Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity SecuritiesSecurities.
For information on securities authorized for issuance under the Company’s equity compensation plans, see "Item 12 - Security Ownership of Certain Beneficial Owners and Related Stockholder Matters."
Item 6. Selected Financial Data
Item 7. Combined Management’s Discussion and Analysis of Financial Condition and Results of Operations
Revlon, Inc. ("Revlon" 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 is an indirect majority-owned subsidiary of MacAndrews & Forbes Incorporated (together with certain of its affiliates other than the Company, "MacAndrews & Forbes"), a corporation wholly-ownedbeneficially owned by Ronald O. Perelman.
Table of Contents
REVLON, INC AND SUBSIDIARIES
COMBINED MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(all tabular amounts in millions, except share and per share amounts)
COVID-19 pandemic, including the impact of the pandemic’s “subsequent waves,” will continue to impact its business going forward, the Company will continue to closely monitor the associated impacts and take appropriate actions in an effort to mitigate the COVID-19 pandemic’s negative effects on the Company’s operations and financial results.
Non-cash Impairment Charges
The ongoing and prolonged COVID-19 pandemic contributed an estimated $505 million ($507 million XFX) to the Company's $515.3 million decline in net sales for the year ended December 31, 2020, compared to the prior year period. For the year ended December 31, 2020, the Company experienced increased net sales of Revlon-branded beauty tools, Revlon hair color products and of certain Elizabeth Arden skincare and, to a lower extent, fragrance products in certain markets, primarily in Asia, as well as growth in the Company's e-commerce net sales.
For the year ended December 31, 2020, Revlon segment net sales declined $270.4 million ($267.2 million XFX) versus the prior year period, with the ongoing and prolonged COVID-19 pandemic contributing an estimated $225 million ($225 million XFX) to such decline. During the year ended December 31, 2020, the Revlon segment experienced increased net sales of Revlon-branded beauty tools and Revlon hair color products, primarily in North America. The COVID-19 pandemic had a similar negative impact on the Company's other reporting segments over such period, with the COVID-19 pandemic contributing: (i) an estimated $117 million ($118 million XFX) to a $56.5 million ($60.5 million XFX) decline in the Elizabeth Arden segment, partially offset by higher net sales of Ceramide skin care products and, to a lower extent, higher net sales of GreenTea fragrances; (ii) an estimated $80 million ($81 million XFX) to a $101.9 million ($101.2 million XFX) decline in the Fragrances segment; and (iii) an estimated $82 million ($82 million XFX) to a $86.5 million ($83.5 million XFX) decline in the Portfolio segment.
On a regional basis, the ongoing and prolonged COVID-19 pandemic had a similar negative impact on the Company's North America and International regions during the year ended December 31, 2020. COVID-19 contributed an estimated $211 million ($212 million XFX) to the decline of $239.0 million ($238.3 million XFX) in the Company’s net sales in its North America region for the year ended December 31, 2020, compared to the prior year. Similarly, COVID-19 contributed an estimated $293 million ($295 million XFX) to a decline of $276.3 million ($274.1 million XFX) in the Company’s net sales in its International region for the year ended December 31, 2020, compared to the prior year. During the year ended December 31, 2020, on a regional basis, the Company also experienced increased net sales of Revlon-branded beauty tools, Revlon hair color products and certain Elizabeth Arden skincare and fragrance products, predominantly in China, as well as growth in Cutex nail care products, and certain local and regional brands, in certain markets.
In April 2020, the Company took several cost reduction measures designed to mitigate the adverse impact of the ongoing and prolonged COVID-19 pandemic on its net sales, including, without limitation: (i) reducing brand support, as a result of the abrupt decline in retail store traffic; (ii) continuing to monitor the Company’s sales and order flow and periodically scaling down operations and cancelling promotional programs; and (iii) closely managing cash flow and liquidity and prioritizing cash to minimize the COVID-19 pandemic’s impact on the Company’s production capabilities. In April 2020, the Company also implemented various organizational interim measures designed to reduce costs in response to the COVID-19 pandemic, including, without limitation: (i) switching to a reduced work week in the U.S. and in the Company's international locations and reducing executive and employee compensation in the range of 20% to 40%; (ii) furloughing approximately 40% of the Company’s U.S.-based office-based employees and 30% factory-based employees, as well as employees in a majority of the Company's other locations; (iii) suspending the Company’s 2020 merit base salary increases, discretionary profit sharing contributions and matching contributions to the Company’s 401(k) plan; (iv) reducing Board and committee compensation by 50% and eliminating Board and committee meeting fees; and (v) suspending or terminating services and payments under consulting agreements with certain directors. During the third quarter of 2020, the Company started to gradually roll back some of these measures especially with regards to some of the employees previously furloughed and/or on a reduced work week. With these measures, including the Revlon 2020 Restructuring Program, the Company achieved cost reductions of approximately $286 million during the year ended December 31, 2020 that have substantially offset the impact of the decline in the Company's net sales over such period. However, with the ongoing and prolonged COVID-19 pandemic, these mitigation actions may not prove to be effective in insulating the Company from any further damaging economic impacts from the pandemic.
For purposesadditional information regarding the Company's business, see "Part 1, Item 1 - Business" in this 2020 Form 10-K. Certain capitalized terms used in this Form 10-K are defined throughout this Item 7.
Overview of Net Sales and Earnings Results
Consolidated net sales in the year ended December 31, 2020 were $1,904.3 million, a $515.3 million decrease, or 21.3%, compared to $2,419.6 million in the year ended December 31, 2019. Excluding the $2.9 million unfavorable FX impact,
Table of Contents
REVLON, INC AND SUBSIDIARIES
COMBINED MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(all tabular amounts in millions, except share and per share amounts)
consolidated net sales decreased by $512.4 million, or 21.2%, during the year ended December 31, 2020. The ongoing and prolonged COVID-19 pandemic contributed an estimated $505 million ($507 million XFX) to the Company's $515.3 million decline in net sales for the year ended December 31, 2020, compared to the prior year period. The XFX net sales decrease of $512.4 million in the year ended December 31, 2020 was due to: a $267.2 million, or 27.9%, decrease in Revlon segment net sales; a $101.2 million, or 22.3%, decrease in Fragrances segment net sales; a $83.5 million, or 17.1%, decrease in Portfolio segment net sale; and a $60.5 million, or 11.6%, decrease in Elizabeth Arden segment net sales.
Consolidated loss from continuing operations, net of taxes, in the year ended December 31, 2020 was $619.0 million, compared to consolidated loss from continuing operations, net of taxes, of $165.2 million in the year ended December 31, 2019. The $453.8 million increase in consolidated loss from continuing operations, net of taxes, in the year ended December 31, 2020, compared to year ended December 31, 2019, was primarily due to:
•$323.6 millionof lower gross profit, primarily due to the lower net sales, primarily as a result of the annual goodwill impairment test,effects of the Company's SinfulColors (acquired in 2011) and Pure Ice nail enamel (acquired in 2012) brands are included within the Company's Global Color Brands ("GCB") reporting unit. The shift in consumer behavior challenging the brick-and-mortar retail channel contributed to continued consumption and net sales declines, particularlyCOVID-19 pandemic, in the nail category,year ended December 31, 2020;
•a $158.6 million increase in the provision for income taxes in the year ended December 31, 2020, compared to the prior year period, primarily due to: (i) the increase in the valuation allowance recorded on net federal deferred tax assets, (ii) the mix and level of earnings; and (iii) non-deductible impairment charges for which has disproportionately impacted GCB's financial results. Accordingly, in conjunction with the Company's annual impairment test, the Company recognized $10.8no tax benefit is recognized;
•a $144.1 million increase in non-cash impairment charges duringrecorded for the fourth quarteryear ended December 31, 2020, primarily attributable to the effects of 2017 relatedthe COVID-19 pandemic, compared to GCB. Thesehaving had no impairment charges for the year ended December 31, 2019. This increase is attributable to non-cash impairment charges areof $111.0 million recorded on the Company's goodwill and to $33.1 million of non-cash impairment charges recorded on certain of the Company's indefinite-lived intangible assets following the Company's interim impairment assessments during the first and second quarters of 2020;
•a $46.7 million increase in interest expense in the year ended December 31, 2020, compared to the prior year period, primarily due to higher weighted average borrowings and higher weighted average interest rates driven primarily by the 2020 BrandCo Term Loan Facility;
•a $36.9 million increase in restructuring charges, primarily related to higher expenditures under the Revlon 2020 Restructuring Program in the year ended December 31, 2020, compared to the expenditures incurred primarily under the 2018 Optimization Program in the year ended December 31, 2019;
•$26.1 million of lower gain on divested assets primarily related to the gain of $27.4 million recorded in 2019 on the sale of certain assets, compared to having non-material amounts of gains in 2020;
•a $12.2 million increase in amortization of debt issuance costs in the year ended December 31, 2020, compared to the prior year period, primarily due to the Company’s expectations regardingadditional debt issuance costs recorded and amortized in connection with the future performance2020 BrandCo Refinancing Transactions; and
•a $1.1 million increase in acquisition, integration and divestiture costs in the year ended December 31, 2020, compared to the prior year period, primarily driven by the amortization of the GCB reporting unit in relationcash-based awards under Tier 1 and Tier 2 of the Revlon 2019 TIP (see Note 12, "Stock Compensation Plan," to the carrying amounts of GCB's goodwill. See Note 8, "Goodwill and Intangible Assets," to theCompany's Consolidated Financial Statements in this Form 10-K for furtheradditional details on this non-cash goodwill impairment charge.the 2019 TIP);
with the foregoing partially offset by:
•$244.8 million of lower SG&A expenses in the year ended December 31, 2020, compared to the prior year period, primarily driven by cost reductions achieved through the Company's initiatives designed to mitigate the adverse impact of the ongoing and prolonged COVID-19 pandemic on the Company's operations, as well as from the Revlon 2020 Restructuring Program;
•a $43.1 million increase in gain on the early extinguishment of debt in the year ended December 31, 2020, compared to having had no gain in the prior year period, primarily due to $31.2 million recorded during the third quarter of 2020 and $11.9 million recorded during the second quarter of 2020 upon the repurchase and subsequent cancellation of approximately $157.2 million in aggregate principal face amount of Products Corporation's 5.75% Senior Notes;
•$4.1 million of favorable variance in foreign currency, resulting from $6.0 million in foreign currency gains during the year ended December 31, 2020, compared to $1.9 million in foreign currency gains during the year ended December 31, 2019; and
Table of Contents
REVLON, INC AND SUBSIDIARIES
COMBINED MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(all tabular amounts in millions, except share and per share amounts)
•a $3.5 million net decrease in other miscellaneous expenses, net, in the year ended December 31, 2020, compared to the prior year period, primarily due to lower net periodic benefit costs in connection with the Company's pension plans.
Operating Segments
The Company operates in four reporting segments: the consumer division ("Consumer");Revlon; Elizabeth Arden; the Professional division ("Professional");Portfolio; and Other:Fragrances:
•Revlon - The ConsumerRevlon segment is comprised of the Company's consumer brands, whichflagship Revlon brands. Revlon segment products are primarily include Revlon, Almay, SinfulColorsmarketed, distributed and Pure Icesold in color cosmetics; Revlon ColorSilk in women’s hair color; Revlon in beauty tools; and Mitchum in anti-perspirant deodorants. The Company’s principal customers for its consumer products includethe mass retail channel, large volume retailers, chain drug and food stores, chemist shops, hypermarkets, general merchandise stores, e-commerce sites, television shopping, department stores, professional hair and nail salons, one-stop shopping beauty retailers and specialty cosmeticscosmetic stores and perfumeries in the U.S. and internationally. The Consumer segment also includes: (i) a skin care lineinternationally under the Natural Honey brand; (ii) abrands such as Revlon in color cosmetics; Revlon ColorSilk and Revlon Professional in hair color line under the Llongueras brand (licensed from a third party) sold to large volume retailerscolor; and other retailers, primarilyRevlon in Spain, which were acquired as part of the Colomer Acquisition; and (iii) Cutex nail care products, which (combined with other Cutex businesses that the Company acquired in 1998) were acquired as part of the October 2015 and May 2016 acquisitions of the Cutex businesses and related assets in the U.S. (the "Cutex U.S. Acquisition") and in certain international territories (the "Cutex International Acquisition" and together with the Cutex U.S. Acquisition, the "Cutex Acquisitions"), respectively.
beauty tools.•Elizabeth Arden - The Elizabeth Arden segment includesis comprised of the operating results ofCompany's Elizabeth Arden branded products. The Elizabeth Arden segment markets, distributes and sells fragrances, skin care and color cosmetics primarily to prestige retailers, department and specialty stores, perfumeries, boutiques, e-commerce sites, the mass retail channel, travel retailers and distributors, as well as direct sales to consumers via its Elizabeth Arden branded retail stores and elizabetharden.com e-commerce business under brands such as Elizabeth Arden Ceramide, Prevage, Eight Hour, SUPERSTART, Visible Difference and Skin Illuminating in the Elizabeth Arden businessskin care brands; and related purchase accounting of the Elizabeth Arden Acquisition.White Tea, Elizabeth Arden is a global prestige beauty products company with an iconic portfolio of prestige fragrance, skin care and cosmetic brands, which includes the Red Door, Elizabeth Arden skin care brands, color cosmetics5th Avenue and fragrances; designer fragrances such as Juicy Couture, John Varvatos and Wildfox;and heritage fragrances such as Curve, Elizabeth Taylor, Britney Spears and Christina Aguilera.
Arden Green Tea in Elizabeth Arden fragrances.The Professional segment is comprised primarily of the Company's professional brands, which include Revlon Professional in hair color, hair care and hair treatments; CND•Portfolio-branded productsin nail polishes and nail enhancements; and American Crew in men’s grooming products, all of which are sold worldwide to professional salons. The Company’s principal customers for its professionalPortfolio segment markets, distributes and sells a comprehensive line of premium, specialty and mass products includeprimarily to the mass retail channel, hair and nail salons and distributors to professional salonssalon distributors in the U.S. and internationally.internationally and large volume retailers, specialty and department stores under brands such as Almay and SinfulColors in color cosmetics; American Crew in men's grooming products (which are also sold direct-to-consumer on its americancrew.com website); CND in nail polishes, gel nail color and nail enhancements; Cutex in nail care products; and Mitchum in anti-perspirant deodorants. The ProfessionalPortfolio segment also includes a multi-cultural hair care line consisting ofCreme of Naturehair care products, which are sold toin both professional salons and in large volume retailers and other retailers, primarily in the U.S.
; and a hair color line under the Llongueras brand (licensed from a third party) that is sold in the mass retail channel, large volume retailers and other retailers, primarily in Spain.•Fragrances - The OtherFragrances segment primarily includes the operating results related to the development, marketing and distribution of certain owned and licensed fragrances, as well as the distribution of prestige fragrance brands owned by third parties. These products are typically sold to retailers in the U.S. and internationally, including prestige retailers, specialty stores, e-commerce sites, the mass retail channel, travel retailers and other beauty products.international retailers. The results included within the Other segmentowned and licensed fragrances include brands such as: (i) Juicy Couture (which are not material to the Company’s consolidated financial results.also sold direct-to-consumer on its juicycouturebeauty.com website), John Varvatos and AllSaints in prestige fragrances; (ii) Britney Spears, Elizabeth Taylor, Christina Aguilera, Jennifer Aniston and Mariah Carey in celebrity fragrances; and (iii) Curve, Giorgio Beverly Hills, Ed Hardy, Charlie, Lucky Brand, ‹PS› (logo of former Paul Sebastian brand), Alfred Sung, Halston, Geoffrey Beene and White Diamonds in mass fragrances.
Table of Contents
REVLON, INC AND SUBSIDIARIES
COMBINED MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(all tabular amounts in millions, except share and per share amounts)
Results of Operations — Revlon, Inc.
Consolidated Net Sales:
Year-to-date results:
Consolidated net sales in 2017the year ended December 31, 2020 were $2,693.7$1,904.3 million, a $359.7$515.3 million increase,decrease, or 15.4%21.3%, compared to $2,334$2,419.6 million in 2016.the year ended December 31, 2019. Excluding the $6.3 million favorable FX impact, consolidated net sales increased by $353.4 million, or 15.1%, during 2017.
Consolidated net sales in 2016 were $2,334 million, a $419.7 million increase, or 21.9%, compared to $1,914.3 million in 2015. Excluding the $43.9$2.9 million unfavorable FX impact, consolidated net sales increased on an XFX basisdecreased by $463.6$512.4 million, or 24.2%21.2%, during 2016.
Changesthe year ended December 31, 2020. The ongoing and prolonged COVID-19 pandemic contributed an estimated $505 million ($507 million XFX) to the Company's $515.3 million decline in consumer shopping patternsnet sales for beauty products in which consumers have continuedthe year ended December 31, 2020, compared to increasingly engage with beauty brands through e-commerce and other social media channels have resulted in slower retail traffic in brick-and-mortar storesthe prior year period. The XFX net sales decrease of $512.4 million in the mass retail channelyear ended December 31, 2020 was due to: a $267.2 million, or 27.9%, decrease in North America. This shiftRevlon segment net sales; a $101.2 million, or 22.3%, decrease in consumer behavior has resultedFragrances segment net sales; a $83.5 million, or 17.1%, decrease in continuing declinesPortfolio segment net sale; and a $60.5 million, or 11.6%, decrease in the brick-and-mortar retail channel, including store closures. To address the pace and impact of this new commercial landscape, the Company has shifted some of its brand marketing spend toward facilitating increased penetration of e-commerce and social media channels and is focused on the following e-commerce initiatives: (i) developing and implementing effective content to enhance the Company's online retail position; (ii) improving the Company's consumer engagement across social media platforms; and (iii) transforming the Company's technology and data to support efficient management of the Company's digital infrastructure.Elizabeth Arden segment net sales.
See "Segment Results" below for further discussion.
Segment Results:
The Company's management evaluates segment profit which is definedfor each of the Company's reportable segments. The Company allocates corporate expenses to each reportable segment to arrive at segment profit, as these expenses are included in the internal measure of segment operating performance. The Company defines segment profit as income from continuing operations before interest, taxes, depreciation, amortization, stock-based compensation expense, gains/losses on foreign currency fluctuations, gains/losses on the early extinguishment of debt and miscellaneous expenses, for each of the Company's reportable segments.expenses. Segment profit also excludes unallocated corporate expenses and the impact of certain items that are not directly attributable to the segments' underlying operating performance, which includes the impact of: (i) restructuring and related charges; (ii) acquisition and integration costs; (iii) deferred compensation costs; (iv) charges related to the program that Elizabeth Arden commenced prior to the Elizabeth Arden Acquisition to further align their organizational structure and distribution arrangements for the purpose of improving its go-to-trade capabilities and execution and to streamline their organization (the "Elizabeth Arden 2016 Business Transformation Program"); and (v) costs of sales resulting from a fair value adjustment to inventory acquired in the Elizabeth Arden Acquisition. Unallocated corporate expenses primarily include general and administrative expenses related to the corporate organization. These expenses are recorded in unallocated corporate expenses as these items are centrally directed and controlled and are not included in internal measures of segment operating performance. The Company does not have any material inter-segment sales. For a reconciliation of segment profit to incomeloss from continuing operations before income taxes, see Note 19,16, "Segment Data and Related Information," to the Company's Audited Consolidated Financial Statements in this Form 10-K.
The following tablestable provide a comparative summary of the Company's segment results for 2017, 2016 and 2015.the periods presented.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Net Sales | | Segment Profit |
| | Year Ended December 31, | | Change | | XFX Change (a) | | Year Ended December 31, | | Change | | XFX Change (a) |
| | 2017 | | 2016 | | $ | | % | | $ | | % | | 2017 | | 2016 | | $ | | % | | $ | | % |
| Consumer | $ | 1,288.5 |
| | $ | 1,389.8 |
| | $ | (101.3 | ) | | (7.3 | )% | | $ | (101.6 | ) | | (7.3 | )% | | $ | 239.6 |
| | $ | 349.2 |
| | $ | (109.6 | ) | | (31.4 | )% | | $ | (108.7 | ) | | (31.1 | )% |
Elizabeth Arden(b) | 952.5 |
| | 441.4 |
| | 511.1 |
| | 115.8 | % | | 509.1 |
| | 115.3 | % | | 114.2 |
| | 68.2 |
| | 46.0 |
| | 67.4 | % | | 45.5 |
| | 66.7 | % |
| Professional | 432.2 |
| | 476.5 |
| | (44.3 | ) | | (9.3 | )% | | (49.3 | ) | | (10.3 | )% | | 54.9 |
| | 99.4 |
| | (44.5 | ) | | (44.8 | )% | | (45.7 | ) | | (46.0 | )% |
| Other | 20.5 |
| | 26.3 |
| | (5.8 | ) | | (22.1 | )% | | (4.8 | ) | | (18.3 | )% | | (3.7 | ) | | (2.7 | ) | | (1.0 | ) | | (37.0 | )% | | (1.1 | ) | | (40.7 | )% |
| Total | $ | 2,693.7 |
| | $ | 2,334.0 |
| | $ | 359.7 |
| | 15.4 | % | | $ | 353.4 |
| | 15.1 | % | | $ | 405.0 |
| | $ | 514.1 |
| | $ | (109.1 | ) | | (21.2 | )% | | $ | (110.0 | ) | | (21.4 | )% |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net Sales | | Segment Profit |
| Year Ended December 31, | | Change | | XFX Change (a) | | Year Ended December 31, | | Change | | XFX Change (a) |
| 2020 | | 2019 | | $ | | % | | $ | | % | | 2020 | | 2019 | | $ | | % | | $ | | % |
| Revlon | $ | 688.4 | | | $ | 958.8 | | | $ | (270.4) | | | (28.2) | % | | $ | (267.2) | | | (27.9) | % | | $ | 86.5 | | | $ | 101.2 | | | $ | (14.7) | | | (14.5) | % | | $ | (14.8) | | | (14.6) | % |
| Elizabeth Arden | 463.5 | | | 520.0 | | | (56.5) | | | (10.9) | % | | (60.5) | | | (11.6) | % | | 39.6 | | | 37.6 | | | 2.0 | | | 5.3 | % | | 1.0 | | | 2.7 | % |
| Portfolio | 401.3 | | | 487.8 | | | (86.5) | | | (17.7) | % | | (83.5) | | | (17.1) | % | | 47.4 | | | 45.0 | | | 2.4 | | | 5.3 | % | | 2.0 | | | 4.4 | % |
| Fragrances | 351.1 | | | 453.0 | | | (101.9) | | | (22.5) | % | | (101.2) | | | (22.3) | % | | 66.6 | | | 82.3 | | | (15.7) | | | (19.1) | % | | (16.1) | | | (19.6) | % |
| Total | $ | 1,904.3 | | | $ | 2,419.6 | | | $ | (515.3) | | | (21.3) | % | | $ | (512.4) | | | (21.2) | % | | $ | 240.1 | | | $ | 266.1 | | | $ | (26.0) | | | (9.8) | % | | $ | (27.9) | | | (10.5) | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
(a) XFX excludes the impact of foreign currency fluctuations.
(b) 2016 Net Sales and
Revlon Segment Profit represent results for
Revlon segment net sales in the partial period from the September 7, 2016 Elizabeth Arden Acquisition Date throughyear ended December 31, 2016.2020 were $688.4 million, a $270.4 million, or 28.2%, decrease, compared to $958.8 million in the year ended December 31, 2019. Excluding the $3.2 million unfavorable FX impact, total Revlon segment net sales in the year ended December 31, 2020 decreased by $267.2 million, or 27.9%, compared to the year ended December 31, 2019. The ongoing and prolonged COVID-19 pandemic contributed an estimated $225 million ($225 million XFX) to the Revlon segment's decrease in net sales in the year endedDecember 31, 2020, compared to the prior year period. The Revlon segment's XFX decrease in net sales of $267.2 million in the year endedDecember 31, 2020 was driven primarily by lower net sales of Revlon color cosmetics and, to a lower extent, lower net sales of Revlon-branded professional hair-care products, primarily in International regions, as well as lower net sales of RevlonColorSilk hair color, primarily in North America. This decrease was due, primarily, to the continuing effects of the COVID-19 pandemic on the mass retail channels and on salon activity, respectively, partially offset by increased net sales of Revlon-branded beauty tools and Revlon hair care products, primarily in North America.
Table of Contents
REVLON, INC AND SUBSIDIARIES
COMBINED MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(all tabular amounts in millions, except share and per share amounts)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Net Sales | | Segment Profit |
| | Year Ended December 31, | | Change | | XFX Change (a) | | Year Ended December 31, | | Change | | XFX Change (a) |
| | 2016 | | 2015 | | $ | | % | | $ | | % | | 2016 | | 2015 | | $ | | % | | $ | | % |
| Consumer | $ | 1,389.8 |
| | $ | 1,414.8 |
| | $ | (25.0 | ) | | (1.8 | )% | | $ | 9.7 |
| | 0.7 | % | | $ | 349.2 |
| | $ | 360.2 |
| | $ | (11.0 | ) | | (3.1 | )% | | $ | (8.3 | ) | | (2.3 | )% |
Elizabeth Arden(b) | 441.4 |
| | — |
| | 441.4 |
| | N.M. |
| | 441.4 |
| | N.M. |
| | 68.2 |
| | — |
| | 68.2 |
| | N.M. |
| | 68.2 |
| | N.M. |
|
| Professional | 476.5 |
| | 471.1 |
| | 5.4 |
| | 1.1 | % | | 11.1 |
| | 2.4 | % | | 99.4 |
| | 103.9 |
| | (4.5 | ) | | (4.3 | )% | | (3.5 | ) | | (3.4 | )% |
| Other | 26.3 |
| | 28.4 |
| | (2.1 | ) | | (7.4 | )% | | 1.4 |
| | 4.9 | % | | (2.7 | ) | | 1.4 |
| | (4.1 | ) | | (292.9 | )% | | (4.3 | ) | | (307.1 | )% |
| Total | $ | 2,334.0 |
| | $ | 1,914.3 |
| | $ | 419.7 |
| | 21.9 | % | | $ | 463.6 |
| | 24.2 | % | | $ | 514.1 |
| | $ | 465.5 |
| | $ | 48.6 |
| | 10.4 | % | | $ | 52.1 |
| | 11.2 | % |
(a) XFX excludesRevlon segment profit in the year ended December 31, 2020 was $86.5 million, a $14.7 million, or 14.5%, decrease, compared to $101.2 million in the year ended December 31, 2019. Excluding the $0.1 million favorable FX impact, Revlon segment profit in the year ended December 31, 2020 decreased by $14.8 million, or 14.6%, compared to the year ended December 31, 2019. This decrease was driven primarily by the Revlon segment's lower net sales, primarily due to the COVID-19 pandemic as described above, as well as moderately lower gross profit margin, partially offset by the segment's lower brand support and other SG&A expenses, driven by cost reductions achieved through the Company's initiatives designed to mitigate the adverse impact of foreign currency fluctuations.the ongoing and prolonged COVID-19 pandemic on the Company's operations, as well as the Revlon 2020 Restructuring Program.
(b) 2016 Net Sales and Segment Profit represent results for the partial period from the September 7, 2016
Elizabeth Arden Acquisition Date through December 31, 2016.Segment
Consumer Segment
ConsumerElizabeth Arden segment net sales in 2017the year ended December 31, 2020 were $1,288.5$463.5 million, a $101.3$56.5 million, or 7.3%10.9%, decrease, compared to $1,389.8$520.0 million in 2016.the year ended December 31, 2019. Excluding the $0.3$4.0 million favorable FX impact, total Consumer net sales in 2017 decreased by $101.6 million, or 7.3%, compared to 2016. This decrease was primarily driven by consumption declines as the Consumer segment continues to be impacted by shifts in consumer behavior resulting in continuing declines in core beauty categories in the mass retail channel in North America, which had a negative impact on net sales of Revlon color cosmetics, Almay color cosmetics and SinfulColors color cosmetics, as well as higher sales returns and incentives. These net sales decreases were partially offset by net sales growth internationally for Revlon color cosmetics.
Consumer segment profit in 2017 was $239.6 million, a $109.6 million, or 31.4%, decrease, compared to $349.2 million in 2016. Excluding the $0.9 million unfavorable FX impact, Consumer segment profit in 2017 decreased by $108.7 million, or 31.1%, compared to 2016. This decrease was primarily driven by lower gross profit, primarily as a result of the net sales declines in North America, partially offset by lower brand support expenses.
ConsumerElizabeth Arden segment net sales in 2016 were $1,389.8 million, a $25the year ended December 31, 2020 decreased by $60.5 million, or 1.8%11.6%, decrease, compared to $1,414.8the year ended December 31, 2019. The ongoing and prolonged COVID-19 pandemic contributed an estimated $117 million in 2015. Excluding($118 million XFX) to the $34.7 million unfavorable FX impact, total ConsumerElizabeth Arden segment’s decrease in net sales in 2016 increased by $9.7 million, or 0.7%the year ended December 31, 2020, compared to 2015. This increase was primarily driven by higher net sales of Cutex nail care products fromthe Company’s global consolidation of the Cutex brand, which was completed with two separate acquisitions that closed for the U.S. in October 2015 and for the U.K., Australia and certain other International territories in May 2016, as well as higher net sales of Revlon beauty tools and Mitchum anti-perspirant deodorant products, partially offset by lower net sales of Almay color cosmetics. Net sales of Revlon color cosmetics were essentially flat, as strong sales growth internationally was offset by lower net sales in North America due to softening trade conditions in core cosmetics categories.
Consumer segment profit in 2016 was $349.2 million, a $11 million, or 3.1%, decrease as compared to $360.2 million in 2015. Excluding the $2.7 million unfavorable FX impact, Consumer segment profit in 2016 decreased by $8.3 million, or 2.3%, compared to 2015. This decrease was partially due to a 2015 gain of $3.5 million related to the sale of a non-core consumer brand. In addition, Consumer segment profit decreased due to the unfavorable impact of FX transaction within cost of sales, partially offset by decreased brand support on lower performing brands.
Elizabeth Arden Segment
prior year period. The Elizabeth Arden segment is comprisedXFX decrease in net sales of the operations that the Company acquired$60.5 million in the Elizabeth Arden Acquisition, which closed on the September 7, 2016 Elizabeth Arden Acquisition Date. As such, the results for 2016 reflect only amounts for the partial period of September 7, 2016 throughyear ended December 31, 2016. Therefore, an analysis of net sales and segment profit for the Elizabeth Arden segment is not included in this Form 10-K, as the Company does not have full comparable prior period net sales or segment profit for the Elizabeth Arden segment.
Professional Segment
Professional segment net sales in 2017 were $432.2 million, a $44.3 million, or 9.3%, decrease, as compared to $476.5 million in 2016. Excluding the $5 million favorable FX impact, total Professional segment net sales in 2017 decreased by $49.3 million, or 10.3%, compared to 2016. This decrease2020 was driven primarily by lower net sales of American Crew men's groomingcertain Elizabeth Arden-branded skin care products, as well as color cosmetics, and CND nail products,lower net sales of certain Elizabeth Arden-branded fragrances, due, primarily, to the continuing effects of the COVID-19 pandemic on foot traffic at department stores and other retail outlets, partially offset by higher net sales of Ceramide skin care products and, to a lower extent, by higher net sales of Green Tea fragrances.
Elizabeth Arden segment profit in the year ended December 31, 2020 was $39.6 million, a $2.0 million, or 5.3%, increase, compared to $37.6 million in the year ended December 31, 2019. Excluding the $1.0 million favorable FX impact, Elizabeth Arden segment profit in the year ended December 31, 2020 increased by $1.0 million, or 2.7%, compared to the year ended December 31, 2019. This increase was driven primarily by the Elizabeth Arden segment's lower other SG&A and brand support expenses and higher gross profit margin, driven by cost reductions achieved through the Company's initiatives designed to mitigate the adverse impact of the ongoing and prolonged COVID-19 pandemic on the Company's operations, as well as the Revlon Professional hair products.2020 Restructuring Program, partially offset by the segment's lower net sales, primarily due to the COVID-19 pandemic as described above.
Portfolio Segment
Portfolio segment net sales in the year ended December 31, 2020 were $401.3 million, a $86.5 million, or 17.7%, decrease, compared to $487.8 million in the year ended December 31, 2019. Excluding the $3.0 million unfavorable FX impact, total Portfolio segment net sales in the year ended December 31, 2020 decreased by $83.5 million, or 17.1%, compared to the year ended December 31, 2019. The ongoing and prolonged COVID-19 pandemic contributed an estimated $82 million ($82 million XFX) to the Portfolio segment’s decrease in net sales in the year ended December 31, 2020, compared to the prior year period. The Portfolio segment XFX decrease in net sales of $83.5 million in the year ended December 31, 2020 was driven primarily by lower net sales of Almay color cosmetics, American Crew men's grooming products, CND nail products, primarily in North America, as well as certain local and regional skin care products brands, driven, primarily, by the continuing effects of the COVID-19 pandemic on the mass retail channel and salons. This decrease was partially offset primarily by higher net sales of Creme of Nature products and of Cutex nail care products, as well as certain other local and regional products brand, primarily in North America.
Portfolio segment profit in the year ended December 31, 2020 was $47.4 million, a $2.4 million, or 5.3%, increase compared to $45.0 million in the year ended December 31, 2019. Excluding the $0.4 million favorable FX impact, Portfolio segment profit in the year ended December 31, 2020 increased by $2.0 million, or 4.4%, compared to the year ended December 31, 2019. This increase was driven primarily by the Portfolio segment's lower other SG&A and brand support expenses, driven by cost reductions achieved through the Company's initiatives designed to mitigate the adverse impact of the ongoing and prolonged COVID-19 pandemic on the Company's operations, as well as the Revlon 2020 Restructuring Program, partially offset by the segment's lower net sales, primarily due to the COVID-19 pandemic,as described above, and slightly lower gross profit margin.
Table of Contents
REVLON, INC AND SUBSIDIARIES
COMBINED MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(all tabular amounts in millions, except share and per share amounts)
Fragrances Segment
Professional segment profit in 2017 was $54.9 million, a $44.5 million, or 44.8%, decrease, as compared to $99.4 million in 2016. Excluding the $1.2 million favorable FX impact, Professional segment profit in 2017 decreased by $45.7 million, or 46%, compared to 2016. This decrease was primarily driven by lower net sales, partially offset by lower brand support expenses and incentive compensation.
ProfessionalFragrances segment net sales in 2016the year ended December 31, 2020 were $476.5$351.1 million, a $5.4$101.9 million, or 1.1%22.5%, increase,decrease, compared to $471.1$453.0 million in 2015.the year ended December 31, 2019. Excluding the $5.7$0.7 million unfavorable FX impact, total ProfessionalFragrances segment net sales in 2016 increasedthe year ended December 31, 2020 decreased by $11.1$101.2 million, or 22.3%, compared to 2015. This increasethe year ended December 31, 2019. The ongoing and prolonged COVID-19 pandemic contributed an estimated $80 million ($81 million XFX) to the Fragrances segment’sdecrease in net sales in the year ended December 31, 2020, compared to the prior year period. The Fragrances segment XFX decrease in net sales of $101.2 million in the year ended December 31, 2020 was driven primarily by higher net sales of American Crew men’s grooming products as a result ofcontinuing impacts from the Elvis Presley branded marketing campaign (which endedCOVID-19 pandemic, especially in December 2017)the prestige channel, resulting in decreased foot traffic and Revlon Professional hair products. These increases were partially offset by lower net sales of CND nail products.temporary door closures.
ProfessionalFragrances segment profit in 2016the year ended December 31, 2020 was $99.4$66.6 million, a $4.5$15.7 million, or 4.3%19.1%, decrease, compared to $103.9$82.3 million in 2015, primarily driven by the absence in 2016 of a $3 million gain related to the sale of a non-core professional brand that was completed in 2015.year ended December 31, 2019. Excluding the $1$0.4 million unfavorablefavorable FX impact, ProfessionalFragrances segment profit in 2016the year ended December 31, 2020 decreased by $3.5$16.1 million, or 3.4%19.6%, compared to 2015.
the year ended December 31, 2019. This decrease was driven primarily by the Fragrances segment's lower net sales, primarily due to the ongoing and prolonged COVID-19 pandemic, as described above, partially offset primarily by lower other SG&A and brand support expenses, as well as slightly higher gross profit margin, driven by cost reductions achieved through the Company's initiatives designed to mitigate the adverse impact of the ongoing and prolonged COVID-19 pandemic on the Company's operations, as well as the Revlon 2020 Restructuring Program.
