Add
REV to Portfolio
Set Alert
Email to a
Friend
| |||
|
|
Quotes & Info
|
| REV > SEC Filings for REV > Form 10-Q on 30-Jul-2009 | All Recent SEC Filings |
30-Jul-2009
Quarterly Report
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Overview
Overview of the Business
The Company is providing this overview in accordance with the SEC's December 2003 interpretive guidance regarding Management's Discussion and Analysis of Financial Condition and Results of Operations.
Revlon, Inc. (and together with its subsidiaries, the "Company") conducts its business exclusively through its direct wholly-owned operating subsidiary, Revlon Consumer Products Corporation ("Products Corporation") and its subsidiaries. Revlon, Inc. is a direct and indirect majority-owned subsidiary of MacAndrews & Forbes Holdings Inc. ("MacAndrews & Forbes Holdings" and together with certain of its affiliates other than the Company, "MacAndrews & Forbes"), a corporation wholly-owned by Ronald O. Perelman.
The Company's vision is to provide glamour, excitement and innovation to consumers through high-quality products at affordable prices. The Company operates in a single segment and manufactures, markets and sells an extensive array of cosmetics, women's hair color, beauty tools, fragrances, skincare, anti-perspirants/deodorants and other beauty care products. The Company is one of the world's leading cosmetics companies in the mass retail channel (as hereinafter defined). The Company believes that its global brand name recognition, product quality and marketing experience have enabled it to create one of the strongest consumer brand franchises in the world.
The Company's products are sold worldwide and marketed under such brand names as Revlon, including the Revlon ColorStay, Revlon Super Lustrous and Revlon Age Defying franchises, as well as the Almay brand, including the Almay Intense i-Color and Almay Smart Shade franchises, in cosmetics; Revlon ColorSilk women's hair color; Revlon beauty tools; Charlie and Jean Natι fragrances; Ultima II and Gatineau skincare; and Mitchum anti-perspirants/deodorants.
The Company's principal customers include large mass volume retailers, chain drug stores and food stores (collectively, the "mass retail channel") in the U.S., as well as certain department stores and other specialty stores, such as perfumeries outside the U.S. The Company also sells beauty products to U.S. military exchanges and commissaries and has a licensing business pursuant to which the Company licenses certain of its key brand names to third parties for the manufacture and sale of complementary beauty-related products and accessories in exchange for royalties.
The Company was founded by Charles Revson, who revolutionized the cosmetics industry by introducing nail enamels matched to lipsticks in fashion colors over 75 years ago. Today, the Company has leading positions in a number of its principal product categories in the U.S. mass retail channel, including color cosmetics (face, lip, eye and nail categories), women's hair color, beauty tools and anti-perspirants/deodorants. The Company also has leading positions in several product categories in certain foreign countries, including Australia, Canada and South Africa.
Overview of the Company's Strategy
The Company continues to focus on its strategy: (i) building and leveraging its strong brands; (ii) improving the execution of its strategies and plans, and providing for continued improvement in its organizational capability through enabling and developing its employees; (iii) continuing to strengthen its international business; (iv) improving its operating profit margins and cash flow; and (v) improving its capital structure.
Overview of Net Sales and Earnings Results
Consolidated net sales in the second quarter of 2009 were $321.8 million, a decrease of $44.7 million, or 12.2%, compared to $366.5 million in the second quarter of 2008. Consolidated net sales for the first half of 2009 were $625.1 million, a decrease of $53.1 million, or 7.8%, compared to $678.2 million for the first half of 2008. Excluding the unfavorable impact of foreign currency fluctuations of $16.7 million and $37.0 million, consolidated net sales decreased by 7.6% and 2.4%, in the second quarter of 2009 and first half of 2009, respectively.
In the United States, net sales in the second quarter of 2009 were $186.2 million, a decrease of $30.2 million, or 14.0%, compared to $216.4 million in the second quarter of 2008, primarily driven by retailer inventory reduction actions, which resulted in lower net sales of Revlon and Almay color cosmetics. In the first half of 2009, U.S. net sales were $377.2 million, a decrease of $16.4 million, or 4.2%, compared to $393.6 million in the first half of 2008, primarily driven by lower net sales of Revlon and Almay color cosmetics, Mitchum anti-perspirant deodorant and Revlon beauty tools.
