including the EBITDA and leverage ratio covenants, or refinancing or repaying such
debt before January 31, 2004 in the event such waiver or amendment is not secured; and
(xxii)
the Company’s plan to refinance Products Corporation’s debt maturing in 2005.
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 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 websites 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)
(ii)
(iii)
difficulties or delays or unanticipated costs associated with improving the marketing effectiveness
of the Company's wall displays;
difficulties or delays in developing and/or presenting the Company's increased advertising
programs and/or improving the effectiveness of its advertising;
difficulties or delays in developing and introducing new products or failure of the Company's
customers to accept new product offerings and/or in further strengthening the Company's new
product development process;
53
(iv)
difficulties or delays in implementing the Company's plans to streamline its product assortment
and reconfigure product placement on its wall displays, selectively adjust prices on certain of its
products, improve stock levels by enhancing merchandiser coverage and/or reduce damages by
continuing to develop the Company's tamper evident program;
(v)
difficulties or delays in implementing comprehensive programs to train the Company's employees;
(vi)
(vii)
(viii)
(ix)
(x)
(xi)
(xii)
unanticipated circumstances or results affecting the Company's financial performance, including
changes in consumer preferences, such as reduced consumer demand for the Company's color
cosmetics and other current products, and actions by the Company's competitors, including
business combinations, technological breakthroughs, new products offerings, promotional
spending and marketing and promotional successes, including increases in market share;
the effects of and changes in political and/or economic conditions, including inflation, monetary
conditions and military actions, and in trade, monetary, fiscal and tax policies in international
markets;
unanticipated costs or difficulties or delays in completing projects associated with the stabilization
and growth phase of the Company's plan or lower than expected revenues over the long term as a
result of such plan;
difficulties, delays or unanticipated costs or less than expected savings and other benefits resulting
from the Company's restructuring activities;
lower than expected operating revenues, the inability to secure capital contributions or loans from
MacAndrews & Forbes, the Company's other affiliates and/or third parties or the unavailability of
funds under Products Corporation's Credit Agreement, the Mafco Loans or the $50 million Series
C preferred stock investment, if any, or from the Rights Offering;
higher than expected operating expenses, sales returns, working capital expenses, wall display
costs, capital expenditures, restructuring costs or debt service payments;
combinations among the Company's significant customers or the loss, insolvency or failure to pay
debts by a significant customer or customers;
(xiii)
competitive responses to the implementation of the Company's plan;
(xiv)
difficulties, delays or unexpected costs in sourcing raw materials or components, and with respect
to Europe, products;
(xv)
difficulties, delays or unanticipated costs or effects arising from the Company's supply
arrangement with its principal European supplier and resolving the production difficulties with
such supplier;
(xvi)
interest rate or foreign exchange rate changes affecting the Company and its market sensitive
financial instruments;
(xvii)
actual events varying from the assumptions and estimates underlying the Company's critical
accounting policies;
(xviii) unanticipated effects of the Company's adoption of certain new accounting standards;
(xix)
difficulties or delays in the Company's receiving payment of certain contingent deferred purchase
price in connection with the sale of certain assets;
54
(xx)
difficulties, delays or the inability of the Company to consummate the Rights Offering;
(xxi)
difficulties, delays or inability to secure a further waiver or amendment of the EBITDA and
leverage ratio covenants under the Credit Agreement or refinancing or repaying such debt on or
before January 31, 2004 in the event such waiver or amendment is not secured; and
(xxii)
difficulties, delays or the inability of the Company to refinance Products Corporation’s debt
maturing in 2005.
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.
Disclosure Concerning Website Access to Company Reports
The Company's corporate website address is www.revloninc.com. The Company makes available, free of
charge, on such website its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on
Form 8-K, and all amendments to those reports as soon as reasonably practicable after such material is electronically
filed with or furnished to the Commission.
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)
List of documents filed as part of this Report:
PART IV
(1)
(2)
(3)
Consolidated Financial Statements and Independent Auditors' Report included herein:
See Index on page F-1.
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.
List of Exhibits:
2.
2.1
3.
3.1
3.2
3.3
Plan of Acquisition Etc.
Investment Agreement, dated as of February 5, 2003 among Revlon, Inc., Products Corporation
and MacAndrews & Forbes (incorporated by reference to Exhibit 2.1 to the Current Report on
Form 8-K of Products Corporation filed with the Commission on February 5, 2003 (the
"Products Corporation February 2003 Form 8-K")).
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 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).
55
4.
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
4.10
4.11
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
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).
56
4.12
4.13
4.14
4.15
4.16
4.17
4.18
4.19
4.20
4.21
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).
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 March 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 March 1998
Form S-1).
57
4.22
4.23
4.24
4.25
4.26
4.27
10.
10.1
10.2
10.3
10.4
10.5
10.6
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 March 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 March 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 of Revlon,
Inc. for the quarterly period ended September 30, 1998).
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, J.P.
Morgan Securities Inc., as sole arranger and bookrunner, and JPMorgan Chase Bank, as
administrative agent (the "Second Amended and Restated Credit Agreement") (incorporated by
reference to Exhibit 4.1 to the Products Corporation November 2001 Form 8-K).
First Amendment dated May 31, 2002 to the Second Amended and Restated Credit Agreement
(incorporated by reference to Exhibit 10.18 to the Quarterly Report on Form 10-Q of Revlon,
Inc. for the quarterly period ended June 30, 2002).
Second Amendment and First Waiver Agreement dated as of February 5, 2003 to the Second
Amended and Restated Credit Agreement (incorporated by reference to Exhibit 10.19 to the
Products Corporation February 2003 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 February 17, 2002, between Products Corporation and
Jack L. Stahl (incorporated by reference to Exhibit 10.17 to the Quarterly Report on Form 10-Q
for the quarterly period ended March 31, 2002 of Revlon, Inc.).
Revlon, Inc. 2002 Supplemental Stock Plan (incorporated by reference to Exhibit 4.1 to the
Registration Statement on Form S-8 of Revlon, Inc. filed with the Commission on June 24,
2002, File No. 333-91040).
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).
58
10.7
*10.8
10.9
*10.10
10.11
10.12
*10.13
10.14
10.15
10.16
10.17
10.18
21.
*21.1
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 September 1, 2002).
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 2000.
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 as amended July 1, 2002.
Revlon, Inc. Fourth Amended and Restated 1996 Stock Plan (incorporated by reference to
Exhibit 4.1 to the Registration Statement on Form S-8 of Revlon, Inc. filed with the
Commission on June 24, 2002, File No. 333-91038).
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 Annual Report
on Form 10-K for the year ended December 31, 1999 of Revlon, Inc.).
Purchase and Sale Agreement dated as of July 31, 2001 by and between Holdings and Revlon,
Inc. relating to the Charles of the Ritz business (incorporated by reference to Exhibit 10.6 to
the Products Corporation 2001 Form 10-K).
Senior Unsecured Multiple-Draw Term Loan dated as of February 5, 2003, between
MacAndrews & Forbes and Products Corporation (incorporated by reference to Exhibit 10.17
to the Products Corporation February 2003 Form 8-K).
Senior Unsecured Supplemental Line of Credit Agreement, dated as of February 5, 2003,
between MacAndrews & Forbes and Products Corporation (incorporated by reference to
Exhibit 10.18 of the Products Corporation February 2003 Form 8-K).
Subsidiaries.
Subsidiaries of Revlon, Inc.
59
23.
*23.1
24.
*24.1
*24.2
*24.3
*24.4
*24.5
*24.6
*24.7
*24.8
*24.9
99.
*99.1
*99.2
Consents of Experts and Counsel.
Consent of KPMG LLP.
Powers of Attorney.
Power of Attorney executed by Ronald O. Perelman.
Power of Attorney executed by Howard Gittis.
Power of Attorney executed by Donald G. Drapkin.
Power of Attorney executed by Meyer Feldberg.
Power of Attorney executed by Vernon E. Jordan, Jr.
Power of Attorney executed by Edward J. Landau.
Power of Attorney executed by Linda Gosden Robinson.
Power of Attorney executed by Terry Semel.
Power of Attorney executed by Martha Stewart.
Additional Exhibits.
Certification of Jack L. Stahl, Chief Executive Officer, dated March 21, 2003 pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of The Sarbanes-Oxley Act of 2002.
Certification of Douglas H. Greeff, Chief Financial Officer, dated March 21, 2003 pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of The Sarbanes-Oxley Act of
2002.
* Filed herewith.
(b)
Reports on Form 8-K. None
60
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, 2002 and 2001................................................................ .F-3
Consolidated Statements of Operations for each of the years in the three-year
period ended December 31, 2002............................................................................................................ .F-4
Consolidated Statements of Stockholders’ Deficiency and Comprehensive Loss for each of the years in
the three-year period ended December 31, 2002 ..................................................................................... .F-5
Consolidated Statements of Cash Flows for each of the years in the three-year
period ended December 31, 2002............................................................................................................ .F-6
Notes to Consolidated Financial Statements.................................................................................................. .F-7
Financial Statement Schedule:
Schedule II--Valuation and Qualifying Accounts........................................................................................... .F-48
F-1
INDEPENDENT AUDITORS’ REPORT
The Board of Directors and Stockholders
Revlon, Inc.:
We have audited the accompanying consolidated balance sheets of Revlon, Inc. and subsidiaries as of December 31,
2002 and 2001, 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, 2002. 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 subsidiaries as of December 31, 2002 and 2001 and the results of their
operations and their cash flows for each of the years in the three-year period ended December 31, 2002, 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.
As discussed in Note 1 to the consolidated financial statements, the Company adopted FASB Statement No. 142,
“Goodwill and Other Intangible Assets,” as of January 1, 2002.
KPMG LLP
New York, New York
March 12, 2003
F-2
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 $24.0
and $15.4, respectively...........................................................
Inventories......................................................................................
Prepaid expenses and other............................................................
Total current assets.................................................................
Property, plant and equipment, net........................................................
Other assets...........................................................................................
Goodwill, 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 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,
2002
December 31,
2001
$
$
$
$
85.8
-
212.3
128.1
39.6
465.8
133.4
154.4
185.9
939.5
25.0
92.9
392.3
510.2
1,726.0
24.1
320.0
$
$
$
103.3
2.2
203.9
157.9
45.6
512.9
142.8
156.0
185.9
997.6
17.5
87.0
281.3
385.8
1,619.5
24.1
250.9
54.6
54.6
-
0.3
-
0.3
0.2
(201.3)
(1,361.9)
(132.7)
(1,640.8)
939.5
$
0.2
(201.3)
(1,075.4)
(61.1)
(1,282.7)
997.6
See Accompanying Notes to Consolidated Financial Statements.
F-3
REVLON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in millions, except per share data)
Year Ended December 31,
2001
2000
2002
Net sales...............................................................................................
Cost of sales.........................................................................................
Gross profit.....................................................................................
Selling, general and administrative expenses.......................................
Restructuring costs and other, net........................................................
$
$
1,119.4
503.7
615.7
717.0
13.6
$
1,277.6
544.2
733.4
679.2
38.1
Operating (loss) income ................................................................
(114.9)
16.1
Other expenses (income):
Interest expense..............................................................................
Interest income...............................................................................
Amortization of debt issuance costs...............................................
Foreign currency losses, net...........................................................
Loss (gain) on sale of product line, brands and facilities, net.........
Loss on early extinguishment of debt.............................................
Miscellaneous, net..........................................................................
Other expenses, net.................................................................
159.0
(3.5)
7.7
1.4
1.0
-
1.2
166.8
140.5
(3.9)
6.2
2.2
14.4
3.6
2.7
165.7
1,409.4
574.3
835.1
765.1
54.1
15.9
144.5
(2.1)
5.6
1.6
(10.8)
-
(1.8)
137.0
Loss before income taxes.....................................................................
(281.7)
(149.6)
(121.1)
Provision for income taxes...................................................................
4.8
4.1
8.6
Net loss................................................................................................
$
(286.5)
$
(153.7)
$
(129.7)
Basic and diluted loss per common share:
Net loss per common share...........................................................
$
(5.49)
$
(2.94)
$
(2.49)
Weighted average number of common shares outstanding:
Basic and diluted...........................................................................
52,199,468
52,199,349
52,166,980
See Accompanying Notes to Consolidated Financial Statements.
F-4
REVLON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY AND COMPREHENSIVE LOSS
(dollars in millions)
Balance, January 1, 2000............................................. $
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 foreign currency forward
exchange contracts..................................
Currency translation adjustment...................
Total comprehensive loss.......................................
Accumulated
Other
Preferred Common
Stock
Stock
Capital
Deficiency
Accumulated Comprehensive
Deficit
Loss (a)
54.6 $
0.5
$
(210.0)
1.1
(1.4)
$
(792.0)
$
(68.1)
$
(c)
(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)
Total
Stockholders'
Deficiency
(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)
(42.5)
0.1
11.1
(b)
0.1
11.1
(185.0)
Balance, December 31, 2001.......................................
54.6
0.5
(201.3)
(1,075.4)
(61.1)
(1,282.7)
Comprehensive loss:
Net loss........................................................
Adjustment for minimum
pension liability.............................
Revaluation of foreign currency forward
exchange contracts..................................
Currency translation adjustment...................
Total comprehensive loss.......................................
(286.5)
(286.5)
(67.5)
(67.5)
(0.1)
(4.0)
(0.1)
(4.0)
(358.1)
Balance, December 31, 2002....................................... $
54.6 $
0.5
$
(201.3)
$
(1,361.9)
$
(132.7)
$
(1,640.8)
____________________
(a) Accumulated other comprehensive loss includes unrealized gains on revaluations of foreign currency forward exchange contracts
of $0.1 for 2001, cumulative net translation losses of $19.1, $15.1 and $26.2 for 2002, 2001 and 2000, respectively, and adjustments for the
minimum pension liability of $113.6, $46.1 and $3.6 for 2002, 2001 and 2000, respectively.