Geographic Results:
The following tables provide a comparative summary of the Company's North America and International net sales by region for 2017, 2016 and 2015:the periods presented:
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| Year Ended December 31, | | Change | | XFX Change (a) |
| 2020 | | 2019 | | $ | | % | | $ | | % |
| Revlon | | | | | | | | | | | |
| North America | $ | 381.0 | | | $ | 497.2 | | | $ | (116.2) | | | (23.4) | % | | $ | (116.0) | | | (23.3) | % |
| International | 307.4 | | | 461.6 | | | (154.2) | | | (33.4) | % | | (151.2) | | | (32.8) | % |
| Elizabeth Arden | | | | | | | | | | | |
| North America | $ | 104.4 | | | $ | 120.4 | | | $ | (16.0) | | | (13.3) | % | | $ | (15.7) | | | (13.0) | % |
| International | 359.1 | | | 399.6 | | | (40.5) | | | (10.1) | % | | (44.8) | | | (11.2) | % |
| Portfolio | | | | | | | | | | | |
| North America | $ | 247.9 | | | $ | 298.9 | | | $ | (51.0) | | | (17.1) | % | | $ | (50.9) | | | (17.0) | % |
| International | 153.4 | | | 188.9 | | | (35.5) | | | (18.8) | % | | (32.6) | | | (17.3) | % |
| Fragrances | | | | | | | | | | | |
| North America | $ | 253.4 | | | $ | 309.2 | | | $ | (55.8) | | | (18.0) | % | | $ | (55.7) | | | (18.0) | % |
| International | 97.7 | | | 143.8 | | | (46.1) | | | (32.1) | % | | (45.5) | | | (31.6) | % |
| Total Net Sales | $ | 1,904.3 | | | $ | 2,419.6 | | | $ | (515.3) | | | (21.3) | % | | $ | (512.4) | | | (21.2) | % |
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| | Year Ended December 31, |
| Change | | XFX Change (a) |
| | 2017 | | 2016 | | $ | | % | | $ | | % |
| Consumer | | | | | | | | | | | |
| North America | $ | 750.8 |
| | $ | 882.4 |
| | $ | (131.6 | ) | | (14.9 | )% | | $ | (132.5 | ) | | (15.0 | )% |
| International | 537.7 |
| | 507.4 |
| | 30.3 |
| | 6.0 | % | | 30.9 |
| | 6.1 | % |
Elizabeth Arden(b) | | | | | | | | | | | |
| North America | $ | 509.0 |
| | $ | 274.8 |
| | $ | 234.2 |
| | 85.2 | % | | $ | 233.6 |
| | 85.0 | % |
| International | 443.5 |
| | 166.6 |
| | 276.9 |
| | 166.2 | % | | 275.5 |
| | 165.4 | % |
| Professional | | | | | | | | | | | |
| North America | $ | 173.5 |
| | $ | 223.9 |
| | $ | (50.4 | ) | | (22.5 | )% | | $ | (50.9 | ) | | (22.7 | )% |
| International | 258.7 |
| | 252.6 |
| | 6.1 |
| | 2.4 | % | | 1.6 |
| | 0.6 | % |
| Other | | | | | | | | | | | |
| North America | $ | — |
| | $ | — |
| | $ | — |
| | N.M. |
| (c) | $ | — |
| | N.M. |
|
| International | 20.5 |
| | 26.3 |
| | (5.8 | ) | | (22.1 | )% | | (4.8 | ) | | (18.3 | )% |
| Total Net Sales | $ | 2,693.7 |
| | $ | 2,334.0 |
| | $ | 359.7 |
| | 15.4 | % | | $ | 353.4 |
| | 15.1 | % |
(a) XFX excludes the impact of foreign currency fluctuations.
(b) 2016 Net Sales represent results for
Revlon Segment
North America
In North America, Revlon segment net sales in the partial period from the September 7, 2016 Elizabeth Arden Acquisition Date throughyear ended December 31, 2016.
(c) N.M. - Not meaningful
2020 decreased by $116.2 million, or 23.4%, to $381.0 million, compared to $497.2 million in the year ended December 31, 2019. Excluding the $0.2 million unfavorable FX impact, Revlon segment net sales in North America in the year ended December 31, 2020 decreased by $116.0 million, or 23.3%, compared to the year ended December 31, 2019. The ongoing and prolonged COVID-19 pandemic contributed an estimated $88 million ($88 million XFX) to the Revlon segment’sdecrease in net sales in North America in the year ended December 31, 2020, compared to the prior year period. The Revlon segment's $116.0 million XFX decrease in North America net sales in the year ended December 31, 2020 was primarily due to the Revlon segment's lower net sales of Revlon color
Table of Contents
REVLON, INC AND SUBSIDIARIES
COMBINED MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(all tabular amounts in millions, except share and per share amounts)
cosmetics, as well as, to a lower extent, Revlon ColorSilk hair color products, due, primarily, to the continuing effects of the COVID-19 pandemic on the mass retail channel, partially offset by higher net sales of Revlon-branded beauty tools and hair care products.
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| | Year Ended December 31, |
| Change | | XFX Change (a) |
| | 2016 | | 2015 | | $ | | % | | $ | | % |
| Consumer | | | | | | | | | | | |
| North America | $ | 882.4 |
| | $ | 921.3 |
| | $ | (38.9 | ) | | (4.2 | )% | | $ | (36.9 | ) | | (4.0 | )% |
| International | 507.4 |
| | 493.5 |
| | 13.9 |
| | 2.8 | % | | 46.6 |
| | 9.4 | % |
Elizabeth Arden(b) | | | | |
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| North America | $ | 274.8 |
| | $ | — |
| | $ | 274.8 |
| | N.M. |
| | $ | 274.8 |
| | N.M. |
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| International | 166.6 |
| | — |
| | 166.6 |
| | N.M. |
| | 166.6 |
| | N.M. |
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| Professional | | | | | — |
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| North America | $ | 223.9 |
| | $ | 216.8 |
| | $ | 7.1 |
| | 3.3 | % | | $ | 7.9 |
| | 3.6 | % |
| International | 252.6 |
| | 254.3 |
| | (1.7 | ) | | (0.7 | )% | | 3.2 |
| | 1.3 | % |
| Other | | | | |
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| North America | $ | — |
| | $ | — |
| | $ | — |
| | N.M. |
| (c) | $ | — |
| | N.M. |
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| International | 26.3 |
| | 28.4 |
| | (2.1 | ) | | (7.4 | )% | | 1.4 |
| | 4.9 | % |
| Total Net Sales | $ | 2,334.0 |
| | $ | 1,914.3 |
| | $ | 419.7 |
| | 21.9 | % | | $ | 463.6 |
| | 24.2 | % |
(a) XFX excludes the impact of foreign currency fluctuations.
(b) 2016 Net Sales represent results for the partial period from the September 7, 2016 Elizabeth Arden Acquisition Date through December 31, 2016.
(c) N.M. - Not meaningful
Consumer Segment
North America
In North America, ConsumerInternationally, Revlon segment net sales in 2017the year ended December 31, 2020 decreased by $131.6$154.2 million, or 14.9%33.4%, to $750.8$307.4 million, compared to $882.4$461.6 million in 2016.the year ended December 31, 2019. Excluding the $0.9$3.0 million favorableunfavorable FX impact, ConsumerRevlon segment International net sales in the year ended December 31, 2020 decreased by $151.2 million, or 32.8%, compared to the year ended December 31, 2019. The ongoing and prolonged COVID-19 pandemic contributed an estimated $137 million ($137 million XFX) to the Revlon segment’s decrease in International net sales in the year ended December 31, 2020, compared to the prior year period. The Revlon segment's $151.2 million XFX decrease in International net sales in the year ended December 31, 2020 was driven primarily by the Revlon segment's lower net sales of Revlon color cosmetics, as well as, to a lower extent, lower net sales of Revlon-branded hair-care professional products and Revlon ColorSilk hair color products due, primarily, to the continuing effects of the COVID-19 pandemic on the mass retail channel and salons.
Elizabeth Arden Segment
North America
In North America, Elizabeth Arden segment net sales in the year ended December 31, 2020 decreased by $16.0 million, or 13.3%, to $104.4 million, compared to $120.4 million in the year ended December 31, 2019. Excluding the $0.3 million unfavorable FX impact, Elizabeth Arden segment net sales in North America in 2017the year ended December 31, 2020 decreased by $132.5$15.7 million, or 15%13.0%, as compared to 2016.the year ended December 31, 2019. The ongoing and prolonged COVID-19 pandemic contributed an estimated $20 million ($20 million XFX) to the Elizabeth Arden segment’s decrease in net sales in North America in the year ended December 31, 2020, compared to the prior year period. The Elizabeth Arden segment's $15.7 million XFX decrease in North America net sales in the year ended December 31, 2020 was driven primarily by the Elizabeth Arden segment's lower net sales of certain Elizabeth Arden-branded skin care products, as well as Elizabeth Arden-branded color cosmetics products and fragrances, due, primarily, to the continuing effects of the COVID-19 pandemic on foot traffic at department stores and other retail outlets. This decrease was primarily due to declines in the U.S. mass retail channel drivenpartially offset by declines in consumption across several beauty categories. Thehigher net sales of Revlon color cosmetics, Almay color cosmeticsCeramide and, SinfulColors color cosmetics all declinedto a lower extent, higher net sales of Prevage skin care products, as well as growth in 2017 compared to 2016.e-commerce net sales.
Consumer
International
Internationally, Elizabeth Arden segment net sales in 2016the year ended December 31, 2020 decreased by $38.9$40.5 million, or 4.2%10.1%, to $882.4$359.1 million, compared to $921.3$399.6 million in 2015.the year ended December 31, 2019. Excluding the $2$4.3 million favorable FX impact, Elizabeth Arden segment International net sales in the year ended December 31, 2020 decreased by $44.8 million, or 11.2%, compared to the year ended December 31, 2019. The ongoing and prolonged COVID-19 pandemic contributed an estimated $97 million ($98 million XFX) to the Elizabeth Arden segment’s decrease in International net sales in the year ended December 31, 2020, compared to the prior year period. The Elizabeth Arden segment's $44.8 million XFX decrease in International net sales in the year ended December 31, 2020 was driven primarily by lower net sales of certain Elizabeth Arden-branded skin care products, as well as lower net sales of Elizabeth Arden-branded fragrances and color cosmetics, primarily within the Company's EMEA and, to a lesser extent, Pacific and Latin America regions, due, primarily, to the continuing effects of the COVID-19 pandemic on foot traffic at department stores and on travel retail outlets. This decrease was partially offset by higher net sales of Ceramide skin care products and, to a lower extent, higher net sales of GreenTea fragrances within the Company's Asia region, as well as growth in e-commerce net sales.
Portfolio Segment
North America
In North America, Portfolio segment net sales in the year ended December 31, 2020 decreased by $51.0 million, or 17.1%, to $247.9 million, as compared to $298.9 million in the year ended December 31, 2019. Excluding the $0.1 million unfavorable FX impact, ConsumerPortfolio segment net sales in North America in 2016the year ended December 31, 2020 decreased by $36.9$50.9 million, or 4%17.0%, compared to 2015. This the year ended December 31, 2019. The ongoing and prolonged COVID-19 pandemic contributed an estimated $55 million ($55 million XFX) to the Portfolio segment’s decrease was primarily driven by the results of softening trade conditions in core categories, which impacted Revlon color cosmetics and Almay color cosmetics, as well as increased competition impacting Revlon ColorSilk hair color. These decreases were partially offset by incremental net sales in connection withNorth America in the Company completingyear ended December 31, 2020, compared to the global consolidation of the Cutex nail care brand, as well as higher net sales of Revlon beauty tools.
International
Internationally, Consumer segmentprior year period. The Portfolio segment's $50.9 million XFX decrease in North America net sales in 2017 increased by $30.3 million, or 6%, to $537.7 million, compared to $507.4 million in 2016. Excluding the $0.6 million unfavorable FX impact, Consumer segment International net sales in 2017 increased by $30.9 million, or 6.1%, as compared to 2016. This increaseyear ended December 31, 2020 was driven primarily by higherthe Portfolio segment's lower net sales of RevlonAlmay color cosmetics. From a geographic perspective, the increase in International net sales was mainly driven by increased net sales in certain distributor territories, as well as throughout the Asia-Pacific region.
Consumer International segment net sales in 2016 increased by $13.9 million, or 2.8%, to $507.4 million, compared to $493.5 million in 2015. Excluding the $32.7 million unfavorable FX impact, Consumer International segment net sales in 2016 increased by $46.6 million, or 9.4%, compared to 2015. This increase was primarily driven by higher net sales of Revlon color cosmetics and Revlon ColorSilk hair color, as well as incremental net sales of Cutex nail care products. The increase in International net sales was mainly driven by higher net sales in the U.K. and Mexico.
Elizabeth Arden Segment
The Elizabeth Arden segment is comprised of the operations that the Company acquired in the Elizabeth Arden Acquisition, which closed on the September 7, 2016 Elizabeth Arden Acquisition Date. As such, the results for 2016 reflect only amounts for the partial period of September 7, 2016 through December 31, 2016. Therefore, an analysis of net sales and segment profit for
Table of Contents
REVLON, INC AND SUBSIDIARIES
COMBINED MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(all tabular amounts in millions, except share and per share amounts)
cosmetics, CND nail products and American Crew men's grooming products, due, primarily, to the Elizabeth Arden segment is not included in this Form 10-K, ascontinuing effects of the Company does not have full comparable prior periodCOVID-19 pandemic on the mass retail channel and on salons. This decrease was partially offset primarily by higher net sales or segment profit for the Elizabeth Arden segment.of Creme of Nature and certain other local and regional products brands, Cutex nail products and Mitchum anti-perspirant deodorants, as well as growth in e-commerce net sales.
Professional SegmentInternational
North America
In North America, ProfessionalInternationally, Portfolio segment net sales in 2017the year ended December 31, 2020 decreased by $50.4$35.5 million, or 22.5%18.8%, to $173.5$153.4 million, compared to $188.9 million in the year ended December 31, 2019. Excluding the $2.9 million unfavorable FX impact, Portfolio segment International net sales decreased by $32.6 million, or 17.3%, in the year ended December 31, 2020, compared to the year ended December 31, 2019. The ongoing and prolonged COVID-19 pandemic contributed an estimated $27 million ($27 million XFX) to the Portfolio segment’s decrease in International net sales in the year ended December 31, 2020, compared to the prior year period. The Portfolio segment's $32.6 million XFX decrease in International net sales in the year ended December 31, 2020 was driven primarily by the Portfolio segment's lower net sales of certain local and regional skin care products brands, American Crew men's grooming products, CND nail products and Almay color cosmetics, as well as certain local and regional skin care products brands, primarily in the Company's EMEA region, due, primarily, to the continuing effects of the COVID-19 pandemic on the mass retail channel and salons. This decrease was partially offset primarily by higher net sales of Creme of Nature.
Fragrances Segment
North America
In North America, Fragrances segment net sales in the year ended December 31, 2020 decreased by $55.8 million, or 18.0%, to $253.4 million, as compared to $223.9$309.2 million in 2016.the year ended December 31, 2019. Excluding the $0.5$0.1 million favorableunfavorable FX impact, ProfessionalFragrances segment net sales in North America in 2017 decreased by $50.9$55.7 million, or 22.7%18.0%, asin the year ended December 31, 2020, compared to 2016. Thisthe year ended December 31, 2019. The ongoing and prolonged COVID-19 pandemic contributed an estimated $48 million ($48 million XFX) to the Fragrances segment’s decrease was primarily driven by declines in net sales of American Crew men's grooming products and CND nail products.
Professional segment net sales in North America in 2016 increasedthe year ended December 31, 2020, compared to the prior year period. The Fragrances segment's $55.7 million XFX decrease in North America net sales in the year ended December 31, 2020 was driven primarily by $7.1the continuing impacts from the COVID-19 pandemic, especially in the prestige channel, resulting in decreased foot traffic and temporary door closures.
International
Internationally, Fragrances segment net sales in the year ended December 31, 2020 decreased by $46.1 million, or 3.3%32.1%, to $223.9$97.7 million, compared to $216.8$143.8 million in 2015.the year ended December 31, 2019. Excluding the $0.8$0.6 million unfavorable FX impact, ProfessionalFragrances segment International net sales decreased by $45.5 million, or 31.6%, in the year ended December 31, 2020, compared to the year ended December 31, 2019. The ongoing and prolonged COVID-19 pandemic contributed an estimated $32 million ($32 million XFX) to the Fragrances segment’s decrease in International net sales in North America in 2016 increased on an XFX basis by $7.9 million, or 3.6%the year ended December 31, 2020, compared to 2015. This increase was primarily driven by increasedthe prior year period. The Fragrances segment's $45.5 million XFX decrease in International net sales of American Crew men's grooming products as a result ofin the Elvis Presley branded marketing campaign, as well as Creme of Nature hair products, partially offsetyear ended December 31, 2020 was driven primarily by lower net sales of CND nail products.
International
Internationally, Professional segment net sales in 2017 increased by $6.1 million, or 2.4%,the Company's EMEA region and also, to $258.7 million, compared to $252.6 milliona lesser extent, in 2016. Excluding the $4.5 million favorable FX impact, Professional segment International net sales increased by $1.6 million, or 0.6%, in 2017, as compared to 2016, primarilyCompany's Asia, Latin America and Pacific regions, due to increasesthe continuing impacts from the COVID-19 pandemic, resulting in net sales of Revlon Professional hair products, partially offset by lower net sales of CND nail products. From a geographic perspective, the increase in International net sales was mainly driven by increased net sales in France, Russiadecreased foot traffic and Italy.temporary door closures.
Internationally, Professional segment net sales in 2016 decreased by $1.7 million, or 0.7%, to $252.6 million, compared to $254.3 million in 2015. Excluding the $4.9 million unfavorable FX impact, Professional segment International net sales increased by $3.2 million, or 1.3%, in 2016, compared to 2015. This increase was primarily due to higher net sales of Revlon Professional hair products, as well as an increase in net sales of American Crew men’s grooming products throughout most of the International region. These increases were partially offset by lower net sales of CND nail products.
Gross profit:
The table below shows the Company's gross profit and gross margin for 2017, 2016 and 2015:the periods presented:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Year Ended December 31, | | | | | |
| | | | | | | 2020 | | 2019 | | Change | | | |
| Gross profit | | | | | | | $ | 1,043.8 | | | $ | 1,367.4 | | | $ | (323.6) | | | | |
| Percentage of net sales | | | | | | | 54.8 | % | | 56.5 | % | | (1.7) | % | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, | | Change |
| | 2017 | | 2016 | | 2015 | | 2017 vs. 2016 | | 2016 vs. 2015 |
| Gross profit | $ | 1,542.4 |
| | $ | 1,416.9 |
| | $ | 1,246.5 |
| | $ | 125.5 |
| | $ | 170.4 |
|
| Percentage of net sales | 57.3 | % | | 60.7 | % | | 65.1 | % | | (3.4 | )% | | (4.4 | )% |
Gross profit increaseddecreased by $125.5$323.6 million in 2017,the year ended December 31, 2020, as compared to 2016.the year ended of 2019. Unfavorable sales volume, primarily driven by the effects of the ongoing and prolonged COVID-19 pandemic, decreased gross profit in the year ended December 31, 2020 by approximately $291 million, compared to the year ended December 31, 2019, with no impact on gross margin. Gross profit decreased as a percentage of net sales in 2017 by 3.4 percentage points, as compared to 2016. The drivers of the decrease in(i.e., gross margin in 2017, as compared to 2016, primarily included:
the inclusion of gross profit for the Elizabeth Arden segment, which decreased gross margin by 2.3 percentage points;
higher sales incentives, which decreased gross margin by 0.5 percentage points;
unfavorable product mix, which decreased gross margin by 0.4 percentage points; and
higher allowances for sales returns, which decreased gross margin by 0.2 percentage points;
with the foregoing partially offset by:
favorable foreign currency fluctuations, which increased gross margin by 0.3 percentage points.
Excluding the impacts of sales volumesmargin) in the Elizabeth Arden segment, unfavorable sales volumes decreased gross profit by $89 million in 2017, compared to 2016, with no impact on gross margin.
year ended December 31,
Table of Contents
REVLON, INC AND SUBSIDIARIES
COMBINED MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(all tabular amounts in millions, except share and per share amounts)
Gross profit increased2020 decreased by $170.4 million in 2016, as compared to 2015. Gross margin decreased in 2016 by 4.41.7 percentage points, as compared to 2015.the year ended December 31, 2019. The drivers of the decrease in gross margin in 2016,the year ended December 31, 2020, as compared to 2015, primarily included:
the inclusionyear ended December 31, 2019, was impacted by the negative effect of gross profitproduct mix, mainly attributable to the ongoing effects of the ongoing and prolonged COVID-19 pandemic and higher manufacturing costs resulting, in part, from the Elizabeth Arden segment, which decreased gross marginongoing and prolonged COVID-19 pandemic, partially offset by 2.4 percentage points;
unfavorable foreign currency fluctuations, which decreased gross margin by 1.0 percentage point;
higher promotional allowances, which decreased gross margin by 0.6 percentage points;
additional inventory costs as a resultthe impact of cost reductions achieved through the Company's initiatives designed to mitigate the adverse impact of the recognition of an increase inCOVID-19 pandemic on the fair value of inventory acquired inCompany's operations, as well as the Elizabeth Arden Acquisition, which decreased gross margin by 0.5 percentage points; andRevlon 2020 Restructuring Program.
unfavorable product mix, which decreased gross margin by 0.5 percentage points;
with the foregoing partially offset by:
the favorable impact in 2016 related to the portion of the 2015 pension lump sum settlement charge recorded in the fourth quarter of 2015 within cost of sales, which did not recur in 2016, which increased gross margin by 0.3 percentage points.
Favorable volume increased gross profit by $26 million in 2016, compared to 2015, with no impact on gross margin.
SG&A expenses:
The table below shows the Company's selling, general and administrative ("SG&A")&A expenses for 2017, 2016 and 2015:the periods presented:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Year Ended December 31, | | | | | |
| | | | | | | 2020 | | 2019 | | Change | | | |
| SG&A expenses | | | | | | | $ | 1,071.8 | | | $ | 1,316.6 | | | $ | (244.8) | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, | | Change |
| | 2017 | | 2016 | | 2015 | | 2017 vs. 2016 | | 2016 vs. 2015 |
| SG&A expenses | $ | 1,467.6 |
| | $ | 1,161.0 |
| | $ | 1,002.5 |
| | $ | 306.6 |
| | $ | 158.5 |
|
SG&A expenses increaseddecreased by $306.6$244.8 million in 2017,the year ended December 31, 2020, compared to 2016,the year ended December 31, 2019, driven primarily driven by:
•a net decrease of approximately $122 million in brand support expenses, resulting from the inclusion of SG&A expensesCompany's ongoing cost reduction initiatives in response to the ongoing and prolonged COVID-19 pandemic and decreased media spend to align with the lower net sales primarily in North America and in the Elizabeth ArdenEMEA region, primarily within the Revlon segment asand, to a result oflesser extent, within the Elizabeth Arden Acquisition, which contributed $303.7 million to theother segments, partially offset by an increase in SG&A expenses;brand support to sustain sales growth in Asia and in e-commerce;
higher•lower general and administrative expenses of $9.7approximately $81 million, primarily duedriven by cost reductions achieved through the Company's initiatives designed to highermitigate the adverse impact of the ongoing and prolonged COVID-19 pandemic on the Company's operations, as well as the Revlon 2020 Restructuring Program; and
•lower distribution expenses of approximately $31 million, driven primarily by the net sales decline.
Acquisition, integration and divestiture costs:
The table below shows the Company's acquisition, integration and divestiture costs for the periods presented:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Year Ended December 31, | | | | | |
| | | | | | | 2020 | | 2019 | | Change | | | |
| | | | | | | | | | | | | | |
| Integration Costs | | | | | | | $ | — | | | $ | 0.7 | | | $ | (0.7) | | | | |
| Divestiture Costs | | | | | | | 5.0 | | | 3.2 | | | 1.8 | | | | |
| Total acquisition, integration and divestiture costs | | | | | | | $ | 5.0 | | | $ | 3.9 | | | $ | 1.1 | | | | |
| | | | | | | | | | | | | | |
The Company incurred $5.0 million of divestiture costs in the year ended December 31, 2020 including $0.7 million in professional services fees incurred in connection with the exploration of strategic transactions involving the Company and third parties pursuant to the Strategic Review and approximately $4.3 million relating to the amortization of the cash-based awards under Tier 1 and Tier 2 of the Revlon 2019 TIP (the "2019 TIP"). (See Note 12, "Stock Compensation Plan," to the Company's Consolidated Financial Statements in this Form 10-K for additional details on the 2019 TIP).
The Company incurred $3.2 million of divestiture costs in the year ended December 31, 2019 including $1.9 million in professional fees incurred in connection with the exploration of strategic transactions involving Revlon and third parties and approximately $1.3 million relating to the amortization of the cash-based awards under Tier 1 and Tier 2 of the Revlon 2019 Transaction Incentive Program. (See Note 12, "Stock Compensation Plan," to the Company's Audited Consolidated Financial Statements in this 2020 Form 10-K for additional details on the 2019 TIP).
The Company incurred $0.7 million of integration costs in 2019 primarily related to the Company's digital transformation initiatives;
withintegration of Elizabeth Arden's operations into the foregoing partially offset by:
a $4.4 million decrease in brand support expenses, primarily within the Consumer Segment, due to the decline in net sales; and
lower incentive compensation expense.
SG&A expenses increased by $158.5 million in 2016, compared to 2015, primarily driven by:
the inclusion of SG&A expenses in the Elizabeth Arden segment as a result of the Elizabeth Arden Acquisition, commencing on and after the Elizabeth Arden Acquisition Date, which contributed $184.2 million to the increase in SG&A expenses; and
$6.5 million of higher general and administrative expenses in 2016, primarily driven by higher compensation due to changes in senior executive management, higherCompany's business, including professional and legal fees and a total of $6.5 million in gains recognized in 2015 related to the sales of certain non-core assets, partially offset by $10.2 million of charges recognized in 2015 related to a pension lump sum settlement recorded as a component of SG&A expense and lower non-restructuring severance;employee-related costs.
with the foregoing partially offset by:
$19.8 million of favorable FX impacts; and
a $24.3 million decrease in brand support expenses for lower performing brands, primarily within the Consumer segment.
Table of Contents
REVLON, INC AND SUBSIDIARIES
COMBINED MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(all tabular amounts in millions, except share and per share amounts)
Acquisition and Integration Costs:
The table below shows the Company's acquisition and integration costs for 2017, 2016 and 2015:
|
| | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, | | Change |
| | 2017 | | 2016 | | 2015 | | 2017 vs. 2016 | | 2016 vs. 2015 |
| Acquisition Costs | $ | 3.6 |
| | $ | 21.5 |
| | $ | 5.9 |
| | $ | (17.9 | ) | | $ | 15.6 |
|
| Integration Costs | 49.3 |
| | 21.7 |
| | 2.1 |
| | 27.6 |
| | 19.6 |
|
| Total acquisition and integration costs | $ | 52.9 |
| | $ | 43.2 |
| | $ | 8.0 |
| | $ | 9.7 |
| | $ | 35.2 |
|
The Company incurred $52.9 million of acquisition and integration costs in 2017, consisting primarily of $49.2 million of integration costs related to the integration of Elizabeth Arden and $0.8 million of acquisition costs. The integration costs consisted of non-restructuring costs related primarily to the Company's integration of Elizabeth Arden's operations into the Company's business, including professional fees, lease termination costs and employee related costs. The acquisition costs primarily included legal fees directly attributable to the Elizabeth Arden Acquisition.
The Company incurred $43.2 million of acquisition and integration costs in 2016, consisting of $21.5 million of acquisition costs and $21.7 million of integration costs, primarily related to the Elizabeth Arden Acquisition. The acquisition costs primarily included legal and consulting fees related to the Elizabeth Arden Acquisition. Integration costs primarily included non-restructuring costs such as consulting fees related to the Company's integration of Elizabeth Arden's operations into the Company's business.
Restructuring charges and other, net:
The table below shows the Company's restructuring charges and other, net for 2017, 2016the periods presented:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Year Ended December 31, | | | | | |
| | | | | | | 2020 | | 2019 | | Change | | | |
| Restructuring charges and other, net | | | | | | | $ | 49.7 | | | $ | 12.8 | | | $ | 36.9 | | | | |
| | | | | | | | | | | | | | |
Restructuring charges and 2015:
|
| | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, | | Change |
| | 2017 | | 2016 | | 2015 | | 2017 vs. 2016 | | 2016 vs. 2015 |
| Restructuring charges and other, net | $ | 33.4 |
| | $ | 34.0 |
| | $ | 10.5 |
| | $ | (0.6 | ) | | $ | 23.5 |
|
EA Integrationother, net, increased $36.9 million during the year ended December 31, 2020, compared to the year ended December 31, 2019, primarily due to higher charges in connection with the Revlon 2020 Restructuring Program, compared to the expenditures incurred primarily under the 2018 Optimization Program during 2019.
On the Elizabeth Arden Acquisition Date,Revlon 2020 Restructuring Program
Building upon its previously-announced 2018 Optimization Program, in March 2020 the Company completed the Elizabeth Arden Acquisition forannounced that it was implementing a total cash purchase price of $1,034.3 million, pursuantworldwide organizational restructuring (the “Revlon 2020 Restructuring Program”) designed to an agreement and plan of merger (the "Merger Agreement") by and among Revlon, Products Corporation, RR Transaction Corp. ("Acquisition Sub," then a wholly-owned subsidiary of Products Corporation) and Elizabeth Arden. On the Acquisition Date, Elizabeth Arden merged (the "Merger") with and into Acquisition Sub, with Elizabeth Arden surviving the Merger as a wholly-owned subsidiary of Products Corporation.
To reduce the Company’s SG&A expenses, as well as cost of goods sold, improve the Company’s gross profit and SG&A expenses followingAdjusted EBITDA and maximize productivity, cash flow and liquidity. The Revlon 2020 Restructuring Program includes rightsizing the Elizabeth Arden Acquisition,organization and operating with more efficient workflows and processes. The leaner organizational structure is also expected to improve communication flow and cross-functional collaboration, leveraging the more efficient business processes.
As a result of the Revlon 2020 Restructuring Program, the Company identified integration initiativesexpects to eliminate approximately 975 positions worldwide, including consolidating offices, eliminatingapproximately 625 current employees and approximately 350 open positions of which approximately 915 were eliminated by December 31, 2020.
In March 2020, the Company began informing certain duplicative activities and streamlining back-office support (the "EA Integrationemployees that were affected by the Revlon 2020 Restructuring Program"), which began in December 2016. The Company realized approximately $69 millionProgram. While certain aspects of annualized cost reductions in executing the EA IntegrationRevlon 2020 Restructuring Program during 2017, which primarily benefited the Elizabeth Arden segment results and reduced the Company's corporate-level SG&A expenses.
During 2017,may be subject to consultations with employees, works councils, unions and/or governmental authorities, the Company recorded charges totaling $37.7 million relatedsubstantially completed the employee-related actions during 2020 and expects to restructuringcomplete the other consolidation and relatedoutsourcing actions underduring 2021 and 2022.
In connection with implementing the EA IntegrationRevlon 2020 Restructuring Program. Of these charges: (a) $36.1 million were recorded in restructuring charges and included approximately $4.8 million of lease termination costs; (b) $0.9 million were recorded in cost of sales; and (c) $0.7 million were recorded in SG&A expenses.
During 2016,Program, the Company recorded charges totaling $34.5 million related to the EA Integration Restructuring Program that were incurred in connection with integrating the Elizabeth Arden and Revlon organizations. Of the $34.5 million charge: (a) $31.7 million was recorded in restructuring charges and other, net; (b) $0.5 million was recorded in cost of goods sold; and (c) $2.3 million was recorded in SG&A expenses.
As of December 31, 2017, to further implement the EA Integration Restructuring Program and other restructuring costs, the Company anticipates recognizing approximately $90 million to $95recognized during 2020 $68.8 million of total pre-tax restructuring and related charges (the “2020 Restructuring Charges”), consisting of: (i) approximately $65 million to $70 millionprimarily of employee-related costs, includingsuch as severance, retention and other contractual termination benefits. In addition, the Company expects restructuring charges in the range of $75 million to $85 million to be charged and paid during 2021 and 2022. The Company expects that substantially all of these restructuring and related charges will be paid in cash, with $51.5 million of the total charges paid in 2020, approximately $40 million to $45 million expected to be paid in 2021, with the balance expected to be paid in 2022.Since commencing the Revlon 2020 Restructuring Program and through December 31, 2020, the Company recorded $68.8 million of restructuring and related charges under the 2020 Restructuring Program consisting of: (i) $50.5 million of severance and other personnel costs; and (ii) $18.3 million of lease and other restructuring-related charges that were recorded within SG&A. Of these charges, $37.9 million and $13.6 million restructuring charges and SG&A charges respectively, were paid through December 31, 2020.
As a result of the Revlon 2020 Restructuring Program, the Company expects to deliver in the range of $200 million to $230 million of annualized cost reductions from 2020 through the end of 2022, with approximately 50% of these annualized cost reductions to be realized from the headcount reductions occurring in 2020. During 2020, the Company realized approximately $127 million of in-year cost reductions.
2018 Optimization Program
During 2018, the Company announced its 2018 Optimization Program designed to streamline the Company’s operations, reporting structures and business processes, with the objective of maximizing productivity and improving profitability, cash flows and liquidity. During the year endedDecember 31, 2020, the Company recorded, under the 2018 Optimization Program, $0.6 million due to the reversal of previously accrued severance, personnel benefits and other restructuring costs, offset by $0.8 million of other restructuring-related charges that were recorded within SG&A and cost of sales. The Company recognized approximately $39.7 million of cumulative total pre-tax restructuring and related charges under the 2018 Optimization Program since its inception in November 2018, consisting of employee-related costs, such as severance, pension and other termination costs, as well as other related charges within SG&A and cost of sales and approximately $6.5 million of additional capital
Table of Contents
REVLON, INC AND SUBSIDIARIES
COMBINED MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(all tabular amounts in millions, except share and per share amounts)
contractual termination benefits; (ii)expenditures. As of December 31, 2020, restructuring and related charges to be paid in cash under the 2018 Optimization Program totaled approximately $15$32 million of lease termination costs; and (iii) approximately $10the total charges, of which $30.7 million were already paid through December 31, 2020, with any residual balance expected to be paid during the remainder of 2021.
During the year ended December 31, 2019, the Company recorded $12.8 million of otherrestructuring charges primarily related charges.to the 2018 Optimization Program.
For further discussioninformation on the Elizabeth Arden AcquisitionRevlon 2020 Restructuring Program, the 2018 Optimization Program and on the EA Integration Restructuring Program,Company's other restructuring initiatives, see Note 2, "Business Combinations," and Note 3, "Restructuring Charges, - EA Integration Restructuring Program," to the Company's Consolidated Financial Statements in this Form 10-K.
2015 Efficiency ProgramImpairment Charges:
The table below shows the Company's impairment charges for the periods presented:
In 2017,
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Year Ended December 31, | | | | | | |
| | | | | | | 2020 | | 2019 | | Change | | | | |
| Impairment charges | | | | | | | $ | 144.1 | | | $ | — | | | $ | 144.1 | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
During the first, second and third quarters of 2020, as a result of the COVID-19 pandemic’s impact on the Company’s operations, the Company performeddetermined that indicators of potential impairment existed requiring the Company to perform interim impairment analyses. These indicators included a reviewdeterioration in the general economic conditions, developments in equity and credit markets, deterioration in some of the 2015 Efficiency Programeconomic channels in which the Company's operates (especially in the mass retail channel), the recent trading values of the Company's capital stock and determined that employeesthe corresponding decline in certain positions that were initially identified to be eliminated would continue to be employed bythe Company’s market capitalization and the revision of the Company's expected future cash flows as a result of the COVID-19 pandemic. Based on the first and second quarters of 2020 interim impairment analyses, the Company recorded $111.0 million and $33.1 million of total non-cash impairment charges on its goodwill and indefinite-lived intangible assets during 2020, respectively.
Furthermore, in varying positionsthe fourth quarter of 2020, in connection with integrating the Elizabeth Arden and Revlon organizations. As a result,its annual impairment analysis, the Company reversed approximately $3.2 millionre-assessed whether further indicators of impairment existed that might result in previously-accrued restructuringadditional impairment charges. Based upon such assessment, no additional impairment changes were recognized as of December 31, 2020.
For further information on these non-cash impairment charges, recognized in connection withsee Note 6, “Goodwill and Intangible Assets, Net,” to the 2015 Efficiency Program.
In 2016, the Company recognized $1.3 million of restructuring charges and other, net, in connection with the 2015 Efficiency Program, compared to $10.5 million of restructuring charges and other, net, in 2015.
See Note 3, "Restructuring Charges," to theCompany's Consolidated Financial Statements in this Form 10-K for further discussion of the Company's restructuring initiatives.10-K.
Interest expense:
The table below shows the Company's interest expense for 2017, 2016 and 2015:the periods presented:
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Year Ended December 31, | | | | | | |
| | | | | | | 2020 | | 2019 | | Change | | | | |
| Interest expense | | | | | | | $ | 243.3 | | | $ | 196.6 | | | $ | 46.7 | | | | | |
| | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, | | Change |
| | 2017 | | 2016 | | 2015 | | 2017 vs. 2016 | | 2016 vs. 2015 |
| Interest expense | $ | 149.8 |
| | $ | 105.2 |
| | $ | 83.3 |
| | $ | 44.6 |
| | $ | 21.9 |
|
The $44.6$46.7 million increase in interest expense in 2017,during the year endedDecember 31, 2020, as compared to 2016, and the $21.9 million increase in interest expense in 2016, compared to 2015, wereyear endedDecember 31, 2019, was primarily due to higher weighted average debt outstandingborrowings and higher weighted average borrowinginterest rates as a result ofdriven primarily by the debt transactions completed in connection with the Elizabeth Arden Acquisition.2020 BrandCo Term Loan Facility.