In the Company's international operations, net sales in the second quarter of 2009 decreased by $14.5 million, or 9.7%, to $135.6 million, compared to $150.1 million in the second quarter of 2008 (while net sales increased 1.5% excluding the unfavorable impact of foreign currency fluctuations). The growth in net sales, excluding the impact of foreign currency fluctuations, was primarily due to higher net sales of Revlon color cosmetics and Revlon ColorSilk hair color, partially offset by declines in Revlon beauty tools. Excluding the impact of foreign currency fluctuations, higher net sales in the Company's Latin America and Asia Pacific regions in the second quarter of 2009, compared to the second quarter of 2008, were partially offset by lower net sales in the Company's Europe region. In the first half of 2009, international net sales decreased $36.7 million, or 12.9%, to $247.9 million, compared to $284.6 million in the first half of 2008 (while net sales increased 0.1% excluding the unfavorable impact of foreign currency fluctuations). The growth in net sales, excluding the impact of foreign currency fluctuations, was primarily due to higher net sales of Revlon color cosmetics and Revlon ColorSilk hair color, substantially offset by declines in certain beauty care products and fragrances. Excluding the impact of foreign currency fluctuations, higher net sales in the Company's Asia Pacific and Latin America regions in the first half of 2009, compared to the first half of 2008, were partially offset by lower net sales in the Company's Europe region.
Consolidated net income for the second quarter of 2009 was $0.2 million, compared to $19.9 million in the second quarter of 2008. In the first half of 2009, consolidated net income was $12.9 million, compared to $17.4 million in the first half of 2008. Consolidated net income for the second quarter of 2009 and first half of 2009 included income from discontinued operations of $0.3 million in both periods. The decline in income from continuing operations in the second quarter of 2009, compared to the second quarter of 2008, was primarily due to:
lower consolidated net sales of $44.7 million, primarily driven by lower net sales of Revlon and Almay color cosmetics and certain beauty care products;
$23.7 million of higher restructuring costs and other, net, primarily due to $18.2 million of restructuring expense related to the worldwide organizational restructuring announced in May 2009 (the "May 2009 Program"). During the second quarter of 2008, the Company recorded income of $5.4 million of restructuring costs and other, net, primarily due to the gain of $6.8 million related to the sale of a facility in Mexico, partially offset by a charge of $1.3 million for the 2008 Programs (as hereinafter defined);
$3.9 million of higher pension expense, including $2.1 million and $1.8 million of higher pension expenses in SG&A and cost of goods, respectively, driven primarily by the significant decline in pension asset values in 2008, partially offset by the favorable impact of the re-measurements of pension liabilities in the second quarter of 2009 related to the May 2009 Pension Plan Amendments and the May 2009 Program; and
$3.3 million of higher foreign currency losses related primarily to the Company's outstanding foreign currency forward exchange contracts ("FX Contracts"); partially offset by
$31.9 million of lower selling, general and administrative expenses ("SG&A"), primarily due to lower advertising expenses due, in part, to the timing of certain advertising spending, as well as lower advertising rates achieved in the second quarter of 2009; lower compensation expenses, including a decrease in the accrual for incentive compensation; and lower permanent display amortization expenses;
an $8.8 million decrease in income taxes attributable to lower pre-tax income for taxable subsidiaries in foreign jurisdictions in the second quarter of 2009, as well as the favorable resolution of a tax contingency in the U.S.; and
lower interest expense of $6.7 million due to the impact of lower weighted average borrowing rates and lower debt levels.