(b) The change in 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 losses 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.
Other comprehensive loss in 2000 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-5
REVLON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in millions)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ..................................................................................................... $
Adjustments to reconcile net loss to net cash
(used for) provided by operating activities:
Depreciation and amortization.............................................................
Loss on early extinguishment of debt..................................................
Gain on sale of marketable securities..................................................
Loss (gain) on sale of product line, brand and certain assets, net........
Change in assets and liabilities, net of acquisitions and dispositions:
(Increase) decrease in trade receivables.......................................
Decrease in inventories.................................................................
Decrease (increase) in prepaid expenses and
other current assets.....................................................
Increase (decrease) in accounts payable.......................................
Increase (decrease) 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..................................................................................
Sale of marketable securities.....................................................................
Proceeds from the sale of product line, brand and certain assets..............
Acquisition of technology rights...............................................................
Net cash (used for) provided by investing activities..................................
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in short-term borrowings - third parties...............
Proceeds from the issuance of long-term debt - third parties....................
Repayment of long-term debt - third parties..............................................
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 (decrease) increase 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
$
$
Year Ended December 31,
2001
(153.7)
$
$
2002
(286.5)
118.9
-
-
1.0
(9.4)
30.3
3.7
6.3
98.4
(66.2)
(8.8)
(112.3)
(16.0)
1.8
-
-
(14.2)
8.0
175.6
(73.0)
-
(0.3)
110.3
(1.3)
(17.5)
103.3
85.8
155.2
3.6
$
$
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..................................................
$
Issuance of common stock..................................................................
-
-
$
10.0
$
-
See Accompanying Notes to Consolidated Financial Statements.
F-6
2000
(129.7)
126.9
-
-
(13.2)
29.1
32.8
18.8
(21.0)
(80.7)
(51.4)
4.4
(84.0)
(19.0)
-
344.1
(3.0)
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 U.S. 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 the net (loss) income of Products Corporation and in 2002, 2001 and 2000 included approximately
$5.9, $2.6 and $1.7, 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.
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 (Including a Reseller of the Vendor’s
Products)” (the “Guidelines”), which addresses when sales incentives and discounts should be recognized, as well as
where the related revenues and expenses should be classified in the financial statements. The Company adopted the
earlier portion of these new Guidelines (formerly EITF Issue 00-14) addressing certain sales incentives effective
January 1, 2001, and accordingly, all prior period financial statements reflect the implementation of the earlier portion
of the Guidelines. The second portion of the Guidelines (formerly EITF Issue 00-25) addresses vendor income
statement characterization of consideration to a purchaser of the vendor’s products or services, including the
classification of slotting fees, cooperative advertising arrangements and buy-downs. Certain promotional payments
that were classified in SG&A expenses are now classified as a reduction of net sales. The impact of the adoption of
the second portion of the Guidelines on the consolidated financial statements reduced both net sales and SG&A
expenses by equal and offsetting amounts. Such adoption did not have any impact on the Company’s reported
operating loss or net loss. The Company adopted the second portion of the Guidelines effective January 1, 2002, and
accordingly, all prior period financial statements reflect the implementation of the second portion of the Guidelines.
The impact on net sales, gross profit and selling, general and administrative expenses (“SG&A”) as a result of
adopting the second portion of these new Guidelines was a reduction to net sales and gross profit of $43.9 and a
reduction of SG&A expenses of $43.9 in 200l, respectively, and a reduction to net sales and gross profit of $38.4 and
a reduction of SG&A expenses of $38.4 in 2000, respectively.
In April 2002, the FASB issued Statement No. 145, “Rescission of FASB Statements Nos. 4, 44, and 64,
Amendment of FASB Statement No. 13, and Technical Corrections”. Statement No. 145, among other things, rescinds
Statement No. 4, “Reporting Gains and Losses from Extinguishment of Debt”, and an amendment of that Statement,
Statement No. 64, “Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements”. Statement No. 4 required
F-7
that gains and losses from extinguishment of debt be classified as extraordinary items, if material. Under Statement
No. 145, extinguishment of debt should usually not be considered extraordinary under the criteria in APB Opinion No.
30, “Reporting the Results of Operations – Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions” (“APB No. 30”). The Company is
required to adopt the provisions of Statement No. 145 effective January 1, 2003, although earlier adoption is
permitted. The Company reclassified the extraordinary item for early extinguishment of debt of $3.6 incurred in the
fourth quarter of 2001 to other expenses on the Company’s consolidated statements of operations as it is no longer
considered to meet the extraordinary item classification criteria in APB No. 30.
Certain amounts in the prior year financial statements have been reclassified to conform to the current year’s
presentation.
During 2002 the Company recorded expenses of $104.2 (of which $99.3 was recorded in the fourth quarter of
2002) related to various aspects of the stabilization and growth phase of the Company's plan, primarily stemming from
higher sales returns and inventory writedowns from a selective reduction of SKUs, reduced distribution of the Ultima
II brand, higher allowances stemming from selective price adjustments on certain products, higher professional
expenses associated with the development of, research in relation to, and execution of the stabilization and growth
phase of the Company's plan, and writedowns associated with reconfiguring existing wall displays at the Company's
retail customers.
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 $22.9 and $15.3 was restricted and supported
short-term borrowings at December 31, 2002 and 2001, 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 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 net permanent wall displays amounting to approximately $85.2 and $91.8 as of
December 31, 2002 and 2001, respectively, which are amortized over 3 to 5 years. Beginning in the first quarter of
2002, the Company decided to roll out new permanent wall displays, replacing existing permanent wall displays at an
accelerated rate. As a result, the useful lives of those permanent wall displays to be replaced were shortened to their
new estimated useful lives, resulting in accelerated amortization of approximately $11 during 2002. The cost of the
F-8
new wall displays will be amortized over a 3-year life. The Company has included in other assets net costs related to
the issuance of its debt instruments amounting to approximately $26.7 and $33.3 as of December 31, 2002 and 2001,
respectively, which are amortized over the terms of the related debt instruments. In addition, the Company has
included in other assets trademarks, net, of $7.4 and $6.8 as of December 31, 2002 and 2001, respectively, and
patents, net, of $4.7 and $5.8 as of December 31, 2002 and 2001, respectively. Patents and trademarks are recorded
at cost and amortized ratably over approximately 10 to 17 years. Amortization expense for patents and trademarks for
2002, 2001 and 2000 was $2.0, $1.5 and $1.5, respectively. The Company’s trademarks and patents continue to be
subject to amortization, which is anticipated to be approximately $1.6 annually through December 31, 2007.
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. Statement No. 144 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
adopted the provisions of Statement 144 effective January 1, 2002 and such adoption had no effect on its financial
statements.
Intangible Assets Related to Businesses Acquired:
Intangible assets related to businesses acquired principally represent goodwill. In July 2001, the FASB
issued Statement No. 141, “Business Combinations”, and Statement No. 142, “Goodwill and Other Intangible Assets”.
Statement 141 requires that the purchase method of accounting be used for all business combinations initiated after
June 30, 2001, as well as all purchase method business combinations completed after June 30, 2001. Statement 141
also specifies criteria that must be met in order for intangible assets acquired in a purchase method business
combination to be recognized and reported apart from goodwill. Statement 142 requires that goodwill and intangible
assets with indefinite useful lives no longer be amortized, but instead tested for impairment at least annually in
accordance with the provisions of Statement 142. Statement 142 requires that intangible assets with finite useful lives
be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for
impairment in accordance with Statement 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”.
The Company adopted the provisions of Statement 141 in July 2001 and Statement 142 effective January 1, 2002. In
connection with the adoption of Statement 142, the Company performed a transitional goodwill impairment test as
required and determined that no goodwill impairment existed at January 1, 2002. The Company has also evaluated the
lives of all of its intangible assets. As a result of this evaluation, the Company has determined that none of its
intangible assets, other than goodwill, have indefinite lives and that the existing useful lives are appropriate. The
amounts outstanding for these intangible assets at December 31, 2002 and December 31, 2001 were as follows: for
trademarks, net, $7.4 and $6.8, respectively; for patents, net, $4.7 and $5.8, respectively (both of which are included
in other assets); and for goodwill, net, $185.9 at both December 31, 2002 and December 31, 2001. Accumulated
amortization aggregated $117.1 at both December 31, 2002 and 2001. Goodwill represents excess purchase price
over the fair value of assets acquired. Amortization of goodwill ceased on January 1, 2002 upon adoption of
Statement 142. Excluding amortization expense related to goodwill of $7.7 and $9.0 recognized during 2001 and
2000, respectively, net loss and basic and diluted loss per common share would have been $146.0 and $2.80 and
$120.7 and $2.31, respectively. Prior to January 1, 2002, the Company amortized goodwill on a straight-line basis
over 40 years.
F-9
Revenue Recognition:
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. These incentive costs are 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. The
Company allows customers to return their unsold products when they meet certain Company-established criteria as
outlined in the Company’s trade terms. The Company regularly reviews and revises, when deemed necessary, its
estimates of sales returns based primarily upon actual returns, planned product discontinuances, and promotional
sales, which would permit customers to return items based upon the Company’s trade terms. The Company records
sales returns as a reduction to sales and cost of sales, and an increase to accrued liabilities and to inventories.
Returned products which are recorded as inventories are valued based upon the amount that the Company expects to
realize upon their subsequent disposition. 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 the Company’s estimates if factors
such as product discontinuances, customer inventory levels or competitive conditions differ from the Company’s
estimates and expectations and, in the case of actual returns, if economic conditions differ significantly from the
Company’s estimates and expectations.
Cost of sales includes all of the costs to manufacture the Company’s products. For products manufactured in
the Company’s own facilities, such costs include raw materials and supplies, direct labor and factory overhead. For
products manufactured for the Company by third-party contractors, such costs represent the amounts invoiced by the
contractors. Cost of sales also includes the cost of refurbishing products returned by customers that will be offered for
resale and the cost of inventory write-downs associated with adjustments of held inventories to net realizable value.
These costs are reflected in the statement of operations when the product is sold and net sales revenues are recognized
or, in the case of inventory write-downs, when circumstances indicate that the carrying value of inventories is in
excess of its recoverable value. Additionally, cost of sales reflects the costs associated with free products. These
incentive costs are recognized on the later of the date that the Company recognizes the related revenue or the date on
which the Company offers the incentive.
SG&A expenses include expenses to advertise the Company’s products, such as television advertising
production costs and air-time costs, print advertising costs, promotional displays and consumer promotions. SG&A
also includes the amortization of permanent wall displays and intangible assets, distribution costs (such as freight and
handling), non-manufacturing overhead, principally personnel and related expenses, insurance and professional fees.
Accounts Receivable:
Accounts receivable represent payments due to the Company for previously recognized net sales, reduced by
an allowance for doubtful accounts for balances which are estimated to be uncollectible at December 31, 2002 and
2001. Accounts receivable balances are recorded against the allowance for doubtful accounts when they are deemed
uncollectible. Recoveries of accounts receivable previously recorded against the allowance are recorded in the
Consolidated Statements of Operations when received.
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. (a Delaware corporation which in
2002 converted into a Delaware limited liability company known as Revlon Holdings LLC (“Holdings”) and which is
an affiliate and an 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.
F-10
Pension and Other Postretirement and Postemployment Benefits:
The Company sponsors pension and other retirement plans in various forms covering substantially all
employees who meet the respective plan’s eligibility requirements. For plans in the U.S., the minimum amount
required pursuant to the Employee Retirement Income Security Act, as amended, is contributed annually. Various
subsidiaries outside the U.S. 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
2002, 2001 and 2000 were $23.3, $24.4 and $27.3, respectively.
Foreign Currency Translation:
Assets and liabilities of foreign operations are generally translated into U.S. 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.
Basic and Diluted (Loss) Income per Common Share and Classes of Stock:
The basic (loss) income per common share has been computed based upon the weighted average number of
shares of common stock outstanding during each of the periods presented. Diluted (loss) income per common share
has been computed based upon the weighted average number of shares of common stock outstanding. The Company’s
outstanding stock options and restricted 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 outstanding assuming the exercise of
stock options or the issuance of restricted stock because the effect of those 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.
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 LLC, a
Delaware limited liability company and an indirect wholly-owned subsidiary of Mafco Holdings, which was formerly
a Delaware corporation known as REV Holdings Inc. (“REV Holdings”). Mafco Holdings beneficially owns shares of
Common Stock having approximately 97% 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.
F-11
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 the 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 into the Company’s Class A Common Stock entitled to such dividend (provided that in February 2003 REV
Holdings waived its rights to receive any subscription rights in the Rights Offering (as defined in Note 20)). 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, dissolution or winding up of the Company before any distributions
are made to the holders of Common Stock. Each of the outstanding 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. At its option, the
Company may redeem the Series B Preferred Stock at any time for $720.0554 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.
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.
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. The following table illustrates the effect on net loss and net loss per basic and diluted common share as if the
Company had applied the fair value method to its stock-based compensation, which is more fully described in Note 14
as required under the disclosure provisions of Statement No. 123:
Year Ended December 31,
2001
2000
2002
Net loss as reported....................................................................
$
(286.5)
$
(153.7)
$
(129.7)
Add: Stock-based employee compensation
included in reported net loss..................................................
1.7
0.6
-
Deduct: Total stock-based employee compensation expense
determined under fair value based method for all awards.....
(6.9)
(10.2)
Pro forma net loss.......................................................................
$
(291.7)
$
(163.3)
$
(11.0)
(140.7)
Basic and diluted loss per common share:
As reported.............................................................................
Pro forma...............................................................................
$
$
(5.49)
(5.59)
$
$
(2.94)
(3.13)
$
$
(2.49)
(2.70)
The effects of applying SFAS No. 123 in this pro forma disclosure are not necessarily indicative of future
amounts.