See Part II, Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations - Financial Condition, Liquidity and Capital Resources – Long-Term Debt Instruments" for further discussion of the above debt transactions.
LossGain on early extinguishment of debt:
The table below shows the Company's loss on early extinguishment of debt for 2017, 2016 and 2015:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Year Ended December 31, | | | | | | |
| | | | | | | 2020 | | 2019 | | Change | | | | |
| Gain on early extinguishment of debt | | | | | | | $ | (43.1) | | | $ | — | | | $ | (43.1) | | | | | |
| | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, | | Change |
| | 2017 | | 2016 | | 2015 | | 2017 vs. 2016 | | 2016 vs. 2015 |
| Loss on early extinguishment of debt | $ | — |
| | $ | 16.9 |
| | $ | — |
| | $ | (16.9 | ) | | $ | 16.9 |
|
The Company recognized a $16.9 million aggregate loss on the early extinguishment of debt during in 2016, primarily due to approximately $6 million of fees and expenses that were expensed as incurred in connection with entering into the 2016 Senior Credit Facilities, as well as the write-off of $10.9 million of unamortized debt discount and deferred financing fees previously capitalized in connection with the September 2016 repayment of the Old Term Loan Facility.
Please refer to "Financial Condition, Liquidity and Capital Resources – Long-Term Debt Instruments" for further discussion.
Foreign currency (gains) losses, net:
The table below shows the Company's foreign currency (gains) losses, net for 2017, 2016 and 2015:
|
| | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, | | Change |
| | 2017 | | 2016 | | 2015 | | 2017 vs. 2016 | | 2016 vs. 2015 |
| Foreign currency (gains) losses, net | $ | (18.5 | ) | | $ | 18.5 |
| | $ | 15.7 |
| | $ | (37.0 | ) | | $ | 2.8 |
|
Table of Contents
REVLON, INC AND SUBSIDIARIES
COMBINED MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(all tabular amounts in millions, except share and per share amounts)
Gain on early extinguishment of debt for the year ended December 31, 2020 includes debt extinguishment gains of $31.2 million recorded during the third quarter of 2020 and $11.9 million recorded during the second quarter of 2020 upon the repurchase and subsequent cancellation of approximately $157.2 million in aggregate principal face amount of Products Corporation's 5.75% Senior Notes occurring in the third and second quarters of 2020.
For information on the terms and conditions of these debt instruments, see "Recent Developments," as well as Note 8, “Debt,” and Note 21, “Subsequent Events,” to the Company's Consolidated Financial Statements in this Form 10-K. Also, please refer to "Financial Condition, Liquidity and Capital Resources - Long-Term Debt Instruments" in Item 7 of this Form 10-K for further information.
Foreign currency gains, net:
The table below shows the Company's foreign currency losses, net for the periods presented:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Year Ended December 31, | | | | | |
| | | | | | | 2020 | | 2019 | | Change | | | |
| Foreign currency gains, net | | | | | | | $ | (6.0) | | | $ | (1.9) | | | $ | (4.1) | | | | |
| | | | | | | | | | | | | | |
The $18.5$4.1 million increase in foreign currency gains, net, during 2017,the year ended December 31, 2020, compared to $18.5 million in foreign currency loss, net during 2016,the year ended December 31, 2019, was primarily driven by:
by the net favorable impact of the revaluation offoreign currency fluctuations on certain U.S. Dollar denominated intercompany payables and foreign currency denominated receivables,
partly offset by:
a $4.1 million foreign currency loss in 2017, compared to a $2.1 million foreign currency gain in 2016, in each case related to the Company's foreign currency forward exchange contracts.prior year's period.
The $2.8 million increase in foreign currency losses in 2016, compared to 2015, was primarily driven by:
a $2.1 million foreign currency gain in 2016, compared to a $3.8 million foreign currency gain in 2015, in each case related to the Company’s foreign currency forward exchange contracts; and
the net unfavorable impact of the revaluation of certain U.S. Dollar denominated intercompany payables and foreign currency denominated receivables.
Provision for income taxes:
The table below shows the Company's provision for income taxes for 2017, 2016 and 2015:the periods presented:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Year Ended December 31, | | | | | |
| | | | | | | 2020 | | 2019 | | Change | | | |
| Provision for income taxes | | | | | | | $ | 158.8 | | | $ | 0.2 | | | $ | 158.6 | | | | |
| | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, | | Change |
| | 2017 | | 2016 | | 2015 | | 2017 vs. 2016 | | 2016 vs. 2015 |
| Provision for income taxes | $ | 21.8 |
| | $ | 25.5 |
| | $ | 51.4 |
| | $ | (3.7 | ) | | $ | (25.9 | ) |
The Company'sCompany recorded a provision for income taxes decreased by $3.7of $158.8 million in 2017,for the year ended December 31, 2020, compared to 2016, primarily due to lower pre-tax income for 2017, compared to 2016, partially offset by the $47.9 million non-cash expense associated with the reduction in the Company's deferred tax assets as a result of the Tax Act.
The provision for income taxes decreased by $25.9of $0.2 million for the year ended December 31, 2019. The $158.6 million increase in 2016,the provision for income taxes for the year ended December 31, 2020, compared to 2015,same period in 2019, was primarily due to lower pre-tax income for 2016, compared to 2015, partially offset byto: (i) the lack of benefitincrease in 2016 from goodwill and intangible assets impairment, as well as the benefit in 2015 from the reduction of thevaluation allowance recorded on net federal deferred tax valuation allowance that did not exist in 2016.assets, (ii) the mix and level of earnings; and (iii) non-deductible impairment charges for which no tax benefit is recognized.
The Company's effective tax rate for 2017the year ended December 31, 2020 was lower than the 35% federal statutory rate as a resultof 21% primarily due to the increase in the valuation allowance recorded on the net federal deferred tax assets and the impact of non-deductible impairment charges, partially offset by the impact of the level"Coronavirus Aid, Relief and mixEconomic Security Act" (the "CARES Act"), signed into law on March 27, 2020 by President Trump, which resulted in a partial release of earnings between jurisdictions anda valuation allowance on the $47.9 million non-cash expenseCompany's 2019 federal tax attributes associated with the reductionlimitation on the deductibility of interest.
The CARES Act, among other things, includes provisions providing for refundable payroll tax credits, the deferral of employer social security tax payments, acceleration of alternative minimum tax credit refunds and the increase of the net interest deduction limitation from 30% to 50%. The Company has adopted the net interest deduction limitation of 50% for the taxable period ending December 31, 2020 as outlined in the Company's deferred tax assets as a result of the TaxCARES Act.
The Company's effective tax rate for 2016the year ended December 31, 2019 was higherlower than the 35% federal statutory rate as a result of: (i) state and local taxes; (ii) foreign dividends and earnings taxable inof 21%, primarily due to the U.S.; and (iii) the impairmentvaluation allowance related to the limitation on the deductibility of interest and the U.S. tax on the Company's Other segment for which there was no tax benefit.foreign earnings.
The Company expects that its tax provision and effective tax rate in any individual quarter and year-to-date period will vary and may not be indicative of the Company's tax provision and effective tax rate for the full year.
In assessing the recoverability of its deferred tax assets, management regularly considers whether some portion or all of the deferred tax assets will not be realized based on the recognition threshold and measurement of a tax position. The ultimate realization of deferred tax assets is generally 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.
On December 22, 2017, the U.S. government enacted the Tax Act, which makes broad and complex changes to the U.S. tax code, including a one-time transition tax on certain non-U.S. earnings and limitations on tax deductions for interest expense in 2018 and following years. The Company currently expects that it will not have a transition tax liability due to its deficit in foreign earnings and that the limitation on interest deductibility will not impact the Company's 2018 federal cash taxes due to its net operating loss carryover balance. As a result, the Company currently expects that the Tax Act will not have a material impact on its cash taxes or liquidity in 2018.
The Tax Act affected the Company’s financial statements for the year ending December 31, 2017, including, but not limited to, by (1) reducing the U.S. federal corporate tax rate, and (2) requiring a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries. The Company currently expects to have no transition tax liability, due to its deficit in foreign earnings, and it recorded an estimated non-cash expense of $47.9 million in 2017 associated with the reduction in the Company's deferred tax assets, as a result of the reduction in the U.S. federal corporate tax rate.
Table of Contents
REVLON, INC AND SUBSIDIARIES
COMBINED MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(all tabular amounts in millions, except share and per share amounts)
See Item 1A. Risk Factors - "U.S. incomeAs of December 31, 2020, the Company concluded that, based on its evaluation of objectively verifiable evidence, it is no longer more likely than not that its net federal deferred tax reformassets are recoverable.In assessing the realizability of deferred tax assets, the key assumptions used to determine positive and negative evidence included the Company’s cumulative taxable loss for the past three years, future reversals of existing taxable temporary differences, the Company's cost reduction initiatives and efficiency efforts, could have a materialas well as the ongoing and prolonged impact COVID-19 pandemic on the Company's financial condition, resultsCompany.Accordingly, the Company recorded a charge of operations and/or cash flows"$189.5 million in this Form 10-K. See alsothe fourth quarter of 2020 as a reserve against its net federal deferred tax assets.
For further information, see Note 16,13, "Income Taxes," to the Company's Audited Consolidated Financial Statements in this Form 10-K for further discussion.10-K.
The SEC staff issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications
Results of the Tax CutOperations — Products Corporation
Products Corporation's Consolidated Statements of Operations and Jobs Act ("SAB 118"), which provides guidance on accountingComprehensive Loss are essentially identical to Revlon, Inc.'s Consolidated Statements of Operations and Comprehensive Loss, except for the tax effectsfollowing:
| | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, |
| | | | | 2020 | | 2019 |
| Net loss - Revlon, Inc. | | | | | $ | (619.0) | | | $ | (157.7) | |
| Selling, general and administrative expenses - public company costs | | | | | 7.2 | | | 7.9 | |
| Provision for income taxes | | | | | 18.3 | | | (1.4) | |
| Net loss - Products Corporation | | | | | $ | (593.5) | | | $ | (151.2) | |
Refer to Revlon’s “Management Discussion and Analysis of the Tax Act. SAB 118 provides that companies are required to complete their accounting under Accounting Standards Codification Topic 740, “Income Taxes” ("ASC 740") over a measurement period that should not extend beyond one year from the Tax Act enactment date. In accordance with SAB 118, companies must reflect the income tax effectsFinancial Condition and Results of those aspects of the Tax Act for which the accounting under ASC 740 is complete in their financial statements for the fiscal period ended December 31, 2017. To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete at the time such financial statements are filed, but it is able to determine a reasonable estimate for the income tax effects of the Tax Act, it must record a provisional estimate of such effects in its financial statements for the period ended December 31, 2017. If a company cannot determine a provisional estimate to be included in its financial statements for the fiscal period ended December 31, 2017, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act.Operations” herein.
Financial Condition, Liquidity and Capital Resources
At December 31, 2017,2020, the Company had a liquidity position of $280.1$249.9 million, consisting of $87.1of: (i) $97.1 million of unrestricted cash and cash equivalents as well as $193(with approximately $89.8 million held outside the U.S.); (ii) $168.0 million in available borrowingsborrowing capacity under Products Corporation's $400 millionthe Amended 2016 Revolving Credit Facility (which had $188.9 million drawn at such date); and less (iii) approximately $15.2 million of outstanding checks. Under the Amended 2016 Revolving Credit Facility, as Products Corporation’s consolidated fixed charge coverage ratio ("FCCR") was greater than 1.0 to 1.0 as of December 31, 2020, all of the approximately $168.0 million of availability under the Amended 2016 Revolving Credit Facility was available as of such date.
Amended 2016 Revolving Credit Facility and 2018 Foreign Asset-Based Term Facility
On March 8, 2021, the Company amended its Amended 2016 Revolving Credit Facility to, among other things, extend the maturity date of the revolving facility thereunder from September 7, 2021 to June 8, 2023. Additionally, on March 2, 2021, the Company refinanced its 2018 Foreign Asset-Based Term Facility that was scheduled to mature on July 9, 2021 with a $75 million asset-based term loan facility with a scheduled maturity date of March 2, 2024, subject to a springing maturity date of August 1, 2023 if, on such date, any principal amount of loans under the 2016 Term Loan Agreement due September 7, 2023 remain outstanding. For further details of these financing transactions, see Note 21, “Subsequent Events,” to the Company's Consolidated Financial Statements in this Form 10-K
5.75% Senior Notes Exchange Offer
On November 13, 2020, Products Corporation completed its previously-announced offer to exchange (as amended, the “Exchange Offer”) any and all of the then-outstanding $342.8 million aggregate principal amount of its 5.75% Senior Notes scheduled to mature on February 15, 2021 5.75%, on terms set forth in the amended and restated Offering Memorandum and Consent Solicitation Statement dated October 23, 2020. Concurrently with the Exchange Offer, Products Corporation solicited consents (the “Consent Solicitation”) to adopt certain proposed amendments to the indenture governing the 5.75% Senior
Notes, dated as of February 13, 2013, among Products Corporation, the guarantors party thereto and U.S. Bank National Association (the “5.75% Senior Notes Indenture”) to eliminate substantially all of the restricted covenants and certain events of default provisions from the 5.75% Senior Notes Indenture. The Exchange Offer and Consent Solicitation expired at 11:59 p.m., New York City time, on November 10, 2020 (the “Expiration Time”).
For each $1,000 principal amount of 5.75% Senior Notes validly tendered before the Expiration Time, holders received either, at their option, (i) $275 in cash (plus a $50 early tender/consent fee payable for an aggregate of $325 in cash, or (ii) if the holder was an Eligible Holder (as hereinafter defined), a combination of (1) $200 in cash (plus a $50 early tender/consent fee, for an aggregate of $250 in cash, plus, (2) (A) the Per $1,000 Pro Rata Share (as hereinafter defined) of $50 million in aggregate principal amount of new 2020 ABL FILO Term Loans (as hereinafter defined) and (B) the Per $1,000 Pro Rata Share of $75 million in aggregate principal amount of the New BrandCo Second-Lien Term Loans (as hereinafter defined) (the “Mixed Consideration”).
At the Expiration Time, $236 million in aggregate principal amount of 5.75% Senior Notes, representing 68.8% of the total outstanding principal amount of the 5.75% Senior Notes, was validly tendered and not validly withdrawn. On November 13, 2020, immediately after Products Corporation accepted for exchange the 5.75% Senior Notes that were validly tendered and made payment therefore, Products Corporation used cash on hand to redeem, effective as of November 13, 2020, the remaining $106.8 million in aggregate principal amount of 5.75% Senior Notes pursuant to the terms of the 5.75% Senior Notes Indenture. Following the consummation of the Exchange Offer and the satisfaction and full discharge of the 5.75% Senior Notes, no 5.75% Senior Notes remained outstanding. Accrued and unpaid interest on the 5.75% Senior Notes that were tendered in the Exchange Offer was paid to, but not including, the settlement date of the Exchange Offer.
The 2020 ABL FILO Term Loans are new “Tranche B” term loans in the aggregate principal amount of $50 million, ranking junior in right of payment to the “Tranche A” revolving loans under the Amended 2016 Revolving Credit Agreement (as hereinafter defined) and equal in right of payment with all existing and future unsubordinated indebtedness of Products Corporation and the guarantors under the Amended 2016 Revolving Credit Agreement (such new Tranche B term loans, the “2020 ABL FILO Term Loans”). The 2020 ABL FILO Term Loans will mature the earlier of December 15, 2023 and six months after the maturity date of the Tranche A Loans (and any extension thereof in part or in whole). The 2020 ABL FILO Term Loans bear interest at a rate of LIBOR (subject to a 1.75% floor) plus 8.50% per annum, accruing from the settlement date of the Exchange Offer. The borrowing base for the 2020 ABL FILO Term Loans consists of an advance rate of 100% of eligible collateral with a customary push down reserve, with collateral consisting of: (i) a first-priority lien on accounts receivable, inventory, cash, negotiable instruments, chattel paper, investment property (other than capital stock), equipment and real property of Products Corporation and the subsidiary guarantors, subject to customary exceptions (the “Priority Collateral”); and (ii) a second-priority lien on substantially all tangible and intangible personal property of Products Corporation and the subsidiary guarantors, subject to customary exclusions (other than the Priority Collateral).
The New BrandCo Second Lien Term Loans issued pursuant to the Exchange Offer are “Term B-2 Loans” in the aggregate principal amount of $75 million (ranking junior to the Term B-1 Loans and senior to the Term B-3 Loans with respect to liens on certain specified collateral) under the 2020 BrandCo Term Loan Facility (such Term B-2 Loans, the “New BrandCo Second-Lien Term Loans”).
The Exchange Offer with respect to the tendering holders represented a Troubled Debt Restructuring ("TDR") in accordance with ASC 470, Debt, as both criteria for a TDR where met, namely: (i) the creditors granted a concession, and (ii) the Company was experiencing financial difficulties. Since the expected future undiscounted cash flows under the New 2020 ABL FILO Term Loan and the New BrandCo Second-Lien Term Loans exchanged in the transaction are higher than the net carrying value of the original 5.75% Senior Notes remaining after any partial cash settlement (once prior loans with same lenders have also been considered, as applicable), no gain was recorded and a new effective interest rate was established based on the revised cash flows and the remaining net carrying value of the original 5.75% Senior Notes.
Following the closing of the Exchange Offer, as of December 31, 2020, the following aggregate principal amounts are outstanding:
•$50.0 million of New 2020 ABL FILO Term Loans; and
•$75.0 million of New BrandCo Second-Lien Term Loans.
Following the applicability of the TDR guidance and based on a net carrying value of the original 5.75% Senior Notes of approximately $175.5 million remaining after partial cash settlements, future interest payments of approximately $50.5 million were also included in the carrying value of the restructured debt as of the day of closing of the Exchange Offer. Additionally, to the amounts stated above, $17.5 million of New BrandCo Second-Lien Term Loans was added following the recognition of
Paid-In-Kind ("PIK") consent fees that were earned by the lenders on the day of closing of the Exchange Offer, (which are amortized over the term of the restructured debt agreements), in accordance with the BrandCo TSA as defined further below in this section within "Subsequent Amendments to the 2020 BrandCo Term Loan Facility".
In accordance with the aforementioned TDR guidance, fees and expenses incurred to third parties in connection with consummating the Exchange Offer of approximately $13.8 million were expensed as professional fees within SG&A on the Company's Consolidated Statement of Operations and Comprehensive Loss for the year ended December 31, 2020.
2020 BrandCo Refinancing Transactions
On May 7, 2020 (the “BrandCo 2020 Facilities Closing Date”), Products Corporation entered into a term credit agreement (the “2020 BrandCo Credit Agreement”) with Jefferies Finance LLC, as administrative agent and collateral agent, and certain financial institutions (the “2020 Facilities Lenders”) that are lenders or the affiliates of lenders under Products Corporation’s Term Loan Credit Agreement, dated as of September 7, 2016 and amended on April 30, 2020 and as amended on the BrandCo 2020 Facilities Closing Date, as further described below (as amended to date, the “2016 Term Loan Facility”) and the Amended 2016 Revolving Credit Facility, collectively referred to as the "2016 Senior Credit Facilities"). Pursuant to the 2020 BrandCo Credit Agreement, the 2020 Facilities Lenders provided Products Corporation with new and roll-up senior secured term loan facilities (the “2020 BrandCo Facilities” and, collectively, the "2020 BrandCo Term Loan Facility" and, together with the use of proceeds thereof and the Extension Amendment, the “2020 BrandCo Refinancing Transactions”).
Principal and Maturity: The 2020 BrandCo Facilities consist of: (i) a senior secured term loan facility in an aggregate principal amount outstanding on the BrandCo 2020 Facilities Closing Date of $815.0 million, plus the amount of certain fees and accrued interest that have been capitalized (the “2020 BrandCo Facility”); (ii) commitments in respect of a senior secured term loan facility in an aggregate principal amount of $950 million (the “Roll-up BrandCo Facility”); and (iii) a senior secured term loan facility in an aggregate principal amount outstanding on the BrandCo 2020 Facilities Closing Date of $3.0 million (the “Junior Roll-up BrandCo Facility”). Additionally, on May 28, 2020, Products Corporation borrowed from the 2020 Facilities Lenders an additional $65.0 million of term loans under the 2020 BrandCo Facility to repay in full the 2020 Incremental Facility under the 2016 Term Loan Facility, as a result of which the 2020 BrandCo Facility at June 30, 2020 had an aggregate principal amount outstanding of $910.6 million (including paid-in-kind closing fees of $29.1 million and paid-in-kind interest of $1.5 million that were capitalized). Additionally, during 2020, certain lenders under the 2016 Term Loan Facility, representing $846.0 million in aggregate principal outstanding, rolled-up to the Roll-up BrandCo Facility and the Junior Roll-up BrandCo Facility, as a result of which the Roll-up BrandCo Facility and the Junior Roll-up BrandCo Facility at September 30, 2020 had an aggregate principal amount outstanding of $846.0 million. The Company determined that the roll-up of such 2016 Term Loan Facility lenders into the Roll-up BrandCo Facility and the Junior Roll-up BrandCo Facility represented a debt modification under U.S. GAAP, as the cash flow effect between the amount that Products Corporation owed to the participating lenders under the old debt instrument (i.e., the 2016 Term Loan Facility) and the amount that Products Corporation owed to such lenders after the consummation of the roll-up into the new debt instrument (i.e., the Roll-up BrandCo Facility and the Junior Roll-up BrandCo Facility) on a present value basis was less than 10% and, thus, the debt instruments were not considered to be substantially different within the meaning of ASC 470, Debt, under U.S. GAAP.
The proceeds of the 2020 BrandCo Facility were used: (i) to repay in full approximately $200 million of indebtedness outstanding under Products Corporation’s 2019 Term Loan Facility; (ii) to repay in full and terminate commitments under the 2020 Incremental Facility; and (iii) to pay fees and expenses in connection with the 2020 BrandCo Facilities and the 2020 BrandCo Refinancing Transactions. The Company will use the remaining net proceeds for general corporate purposes. The proceeds of the Roll-up BrandCo Facility are available prior to the third anniversary of the BrandCo 2020 Facilities Closing Date to purchase at par an equivalent amount of any remaining term loans under the 2016 Term Loan Facility held by the lenders participating in the 2020 BrandCo Facility or their transferees. During the three months ended June 30, 2020 and the three months ended September 30, 2020, certain lenders under the 2016 Term Loan Facility due June 2023, representing $846.0 million in aggregate principal outstanding, rolled-up to the Roll-up BrandCo Facility and the Junior Roll-up BrandCo Facility due June 2025, as a result of which the Roll-up BrandCo Facility and the Junior Roll-up BrandCo Facility at September 30, 2020 have an aggregate principal amount outstanding of $846.0 million, with a remaining capacity for the roll-up of loans under the 2016 Term Loan Facility of $107.0 million. See “Subsequent Amendments to the 2020 BrandCo Term Loan Facility” regarding the Supporting BrandCo Lenders subsequently relinquishing certain Roll-up Rights and Products Corporation’s issuance of the BrandCo Support and Consent Consideration.
The 2020 BrandCo Facilities will mature on June 30, 2025, subject to a springing maturity 91 days prior to the August 1, 2024 maturity date of Products Corporation’s 6.25% Senior Notes if, on such date, $100 million or more in aggregate principal amount of the 6.25% Senior Notes remain outstanding.
The Company incurred approximately $119.3 million of new debt issuance costs in connection with closing the 2020 BrandCo Facility, which include paid-in kind amounts that are recorded as an adjustment to the carrying amount of the related liability and amortized to interest expense in accordance with the effective interest method over the term of the 2020 BrandCo Facilities.
Borrower, Guarantees and Security: Products Corporation is the borrower under the 2020 BrandCo Facilities and the 2020 BrandCo Facilities are guaranteed by certain of Products Corporation's indirect subsidiaries (the “BrandCos”) that hold certain intellectual property assets related to the Elizabeth Arden and American Crew brands, certain other Portfolio segment brands and certain owned Fragrance segment brands (the “Specified Brand Assets”). While the BrandCos do not guarantee the 2016 Term Loan Facility, all guarantors of the 2016 Term Loan Facility guarantee the 2020 BrandCo Facilities. All of the assets of the BrandCos (including all capital stock issued by the BrandCos) have been pledged to secure the 2020 BrandCo Facility on a first-priority basis, the Roll-up BrandCo Facility on a second-priority basis and the Junior Roll-up BrandCo Facility on a third-priority basis and while such assets do not secure the 2016 Term Loan Facility, the 2020 BrandCo Facilities are secured on a pari passu basis by the assets securing the 2016 Term Loan Facility.
Contribution and License Agreements: In connection with the pledge of the Specified Brand Assets, Products Corporation and certain of its subsidiaries contributed the Specified Brand Assets to the BrandCos. Products Corporation entered into license and royalty arrangements on arm’s length terms with the relevant BrandCos to provide for the continued use of the Specified Brand Assets by Products Corporation and its subsidiaries during the term of the 2020 BrandCo Facilities.
Interest and Fees: Loans under the 2020 BrandCo Facility bear interest at a rate equal to LIBOR (with a LIBOR floor of 1.50%) plus (x) 10.50% per annum, payable not less than quarterly in arrears in cash and (y) 2.00% per annum payable not less than quarterly in-kind by adding such amount to the principal amount of outstanding loans under the 2020 BrandCo Facility. Loans under the Roll-up BrandCo Facility and the Junior Roll-up BrandCo Facility bear interest at a rate equal to LIBOR (with a LIBOR floor of 0.75%) plus 3.50% per annum, payable not less than quarterly in arrears in cash.
Affirmative and Negative Covenants: The 2020 BrandCo Facilities contain certain affirmative and negative covenants that, among other things, limit Products Corporation’s and its restricted subsidiaries’ ability to: (i) incur additional debt; (ii) incur liens; (iii) sell, transfer or dispose of assets; (iv) make investments; (v) make dividends and distributions on, or repurchases of, equity; (vi) make prepayments of contractually subordinated, unsecured or junior lien debt; (vii) enter into certain transactions with their affiliates; (viii) enter into sale-leaseback transactions; (ix) change their lines of business; (x) restrict dividends from their subsidiaries or restrict liens; (xi) change their fiscal year; and (xii) modify the terms of certain debt. The 2020 BrandCo Facilities also restrict distributions and other payments from the BrandCos based on certain minimum thresholds of net sales with respect to the Specified Brand Assets. The 2020 BrandCo Facilities also contain certain customary representations, warranties and events of default, including a cross default provision making it an event of default under the 2020 BrandCo Credit Agreement if there is an event of default under Products Corporation’s existing 2016 Credit Agreements, the 2018 Foreign Asset-Based Term Agreement or the indentures governing the 6.25% Senior Notes Indenture. The lenders under the 2020 BrandCo Credit Agreement may declare all outstanding loans under the 2020 BrandCo Facilities to be due and payable immediately upon an event of default. Under such circumstances, the lenders under the 2016 Credit Agreements, the 2018 Foreign Asset-Based Term Agreement, and the holders under the Senior Notes Indentures may also declare all outstanding amounts under such instruments to be due and payable immediately as a result of similar cross default or cross acceleration provisions, subject to certain exceptions and limitations described in the relevant instruments.
Prepayments: The 2020 BrandCo Facilities are subject to certain mandatory prepayments, including from the net proceeds from the issuance of certain additional debt and asset sale proceeds of certain non-ordinary course asset sales or other dispositions of property, subject to certain exceptions. The 2020 BrandCo Facilities may be repaid at any time, subject to customary prepayment premiums.
The aggregate principal amount outstanding under the 2020 BrandCo Term Loan Facility at December 31, 2020 was $1,868.4 million, including $846.0 million of principal rolled-up from the 2016 Term Loan Facility to the Roll-up BrandCo Facility and the Junior Roll-up BrandCo Facility.
Subsequent Amendments to the 2020 BrandCo Term Loan Facility
Prior to consummating the Exchange Offer Products Corporation and certain lenders under the 2020 BrandCo Term Loan Facility, representing more than a majority in aggregate principal amount of loans thereunder (the “Supporting BrandCo
Lenders”), entered into a Transaction Support Agreement (the “BrandCo TSA”) under which the Supporting BrandCo Lenders agreed to take certain actions to facilitate the Exchange Offer and Consent Solicitation, including, among other things:
•Relinquishing certain rights of such Supporting BrandCo Lenders to “roll-up” loans held by such Supporting BrandCo Lenders under the 2016 Term Loan Facility into New BrandCo Second-Lien Term Loans under the 2020 BrandCo Term Loan Facility (the “Roll-up Rights”);
•Tendering any then-existing 5.75% Senior Notes held by such Supporting BrandCo Lenders into the Exchange Offer and Consent Solicitation;
•Consenting to amendments to the 2020 BrandCo Term Loan Facility to permit the exchange of then-existing 5.75% Senior Notes for the New BrandCo Second-Lien Term Loans under the 2020 BrandCo Term Loan Facility as contemplated by the Offering Memorandum and the payment of the BrandCo Support and Consent Consideration (as hereinafter defined);
•Consenting to other amendments to the 2020 BrandCo Term Loan Facility and the Amended 2016 Revolving Credit Facility to permit the Exchange Offer and Consent Solicitation to be completed as contemplated by the Offering Memorandum; and
•Supporting and cooperating with Products Corporation to consummate the transactions contemplated by the BrandCo TSA and the Offering Memorandum, including the Exchange Offer and Consent Solicitation.
In connection with such amendments, Products Corporation agreed to provide the following consideration (collectively, the “BrandCo Support and Consent Consideration”) upon the successful consummation of the Exchange Offer:
1.$12.5 million aggregate principal amount of New BrandCo Second-Lien Term Loans as a fee to the Supporting BrandCo Lenders under the BrandCo TSA in connection with such Supporting BrandCo Lenders’ relinquishment of their Roll-up Rights;
2.$10.0 million aggregate principal amount of New BrandCo Second-Lien Term Loans to one of the Supporting BrandCo Lenders in exchange for $18.7 million aggregate principal amount of Products Corporation’s 6.25% Senior Notes held by such Supporting BrandCo Lender; and
3.to all lenders under the 2020 BrandCo Term Loan Facility (including the Supporting BrandCo Lenders), an amendment fee that was payable pro rata based on principal amount of loans consenting, consisting of, at Products Corporation's option, either (x) an aggregate of $2.5 million of cash or (y) $5.0 million aggregate principal amount of New BrandCo Second-Lien Term Loans. Pursuant to the BrandCo Amendment, Products Corporation elected to pay this fee in-kind in the form of $5.0 million aggregate principal amount of New BrandCo Second-Lien Term Loans.
Upon the successful closing of the Exchange Offer, the Company capitalized the aforementioned paid-in-kind closing fees of $12.5 million and $5.0 million to the aggregate principal amount of New BrandCo Second-Lien Term Loans issued in connection with the Exchange Offer.
Upon the successful closing of the Exchange Offer, the Company evaluated the aforementioned $10.0 million of New BrandCo Second-Lien Term Loans issued to one of the Supporting BrandCo Lenders in exchange for $18.7 million aggregate principal amount of Products Corporation's 6.25% Senior Notes due 2024 held by such Supporting BrandCo Lender and determined that it represented a TDR in accordance with ASC 470, Debt, as both criteria for a TDR where met, namely: (i) the creditors granted a concession, and (ii) the Company was experiencing financial difficulties. Since the expected future undiscounted cash flows under the New BrandCo Second-Lien Term Loans exchanged in the transaction are higher than the net carrying value of the original 6.25% Senior Notes held by this lender (once prior loans with the same lender have also been considered), no gain was recorded and a new effective interest rate was established based on the revised cash flows and the net carrying value of the above-mentioned 6.25% Senior Notes that were exchanged in the transaction. Following the applicability of the TDR guidance, future interest payments of $8.7 million as of the day of closing of the Exchange Offer were also included in the carrying value of the restructured debt.
On November 13, 2020, Products Corporation entered into that certain Amendment No. 1 (the “BrandCo Amendment”) to the 2020 BrandCo Credit Agreement in connection with the Exchange Offer in order to, among other things, provide for the incurrence of $75 million in aggregate principal amount of New BrandCo Second-Lien Term Loans (exclusive of the BrandCo Support and Consent Consideration). The New BrandCo Second Lien Term Loans are a separate tranche of “Term B-2 Loans” (ranking junior to the Term B-1 Loans and senior to the Term B-3 Loans with respect to liens on certain specified collateral) under the BrandCo Credit Agreement. Except as to the use of proceeds, the terms of the New BrandCo Second-Lien Term Loans are substantially consistent with the other Term B-2 Loans. In connection with the BrandCo Amendment, Products Corporation paid certain fees to the lenders in-kind in the form of New BrandCo Second-Lien Term Loans in accordance with the BrandCo TSA.
2016 Term Loan Facility Extension Amendment
In connection with the closing of the 2020 BrandCo Facility on May 7, 2020, term loan lenders under the 2016 Term Loan Facility were offered the opportunity to participate at par in the 2020 BrandCo Facilities based on their holdings of term loans under the 2016 Term Loan Facility. Lenders participating in the 2020 BrandCo Facilities, as well as other consenting lenders representing, in the aggregate, a majority of the loans and commitments under the 2016 Term Loan Facility, consented to an amendment to the 2016 Term Loan Facility (the “Extension Amendment”) that, among other things, made certain modifications to the covenants thereof and extended the maturity date of certain consenting lenders’ term loans (“Extended Term Loans”) to June 30, 2025, subject to (i) the same September 7, 2023 springing maturity date of the non-extended term loans under the 2016 Term Loan Facility if, on such date, $75 million or more in aggregate principal amount of the non-extended term loans under the 2016 Term Loan Facility remains outstanding, and (ii) a springing maturity of 91 days prior to the August 1, 2024 maturity date of the 6.25% Senior Notes if, on such date, $100 million or more in aggregate principal amount of the 6.25% Senior Notes remains outstanding. The Extension Amendment became effective on the BrandCo 2020 Facilities Closing Date. As of December 31, 2020, approximately $30.6 million in aggregate principal amount of Extended Term Loans were outstanding after giving effect to the 2020 BrandCo Refinancing Transactions. The Extended Term Loans bear interest at a rate of LIBOR (with a LIBOR floor of 0.75%) plus 3.50% per annum, payable not less than quarterly in arrears in cash, consistent with the interest rate applicable to the non-extended term loans. Approximately $17.0 million of accrued interest outstanding on the 2016 Term Loan Facility was paid on the BrandCo 2020 Facilities Closing Date. As a result of such transaction, as of December 31, 2020, $853.3 million of the 2016 Term Loan Facility is scheduled to mature on the Original Maturity Date and $30.6 million is scheduled to mature on the Extended Maturity Date and, thus, the aggregate principal amount outstanding under the 2016 Term Loan Facility at December 31, 2020 was $883.9 million.
Repurchases of 5.75% Senior Notes due 2021
On May 7, 2020, Products Corporation used a portion of the proceeds from the 2020 BrandCo Facility to repurchase and subsequently cancel $50 million in aggregate principal face amount of its 5.75% Senior Notes. Products Corporation also paid approximately $0.7 million of accrued interest outstanding on the 5.75% Senior Notes on May 7, 2020. After the BrandCo 2020 Facilities Closing Date, Products Corporation repurchased and subsequently canceled in July 2020 a further $62.8 million in aggregate principal face amount of its 5.75% Senior Notes. Furthermore, during the remainder of the year ended December 31, 2020, Products Corporation repurchased and subsequently canceled an additional $44.4 million in aggregate principal face amount of its 5.75% Senior Notes. Accordingly, as of December 31, 2020, Products Corporation had repurchased and subsequently cancelled a total of approximately $157.2 million in aggregate principal face amount of its 5.75% Senior Notes, resulting in a gain on extinguishment of debt of approximately $43.1 million for the year ended December 31, 2020, which was recorded within "Gain on early extinguishment of debt" on the Company's Consolidated Statement of Operations and Comprehensive Loss for the year ended December 31, 2020.See hereinafterfor more information regarding Products Corporation's5.75% Senior Notes and the related Exchange Offer. Following the consummation of the Exchange Offer and the satisfaction and full discharge of the remaining 5.75% Senior Notes, no 5.75% Senior Notes remain outstanding as of December 31, 2020.