The decline in income from continuing operations in the first half of 2009 compared to the first half of 2008 was primarily due to:
lower consolidated net sales of $53.1 million, primarily driven by lower net sales of Revlon and Almay color cosmetics and certain beauty care products, partially offset by higher net sales of Revlon ColorSilk hair color;
$30.4 million of higher restructuring costs and other, net, primarily due to $18.2 million of restructuring expense related to the May 2009 Program. During the first half of 2008, the Company recorded income of $11.6 million of restructuring costs and other, net, primarily due to the gain of $6.8 million related to the sale of a facility in Mexico and a net gain of $5.9 million related to the sale of a non-core trademark;
$7.8 million of higher pension expense, including $4.7 million and $3.1 million of higher pension expenses in SG&A and cost of goods, respectively, driven primarily by the significant decline in pension asset values in 2008, partially offset by the favorable impact of the re-measurements of pension liabilities in the second quarter of 2009 related to the May 2009 Pension Plan Amendments and the May 2009 Program; and
$10.0 million of higher foreign currency losses related to the revaluation of certain U.S. dollar denominated intercompany payables from the Company's foreign subsidiaries and the Company's outstanding FX Contracts; partially offset by
$44.5 million of lower SG&A, primarily due to lower compensation expenses, including a decrease in the accrual for incentive compensation; and lower permanent display amortization expenses;
a $16.6 million decrease in income taxes attributable to lower pre-tax income for taxable subsidiaries in foreign jurisdictions in the first half of 2009 and the favorable resolution of tax contingencies in the U.S. in the second quarter of 2009 and in a foreign jurisdiction in the first quarter of 2009;
lower interest expense of $14.7 million due to the impact of lower weighted average borrowing rates and lower debt levels; and
a $7.5 million aggregate gain in connection with Products Corporation's repurchases in the first and second quarters of 2009 of an aggregate principal amount of $30.9 million of its 91/2% Senior Notes, which gain is net of the write-off of the ratable portion of the unamortized debt discounts and deferred financing fees on such notes.
Overview of ACNielsen-measured U.S. Mass Retail Dollar Share
According to ACNielsen, the U.S. mass retail color cosmetics category growth
slowed sequentially to 1.1% in the second quarter of 2009, compared to growth of
3.3% in the first quarter of 2009. U.S. mass retail dollar share results,
according to ACNielsen, for Revlon and Almay color cosmetics, Revlon ColorSilk
hair color, Mitchum anti-perspirant/deodorant, and Revlon beauty tools for the
second quarter and first half of 2009 are summarized in the table below:
$ Share%
Three Months Six Months
Ended Ended
June 30, Point June 30, Point
2009 2008 Change 2009 2008 Change
Revlon Color Cosmetics 12.5 % 13.0 % (0.5 ) 12.8 % 12.7 % 0.1
Almay 5.3 5.7 (0.4 ) 5.5 5.9 (0.4 )
Revlon ColorSilk Hair Color 9.5 7.9 1.6 8.9 8.0 0.9
Mitchum Anti-perspirants/Deodorants 4.5 5.1 (0.6 ) 4.6 5.0 (0.4 )
Revlon Beauty Tools 20.2 17.8 2.4 20.7 19.1 1.6
|
All share and dollar volume data herein for the Company's brands is based upon U.S. mass-retail dollar volume, which is derived from ACNielsen data (an independent research entity). ACNielsen data is an aggregate of the drug channel, Kmart, Target and Food and Combo stores. ACNielsen's data does not reflect sales volume from Wal-Mart, Inc., which is the Company's largest customer, representing approximately 23% of the Company's full year 2008 worldwide net sales, or sales volume from regional mass volume retailers, as well as prestige stores, department stores, door-to-door, Internet, television shopping, specialty stores, perfumeries or other distribution outlets, all of which are channels for cosmetics sales. Such data represents ACNielsen's estimates based upon mass retail sample data gathered by ACNielsen and is therefore subject to some degree of variance and may contain slight rounding differences. From time to time, ACNielsen adjusts its methodology for data collection and reporting, which may result in adjustments to the categories and share data tracked by ACNielsen for both current and prior periods.
Overview of Financing Activities
In the first half of 2009, Products Corporation reduced its long-term indebtedness by $47.7 million primarily as a result of the following transactions:
2006 Term Loan Facility: In January 2009, Products Corporation made a required quarterly amortization payment of $2.1 million under its 2006 Term Loan Facility. In February 2009, Products Corporation repaid $16.6 million in principal amount under its 2006 Term Loan Facility satisfying the requirement under the 2006 Term Loan Agreement to repay term loan indebtedness with 50% of its 2008 "excess cash flow" (as defined under such agreement), which repayment fully offset Products Corporation's required quarterly term loan amortization payments of $2.1 million per quarter that would otherwise have been due on April 15, 2009, July 15, 2009, October 15, 2009, January 15, 2010, April 15, 2010, July 15, 2010, October 15,
2010 and $1.9 million of the amortization payment otherwise due on January 15, 2011. At June 30, 2009, the principal amount outstanding under Products Corporation's 2006 Term Loan Facility was approximately $815 million.