Derivative Financial Instruments:
F-12
On January 1, 2001, the Company adopted SFAS 133, “Accounting for Derivative Instruments and Hedging
Activities,” as amended. The standard requires the recognition of all derivative instruments on the balance sheet as
either assets or liabilities measured at fair value. Changes in fair value are recognized immediately in earnings unless
the derivatives qualify as hedges of future cash flows. For derivatives qualifying as hedges of future cash flows, the
effective portion of changes in fair value is recorded as a component of Other Comprehensive Income and recognized
in earnings when the hedged transaction is recognized in earnings. Any ineffective portion (representing 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. If a derivative instrument designated as a hedge is terminated, the
unrecognized fair value of the hedge previously recorded in accumulated other comprehensive income (loss) is
recognized in earnings when the hedged transaction is recognized in earnings. If the transaction being hedged is
terminated, the unrecognized fair value of the Company’s related hedge instrument is recognized in earnings at that
time. There was no cumulative effect recognized for adopting this accounting change.
The Company formally designates and documents each financial instrument as a hedge of a specific
underlying exposure as well as the risk management objectives and strategies for entering into the hedge transaction
upon inception. The Company also formally assesses upon inception and quarterly thereafter whether the financial
instruments used in hedging transactions are effective in offsetting changes in the fair value or cash flows of the hedged
items.
The Company uses derivative financial instruments, primarily foreign currency forward exchange contracts,
to reduce the exposure of adverse effects of fluctuations in 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. Any
unrecognized income (loss) related to these contracts are recorded in the Statement of Operations when the underlying
transactions hedged are realized (e.g., when inventory is sold or intercompany transactions are settled). During 2002,
the Company entered into these contracts with a counterparty that is a major financial institution, and accordingly the
Company believes that the risk of counterparty nonperformance is remote. The notional amount of the foreign currency
forward exchange contracts outstanding at December 31, 2002 was $10.8. The fair value of the foreign currency
forward exchange contracts outstanding at December 31, 2002 was nil.
The amount of the hedges’ ineffectiveness for the year ended December 31, 2002 recorded in the
Consolidated Statements of Operations was not significant.
Advertising and Promotion:
Costs associated with advertising and promotion are expensed when incurred. Television advertising
production costs are expensed the first time the advertising takes place. Advertising and promotion expenses were
$281.2, $272.9 and $268.7 for 2002, 2001 and 2000, respectively.
The Company has various arrangements with customers pursuant to its trade terms 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 netted against revenues on the Company’s Consolidated Statements of
Operations.
Distribution Costs:
Costs, such as freight and handling costs, associated with distribution are expensed within SG&A when
incurred. Distribution costs were $56.5, $65.9 and $78.4 for 2002, 2001 and 2000, respectively.
F-13
2. 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 U.S., including certain operations in Japan.
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, principally for additional employee severance and other personnel benefits and to
restructure certain operations outside the U.S. The Company continued to implement the 1999 restructuring program
during the second quarter of 2000 during which it recorded a charge of $5.1, principally for exiting certain operations
in Japan and for additional employee severance and other personnel benefits.
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 the
Company’s worldwide operations.
During 2001, the Company recorded a charge of $38.1 related to the 2000 restructuring program, principally
for additional employee severance and other personnel benefits and relocation and other costs related to the
consolidation of the Company’s worldwide operations. Included in the $38.1 charge for 2001 was an adjustment in the
fourth quarter to previous estimates of approximately $6.6.
During 2002, the Company continued to implement the 2000 restructuring program, as well as other
restructuring actions, and recorded a charge of $13.6, principally for additional employee severance and other
personnel benefits, primarily resulting from reductions in the Company’s worldwide sales force, relocation and other
costs related to the consolidation of the Company’s worldwide operations.
In connection with the 2000 restructuring program, termination benefits for 2,446 employees were included in
the Company’s restructuring charges, substantially all of whom have been terminated as of December 31, 2002. The
remaining employees from the 2000 restructuring program, as well as other restructuring actions, are expected to be
terminated by December 31, 2003.
F-14
Details of the activity described above during 2002, 2001 and 2000 are as follows:
Balance
Beginning
of Year
Expenses, Net
Cash
Noncash
Utilized, Net
Balance
End
of Year
2002
Employee severance and other
personnel benefits.................................. $
Relocation.....................................................
Leases and equipment write-offs...................
Other obligations...........................................
$
2001
Employee severance and other
personnel benefits.................................. $
Relocation.....................................................
Leases and equipment write-offs...................
Other obligations...........................................
$
2000
Employee severance and other
personnel benefits.................................. $
Leases and equipment write-offs...................
Other obligations...........................................
$
15.1
-
7.4
0.3
22.8
28.6
-
5.9
1.5
36.0
24.6
7.6
1.8
34.0
$
$
$
$
$
$
10.1
0.6
1.7
1.2
13.6
27.5
3.8
5.6
1.2
38.1
44.6
6.9
2.6
54.1
$
$
$
$
$
$
(18.2)
(0.6)
(4.9)
(0.6)
(24.3)
(41.0)
(3.8)
(4.0)
(2.4)
(51.2)
(39.5)
(3.4)
(2.9)
(45.8)
$
$
$
$
$
$
-
-
(0.3)
-
(0.3)
-
-
(0.1)
-
(0.1)
(1.1)
(5.2)
-
(6.3)
$
$
$
$
$
$
7.0
-
3.9
0.9
11.8
15.1
-
7.4
0.3
22.8
28.6
5.9
1.5
36.0
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 its manufacturing facility in
Oxford, North Carolina. The plan was to relocate substantially all of the Phoenix equipment to the Oxford facility and
commence production there over a period of approximately nine months which would allow the Company to fully staff
the Oxford facility and to produce enough inventory through a combination of production in the Phoenix and Oxford
facilities to meet supply chain demand as the Phoenix facility production lines were dismantled, moved across the
country, and placed into service at the Oxford facility. Substantially all production at the Phoenix facility ceased by
June 30, 2001, and the facility was sold. At the time the decision was made, the useful lives of the facility and
production assets which would not be relocated to the Oxford facility were shortened to the nine-month period in
which the Phoenix facility would continue production. The Company began depreciating the net book value of the
Phoenix facility and production equipment in excess of their estimated salvage value over the estimated nine-month
useful life. This resulted in the recognition of increased depreciation through September 30, 2001 of $6.1, which is
included in cost of sales.
As of December 31, 2002, 2001 and 2000, the unpaid balance of the restructuring costs are included in
accrued expenses and other and other long-term liabilities in the Company’s Consolidated Balance Sheets. The
remaining balance at December 31, 2002 for employee severance and other personnel benefits of $7.0 are expected to
be paid by the end of 2004, lease and equipment obligations of $3.9 are expected to be paid by the end of 2008 and
other obligations of $0.9 are expected to be paid by the end of 2003.
F-15
3. Dispositions
Described below are the principal sales of a product line, certain brands and facilities entered into by
Products Corporations during 2002, 2001 and 2000:
On March 30, 2000, Products Corporation completed the disposition of its worldwide professional products
line, including professional hair care for use in and resale by professional salons, ethnic hair and personal care
products, Natural Honey skin care and certain regional toiletries brands, 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 investment. The disposition involved the sale of certain of Products Corporation’s subsidiaries throughout the
world devoted to the professional products line, as well as assets dedicated exclusively or primarily to the lines being
disposed. The worldwide professional products line 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, including the determination of the amount of the
consideration. In connection with the disposition, the Company recognized a pre-tax and after-tax net gain of $13.4,
consisting of $14.8 of a gain which was recorded in 2000 and $1.4 of additional costs which were recorded in the
fourth quarter of 2001. Approximately $150.3 of the Net Proceeds (as defined in the Credit Agreement (as hereinafter
defined)) were used to reduce the aggregate commitment under the 1997 Credit Agreement (as hereinafter defined).
On May 8, 2000, Products Corporation completed the disposition of the Plusbelle brand in Argentina for
$46.2 in cash. Approximately $20.7 of the Net Proceeds were used to reduce the aggregate commitment under the
1997 Credit Agreement. In connection with the disposition, the Company recognized a pre-tax and after-tax net loss of
$4.8.
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 net 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 pre-tax and after-tax net 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 its 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 net 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
manufactured and supplied to Products Corporation cosmetics and personal care products for sale throughout Europe.
In connection with such disposition, the Company recognized a pre-tax and after-tax net loss of $8.6.
In October 2002, Products Corporation and its principal third party manufacturer for Europe and certain other
international markets terminated the long-term supply agreement they had entered into in connection with Products
Corporation’s disposition of its Maesteg facility in July 2001, and they entered into a new, more flexible agreement.
This new agreement has significantly reduced volume commitments, and, among other things, Products Corporation
agreed to loan such supplier approximately $2.0 and the supplier can earn performance-based payments of
approximately $6.3 over a 4-year period, contingent upon the supplier achieving specific production service level
objectives. During 2002, the Company accrued $1.6 as a result of such supplier meeting the required production
service level objectives. As part of terminating the long-term supply agreement the supplier released Products
Corporation from its minimum purchase commitments under the old supply agreement, which were approximately
$145.5 over the 8-year term of such agreement. In exchange, Products Corporation waived approximately $10.0 of
deferred purchase price which otherwise would have been payable by the supplier to Products Corporation in
F-16
connection with the July 2001 sale of the Maesteg facility (a portion of which was contingent on future events). Such
deferred purchase price, absent such waiver, would have been payable by the supplier to Products Corporation over a
6-year period.
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 net gain on the sale of $3.1 in the fourth quarter of
2001.
In February 2002, Products Corporation completed the disposition of its Benelux business. As part of this
sale, Products Corporation entered into a long-term distribution agreement with the purchaser pursuant to which the
purchaser distributes the Company’s products in Benelux. The purchase price consisted principally of the assumption
of certain liabilities and a deferred purchase price contingent upon future results of up to approximately $4.7, which
could be received over approximately a seven-year period. In connection with the disposition, the Company
recognized a pre-tax and after-tax net loss of $1.0 in the first quarter of 2002.
4. Inventories
Raw materials and supplies...........................................................
Work-in-process............................................................................
Finished goods..............................................................................
December 31,
2002
2001
36.7
11.1
80.3
128.1
$
$
44.9
10.1
102.9
157.9
$
$
In the fourth quarter of 2002, the Company recorded a charge of $17.7 to write-down inventories related to
the implementation of the stabilization and growth phase of its plan and reduced distribution of its Ultima II brand.
5. Prepaid Expenses and Other
Prepaid expenses...........................................................................
Asset held for sale.........................................................................
Other.............................................................................................
December 31,
2002
2001
21.1
3.4
15.1
39.6
$
$
22.4
3.4
19.8
45.6
$
$
The asset held for sale represents a building in Canada, which the Company decided to sell in 2001 as a
result of the closing of its manufacturing facility in Canada. It is anticipated that such building will be sold in 2003.
F-17
6. Property, Plant and Equipment, Net
Land and improvements.......................................................................
Buildings and improvements...............................................................
Machinery and equipment and capitalized leases................................
Office furniture and fixtures and capitalized software.........................
Leasehold improvements.....................................................................
Construction-in-progress......................................................................
Accumulated depreciation...................................................................
December 31,
2002
2001
2.2
80.5
124.1
99.9
18.1
13.6
338.4
(205.0)
133.4
$
$
2.4
79.8
112.5
108.8
18.3
10.5
332.3
(189.5)
142.8
$
$
Depreciation expense for the years ended December 31, 2002, 2001 and 2000 was $34.5, $36.8 and $42.4,
respectively. The Company has evaluated its management information systems and determined, among other things, to
upgrade its systems. As a result of this decision, certain existing information systems are being amortized on an
accelerated basis. The additional amortization recorded in 2002 was $4.
7. Accrued Expenses and Other
Sales returns and allowances...................................................................
Advertising and promotional costs..........................................................
Compensation and related benefits.........................................................
Interest....................................................................................................
Taxes, other than federal income taxes...................................................
Restructuring costs..................................................................................
Other.......................................................................................................
December 31,
2002
2001
174.1
59.2
63.2
39.5
12.2
8.3
35.8
392.3
$
$
69.3
60.5
61.6
40.2
5.5
18.9
25.3
281.3
$
$
8. Short-term Borrowings
Products Corporation had outstanding short-term bank borrowings (excluding borrowings under the Credit
Agreement) aggregating $25.0 and $17.5 at December 31, 2002 and 2001, respectively. Interest rates on amounts
borrowed under such short-term lines at December 31, 2002 and 2001 ranged from 2.5% to 6.5% and from 3.0% to
5.6%, respectively, excluding Latin American countries in which the Company had outstanding borrowings of
approximately $1.7 and $1.2 at December 31, 2002 and 2001, respectively. Compensating balances at December 31,
2002 and 2001 were approximately $22.9 and $15.3, respectively. Interest rates on compensating balances at
December 31, 2002 and 2001 ranged from 1.5% to 5.6% and 2.1% to 4.0%, respectively.
F-18
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,
2002
223.1
249.7
250.0
649.9
353.3
24.1
1,750.1
-
1,750.1
2001
119.2
249.6
250.0
649.9
350.8
24.1
1,643.6
-
1,643.6
$
$
$
$
(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 "Original 12% Notes"), receiving gross proceeds of $350.5 (see footnote (e) below) (the issuance of
the Original 12% Notes and the 2001 Credit Agreement are referred to herein as the “2001 Refinancing
Transactions”). Products Corporation used the proceeds from the Original 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 was available for
general corporate purposes. On June 21, 2002, the Original 12% Notes were exchanged for new 12% Senior Secured
Notes due 2005 which have substantially identical terms as the Original 12% Notes (the “12% Notes”), except that the
12% Notes are registered with the Securities and Exchange Commission (the “Commission”) under the Securities Act
of 1933 (as amended, the “Securities Act”) and the transfer restrictions and registration rights applicable to the
Original 12% Notes do not apply to the 12% Notes. (See Note 19 for discussion of recent amendments to the Credit
Agreement).