Prepayment of the 2019 Term Loan Facility due 2023
On the BrandCo 2020 Facilities Closing Date, Products Corporation used a portion of the proceeds from the 2020 BrandCo Facility to fully prepay the entire principal amount outstanding under its 2019 Term Loan Facility, totaling $200 million, plus approximately $1.3 million of accrued interest outstanding thereon, as well as approximately $33.5 million in prepayment premiums, $10.3 million in lenders' fees, $0.3 million in legal fees and approximately $2.0 million in other third party fees. As the lenders under the 2019 Term Loan Facility participated in the 2020 BrandCo Term Loan Facility, the Company determined that the full repayment of the 2019 Term Loan Facility represented a debt modification under U.S. GAAP as the cash flow effect between the old debt instrument (i.e., the 2019 Term Loan Facility) and the new debt instrument (i.e., the 2020 BrandCo Facility) on a present value basis was less than 10% and, thus, the debt instruments were not considered to be substantially different within the meaning of ASC 470, Debt, under U.S. GAAP. Accordingly, the $33.5 million of prepayment premiums, as well as the $10.3 million in other lenders' fees were capitalized as part of the aforementioned $119.3 million of total new debt issuance costs for the 2020 BrandCo Term Loan Facility, while the aforementioned $0.3 million of legal fees and $2.0 million in other third party fees were expensed as incurred in the Company's Consolidated Statement of Operations and Comprehensive Loss for the year ended December 31, 2020.
Amendment to the 2018 Foreign Asset-Based Term Facility
On May 4, 2020, the Company entered into an amendment to the 2018 Foreign Asset Based Term Facility, which had an original outstanding principal amount of €77 million. Such amendment provided for the following:
•increasing the interest rate on the loan from EURIBOR (with a floor 0.50%) plus a margin of 6.50% to EURIBOR (with a floor 0.50%) plus a margin of 7.00%;
•amending the percentages applied in computing the borrowing base from 85% to 78.75% for eligible accounts receivable and from 90% to 80% against the net orderly liquidation value of $381.9 million, less $10.1eligible inventory;
•adding a springing maturity date of 91 days prior to the February 15, 2021 maturity of the 5.75% Senior Notes if any of Products Corporation's 5.75% Senior Notes remained outstanding on such date;
•requiring a mandatory prepayment of €5.0 million; and
•clarifying certain terms and waiving certain provisions in connection with the 2020 BrandCo Refinancing Transactions.
Approximately $0.4 million of amendment fees paid to the lenders under 2018 Foreign Asset-Based Term Facility were capitalized and are amortized to interest expense, together with any unamortized debt issuance costs outstanding undrawn lettersprior to the amendment. The 2018 Foreign Asset-Based Term Facility was a euro-denominated senior secured asset-based term loan facility that various, mostly foreign subsidiaries of Products Corporation entered into on July 9, 2018 and which was scheduled to mature on July 9, 2021. As of December 31, 2020, there was the Euro equivalent of $59.2 million aggregate principal outstanding under the 2018 Foreign Asset-Based Term Facility, reflecting a repayment of €28.5 million made during the quarter ended June 30, 2020.
The 2018 Foreign Asset Based Term Facility was subsequently refinanced and replaced in its entirety by the 2021 Foreign Asset-Based Term Facility. See Note 21, “Subsequent Events,” to the Company's Consolidated Financial Statements in this Form 10-K.
Amendments to the 2016 Revolving Credit Facility Agreement
On October 23, 2020 (the “Amendment No. 5 Effective Date”), Products Corporation entered into Amendment No. 5 (“Amendment No. 5”) to its Asset-Based Revolving Credit Agreement, dated as of September 7, 2016 (as amended from time to time, the “Amended 2016 Revolving Credit Facility”, and the revolving credit $21.8facility thereunder, the “Amended 2016 Revolving Credit Facility”; the Amended 2016 Revolving Credit Agreement, together with the 2016 Credit Agreement, the “2016 Credit Agreements”).
The Amendment No. 5 amended and restated the Amended 2016 Revolving Credit Agreement to add a new Tranche B consisting of $50 million aggregate principal amount of “first-in, last-out” Tranche B term loans (such new Tranche B, the “2020 ABL FILO Term Loan Facility”). The Amendment No. 5 also required Products Corporation to maintain "Excess Availability" (as defined in Amendment No. 5) of at least $85 million from the Amendment No. 5 Effective Date until the transactions contemplated by the Exchange Offer were consummated (such date, the “Exchange Offer Effective Date”). As a result, on October 23, 2020, Products Corporation repaid $35 million of outstanding checksTranche A loans under the Amended 2016 Revolving Credit Agreement.
On the Exchange Offer Effective Date, Products Corporation’s As-Adjusted Liquidity was required to be at least $175 million (which condition was satisfied) and $157Products Corporation could not hold more than $100 million in cash or Cash Equivalents (as defined in the 5th Amendment). Furthermore, the 5th Amendment provided that a $30 million reserve will be automatically and immediately established against the Tranche A Borrowing Base (as defined in the 5th Amendment) if the results of ongoing appraisals and field exams were not delivered to the administrative agent prior to the occurrence of certain specified defaults.
Products Corporation paid customary fees to Alter Domus (US) LLC as the administrative agent for the 2020 ABL FILO Term Loan Facility. Except as to maturity date, interest, borrowing base and differences due to their nature as term loans, the terms of the 2020 ABL FILO Term Loans are otherwise substantially consistent with the Tranche A Revolving Loans.
On May 7, 2020, in connection with consummating the 2020 BrandCo Refinancing Transactions, Products Corporation entered into Amendment No. 4 to (the “Amendment No. 4”) to the 2016 Revolving Credit Facility. Amendment No. 4, among other things, made certain amendments and provided for certain waivers relating to the 2020 BrandCo Refinancing Transactions under the 2016 Revolving Credit Facility. In exchange for such amendments and waivers, the interest rate margin applicable to loans under Tranche A of the 2016 Revolving Credit Facility increased by 0.75%. In connection with the amendments to the 2018 Tranche B of the 2016 Revolving Credit Facility (which was fully repaid on its May 17, 2020 extended maturity date), Products Corporation incurred approximately $1.1 million in lender's fees that upon its full repayment were entirely expensed within “Miscellaneous, net” on the Company's Consolidated Statement of Operations and Comprehensive Loss as of December 31, 2020.
On April 17, 2020 (the “FILO Closing Date”), Products Corporation entered into Amendment No. 3 to the 2016 Revolving Credit Facility (“Amendment No. 3”), pursuant to which, the maturity date applicable to $36.3 million of borrowings outstandingloans under the $41.5 million senior secured first in, last out 2018 Tranche B under the 2016 Revolving Credit Facility (the “2018 FILO Tranche”) was extended from April 17, 2020 to May 17, 2020 (the “Amendment No. 3 Extended Maturity Date”). Products Corporation repaid the remaining approximately $5.2 million of the 2018 FILO Tranche loans as of the FILO Closing Date. In addition, Amendment No. 3 increased the applicable interest margin for the 2018 FILO Tranche by 0.75%, subject to a LIBOR floor of 0.75%. Products Corporation fully repaid the 2018 FILO Tranche on the Amendment No. 3 Extended Maturity Date.
Total borrowings at such date. The Company believes thatface amount under Tranche A and Tranche B of the cash generated by its operations, cash on hand, availability under theAmended 2016 Revolving Credit Facility at December 31, 2020 were $138.9 million and other permitted lines$50 million, respectively.
MacAndrews & Forbes 2020 Restated Line of credit should be sufficientCredit Facility
In light of the upcoming maturity on July 9, 2021 of the 2018 Foreign Asset-Based Term Facility (as hereinafter defined) and the expiration on December 31, 2020 of the Amended 2019 Senior Line of Credit Facility (see "Previous Years' Debt Related Transaction" for further details about the Amended 2019 Senior Line of Credit Agreement),the Company sought to meetrefinance or extend both the 2018 Foreign Asset-Based Term Facility and the Amended 2019 Senior Line of Credit Facility. Products Corporation sought to do so in order to reinforce its liquidity needsposition to be better able to address the current business and economic environment and prepare for at leastany further potential disruptions to its business and operations as may be brought on by the next 12 months fromongoing COVID-19 pandemic or other events.
As a result, and anticipating a future refinancing of the issuance date2018 Foreign Asset-Based Term Facility (a “Future Refinanced European ABL Facility”), on September 28, 2020, Products Corporation and MacAndrews & Forbes Group, LLC (“M&F”) entered into the Second Amended and Restated 2019 Senior Unsecured Line of this Form 10-K.
The Company’s foreign operations held $83.2Credit Facility (the “2020 Restated Line of Credit Facility”), which amended and restated the Amended 2019 Senior Line of Credit Facility and will provide Products Corporation with up to a $30 million outtranche of its total $87.1a new facility of the 2018 Foreign Asset-Based Term Facility (the “New European ABL FILO Facility”) that would be secured on a “last-out” basis by the same collateral as the 2018 Foreign Asset-Based Term Facility or, if no Future Refinanced European ABL Facility is obtained, a stand-alone $30 million credit facility secured by the same collateral as the 2018 Foreign Asset-Based Term Facility when that facility is terminated, in cash and cash equivalents aseach case, subject to a borrowing base. As of December 31, 2017. The cash held by2020, there were no borrowings outstanding under the Company’s foreign operations is primarily used to fund such operations. The Company regularly assesses its cash needs2020 Restated Line of Credit Facility, and the available sources2020 Restated Line of cash to fund these needs. As partCredit Facility terminated on such date. M&F’s commitment in respect of this assessment, the Company determinesNew European ABL FILO Facility survived the termination of the 2020 Restated Line of Credit Facility and, if not used, would have terminated on July 9, 2021.
The New European ABL FILO Facility would mature on (x) the maturity date of any such Future Refinanced European ABL Facility or (y) if there is no Future Refinanced European ABL Facility, July 9, 2022. To the extent the Future Refinanced European ABL Facility exceeds $35.0 million in principal amount, the amount available under the New European ABL FILO Facility would decrease on a dollar-for-dollar basis, such that, if Products Corporation were able to obtain a Future Refinanced ABL Facility of foreign earnings, if any, that it intends to repatriate to help fund its domestic cash needs, including$65.0 million from third parties, there would be no amounts available under the New European ABL FILO Facility. The interest rate for the Company’s debt service obligations, and paysNew European ABL FILO Facility will be LIBOR plus 10.00%. The covenants for the New European ABL FILO Facility would be substantially the same as those applicable U.S. income and foreign withholding taxes, if any, on such earnings to the extent repatriated, and otherwise records2018 European ABL Facility.
Upon the closing of the 2021 Asset-Based Term Facility on March 2, 2021 without the participation of M&F as a tax liability forlender, M&F’s commitment in respect of the estimated costNew European ABL FILO Facility under the 2020 Restated Line of repatriationCredit Facility terminated in a future period. During 2017, the Company repatriated fundsaccordance with its terms (see Note 21, “Subsequent Events,” to the U.S. through the settlement of historical loans and payables due from certain foreign subsidiaries. The Company believes that the cash generated by its domestic operations, cash on hand, availabilityCompany's Consolidated Financial Statements).
Incremental Revolving Credit Facility under the 2016 Revolving CreditTerm Loan Agreement
On April 30, 2020, Products Corporation entered into a Joinder Agreement (the “2020 Joinder Agreement”), with Revlon, certain of their subsidiaries and certain existing lenders (the “Incremental Lenders”) under Products Corporation’s 2016 Term Loan Agreement (the “2016 Term Loan Agreement”) to provide for a $65 million incremental revolving credit facility (the “2020 Incremental Facility”). On the closing of the 2020 Incremental Facility, Products Corporation borrowed $63.5 million of revolving loans for working capital purposes and other permitted linessubsequently on May 11, 2020 Products Corporation also borrowed the additional $1.5 million of credit,delayed funding revolving loans. Prior to its full repayment on May 28, 2020, amounts outstanding under the 2020 Incremental Facility bore interest at a rate of (x) LIBOR plus 16% or (y) an Alternate Base Rate plus 15%, at Products Corporation’s option. Except as well as the option to further settle intercompany loanspricing, maturity and payables with certain foreign subsidiaries, should be sufficient to meet its domestic liquidity needs for at least the next 12 months. Therefore, the Company currently anticipates that restrictions and/or taxes on repatriation of foreign earnings will not have a material effect on the Company’s liquidity during such period. On December 22, 2017, the U.S. government enacted the Tax Act, which makes broad and complex changes to the U.S. tax code, including a one-time transition tax on certain non-U.S. earnings, and limitations on tax deductions for interest expense in 2018 and following years. The Company currently expects that it will not have a transition tax liabilitydifferences due to its deficitrevolving nature, the terms of the 2020 Incremental Facility were otherwise substantially consistent with the existing term loans under the 2016 Term Loan Facility. On May 28, 2020, the 2020 Incremental Facility was repaid in foreign earningsfull, and the commitments thereunder terminated. Upon such repayment, approximately $2.9 million of upfront commitment fees that Products Corporation incurred in connection with consummating the limitation on interest deductibility will not impact the Company's 2018 federal cash taxes due to its net operating loss carryover balance. As a result, the Company currently expects that the Tax Act will not have a material impact on its cash taxes or liquidity in 2018. See Note 16, "Income Taxes," to the Consolidated Financial Statements and Item 1A. Risk Factors - "U.S. income tax reform efforts could have a material impact2020 Incremental Facility were entirely expensed within "Miscellaneous, net" on the Company's financial condition, resultsConsolidated Statement of operations and/or cash flows" in this Form 10-KOperations and Comprehensive Loss for a further discussion.the year ended December 31, 2020.
Changes in Cash Flows
At
As of December 31, 2017,2020, the Company had cash, cash equivalents and restricted cash of $87.4$102.5 million, compared with $186.8$104.5 million at December 31, 2016.2019. The following table summarizes the Company’s cash flows from operating, investing and financing activities in 2017, 2016 and 2015:for the periods presented:
| | | | | | | | | | | | | | | |
| Year Ended December 31, | | | | |
| 2020 | | 2019 | | | | |
| Net cash used in operating activities | $ | (97.3) | | | $ | (68.3) | | | | | |
| Net cash (used in) provided by investing activities | (10.3) | | | 2.1 | | | | | |
| Net cash provided by financing activities | 102.5 | | | 84.3 | | | | | |
| Effect of exchange rate changes on cash and cash equivalents | 3.1 | | | (1.1) | | | | | |
| Net increase (decrease) in cash, cash equivalents and restricted cash | (2.0) | | | 17.0 | | | | | |
| Cash, cash equivalents and restricted cash at beginning of period | 104.5 | | | 87.5 | | | | | |
| Cash, cash equivalents and restricted cash at end of period | $ | 102.5 | | | $ | 104.5 | | | | | |
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 |
| Net cash (used in) provided by operating activities | $ | (139.3 | ) | | $ | 120.1 |
| | $ | 158.1 |
|
| Net cash used in investing activities | (108.3 | ) | | (1,087.5 | ) | | (83.8 | ) |
| Net cash provided by (used in) financing activities | 136.9 |
| | 829.9 |
| | (14.9 | ) |
| Effect of exchange rate changes on cash and cash equivalents | 11.3 |
| | (2.6 | ) | | (7.8 | ) |
| Net (decrease) increase in cash, cash equivalents and restricted cash | $ | (99.4 | ) | | $ | (140.1 | ) | | $ | 51.6 |
|
| Cash, cash equivalents and restricted cash at beginning of period | 186.8 |
| | 326.9 |
| | 275.3 |
|
| Cash, cash equivalents and restricted cash at end of period | $ | 87.4 |
| | $ | 186.8 |
| | $ | 326.9 |
|
Operating Activities
Net cash used in operating activities was $139.3 million in 2017. Net cash provided by operating activities was $120.1$97.3 million and $158.1$68.3 million for 2016the year ended December 31, 2020 and 2015,2019, respectively. The increase in cash used in 2017,operating activities for the year ended December 31, 2020, compared to 2016,the year ended December 31, 2019, was primarily driven by higher inventory balances; higher interest payments as a resultlower net sales, primarily due to the COVID-19 impacts described above, partially offset by the upfront cash proceeds of increased debt incurred in September 2016 in connection with financing and consummating the Elizabeth Arden Acquisition, as well as higher borrowings under the 2016 Revolving Credit Facility; and higher payments for restructuring, acquisition and integration costs$72.5 million obtained in connection with the EA Integration Restructuring Program, partially offset by favorable changes in working capital.
The increase in cash used in 2016, as compared to 2015, was primarily driven by the paymentHelen of acquisition and integration costs in 2016, higher interest payments in 2016 as a result of increased debt incurred in connection with financing and consummating the Elizabeth Arden Acquisition,Troy License Agreement, as well as cost reductions achieved through the timingCompany's initiatives designed to mitigate the adverse impact of certain accounts payable disbursements and accounts receivable collections at the end of 2015, compared to 2016.COVID-19 pandemic on the Company's operations, including the Revlon 2020 Restructuring Program.
Investing Activities
Net cash used in investing activities was $108.3 million, $1,087.5 million and $83.8$10.3 million for 2017, 2016 and 2015, respectively, which included $108.3 million, $59.3 million and $48.3the year ended December 31, 2020, compared to $2.1 million of net cash usedprovided by investing activities for capital expenditures, respectively. Capital expenditures for 2017 included approximately $40 million for Elizabeth Arden integration-related investments.
Netthe year ended December 31, 2019. The increase in cash used in investing activities in 2016 included $1,034.3 million in cash payments for the Elizabeth Arden Acquisition (partially offset by $41.1 millionyear ended December 31, 2020 was primarily related to the effect of cash acquired in the Elizabeth Arden Acquisition) and $29.1 million in cash payments for the May 2016 Cutex International Acquisition.
Net cash used in investing activities in 2015 included $41.7 million in cash payments, net of cash acquired, primarily for the Company's April 2015 CBB Acquisition, partially offset by $6.2 million in cash proceeds from the sale of certain immaterial, non-core assets.assets of $31.1 million in the prior year, with no corresponding amount in the current year.
Financing Activities
Net cash provided by (used in) financing activities was $136.9 million, $829.9$102.5 million and $(14.9)$84.3 million for 2017, 2016the year ended December 31, 2020 and 2015,2019, respectively.
Net cash provided by financing activities in 2017for the year ended December 31, 2020 primarily included:
•$157 million880.0 of borrowings under the 2016 Revolving Credit2020 BrandCo Term Loan Facility; and
•$4.3 million of increases in short-term borrowings and overdraft;
with the foregoing partially offset by:
•$18200.0 million used to fully repay the 2019 Term Loan Facility;
•$281.4 million used to repurchase approximately $324.5 million in aggregate principal face amount of Products Corporation's 5.75% Senior Notes;
•$133.5 million used to partially repay the Amended 2016 Revolving Credit Agreement;
•$122.0 million used to pay financing costs incurred in connection with the 2020 BrandCo Refinancing Transactions and the 2020 Exchange Offer;
•$31.4 million used to partially repay the 2018 Foreign Asset-Based Term Loan; and
•$11.5 million used to partially repay the 2016 Term Loan Facility.
Net cash provided by financing activities for the year ended December 31, 2019 primarily included:
•$200.0 million of borrowings under the 2019 Term Loan Facility;
with the foregoing partially offset by:
•$62.6 million of repayments under the Amended 2016 Revolving Credit Facility;
•$18.0 million of repayments under the 2016 Term Loan Facility.Facility;
Net cash provided by•$17.3 million of decreases in short-term borrowings and overdraft; and
•$15.3 million of payments of financing activities in 2016 primarily included:
cash proceeds receivedcosts incurred in connection with originatingconsummating the 2019 Term Loan Facility in August 2019 and the 2018 Foreign Asset-Based Term Facility, which were $14.0 million and $1.3 million, respectively.
Long-Term Debt Instruments
For detailed information on the terms and conditions of Products Corporation’s various outstanding debt instruments, including, without limitation, the 2020 BrandCo Facilities, 2016 Term Loan Facility, in the aggregate principal amount of $1.8 billion, or $1.791 billion, net of discounts;
cash proceeds received in connection with issuance of the 6.25% Senior Notes, in the aggregate principal amount of $450 million; and
with the foregoing partially offset by:
$658.6 million of cash used to repay all of the aggregate principal balance outstanding under Products Corporation’s 2011 Term Loan;
$651.4 million of cash used to repay all of the aggregate principal balance outstanding under Products Corporation’s Old Acquisition Term Loan;
(i) $45 million of fees incurred in connection with originating the 2016 Term Loan Facility; (ii) $5.7 million of fees incurred in connection with originating the 2016 Revolving Credit Facility; and (iii) $10.9 million of fees incurred in connection with issuing Products Corporation's 6.25% Senior Notes;
a $23.2 million required excess cash flow prepayment made under the Old Term Loan Facility, as discussed below; and
$2.7 million utilized for the repurchase of shares from a former executive.
Net cash used in financing activities for 2015 primarily included:
a $24.6 million required excess cash flow prepayment made under the Old Term Loan Facility; and
$6.8 million of scheduled amortization payments on the Old Acquisition Term Loan;
with the foregoing partially offset by:
$23 million increase in short-term borrowings and overdrafts.
Refer below for further discussion of the debt instruments and related financing activities discussed above.
Long-Term Debt Instruments
Recent Debt Transactions
The Company completed several debt transactions during 2016, as described below:
2016 Debt-Related Transactions
In connection with and substantially concurrently with the closing of the Elizabeth Arden Acquisition, Products Corporation entered into: (i) the 7-year $1.8 billion 2016 Term Loan Facility (the "2016 Term Loan Facility" and such agreement being the "2016 Term Loan Agreement"); and (ii) the 5-year $400 millionAmended 2016 Revolving Credit Facility, (the "2016 Revolving Credit Facility" and such agreement being the "2016 Revolving Credit Agreement" and such facility, together with the 20162019 Term Loan Facility being(which was fully repaid as part of consummating the "2016 Senior2020 BrandCo Refinancing Transactions), 2018 Foreign Asset-Based Term Facility, 2020 Restated Line of Credit Facilities"Facility (which was fully repaid and such agreements beingrefinanced by the "2016 Credit Agreements"). Products Corporation also completed the issuance of $450 million aggregate principal amount of its2021 Foreign Asset-Based Term Facility) and 6.25% Senior Notes, due 2024. The proceedssee the aforementioned discussion in this Form 10-K under “Financial Condition, Liquidity and Capital Resources - Consummation of Products Corporation's 6.25% Senior Notes offering2020 BrandCo Refinancing Transactions” and the 2016 Term Loan Facility, together with approximately $35 million of borrowings under the 2016 Revolving Credit FacilityNote 8, "Debt," and approximately $126.7 million of cash on hand, were used: (A) to fund the Elizabeth Arden Acquisition, including: (i) repurchasing the entire $350 million aggregate principal amount outstanding of the then-existing Elizabeth Arden Senior Notes (the "Elizabeth Arden Senior Notes"); (ii) repaying the entire $142 million aggregate principal amount of borrowings outstanding as of the Elizabeth Arden Acquisition Date under Elizabeth Arden’s $300 million revolving credit facility (which facility was terminated upon such repayment); (iii) repaying the entire $25 million aggregate principal amount of borrowings outstanding as of the Elizabeth Arden Acquisition Date under Elizabeth Arden's second lien credit facility (which facility was terminated upon such repayment); and (iv) retiring the entire $55 million liquidation preference of all 50,000 shares of Elizabeth Arden's then-issued and outstanding preferred stock (which amount included a $5 million change of control premium); and (B) to completely refinance and repay all of the $651.4 million in aggregate principal balance outstanding under Products Corporation’s then-existing 2011 Term Loan (the "2011 Term Loan") and all of the $658.6 million in aggregate principal balance outstanding under Products Corporation’s Old Acquisition Term Loan (each of which facilities were terminated upon such repayment) (the "Old Acquisition Term Loan" and together with the 2011 Term Loan, the "Old Term Loan Agreement" and the "Old Term Loan Facility,Note 21, "Subsequent Events," respectively). The Company did not incur any material early termination penalties in connection with repaying the Old Term Loan Facility or the Elizabeth Arden indebtedness and preferred stock.
2016 Term Loan Facility
Principal and Maturity: On the Elizabeth Arden Acquisition Date, Products Corporation entered into the 2016 Term Loan Agreement, for which Citibank, N.A. acts as administrative and collateral agent and which has an initial aggregate principal amount of $1.8 billion and matures on the earlier of: (x) the seventh anniversary of the Elizabeth Arden Acquisition Date (i.e., September 7, 2023); and (y) the 91st day prior to the maturity of Products Corporation’s 5.75% Senior Notes if, on that date (and solely for so long as), (i) any of Products Corporation's 5.75% Senior Notes remain outstanding and (ii) Products Corporation’s available liquidity does not exceed the aggregate principal amount of the then outstanding 5.75% Senior Notes by at least $200 million. The loans under the 2016 Term Loan Facility were borrowed at an original issue discount of 0.5% to their principal amount. The 2016 Term Loan Facility may be increased by an amount equal to the sum of (x) the greater of $450 million and 90% of Products Corporation’s pro forma consolidated EBITDA, plus (y) an unlimited amount to the extent that (1) the first lien leverage ratio (defined as the ratio of Products Corporation’s net senior secured funded debt that is not junior or subordinated to the liens of the Senior Facilities to EBITDA) is less than or equal to 3.5 to 1.0 (for debt secured pari passu with the 2016 Term Loan Facility) or (2) the secured leverage ratio (defined as the ratio of Products Corporation’s net senior secured funded debt to EBITDA) is less than or equal to 4.25 to 1.0 (for junior lien or unsecured debt), plus (z) up to an additional $400 million if the 2016 Revolving Credit Facility has been repaid and terminated.
Guarantees and Security: Products Corporation and the restricted subsidiaries under the 2016 Term Loan Facility, which include Products Corporation’s domestic subsidiaries, including Elizabeth Arden and its domestic subsidiaries (collectively, the "Restricted Group"), are subject to the covenants under the 2016 Term Loan Agreement. The 2016 Term Loan Facility is guaranteed by each of Products Corporation's existing and future direct or indirect wholly-owned domestic restricted subsidiaries (subject to various exceptions),Consolidated Financial Statements in this Form 10-K, as well as by Revlon, on a limited recourse basis. The obligations"Management's Discussion and Analysis of Revlon, Products CorporationFinancial Condition and the subsidiary guarantors under the 2016 Term Loan Facility are secured by pledgesResults of the equity of Products Corporation held by RevlonOperations - Financial Condition, Liquidity and the equity of the Restricted Group held by Products Corporation and each subsidiary guarantor (subject toCapital Resources," in this Form 10-K. For information regarding certain exceptions, including equity of first-tier foreign subsidiaries in excess of 65% of the voting equity interests of such entity) and by substantially all tangible and intangible personal and real property of Products Corporation and the subsidiary guarantors (subject to certain exclusions). The obligors and guarantors under the 2016 Term Loan Facility and the 2016 Revolving Credit Facility are identical. The liens securing the 2016 Term Loan Facility on the accounts, inventory, equipment, chattel paper, documents, instruments, deposit accounts, real estate and investment property and general intangibles (other than intellectual property)risks related thereto (the "Revolving Facility Collateral") rank second in priority to the liens thereon securingCompany’s indebtedness, see Item
1A. “Risk Factors” in this Form 10-K, as updated by Part II, Item 1A. “Risk Factors” in the 2016 Revolving Credit Facility. The liens securing the 2016 Term Loan Facility on all other property, including capital stock, intellectual property and certain other intangible property (the "Term Loan Collateral"), rank first in priority to the liens thereon securing the 2016 Revolving Credit Facility, while the liens thereon securing the 2016 Revolving Credit Facility rank second in priority to the liens thereon securing the 2016 Term Loan Facility.
Interest and Fees: Interest accrues on term loans under the 2016 Term Loan Facility at a rate per annum of Adjusted LIBOR (which has a floor of 0.75%) plus a margin of 3.5% or an alternate base rate plus a margin of 2.5%, at Products Corporation’s option, and is payable quarterly, at a minimum. Products Corporation is obligated to pay certain fees and expenses in connectionCompany’s Form 10-Qs filed with the 2016 Term Loan Facility. SEC during 2020.
Affirmative and Negative Covenants: The 2016 Term Loan Agreement contains certain affirmative and negative covenants that, among other things, limit the Restricted Group’s ability to: (i) incur additional debt; (ii) incur liens; (iii) sell, transfer or dispose of assets; (iv) make investments; (v) make dividends and distributions on, or repurchases of, equity; (vi) make prepayments of contractually subordinated or junior lien debt; (vii) enter into certain transactions with their affiliates; (viii) enter into sale-leaseback transactions; (ix) change their lines of business; (x) restrict dividends from their subsidiaries or restrict liens; (xi) change their fiscal year; and (xii) modify the terms of certain debt. The negative covenants are subject to various exceptions, including an "available amount basket" based on 50% of Products Corporation’s cumulative consolidated net income, plus a "starter" basket of $200 million, subject to Products Corporation’s compliance with a 5.0 to 1.0 ratio of Products Corporation’s net debt to Consolidated EBITDA (as defined in the 2016 Term Loan Agreement), except such compliance is not required when such baskets are used to make investments. While the 2016 Term Loan Agreement contains certain customary representations, warranties and events of default, it does not contain any financial maintenance covenants.
Prepayments: The 2016 Term Loan Facility is subject to mandatory prepayments from: (i) the net proceeds from the issuance by Products Corporation or any of its restricted subsidiaries of certain additional debt; (ii) commencing with the excess cash flow calculation with respect to fiscal year ending December 31, 2017, 50% of excess cash flow, with step-downs to 25% and 0% upon achievement of certain first lien leverage ratios and reduced by voluntary prepayments of loans under the 2016 Term Loan Facility and revolving loans under the 2016 Revolving Credit Facility to the extent commitments thereunder are permanently reduced; and (iii) asset sale proceeds of certain non-ordinary course asset sales or other dispositions of property that have not been reinvested to the extent in excess of certain minimum amounts. Products Corporation may voluntarily prepay the 2016 Term Loan Facility without premium or penalty.
2016 Revolving Credit Facility
Principal and Maturity: On the Elizabeth Arden Acquisition Date, Products Corporation entered into the 2016 Revolving Credit Agreement, for which Citibank, N.A. acts as administrative agent and collateral agent. The 2016 Revolving Credit Facility has an initial maximum availability of $400 million (with a $100 million sublimit for letters of credit and up to $70 million available for swing line loans), which availability is subject to the amount of the borrowing base. The 2016 Revolving Credit Facility may be increased by the greater of (x) $50 million and (y) the excess of the borrowing base over the amounts of then-effective commitments. The 2016 Revolving Credit Facility permits certain non-U.S. subsidiaries to borrow in local currencies. The borrowing base calculation under the 2016 Revolving Credit Facility is based on the sum of: (i) 85% of eligible accounts receivable; (ii) the lesser of 85% of the net orderly liquidation value and a percentage of the value specified in respect of different types of eligible inventory; (iii) qualified restricted cash (capped at $75 million); and (iv) a temporary increase amount between August 15 and October 31 of each year, which are collectively subject to certain availability reserves set by the administrative agent. The 2016 Revolving Credit Facility matures on the earlier of: (x) the fifth anniversary of the Elizabeth Arden Acquisition Date; and (y) the 91st day prior to the maturity of Products Corporation’s 5.75% Senior Notes if, on that date (and solely for so long as), (i) any of Products Corporation’s 5.75% Senior Notes remain outstanding and (ii) Products Corporation’s available liquidity does not exceed the aggregate principal amount of the then outstanding 5.75% Senior Notes by at least $200 million.
Guarantees and Security: The Restricted Group under the 2016 Revolving Credit Agreement (which is the same as the Restricted Group under the 2016 Term Loan Agreement) is subject to the covenants under the 2016 Revolving Credit Agreement. The 2016 Revolving Credit Facility is guaranteed by each of Products Corporation's existing and future direct or indirect wholly-owned domestic restricted subsidiaries (subject to various exceptions), as well as by Revlon on a limited recourse basis. The obligations of Revlon, Products Corporation and the subsidiary guarantors under the 2016 Revolving Credit Facility are secured by pledges of the equity of Products Corporation held by Revlon and the equity of Products Corporation’s restricted subsidiaries held by Products Corporation and each subsidiary guarantor (subject to certain exceptions, including equity of first-tier foreign subsidiaries in excess of 65% of the voting equity interests of such entity) and by substantially all tangible and intangible personal and real property of Products Corporation and the subsidiary guarantors (subject to certain exclusions). The obligors and guarantors under the 2016 Revolving Credit Facility and the 2016 Term Loan Facility are identical. The liens on the 2016 Revolving Facility Collateral securing the 2016 Revolving Credit Facility rank first in priority to the liens thereon securing the 2016 Term Loan Facility, which rank second in priority on such collateral. The liens on the Term Loan Collateral securing the 2016 Revolving Credit Facility rank second in priority to the liens thereon securing the 2016 Term Loan Facility, which rank first in priority on such collateral.
Interest and Fees: Under the 2016 Revolving Credit Facility, interest is payable quarterly and accrues on borrowings under such facility at a rate per annum equal to either: (i) the alternate base rate plus an applicable margin equal to 0.25%, 0.50% or 0.75%, depending on the average excess availability (based on the borrowing base as most recently reported by Products Corporation to the administrative agent from time-to-time); or (ii) the Eurocurrency rate plus an applicable margin equal to 1.25%, 1.50% or 1.75%, depending on the average excess availability (based on the borrowing base as most recently reported by Products Corporation to the administrative agent from time-to-time), at Products Corporation’s option. The applicable margin decreases as average excess availability under the 2016 Revolving Credit Facility increases. Products Corporation is obligated to pay certain fees and expenses in connection with the 2016 Revolving Credit Facility, including a commitment fee of 0.25% for any unused amounts. Loans under the 2016 Revolving Credit Facility may be prepaid without premium or penalty.
Affirmative and Negative Covenants: The 2016 Revolving Credit Agreement contains affirmative and negative covenants that are similar to those in the 2016 Term Loan Agreement, other than the "available amount basket" (as described above in the description of the 2016 Term Loan Facility); provided, however, under the 2016 Revolving Credit Agreement the Restricted Group will be able to incur unlimited additional junior secured debt and unsecured debt, make unlimited asset sales and dispositions, make unlimited investments and acquisitions, prepay junior debt and make unlimited restricted payments to the extent that certain "payment conditions" for asset-based credit facilities are satisfied. The 2016 Revolving Credit Agreement contains certain customary representations, warranties and events of default. If Products Corporation’s "Liquidity Amount" (defined in the 2016 Revolving Credit Agreement as the Borrowing Base less the sum of (x) the aggregate outstanding extensions of credit under the 2016 Revolving Credit Facility, and (y) any availability reserve in effect on such date) falls below the greater of $35 million and 10% of the maximum availability under the 2016 Revolving Credit Facility (a "Liquidity Event Period"), then the Restricted Group will be required to maintain a consolidated fixed charge coverage ratio (the ratio of Products Corporation’s EBITDA minus capital expenditures to cash interest expense for such period) of a minimum of 1.0 to 1.0 until the first date after 20 consecutive business days for which the Liquidity Amount is equal to or greater than such threshold. If Products Corporation is in default under the consolidated fixed charge coverage ratio under the 2016 Revolving Credit Agreement, Products Corporation may cure such default by Products Corporation and/or Revlon issuing certain equity securities and Products Corporation receiving capital contributions from Revlon, with such cash being deemed to increase EBITDA for the purpose of calculating the applicable ratio. Products Corporation may exercise this cure right no more than two times in any four-quarter period, and no more than five times in total during the term of the 2016 Revolving Credit Facility.
Prepayments: Products Corporation must prepay borrowings under the 2016 Revolving Credit Facility to the extent that outstanding loans and letters of credit exceed availability. During a Liquidity Event Period, the administrative agent may apply amounts collected in controlled accounts for the repayment of loans under the 2016 Revolving Credit Facility. The above descriptions of the terms of the 2016 Term Loan Facility and the 2016 Revolving Credit Facility and the related security and collateral agreements are qualified in their entirety by reference to such agreements, which are attached as exhibits to this Form 10-K.
6.25% Senior Notes
On August 4, 2016, Revlon Escrow Corporation (the "Escrow Issuer"), which on such date was a wholly owned subsidiary of Products Corporation, completed the 6.25% Senior Notes Offering, pursuant to an exemption from registration under the Securities Act of 1933 (as amended, the "Securities Act"), of $450 million aggregate principal amount of the 6.25% Senior Notes. The 6.25% Senior Notes are unsecured and were issued by the Escrow Issuer to the initial purchasers under the 6.25% Senior Notes Indenture, between the Escrow Issuer and U.S. Bank National Association, as trustee (the "6.25% Senior Notes Trustee"). The 6.25% Senior Notes mature on August 1, 2024. Interest on the 6.25% Senior Notes accrues at 6.25% per annum, paid every six months through maturity on each February 1 and August 1. The proceeds from the 6.25% Senior Notes were released from escrow on the September 7, 2016 Elizabeth Arden Acquisition Date (the "Escrow Release"). On the Elizabeth Arden Acquisition Date, the Escrow Issuer was merged with and into Products Corporation and in connection with the Escrow Release, Products Corporation and certain of its direct and indirect wholly-owned domestic subsidiaries, including Elizabeth Arden and certain of its subsidiaries (collectively, the "6.25% Senior Notes Guarantors"), and the 6.25% Senior Notes Trustee entered into a supplemental indenture (the "6.25% Senior Notes Supplemental Indenture") to the 6.25% Senior Notes Indenture, pursuant to which Products Corporation assumed the obligations of the Escrow Issuer under the 6.25% Senior Notes and the 6.25% Senior Notes Indenture and the 6.25% Senior Notes Guarantors jointly and severally, fully and unconditionally guaranteed the 6.25% Senior Notes on a senior unsecured basis (the "6.25% Senior Notes Guarantees"). The 6.25% Senior Notes Guarantors are the same entities that are subsidiary guarantors under the 2016 Senior Credit Facilities.