9½% Senior Notes: In the first quarter of 2009, Products Corporation used $16.5 million to repurchase an aggregate principal amount of $23.9 million of its 91/2% Senior Notes due April 1, 2011 (the "91/2% Senior Notes"), and paid an additional $1.2 million of accrued and unpaid interest and fees through the respective dates of the repurchases. In the second quarter of 2009, Products Corporation used $6.3 million to repurchase an aggregate principal amount of $7.0 million of its 91/2% Senior Notes and paid an additional $0.2 million of accrued and unpaid interest and fees through the respective dates of the repurchases. As a result of these 2009 repurchases, the Company recorded a gain of $7.0 million during the first quarter of 2009 and a gain of $0.5 million during the second quarter of 2009, which are net of the write-off of the ratable portion of unamortized debt discounts and deferred financing fees. After these repurchases, the repurchased notes were cancelled and there remained outstanding $359.1 million aggregate principal amount of the 91/2% Senior Notes, or $357.8 million net of discounts, at June 30, 2009.
Overview of May 2009 Pension and Savings Plan Changes
In May 2009, and effective December 31, 2009, Products Corporation amended its U.S. qualified defined benefit pension plan (the Revlon Employees' Retirement Plan), covering a substantial portion of the Company's employees in the U.S., to cease future benefit accruals under such plan after December 31, 2009. Products Corporation also amended its non-qualified pension plan (the Revlon Pension Equalization Plan) to similarly cease future benefit accruals under such plan after December 31, 2009. In connection with such amendments, all benefits accrued under such plans through December 31, 2009 will remain in effect and no additional benefits will accrue after December 31, 2009, other than interest credits on participant account balances under the cash balance program of the Company's U.S. pension plans. Also, service credits for vesting and early retirement eligibility will continue to accrue in accordance with the terms of the respective plans. (The plan amendments described above are referred to as the "May 2009 Pension Plan Amendments.")
In May 2009, Products Corporation also amended, effective December 31, 2009, its qualified and non-qualified defined contribution savings plans for its U.S.-based employees, which created a new discretionary profit sharing component under such plans that will enable the Company, should it elect to do so, to make discretionary profit sharing contributions. The Company will determine in the fourth quarter of each year whether and, if so, to what extent, profit sharing contributions would be made for the following year. (The savings plan amendments described above are referred to as the "May 2009 Savings Plan Amendments" and together with the May 2009 Pension Plan Amendments as the "May 2009 Plan Amendments").
The net impact of the re-measurements due to the cessation of future benefit accruals under the U.S. pension plans and the May 2009 Program is estimated to decrease the Company's pension expense (i.e., the net periodic benefit cost) for 2009 by approximately $2 million from its prior estimates (of which $1.1 million was reflected in the Company's financial statements in the second quarter of 2009, which includes a non-cash curtailment gain of $0.8 million related to the recognition of previously unrecognized prior service costs that had been reported in accumulated other comprehensive loss), such that the Company's pension expense is expected to be approximately $25 million to $30 million for all of 2009, rather than the prior estimate of $30 million to $35 million. In addition, the Company's pension benefit obligations for its U.S. pension plans decreased by $8.6 million from the level at December 31, 2008, as a result of the re-measurement of the pension liabilities resulting from the May 2009 Pension Plan Amendments, as well as the May 2009 Program. The May 2009 Plan Amendments are not expected to impact the Company's planned cash contributions to its U.S. pension plans or savings plans for 2009.
Results of Operations
In the tables, all amounts are in millions and numbers in parentheses ( ) denote unfavorable variances.
Net sales:
Consolidated net sales in the second quarter of 2009 were $321.8 million, a decrease of $44.7 million, or 12.2%, compared to $366.5 million in the second quarter of 2008. The primary drivers of the net sales decline were retailer inventory reduction actions and the unfavorable impact of foreign currency fluctuations. Consolidated net sales for the first half of 2009 were $625.1 million, a decrease of $53.1 million, or 7.8%, compared to $678.2 million for the first half of 2008. Excluding the unfavorable impact of foreign currency fluctuations of $16.7 million and $37.0 million, consolidated net sales decreased by 7.6% and 2.4%, in the second quarter of 2009 and first half of 2009, respectively. In the second quarter and first half of 2009, from a brand perspective, the decline in consolidated net sales was driven by lower net sales of Revlon and Almay color cosmetics and Revlon beauty tools, partially offset by higher net sales of Revlon ColorSilk hair color.