The 2001 Credit Agreement, as of December 31, 2002, provides up to $248.7 and consists of a $116.6 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 to 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 in standby and commercial letters of credit denominated in U.S. dollars up to $50.0,
$25.3 of which was issued but undrawn at December 31, 2002 and (iii) to Products Corporation and certain of its
international subsidiaries designated from time to time in revolving credit loans and bankers’ acceptances
denominated in U.S. dollars and other currencies (the “Local Loans”). At December 31, 2002 and 2001, the Company
had $116.6 and $117.9, respectively, outstanding under the Term Loan Facility, and $131.8 ($25.3 of which was
issued but undrawn letters of credit) and $28.6 ($27.3 of which was issued but undrawn letters of credit),
respectively, outstanding under the Multi-Currency Facility.
The Credit Facilities (other than loans in foreign currencies) bear interest as of December 31, 2002 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% (which interest rate changed as a result of the amendment to the Credit Agreement discussed in Note 19).
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 pays to those lenders having multi-currency commitments a commitment fee of
0.75% of the average daily unused portion of the Multi-Currency Facility, which fee is payable quarterly in arrears.
Under the Multi-Currency 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
F-19
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 the 2001 Credit Agreement. Prior to the termination date of the 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. Products Corporation made its applicable installment payment
on November 30, 2002. 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 certain specified dispositions), subject to certain limited 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 and the Multi-Currency Facility were 7.75% and 7.81% at
December 31, 2002, respectively, 7.75% and 8.49% at December 31, 2001, respectively, and 10.2% and 9.7% at
December 31, 2000, respectively.
The Credit Facilities are supported by, among other things, 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 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; (iv) domestic inventory, accounts 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 Facility (to support their borrowings only). The Credit 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
Corporation, such as interest rate hedging obligations and working capital lines, and on a second-priority basis with
Products Corporation’s obligations under the 12% Notes.
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 Revlon, Inc. or other affiliates, with certain 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 fees, 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 (as may be
amended and restated from time to time, 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 transactions, (v) prepaying indebtedness and modifying the terms of certain indebtedness and
specified 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 Corporation to
maintain specified cumulative EBITDA levels and limiting the leverage ratio of Products Corporation, which financial
covenants, among the other amendments referred to in Note 19, the bank lenders under the Credit Agreement waived
for the four quarters ended December 31, 2002, deleted for the first three quarters of 2003 and waived until January
31, 2004 for the fourth quarter of 2003. In addition, the amendment increased the maximum limit on capital
expenditures (as defined in the Credit Agreement) to $115 for 2003 and includes a minimum liquidity covenant
F-20
requiring Products Corporation to maintain a minimum of $20 in liquidity from all available sources at all times.
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. Among such
customary events of default under the Credit Agreement is a cross-default provision which provides that it is an event
of default under the Credit Agreement if Products Corporation or any of its subsidiaries (as defined under the Credit
Agreement) (i) defaults in the payment of certain indebtedness when due (whether at maturity or by acceleration) in
excess of $5.0 in aggregate principal amount or (ii) defaults in the observance or performance of any other agreement
or condition relating to such debt, provided that the amount of debt involved is in excess of $5.0 in aggregate principal
amount, or any other event occurs, the effect of such default or other event would cause or permit the holders of such
debt to accelerate payment.
Upon entering into the 2001 Credit Agreement, the Company recorded a charge of $3.6 ($.07 basic and
diluted loss per common share) for associated costs.
(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 the Mafco Loans (as hereinafter defined), 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 Products Corporation’s assets. The 8 1/8% 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.
(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 the Mafco Loans, 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.
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.
Upon a Change of 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
F-21
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.
The 9% 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 Products Corporation’s assets. The 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.
(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 and the Mafco Loans, (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.
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 of
payment to the 8 5/8% Notes. The 8 5/8% 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.
(e) On November 26, 2001, prior to closing on the 2001 Credit Agreement, Products Corporation issued and
sold $363.0 in aggregate principal amount of Original 12% Notes in a private placement receiving gross proceeds of
$350.5. The effective interest rate on the 12% Notes is 13.125%. Products Corporation used the proceeds from the
Original 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 was available for general corporate purposes. On June 21, 2002, the
Original 12% Notes were exchanged for the new 12% Notes which have substantially identical terms as the Original
12% Notes, except that the 12% Notes are registered with the Commission under the Securities Act and the transfer
restrictions and registration rights applicable to the Original 12% Notes do not apply to the 12% Notes.
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 from Revlon, Inc. and, subject to
certain limited exceptions, Products Corporation's domestic subsidiaries. The obligations of Products Corporation
F-22
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 the 12% Notes Indenture) including the 8 1/8% Notes,
the 9% Notes and the indebtedness under the Credit Agreement and the Mafco Loans, 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. The 12% Notes mature
on December 1, 2005. Interest is payable on June 1 and December 1, beginning June 1, 2002.
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 of 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.
The 12% 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 Products Corporation’s assets. The 12% 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.
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.
The 8 1/8% Notes Indenture, the 9% Notes Indenture, the 8 5/8% Notes Indenture and the 12% Notes
Indenture each include a cross acceleration provision which provides that it shall be an event of default under each
such indenture if any debt (as defined in each such indenture) of Products Corporation or any of its significant
subsidiaries (as defined in each such indenture), and in the case of the 12% Notes Indenture, Revlon, Inc., is not paid
within any applicable grace period after final maturity or is accelerated by the holders of such debt because of a
default and the total principal amount of the portion of such debt that is unpaid or accelerated exceeds $25.0 and such
default continues for 10 days after notice from the trustee under each such indenture. If any such event of default
occurs, the trustee under each such indenture or the holders of at least 25% in principal amount of the outstanding notes
under each such indenture may declare all such notes to be due and payable immediately, provided that the holders of
a majority in aggregate principal amount of the outstanding notes under each such indenture may, by notice to the
trustee, waive any such default or event of default and its consequences under each such indenture.
(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, 2002, 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.
F-23
The aggregate amounts of long-term debt maturities (at December 31, 2002), in the years 2003 through 2007
are nil, nil, $600.5, $499.7 and nil, respectively, and $649.9 thereafter.
The Company expects that operating revenue, cash on hand, proceeds from the Rights Offering (as hereinafter
defined in Note 19) (which may be advanced to the Company as a result of the $50 million Series C preferred stock
investment (as hereinafter defined in Note 19) prior to the consummation of the Rights Offering if Products
Corporation has fully drawn the MacAndrews & Forbes $100 million term loan (as hereinafter defined in Note 19))
and funds available for borrowing under the Credit Agreement and the Mafco Loans (as hereinafter defined in Note
19) will be sufficient to enable the Company to cover its operating expenses, including cash requirements in
connection with the Company’s operations, the stabilization and growth phase of the Company’s plan, cash
requirements in connection with the Company’s restructuring programs referred to in Note 2 above and the Company’s
debt service requirements for 2003. The Mafco Loans and the proceeds from the Rights Offering are intended to help
fund the stabilization and growth phase of the Company’s plan and to decrease the risk that would otherwise exist if
the Company were to fail to meet its debt and ongoing obligations as they became due in 2003. However, there can be
no assurance that such funds will be sufficient to meet the Company's cash requirements on a consolidated basis. If the
Company's anticipated level of revenue growth is not achieved because, for example, of decreased consumer spending
in response to weak economic conditions or weakness in the cosmetics category, increased competition from the
Company's competitors or the Company's marketing plans are not as successful as anticipated, or if the Company's
expenses associated with implementation of the stabilization and growth phase of the Company’s plan exceed the
anticipated level of expenses, the Company's current sources of funds may be insufficient to meet the Company's cash
requirements. Additionally, in the event of a decrease in demand for Products Corporation’s products or reduced sales
or lack of increases in demand and sales as a result of the Company’s plan, such development, if significant, could
reduce Products Corporation’s operating revenues and could adversely affect Products Corporation’s ability to
achieve certain financial covenants under the Credit Agreement 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
from these sources, the Company could be required to adopt one or more alternatives, such as delaying the
implementation of or revising aspects of the stabilization and growth phase of its plan, reducing or delaying purchases
of wall displays or advertising or promotional expenses, reducing or delaying capital spending, delaying, reducing or
revising restructuring programs, restructuring indebtedness, selling assets or operations, seeking additional capital
contributions or loans from MacAndrews & Forbes, the Company’s other affiliates and/or third parties, selling
additional equity securities of Revlon, Inc. or reducing other discretionary spending. The Company has substantial
debt maturing in 2005 which will require refinancing, consisting of $246.3 (assuming the maximum amount is
borrowed) under the Credit Agreement and $363.0 of 12% Notes, as well as amounts, if any, borrowed under the
MacAndrews & Forbes $100 million term loan and the MacAndrews & Forbes $40-65 million line of credit.
As discussed in Note 19, the amendment to and waiver of various provisions of Products Corporation’s
Credit Agreement provide for, among other things, a waiver through January 31, 2004 of compliance with its EBITDA
and leverage ratio covenants through the fourth quarter of 2003. The Company expects that Products Corporation will
need to seek a further amendment to the Credit Agreement or a waiver of the EBITDA and leverage ratio covenants
under the Credit Agreement prior to the expiration of the existing waiver on January 31, 2004 because the Company
does not expect that its operating results, including after giving effect to various actions under the stabilization and
growth phase of the Company's plan, will allow Products Corporation to satisfy those covenants for the four
consecutive fiscal quarters ending December 31, 2003. The minimum EBITDA required to be maintained by Products
Corporation under the Credit Agreement is $230 for each of the four consecutive fiscal quarters ending on December
31, 2003 (which covenant was waived through January 31, 2004), March 31, 2004, June 30, 2004 and September 30,
2004 and $250 for any four consecutive fiscal quarters ending December 31, 2004 and thereafter and the leverage
ratio covenant under the Credit Agreement will permit a maximum ratio of 1.10:1.00 for any four consecutive fiscal
quarters ending on or after December 31, 2003 (which limit was waived through January 31, 2004 for the four fiscal
quarters ending December 31, 2003). In addition, after giving effect to the amendment, the Credit Agreement also
contains a $20 minimum liquidity covenant. While the Company expects that Products Corporation's bank lenders will
consent to such amendment or waiver request, there can be no assurance that they will or that they will do so on terms
that are favorable to the Company. If the Company is unable to secure such amendment or waiver, it could be required
to refinance the Credit Agreement or repay it with proceeds from the sale of assets or operations, or additional capital
contributions or loans from MacAndrews & Forbes or the Company's other affiliates or third parties, or the sale of
additional equity securities of Revlon, Inc. In the event that Products Corporation were unable to secure such a
waiver or amendment and Products Corporation were not able to refinance or repay the Credit Agreement, Products
Corporation’s inability to meet the financial covenants for the four consecutive fiscal quarters ending December 31,
F-24
2003 would constitute an event of default under Products Corporation’s Credit Agreement, which would permit the
bank lenders to accelerate the Credit Agreement, which in turn would constitute an event of default under the
indentures governing Products Corporation’s debt if the amount accelerated exceeds $25.0 and such default remains
uncured within 10 days of notice from the trustee under the applicable indenture.
There can be no assurance that the Company would be able to take any of the actions referred to in the
preceding two paragraphs because of a variety of commercial or market factors or constraints in the Company’s debt
instruments, including, for example, Products Corporation's inability to reach agreement with its bank lenders on
refinancing terms that are acceptable to the Company before the waiver of its financial covenants expires on January
31, 2004, market conditions being unfavorable for an equity or debt offering, or that the transactions may not be
permitted under the terms of the Company's various debt instruments then in effect, because of restrictions on the
incurrence of debt, incurrence of liens, asset dispositions and related party transactions. In addition, such actions, if
taken, may not enable the Company to satisfy its cash requirements if the actions do not generate a sufficient amount of
additional capital.
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 Mafco Loans, 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 fees, 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.
10. Guarantor Condensed Consolidating Financial Data
On June 21, 2002, the Original 12% Notes were exchanged for the new 12% Notes which have substantially
identical terms as the Original 12% Notes, except that the 12% Notes are registered with the Commission under the
Securities Act, and the transfer restrictions and registration rights applicable to the Original 12% Notes do not apply
to the 12% Notes. 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”) (Subsidiaries of Products Corporation that do not guarantee the 12% Notes are referred to as the “Non-
Guarantor Subsidiaries”). The Supplemental Guarantor Condensed Consolidating Financial Data presented below
presents the balance sheets, statements of operations and statements of cash flow data (i) for Products Corporation and
the Guarantor Subsidiaries and the Non-Guarantor Subsidiaries on a consolidated basis (which is derived from
Products Corporation’s historical reported financial information); (ii) for Products Corporation as the “Parent
Company”, alone (accounting for its Guarantor Subsidiaries and the Non-Guarantor Subsidiaries on an equity basis
under which the investments are recorded by each entity owning a portion of another entity at cost, adjusted for the
applicable share of the subsidiary’s cumulative results of operations, capital contributions and distributions, and other
equity changes); (iii) for the Guarantor Subsidiaries alone; and (iv) for the Non-Guarantor Subsidiaries alone.
Additionally, Products Corporation’s 12% Notes are fully and unconditionally guaranteed by Revlon, Inc. The
consolidating condensed balance sheets, consolidating condensed statements of operations and consolidating
condensed statements of cash flow for Revlon, Inc. have not been included in the accompanying Supplemental
Guarantor Condensed Consolidating Financial Data as such information is not materially different than those of
Products Corporation.
F-25
Condensed Consolidating Balance Sheets
As of December 31, 2002
(dollars in millions)
ASSETS
Consolidated
Eliminations
Current assets.......................................................................
Intercompany receivables.....................................................
Investment in subsidiaries....................................................