In December 2016, Products Corporation consummated an offer to exchange the original 6.25% Senior Notes for $450 million of new 6.25% Senior Notes, which have substantially the same terms as the original 6.25% Senior Notes, except that they are registered under the Securities Act (such registered new notes being the "6.25% Senior Notes").
Ranking: The 6.25% Senior Notes are Products Corporation’s senior, unsubordinated and unsecured obligations, ranking: (i) pari passu in right of payment with all of Products Corporation’s existing and future senior unsecured indebtedness; (ii) senior in right of payment to all of Products Corporation’s and the 6.25% Senior Notes Guarantors’ future subordinated indebtedness; and (iii) effectively junior to all of Products Corporation’s and the 6.25% Senior Notes Guarantors’ existing and future senior secured indebtedness, including indebtedness under Products Corporation’s 2016 Senior Credit Facilities, to the extent of the value of the assets securing such indebtedness. The 6.25% Senior Notes and the 6.25% Senior Notes Guarantees are: (i) structurally subordinated to all of the liabilities and preferred stock of any of the Company’s subsidiaries that do not guarantee the 6.25% Senior Notes; and (ii) pari passu in right of payment with liabilities of the 6.25% Senior Notes Guarantors other than expressly subordinated indebtedness. The 6.25% Senior Notes and the 6.25% Senior Notes Guarantees rank effectively junior to indebtedness and preferred stock of Products Corporation’s foreign and immaterial subsidiaries (the "6.25% Senior Notes Non-Guarantor Subsidiaries"), none of which guarantee the 6.25% Senior Notes.
Optional Redemption: Prior to August 1, 2019, Products Corporation may redeem the 6.25% Senior Notes at its option, at any time as a whole or from time-to-time in part, upon Products Corporation’s payment of an applicable make-whole premium based on the comparable treasury rate plus 50 basis points. Prior to August 1, 2019, up to 40% of the aggregate principal amount of 6.25% Senior Notes may also be redeemed at Products Corporation’s option at any time as a whole or from time-to-time in part, at a redemption price equal to 106.250% of the principal amount thereof, plus accrued and unpaid interest to (but not including) the date of redemption with the proceeds of certain equity offerings and capital contributions (so long as at least 60% of the 6.25% Senior Notes thereafter remain outstanding). On and after August 1, 2019, Products Corporation may redeem the 6.25% Senior Notes at its option, at any time as a whole, or from time-to-time in part, at the following redemption prices (expressed as percentages of principal amount), plus accrued interest to (but not including) the date of redemption, if redeemed during the 12-month period beginning on August 1 of the years indicated below:
|
| | | |
| Period | | Optional Redemption Premium Percentage |
| 2019 | | 104.688 | % |
| 2020 | | 103.125 | % |
| 2021 | | 101.563 | % |
| 2022 and thereafter | | 100.000 | % |
All redemptions (and notices thereof) may be subject to various conditions precedent, and redemption dates specified in such notices may be extended so that such conditions precedent may be fulfilled (to the extent redemption on such dates is otherwise permitted by the 6.25% Senior Notes Indenture).
Change of Control: Upon the occurrence of specified change of control events, Products Corporation is required to make an offer to purchase all of the 6.25% Senior Notes at a purchase price of 101% of the outstanding principal amount of the 6.25% Senior Notes as of the date of any such repurchase, plus accrued and unpaid interest to (but not including) the date of repurchase.
Certain Covenants: The 6.25% Senior Notes Indenture imposes certain limitations on Products Corporation’s and the 6.25% Senior Notes Guarantors’ ability, and the ability of certain other subsidiaries, to: (i) incur or guarantee additional indebtedness or issue preferred stock; (ii) pay dividends, make certain investments and make repayments on indebtedness that is subordinated in right of payment to the 6.25% Senior Notes and make other "restricted payments;" (iii) create liens on their assets to secure debt; (iv) enter into transactions with affiliates; (v) merge, consolidate or amalgamate with another company; (vi) transfer and sell assets; and (vii) permit restrictions on the payment of dividends by Products Corporation's subsidiaries.
These covenants are subject to important qualifications and exceptions. The 6.25% Senior Notes Indenture also contains customary affirmative covenants and events of default. In addition, if during any period of time the 6.25% Senior Notes receive investment grade ratings from both Standard & Poor’s and Moody’s Investors Services, Inc. and no default or event of default has occurred and is continuing under the 6.25% Senior Notes Indenture, Products Corporation and its subsidiaries will not be subject to the covenants regarding limitations on debt, limitations on restricted payments, limitation on guarantees by restricted subsidiaries, limitation on transactions with affiliates, certain provisions of the successor company covenant, limitation on asset sales and limitation on dividends from restricted subsidiaries.
Amended Term Loan Facility - Excess Cash Flow Payment
In February 2016, Products Corporation prepaid $23.2 millionof indebtedness, representing 50% of its 2015 "excess cash flow" as defined under, and as required by, the Old Term Loan Agreement. The prepayment was applied on a ratable basis between the principal amounts outstanding at such time under the 2011 Term Loan and the Old Acquisition Term Loan. The amount of the prepayment that was applied to the 2011 Term Loan reduced the principal amount then outstanding by $11.5 million to $651.4 million (as all amortization payments under the 2011 Term Loan had been paid). The $11.7 million that was applied to the Old Acquisition Term Loan reduced Products Corporation's future annual amortization payments under such loan on a ratable basis from $6.9 million prior to the prepayment to $6.8 million after giving effect to the prepayment. The 2011 Term Loan and Old Acquisition Term Loan were completely refinanced and terminated in connection with Products Corporation’s completing the 2016 Senior Credit Facilities and issuing the 6.25% Senior Notes.
Covenants
Products Corporation was in compliance with all applicable covenants under the 2020 BrandCo Credit Agreement, 2016 Credit Agreements, asthe 2018 Foreign Asset-Based Term Agreement, the 2020 Restated Line of December 31, 2017. As of December 31, 2017, the aggregate principal amounts outstanding under the 2016 Term Loan Facility and the 2016 Revolving Credit Facility were $1,777.5 million and $157 million, respectively. Availability under the $400 million 2016 Revolving Credit Facility, as of December 31, 2017 was $193 million, based upon the calculated borrowing base of $381.9 million, less $10.1 million of outstanding undrawn letters of credit, $21.8 million of outstanding checks and $157 million then drawn on the 2016 Revolving Credit Facility.
Products Corporation was in compliancewell as with all applicable covenants under its 6.25% Senior Notes IndenturesIndenture, in each case as of December 31, 2017.2020. At December 31, 2020, the aggregate principal amounts outstanding and availability under Products Corporation’s various revolving credit facilities were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| Commitment | | Borrowing Base | | Aggregate principal amount outstanding at December 31, 2020 | | Availability at December 31, 2020 (a) | | |
| Amended 2016 Revolving Credit Facility | $ | 400.0 | | | $ | 356.9 | | | $ | 188.9 | | | $ | 168.0 | | | |
| | | | | | | | | |
| | | | | | | | | |
| 2020 Restated Line of Credit Facility | $ | 30.0 | | | N/A | | $ | — | | | $ | — | | | |
(a)Availability as of December 31, 2020 is based upon the borrowing base then in effect under the Amended 2016 Revolving Credit Facility of $356.9 million, less $188.9 million then drawn consisting of $138.9 million Tranche A revolving loans and $50 million of 2020 ABL FILO Term Loans. As Products Corporation’s consolidated fixed charge coverage ratio was greater than 1.0 to 1.0 as of December 31, 2020, all of the $168.0 million of availability under the Amended 2016 Revolving Credit Facility was available as of such date. The 2018 Tranche B under the Amended 2016 Revolving Credit Facility was fully repaid in May 2020. The revolving commitments under the 2020 Restated Line of Credit Facility were terminated on December 31, 2020.
Sources and Uses
The Company’s principal sources of funds are expected to be operating revenues, cash on hand and funds that may be available from time to time for borrowing under the Amended 2016 Revolving Credit Facility and other permitted lines of credit.permissible borrowings. The 2016 Credit Agreements, andthe 2020 BrandCo Credit Agreement, the Senior Notes Indentures and the 2018 Foreign Asset-Based Term Agreement contain certain provisions that by their terms limit Products Corporation's and its subsidiaries’ ability to, among other things, incur additional debt.debt, subject to certain exceptions.
The Company’s principal uses of funds are expected to be the payment of operating expenses, including payments in connection with the Company's synergy and integration programs related to the Elizabeth Arden Acquisition (including, without limitation, for the EA Integration Restructuring Program); purchasespurchase of permanent wall displays; capital expenditure requirements; debt service payments and costs; cash tax payments; pension and other post-retirement benefit plan contributions; payments in connection with the Company’s restructuring programs, such as the 2018 Optimization Program and the Revlon 2020 Restructuring Program; severance not otherwise included in the Company’s restructuring programs; business and/or brand acquisitions (including, without limitation, through licensing transactions), if any; severance not otherwise included in the Company’s restructuring programs;additional debt and/or equity repurchases, if any; costs related to litigation; and payments in connection with discontinuing non-core business lines and/or exiting and/or entering certain territories and/or channels of trade. For information regarding certain risks related to the Company’s indebtedness and cash flows, see Item 1A. Risk Factors - "A substantial portion of Products Corporation's indebtedness is subject to floating interest rates and the potential discontinuation or replacement of LIBOR could result in an increase to our interest expense."
The Company’s cash contributions to its pension and post-retirement benefit plans in 2017the year ended December 31, 2020 were $8.5$9.8 million. The Company expects that cash contributions to its pension and post-retirement benefit plans will be approximately $10$29 million in the aggregate for 2018.2021. The Company’s cash taxes paid in 2017the year ended December 31, 2020 were $0.4$18.6 million. The Company expects to pay net cash taxes oftotaling approximately $10$0 million to $15$10 million in the aggregate during 2018. On December 22, 2017, the U.S. government enacted the Tax Act, which makes broad2021. For a further discussion, see Note 11, "Pension and complex changes to the U.S. tax code, including a one-time transition tax on certain non-U.S. earnings,Post-Retirement Benefits," and limitations on tax deductions for interest expense in 2018 and following years. The Company currently expects that it will not have a transition tax liability due to its deficit in foreign earnings and that the limitation on interest deductibility will not impact the Company's 2018 federal cash taxes due to its net operating loss carryover balance. As a result, the Company currently expects that the Tax Act will not have a material impact on its cash taxes or liquidity in 2018. See Note 16,13, "Income Taxes," to the Company's Audited Consolidated Financial Statements and Item 1A. Risk Factors - "U.S. income tax reform efforts could have a material impact on the Company's financial condition, results of operations and/or cash flows" in this 2020 Form 10-K for a further discussion.10-K.
The Company’s purchases of permanent wall displays and capital expenditures in 2017the year ended December 31, 2020 were $65.5$30.8 million and $108.3$10.3 million, respectively. Capital expenditures for 2017 included approximately $40 million of spend for the EA Integration Restructuring Program. The Company expects that purchases of permanent wall displays will betotal approximately $55$45 million to $70$50 million in the aggregate during 20182021 and expects that capital expenditures will betotal approximately $90$25 million to $110$30 million in 2018.the aggregate during 2021.
The Company has undertaken, and continues to assess, refine and implement, a number of programs to efficiently manage its working capital, including, among other things, initiatives intended to optimize inventory levels over time; centralized procurement to secure discounts and efficiencies; prudent management of trade receivables and accounts payable; and controls
on general and administrative spending. In the ordinary course of business, the Company’s source or use of cash from operating activities may vary on a quarterly basis as a result of a number of factors, including the timing of working capital flows. For certain of the Company’s other recent cost reduction initiatives, see “COVID-19 Impact on the Company’s Business” under the Overview section of this "Management Discussion and Analysis of Financial Condition and Results of Operations".
Continuing to execute the Company’s business initiatives could include taking advantage of additional opportunities to reposition, repackage or reformulate one or more brands or product lines, launching additional new products, acquiring businesses or brands (including, without limitation, through licensing transactions), divesting or discontinuing non-core business lines (which may include exiting certain territories), further refining the Company’s approach to retail merchandising and/or taking further actions to optimize its manufacturing, sourcing and organizational size and structure, including optimizing the Colomer Acquisition, the Cutex Acquisitions and/or the Elizabeth Arden Acquisition.structure. Any of these actions, the intended purpose of which would be to create value through improving the Company's financial performance, could result in the Company making investments and/or recognizing charges related to executing against such opportunities. Any such activities may be funded with operating revenues, cash on hand, funds that may be available from time to time under the Amended 2016 Revolving Credit Facility, the 2020 Restated Line of Credit Facility, other permissible borrowings and/or other permitted additional sources of capital, which actions could increase the Company’s total debt.
The Company may also, from time-to-time, seek to retire or purchase its outstanding debt obligations and/or equity in open market purchases, block trades, privately negotiated purchase transactions or otherwise and may seek to refinance some or all of its indebtedness based upon market conditions. Any such retirement or purchase of debt and/or equity may be funded with operating cash flows of the business or other sources and will depend upon prevailing market conditions, liquidity requirements, contractual restrictions and other factors, and the amounts involved may be material. (See “Financial Condition, Liquidity and Capital Resources - Consummation of 2020 BrandCo Refinancing Transactions” regarding the Company’s repurchase of certain 5.75% Senior Notes during the second and third quarters of 2020).
The
The Company expects that operating revenues, cash on handand funds that may be available from time-to-time for borrowing under the Amended 2016 Revolving Credit Facility and other permitted lines of creditother permissible borrowings will be sufficient to enable the Company to pay its operating expenses for 2018,2020, including expenses in connection with payments in connection with the Company's synergy and integration programs related to the Elizabeth Arden Acquisition, purchasespurchase of permanent wall displays, capital expenditures, debt service payments and costs, cash tax payments, pension and other post-retirement plan contributions, payments in connection with the Company’s restructuring programs, such as, currently, primarily the Revlon 2020 Restructuring Program, severance not otherwise included in the Company’s restructuring programs, business and/or brand acquisitions (including, without limitation, through licensing transactions), if any, severance not otherwise included in the Company’s restructuring programs, debt and/or equity repurchases, if any, costs related to litigation, discontinuing non-core business lines and/or entering and/or exiting certain territories and/or channels of trade. The Company also expects to generate additional liquidity from cost reductions resulting from the implementation of, currently, primarily the Revlon 2020 Restructuring Program, and cost reductions generated from other cost control initiatives, as well as funds provided by selling certain assets in connection with the Company's ongoing Strategic Review.
There can be no assurance that available funds will be sufficient to meet the Company’s cash requirements on a consolidated basis, as, among other things, the Company’s liquidity can be impacted by a number of factors, including its level of sales, costs and expenditures. expenditures, as well as accounts receivable and inventory, which serve as the principal variables impacting the amount of liquidity available under the Amended 2016 Revolving Credit Facility and the 2018 Foreign Asset-Based Term Facility. For example, subject to certain exceptions, loans under the 2018 Foreign Asset-Based Term Facility must be prepaid to the extent that outstanding loans exceed the borrowing base, consisting of accounts receivable and inventory. For information regarding certain risks related to the Company’s indebtedness and cash flows, see Item 1A. “Risk Factors” in this 2020 Form 10-K.
If the Company’s anticipated level of revenues is not achieved because of, among other things, decreased consumer spending in response to weak economic conditions or weakness in the consumption of beauty care products in one or more of the Company's segments; segments, whether attributable to the COVID-19 pandemic or otherwise; adverse changes in tariffs, foreign currency exchange rates, foreign currency controls and/or government-mandated pricing controls; decreased sales of the Company’s products as a result of increased competitive activities by the Company’s competitors and/or decreased performance by third-party suppliers;suppliers, whether due to shortages of raw materials or otherwise; changes in consumer purchasing habits, including with respect to retailer preferences and/or sales channels, such as due to the continuingany further consumption declines in core beauty categories inthat the mass retail channel in North America, which continues to have a negative impact on net sales of Revlon color cosmetics, Almay color cosmetics, SinfulColors color cosmetics and Mitchum anti-perspirant deodorant products;Company has experienced; inventory management by the Company's customers; space reconfigurations or reductions in display space by the Company's customers; retail store closures in the brick-and-mortar channels where the Company sells its products, as consumers continue to shift purchases to online and e-commerce channels; changes in pricing, marketing, advertising and/or promotional strategies by the Company's customers; or less than anticipated results from the Company’s existing or new products or from its advertising, promotional, pricing and/or marketing plans; or if the Company’s expenses, including, without
limitation, for synergy and integration programs related to the Elizabeth Arden Acquisition,purchase of permanent displays, capital expenditures, debt service payments and costs, cash tax payments, pension and other post-retirement plan contributions, payments in connection with the Company’s restructuring programs (such as the 2018 Optimization Program and the Revlon 2020 Restructuring Program), severance costs, acquisition and integration costs,not otherwise included in the Company’s restructuring programs, business and/or brand acquisitions (including, without limitation, through licensing transactions), if any, additional debt and/or equity repurchases, if any, costs related to litigation, discontinuing non-core business lines and/or entering and/or exiting certain territories and/or channels of trade, advertising, promotional and marketing activities or for sales returns related to any reduction of space by the Company's customers, product discontinuances or otherwise, exceed the anticipated level of expenses, the Company’s current sources of funds may be insufficient to meet the Company’s cash requirements.
Any such developments, if significant, could reduce the Company’s revenues and operating income and could adversely affect Products Corporation’s ability to comply with certain financial and/or other covenants under the 2020 BrandCo Credit Agreement, 2016 Credit Agreements, the 6.25% Senior Notes indenture and/or the Senior Notes Indentures2018 Foreign Asset-Based Term Agreement and in such event the Company could be required to take measures, including, among other things, reducing discretionary spending. (See Item 1A. "Risk Factors" forFor further discussion of certain risks associated with the Company's business and indebtedness.)
During February 2018, the Company launched its new ERP system in the U.S., which caused its Oxford, N.C. manufacturing facility to experience service level disruptions that have impacted the Company’s ability to manufacture certain quantities of finished goods and fulfill shipments to several large retail customers in the U.S. In response, the Company has implemented a robust service recovery plan and is making significant progress in resolving these issues. These disruptions have reduced the Company’s accounts receivable on a temporary basis, which has impacted the Company’s borrowing base under the 2016 Revolving Credit Facility. The Company continues to believe that its current sources of liquidity are sufficient. In addition, the Company is negotiating for an expansion of available liquidity with its lenders. Seeindebtedness, see Item 1A. "Risk Factors" regarding the Company’s implementation of its new ERP system and those related to the Company’s substantial indebtedness.in this 2020 Form 10-K.
Derivative Financial Instruments
Foreign Currency Forward Exchange Contracts
Products Corporation enters into foreign currency forward exchange and option contracts ("FX Contracts") from time-to-time to hedge certain net cash flows denominated in currencies other than the local currencies of the Company’s foreign and domestic operations. The FX Contracts are entered into primarily for the purpose of hedging anticipated inventory purchases and certain intercompany payments denominated in currencies other than the local currencies of the Company’s foreign and domestic operations and generally have maturities of less than one year. At December 31, 2017, the FX Contracts outstanding had a notional amount of $147.1 million and a net liability fair value of $1.3 million.
Interest Rate Swap Transaction
In November 2013, Products Corporation executed a forward-starting floating-to-fixed interest rate swap transaction (the "2013 Interest Rate Swap") that, at its inception, was based on a notional amount of $400 million in respect of indebtedness under the Old Acquisition Term Loan. The 2013 Interest Rate Swap initially had a floor of 1%, that in December 2016, was amended to 0.75%. In connection with entering into the 2016 Term Loan Facility, the 2013 Interest Swap was carried over to apply to a notional amount of $400 million in respect of indebtedness under such loan for the remaining balance of the term of such swap, which expires in May 2018. The Company initially designated the 2013 Interest Rate Swap as a cash flow hedge of the variability of the forecasted three-month LIBOR interest rate payments related to the $400 million notional amount under the Old Acquisition Term Loan over the three-year term of the 2013 Interest Rate Swap (and subsequently to the $400 million notional amount under the 2016 Term Loan Facility through May 2018. Under the terms of the 2013 Interest Rate Swap, Products Corporation receives from the counterparty a floating interest rate based on the higher of three-month U.S. Dollar LIBOR or the floor percentage in effect, while paying a fixed interest rate payment to the counterparty equal to 2.0709% (which, with respect to the 2016 Term Loan Facility, effectively fixes the interest rate on such notional amount at 5.5709% through May 2018). At December 31, 2017 and December 31, 2016, the fair value of the 2013 Interest Rate Swap was a liability of $0.9 million and $4.7 million, respectively.
As a result of completely refinancing the Old Acquisition Term Loan with a portion of the proceeds from Products Corporation's consummation of the 2016 Senior Credit Facilities and the 6.25% Senior Notes in connection with consummating the Elizabeth Arden Acquisition, the critical terms of the 2013 Interest Rate Swap no longer matched the terms of the underlying debt under the 2016 Term Loan Facility. At the refinancing date, or the September 7, 2016 Elizabeth Arden Acquisition Date (the "De-designation Date"), the 2013 Interest Rate Swap was determined to no longer be highly effective and the Company discontinued hedge accounting for the 2013 Interest Rate Swap. Following the de-designation of the 2013 Interest Rate Swap, changes in fair value are accounted for as a component of other non-operating expenses. Accumulated deferred losses of $1.2 million, or $0.7 million net of tax, at December 31, 2017 that were previously recorded as a component of accumulated other comprehensive loss will be amortized into earnings through the expiration of the 2013 Interest Rate Swap in May 2018.
Credit Risk
Exposure to credit risk in the event of nonperformance by any of the counterparties to our outstanding hedging instruments is limited to the gross fair value of the derivative instruments in asset positions, which totaled $0.6 million and $2.3 million as of December 31, 2017 and December 31, 2016, respectively. The Company attempts to minimize exposure to credit risk by generally entering into derivative contracts with counterparties that have investment-grade credit ratings and are major financial institutions. The Company also periodically monitors any changes in the credit ratings of its counterparties. Given the current credit standing of the counterparties to the Company's derivative instruments, the Company believes the risk of loss arising from any non-performance by any of the counterparties under these derivative instruments is remote.
Disclosures about Contractual Obligations and Commercial Commitments
The following table aggregates all contractual obligations and commercial commitments that affect the Company's financial condition and liquidity position as of December 31, 2017:
|
| | | | | | | | | | | | | | | | | | | | |
| | | Payments Due by Period |
| Contractual Obligations | | Total | | Less than 1 year | | 1-3 years | | 4-5 years | | After 5 years |
Long-term debt, including current portion (a) | | $ | 2,885.0 |
| | $ | 175.1 |
| | $ | 36.2 |
| | $ | 536.2 |
| | $ | 2,137.5 |
|
Interest on long-term debt (b) | | 812.1 |
| | 151.3 |
| | 297.6 |
| | 247.4 |
| | 115.8 |
|
| Capital lease obligations | | 2.9 |
| | 1.4 |
| | 1.3 |
| | 0.2 |
| | — |
|
Operating leases (c) | | 245.4 |
| | 48.0 |
| | 70.6 |
| | 48.2 |
| | 78.6 |
|
Purchase obligations (d) | | 329.6 |
| | 276.2 |
| | 32.6 |
| | 18.5 |
| | 2.3 |
|
Other long-term obligations (e) | | 85.6 |
| | 52.2 |
| | 23.9 |
| | 8.5 |
| | 1.0 |
|
| Total contractual obligations | | $ | 4,360.6 |
| | $ | 704.2 |
| | $ | 462.2 |
| | $ | 859.0 |
| | $ | 2,335.2 |
|
| |
(a)
| Consists primarily of: (i) the $1,777.5 million in aggregate principal amount outstanding under the 2016 Term Loan Facility; (ii) the $450 million in aggregate principal amount outstanding under the 6.25% Senior Notes; and (iii) the $500 million in aggregate principal amount outstanding under the 5.75% Senior Notes, in each case as of December 31, 2017. |
| |
(b)
| Consists of interest through the respective maturity dates on the outstanding debt discussed in (a) above; based on interest rates under such debt agreements as of December 31, 2017. |
REVLON, INC AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(all tabular amounts in millions, except share and per share amounts)
| |
(c)
| Included in the obligations for operating leases as of December 31, 2017 is the lease for the Company's headquarters in New York City, which includes minimum lease payments in the aggregate of approximately $70 million over the 15-year term; a leased distribution and office facility in Roanoke, Virginia; and a leased warehouse and returns processing facility in Salem, Virginia. |
| |
(d)
| Consists of purchase commitments for finished goods, raw materials, components, minimum royalty guarantees 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 transactions. |
| |
(e)
| Consists primarily of media and advertising contracts, pension funding obligations (amount due within one year only, as subsequent pension funding obligation amounts cannot be reasonably estimated since the return on pension assets in future periods, as well as future pension assumptions, are not known), software licensing agreements and obligations related to third-party warehousing and distribution services. Such amounts exclude employment agreements, severance and other immaterial contractual commitments, which severance and other contractual commitments related to restructuring activities are discussed in Note 3, "Restructuring Charges," to the Consolidated Financial Statements in this Form 10-K. |
Off-Balance Sheet Transactions
The Company does not maintain any off-balance sheet transactions, arrangements, obligations or other relationships with unconsolidated entities or others that are reasonably likely to have a material current or future effect on the Company's financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Discussion of Critical Accounting Policies
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 U.S. generally accepted accounting principles ("U.S. GAAP"). Actual results could differ significantly from those estimates and assumptions. It is also possible that other professionals, applying reasonable judgment to the same set of facts and circumstances, could develop a different conclusion. 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 of operations 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.
Allowance for Doubtful Accounts:
The allowance for doubtful accounts is determined based on historical experience and ongoing evaluations of the Company’s receivables and evaluations of the risks of payment. The allowance for doubtful accounts is recorded against trade receivable balances when they are deemed uncollectible. Recoveries of trade receivables previously reserved are recorded in the consolidated statements of operations and comprehensive (loss) income when received.
Sales Returns:
The Company allows customers primarily within its Consumer and Elizabeth Arden segments, 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, the Company’sits estimates of sales returns based primarily upon historical rate of actual product returns, experience, planned product discontinuances, new product launches and estimates of customer inventory and promotional sales, which would permit customers to return products based upon the Company’s 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 the Company considers 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 product returns, if economic conditions differ significantly from the Company’s estimates and expectations.
Trade Support Costs:
In order to support the retail trade, For returned products that the Company has various performance-based arrangements with retailersexpects to reimburse themresell at a profit, the Company records, in addition to sales returns as a reduction to sales and cost of sales and an increase to accrued liabilities for all or a portion of their promotional activities relatedthe amount expected to be refunded to the customer, an increase to the asset account used to reflect the Company's right to recover products. The Company regularly reviews and revises, when deemed necessary, estimatesamount of the asset account is valued based upon the former carrying amount of the product (i.e., inventory), less any expected costs to recover the products. As the estimated product returns that are expected to be resold at a profit do not comprise a significant amount of the Company's net sales or assets, the Company fordoes not separately report these promotions based on estimates of what has been
amounts.
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REVLON, INC AND SUBSIDIARIES
COMBINED MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(all tabular amounts in millions, except share and per share amounts)
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 net realizable value. Cost is based on standard cost and production variances, which approximates actual cost on the first-in, first-out method. Cost components include direct materials, direct labor and direct overhead, as well as in-bound freight. The Company records adjustments to the value of inventory based upon its forecasted plans to sell its inventories, as well as planned discontinuances. 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, sales return levels or competitive conditions differ from the Company's estimates and expectations.
Pension Benefits:
The Company sponsors both funded and unfunded pension and other retirement plans in various forms covering employees who meet the applicable eligibility requirements. The Company uses several statistical and other factors in an attempt to estimate future events in calculating the liability and net periodic benefit income/cost related to these plans. These factors include assumptions about the discount rate, expected long-term return on plan assets and rate of future compensation increases as determined annually by the Company, within certain guidelines, which assumptions would be subject to revisions if significant events occur during the year. The Company uses December 31st31st as its measurement date for defined benefit pension plan obligations and plan assets.
The Company applies the "full yield curve" approach, an alternative approach from the single weighted-average discount rate approach, to calculate the service and interest components of net periodic benefit cost for pension and other post-retirement benefits. Under this method, the discount rate assumption was built through the application of specific spot rates along the yield curve used in the determination of the benefit obligation to the relevant projected cash flows for each of the Company's pension and other retirement plans.
The Company utilized a 3.47%2.18% weighted-average discount rate in 20172020 for the Company's U.S. defined benefit pension plans, compared to a 3.92%3.01% weighted-average discount rate in 2016.2019. The Company utilized a 2.19%1.33% weighted-average discount rate for the Company’s international defined benefit pension plans in 2017,2020, compared to a 2.66%1.81% weighted-average discount rate selected in 2016.2019. The discount rates are used to measure the benefit obligations at the measurement date and the net periodic benefit income/cost for the subsequent calendar year and are reset annually using data available at the measurement date. The changes in the discount rates used for 20172020 were primarily due to observed decreases in long-term interest yields on high-quality corporate bonds during 2017.2020. At December 31, 2017,2020, the decrease in the discount rates from December 31, 20162019 had the effect of increasing the Company’s projected pension benefit obligation by approximately $24.1$50.5 million.
In selecting its expected long-term rate of return on its plan assets, the Company considers a number of factors, including, without limitation, recent and historical performance of plan assets, the plan portfolios' asset allocations over a variety of time periods compared with third-party studies, the performance of the capital markets in recent years and other factors, as well as advice from various third parties, such as the plans' advisors, investment managers and actuaries. While the Company considered both the recent performance and the historical performance of plan assets, the Company’s assumptions are based primarily on its estimates of long-term, prospective rates of return. The difference between actual and expected return on plan assets is reported as a component of accumulated other comprehensive (loss) income and the resulting gains or losses are amortized over future periods as a component of the net periodic benefit cost. For the Company’s U.S. defined benefit pension plans, the expected long-term rate of return on the pension plan assets used was 6.5%5.50% and 6.00% for 20172020 and 7% for 2016.2019. The weighted-average expected long-term rate of return used for the Company’s international plans was 4.81%3.39% for 20172020 and 6%4.86% for 2016.2019. For 2017,2020, the actual return on pension plan assets was $53.5$35.9 million, as compared with expected return on plan assets of $28.6$22.8 million. The resulting $24.9 million difference, representing a net deferred gain of $13.1 million, when combined with gains and losses from previous years, will be amortized over periods ranging from approximately 10 to 30 years. The actual return on plan assets for 20172020 was above expectations, primarily due to higher returns from investments in developed equity markets, bank loans and bond yields.
REVLON, INC AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(all tabular amounts in millions, except share and per share amounts)
The table below reflects the Company’s estimates of the possible effects that changes in the discount rates and expected long-term rates of return would have had on its 20172020 net periodic benefit costs and its projected benefit obligation at December 31, 20172020 for the Company’s principal defined benefit pension plans, with all other assumptions remaining constant:
| | | | | Effect of | | Effect of | | Effect of | | Effect of |
| | | 25 basis points increase | | 25 basis points decrease | | 25 basis points increase | | 25 basis points decrease |
| | | Net periodic benefit costs | | Projected pension benefit obligation | | Net periodic benefit costs | | Projected pension benefit obligation | | Net periodic benefit costs | | Projected pension benefit obligation | | Net periodic benefit costs | | Projected pension benefit obligation |
| Discount rate | | $ | 1.1 |
| | $ | (16.9 | ) | | $ | 0.8 |
| | $ | 17.7 |
| Discount rate | | $ | 1.2 | | | $ | (16.7) | | | $ | 0.7 | | | $ | 17.5 | |
| Expected long-term rate of return | | (2.0 | ) | | — |
| | 0.4 |
| | — |
| Expected long-term rate of return | | $ | (1.5) | | | $ | — | | | $ | 0.6 | | | $ | — | |
The rate of future compensation increases is another assumption used by the Company’s third-party actuarial consultants for pension accounting. The rate of future compensation increases used for the Company’s projected pension benefit obligation in 20172019 was 3.50% for the UAW Plan. During 2019, the UAW Plan was frozen and 2016 was 3.5%the rate of future compensation increase is no longer applicable for the Company's U.S. defined benefit pension plans.plans for 2020. Such increase was also not applied to the
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REVLON, INC AND SUBSIDIARIES
COMBINED MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(all tabular amounts in millions, except share and per share amounts)
Revlon Employees’ Retirement Plan and the Revlon Pension Equalization Plan, as the rate of future compensation increases is no longer relevant to such plans due to plan amendments that effectively froze these plans as of December 31, 2009.
In addition, the Company's actuarial consultants also use other factors such as withdrawal and mortality rates. 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 could significantly impact the actual amount of net periodic benefit cost and liability recorded by the Company.
To determine the fiscal 20182021 net periodic benefit income/cost, the Company is using the "full yield curve" approach described above to separately calculate discount rates for each of the service and interest components. The following table represents the weighted average discount rates used in calculating each component of service and interest costs for the Company's U.S. and international defined benefit pension plans:
| | | | | | | | | | | |
| U.S.
Plans | | International
Plans |
| Interest cost on projected benefit obligation | 1.49 | % | | 1.27 | % |
Service cost(a) | N/A | | 0.24 | % |
Interest cost on service cost(a) | N/A | | 0.09 | % |
|
| | | | | |
| | U.S. Plans | | International Plans |
| Interest cost on projected benefit obligation | 3.07 | % | | 2.26 | % |
| Service cost | 3.84 | % | | 0.69 | % |
| Interest cost on service cost | 3.59 | % | | 0.39 | % |
For 2018,2021, the Company is using long-term rates of return on pension plan assets of 6%4.50% and 4.95%3.46% for its U.S. and international defined benefit pension plans, respectively. The Company expects that the impact of the changes in discount rates and the return on plan assets in 20182021 will result in net periodic benefit cost of $2.5$4.8 million for 2018,2021, compared to $4.1$5.5 million of net periodic benefit cost in 2017,2020, excluding the curtailment gain.
Goodwill and Acquired Intangible Assets:
In determining the fair values of net assets acquired, including trade names, customer relationships and other intangible assets, and resulting goodwill related to the Company's business acquisitions, the Company considers, among other factors, the analyses of historical financial performance and an estimate of the future performance of the acquired business. The fair values of the acquired intangible assets are primarily calculated using a discounted cash flow approach.
Determining fair value requires significant estimates and assumptions based on evaluating a number of factors, such as marketplace participants, product life cycles, consumer awareness, brand history and future expansion expectations. There are significant judgments inherent in a discounted cash flow approach, including in selecting appropriate discount rates, hypothetical royalty rates, contributory asset capital charges, estimating the amount and timing of future cash flows and identifying appropriate terminal growth rate assumptions. The discount rates used in discounted cash flow analyses are intended to reflect the risk inherent in the projected future cash flows generated by the respective acquired intangible assets.
Determining an acquired intangible asset's useful life requires management judgment and is based on evaluating a number of factors, including the expected use of the asset, consumer awareness, trade name history and future expansion expectations, as well as any contractual provisions that could limit or extend an asset's useful life. The Company believes that an acquired trade name has an indefinite life if it has a history of strong revenue and cash flow performance, and the Company has the intent and ability to support the trade name with marketplace spending for the foreseeable future. If this indefinite-lived criteria is not met, acquired trade names are amortized over their expected useful lives, which generally range from 5 to 20 years.
REVLON, INC AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(all tabular amountsEffective January 1, 2018, the Company implemented its brand-centric organizational structure which is built around four global brand teams: Revlon; Elizabeth Arden; Portfolio; and Fragrances, which also represent the Company's reporting segments. Concurrent with the change in millions, except sharereporting segments, goodwill was reassigned to the affected reporting units that have been identified within each reporting segment using a relative fair value allocation approach as outlined in Accounting Standards Codification ("ASC") 350, Intangibles - Goodwill and per share amounts)
Other. Goodwill totaled $692.5$563.7 million and $689.5$673.7 million as of December 31, 20172020 and 2016,2019, respectively. As of December 31, 2017,2020, goodwill of $216.7$265.4 million, $234$87.9 million, $89.5 million and $241.8$120.9 million related to the Consumer,Revlon, Portfolio, Elizabeth Arden and ProfessionalFragrances segments, respectively. Indefinite-lived intangibles totaled $147.9$115.9 million and $243.3$143.8 million as of December 31, 20172020 and 2016,2019, respectively.