Three Months Ended
June 30, Change XFX Change(1)
2009 2008 $ % $ %
United States $ 186.2 $ 216.4 $ (30.2 ) (14.0 )% $ (30.2 ) (14.0 )%
Asia Pacific 62.7 66.6 (3.9 ) (5.9 ) 2.2 3.3
Europe 45.7 57.2 (11.5 ) (20.1 ) (2.8 ) (4.9 )
Latin America 27.2 26.3 0.9 3.4 2.8 10.6
Total International $ 135.6 $ 150.1 $ (14.5 ) (9.7 )% $ 2.2 1.5 %
$ 321.8 $ 366.5 $ (44.7 ) (12.2 )% $ (28.0 ) (7.6 )%
|
Six Months Ended
June 30, Change XFX Change(1)
2009 2008 $ % $ %
United States $ 377.2 $ 393.6 $ (16.4 ) (4.2 )% $ (16.4 ) (4.2 )%
Asia Pacific 119.8 130.7 (10.9 ) (8.3 ) 5.5 4.2
Europe 81.4 106.3 (24.9 ) (23.4 ) (7.4 ) (7.0 )
Latin America 46.7 47.6 (0.9 ) (1.9 ) 2.2 4.6
Total International $ 247.9 $ 284.6 $ (36.7 ) (12.9 )% $ 0.3 0.1 %
$ 625.1 $ 678.2 $ (53.1 ) (7.8 )% $ (16.1 ) (2.4 )%
|
(1) XFX excludes the impact of foreign currency fluctuations.
United States
Second quarter results
In the United States, net sales in the second quarter of 2009 were $186.2 million, a decrease of $30.2 million, or 14.0%, compared to $216.4 million in the second quarter of 2008, primarily driven by retailer inventory reduction actions, which resulted in lower net sales of Revlon and Almay color cosmetics.
Year-to-date results
In the United States, net sales in the first half of 2009 were $377.2 million, a decrease of $16.4 million, or 4.2%, compared to $393.6 million in the first half of 2008, primarily driven by lower net sales of Revlon and Almay color cosmetics, Mitchum anti-perspirant deodorant and Revlon beauty tools.
International
In the Company's international operations, net sales in the second quarter of 2009 decreased by $14.5 million, or 9.7%, to $135.6 million, compared to $150.1 million in the second quarter of 2008 (while net sales increased 1.5% excluding the unfavorable impact of foreign currency fluctuations). The growth in net sales, excluding the impact of foreign currency fluctuations, was primarily due to higher net sales of Revlon color cosmetics and Revlon ColorSilk hair color, partially offset by declines in Revlon beauty tools. Excluding the impact of foreign currency fluctuations, higher net sales in the Company's Latin America and Asia Pacific regions in the second quarter of 2009, compared to the second quarter of 2008, were partially offset by lower net sales in the Company's Europe region. In the first half of 2009, international net sales decreased $36.7 million, or 12.9%, to $247.9 million, compared to $284.6 million in the first half of 2008 (while net sales increased 0.1% excluding the unfavorable impact of foreign currency fluctuations). The growth in net sales, excluding the impact of foreign currency fluctuations, was primarily due to higher net sales of Revlon color cosmetics and Revlon ColorSilk hair color, substantially offset by declines in certain beauty care products and fragrances. Excluding the impact of foreign currency fluctuations, higher net sales in the Company's Asia Pacific and Latin America regions in the first half of 2009, compared to the first half of 2008, were partially offset by lower net sales in the Company's Europe region.
Second quarter results by region
In Asia Pacific, which is comprised of Asia Pacific and Africa, net sales in the second quarter of 2009 decreased 5.9% to $62.7 million, compared to $66.6 million in the second quarter of 2008 (while increasing 3.3% excluding the unfavorable impact of foreign currency fluctuations). The growth in net sales, excluding the unfavorable impact of foreign currency fluctuations, was due primarily to higher shipments of Revlon color cosmetics in Australia and China (which contributed approximately 3.6 percentage points to the increase in the region's net sales in the second quarter of 2009, compared with the second quarter of 2008), partially offset by lower shipments of Revlon color cosmetics in Japan (which offset by approximately 1.6 percentage points the region's net sales in the second quarter of 2009, compared to the second quarter of 2008).
In Europe, which is comprised of Europe, Canada and the Middle East, net sales in the second quarter of 2009 decreased 20.1%, or 4.9% excluding the impact of . . .
|
|