Property, plant and equipment, net.......................................
Other assets..........................................................................
Intangible assets...................................................................
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........................
$
$
$
$
476.7
-
-
133.4
129.7
198.0
937.8
509.9
-
1,750.1
320.0
2,580.0
(1,642.2)
937.8
$
$
$
$
-
(1,526.4)
277.6
-
-
-
(1,248.8)
-
(1,526.4)
-
-
(1,526.4)
277.6
(1,248.8)
Parent
Guarantor
Company
256.5
850.7
(228.1)
118.1
110.0
160.8
1,268.0
360.7
501.0
1,742.9
305.6
2,910.2
(1,642.2)
1,268.0
$
$
$
$
Subsidiaries
$
$
$
$
35.8
471.5
(107.8)
2.9
3.3
3.3
409.0
30.9
645.9
6.5
15.5
698.8
(289.8)
409.0
Condensed Consolidating Statement of Operations
For the Year Ended December 31, 2002
(dollars in millions)
Net sales............................................................................................... $
Cost of sales.........................................................................................
Gross profit....................................................................................
Selling, general and administrative expenses.......................................
Restructuring costs and other, net.........................................................
1,119.4
503.7
615.7
711.1
13.6
Consolidated
Parent
Guarantor
$
Eliminations
(134.4)
(134.4)
-
-
-
$
Company
697.4
297.3
400.1
483.3
8.0
$
Subsidiaries
187.9
156.7
31.2
37.3
0.3
$
$
$
$
$
Non-
Guarantor
Subsidiaries
184.4
204.2
58.3
12.4
16.4
33.9
509.6
118.3
379.5
0.7
(1.1)
497.4
12.2
509.6
Non-
Guarantor
Subsidiaries
368.5
184.1
184.4
190.5
5.3
Operating loss................................................................................
(109.0)
-
(91.2)
(6.4)
(11.4)
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................................................................
156.9
1.0
10.3
-
168.2
-
-
-
(139.4)
(139.4)
155.7
-
(23.5)
61.7
193.9
0.5
-
(5.4)
78.7
73.8
Loss before income taxes.....................................................................
(277.2)
139.4
(285.1)
(80.2)
Provision (benefit) for income taxes.....................................................
4.6
-
(3.3)
3.3
0.7
1.0
39.2
(1.0)
39.9
(51.3)
4.6
Net loss................................................................................................. $
(281.8)
$
139.4
$
(281.8)
$
(83.5)
$
(55.9)
F-26
Condensed Consolidating Statement of Cash Flow
For the Year Ended December 31, 2002
(dollars in millions)
Consolidated
Eliminations
Parent
Company
Guarantor
Subsidiaries
Non-
Guarantor
Subsidiaries
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash (used for) provided by operating activities............................ $
(112.3)
$
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................
Repayment of long-term debt - third parties.........................................
Payment of debt issuance costs.............................................................
Net cash provided by financing activities.............................................
Effect of exchange rate changes on cash and cash equivalents.............
Net (decrease) increase in cash and cash equivalents....................
Cash and cash equivalents at beginning of period.........................
Cash and cash equivalents at end of period................................... $
(16.0)
1.8
(14.2)
8.0
175.6
(73.0)
(0.3)
110.3
(1.3)
(17.5)
103.3
85.8
$
-
-
-
-
-
-
-
-
-
-
-
-
-
$
(113.3)
$
(11.0)
$
12.0
(13.6)
1.8
(11.8)
0.1
155.2
(57.2)
(0.3)
97.8
0.3
(27.0)
55.0
28.0
$
$
-
-
-
2.8
14.2
(8.4)
-
8.6
0.1
(2.3)
10.1
7.8
$
(2.4)
-
(2.4)
5.1
6.2
(7.4)
-
3.9
(1.7)
11.8
38.2
50.0
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...................................................................
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
$
$
$
$
-
(1,337.0)
179.2
-
-
-
(1,157.8)
-
(1,337.0)
-
-
(1,337.0)
179.2
(1,157.8)
Parent
Guarantor
Company
294.9
737.5
(150.1)
131.1
115.5
161.9
1,290.8
258.7
436.9
1,642.2
241.8
2,579.6
(1,288.8)
1,290.8
$
$
$
$
Subsidiaries
$
$
$
$
28.2
409.4
(61.2)
3.3
6.7
3.4
389.8
21.0
540.0
-
9.1
570.1
(180.3)
389.8
$
$
$
$
Non-
Guarantor
Subsidiaries
194.8
190.1
32.1
8.4
10.0
33.2
468.6
106.0
360.1
1.4
-
467.5
1.1
468.6
F-27
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.............................................................
1,277.6
544.2
733.4
676.6
38.1
Consolidated
Parent
Guarantor
$
Eliminations
(132.9)
(132.9)
-
-
-
$
Company
800.6
323.8
476.8
432.6
25.4
$
Subsidiaries
155.6
121.5
34.1
36.0
1.4
$
Non-
Guarantor
Subsidiaries
454.3
231.8
222.5
208.0
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..............................................................................
Loss on early extinguishment of debt.................................................
Equity in earnings of subsidiaries......................................................
Other expenses, net....................................................................
137.8
14.4
11.1
3.6
-
166.9
-
-
-
-
(102.4)
(102.4)
132.4
-
(17.0)
3.6
51.9
170.9
Loss before income taxes .........................................................................
(148.2)
102.4
(152.1)
Provision for income taxes........................................................................
4.0
-
0.1
1.6
(0.4)
(12.7)
-
49.0
37.5
(40.8)
2.6
3.2
3.8
14.8
40.8
-
1.5
60.9
(57.7)
1.3
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)
$
(42.0)
$
11.5
$
(55.0)
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)
(17.6)
(1.0)
(25.9)
92.7
-
44.4
10.7
55.1
$
(1.7)
56.8
55.1
1.6
22.9
(31.3)
(52.6)
-
-
(59.4)
-
7.2
2.9
10.1
$
(0.4)
38.8
38.4
(12.9)
18.1
(62.4)
69.2
-
-
12.0
-
(4.6)
42.7
38.1
F-28
Condensed Consolidating Statement of Operations
For the Year Ended December 31, 2000
(dollars in millions)
Consolidated
Eliminations
Net sales................................................................................................. $
Cost of sales...........................................................................................
Gross profit......................................................................................
Selling, general and administrative expenses.........................................
Restructuring costs and other, net...........................................................
$
1,409.4
574.3
835.1
763.4
54.1
Operating income (loss)..................................................................
17.6
-
-
-
-
-
-
Parent
Guarantor
$
$
Company
768.3
288.8
479.5
388.9
19.8
Subsidiaries
148.7
116.3
32.4
67.2
1.4
$
Non-
Guarantor
Subsidiaries
492.4
169.2
323.2
307.3
32.9
70.8
(36.2)
(17.0)
Other expenses (income):
Interest expense, net........................................................................
(Gain) loss 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
-
-
-
(413.0)
(413.0)
119.6
(121.1)
(0.5)
225.2
223.2
12.3
(0.6)
(36.0)
186.5
162.2
10.5
110.9
41.9
1.3
164.6
Loss before income taxes ......................................................................
(119.4)
413.0
(152.4)
(198.4)
(181.6)
Provision for income taxes.....................................................................
8.6
-
(24.4)
26.8
6.2
Net loss...................................................................................................$
(128.0)
$
413.0
$
(128.0)
$
(225.2)
$
(187.8)
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...............................................................................
Proceeds from the sale of certain assets.................................................
Acquisition of technology rights............................................................
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.................................................................
(19.0)
344.1
(3.0)
322.1
(2.7)
339.1
(538.7)
-
(1.4)
Net cash used for financing activities.....................................................
(203.7)
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..................................... $
(3.5)
30.9
25.4
56.3
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$
34.8
$
(40.6)
$
(78.2)
(12.9)
180.9
(3.0)
165.0
-
286.7
(428.6)
(32.9)
(1.4)
(176.2)
-
23.6
(12.8)
10.8
$
(1.1)
64.9
-
63.8
0.1
16.1
(15.8)
(26.3)
-
(25.9)
(0.1)
(2.8)
5.7
2.9
$
$
(5.0)
98.3
-
93.3
(2.8)
36.3
(94.3)
59.2
-
(1.6)
(3.4)
10.1
32.5
42.6
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 (excluding amounts due to affiliates of $24.1) at December 31, 2002 and 2001, respectively, was
approximately $513.9 and $524.1 less than the carrying values of $1,726.0 and $1,619.5, respectively.
F-29
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 $25.3 and $27.3
(including amounts available under credit agreements in effect at that time) were maintained at December 31, 2002
and 2001, respectively. Included in these amounts are $10.5 and $10.1, 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.
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 2002, 2001 or 2000. The Company had a liability of $0.9 to Holdings in
respect of alternative minimum taxes for 1997 under the Tax Sharing Agreement. However, as a result of tax
legislation enacted in the first quarter of 2002, the Company was able to recognize tax benefits of $0.9 in 2002, which
completely offset this liability.
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-30
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 (benefit) 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,
2001
2002
(213.0)
(68.7)
(281.7)
(0.9)
0.4
5.3
4.8
8.0
(1.2)
(2.0)
-
-
4.8
$
$
$
$
$
$
(83.2)
(66.4)
(149.6)
-
0.4
3.7
4.1
7.8
(0.1)
(3.6)
-
-
4.1
$
$
$
$
$
$
2000
(47.4)
(73.7)
(121.1)
-
0.4
8.2
8.6
8.5
0.8
(1.9)
0.7
0.5
8.6
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,
2001
2000
2002
(35.0) %
0.1
(4.1)
-
44.1
(3.1)
(0.3)
1.7 %
(35.0) %
0.2
(35.0) %
0.2
0.5
1.4
29.2
9.7
(3.2)
2.8 %
1.9
2.0
10.7
26.8
0.5
7.1 %
F-31
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and
deferred tax liabilities at December 31, 2002 and 2001 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......................
Capital loss carryover..........................................................................................
Deferred interest expense....................................................................................
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,
2002
2001
$
5.0
18.9
266.1
122.6
5.9
67.3
12.2
53.5
7.8
9.7
34.2
603.2
(569.2)
34.0
(25.8)
(3.2)
(29.0)
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)
3.3
Net deferred tax assets................................................................................. $
5.0
$
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. Management considers the scheduled reversal of deferred tax liabilities, projected
future taxable income, and tax planning strategies in making this assessment. Based upon the level of historical 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, 2002.
The valuation allowance increased by $117.4 during 2002, increased by $14.3 during 2001 and decreased by
$6.3 during 2000.
During 2002, 2001 and 2000, certain of the Company’s foreign subsidiaries used operating loss
carryforwards to credit the current provision for income taxes by $2.0, $3.6, and $1.9, respectively. Certain other
foreign operations generated losses during 2002, 2001 and 2000 for which the potential tax benefit was reduced by a
valuation allowance. At December 31, 2002, the Company had tax loss carryforwards of approximately $1,138.4, of
which $760.4 are domestic and $378.0 are foreign, and which expire in future years as follows: 2003-$22.6; 2004-
$26.5; 2005-$61.5; 2006-$41.8; 2007 and beyond-$830.1; and unlimited-$155.9. 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 tax 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 Mafco Holdings’ consolidated federal income tax
return, 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 would not be available to
the Company should the Company cease being a member of Mafco Holdings’ consolidated federal income tax return at
any time in the future.
F-32
Appropriate U.S. 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 are nil at December 31, 2002,
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 U.S. are covered by defined benefit pension plans.
The Company uses September 30 as its measurement date for plan obligations and assets.
Other Postretirement Benefits:
The Company also has sponsored an unfunded retiree benefit plan, which provides death benefits payable to
beneficiaries of a limited number of employees and former 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.
F-33
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.........................................................................
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.................................................................
Unrecognized prior service cost.................................................
Unrecognized net transition asset...............................................
Accrued benefit cost.............................................................. $
Amounts recognized in the Consolidated Balance Sheets
consist of:
Prepaid expenses................................................................... $
Accrued expenses..................................................................
Other long-term liabilities.....................................................
Intangible asset......................................................................
Accumulated other comprehensive loss................................
Other long-term assets...........................................................
$
2002
(422.8)
(8.5)
(28.5)
-
(23.1)
-
23.6
(3.5)
(0.3)
-
-
(463.1)
282.7
(20.8)
12.5
-
0.3
(23.6)
2.0
-
253.1
(210.0)
1.5
137.1
(5.5)
(0.2)
(77.1)
4.9
(16.6)
(179.8)
0.5
113.6
0.3
(77.1)
$
$
$
$
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
(15.0)
(112.3)
0.5
46.1
0.4
(75.9)
$
$
$
$
2002
(10.8)
-
(0.8)
-
(0.7)
-
0.7
-
-
-
-
(11.6)
-
-
0.7
-
-
(0.7)
-
-
-
(11.6)
0.2
0.8
-
-
(10.6)
-
-
(10.6)
-
-
-
(10.6)
$
$
$
$
2001
(9.7)
-
(0.8)
-
(1.0)
-
0.7
-
-
-
-
(10.8)
-
-
0.7
-
-
(0.7)
-
-
-
(10.8)
0.1
-
-
-
(10.7)
-
-
(10.7)
-
-
-
(10.7)
With respect to the above accrued benefit costs, the Company has recorded a receivable from affiliates of
$1.3 and $1.2 at December 31, 2002 and 2001, respectively, relating to Holdings’ participation in the Company’s
pension plans and $1.2 and $1.3 at December 31, 2002 and 2001, respectively, for other postretirement benefits costs
attributable to Holdings.
F-34
The following weighted-average assumptions were used in accounting for the plans:
Discount rate...........................................................
Expected return on plan assets................................
Rate of future compensation increases....................