In accordance with Financial Accounting Standards Board ("FASB"), Accounting Standard Codification ("ASC") 350, Intangibles - Goodwill and Other ("ASC 350"), goodwill and indefinite-lived intangible assets are not amortized, but rather are reviewed annually for impairment using October 1st1st carrying values, or when there is evidence that events or changes in circumstances indicate that the current carrying amounts may not be recovered. Under this standard, the Company annually has the option to first assess qualitatively, based on relevant events and circumstances, whether it is more likely than not that there
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REVLON, INC AND SUBSIDIARIES
COMBINED MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(all tabular amounts in millions, except share and per share amounts)
has been an impairment, or perform a quantitative analysis to assess the existence of any such impairment. If the qualitative analysis shows that it is more likely than not that the fair value of a reporting unit is higher than its carrying amount, the quantitative analysis is not required. If the qualitative analysis fails, the quantitative analysis is required. Per the simplified approach allowed under ASU No. 2017-04, "Simplifying the Test for Goodwill Impairment," adopted by the Company as of October 1, 2018, if the carrying value of the reporting unit exceeds itsthe fair value anof the reporting unit, the goodwill impairment losscharge is recognized in an amount equal to anythe amount of such excess.difference. The inputs and assumptions utilized in the analyses are classified as Level 3 inputs in the fair value hierarchy. Goodwill is tested for impairment at the reporting unit level.
The Company establishes its reporting units based on its current reporting structure, product characteristics and management. Within each of the Consumer segment,Elizabeth Arden and Portfolio segments, the Company has identified two reporting units:units. The two reporting units within the Elizabeth Arden segment are: (i) GCB,Elizabeth Arden Skin and Color, which includes Elizabeth Arden skin care and color cosmetics brands; and (ii) Elizabeth Arden Fragrances, which includes Elizabeth Arden branded fragrances. The two reporting units within the Portfolio segment are: (i) Mass Portfolio, which includes the SinfulColors and Pure Ice nail enamel brands;Company's brands sold primarily through the mass retail channel; and (ii) "Revlon, Almay and Other,"Professional Portfolio, which includes the remainder of the Company's Consumer brands and does not include brands of the Company's Elizabeth Arden and Other reportable segments.sold primarily through professional salons. The Company's otherRevlon and Fragrances reporting units are consistent with the reportable segments identified in Note 19,16, "Segment Data and Related Information.Information," in the Company’s Audited Consolidated Financial Statements in this 2020 Form 10-K. For purposes of testing goodwill for impairment, goodwill has been allocated to each reporting unit to the extent that goodwill relates to each reporting unit.
For 2017,
Indefinite-lived intangible assets, consisting of certain trade names, are not amortized, but rather are tested for impairment annually during the fourth quarter using October 1st carrying values similar to goodwill, in accordance with ASC 350, and the Company utilized the two-step process, as prescribed by Accounting Standards Codification ("ASC") 350, Intangibles - Goodwill and Other, to test the GCB reporting unit for impairment. The shift in consumer behavior challenging the brick-and-mortar retail channel contributed to continued consumption and net sales declines for both brands comprising the GCB reporting unit. In the first step of this test, the Company compared the fair value of GCB, determined based upon discounted estimated future cash flows, to its carrying amount, including goodwill. The results of the step one test indicated thatrecognizes an impairment indicators may have existed for the GCB reporting unit.
In the second step, the Company measured the potential impairment of GCB reporting unit by comparing its implied fair value withif the carrying amount of its goodwill at October 1, 2017.intangible assets exceeds its fair value. Intangible assets with finite useful lives are amortized over their respective estimated useful lives to their estimated residual values. The implied fair value ofCompany writes off the GCB reporting unit's goodwill was determinedgross carrying amount and accumulated amortization for intangible assets in the same manner asyear in which the amountasset becomes fully amortized.
Finite-lived intangible assets are considered for impairment under ASC 360-10, Impairment and Disposal of goodwill recognized in a business combination, whereLong-Lived Assets ("ASC 360"), upon the estimated fair valueoccurrence of the GCB reporting unit was allocated to all the assets and liabilities of that reporting unit (including both recognized and unrecognized intangible assets) as if GCB had been acquired in a business combinationcertain "triggering events" and the estimated fair value of GCB reporting unit was the purchase price paid. WhenCompany recognizes an impairment if the carrying amount of the reporting unit's goodwill is greater thanlong-lived asset group exceeds the implied fair value of that reporting unit's goodwill, an impairment loss is recognized within operations. The Company determined the fair valueCompany's estimate of the GCB reporting unit using discounted estimatedasset group's undiscounted future cash flows. The weighted-average cost of capital used in
Impairment testing the GCB reporting unit for impairment was 12% with a perpetual growth rate of 2%. As a result of this annual impairment test,
During 2020, the Company recognized an aggregate $10.8performed interim goodwill impairment analyses during the first, second and third quarters of the year, which resulted in the recognition of $99.8 million and $11.2 million of non-cash goodwill impairment charge relatedcharges in the first and second quarter of 2020, respectively, as further specified in Note 6, "Goodwill and Intangible Assets, Net" to the GCB reporting unitCompany's Audited Consolidated Financial Statements in the fourth quarter of 2017. Following the recognition of this non-cash goodwill impairment charge, the GCB reporting unit had $14.8 million remaining goodwill as of December 31, 2017.2020 Form 10-K.
For 2017,2020, in assessing whether goodwill was impaired in connection with its annual impairment testtesting performed during the fourth quarter of 20172020 using October 1,st, 2017 2020 carrying values, the Company, in accordance with Financial Accounting Standards Board ("FASB"), Accounting Standard Codification ("ASC") 350, Intangibles - Goodwill and Other ("ASC 350"), performed a qualitative assessment for its Revlon reporting unit and quantitative assessments for its (i) Elizabeth Arden Skin and Color, (ii) Elizabeth Arden Fragrances, (iii) Fragrances, and (iv) Professional Portfolio reporting units. As further specified in Note 6, "Goodwill and Intangible Assets, Net" to determine whether it would be necessary to perform the two-step process to assess the Company's indefinite-lived intangible assets for indicatorsAudited Consolidated Financial Statements in this 2020 Form 10-K, the Mass Portfolio reporting unit no longer has any goodwill associated with it starting from the second quarter of impairment. 2020.
In performing theits 2020 annual qualitative assessments,goodwill assessment, the Company considered, the results of the step one test performed in 2016 andamong other factors, the financial performance of the (i) Revlon Almayreporting unit, the Company's revised expected future cash flows as affected by the ongoing and Other; (ii) Elizabeth Arden; and (iii) Professional reporting units.prolonged COVID-19 pandemic, as well as the results of the second quarter of 2020 quantitative interim analysis. Based upon such assessment, the Company determined that it was more likely than not that the fair valuesvalue of theseits Revlon reporting unitsunit exceeded theirits respective carrying amountsamount for 2017.2020.
In conjunction with the 2017 annual impairment test,performing its 2020 quantitative assessments, the Company reviewed finite-lived intangible assets for impairment whenever factsused the simplified approach allowed under ASU No. 2017-04 to test its (i) Elizabeth Arden Skin and circumstances indicated that their carrying values may not be fully recoverable. This test compares the current carrying values of the intangible assets to the undiscounted pre-tax cash flows expected to result from the use of the assets. Based upon the results of the annual goodwill impairment test for the GCB reporting unit during 2017, the Company performed an impairment review of the finite-lived intangible assets acquired as part of acquiring the SinfulColor and Pure Ice brands. For the year ended December 31, 2017, no impairment was recognized related to the carrying value of the GCB reporting unit's finite or indefinite-lived intangible assets.
For 2016, the Company utilized the two-step process in assessing whether goodwill was impaired for each of the Company's then existing four reporting units: (i) Revlon, Almay and Other;Color, (ii) GCB;Elizabeth Arden Fragrances, (iii) Professional;Fragrances, and (iv) Other. As a result of the annual impairment testing for 2016, the Company recognized a $16.7 million non-cash goodwill impairment charge related to the Other reporting unit in the fourth quarter of 2016.
Based upon the results of the annual goodwill impairment test for the Other reporting unit during 2016, the Company performed an impairment review of the finite-lived intangible assets acquired as part of the 2015 CBB Acquisition. As a result of this review, the Company recognized during the fourth quarter of 2016 within the Other reporting unit $4.2 million, $2.0 million and $0.5
Professional Portfolio
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REVLON, INC AND SUBSIDIARIES
COMBINED MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(all tabular amounts in millions, except share and per share amounts)
reporting units for impairment. Based upon such assessment, the Company determined that it was more likely than not that the fair value of each of such aforementioned reporting units exceeded their respective carrying amounts for 2020.
The fair values of the aforementioned Company’s reporting units exceeded their carrying amounts ranging from approximately 7% to approximately 34% as of the October 1, 2020 valuation date.
The above-mentioned fair values were primarily determined using a weighted average market and income approach. The income approach requires several assumptions including those regarding future sales growth, EBITDA (earnings before interest, taxes, depreciation and amortization) margins, and capital expenditures, which are the basis for the information used in the discounted cash flow model. The weighted-average cost of capital used in the income approach ranged from 9.5% to 12.5%, with a perpetual growth rate of 2%. For the market approach, the Company considered the market comparable method based upon total enterprise value multiples of other comparable publicly-traded companies.
The key assumptions used to determine the estimated fair values of the Company's reporting units for its interim and annual assessments included the expected success of the Company's future new product launches, the Company's achievement of its expansion plans, the Company's realization of its cost reduction initiatives and other efficiency efforts, as well as certain assumptions regarding the COVID-19 pandemic's expected impact on the Company. If such plans and assumptions do not materialize as anticipated, or if there are further challenges in the business environment in which the Company's reporting units operate, a resulting change in actual results from the Company's key assumptions could have a negative impact on the estimated fair values of the reporting units, which could require the Company to recognize additional impairment charges in future reporting periods.
During 2020, in connection with the interim goodwill impairment assessments during the first, second and third quarters of 2020, the Company also reviewed indefinite-lived and finite-lived intangible assets for impairment. These interim reviews resulted in no interim impairment charges in connection with the carrying value of any of the Company's finite-lived intangible assets and in $24.5 million and $8.6 million of interim non-cash impairment charges in the first and second quarter of 2020, respectively, in connection with the Company's indefinite-lived intangible assets, as further specified in Note 6, "Goodwill and Intangible Assets, Net" to the Company's Audited Consolidated Financial Statements in this 2020 Form 10-K.
For 2020 and 2019, no impairment was recognized related to the carrying value of any of the Company's finite or indefinite-lived intangible assets as a result of the change in theannual impairment testing.
The fair value of customer relationships, distribution rights and trade names, respectively, in the aggregate amount of $6.7 million.
For 2015, the Company utilized the two-step process in assessing whether goodwill was impaired for eachvalues determined as part of the Company's then existing four reporting units: (i) Revlon, Almay and Other; (ii) GCB; (iii) Professional; and (iv) Other. As a resultCompany’s indefinite-lived intangibles quantitative analysis exceeded their carrying amounts ranging from approximately 1% to approximately 29% as of the 2015 annual impairment test, the Company recognized a $9.7 million non-cash goodwill impairment charge related to the GCB reporting unit in the fourth quarter of 2015.October 1, 2020 valuation date.
See Note 2, "Business Combinations," and Note 8,6, "Goodwill and Intangible Assets, Net," to the Company's Audited Consolidated Financial Statements in this 2020 Form 10-K for further discussion ofinformation on the Company's goodwill and intangible assets.
Income Taxes:
The Company records income taxes based on amounts payable with respect to the current year and includes the effect of deferred taxes. The effective tax rate reflects statutory tax rates, tax-planning opportunities that may be available in various jurisdictions in which the Company operates and the Company’s estimate of the ultimate outcome of various tax audits and issues. Determining the Company’s effective tax rate and evaluating tax positions requires significant judgment.
The Company recognizes deferred tax assets and liabilities for the future impact of differences between the financial statement carrying amounts of assets and liabilities and their respective tax bases, as well as for operating loss and tax credit carryforwards. The Company measures deferred tax assets and liabilities using enacted tax rates expected to apply to taxable income in the years in which management expects that the Company will recover or settle those differences. The realization of the deferred tax assets is primarily dependent on forecasted future taxable income. The Company establishes a valuation allowance for deferred tax assets when management determines that it is more likely than not that the Company will not realize a tax benefit for the deferred tax assets. Any reduction in estimated forecasted future taxable income may require the Company to record valuation allowances against deferred tax assets on which a valuation allowance was not previously established. See "Management’s Discussion and Analysis of Financial Condition and Results of Operations - Provision for income taxes,Income Taxes," for further discussion.information.
The Company recognizes a tax position in its financial statements when management determines that it was more likely than not that the position will be sustained upon examination, based on the merits of such position. The Company recognizes
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REVLON, INC AND SUBSIDIARIES
COMBINED MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(all tabular amounts in millions, except share and per share amounts)
liabilities for unrecognized tax positions in the U.S. and other tax jurisdictions based on an estimate of whether and the extent to which additional taxes will be due. If payment of these amounts is ultimately not required, the reversal of the liabilities would result in additional tax benefits recognized in the period in which the Company determines that the liabilities are no longer required. If the estimate of tax liabilities is ultimately less than the final assessment, this will result in a further charge to expense. The Company recognizes interest and penalties related to income tax matters in income tax expense.
TheAs of December 31, 2020, the Company provides for U.S.is indefinitely reinvested in the accumulated undistributed earnings of all of its foreign subsidiaries. If earnings are repatriated, any excess of financial reporting over tax basis could be subject to federal, income taxesstate and foreign withholding taxestaxes. At this time, the determination of deferred tax liabilities on foreign subsidiaries' cumulative undistributed earnings when itthe amount of financial reporting over tax basis is not the Company's intent to indefinitely reinvest such earnings overseas. No provision is made for U.S. income taxes where the Company's plan is to indefinitely reinvest such undistributed earnings from the Company's foreign operations in its overseas operations. If these future foreign earnings are repatriated to the U.S., or if the Company determines that such foreign earnings will be remitted to the U.S. in the foreseeable future, additional U.S. tax provisions may be required. Due to the complexities in the tax laws, including the implications of the Tax Act and the assumptions that would have to be made, it is not practicable to estimate the amounts of income tax provisions that may be required on account of these foreign undistributed earnings.practicable.
As previously noted, on December 22, 2017, with the enactment of the Tax Act, the U.S. government enacted comprehensive tax reform that makes broad and complex changes to the U.S. tax code affecting the Company’s fiscal year ended December 31, 2017, including, but not limited to:
| |
1. | reducing the U.S. federal corporate tax rate; |
| |
2. | requiring a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries; and |
| |
3. | imposing a new limitation on the deductibility of interest. |
The impact of those changes to the Company's December 31, 2017 fiscal year is estimated to be a non-cash expense of $47.9 million.
The Tax Act also establishes other new tax laws that could affect the Company in future years, including, but not limited to:
| |
1. | a general elimination of U.S. federal income taxes on dividends from foreign subsidiaries; |
| |
2. | a new provision designed to tax global intangible low-taxed income ("GILTI"); |
| |
3. | increased limitations on the deductibility of certain executive compensation; and |
| |
4. | changes to net operating loss carryforward periods and annual utilization. |
REVLON, INC AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(all tabular amounts in millions, except share and per share amounts)
For various reasons that are discussed in greater detail inSee Note 16,13, "Income Taxes," to the Company's Audited Consolidated Financial Statements in this 2020 Form 10-K the Company has not completed its accounting for the income tax effects of certain elements of the Tax Act. The Company recorded provisional adjustments in cases where the Company was able to make reasonable estimates of the effects of elements of the Tax Act for which its analysis is not yet complete. The Company has not recorded any adjustments for elements of the Tax Act for which the Company was not yet able to make reasonable estimates of the impact of those elements, and has continued accounting for such elements in accordance with ASC 740 on the basis of the tax laws in effect before the Tax Act.further information.
Recently Evaluated and/or Adopted Accounting Pronouncements
In March 2016, the FinancialSee Note 1., "Description of Business and Summary of Significant Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-09, "ImprovementsPolicies," to Employee Share-Based Payment Accounting," which simplifies certain aspects of accounting for share-based payment transactions, including transactions in which an employee uses shares to satisfy the employer’s minimum statutory income tax withholding obligations, forfeitures and income taxes when awards vest or are settled. The Company adopted ASU No. 2016-09 beginning on January 1, 2017 and the adoption of this new guidance did not have a material impact on the Company’s results of operations, financial condition and/or financial statement disclosures. The adoption of ASU No. 2016-09 resulted in tax withholdings related to net share settlements of restricted stock units and awards in the amount of $3.2 million and $2.8 million for 2016 and 2015, respectively, previously reported in the Consolidated Statement of Cash Flows as a component of cash flows from operating activities, which were reclassified as a component of cash flows from financing activities.
In August 2014, the FASB issued ASU No. 2014-15, "Disclosure of Uncertainties about and Entity's Ability to Continue as a Going Concern," which requires an entity to evaluate whether conditions or events, in the aggregate, raise substantial doubt about the entity's ability to continue as a going concern for one year from the date the financial statements are issued or are available to be issued. The Company adopted ASU 2014-15 on January 1, 2017 and the adoption of this guidance did not have a material impact on the Company's financial statement disclosures.Audited Consolidated Financial Statements in this 2020 Form 10-K for further information.
In July 2015, the FASB issued ASU No. 2015-11, "Inventory (Topic 330): Simplifying the Measurement of Inventory," which simplifies the subsequent measurement of inventories by requiring inventory to be measured at the lower of cost or net realizable value, rather than at the lower of cost or market. Net realizable value is defined as the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. The Company adopted ASU No. 2015-11 beginning on January 1, 2017 and the adoption of this new guidance did not have a material impact on the Company’s results of operations, financial condition and/or financial statement disclosures.
In November 2016, the FASB issued ASU No. 2016-18, "Statement of Cash Flows (Topic 230): Restricted Cash," which provides specific guidance on the presentation of changes in restricted cash and restricted cash equivalents on the statement of cash flows. Under the new standard, the changes in restricted cash and restricted cash equivalents are required to be disclosed in reconciling the opening and closing balances on the statement of cash flows. The Company adopted ASU No. 2016-18 during the fourth quarter of 2017 and the adoption of this new guidance did not have a material impact on the Company’s results of operations, financial condition and/or financial statement disclosures, other than requiring the Company to reconcile its cash balances from its statements of financial position to its statements of cash flows and including restricted cash within the beginning and ending balances of cash within the Company's statement of cash flow.
Recently Issued Accounting Standards or Updates Not Yet EffectivePronouncements
In February 2018, the FASB issued ASU No. 2018-02, "ReclassificationSee Note 1., "Description of Certain Tax Effects from Accumulated Other Comprehensive Income,Business and Summary of Significant Accounting Policies," which will permit entities to reclassify tax effects stranded in accumulated other comprehensive income as a result of tax reform to retained earnings. This new guidance can be applied retrospectively and provides entities with the option to reclassify the amounts. The new guidance is effective for annual and quarterly periods beginning after December 15, 2018, with early adoption permitted, and requires entities to make new disclosures regardless of whether they elect to reclassify tax effects. The Company is in the process of evaluating the impact that this new guidance is expected to have on its financial statements and/or financial statement disclosures.
In March 2017, the FASB issued ASU No. 2017-07, "Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost," which changes the way that employers present net periodic pension cost ("NPPC") and net periodic postretirement benefit cost ("NPPBC") within the income statement. The amendment requires an employer to present the service cost component of NPPC and NPPBC in the same income statement line item(s) as other employee compensation costs arising from services rendered during the period. The other components of NPPC and NPPBC would be presented separately from this line item and below any subtotal of operating income; companies will need to disclose the line items used to present these other components of NPPC and NPPBC, if not separately presented in the statement of operations. In addition, only the service cost
REVLON, INC AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(all tabular amounts in millions, except share and per share amounts)
component would be eligible for capitalization in assets. This guidance is effective retrospectively for annual and quarterly periods beginning after December 15, 2017, with early adoption permitted. The Company adopted ASU No. 2017-07 beginning as of January 1, 2018, and the Company expects that substantially all of the 2018 projected cost of approximately $9.0 million will be presented below operating income in the Company's 2018 Statement of Operations and Comprehensive (Loss) Income.Audited Consolidated Financial Statements in this 2020 Form 10-K for further information.
In January 2017, the FASB issued ASU No. 2017-04, "Simplifying the Test for Goodwill Impairment," which simplifies the annual goodwill impairment analysis test by eliminating Step 2 of the current two-step impairment test. Under the new guidance, an entity would continue to perform the first step of the annual impairment test by comparing the carrying amount of a reporting unit with its fair value. If the carrying value of the reporting unit exceeds the fair value of the reporting unit, the goodwill impairment charge would be equal to the amount of such difference. This guidance is effective for annual periods beginning after December 15, 2019, with early adoption permitted. The Company expects to adopt ASU No. 2017-04 beginning as of January 1, 2020 and is in the process of assessing the impact that this new guidance is expected to have on the Company’s results of operations, financial condition and/or financial statement disclosures.
In January 2017, the FASB issued ASU No. 2017-01, "Clarifying the Definition of a Business," which further clarifies the definition of a business in an effort to assist entities in evaluating whether a set of transferred assets constitutes a business. Under this new guidance, if substantially all of the fair value of gross assets acquired is concentrated in a single asset or similar asset group, the set of transferred assets would not meet the definition of a business and no further evaluation is necessary. If this threshold is not met, the entity would then evaluate whether the set of transferred assets and activities meets the requirement that a business include, at a minimum, an input and a process that together have the ability to create an output. This guidance is effective for annual and quarterly periods beginning after December 15, 2017, with early adoption permitted. The Company adopted ASU No. 2017-01 beginning as of January 1, 2018 and expects that this new guidance will not have a material impact on the Company’s results of operations, financial condition and/or financial statement disclosures.
In August 2016, the FASB issued ASU No. 2016-15, "Classification of Certain Receipts and Cash Payments," which aims to standardize how certain transactions are classified within the Statement of Cash Flows, including, among other issues, debt prepayment and extinguishment costs and contingent consideration payments made after a business combination. This guidance is effective for annual periods beginning after December 15, 2017, with early adoption permitted. The Company adopted ASU No. 2016-15 beginning as of January 1, 2018 and expects that this new guidance will not have a material impact on the Company’s results of operations, financial condition and/or financial statement disclosures.
In February 2016, the FASB issued ASU No. 2016-02, "Leases (Topic 842)," which requires lessees to recognize a right-of-use asset and a liability on the balance sheet for all leases, with the exception of short-term leases. The lease liability will be equal to the present value of lease payments and the right-of-use asset will be based on the lease liability, subject to adjustment such as for initial direct costs. Leases will continue to be classified as either operating or finance leases in the income statement. This guidance is effective for annual periods beginning after December 15, 2018, with early adoption permitted. The Company will adopt ASU No. 2016-02 beginning as of January 1, 2019 and is in the process of assessing the impact that this new guidance is expected to have on the Company’s results of operations, financial condition and/or financial statement disclosures.
In May 2014, the FASB issued ASU No. 2014-09, "Revenue from Contracts with Customers." This new standard will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective, as described below. The underlying principle of this new standard is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Entities may adopt this new standard either retrospectively for all periods presented in the financial statements (i.e., the full retrospective method) or as a cumulative-effect adjustment as of the date of adoption (i.e., the modified retrospective method), without applying to comparative years’ financial statements.
In August 2015, the FASB issued ASU No. 2015-14, "Revenue from Contracts with Customers: Deferral of the Effective Date," which allows for a deferral of the adoption date for ASU No. 2014-09 until January 1, 2018 and permitted early adoption of ASU No. 2014-09, but not before the effective date of January 1, 2017.
The Company adopted ASU No. 2014-09 beginning as of January 1, 2018 using the modified retrospective method. While the Company is finalizing its assessment of all potential impacts of ASU No. 2014-09, given the nature of the Company's products and the terms and conditions applicable to sales to its customers, the timing and amount of revenue recognized based on the underlying principles of this new standard are consistent with the Company's revenue recognition policy under previous guidance. As a result, the Company does not currently expect that the adoption will have a material impact on its revenues, results of operations or financial position. The Company does, however, expect to expand its financial statement disclosures in order to comply with the new standard. The Company has drafted its accounting policy with respect to the new standard based on a review of its business. The new policy reflects updates to internal controls and processes to enable the preparation of financial information upon its adoption of ASU No. 2014-09.
REVLON, INC AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(all tabular amounts in millions, except share and per share amounts)
Inflation
The Company's costs are affected by inflation and the effects of inflation that the Company may experience in future periods. Management believes, however, that such effects have not been material to the Company during the past threetwo years in the U.S. and in foreign non-hyperinflationary countries. The Company operates in certain countries around the world, such as Argentina, which has 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 costs and working capital levels.
REVLON, INC. AND SUBSIDIARIES
(all tabular amounts in millions, except share and per share amounts)
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Interest Rate Sensitivity
The Company has exposure to changing interest rates, primarily under Products Corporation's 2016 Senior Credit Facilities. The Company manages interest rate risk through a combination of fixed-and-floating rate debt. From time-to-time, the Company makes use of derivative financial instruments to adjust its fixed-and-floating rate ratio, such as with the 2013 Interest Rate Swap, which expires in May 2018. The Company does not hold or issue financial instruments for speculative or trading purposes.
The table below provides information about the Company's indebtedness as of December 31, 2017 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 U.S. Dollar LIBOR yield curve at December 31, 2017. The information is presented in U.S. dollar equivalents, which is the Company's reporting currency:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Expected Maturity Date for the Year Ended December 31, | | |
| | (dollars in millions, except for rate information) | | |
| | | 2018 | | 2019 | | 2020 | | 2021 | | 2022 | | Thereafter | | Total | | Fair Value December 31, 2017 |
| Debt | | | | | | | | | | | | | | | | |
| Short-term variable rate (third party - various currencies) | | $ | 10.6 |
| | | | | | | | | | | | $ | 10.6 |
| | $ | 10.6 |
|
Average interest rate (a) | | 4.1 | % | | | | | | | | | | | | | | |
| Short-term fixed rate (third party - EUR) | | $ | 1.8 |
| | | | | | | | | | | | $ | 1.8 |
| | $ | 1.8 |
|
| Average interest rate | | 11.8 | % | | | | | | | | | | | | | | |
| Long-term fixed rate (third party - USD) | | | | | | | | $ | 500.0 |
| | | | $ | 450.0 |
| | $ | 950.0 |
| | $ | 649.8 |
|
| Average interest rate | | | | | | | | 5.75 | % | | | | 6.25 | % | | | | |
| Long-term fixed rate (third party - EUR) | | $ | 0.1 |
| | $ | 0.1 |
| | $ | 0.1 |
| | $ | 0.1 |
| | $ | 0.1 |
| | $ | — |
| | $ | 0.5 |
| | $ | 0.5 |
|
| Average interest rate | | — | % | | — | % | | — | % | | — | % | | — | % | | — | % | | | | |
Long-term variable rate (third party - USD) (b) | | $ | 175.0 |
| | $ | 18.0 |
| | $ | 18.0 |
| | $ | 18.0 |
| | $ | 18.0 |
| | $ | 1,687.5 |
| | $ | 1,934.5 |
| | $ | 1,481.2 |
|
Average interest rate (a)(c) | | 3.5 | % | | 5.5 | % | | 5.6 | % | | 5.7 | % | | 5.7 | % | | 5.7 | % | | | | |
| Total debt | | $ | 187.5 |
| | $ | 18.1 |
| | $ | 18.1 |
| | $ | 518.1 |
| | $ | 18.1 |
| | $ | 2,137.5 |
| | $ | 2,897.4 |
| | $ | 2,143.9 |
|
| |
(a)
| Weighted average variable rates are based upon implied forward rates from the U.S. Dollar LIBOR and Euribor yield curves at December 31, 2017. |
| |
(b)
| Includes total quarterly amortization payments required for each year under the 2016 Term Loan Facility and the borrowings under the 2016 Revolving Credit Facility. |
| |
(c)
| At December 31, 2017, the interest rate for the 2016 Term Loan Facility was the Eurodollar Rate (as defined in the 2016 Term Loan Agreement) plus 3.5% per annum (with the Eurodollar Rate not to be less than 0.75%). See Note 11, "Long-Term Debt," to the Consolidated Financial Statements. At December 31, 2017, the interest rate for the 2016 Revolving Credit Facility was 3.2% per annum, which is based on the Eurodollar Rate plus theNot applicable margin, as described in this Form 10-K. See "Financial Condition, Liquidity and Capital Resources - 2016 Revolving Credit Facility - Interest and Fees." |
If any of LIBOR, Euribor, the base rate, the U.S. federal funds rate or such equivalent local foreign currency rate increases, Products Corporation's debt service costs will increase to the extent that Products Corporation has elected such rates for its outstanding loans. Based on the amounts outstanding under the 2016 Senior Credit Facilities and other short-term borrowings (which, in the aggregate, are Products Corporation’s only debt currently subject to floating interest rates) as of December 31, 2017, a 1% increase in both the LIBOR and Euribor rates would increase the Company’s annual interest expense by approximately $15.7 million.
At December 31, 2017 and December 31, 2016, the fair value of the 2013 Interest Rate Swap was a liability of $0.9 million and $4.7 million, respectively. See "Financial Condition, Liquidity and Capital Resources - Derivative Financial Instruments" for additional detail on the 2013 Interest Rate Swap.
As a result of completely refinancing the Old Acquisition Term Loan in connection with the Elizabeth Arden Acquisition, the critical terms of the 2013 Interest Rate Swap no longer matched the terms of the underlying debt under the 2016 Term Loan Facility.
REVLON, INC. AND SUBSIDIARIES
(all tabular amounts in millions, except share and per share amounts)
At the De-designation Date, the 2013 Interest Rate Swap was determined to no longer be highly effective and the Company discontinued hedge accounting for the 2013 Interest Rate Swap. Following the de-designation of the 2013 Interest Rate Swap, changes in fair value are accounted for as a component of other non-operating expenses. Accumulated deferred losses of $1.2 million, or $0.7 million net of tax, at December 31, 2017 that were previously recorded as a component of accumulated other comprehensive loss will be amortized to earnings over the remaining term of the 2013 Interest Rate Swap through its maturity.smaller reporting company.
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 through foreign exchange forward and option contracts. Products Corporation enters into these contracts with major financial institutions in an attempt to minimize counterparty risk. These contracts generally have a duration of less than 12 months and are primarily against the U.S. Dollar. In addition, Products Corporation enters into foreign currency swaps to hedge intercompany financing transactions. The Company does not hold or issue financial instruments for speculative or trading purposes.
The table below shows the notional, contract and fair values of the forward contracts as of December 31, 2017:
|
| | | | | | | | | | | | | | | |
| Forward Contracts ("FC") | | Average Contractual Rate $/FC | | U.S. Dollar Equivalent Notional Amount | | Contract Value December 31, 2017 | | Asset (Liability) Fair Value December 31, 2017 |
| Sell British Pound/Buy USD | | 1.3228 |
| | 30.5 |
| | 29.8 |
| | (0.7 | ) |
| Sell Canadian Dollars/Buy USD | | 0.7856 |
| | 27.3 |
| | 27.0 |
| | (0.3 | ) |
| Sell Australian Dollars/Buy USD | | 0.7724 |
| | 23.5 |
| | 23.3 |
| | (0.2 | ) |
| Buy Euro/Sell USD | | 1.1882 |
| | 17.7 |
| | 17.9 |
| | 0.2 |
|
| Buy Mexican Peso/Sell USD | | 0.0524 |
| | 12.2 |
| | 11.6 |
| | (0.6 | ) |
| Sell USD/Buy Swiss Franc | | 1.0369 |
| | 9.6 |
| | 9.6 |
| | — |
|
| Sell Japanese Yen/Buy USD | | 0.0091 |
| | 7.4 |
| | 7.5 |
| | 0.1 |
|
| Buy Euro/Sell British Pound | | 0.8902 |
| | 6.2 |
| | 6.2 |
| | — |
|
| Sell Danish Krone/Buy USD | | 0.1592 |
| | 4.0 |
| | 3.9 |
| | (0.1 | ) |
| Buy Australian Dollars/Sell NZ dollars | | 1.0961 |
| | 3.2 |
| | 3.2 |
| | — |
|
| Sell USD/Buy South African Rand | | 0.0733 |
| | 2.0 |
| | 2.2 |
| | 0.2 |
|
| Sell USD/Buy Australian Dollar | | 0.7708 |
| | 1.9 |
| | 2.0 |
| | 0.1 |
|
| Sell USD/Buy British Pound | | 1.3417 |
| | 1.0 |
| | 1.0 |
| | — |
|
| Sell Hong Kong Dollars/Buy USD | | 7.8108 |
| | 0.6 |
| | 0.6 |
| | — |
|
| Total forward contracts | | | | $ | 147.1 |
| | $ | 145.8 |
| | $ | (1.3 | ) |
Item 8. Financial Statements and Supplementary Data
Reference is made to the Index on page F-1 of the Company’s Consolidated Financial Statements and the Notes thereto. Supplementary Data not applicable as a smaller reporting company.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures
None.
Table of Contents
REVLON, INC. AND SUBSIDIARIES
(all tabular amounts in millions, except share and per share amounts)
Item 9A. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures. The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company's reports under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to management, including the Company's PrincipalChief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. AsIn March 2020, the Company announced the Revlon 2020 Restructuring Program and in April 2020 the Company took several financial measures, such as implementing a reduced work week and furloughing a significant number of employees, designed to mitigate the dateadverse financial impacts of filing this Form 10-K, Paul Meister,COVID-19 (the “COVID-19 Organizational Actions”). In response, the Company implemented mitigating actions to address the potential for any impact from these measures on the Company’s Executive Vice Chairman, was performingdisclosure controls and procedures and its internal control over financial reporting, such as transferring responsibilities for the functions of the Company’s Principal Executive Officer.eliminated positions and furloughed employees and enhancing employee training and internal controls monitoring. The Company's management, with the participation of the Company's PrincipalChief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company's disclosure controls and procedures as of the end of the fiscal period covered by this Annual Report on2020 Form 10-K. Based upon such evaluation, the Company’s PrincipalCompany's Chief Executive Officer and Chief Financial Officer have concluded that as of the end of such period, the Company's disclosure controls and procedures were effective.effective as of December 31, 2020.
(b) Management’s Annual Report on Internal Control over Financial Reporting. Reporting.The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control system wasis designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation and fair presentation of published financial statements in accordance with generally accepted accounting principlesU.S. GAAP and includes those policies and procedures that:
(i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of its assets;
(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of its financial statements in accordance with generally accepted accounting principles,U.S. GAAP, and that its receipts and expenditures are being made only in accordance with authorizations of its management and directors; and
(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on its financial statements.
Internal
Due to its inherent limitations, internal control over financial reporting may not prevent or detect misstatements due to its inherent limitations.misstatements. Management's projections of any evaluation of the effectiveness of internal control over financial reporting as to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.
The Company’s management, under the oversight of the Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 20172020 and in making this assessment used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission Internal Control-Integrated Framework (2013).
Revlon’s Based on this assessment, the Company’s management, under the oversight of the Chief Executive Officer and Chief Financial Officer, determined that the Company'sCompany’s internal control over financial reporting was effective as of December 31, 2017.2020.
KPMG LLP, the Company's independent registered public accounting firm that audited the Company's consolidated financial statements included in this Annual Report on Form 10-K2020 Consolidated Financial Statements for the period ended December 31, 2017,2020 included in this 2020 Form 10-K, has issued a report on the Company's internal control over financial reporting. This report appears on page F-3.F-3 of the 2020 Consolidated Financial Statements.
(c) Changes in Internal Control Over Financial Reporting("ICFR").There have not been any changes in the Company’s internal control over financial reporting during the quarter ended December 31, 20172020 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.As described in Item 9A(a) above, the Revlon 2020 Restructuring Program and the COVID-19 Organizational Actions did not materially affect the Company's ICFR for the year ended December 31, 2020.
Item 9B. Other Information
Because this Form 10-K is being filed within four business days from the date of the following reportable events, the Company has made the foregoing disclosure in this Form 10-K rather than in a Form 8-K under Item 5.02 (Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers).
Employment Agreement for Debra Perelman, Chief Operating Officer. On March 14, 2018, Revlon and RCPC entered into an employment agreement with Debra Perelman (the “COO Employment Agreement”), following her election as the Company’s Chief Operating Officer that became effective on January 28, 2018. Such appointment was previously reported on a Form 8-K filed with the SEC on January 30, 2018. The term of the COO Employment Agreement is at will.
Table of Contents
REVLON, INC. AND SUBSIDIARIES
(all tabular amountsItem 9B. Other Information
MacAndrews & Forbes tendered approximately $15.5 million of 5.75% Senior Notes into the Exchange Offer and, in millions, except share and per share amounts)
The COO Employment Agreement provides that Ms. Perelman will serveexchange, received the Mixed Consideration as the Company’s Chief Operating Officer at an annual base salary of not less than $1,125,000, with a target annual bonus opportunity of 100% of her base salary (the “COO Target Bonus”) under the Revlon Amended and Restated Executive Incentive Compensation Plan (the “Incentive Compensation Plan”),described herein, in accordance with the possibility of exceeding such amount based upon over-achievementterms and conditions of the Company’s performance objectives up to a maximum of 200% of her base salary.