U.S. Plans
2001
7.0%
9.5
5.0
2002
6.5%
9.0
4.3
2000
7.5%
9.5
5.3
The components of net periodic benefit cost for the plans are as follows:
International Plans
2001
5.8%
8.5
3.7
2002
5.6%
7.5
3.5
2000
6.5%
9.0
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 loss (gain)...............................
Curtailment loss (gain).............................
Portion allocated to Holdings...................
$
Pension Plans
Other Postretirement Benefits
Year Ended December 31,
2002
8.5
28.5
(24.7)
(1.1)
(0.1)
2.8
-
-
13.9
(0.3)
13.6
$
$
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
$
$
2002
-
0.8
-
-
-
(0.1)
-
-
0.7
-
0.7
$
$
2001
-
0.8
-
-
-
(0.1)
-
-
0.7
-
0.7
$
$
2000
-
0.7
-
-
-
(0.1)
-
-
0.6
-
0.6
Where the accumulated benefit obligation exceeded the 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:
Projected benefit obligation................................................................................. $
Accumulated benefit obligation...........................................................................
Fair value of plan assets.......................................................................................
2002
463.1
445.6
253.1
14. Stock Compensation Plan
December 31,
2001
419.6
402.9
280.0
$
$
2000
60.5
53.9
5.0
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. 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 71% in
2002, 68% in 2001 and 69% in 2000; weighted average risk-free interest rate of 3.86% in 2002, 5.07% in 2001, and
6.53% in 2000; and a seven-year expected average life for the Amended Stock Plan’s options issued in 2002, 2001
and 2000.
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 10.5 million shares of 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 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, subject to limited exceptions and 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
F-35
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 2002, 2001 or 2000. The option grant of 400,000 shares in February 2002 to Mr. Jack L. Stahl, the Company’s
President and Chief Executive Officer, vests in full on the fifth anniversary of such grant, provided that one-half of
such options vest on the day after which the 20-day average closing price of Class A Common Stock on the New York
Stock Exchange (“NYSE”) equals or exceeds $30.00 per share and the balance will vest on the day after which such
20-day average closing price equals or exceeds $40.00 per share. Additionally, various option grants made by the
Company to its employees vest upon a “change in control” as defined in the respective stock option agreements.
During each of 2002, 2001 and 2000, the Company granted to Mr. Perelman, the Company’s Chairman of the Board
and Chairman of the Executive Committee of the Board, options to purchase 100,000, 225,000 and 300,000,
respectively, shares of Revlon, Inc. Class A Common Stock, which grants will vest 33% on each anniversary date of
the grant and will become 100% vested on the third anniversary date of the grant date as to the 2002 grant, 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, and will vest in full on the fifth anniversary of the grant date as to the 2000 grant. At
December 31, 2002, 2001 and 2000 there were 2,847,972, 3,296,133 and 3,009,908 options exercisable under the
Amended Stock Plan, respectively.
A summary of the status of the Amended Stock Plan as of December 31, 2002, 2001 and 2000 and changes
during the years then ended is presented below:
Outstanding at January 1, 2000............
Granted................................................
Exercised..............................................
Forfeited...............................................
Outstanding at December 31, 2000......
Granted................................................
Exercised..............................................
Forfeited...............................................
Outstanding at December 31, 2001......
Granted................................................
Exercised..............................................
Forfeited...............................................
Outstanding at December 31, 2002......
Shares
(000)
5,771.2
Weighted Average
Exercise Price
$26.42
1,769.1
-
(936.8)
6,603.5
1,087.6
(0.2)
(788.8)
6,902.1
3,306.8
-
(2,322.8)
7,886.1
7.15
-
24.06
21.59
5.69
7.06
19.16
19.37
3.94
19.54
12.83
The weighted average grant date fair value of options granted during 2002, 2001 and 2000 approximated
$2.65, $3.82 and $4.58, respectively.
F-36
The following table summarizes information about the Amended Stock Plan’s options outstanding, at
December 31, 2002:
Range
of
Exercise Prices
$2.78 to $3.78
3.82 to 6.88
7.06 to 15.00
17.13 to 53.56
2.78 to 53.56
Number
of Options
(000's)
2,178.1
1,914.9
1,798.7
1,994.4
7,886.1
Outstanding
Weighted
Average
Years
Remaining
9.73
8.91
6.97
4.99
Exercisable
Weighted
Average
Exercise Price
$
3.72
4.92
9.93
32.97
Number
of Options
(000's)
-
231.9
1,033.5
1,582.6
2,848.0
Weighted
Average
Exercise Price
-
$
5.65
11.44
30.37
The Amended Stock Plan also provides that restricted stock may be awarded to employees and directors of
Revlon, Inc. and its subsidiaries. On September 17, 2002 and June 18, 2001 (the “Grant Dates”), the Compensation
Committee awarded 50,000 shares and 120,000 shares, respectively, of restricted stock to Mr. Perelman as a director
of the Company. The 2002 and 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 2002 and 2001 restricted stock
awards, subject to limited exceptions, 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 NYSE equals or exceeds $20.00 per
share, 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 per share 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 per share, provided that (i) subject to clause (ii) below, no portion of
the restricted stock awards will vest until the second anniversary following the Grant Dates (except that the
restrictions will lapse on the February 2002 grant of 470,000 restricted shares to Mr. Stahl under the Amended Stock
Plan prior to the second anniversary if the 20-day average closing price of Class A Common Stock on the NYSE has
equaled or exceeded $25.00 per share), (ii) all of the shares of restricted stock will vest immediately in the event of a
"change in 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 Dates. The restrictions lapse on the February 2002 grant of restricted
stock to Mr. Stahl as to 25% of such grant on June 18, 2004, an additional 25% on February 17, 2006 and in full on
February 17, 2007. No dividends will be paid on unvested restricted stock, provided however, that in connection
with the 2002 grant of restricted stock to Mr. Stahl, in the event any cash or in-kind distributions are made in respect
of Common Stock prior to the lapse of the restrictions relating to any of Mr. Stahl's restricted stock as to which the
restrictions have not lapsed (other than as to the subscription rights to be issued in the Rights Offering, which Mr.
Stahl waived), such dividends will be held by the Company and paid to Mr. Stahl when and if such restrictions lapse.
At December 31, 2002, there were 1,475,000 shares of restricted stock outstanding and unvested under the Amended
Stock Plan. The Company recorded compensation expense of $1.7 and $0.6 during 2002 and 2001, respectively, and
deferred compensation of $6.4 and $3.2 at December 31, 2002 and 2001, respectively, for the restricted stock awards.
F-37
On February 17, 2002, Revlon, Inc. adopted the Revlon, Inc. 2002 Supplemental Stock Plan (the
"Supplemental Stock Plan"), the purpose of which is to provide Mr. Stahl, the sole eligible participant, with
inducement awards to entice him to join the Company to enhance the Company's long-term performance and
profitability. The Supplemental Stock Plan covers 530,000 shares of the Class A Common Stock. Awards may be
made under the Supplemental Stock Plan in the form of stock options, stock appreciation rights and restricted or
unrestricted stock. On February 17, 2002, the Compensation Committee granted Mr. Stahl an Award of 530,000
restricted shares of Class A Common Stock, the full amount of the shares of Revlon, Inc.’s Class A Common Stock
issuable under the Supplemental Stock Plan. The terms of the Supplemental Stock Plan and the foregoing grant of
restricted shares to Mr. Stahl are substantially the same as the Amended Stock Plan and the grant of restricted shares to
Mr. Stahl under such plan. Pursuant to the terms of the Supplemental Stock Plan, such grant was made conditioned
upon Mr. Stahl's execution of the Company's standard Employee Agreement as to Confidentiality and Non-
Competition.
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 assumed by Products
Corporation. The amounts reimbursed by Holdings to Products Corporation for the Excluded Liabilities for 2002,
2001 and 2000 were $0.5, $0.2 and $0.4, 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, 2002 and 2001, the amounts reflected in
the Company’s Consolidated Balance Sheets aggregated a net liability of $21.4 as of both dates, of which nil and $3.0,
respectively, are included in accrued expenses and other and $21.4 and $18.4, respectively, are included in other
long-term liabilities.
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 (paid to) MacAndrews Holdings to
F-38
Products Corporation for the services provided under the Reimbursement Agreements for 2002, 2001 and 2000, were
$0.8, $(0.2) and $0.9, 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 Company
participates in MacAndrews & Forbes’ directors and officers insurance program, which covers the Company as well
as MacAndrews & Forbes and its other affiliates. The limits of coverage are available on aggregate losses to any or
all of the participating companies and their respective directors and officers. The Company reimburses MacAndrews
& Forbes for its allocable portion of the premiums for such coverage, which the Company believes, is more favorable
than the premiums the Company could secure were it to secure stand-alone coverage. The amount paid by the
Company to MacAndrews & Forbes for premiums is included in the amounts paid under the Reimbursement
Agreement.
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 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 2002, 2001 and 2000.
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 and in February 2003 Revlon, Inc. and MacAndrews Holdings entered into a
joinder agreement to 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 Revlon, Inc.’s Class A Common Stock owned by such Holders, including shares of Class A Common
Stock purchased in connection with the Rights Offering and shares of Class A Common Stock issuable upon
conversion of Revlon, Inc.’s Class B Common Stock and Series B Preferred Stock owned by such Holders under 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 Revlon, Inc.’s Class A Common Stock sold by such Holders.
Investment Agreement and Mafco Loan Agreements
See Note 19 – “Subsequent Event.”
F-39
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 costs relating to the Edison facility, and in connection with the sale
Products Corporation terminated the Edison Lease and entered into a new lease with the new owner. Holdings agreed
to indemnify Products Corporation through 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 2002, 2001 and 2000 were $0.2, $0.2 and
$0.2, respectively.
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 were approved by the
stockholders of Revlon, Inc. at its 2002 Annual Meeting of Stockholders. 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 and $0.9 for 2001 and 2000, respectively. The net equity of the Charles of
the Ritz business is included in total stockholders’ deficiency at December 31, 2002.
During 2002, 2001 and 2000 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 2002, 2001 and 2000 was $0.3, $0.5 and $0.9, respectively.
The Credit Agreement and Products Corporation's 12% Notes are supported by, among other things,
guarantees from 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.
In March 2002, prior to the passage of the Sarbanes-Oxley Act of 2002, Products Corporation made an
advance of $1.8 to Mr. Jack L. Stahl, the Company’s President and CEO, pursuant to his employment agreement which
was entered into in February 2002 for tax assistance related to a grant of restricted stock provided to Mr. Stahl
pursuant to such agreement, which loan bears interest at the applicable federal rate. In May 2002, prior to the passage
of the Sarbanes-Oxley Act of 2002, Products Corporation made an advance of $2.0 to Mr. Stahl pursuant to his
employment agreement in connection with the purchase of his principal residence in the New York City metropolitan
area, which loan bears interest at the applicable federal rate, $0.1 of which was repaid during 2002. Pursuant to his
employment agreement, Mr. Stahl receives from Products Corporation additional compensation payable on a monthly
basis equal to the amount actually paid by him in respect of interest and principal on such $2.0 advance, plus a gross
up for any taxes payable by Mr. Stahl as a result of such additional compensation.
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 loan bears interest at the applicable federal rate.
Mr. Greeff repaid $0.2 and $0.2 during 2002 and 2001, respectively. Pursuant to his employment agreement, Mr.
Greeff is entitled to receive bonuses from Products Corporation, payable on each May 9th commencing on May 9,
2001 and ending on May 9, 2005, in each case equal to the sum of the principal and interest on the advance repaid in
respect of such year by Mr. Greeff, provided that he is employed by Products Corporation on each such May 9th,
F-40
which bonus installments were paid to Mr. Greeff in each of May 2001 and 2002.
In February 2002, Products Corporation entered into a separation agreement with Mr. Jeffrey M. Nugent, the
Company’s former President and CEO, pursuant to which the parties agreed to an offset of obligations whereby
Products Corporation canceled Mr. Nugent’s obligation to repay principal and interest on a loan in the amount of $0.5
that was made in installments of $0.4 in 1999 and $0.1 in 2000 pursuant to Mr. Nugent’s employment agreement, in
exchange for the cancellation of Products Corporation’s obligation to pay Mr. Nugent a special bonus on January 15,
2003 pursuant to his employment agreement.
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 2002, 2001 and 2000, Products Corporation made payments of nil, $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 Revlon, Inc.’s Board of Directors, for discounted health club dues for an executive health program of
Products Corporation.
During 2002, 2001 and 2000, Products Corporation made payments of $0.3, $0.3 and $0.2, respectively, to
Ms. Ellen Barkin (spouse of Mr. Perelman) under a written agreement pursuant to which she provides voiceover
services for certain of the Company's advertisements.
The law firm from of which Mr. Edward Landau was Of Counsel to and from which he retired in January
2003, Wolf, Block, Schorr and Solis-Cohen LLP, provided legal services to Products Corporation during 2002, 2001
and 2000 and it is anticipated that such firm may continue to provide such services in 2003.
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 2002, 2001 and 2000 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 MSLO’s Chairman and Chief Executive Officer. Products Corporation paid MSLO $2.5, $2.1 and $1.5 for such
services in 2002, 2001 and 2000, respectively, which fees were less than 1% of the Company’s estimate of MSLO’s
consolidated gross revenues for 2002, 2001 and 2000, respectively. Products Corporation’s decision to place
advertisements for its products in MSLO’s magazines and other media was based upon their popular appeal to women.
During 2002, Products Corporation obtained advertising, media buying and direct marketing services, and
during 2001 and 2000 obtained public relations, advertising and media buying 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. Products Corporation paid
WPP $1.1, $2.0 and $3.2 for such services in 2002, 2001 and 2000, respectively, which fees were less than 1% of the
Company’s estimate of WPP’s consolidated gross revenues for 2002, 2001 and 2000, respectively. Products
Corporation’s decision to engage WPP was based upon its professional expertise in understanding the advertising and
public relations needs of the consumer packaged goods industry, as well as its global presence in many of the
international markets in which Products Corporation operates.
During 2002 and 2001, Products Corporation employed Mr. Perelman’s daughter in a marketing position,
with compensation paid in each of 2002 and 2001 of less than $0.1.
During 2002 and 2001, Products Corporation employed Mr. Drapkin’s daughter in a marketing position, with
compensation paid in each of 2002 and 2001 of less than $0.1.
F-41
16. Commitments and Contingencies
The Company currently leases manufacturing, executive, including research and development, and sales
facilities and various types of equipment under operating and capital lease agreements. Rental expense was $27.5,
$29.0 and $33.0 for the years ended December 31, 2002, 2001 and 2000, 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, 2002 aggregated $46.9; such commitments for each of the five years subsequent to
December 31, 2002 are $9.3, $7.6, $7.0, $5.2 and $4.2, respectively. Such amounts exclude the minimum rentals to be
received by the Company in the future under noncancelable subleases of $2.8.
The Company has minimum purchase commitments with suppliers of finished goods, raw materials and
components. The minimum purchase commitments under these agreements aggregated $103.8; such commitments for
each of the five years subsequent to December 31, 2002 are $48.9, $21.9, $21.8, $11.2 and nil, respectively. The
amount the Company purchased under minimum purchase commitments during 2002, 2001 and 2000 was $63.7, $32.0
and $14.9, 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, as amended (the “Exchange Act”) 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 December
2002, the defendants, including the Company, entered into an agreement in principle to settle the litigation. The final
written agreement reflecting this agreement in principle, which was executed in January 2003 and which remains
subject to the approval by the court, provides that the defendants will obtain complete releases from the participating
members of the alleged class. In connection with this tentative settlement and a related settlement of the defendants’
insurance claim for this matter and the Gavish matter described below (the “Insurance Settlement”), the Company
recorded the settlement in the fourth quarter of 2002.
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 Exchange Act. 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. In light of the Insurance Settlement, the Company does not expect to incur any further expense in this
matter.
F-42
17. Quarterly Results of Operations (Unaudited)
The following is a summary of the unaudited quarterly results of operations:
Year Ended December 31, 2002
1st
Quarter
2nd
Quarter
3rd
Quarter
4th
Quarter (c)
Net sales....................................................................... $
275.4 $
308.2 $
323.2 $
Gross profit..................................................................
Net loss (a)...................................................................
166.4
(46.1)
188.4
(38.9)
201.6
(22.1)
212.6
59.3
(179.4)
Basic loss per common share:
Net loss per common share.................................. $
(0.88)
$
(0.75)
$
(0.42)
$
(3.44)
Diluted loss per common share:
Net loss per common share.................................. $
(0.88)
$
(0.75)
$
(0.42)
$
(3.44)
Year Ended December 31, 2001
1st
Quarter
2nd
Quarter
3rd
Quarter
4th
Quarter (d)
Net sales....................................................................... $
313.6 $
322.1 $
320.2 $
Gross profit..................................................................
Net loss (b)...................................................................
182.0
(46.5)
179.1
(56.0)
190.4
(22.9)
321.7
181.9
(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)
(a) Includes restructuring costs of $4.0, $3.2, $2.1 and $4.3 in the first, second, third and fourth quarters,
respectively. (See Note 2).
(b) 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).
(c) During 2002 the Company recorded expenses of $104.2 (of which $99.3 was recorded in the fourth
quarter of 2002) related to the implementation of the stabilization and growth phase of the Company’s plan.
(d) 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. Additionally, the Company
recorded a loss of $3.6 from an early extinguishment of debt.
F-43
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, 2002, the Company had operations established in 17
countries outside of the U.S. and its products are sold 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. Net sales
by geographic area are presented by attributing revenues from external customers on the basis of where the products
are sold. During 2002, 2001 and 2000, Wal-Mart and its affiliates worldwide accounted for approximately 22.5%,
19.7% and 16.5%, respectively, of the Company’s consolidated net sales. The Company expects that Wal-Mart and a
small number of other customers will, in the aggregate, continue to account for a large portion of the Company’s net
sales. Although the loss of Wal-Mart or one or more of the Company’s other customers that may account for a
significant portion of the Company’s sales, or any significant decrease in sales to these customers or any significant
decrease in retail display space in any of these customers’ stores, 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 petition for
reorganization under Chapter 11 of the U.S. Bankruptcy Code. On January 24, 2003, Kmart announced that it had filed
its proposed plan of reorganization with the U.S. Bankruptcy Court and that it was positioned to emerge from
bankruptcy on or about April 30, 2003. Throughout 2002 and continuing into 2003 Kmart continued to close
underperforming stores. Kmart accounted for less than 5% of the Company’s net sales in 2002. Although the
Company plans to continue doing business with Kmart for the foreseeable future and, based upon the information
currently available, believe that Kmart's bankruptcy proceedings and store closings will not have a material adverse
effect on the Company’s business, financial condition or results of operations, there can be no assurances that further
deterioration, if any, in Kmart's financial condition will not have such an effect on the Company. In January 2003, J.C.
Penney Corp. announced that it will be discontinuing color cosmetics in most of its stores. J.C. Penney carries the
Company’s Ultima II brand, however the Company’s sales to J.C. Penney accounted for less than 1% of the
Company’s total sales during 2002. Accordingly, the Company does not believe that this discontinuance will have a
material adverse effect on the Company’s future business, financial condition or results of operations.
During the first quarter of 2002, to reflect the integration of management reporting responsibilities, the
Company reclassified Puerto Rico’s results from its international operations to its U.S. operations. During the third
quarter of 2002, the Company reclassified its South African operations from the European region to the Far East
region to reflect the management organization responsibility for that country. Accordingly, the following information
reflects these changes for all periods presented.
F-44
Geographic Areas:
Net sales:
United States............................................................
$
Canada......................................................................
United States and Canada.........................................
International
$
Year Ended December 31,
2001
$
$
825.1
45.2
870.3
407.3
1,277.6
$
$
2002
716.1
44.0
760.1
359.3
1,119.4
2000
824.5
49.5
874.0
535.4
1,409.4
Long-lived assets:
December 31,
2002
2001
United States ...........................................................
$
395.6
$
Canada......................................................................
United States and Canada.........................................
International.............................................................
Classes of Similar Products:
Net sales:
Cosmetics, skin care and fragrances.........................
Personal care and professional.................................
$
$
$
19. Subsequent Event
3.5
399.1
74.6
473.7
$
410.6
2.5
413.1
71.6
484.7
Year Ended December 31,
2001
$
$
831.0
446.6
1,277.6
$
$
2002
723.9
395.5
1,119.4
2000
879.8
529.6
1,409.4
In December 2002, the Company’s principal stockholder, MacAndrews & Forbes proposed providing the
Company with up to $150 in cash in order to help fund a portion of the costs and expenses associated with
implementing the stabilization and growth phase of the Company’s plan and for general corporate purposes. The
Company’s Board of Directors appointed a special committee of independent directors to evaluate the proposal made
by MacAndrews & Forbes. The special committee reviewed and considered the proposal and negotiated
enhancements to the terms of the proposal. In February 2003, the enhanced proposal was recommended to the
Company’s Board of Directors by the special committee of the Company’s Board of Directors and approved by the
Company’s full board.
In connection with MacAndrews & Forbes' enhanced proposal, in February 2003 the Company entered into
an investment agreement with MacAndrews & Forbes (the “Investment Agreement”) pursuant to which the Company
will undertake a $50 equity rights offering (the "Rights Offering") that will allow its stockholders to purchase
additional shares of the Company’s Class A Common Stock. Pursuant to the Rights Offering, the Company will
distribute to each stockholder of record of its Common Stock, as of the close of business on a record date to be set by
the Board of Directors, at no charge, a pro rata number of transferable subscription rights for each share of Common
Stock owned. The subscription rights will enable the holders to purchase their pro rata portion of such number of
shares of Class A Common Stock equal to (a) $50 divided by (b) the subscription price, which will be equal to the
greater of (1) $2.30, representing 80% of the closing price per share of the Company’s Class A Common Stock on the
NYSE on January 30, 2003, and (2) 80% of the closing price per share of its Class A Common Stock on the NYSE on
the record date of the Rights Offering. Such number may be adjusted in an equitable manner to avoid fractional rights
and/or shares of Class A Common Stock and to ensure that the gross proceeds from the Rights Offering equals $50.
Pursuant to the over-subscription privilege, each rights holder that exercises its basic subscription privilege
in full may also subscribe for additional shares of Class A Common Stock at the same subscription price per share, to
the extent that other stockholders do not exercise their subscription rights in full. If an insufficient number of shares is
available to fully satisfy the over-subscription privilege requests, the available shares will be sold pro rata among
subscription rights holders who exercised their over-subscription privilege based on the number of shares each
subscription rights holder subscribed for under the basic subscription privilege.
F-45
As a Revlon, Inc. stockholder, MacAndrews & Forbes will receive its pro rata subscription rights and would
also be entitled to exercise an over-subscription privilege. However, MacAndrews & Forbes has agreed not to
exercise either its basic or over-subscription privileges. Instead, MacAndrews & Forbes has agreed to purchase the
shares of the Company’s Class A Common Stock that it would otherwise have been entitled to receive pursuant to its
basic subscription privilege (equal to approximately 83% of the rights distributed in the Rights Offering, or $41.5) in a
private placement direct from the Company. In addition, if any shares remain following the exercise of the basic
subscription privileges and the over-subscription privileges by other right holders, MacAndrews & Forbes will back-
stop the Rights Offering by purchasing the remaining shares of Class A Common Stock offered but not purchased by
other stockholders (approximately 17% or an additional $8.5), also in a private placement.
In addition, in accordance with the enhanced proposal, MacAndrews & Forbes has also provided a $100
million term loan to Products Corporation (the “MacAndrews & Forbes $100 million term loan”). If, prior to the
consummation of the Rights Offering, Products Corporation has fully drawn the MacAndrews & Forbes $100 million
term loan and the implementation of the stabilization and growth phase of the Company’s plan causes the Company to
require some or all of the $50 of funds that the Company would raise from the Rights Offering, MacAndrews & Forbes
has agreed to advance the Company these funds prior to closing the Rights Offering by purchasing up to $50 of newly-
issued shares of the Company’s Series C preferred stock which would be redeemed with the proceeds the Company
receives from the Rights Offering (this investment in the Company’s Series C preferred stock (which is non-voting,
non-dividend paying and non-convertible) is referred to as the "$50 million Series C preferred stock investment").
The MacAndrews & Forbes $100 million term loan has a final maturity date of December 1, 2005 and interest on such
loan of 12.0% is not payable in cash, but will accrue and be added to the principal amount each quarter and be paid in
full at final maturity. The Company expects that it will issue the subscription rights and consummate the Rights
Offering in the second quarter of 2003, subject to the effectiveness of the registration statement (which the Company
filed with the Commission on February 5, 2003). Based on this expectation, the Company anticipates that Products
Corporation will be required to draw on the MacAndrews & Forbes $100 million term loan before the Rights Offering
is consummated in order to continue the implementation of the stabilization and growth phase of the Company's plan
and for general corporate purposes. However, the Company does not currently anticipate that it will require that
MacAndrews & Forbes make the $50 million Series C preferred stock investment.
Additionally, MacAndrews & Forbes has also agreed to provide Products Corporation with an additional
$40 line of credit during 2003, which amount will increase to $65 on January 1, 2004 (the “MacAndrews & Forbes
$40-65 million line of credit”) (the MacAndrews & Forbes $100 million term loan and the MacAndrews & Forbes
$40-65 million line of credit are referred to as the “Mafco Loans” and the Rights Offering and the Mafco Loans are
referred to as the “M&F Investments”) and which will be available to Products Corporation through December 31,
2004, provided that the MacAndrews & Forbes $100 million term loan is fully drawn and MacAndrews & Forbes has
purchased an aggregate of $50 of the Company’s Series C preferred stock (or if the Company has consummated the
Rights Offering and redeemed any outstanding shares of Series C preferred stock). The MacAndrews & Forbes $40-
65 million line of credit will bear interest payable in cash at a rate of the lesser of (i) 12.0% and (ii) 0.25% less than
the rate payable from time to time on Eurodollar loans under Products Corporation's Credit Agreement (which rate,
after giving effect to the amendment in February 2003 to Products Corporation's Credit Agreement, is 8.25% as of
March 1, 2003). The Company does not expect that Products Corporation will draw on the MacAndrews & Forbes
$40-65 million line of credit during 2003.
In connection with the transactions with MacAndrews & Forbes described above, and as a result of the
Company’s operating results for the fourth quarter of 2002 and the effect of the acceleration of the Company’s
implementation of the stabilization and growth phase of its plan, Products Corporation entered into an amendment in
February 2003 of its Credit Agreement with its bank lenders and secured waivers of compliance with certain
covenants under the Credit Agreement. In particular, EBITDA (as defined in the Credit Agreement) was $35.2 for the
four consecutive fiscal quarters ended December 31, 2002, which was less than the minimum of $210.0 required under
the EBITDA covenant of the Credit Agreement for that period and the Company's leverage ratio was 5.09:1.00, which
was in excess of the maximum ratio of 1.4:1.00 permitted under the leverage ratio covenant of the Credit Agreement
for that period. Accordingly, the Company sought and secured waivers of compliance with these covenants for the
fourth quarter of 2002 and, in light of the Company's expectation that the continued implementation of the stabilization
and growth phase of the Company’s plan would affect the ability of Products Corporation to comply with these
covenants during 2003, the Company also secured an amendment to eliminate the EBITDA and leverage ratio
covenants for the first three quarters of 2003 and a waiver of compliance with such covenants for the fourth quarter of
2003 expiring on January 31, 2004.