PursuantExchange Offer. Additionally, MacAndrews & Forbes acquired the rights to the COO EmploymentMixed Consideration to be received by certain holders in the Exchange Offer. Subsequently, MacAndrews & Forbes sold its interest in the ABL FILO Term Loans and the New BrandCo Second-Lien Term Loans in the open market, according to disclosures by MacAndrews & Forbes in Amendment No. 15 to their Schedule 13D.
On March 10, 2021, the Company and Mr. Beattie entered into an Amendment to the 2020 Consulting Agreement, Ms. Perelman is eligibleeffective April 1, 2021, pursuant to which he will continue to provide advisory services to the Company until April 1, 2022 (the “Term”). As compensation for Mr. Beattie’s advisory services during her employmentthe Term, the Company shall grant him restricted stock units (the “RSUs”) equivalent in value to the fee set forth in the 2020 Consulting Agreement, which shall vest in accordance with the Company to participate interms of the Company’s annual long-term incentive programs (“LTIP”) under the Incentive Compensation Plan, with a $1,250,000 target annual award (the “COO LTIP Award”).
Ms. Perelman is also eligible to participate in other benefit and perquisites plans generally made availableAmendment to the Company’s other senior executives at her level.
Upon termination of Ms. Perelman’s employment due to her death or disability or in the event the Company terminates Ms. Perelman's employment without "cause", Ms. Perelman will be eligible to receive: (i) her annual bonus with respect to the year prior to the year of termination (if not already paid as of the termination date) (the “COO Prior Year Bonus”); (ii) her annual bonus with respect to the year of termination, based on actual performance and pro-rated for the number of days actually worked during such year (the “COO Pro-Rated Bonus”); and (iii) payment in respect of any outstanding LTIP awards, based on actual performance and pro-rated for the number of days actually worked during the applicable performance period (the “COO Pro-Rated LTIP”).
Ms. Perelman is the daughter of Ronald O. Perelman, the Chairman of the Company's Board of Directors.2020 Consulting Agreement. The foregoing description of the Amendment to the 2020 Consulting Agreement is qualified in its entirety by reference to the full text of the COO Employment Agreement,such agreement, a copy of which will be filedis incorporated by reference into this Form 10-K as an exhibit to the Company’s Form 10-Q for the fiscal quarter ending March 31, 2018.Exhibit 10.20.
Election of Victoria Dolan as Chief Financial Officer. On March 1, 2018,10, 2021, the Company’s Board of Directors elected Victoria Dolan as its Chief Financial Officer (“CFO”),approved the following compensation for Ms. Dolan’s compensation effective as of March 12, 2018. Ms. Dolan assumes such role from Chris Peterson, who will continue serving as the Company’s Chief Operating Officer, Operations, with oversight of the Company’s finance, supply chain and IT functions.
Ms. Dolan (58), most recently served as Chief Transformation Officer for The Colgate-Palmolive Company since October 2017. Prior to that role, Ms. Dolan served as Colgate-Palmolive’s Chief Transformation Officer and Corporate Controller from July 2016 to October 2017; Vice President, Corporate Controller and Principal Accounting Officer from February 2011 through July 2016; and Vice President, Finance and Strategic Planning, European and South Pacific Division, from November 2008 through January 2011. Prior to joining Colgate-Palmolive, Ms. Dolan held finance positions at Marriott International, Inc. from 2000 to 2008, The Coca-Cola Company from 1991 to 2000 and Arco Chemical Company from 1985 to 1991. Ms. Dolan received her B.A. in economics and M.B.A. in accounting and finance from the UCLA Anderson School of Management.
To reflect her roles and responsibilities, on March 12, 2018 the Company entered into an employment agreement with Ms. Dolan (the “CFO Employment Agreement”), which, among other things, provides that she will serve as the Company’s CFO at an annual27, 2021: a base salary of not less than $600,000, with a$700,000, an annual cash bonus target annual bonus under the Incentive Compensation Plan of 75%85% of her base salary, with the possibility of exceeding such amount based upon the Company’s and/or her over-achievement of the applicable performance objectives. Pursuant to the CFO Employment Agreement, Ms. Dolan’s annual bonus for 2018 will not be less than $450,000. During her employment with the Company, Ms. Dolan is eligible to participate in the Company’s annual LTIPs under the Incentive Compensation Plan. In connection with her election as the Company’s CFO, Revlon’s Compensation Committee approved a $500,000 LTIP target award opportunity for Ms. Dolan under the Company’s 2018 LTIP, which is payable in March 2021 based on the extent to which the Company achieves certain performance metrics over 2018, 2019 and 2020.
In connection with the CFO Employment Agreement, Revlon’s Compensation Committee approved a grant to Ms. Dolan of restricted shares of Revlon Class A Common Stock (the “CFO Restricted Stock Grant”), with the number of shares being in an amount equal to $1,500,000 divided by the NYSE closing price of Revlon Class A Common Stock on March 15, 2018 (the “CFO Grant Date”). The CFO Restricted Stock Grant is eligible for vesting ratably on each of the first 3 anniversaries of the CFO Grant Date, provided that Ms. Dolan remains employed by the Company on each applicable vesting date, and is subject to earlier vesting upon the occurrence of a “change of control.” Ms. Dolan is also eligible to participate in other benefit and perquisites plans generally made available to the Company’s other senior executives at her level.
While the term of the CFO Employment Agreement is indefinite, it may be terminated by the Company sooner pursuant to certain termination provisions in the CFO Employment Agreement. If the Company terminates Ms. Dolan’s employment for any reason other than for “cause,” she would be eligible to receive the greater of (a) the benefits provided under the Company’s Executive Severance Pay Plan; and (b) payment ofannualized base salary, and continuationa 2021 LTIP target of medical benefits at the active employee rate for 12 months;
$1,500,000.
Table of Contents
REVLON, INC. AND SUBSIDIARIES
(all tabular amounts in millions, except share and per share amounts)
prior year bonus (if not already paid); annual bonus for the year of termination, based on actual performance results and pro-rated for the number of days employed during that year (the “Pro-Rated Annual Bonus”); payment of the 2018 LTIP, based on the Company’s actual performance results and pro-rated for the number of days employed during the performance period (the “Pro Rated LTIP”); and accelerated vesting of the next unvested tranche of the CFO Restricted Stock Grant, if any. The Executive Severance Pay Plan currently provides for base salary continuation for 12 months, plus an additional 2 weeks of base salary for each full year of service with the Company, up to a total of 18 months.
Upon a change of control, the term of the CFO Employment Agreement would be extended for 24 months from the effective date of such change of control and if, within such period, Ms. Dolan terminated her employment for “COC good reason” or if the Company terminated her employment other than for “cause,” she would receive: (i) 2 times the sum of (a) her base salary and (b) her average gross bonus earned over the previous 5 years; (ii) 24 months’ continuation of fringe benefits; and (iii) all of her unvested restricted shares would immediately vest.
Ms. Dolan does not have any family relationships with any of the Company’s directors or executive officers and is not a party to any transactions listed in Item 404(a) of Regulation S-K. The foregoing description is qualified by reference to the full text of the CFO Employment Agreement, which will be filed as an exhibit to the Company’s Form 10-Q for the fiscal quarter ending March 31, 2018.
Forward-Looking Statements
This Annual Report on Form 10-K for the period ended December 31, 2017,2020, as well as the Company's other public documents and statements, may contain forward-looking statements that involve risks and uncertainties, which are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on the beliefs, expectations, estimates, projections, assumptions, forecasts, plans, anticipations, targets, outlooks, initiatives, visions, objectives, strategies, opportunities, drivers, focus and intents of the Company’sCompany's management. While the Company believes that its estimates and assumptions are reasonable, the Company cautions that it is very difficult to predict the impact of known and unknown factors, and, of course, it is impossible for the Company to anticipate all factors that could affect its results. The Company's actual results may differ materially from those discussed in such forward-looking statements. Such statements include, without limitation, the Company's expectations, plans and estimates (whether qualitative or quantitative) as to:
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(i) | the Company's future financial performance and/or sales growth; |
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(ii) | the effect on sales of decreased consumer spending in response to weak economic conditions or weakness in the consumption of beauty care products in one or more of the Company's segments; adverse changes in foreign currency exchange rates, foreign currency controls and/or government-mandated pricing controls; decreased sales of the Company’s products as a result of increased competitive activities by the Company’s competitors and/or decreased performance by third-party suppliers, changes in consumer purchasing habits, including with respect to retailer preferences and/or among sales channels, such as due to the continuing consumption declines in core beauty categories in the mass retail channel in North America; inventory management by the Company's customers; inventory de-stocking by certain retail customers; space reconfigurations or reductions in display space by the Company's customers; store closures in the brick-and-mortar channels where the Company sells its products, as consumers continue to shift purchases to online and e-commerce channels; changes in pricing, marketing, advertising and/or promotional strategies by the Company's customers; less than anticipated results from the Company’s existing or new products or from its advertising, promotional, pricing and/or marketing plans; or if the Company’s expenses, including, without limitation, for pension expense under its benefit plans, acquisition and acquisition-related integration costs, capital expenditures, costs related to the Company’s synergy and integration programs in connection with the Elizabeth Arden Acquisition, restructuring and severance costs, costs related to litigation, advertising, promotional and marketing activities, or for sales returns related to any reduction of space by the Company's customers, product discontinuances or otherwise, exceed the anticipated level of expenses; |
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(iii) | the Company's belief that continuing to execute its business initiatives could include taking advantage of additional opportunities to reposition, repackage or reformulate one or more brands or product lines, launching additional new products, acquiring businesses or brands (including through licensing transactions, if any), divesting or discontinuing non-core business lines (which may include exiting certain territories), further refining its approach to retail merchandising and/or taking further actions to optimize its manufacturing, sourcing and organizational size and structure, including optimizing the Colomer Acquisition, the Cutex Acquisitions and/or the Elizabeth Arden Acquisition, any of which, the intended purpose would be to create value through improving the Company's financial performance, could result in the Company making investments and/or recognizing charges related to executing against such opportunities, which activities may be funded with cash on hand, funds available under the 2016 Revolving Credit Facility and/or other permitted additional sources of capital, which actions could increase the Company’s total debt; |
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(iv) | certain beliefs and expectations regarding actions that the Company is pursuing to enhance and accelerate its e-commerce and social media penetration, such as the following: (a) the Company’s belief that changes in consumer shopping patterns for beauty products in which consumers have continued to increasingly engage with beauty brands through e-commerce and other social media channels have resulted in slower retail traffic in brick-and-mortar stores in the mass retail channel in North America, which has resulted in continuing declines in the brick-and-mortar retail channel, including store closures; (b) the Company’s expectation that, to address the pace and impact of this new commercial landscape, the Company’s shifting of its brand marketing spend toward facilitating increased penetration of e-commerce and social media channels and its focus on (1) developing and implementing effective content to enhance its online retail position; (2) improving its consumer engagement across social media platforms; and (3) transforming its technology and data to support efficient management of its digital infrastructure; |
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(v) | the effect of restructuring activities, restructuring costs and charges, the timing of restructuring payments and the benefits from such activities, including, without limitation: in connection with implementing the EA Integration Restructuring Program: (1) consolidating offices, eliminating certain duplicative activities and streamlining back-office support (which are designed to reduce the Company’s SG&A expenses) and (2) recognizing approximately $90 million to $95 million of the EA Integration Restructuring Charges (all of which are expected to be cash payments), consisting of: (i) approximately $65 million to $70 million of employee-related costs, including severance, retention and other contractual termination benefits; (ii) approximately $15 million of lease termination costs; and (iii) approximately $10 million of other related charges; |
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(vi) | the Company’s expectation that operating revenues, cash on hand and funds available for borrowing under Products Corporation's 2016 Revolving Credit Facility and other permitted lines of credit will be sufficient to enable the Company to cover its operating expenses for 2018, including the cash requirements referred to in item (viii) below, and the Company's beliefs that (a) the cash generated by its operations, cash on hand, availability under the 2016 Revolving Credit Facility and other permitted lines of credit should be sufficient to meet its liquidity needs for at least the next 12 months from the issuance date of this Form 10-K, (b) the cash generated by its domestic operations, cash on hand, availability under the 2016 Revolving Credit Facility and other permitted lines of credit, as well as the option to further settle intercompany loans and payables with certain foreign subsidiaries, should be sufficient to meet its domestic liquidity needs for at least the next 12 months and (c) restrictions and/or taxes on repatriation of foreign earnings will not have a material effect on the Company's liquidity during such period; |
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(vii) | the Company’s expected principal sources of funds, including operating revenues, cash on hand and funds available for borrowing under Products Corporation's 2016 Revolving Credit Facility and other permitted lines of credit, as well as the availability of funds from the Company taking certain measures, including, among other things, reducing discretionary spending; |
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(viii) | the Company's expected principal uses of funds, including amounts required for the payment of operating expenses, including expenses incurred in connection with continuing to execute the Company’s business initiatives; payments in connection with the Company’s synergy and integration programs related to the Elizabeth Arden Acquisition (including, without limitation, for the EA Integration Restructuring Program); payments in connection with the Company's purchases of permanent wall displays; capital expenditure requirements; debt service payments and costs; cash tax payments; pension and other post-retirement benefit plan contributions; payments in connection with the Company's restructuring programs; business and/or brand acquisitions (including, without limitation, through licensing transactions, if any); severance not otherwise included in the Company’s restructuring programs; debt and/or equity repurchases, if any; costs related to litigation; and payments in connection with discontinuing non-core business lines and/or exiting and/or entering certain territories and/or channels of trade (including, without limitation, that the Company may also, from time-to-time, seek to retire or purchase its outstanding debt obligations and/or equity in open market purchases, block trades, privately negotiated purchase transactions or otherwise and may seek to refinance some or all of its indebtedness based upon market conditions and that any such retirement or purchase of debt and/or equity may be funded with operating cash flows of the business or other sources and will depend upon prevailing market conditions, liquidity requirements, contractual restrictions and other factors, and the amounts involved may be material); and its estimates of the amount and timing of such operating and other expenses; |
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(ix) | matters concerning the Company's market-risk sensitive instruments, including that any risk of loss under its derivative instruments arising from any non-performance by any of the counterparties is remote; |
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(x) | the Company's expectation to efficiently manage its working capital, including, among other things, initiatives intended to optimize inventory levels over time; centralized procurement to secure discounts and efficiencies; prudent management of trade receivables and accounts payable; the effects of service level disruptions to the Company’s manufacturing operations as a result of the launch of its new ERP system and actions that the Company is taking to implement a service recovery plan; and controls on general and administrative spending and the Company’s belief that in the ordinary course of business, its source or use of cash from operating activities may vary on a quarterly basis as a result of a number of factors, including the timing of working capital flows; |
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(xi) | the Company’s expectations regarding its future net periodic benefit cost for its U.S. and international defined benefit plans; |
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(xii) | the Company's expectation that its tax provision and effective tax rate in any individual quarter and year-to-date period will vary and may not be indicative of the Company's tax provision and effective tax rate for the full year and, with respect to the Tax Act, the Company’s expectation that it will not have a transition tax liability due to its deficit in foreign earnings, that the Tax Act’s limitation on interest deductibility will not impact the Company’s 2018 federal cash taxes due to its net operating loss carryover balance, and that the Tax Act will not have a material impact on its cash taxes or liquidity in 2018; |
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(xiii) | the Company's belief that the allegations contained in the Third Consolidated Amended Class Action Complaint are without merit and its plans to continue to vigorously defend against them and its belief that the outcome of all pending legal proceedings in the aggregate is not reasonably likely to have a material adverse effect on the Company’s business, prospects, results of operations, financial condition and/or cash flows, but that in light of the uncertainties involved in legal proceedings generally, the ultimate outcome of a particular matter could be material to the Company’s operating results for a particular period depending on, among other things, the size of the loss or the nature of the liability imposed and the level of the Company’s income for that particular period; |
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(xiv) | certain estimates used by management in estimating the fair value of the assets acquired in the Elizabeth Arden Acquisition and in valuing other assets and liabilities; and |
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(xv) | the Company's expected benefits and other impacts from the Elizabeth Arden Acquisition. |
(i)the Company's future financial performance and/or sales growth;
(ii)the effect on sales of decreased consumer spending in response to weak economic conditions or weakness in the consumption of beauty products in one or more of the Company's segments, whether due to COVID-19 or otherwise; adverse changes in tariffs, foreign currency exchange rates, foreign currency controls and/or government-mandated pricing controls; decreased sales of the Company's products as a result of increased competitive activities by the Company's competitors and/or decreased performance by third-party suppliers, whether due to shortages of raw materials or otherwise, changes in consumer purchasing habits, including with respect to retailer preferences and/or among sales channels, such as due to the continuing consumption declines in core beauty categories in the mass retail channel in North America; inventory management by the Company's customers; inventory de-stocking by certain retail customers; space reconfigurations or reductions in display space by the Company's customers; retail store closures in the brick-and-mortar channels where the Company sells its products, as consumers continue to shift purchases to online and e-commerce channels; changes in pricing, marketing, advertising and/or promotional strategies by the Company's customers; less than anticipated results from the Company's existing or new products or from its advertising, promotional, pricing and/or marketing plans; or if the Company's expenses, including, without limitation, for the purchase of permanent displays, capital expenditures, debt service payments and costs, cash tax payments, pension and other post-retirement plan contributions, payments in connection with the Company's restructuring programs (such as the 2018 Optimization Program and the Revlon 2020 Restructuring Program), severance not otherwise included in the Company's restructuring programs, business and/or brand acquisitions (including, without limitation, through licensing transactions), if any, additional debt and/or equity repurchases, if any, costs related to litigation, discontinuing non-core business lines and/or entering and/or exiting certain territories and/or channels of trade, advertising, promotional and marketing activities or for sales returns related to any reduction of space by the Company's customers, product discontinuances or otherwise, exceed the anticipated level of expenses;
(iii)the Company's belief that continuing to execute its business initiatives could include taking advantage of additional opportunities to reposition, repackage or reformulate one or more brands or product lines, launching additional new products, acquiring businesses or brands (including through licensing transactions, if any), divesting or discontinuing non-core business lines (which may include exiting certain territories), further refining its approach to retail merchandising and/or taking further actions to optimize its manufacturing, sourcing and organizational size and structure, any of which, the intended purpose would be to create value through improving the Company's financial performance, could result in the Company making investments and/or recognizing charges related to executing against such opportunities, which activities may be funded with operating revenues, cash on hand, funds available under the Amended 2016 Revolving Credit Facility, the 2020 Restated Line of Credit Facility, other permissible borrowings and/or other permitted additional sources of capital, which actions could increase the Company's total debt;
(iv)the Company's plans to remain focused on its 3 key strategic pillars to drive its future success and growth, including (1) strengthening its iconic brands through innovation and relevant product portfolios; (2) building its capabilities to better communicate and connect with its consumers through media channels where they spend the most time; and (3) ensuring availability of its products where consumers shop, both in-store and increasingly online;
(v)the effect of restructuring activities, restructuring costs and charges, the timing of restructuring payments and the benefits from such activities, including, without limitation: (1) the Company’s plans to implement the Revlon 2020 Restructuring Program; including its expectation and belief that the Revlon 2020 Restructuring Program will reduce the Company’s selling, general and administrative expenses, as well as cost of goods sold, improve the Company’s gross profit and Adjusted EBITDA and maximize productivity, cash flow and liquidity, as well as
rightsizing the organization and operating with more efficient workflows and processes and that the leaner organizational structure will improve communication flow and cross-functional collaboration, leveraging the more efficient business processes; (2) the Company’s expectation that the Revlon 2020 Restructuring Program will result in the elimination of approximately 975 positions worldwide including approximately 625 current employees and approximately 350 open positions; (3) the Company substantially completed the employee-related actions in 2020 and expects to complete the other consolidation and outsourcing actions during 2021 and 2022; (4) the Company’s expectations regarding the amount and timing of the 2020 Restructuring Charges and payments related to the Revlon 2020 Restructuring Program, including that: (a) it recognized during 2020 $68.8 million of total pre-tax restructuring and related charges and in addition restructuring charges in the range of $75 million to $85 million to be charged and paid during 2021 and 2022; and (b) substantially all of the 2020 Restructuring Charges will be paid in cash, with $51.5 million of the total charges paid in 2020, approximately $40 million to $45 million expected to be paid in 2021, with the balance expected to be paid in 2022; and (5) the Company’s expectations that as a result of the Revlon 2020 Restructuring Program, the Company will deliver in the range of $200 million to $230 million of annualized cost reductions from 2020 through the end of 2022, with approximately 50% of these annualized cost reductions to be realized from the headcount reductions occurring in 2020;
(vi)the Company's expectation that operating revenues, cash on hand and funds that may be available from time to time for borrowing under the Amended 2016 Revolving Credit Facility, the 2020 Restated Line of Credit Facility, and other permissible borrowings will be sufficient to enable the Company to cover its operating expenses for 2020, including the cash requirements referred to in item (viii) below, and the Company's belief that (a) it has and will have sufficient liquidity to meet its cash needs for at least the next 12 months based upon the cash generated by its operations, cash on hand, availability under the Amended 2016 Revolving Credit Facility, the 2020 Restated Line of Credit Facility, and other permissible borrowings, along with the option to further settle intercompany loans and payables with certain foreign subsidiaries, and that such cash resources will be further enhanced as the Company implements its Revlon 2020 Restructuring Program and cost reductions generated from other cost control initiatives, as well as funds provided by selling certain assets in connection with the Company's ongoing Strategic Review, and (b) restrictions and/or taxes on repatriation of foreign earnings will not have a material effect on the Company's liquidity during such period;
(vii)the Company's expected principal sources of funds, including operating revenues, cash on hand and funds available for borrowing under the Amended 2016 Revolving Credit Facility, the 2020 Restated Line of Credit Facility and other permissible borrowings, as well as the availability of funds from the Company taking certain measures, including, among other things, reducing discretionary spending and the Company's expectation to generate additional liquidity from cost reductions resulting from the implementation of the Revlon 2020 Restructuring Program and from other cost reduction initiatives, as well as funds provided by selling certain assets in connection with the Company's ongoing Strategic Review;
(viii)the Company's expected principal uses of funds, including amounts required for payment of operating expenses including in connection with the purchase of permanent wall displays; capital expenditure requirements; debt service payments and costs; cash tax payments; pension and other post-retirement benefit plan contributions; payments in connection with the Company's restructuring programs, such as the 2018 Optimization Program and the Revlon 2020 Restructuring Program; severance not otherwise included in the Company's restructuring programs; business and/or brand acquisitions (including, without limitation, through licensing transactions), if any; debt and/or equity repurchases, if any; costs related to litigation; and payments in connection with discontinuing non-core business lines and/or exiting and/or entering certain territories and/or channels of trade (including, without limitation, that the Company may also, from time-to-time, seek to retire or purchase its outstanding debt obligations and/or equity in open market purchases, block trades, privately negotiated purchase transactions or otherwise and may seek to refinance some or all of its indebtedness based upon market conditions and that any such retirement or purchase of debt and/or equity may be funded with operating cash flows of the business or other sources and will depend upon prevailing market conditions, liquidity requirements, contractual restrictions and other factors, and the amounts involved may be material); and its estimates of the amount and timing of such operating and other expenses;
(ix)matters concerning the impact on the Company from changes in interest rates and foreign exchange rates;
(x)the Company's expectation to efficiently manage its working capital, including, among other things, initiatives intended to optimize inventory levels over time; centralized procurement to secure discounts and efficiencies; prudent management of trade receivables, accounts payable and controls on general and administrative spending; and the Company's belief that in the ordinary course of business, its source or use of cash from operating activities may vary on a quarterly basis as a result of a number of factors, including the timing of working capital flows;
(xi)the Company's expectations regarding its future net periodic benefit cost for its U.S. and international defined benefit plans;
(xii)the Company's expectation that its tax provision and effective tax rate in any individual quarter and year-to-date period will vary and may not be indicative of the Company's tax provision and effective tax rate for the full year and the Company's expectations regarding whether it will be required to establish additional valuation allowances on its deferred tax assets;
(xiii)the Company's belief that the outcome of all pending legal proceedings in the aggregate is not reasonably likely to have a material adverse effect on the Company's business, prospects, results of operations, financial condition and/or cash flows, but that in light of the uncertainties involved in legal proceedings generally, the ultimate outcome of a particular matter could be material to the Company's operating results for a particular period depending on, among other things, the size of the loss or the nature of the liability imposed and the level of the Company's income for that particular period; and
(xiv)the Company's plans to explore certain strategic transactions pursuant to the Strategic Review.
Statements that are not historical facts, including statements about the Company's beliefs and expectations, are forward-looking statements. Forward-looking statements can be identified by, among other things, the use of forward-looking language such as "estimates," "objectives," "visions," "projects," "forecasts," "focus," "drive towards," "plans," "targets," "strategies," "opportunities," "assumptions," "drivers," "believes," "intends," "outlooks," "initiatives," "expects," "scheduled to," "anticipates," "seeks," "may," "will" or "should" or the negative of those terms, or other variations of those terms or comparable language, or by discussions of strategies, targets, long-range plans, models or intentions. Forward-looking statements speak only as of the date they are made, and except for the Company's ongoing obligations under the U.S. federal securities laws, the Company undertakes no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.
Investors are advised, however, to consult any additional disclosures the Company made or may make in its 2017the Company's 2020 Form 10-K and in its Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, in each case filed with the SEC in 20182021 and 20172020 (which, among other places, can be found on the SEC's website at http://www.sec.gov, as well as on the Company's corporate website at www.revloninc.com). Except as expressly set forth in this 2020 Form 10-K, the information available from time-to-time on such websites shall not be deemed incorporated by reference into this 2020 Form 10-K. A number of important factors could cause actual results to differ materially from those contained in any forward-looking statement. (See also Item 1A. "Risk Factors" in this 2020 Form 10-K for further discussion of risks associated with the Company's business). In addition to factors that may be described in the Company's filings with the SEC, including this filing, the 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:
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(i) | unanticipated circumstances or results affecting the Company's financial performance and or sales growth, including decreased consumer spending in response to weak economic conditions or weakness in the consumption of beauty care products in one or more of the Company's segments; adverse changes in foreign currency exchange rates, foreign currency controls and/or government-mandated pricing controls; decreased sales of the Company's products as a result of increased competitive activities by the Company's competitors, decreased performance by third-party suppliers and/or supply disruptions at the Company’s manufacturing facilities; changes in consumer preferences, such as reduced consumer demand for the Company's color cosmetics and other current products, including new product launches; changes in consumer purchasing habits, including with respect to retailer preferences and/or among sales channels, such as due to the continuing consumption declines in core beauty categories in the mass retail channel in North America; lower than expected customer acceptance or consumer acceptance of, or less than anticipated results from, the Company’s existing or new products; higher than expected store closures in the brick-and-mortar channels where the Company sells its products, as consumers continue to shift purchases to online and e-commerce channels; higher than expected restructuring or severance costs, acquisition costs and/or acquisition-related integration costs and capital expenditures, including, without limitation, synergy and integration program costs and expenses related to the Elizabeth Arden Acquisition; higher than expected pension expense and/or cash contributions under its benefit plans, costs related to litigation, advertising, promotional and/or marketing expenses or lower than expected results from the Company’s advertising, promotional, pricing and/or marketing plans; higher than expected sales returns related to any reduction of space by the Company's customers, product discontinuances or otherwise or decreased sales of the Company’s existing or new products; actions by the Company’s customers, such as greater than expected inventory management and/or de-stocking, and greater than anticipated space reconfigurations or reductions in display space and/or product discontinuances or a greater than expected impact from pricing, marketing, advertising and/or promotional strategies by the Company's customers; and changes in the competitive environment and actions by the Company's competitors, including, among other things, business combinations, technological breakthroughs, implementation of new pricing strategies, new product offerings, increased advertising, promotional and marketing spending and advertising, promotional and/or marketing successes by competitors; |
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(ii) | in addition to the items discussed in (i) above, the effects of and changes in economic conditions (such as volatility in the financial markets, inflation, monetary conditions and foreign currency fluctuations, foreign currency controls and/or government-mandated pricing controls, as well as in trade, monetary, fiscal and tax policies in international markets) and political conditions (such as military actions and terrorist activities); |
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(iii) | unanticipated costs or difficulties or delays in completing projects associated with continuing to execute the Company’s business initiatives or lower than expected revenues or the inability to create value through improving our financial performance as a result of such initiatives, including lower than expected sales, or higher than expected costs, including as may arise from any additional repositioning, repackaging or reformulating of one or more brands or product lines, launching of new product lines, including higher than expected expenses, including for sales returns, for launching its new products, acquiring businesses or brands (including through licensing transactions, if any), divesting or discontinuing non-core business lines (which may include exiting certain territories or converting the Company's go-to-trade structure in certain countries to other business models), further refining its approach to retail merchandising and/or difficulties, delays or increased costs in connection with taking further actions to optimize the Company’s manufacturing, sourcing, supply chain or organizational size and structure, including optimizing the Colomer Acquisition, the Cutex Acquisitions and/or the Elizabeth Arden Acquisition (including difficulties or delays in and/or the Company’s inability to optimally integrate the Elizabeth Arden business which could result in less than expected synergies and/or cost reductions, more than expected costs to achieve the expected synergies and/or cost reductions or delays in achieving the expected synergies and/or cost reductions and/or less than expected benefits from the EA Integration Restructuring Program, more than expected costs in implementing such program and/or difficulties or delays, in whole or in part, in executing the EA Integration Restructuring Program), as well as the unavailability of cash generated by operations, cash on hand and/or funds under the 2016 Revolving Credit Facility or from other permitted additional sources of capital to fund such potential activities; |
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(iv) | difficulties, delays in or less than expected results from the Company’s efforts to enhance and accelerate its e-commerce and social media penetration, such as: (a) greater than anticipated levels of consumers choosing to purchase their beauty products through e-commerce and other social media channels and/or greater than anticipated declines in the brick-and-mortar retail channel, or either of those conditions occurring at a rate faster than anticipated; (b) the Company’s inability to address the pace and impact of this new commercial landscape, such as its inability to enhance its e-commerce and social media capabilities and/or increase its penetration of e-commerce and social media channels; (c) the Company’s inability to drive a successful long-term omni-channel strategy and significantly increase its e-commerce penetration; (d) difficulties, delays and/or the Company's inability to (in whole or in part): (1) develop and implement effective content to enhance its online retail position; (2) improve its consumer engagement across social media platforms; and/or (3) transform its technology and data to support efficient management of its digital infrastructure; and/or (e) the Company incurring greater than anticipated levels of expenses and/or debt to facilitate the foregoing objectives, which could result in, among other things, less than anticipated revenues and/or profitability; |
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(v) | difficulties, delays or unanticipated costs or charges or less than expected cost reductions and other benefits resulting from the Company's restructuring activities, such as (a) difficulties, delays or the inability of the Company to successfully complete the EA Integration Restructuring Program, in whole or in part, which could result in less than expected operating and financial benefits from such actions; (b) difficulties, delays or the inability of the Company to realize, in whole or in part, the anticipated benefits from the EA Integration Restructuring Program, such as difficulties with, delays in or the Company’s inability to generate certain reductions in its SG&A and/or eliminate certain positions; (c) delays in completing the EA Integration Restructuring Program, which could reduce the benefits realized from such activities; (d) higher than anticipated restructuring charges and/or payments in connection with completing the EA Integration Restructuring Program and/or changes in the expected timing of such charges and/or payments; and/or (e) greater than anticipated costs or charges or less than anticipated cost reductions or other benefits from the EA Integration Restructuring Program; and/or (g) the risk that such program may not satisfy the Company’s objectives; |
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(vi) | lower than expected operating revenues, cash on hand and/or funds available under the 2016 Revolving Credit Facility and/or other permitted lines of credit or higher than anticipated operating expenses, such as referred to in clause (viii) below, and/or less than anticipated cash generated by the Company's domestic operations or unanticipated restrictions or taxes on repatriation of foreign earnings; |
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(vii) | the unavailability of funds under Products Corporation's 2016 Revolving Credit Facility or other permitted lines of credit; or from difficulties, delays in or the Company's inability to take other measures, such as reducing discretionary spending; |
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(viii) | higher than expected operating expenses, sales returns, working capital expenses, integration and/or synergy costs related to the Elizabeth Arden Acquisition, permanent wall display costs, capital expenditures, debt service payments, cash tax payments, cash pension plan contributions, other post-retirement benefit plan contributions and/or net periodic benefit costs for the pension and other post-retirement benefit plans, restructuring costs, (including, without limitation, in connection with implementing the EA Integration Restructuring Program), severance and discontinued operations not otherwise included in the Company’s restructuring programs, debt and/or equity repurchases, costs related to litigation and/or payments in connection with business and/or brand acquisitions (including, without limitation, through licensing transactions, if any), and discontinuing non-core business lines and/or exiting and/or entering certain territories and/or channels of trade; |
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(ix) | interest rate or foreign exchange rate changes affecting the Company and its market-risk sensitive financial instruments and/or difficulties, delays or the inability of the counterparty to perform such transactions; |
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(x) | difficulties, delays or the inability of the Company to efficiently manage its cash and working capital; |
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(xi) | lower than expected returns on pension plan assets and/or lower discount rates, which could result in higher than expected cash contributions, higher net periodic benefit costs and/or less than expected net periodic benefit income; |
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(xii) | unexpected significant variances in the Company's tax provision, effective tax rate and/or unrecognized tax benefits, whether due to the enactment of the Tax Act or otherwise, such as due to the issuance of unfavorable guidance, interpretations, technical clarifications and/or technical corrections legislation by the U.S. Congress, the U.S. Treasury Department or the IRS, unexpected changes in foreign, state or local tax regimes in response to the Tax Act, and/or changes in estimates that may impact the calculation of the Company's tax provisions; |
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(xiii) | unanticipated adverse effects on the Company’s business, prospects, results of operations, financial condition and/or cash flows as a result of unexpected developments with respect to the Company's legal proceedings; |
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(xiv) | changes in the fair values of the assets acquired in the Elizabeth Arden Acquisition due to, among other things, unanticipated future performance of the acquired licenses and/or other brands; and/or |
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(xv) | difficulties with, delays in and/or the Company’s inability to achieve, in whole or in part, or within the expected timeframe the expected benefits from the Elizabeth Arden Acquisition, such as (a) the Company’s or the Elizabeth Arden’s respective businesses experiencing disruptions due to management’s focus on executing the business integration activities and/or due to employee uncertainty during the integration transition period or other factors making it more difficult to maintain relationships with customers, suppliers, employees and other business partners; (b) the Company being unable to successfully implement, in whole or in part, its integration strategies, including the possibility that the expected synergies and cost reductions from the Elizabeth Arden Acquisition will not be realized or will not be realized within the expected time period. |
(i)unanticipated circumstances or results affecting the Company's financial performance and or sales growth, including: greater than anticipated levels of consumers choosing to purchase their beauty products through e-commerce and other social media channels and/or greater than anticipated declines in the brick-and-mortar retail channel, or either of those conditions occurring at a rate faster than anticipated; the Company's inability to address the pace and impact of the new commercial landscape, such as its inability to enhance its e-commerce and social media capabilities and/or increase its penetration of e-commerce and social media channels; the Company's inability to drive a successful long-term omni-channel strategy and significantly increase its e-commerce penetration; difficulties, delays and/or the Company's inability to (in whole or in part) develop and implement effective content to enhance its online retail position, improve its consumer engagement across social media platforms and/or transform its technology and data to support efficient management of its digital infrastructure; the Company incurring greater than anticipated levels of expenses and/or debt to facilitate the foregoing objectives, which could result in, among other things, less than anticipated revenues and/or profitability; decreased consumer spending in response to weak economic conditions or weakness in the consumption of beauty products in one or more of the Company's segments, whether attributable to COVID-19 or otherwise; adverse changes in tariffs, foreign currency exchange rates, foreign currency controls and/or government-mandated pricing controls; decreased sales of the Company's products as a result of increased competitive activities by the Company's competitors; decreased performance by third-party suppliers, whether due to COVID-19, shortages of raw materials or otherwise; and/or supply disruptions at the Company's manufacturing facilities, whether attributable to COVID-19 or otherwise; changes in consumer preferences, such as reduced consumer demand for the Company's color cosmetics and other current products, including new product launches; changes in consumer purchasing habits, including with respect to retailer preferences and/or among sales channels, such as due to the continuing consumption declines in core beauty categories in the mass retail channel in North America, whether attributable to COVID-19 or otherwise; lower than expected customer acceptance or consumer acceptance of, or less than anticipated results from, the Company's existing or new products, whether attributable to COVID-19 or otherwise; higher than expected retail store closures in the brick-and-mortar channels where the Company sells its products, as consumers continue to shift purchases to online and e-commerce channels, whether attributable to COVID-19 or otherwise; higher than expected purchases of permanent displays, capital expenditures, debt service payments and costs, cash tax payments, pension and other post-retirement plan contributions, payments in connection with the Company's restructuring programs (such as the 2018 Optimization Program and the Revlon 2020 Restructuring Program), severance not otherwise included in the Company's restructuring programs, business and/or brand acquisitions (including, without limitation, through licensing transactions), if any, debt and/or equity repurchases, if any, costs related to litigation, discontinuing non-core business lines and/or entering and/or exiting certain territories and/or channels of trade, advertising, promotional and marketing activities or for sales returns related to any reduction of space by the Company's customers, product discontinuances or otherwise or lower than expected results from the Company's advertising, promotional, pricing and/or marketing plans, whether attributable to COVID-19 or otherwise; decreased sales of the Company’s existing or new products, whether attributable to COVID-19 or otherwise; actions by the Company's customers, such as greater than expected inventory management and/or de-stocking, and greater than anticipated space reconfigurations or reductions in display space and/or product discontinuances or a greater than expected impact from pricing, marketing, advertising and/or promotional strategies by the Company's customers, whether attributable to COVID-19 or otherwise; and changes in the competitive environment and actions by the Company's competitors, including, among other things, business combinations, technological breakthroughs, implementation of new pricing strategies, new product offerings, increased advertising, promotional and marketing spending and advertising, promotional and/or marketing successes by competitors;
(ii)in addition to the items discussed in (i) above, the effects of and changes in economic conditions (such as volatility in the financial markets, whether attributable to COVID-19 or otherwise, inflation, increasing interest rates, monetary conditions and foreign currency fluctuations, tariffs, foreign currency controls and/or government-mandated pricing controls, as well as in trade, monetary, fiscal and tax policies in international markets), political conditions (such as military actions and terrorist activities) and natural disasters, such as the devastating fires in Australia and the earthquakes in Puerto Rico;
(iii)unanticipated costs or difficulties or delays in completing projects associated with continuing to execute the Company's business initiatives or lower than expected revenues or the inability to create value through improving the Company's financial performance as a result of such initiatives, including lower than expected sales, or higher than expected costs, including as may arise from any additional repositioning, repackaging or reformulating of one or more brands or product lines, launching of new product lines, including higher than expected expenses, including for sales returns, for launching its new products, acquiring businesses or brands (including through licensing transactions, if any), divesting or discontinuing non-core business lines (which may include exiting certain territories or converting the Company's go-to-trade structure in certain countries to other business models), further refining its approach to retail merchandising and/or difficulties, delays or increased costs in connection with taking further actions to optimize the Company's manufacturing, sourcing, supply chain or organizational size and structure (including difficulties or delays in and/or the Company's inability to optimally implement the 2018 Optimization Program and/or the Revlon 2020 Restructuring Program and/or less than expected benefits from such programs and/or more than expected costs in implementing such programs, which could cause the Company not to realize the projected cost reductions), as well as the unavailability of cash generated by operations, cash on hand and/or funds under the Amended 2016 Revolving Credit Facility, the 2020 Restated Line of Credit Facility and/or other permissible borrowings and/or from other permissible additional sources of capital to fund such potential activities, as well as the unavailability of funds due to potential mandatory repayment obligations under the 2018 Foreign Asset-Based Term Facility;
(iv)difficulties, delays in or less than expected results from the Company's efforts to execute on its 3 key strategic pillars to drive its future success and growth, including, without limitation: (1) less than effective new product development and innovation, less than expected acceptance of its new products and innovations by the Company's consumers and/or customers in one or more of its segments and/or less than expected levels of execution vis-à-vis its new product launches with its customers in one or more of its segments or regions, in each case whether attributable to COVID-19 or otherwise; (2) less than expected levels of advertising, promotional and/or marketing activities for its new product launches, less than expected acceptance of its advertising, promotional, pricing and/or marketing plans and/or brand communication by consumers and/or customers in one or more of its segments, less than expected investment in advertising, promotional and/or marketing activities or greater than expected competitive investment, in each case whether attributable to COVID-19 or otherwise; and/or (3) difficulties or disruptions impacting the Company's ability to ensure availability of its products where consumers shop, both in-store and increasingly online, including, without limitation, difficulties with, delays in or the inability to achieve the Company’s expected results, such as due to, among other things, the Company’s business experiencing greater than anticipated disruptions due to COVID-19 related uncertainty or other related factors making it more difficult to maintain relationships with employees, business partners or governmental entities and/or other unanticipated circumstances, trends or events affecting the Company’s financial performance, including decreased consumer spending in response to the COVID-19 pandemic and related conditions and restrictions, weaker than expected economic conditions due to the COVID-19 pandemic and its related restrictions and conditions continuing for periods longer than currently estimated or COVID-19 expanding into more territories than currently anticipated, or other weakness in the consumption of beauty-related products, lower than expected acceptance of the Company’s new products, adverse changes in foreign currency exchange rates, decreased sales of the Company’s products as a result of increased competitive activities by the Company’s competitors, the unavailability of one or more forms of additional credit in the current capital markets and/or decreased performance by third party suppliers;
(v)difficulties, delays or unanticipated costs or charges or less than expected cost reductions and other benefits resulting from the Company's restructuring activities, such as in connection with the 2018 Optimization Program and/or the Revlon 2020 Restructuring Program, higher than anticipated restructuring charges and/or payments and/or changes in the expected timing of such charges and/or payments; and/or less than expected additional sources of liquidity from such initiatives;
(vi)lower than expected operating revenues, cash on hand and/or funds available under the Amended 2016 Revolving Credit Facility, the 2020 Restated Line of Credit Facility and/or other permissible borrowings or generated from cost reductions resulting from the implementation of the Revlon 2020 Restructuring Program and the 2018 Optimization Program and/or other cost control initiatives, and/or from selling certain assets in connection with the Company's ongoing Strategic Review; higher than anticipated operating expenses, such as referred to in clause (viii) below; and/or less than anticipated cash generated by the Company's operations or unanticipated restrictions or taxes on repatriation of foreign earnings;
(vii)the unavailability of funds under the Amended 2016 Revolving Credit Facility, the 2020 Restated Line of Credit Facility and/or other permissible borrowings; the unavailability of funds under the 2018 Foreign Asset-Based Term Facility, such as due to reductions in the applicable borrowing base that could require certain mandatory prepayments; the unavailability of funds from difficulties, delays in or the Company's inability to take other
measures, such as reducing discretionary spending and/or less than expected liquidity from cost reductions resulting from the implementation of the Revlon 2020 Restructuring Program and the 2018 Optimization Program and from other cost reduction initiatives, and/or from selling certain assets in connection with the Company's ongoing Strategic Review;
(viii)higher than expected operating expenses, such as higher than expected purchases of permanent displays, capital expenditures, debt service payments and costs, cash tax payments, pension and other post-retirement plan contributions, payments in connection with the Company's restructuring programs (such as the 2018 Optimization Program and/or the Revlon 2020 Restructuring Program), severance not otherwise included in the Company's restructuring programs, business and/or brand acquisitions (including, without limitation, through licensing transactions), if any, additional debt and/or equity repurchases, if any, costs related to litigation, discontinuing non-core business lines and/or entering and/or exiting certain territories and/or channels of trade, advertising, promotional and marketing activities or for sales returns related to any reduction of space by the Company's customers, product discontinuances or otherwise;
(ix)unexpected significant impacts on the Company from changes in interest rates or foreign exchange rates;
(x)difficulties, delays or the inability of the Company to efficiently manage its cash and working capital;
(xi)lower than expected returns on pension plan assets and/or lower discount rates, which could result in higher than expected cash contributions, higher net periodic benefit costs and/or less than expected net periodic benefit income;
(xii)unexpected significant variances in the Company's tax provision, effective tax rate and/or unrecognized tax benefits, whether due to the enactment of the Tax Act or otherwise, such as due to the issuance of unfavorable guidance, interpretations, technical clarifications and/or technical corrections legislation by the U.S. Congress, the U.S. Treasury Department or the IRS, unexpected changes in foreign, state or local tax regimes in response to the Tax Act, and/or changes in estimates that may impact the calculation of the Company's tax provisions, as well as changes in circumstances that could adversely impact the Company's expectations regarding the establishment of additional valuation allowances on its deferred tax assets;
(xiii)unanticipated adverse effects on the Company's business, prospects, results of operations, financial condition and/or cash flows as a result of unexpected developments with respect to the Company's legal proceedings; and/or
(xiv)difficulties or delays that could affect the Company's ability to consummate one or more transactions pursuant to the Strategic Review, such as due to the Company's respective businesses experiencing disruptions due to transaction-related uncertainty or other factors.