F-46
The amendment to the Credit Agreement also included the substitution of a minimum liquidity covenant
requiring the Company to maintain a minimum of $20 of liquidity from all available sources at all times through
January 31, 2004 and certain other amendments to allow for the M&F Investments and the implementation of the
stabilization and growth phase of the Company's plan, including specific exceptions from the limitations under the
indebtedness covenant to permit the MacAndrews & Forbes $100 million term loan and the MacAndrews & Forbes
$40-65 million line of credit and to exclude the proceeds from the M&F Investments from the mandatory prepayment
provisions of the Credit Agreement, and to increase the maximum limit on capital expenditures (as defined in the
Credit Agreement) from $100 to $115 for 2003. The amendment also increased the applicable margin on loans under
the existing credit agreement by 0.5%, the incremental cost of which to the Company, assuming the Credit Agreement
is fully drawn, would be $1.1 from February 5, 2003 through the end of 2003.
F-47
Schedule II
REVLON, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 2002, 2001 and 2000
(dollars in millions)
Balance at
Beginning
of Year
Charged to
Cost and
Expenses
Other
Deductions
Balance
at End
of Year
Year ended December 31, 2002:
Applied against asset accounts:
Allowance for doubtful accounts..................... $
Allowance for volume and early payment
discounts.................................................... $
Year ended December 31, 2001:
Applied against asset accounts:
Allowance for doubtful accounts..................... $
Allowance for volume and early payment
discounts.................................................... $
8.3
7.1
7.6
8.5
Year ended December 31, 2000:
Applied against asset accounts:
Allowance for doubtful accounts..................... $
Allowance for volume and early payment
discounts.................................................... $
14.6
12.6
$
$
$
$
$
$
9.5
31.7
3.5
30.0
(0.9)
34.2
$
$
$
$
$
$
(2.0)
(1) $
15.8
(30.6)
(2) $
8.2
(2.8)
(1) $
(31.4)
(2) $
(6.1)
(1) $
(38.3)
(2) $
8.3
7.1
7.6
8.5
Notes:
(1) Doubtful accounts written off, less recoveries, reclassifications and foreign currency translation adjustments.
(2) Discounts taken, reclassifications and foreign currency translation adjustments.
F-48
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.
SIGNATURES
Revlon, Inc.
(Registrant)
By: /s/ Jack L. Stahl
----------------------------------------
Jack L. Stahl
President, Chief Executive
Officer and Director
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: March 21, 2003
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 March 21, 2003 and in the capacities indicated.
Signature
Title
*
___________________________________
(Ronald O. Perelman)
*
___________________________________
(Howard Gittis)
*
___________________________________
(Donald G. Drapkin)
/s/ Jack L. Stahl
___________________________________
(Jack L. Stahl)
*
___________________________________
(Meyer Feldberg)
*
___________________________________
(Vernon E. Jordan, Jr.)
*
___________________________________
Chairman of the Board and Director
Director
Director
President, Chief Executive Officer and Director
Director
Director
Director
(Edward J. Landau)
*
___________________________________
(Linda Gosden Robinson)
*
___________________________________
(Terry Semel)
*
___________________________________
(Martha Stewart)
Director
Director
Director
*
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
CERTIFICATIONS
I, Jack L. Stahl, certify that:
1.
I have reviewed this annual report on Form 10-K of Revlon, Inc. (the “Registrant”);
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state
a material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report,
fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant
as of, and for, the periods presented in this annual report;
4. The Registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and have:
a) Designed such disclosure controls and procedures to ensure that material information relating to the
Registrant, including its consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being prepared;
b) Evaluated the effectiveness of the Registrant's disclosure controls and procedures as of a date within 90 days
prior to the filing date of this annual report (the "Evaluation Date"); and
c) Presented in this annual report our conclusions about the effectiveness of the disclosure controls and
procedures based on our evaluation as of the Evaluation Date;
5. The Registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the
Registrant's auditors and the audit committee of Registrant's board of directors (or persons performing the
equivalent functions):
a) All significant deficiencies in the design or operation of internal controls which could adversely affect the
Registrant's ability to record, process, summarize and report financial data and have identified for the
Registrant's auditors any material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role
in the Registrant's internal controls; and
6. The Registrant's other certifying officer and I have indicated in this annual report whether there were significant
changes in internal controls or in other factors that could significantly affect internal controls subsequent to the
date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: March 21, 2003
/s/ Jack L. Stahl
Jack L. Stahl
President and Chief Executive Officer
of Revlon, Inc.
CERTIFICATIONS
I, Douglas H. Greeff, certify that:
1.
I have reviewed this annual report on Form 10-K of Revlon, Inc. (the “Registrant”);
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state
a material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report,
fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant
as of, and for, the periods presented in this annual report;
4. The Registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and have:
a) Designed such disclosure controls and procedures to ensure that material information relating to the
Registrant, including its consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being prepared;
b) Evaluated the effectiveness of the Registrant's disclosure controls and procedures as of a date within 90 days
prior to the filing date of this annual report (the "Evaluation Date"); and
c) Presented in this annual report our conclusions about the effectiveness of the disclosure controls and
procedures based on our evaluation as of the Evaluation Date;
5. The Registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the
Registrant's auditors and the audit committee of Registrant's board of directors (or persons performing the
equivalent functions):
a) All significant deficiencies in the design or operation of internal controls which could adversely affect the
Registrant's ability to record, process, summarize and report financial data and have identified for the
Registrant's auditors any material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role
in the Registrant's internal controls; and
6. The Registrant's other certifying officer and I have indicated in this annual report whether there were significant
changes in internal controls or in other factors that could significantly affect internal controls subsequent to the
date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and
material weaknesses.
/s/ Douglas H. Greeff
Douglas H. Greeff
Executive Vice President and Chief Financial Officer
of Revlon, Inc.
Date: March 21, 2003
Officers
Ronald O. Perelman
Chairman
Jack L. Stahl
President and Chief Executive Officer
Douglas H. Greeff
Executive Vice President and Chief
Financial Officer
Paul E. Shapiro
Executive Vice President and
Chief Administrative Officer
Stanley B. Dessen
Senior Vice President and General
Tax Counsel
Robert K. Kretzman
Senior Vice President, General Counsel
and Secretary
Laurence Winoker
Senior Vice President, Corporate
Controller and Treasurer
Board of Directors
Ronald O. Perelman (1)
Chairman of the Board
Chairman and Chief Executive Officer of
MacAndrews & Forbes Holdings Inc.
Jack L. Stahl (1)
President and Chief
Executive Officer
Donald G. Drapkin (2)
Vice Chairman,
MacAndrews & Forbes Holdings Inc.
Meyer Feldberg (3)
Dean, Columbia Business School
Howard Gittis (1, 2)
Vice Chairman,
MacAndrews & Forbes Holdings Inc.
Vernon E. Jordan, Jr.
Managing Director, Lazard Freres & Co.,
LLC and Of Counsel, Akin, Gump, Strauss,
Hauer & Feld, LLP
Edward J. Landau (2, 3)
Formerly Of Counsel, Wolf, Block,
Schorr and Solis-Cohen LLP
Linda Gosden Robinson (3)
Chairman, Robinson Lerer &
Montgomery, LLC
Terry Semel (2)
Chairman and Chief Executive Officer,
Yahoo! Inc.
Martha Stewart
Chairman and Chief Executive Officer,
Martha Stewart Living Omnimedia, Inc.
(1) Executive Committee
(2) Compensation and
Stock Plan Committee
(3) Audit Committee
Executive Management
Jack L. Stahl
President and Chief Executive Officer
Douglas H. Greeff
Executive Vice President and Chief
Financial Officer
Elias K. Hebeka
President, Worldwide Operations and
Technical Affairs
David L. Kennedy
Executive Vice President and President,
Revlon International
Elizabeth R. Kenny
Senior Vice President, Portfolio Brands
Robert K. Kretzman
Senior Vice President, General Counsel
and Secretary
Debra Leipman-Yale
Executive Vice President,
Global General Manager,
Revlon Brand
Paul F. Murphy
Executive Vice President,
North American Sales
Paul E. Shapiro
Executive Vice President and
Chief Administrative Officer
Edward F. Skeffington
Executive Vice President,
Chief Financial Officer,
Revlon Consumer Products USA
Rochelle Udell
Executive Vice President,
Creative Development and Design
Herbert J. Vallier
Senior Vice President, Human Resources
Stanley B. Dessen
Senior Vice President and
General Tax Counsel
Catherine Fisher
Senior Vice President,
Corporate Communications
Neil D. Scancarella
Executive Vice President,
Research and Development
Maria A. Sceppaguercio
Senior Vice President, Investor Relations
Joseph Squicciarino
Senior Vice President and
Chief Financial Officer,
Revlon International
Laurence Winoker
Senior Vice President, Corporate
Controller and Treasurer
SHAREHOLDER INFORMATION
REVLON, INC. AND SUBSIDIARIES
Common Stock and Related Stockholder Matters
The Company’s Class A Common Stock, par value $0.01 per share, is listed and
traded on the New York Stock Exchange (the ‘‘NYSE’’) under the symbol ‘‘REV.’’ The
following table sets forth the range of high and low closing sales prices as reported by
the NYSE for the Company’s Class A Common Stock for each quarter in 2002 and
2001.
Quarter
First
Second
Third
Fourth
2002
2001
High
$6.60
6.15
5.16
4.55
Low
$3.82
4.35
2.99
2.10
High
$6.15
7.25
8.95
7.25
Low
$4.42
4.34
4.77
5.05
As of the close of business on December 31, 2002, there were 805 holders of
record of the Company’s Class A Common Stock. As of the close of business on
December 31, 2002, the closing sale price as reported by the NYSE for the
Company’s Class A Common Stock was $3.06 per share.
The Company has not declared a cash dividend on the Class A Common Stock
subsequent to the Company’s initial public offering and does not anticipate that any
dividends will be declared on the Class A Common Stock in the foreseeable future.
The timing, amount and form of dividends, if any, will depend, among other things, on
the Company’s results of operations, financial condition, cash requirements and other
factors deemed relevant by the Board of Directors of the Company. The declaration
and payment of dividends are, however, subject to the discretion of the Company’s
Board of Directors and subject to certain limitations under Delaware law, and are also
limited by the terms of the Company’s Credit Agreement and indentures. See
‘‘Management’s Discussion and Analysis of Financial Condition and Results of
Operations’’ and Note 9 of ‘‘Notes to Consolidated Financial Statements.’’
Transfer Agent & Registrar
American Stock Transfer & Trust Company
59 Maiden Lane
New York, NY 10038
877-777-0800
Independent Auditors
KPMG LLP
New York, New York
Notice of Annual
Meeting
The annual meeting of
shareholders will be held
May 30, 2003 at 10:00 a.m.
at the Revlon Research
Center, 2121 Route 27,
Edison, New Jersey 08818
Corporate Address
Revlon, Inc.
625 Madison Avenue
New York, New York 10022
212-527-4000
Corporate and
Investor Information
The Company’s Annual
Report on Form 10-K filed with
the Securities and Exchange
Commission (the ‘‘SEC’’) is
available without charge upon
written request to:
Investor Relations
Revlon, Inc.
625 Madison Avenue
New York, New York 10022
Such Report is also available
on the Company’s website,
www.revloninc.com, as well as
the SEC’s website at
www.sec.gov.
Contacts:
Investor Relations
212-527-5230
Media
212-527-5727
Consumer
Information Center
1-800-4-Revlon
Visit our Web site at
www.revlon.com
The product and brand
names used throughout this
report are registered or
unregistered trademarks of
Revlon Consumer Products
Corporation.
Printed in the U.S.A.
©2003 Revlon, Inc.
This annual report contains forward-looking statements under the caption ‘‘Dear Shareholders’’ which represent Revlon’s expectations and
estimates as to future events and financial performance, including the Company’s plans to or expectations with respect to (i) achieving long-term,
sustainable, profitable growth, including our use of the MacAndrews & Forbes investment to help fund the stabilization and growth phase of our
plan and establish a solid platform for accelerated growth; (ii) creating and developing the most consumer-preferred brands by creating and
improving our 360° brand experience through consistency of brand positioning and messaging, new and increased advertising and marketing
programs, new packaging, increased effectiveness of our retail wall displays, and further strengthening our new product development processes,
and the intended consequences from implementing such strategies, including, without limitation, insuring that we are the leaders in marketing and
producing the next generation of successful new products; (iii) reinvigorating growth for the Almay brand; (iv) becoming a most valuable partner
to our retailers and providing world-class execution and innovative customer solutions, while offering the most innovative products presented in
the most consumer exciting manner; and (v) becoming a top company where people choose to work, including by implementing leadership
practices, talent development, management processes and new ways of working that are designed to enable our people to be successful and
deliver profitable results, as well as providing our people with the tools they need to be successful and an environment in which they can thrive.
Additionally, statements which use the terms ‘‘believes’’, ‘‘expects’’, ‘‘estimates’’, ‘‘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 the
discussion of strategy or intentions are forward-looking. Forward-looking statements involve risks and uncertainties and a number of factors could
cause actual results to differ materially from those expressed in any forward-looking statements. Please see — ‘‘Forward-Looking Statements’’
in the Annual Report on Form 10-K included in this report for a full description of these risks, uncertainties and factors, as well as for a description
of the Forward-Looking Statements and factors that could cause Revlon’s results to differ materially from those contained in any forward-looking
statement. Except for Revlon’s ongoing obligations to disclose material information under the U.S. federal securities laws, Revlon undertakes no
obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. Investors are
advised, however, to consult any additional disclosures Revlon makes in its Quarterly Reports on Form 10-Q, Annual Report on Form 10-K and
Current Reports on Form 8-K to the SEC (which, among other places, can be found on the SEC’s website at http://www.sec.gov). Factors other
than those listed above could cause Revlon’s results to differ materially from expected results. This discussion is provided as permitted by the
Private Securities Litigation Reform Act of 1995.