Factors other than those listed above could also cause the Company's results to differ materially from expected results. This discussion is provided pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
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REVLON, INC. AND SUBSIDIARIES
PART III
Item 10. Directors, Executive Officers and Corporate Governance
A list of Revlon's directors and executive officers and biographical information and other information about them may be found under the caption "Proposal No. 1 - Election of Directors" and "Executive Officers," of Revlon's Proxy Statement for the 20182021 Annual Stockholders' Meeting (the "2018"2021 Proxy Statement"), which sections are incorporated by reference herein.
The information set forth under the caption "Code of Conduct and Business ConductEthics and Senior Financial Officer Code of Ethics" in the 20182021 Proxy Statement is also incorporated herein by reference.
The information set forth under the caption "Section"Delinquent Section 16(a) Beneficial Ownership Reporting Compliance"Reports" in the 20182021 Proxy Statement is also incorporated herein by reference.
The information set forth under the captions "Compensation Discussion and Analysis," "Executive Compensation," "Summary Compensation Table," "Grants of Plan-Based Awards," "Outstanding Equity Awards at Fiscal Year-End," "Option Exercises and Stock Vested," "Pension Benefits," "Non-Qualified Deferred Compensation" and "Director Compensation" in the 20182021 Proxy Statement is also incorporated herein by reference.
Information regarding the Company's director nomination process, audit committee and audit committee financial expert matters may be found in the 20182021 Proxy Statement under the captions "Corporate Governance-Board of Directors and its Committees-Director Nominating Processes; Diversity" and "Corporate Governance-Board of Directors and its Committees-Audit Committee-Composition of the Audit Committee," respectively. That information is incorporated herein by reference.
Item 11. Executive Compensation
The information set forth under the captions "Compensation Discussion and Analysis," "CEO Pay Ratio," "Executive Compensation," "Summary Compensation Table," "Grants of Plan-Based Awards," "Outstanding Equity Awards at Fiscal Year-End," "Option Exercises and Stock Vested," "Pension Benefits," "Non-Qualified Deferred Compensation" and "Director Compensation" in the 20182021 Proxy Statement is incorporated herein by reference. The information set forth under the caption "Corporate Governance-Board of Directors and its Committees-Compensation Committee-Composition of the Compensation Committee" and "Compensation Committee Report" in the 20182021 Proxy Statement is also incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information set forth under the captions "Security Ownership of Certain Beneficial Owners and Management" and "Equity Compensation Plan Information" in the 20182021 Proxy Statement is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information set forth under the captions "Certain Relationships and Related Transactions" and "Corporate Governance-Board of Directors and its Committees-Controlled Company Exemption" and "Corporate Governance-Board of Directors and its Committees-Audit Committee-Composition of the Audit Committee," respectively, in the 20182021 Proxy Statement is incorporated herein by reference.
Item 14. Principal Accounting Fees and Services
Information concerning principal accountantAUDIT FEES
Revlon’s Board of Directors maintains an Audit Committee in accordance with applicable SEC rules and the NYSE's listing standards. In accordance with the Audit Committee’s charter, a printable and current copy of which is available at www.revloninc.com, the Audit Committee is directly responsible for the appointment, compensation, retention and oversight of the audit work of the Company's independent auditors for the purpose of preparing and issuing its audit reports or performing other audit, review or attest services for the Company. The independent auditors, KPMG, report directly to the Audit Committee and the Audit Committee is directly responsible for, among other things, reviewing in advance, and granting any appropriate pre-approvals of: (a) all auditing services to be provided by the independent auditor; and (b) all non-audit services to be provided by the independent auditor (as permitted by the Exchange Act), and in connection with such services to approve all fees and other terms of engagement, as required by the applicable rules under the Exchange Act and subject to the exemptions provided for in such rules. The Company maintains and updates annually an Audit Committee Pre-Approval Policy for pre-approving all permissible audit and non-audit services performed by KPMG. During 2020, an electronic printable copy of the 2020 Audit Committee Pre-Approval Policy was available at www.revloninc.com. A copy of the 2021 Audit Committee Pre-Approval Policy is attached to this 2020 Form 10-K as an exhibit and an electronic printable copy of such policy is currently available at www.revloninc.com. The Audit Committee also has the authority to approve services to be provided by KPMG at its meetings and by unanimous written consents.
The aggregate fees incurred for professional services by KPMG in 2020 and 2019 for these various services for the Company in the aggregate are set forth under the caption "Audit Fees" in the 2018 Proxy Statement is incorporated hereintable, below:
| | | | | | | | | | | | | | |
| Types of Fees (USD in millions) | | 2020 | | 2019 |
| Audit Fees | | $8.1 | | $10.6 |
| Audit-Related Fees | | 0.5 | | 0.4 |
| Tax Fees | | 1.6 | | 0.5 |
| | | | |
| Total Fees | | $10.2 | | $11.5 |
| | | | |
In the above table, in accordance with the SEC definitions and rules: (a) “audit fees” are fees the Company paid KPMG for professional services rendered for: (i) the audits of the Company's annual financial statements and the effectiveness of Revlon’s internal control over financial reporting; and (ii) the review of the financial statements included in the Company's Quarterly Reports on Form 10-Q, and for services that are normally provided by reference.the auditor in connection with statutory and regulatory filings or engagements; (b) “audit-related fees” are fees billed by KPMG for assurance and related services that are traditionally performed by the auditor, including services performed by KPMG related to employee benefit plan audits and certain transactions, as well as attestation services not required by statute or regulation; (c) “tax fees” are fees for permissible tax compliance, tax advice and tax planning; and (d) “all other fees” are fees billed by KPMG to the Company for any permissible services not included in the first three categories.
All of the services performed by KPMG for the Company during 2020 and 2019 were either expressly pre-approved by the Audit Committee or were pre-approved in accordance with the Audit Committee Pre-Approval Policy, and the Audit Committee was provided with regular updates as to the nature of such services and fees paid for such services.
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REVLON, INC. AND SUBSIDIARIES
Website Availability of Reports, Corporate Governance Information and Other Financial Information
The Company maintains a comprehensive corporate governance program, including Corporate Governance Guidelines for Revlon’s Board of Directors, Revlon’s Board Guidelines for Assessing Director Independence and charters for Revlon’s Audit Committee and Compensation Committee. Revlon maintains a corporate investor relations website, www.revloninc.com, where stockholders and other interested persons may review, without charge, among other things, Revlon's corporate governance materials and certain SEC filings (such as Revlon's annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements, annual reports, Section 16 reports reflecting certain changes in the stock ownership of Revlon’s directors
REVLON, INC. AND SUBSIDIARIES
and Section 16 officers, and certain other documents filed with the SEC), each of which are generally available on the same business day as the filing date with the SEC on the SEC’s website http://www.sec.gov. Products Corporation's SEC filings are also available on the SEC's website http://www.sec.gov. In addition, under the section of the website entitled, "Corporate Governance," Revlon posts printable copies of the latest versions of its Corporate Governance Guidelines, Board Guidelines for Assessing Director Independence and charters for Revlon's Audit Committee and Compensation Committee, as well as Revlon'sthe Company's Code of Conduct and Business Ethics, which includes Revlon'sthe Company's Code of Ethics for Senior Financial Officers, and the Audit Committee Pre-Approval Policy. From time-to-time, the Company may post on www.revloninc.com certain presentations that may include material information regarding its business, financial condition and/or results of operations. The business and financial materials and any other statement or disclosure on, or made available through, the websites referenced herein shall not be deemed incorporated by reference into this report.
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REVLON, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 15. Exhibits and Financial Statement SchedulesStatements
Exhibits
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| | | | |
| (a) | List of documents filed as part of this Report: |
| (1) Consolidated Financial Statements and Reports of Independent Registered Public Accounting Firm included herein: See Index on page F-1. |
| (2) Financial Statement Schedule:Statements: See Index on page F-1. |
| All other schedules are omitted as they are inapplicable or the required information is furnished in the Company’s Consolidated Financial Statements or the Notes thereto. |
| (3) List of Exhibits: |
| 2. | Plan of acquisition, reorganization, arrangement, liquidation or successionsuccession. |
| 2.1 | Share Sale and Purchase Agreement, dated as of August 3, 2013, by and among Products Corporation, Beauty Care Professional Products Participations, S.A., Romol Hair & Beauty Group, S.L., Norvo, S.L. and Staubinus España, S.L. (incorporated by reference to Exhibit 2.1 to Revlon’s Current Report on Form 8-K filed with the SEC on August 5, 2013). |
| 2.2 | |
| 3. | Certificate of Incorporation and By-laws. |
| 3.1 | |
| 3.2 | |
| 4. | Instruments Defining the Rights of Security Holders, Including Indentures. |
| 4.1 | |
| 4.2 | |
| 4.3 | |
| 4.4 | |
| 4.5 | |
| 4.6 | |
| 4.7 | |
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REVLON, INC. AND SUBSIDIARIES
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| 4.8 | |
| 4.9 | |
| 4.10 | |
| 4.11 | |
| 4.12 |
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| 4.13 | |
| 4.14 | Asset-Based Revolving Credit Agreement, dated as of September 7, 2016, by and among Products Corporation, certain local borrowing subsidiaries from time to time party thereto, Revlon (solely for the purposes set forth therein), certain lenders and issuing lenders party thereto and Citibank, N.A., as administrative agent, collateral agent, issuing lender and swingline lender (incorporated by reference to Exhibit 10.2 to the Revlon September 2016 Form 8-K). |
| 4.15 | |
| 4.16 | |
| 4.17 | |
| 4.18 | |
| 4.19 | ABL Intercreditor Agreement, dated as of September 7, 2016, among Citibank, N.A., as ABL Agent, Citibank, N.A., as Initial Term Loan Agent, Revlon, Products Corporation, each subsidiary listed therein or that becomes a party thereto and each Other Term Loan Agent from time to time party thereto (incorporated by reference to Exhibit 10.7 to the Revlon September 2016 Form 8-K). |
| 4.20 |
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| 4.21 |
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| 4.22 |
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| 4.23 | |
| 4.24 | |
| 4.25 | |
| 4.26 | |
| 4.27 | Asset-Based Term Loan Credit Agreement, dated as of July 9, 2018, by and among Revlon Holdings B.V. and Revlon Finance LLC, as Borrowers, the Guarantors and Parent Guarantors party thereto, the Lenders party thereto and Citibank, N.A., as Administrative Agent and Collateral Agent, including all schedules and exhibits thereto (incorporated by reference to Exhibit 4.1 to Revlon's Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2018, filed with the SEC on November 9, 2018 (the "Revlon Q3 2018 Form 10-Q")). |
| 4.28 | |
| 4.29 | Parent Guarantee Agreement, dated as of July 9, 2018, by and among Beautyge Beauty Group, S.L.U., Beautyge Participations, S.L.U., Elizabeth Arden (Netherlands) Holding B.V. and RML Holdings L.P., as Guarantors, and Citibank, N.A., as Collateral Agent, including all annexes thereto (incorporated by reference to Exhibit 4.3 to the Revlon Q3 2018 Form 10-Q). |
| 4.30 | |
| 4.31 | |
| 4.32 | |
| 4.33 | |
| 4.34 | |
| 4.35 | |
| 4.36 | |
| 4.37 | |
| 4.38 | |
| 4.39 | |
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10.4.40 | Material Contracts.Amendment No. 1, dated as of May 7, 2020, to the Term Credit Agreement, dated as of September 7, 2016 by and among Products Corporation, Revlon, certain lenders party thereto and Citibank, N.A., as administrative agent and collateral agent(incorporated by reference to Exhibit 4.1 to Revlon's Form 10-Q filed with the SEC on August6, 2020 (the "Revlon Q2 2020 Form 10-Q")). |
10.14.41 | Amendment No. 4, dated as of May 7, 2020, to the Asset-Based Revolving Credit Agreement, dated as of September 7, 2016 (as amended), by and among Products Corporation, Revlon, certain lenders party thereto and Citibank, N.A., as administrative agent and collateral agent (incorporated by reference to Exhibit 4.2 of the Revlon Q2 2020 Form 10-Q). |
| 4.42 | |
| 4.43 | |
| 4.44 | |
| 4.45 | |
| 4.46 | |
| 4.47 | |
| 4.48 | |
| 4.49 | |
| 4.50 | |
| 4.51 | |
| 4.52 | |
| 4.53 | |
| 4.54 | |
| 4.55 | |
| 4.56 | |
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| 4.57 | |
| 4.58 | |
| 4.59 | Amendment No. 5, dated as of October 23, 2020, to the Asset-Based Revolving Credit Agreement, dated as of September 7, 2016 (as amended), by and among Products Corporation, Revlon, certain lenders party thereto and Citibank, N.A., as administrative agent and collateral agent (incorporated by reference to Exhibit 4.1 to Revlon’s Current Report on Form 8-K, filed with the SEC on October 23, 2020). |
| 4.60 | Amendment No. 1 to the BrandCo Credit Agreement, dated as of November 13, 2020, among Revlon Products Corporation, as borrower, Revlon, Inc., the subsidiary guarantors party thereto, the lenders party thereto and Jefferies Finance LLC, as administrative agent (incorporated by reference to Exhibit 4.2 to Revlon’s Current Report on Form 8-K, filed on November 16, 2020). |
| *4.61 | Amendment No. 7, dated as of March 8, 2021, to the Asset-Based Revolving Credit Agreement, dated as of September 7, 2016 (as amended), by and among Products Corporation, Revlon, certain lenders party thereto and Citibank, N.A., as administrative agent and collateral agent. |
| 10. | Material Contracts. |
| 10.1 | |
| 10.2 | |
| 10.3 | Employment |
| 10.4 | |
| 10.5 | |
10.510.6 | Employment Agreement, dated as of April 12, 2016, by and among Revlon, Products Corporation and Juan R. Figuereo (incorporated by reference to Exhibit 10.1 to Revlon's Current Report on Form 8-K filed with the SEC on April 12, 2016). |
10.6 | Consulting Agreement by and among Revlon, Products Corporation and E. Scott Beattie, dated as of November 3, 2016 (incorporated by reference to Exhibit 10.1 to the Revlon Q3 2016 Form 10-Q). |
10.7 | |
10.810.7 | Employment Agreement, dated as of October 9, 2014, by and among Revlon, Products Corporation and Gianni Pieraccioni (incorporated by reference to Exhibit 10.11 to Revlon's Annual Report on Form 10-K for the fiscal year ended December 31, 2014 filed with the SEC on March 12, 2015 (the "Revlon 2014 Form 10-K")). |
10.9 | First Amendment to Employment Agreement by and among Revlon, Products Corporation and Gianni Pieraccioni, dated as of February 26, 2016 (incorporated by reference to Exhibit 10.7 to Revlon’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015 filed with the SEC on February 26, 2016). |
10.10 | Transition and Separation Agreement and Release dated March 1, 2016 by and among Revlon, Products Corporation and Lorenzo Delpani (incorporated by reference to Exhibit 10.1 to Revlon's Current Report on Form 8-K filed with the SEC on March 4, 2016). |
10.11 | Amendment, dated April 21, 2016, to the Transition and Separation Agreement and Release by and among Revlon, Products Corporation and Lorenzo Delpani (incorporated by reference to Exhibit 10.1 to Revlon's Current Report on Form 8-K filed with the SEC on April 22, 2016). |
10.12 | |
10.1310.8 | |
10.1410.9 | |
10.1510.10 | Amended and Restated Revlon Pension Equalization Plan, amended and restated as of December 14, 1998 (the "PEP") (incorporated by reference to Exhibit 10.15 to Revlon’s Annual Report on Form 10-K for the fiscal year ended December 31, 1998 filed with the SEC on March 3, 1999). |
10.1610.11 | |
10.1710.12 | |
10.1810.13 | Benefit Plans Assumption Agreement, dated as of July 1, 1992, by and among Revlon Holdings, Revlon and Products Corporation (incorporated by reference to Exhibit 10.25 to Products Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 1992 filed with the SEC on March 12, 1993). |
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*10.1910.14 | |
10.20 | Preferred Stock Repurchase and Warrant Cancellation Agreement, dated June 16, 2016, by and among Revlon, Products Corporation, RR Transaction Corp., Elizabeth Arden, Nightingale Onshore Holdings L.P. and Nightingale Offshore Holdings L.P.March 30, 2020) (incorporated by reference to Exhibit 10.1 to Revlon, Inc.'s Quarterly Report on Form 10-Q filed with the Revlon June 2016SEC on May 11, 2020 (the "Revlon Q1 2020 Form 8-K)10-Q")).
|
REVLON, INC. AND SUBSIDIARIES
|
| |
10.2110.15 | |
| 10.16 | |
| 10.17 | |
| 10.18 | |
| 10.19 | |
| 10.20 | |
| 10.21 | |
| *10.22 | |
| 10.23 | |
| 10.24 | Transaction Support Agreement, dated as of September 28, 2020, by and among Products Corporation, Revlon and certain beneficial holders, or investment advisors or managers for the account of beneficial holders, of term loans under the BrandCo Credit Agreement, dated as of May 7, 2020, by and among Products Corporation, Revlon, certain lenders party thereto and Jefferies Finance LLC, as administrative agent and collateral agent(incorporated by reference to Exhibit 10.1 to Revlon's Current Report on Form 8-K10-Q filed with the SEC on April 17, 2017)November13, 2020).
|
21.*10.25 | Subsidiaries. |
| 21. | Subsidiaries. |
| *21.1 | |
| 23. | Consents of Experts and Counsel. |
| *23.1 | |
| 24. | Powers of Attorney. |
| *24.1 | |
| *24.2 | |
| *24.3 | |
| *24.4 | |
| *24.5 | |
*24.6 | |
*24.724.6 | |
*24.824.7 | |
*24.9 | |
*24.10 | |
*24.11 | |
*24.1224.8 | |
*24.13 | |
| *31.1 | |
| *31.2 | |
Table of Contents
REVLON, INC. AND SUBSIDIARIES
| | | | | |
**32.1 (furnished herewith) | |
**32.2 (furnished herewith) | |
*99.1*99.1 | |
*101.INS | |
| *101.INS | Inline XBRL Instance Document |
*101.SCH*101.SCH | Inline XBRL Taxonomy Extension Schema |
*101.CAL*101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase |
*101.DEF*101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase |
*101.LAB*101.LAB | Inline XBRL Taxonomy Extension Label Linkbase |
*101.PRE*101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase |
| *104 | Cover Page Interactive Data File, formatted in Inline XBRL and contained in Exhibit 101 |
| |
*Filed herewith.
**Furnished herewith.
REVLON, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
| | | | | | | | |
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| | Page |
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Audited | | |
| | |
| Financial Statements: | | |
2019
| | |
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| | |
| | |
| | |
| | |
| | |
| | |
| | |
Financial Statement Schedule: | | |
Schedule II - Valuation and Qualifying Accounts | | |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors and Stockholders
Revlon, Inc.:
Opinion on the ConsolidatedFinancial Statements
We have audited the accompanying consolidated balance sheets of Revlon, Inc. and subsidiaries (the Company) as of December 31, 20172020 and 2016,2019, the related consolidated statements of operations and comprehensive (loss) income,loss, stockholders’ deficiency, and cash flows for each of the years in the three‑two‑year period ended December 31, 2017,2020, and the related notes and financial statement schedule II (collectively, the “consolidatedconsolidated financial statements”)statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20172020 and 2016,2019, and the results of its operations and its cash flows for each of the years in the three‑two‑year period ended December 31, 2017,2020, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2017,2020, based on criteria established in Internal Control -– Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated March 15, 201811, 2021 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Impairment of the goodwill of the Elizabeth Arden Fragrances, Mass Portfolio, and Professional Portfolio reporting units
As discussed in Notes 1 and 6 to the consolidated financial statements, the Company’s goodwill balance as of December 31, 2020 was $563.7 million. The Company performs goodwill impairment testing on an annual basis and whenever events or changes in circumstances indicate that the carrying value of a reporting unit more likely than not exceeds its fair value using a discounted cash flow model. As a result, the Company performed impairment testing of the Elizabeth Arden Fragrances, Mass Portfolio, and Professional Portfolio reporting units in the first, second, and fourth quarters, which resulted in $99.8 million and $11.2 million impairments in the first and second quarter, respectively, of the associated goodwill.
We identified the evaluation of the impairment of goodwill of the Elizabeth Arden Fragrances, Mass Portfolio, and Professional Portfolio reporting units as a critical audit matter. There was a high degree of subjective auditor judgment in evaluating the key assumptions used in the discounted cash flow models used to estimate the fair values of the Elizabeth Arden Fragrances, Mass Portfolio, and Professional Portfolio reporting units. Specifically, the key assumptions, including forecasted net sales, forecasted earnings before interest, taxes, depreciation and amortization (EBITDA) margins, and discount rates, involved a high degree of subjective auditor judgment as minor changes to those assumptions could have a significant effect on the Company’s assessment of the carrying value of goodwill.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls over the Company’s goodwill impairment assessment process. These included controls related to the determination of the estimated fair value of the Elizabeth Arden Fragrances, Mass Portfolio, and Professional Portfolio reporting units and the development of the assumptions described above. We evaluated the Company’s forecasted net sales and EBITDA margins used in the fair value analyses by comparing forecasted net sales and forecasted EBITDA margins to historical actual results and forecasted net sales growth rates and EBITDA margins of peer companies based on publicly available market data. We compared the Company’s historical net sales and EBITDA margin forecasts to actual results to assess the Company’s ability to accurately forecast. In addition, we involved valuation professionals with specialized skill and knowledge, who assisted in:
•assessing the appropriateness of the valuation methodologies through comparison to standard valuation practices
•evaluating the appropriateness of the selected guideline public companies by researching the companies and reviewing the business description
•evaluating the discount rates by comparing them to discount rate ranges that were independently developed using publicly available market data for comparable companies
Impairment of the indefinite-lived trade names of the Elizabeth Arden Fragrances, Elizabeth Arden Skin and Color, and Mass Portfolio reporting units
As discussed in Notes 1 and 6 to the consolidated financial statements, the Company’s trade names balance as of December 31, 2020 was $115.9 million. The Company performs indefinite-lived trade name impairment testing using the relief from royalty method on an annual basis and whenever events or changes in circumstances indicate that the carrying value of a trade name more likely than not exceeds its fair value. As a result, the Company performed impairment testing of its indefinite-lived intangible assets in the first, second, and fourth quarters, which resulted in $24.5 million and $8.6 million impairments in the first and second quarter, respectively, of certain trade names within the Company's Elizabeth Arden Fragrances, Elizabeth Arden Skin and Color, and Mass Portfolio reporting units.
We identified the evaluation of impairment of the trade names as a critical audit matter. There was a high degree of subjective auditor judgment in evaluating the key assumptions used in the relief from royalty method used to estimate the fair value of the trade names. Specifically, the key assumptions including forecasted net sales, discount rates, and royalty rate assumptions, involved a high degree of subjective auditor judgment as minor changes to those assumptions could have a significant effect on the Company’s assessment of the carrying value of indefinite-lived trade names.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls over the Company’s indefinite-lived trade names impairment assessment process. These included controls related to the determination of the estimated fair value of the trade names and the development of the assumptions described above. We evaluated the Company’s forecasted net sales used in the analyses by comparing the forecasted net sales to historical actual results. We compared the Company’s historical net sales forecasts to actual results to assess the Company’s ability to accurately forecast. In addition, we involved valuation professionals with specialized skill and knowledge, who assisted in:
•assessing the appropriateness of the valuation methodologies through comparison to standard valuation practices
•evaluating the royalty rate assumptions used in the trade names valuations, by comparing them to publicly available market data for comparable royalty rates
•evaluating the discount rates used in the valuations of the trade names by comparing them to discount rate ranges that were independently developed using publicly available market data for comparable companies.
Liquidity
As discussed in Note 1 to the consolidated financial statements, at December 31, 2020, the Company believes its cash and cash equivalents and its existing credit capacity and management’s actions in the normal course to reduce variable spending will be sufficient to fund the Company’s planned operations for at least the next 12 months beyond the date of the issuance of the consolidated financial statements.
We identified the assessment of liquidity and the Company’s ability to continue as a going concern as a critical audit matter. The evaluation of the Company’s estimate of its cash inflows and outflows used in its forecasted model of liquidity for at least 12 months beyond the date of the issuance of the consolidated financial statements involved a high degree of subjective auditor judgment due to uncertainty in the estimate of cash inflows and outflows.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls over the Company’s assessment of its ability to continue as a going concern. These included controls related to the assumptions used in the forecasted model of liquidity and sensitivity analyses over the forecasted models of liquidity. We assessed the reasonableness of key assumptions underlying management’s liquidity models, including forecasted net sales, forecasted earnings before interest, taxes, depreciation and amortization (EBITDA), and management’s actions in the normal course to reduce variable spending, by comparing the key assumptions to historical results to assess management’s ability to forecast. We performed sensitivity analyses to assess the impact of changes in the key assumptions included in management’s liquidity forecast models. We assessed management’s liquidity forecast model in the context of other audit evidence obtained during the audit to determine whether it supported or contradicted the conclusions reached by management.
/s/ KPMG LLP
We have served as the Company’s auditor since 1991.
/s/ KPMG LLP
New York, New York
March 15, 201811, 2021
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors and Stockholders
Revlon, Inc.:
Opinion on Internal Control Over Financial Reporting
We have audited Revlon, Inc. and subsidiaries’ (the Company) internal control over financial reporting as of December 31, 2017,2020, based on criteria established in Internal Control -– Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017,2020, based on criteria established in Internal Control -– Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 20172020 and 2016,2019, the related consolidated statements of operations and comprehensive (loss) income,loss, stockholders’ deficiency, and cash flows for each of the years in the three-yeartwo-year period ended December 31, 2017,2020, and the related notes and financial statement schedule II (collectively, the “consolidatedconsolidated financial statements”)statements), and our report dated March 15, 201811, 2021 expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ KPMG LLP
New York, New York
March 15, 201811, 2021
Audited
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholder and Board of Directors
Revlon Consumer Products Corporation:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Revlon Consumer Products Corporation and subsidiaries (the Company) as of December 31, 2020 and 2019, the related consolidated statements of operations and comprehensive loss, stockholder’s deficiency, and cash flows for each of the years in the two‑year period ended December 31, 2020, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the two‑year period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Impairment of the goodwill of the Elizabeth Arden Fragrances, Mass Portfolio, and Professional Portfolio reporting units
As discussed in Notes 1 and 6 to the consolidated financial statements, the Company’s goodwill balance as of December 31, 2020 was $563.7 million. The Company performs goodwill impairment testing on an annual basis and whenever events or changes in circumstances indicate that the carrying value of a reporting unit more likely than not exceeds its fair value using a discounted cash flow model. As a result, the Company performed impairment testing of the Elizabeth Arden Fragrances, Mass Portfolio, and Professional Portfolio reporting units in the first, second, and fourth quarters, which resulted in $99.8 million and $11.2 million impairments in the first and second quarter, respectively, of the associated goodwill.
We identified the evaluation of the impairment of goodwill of the Elizabeth Arden Fragrances, Mass Portfolio, and Professional Portfolio reporting units as a critical audit matter. There was a high degree of subjective auditor judgment in evaluating the key assumptions used in the discounted cash flow models used to estimate the fair values of the Elizabeth Arden Fragrances, Mass Portfolio, and Professional Portfolio reporting units. Specifically, the key assumptions, including forecasted net sales, forecasted earnings before interest, taxes, depreciation and amortization (EBITDA) margins, and discount rates, involved a high degree of subjective auditor judgment as minor changes to those assumptions could have a significant effect on the Company’s assessment of the carrying value of goodwill.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls over the Company’s goodwill impairment assessment process. These included controls related to the determination of the estimated fair value of the Elizabeth Arden Fragrances, Mass Portfolio, and Professional Portfolio reporting units and the development of the assumptions described above. We evaluated the Company’s forecasted net sales and EBITDA margins used in the fair value analyses by comparing forecasted net sales and forecasted EBITDA margins to historical actual results and forecasted net sales growth rates and EBITDA margins of peer companies based on publicly available market data. We compared the Company’s historical net sales and EBITDA margin forecasts to actual results to assess the Company’s ability to accurately forecast. In addition, we involved valuation professionals with specialized skill and knowledge, who assisted in:
•assessing the appropriateness of the valuation methodologies through comparison to standard valuation practices
•evaluating the appropriateness of the selected guideline public companies by researching the companies and reviewing the business description
•evaluating the discount rates by comparing them to discount rate ranges that were independently developed using publicly available market data for comparable companies
Impairment of the indefinite-lived trade names of the Elizabeth Arden Fragrances, Elizabeth Arden Skin and Color, and Mass Portfolio reporting units
As discussed in Notes 1 and 6 to the consolidated financial statements, the Company’s trade names balance as of December 31, 2020 was $115.9 million. The Company performs indefinite-lived trade name impairment testing using the relief from royalty method on an annual basis and whenever events or changes in circumstances indicate that the carrying value of a trade name more likely than not exceeds its fair value. As a result, the Company performed impairment testing of its indefinite-lived intangible assets in the first, second, and fourth quarters, which resulted in $24.5 million and $8.6 million impairments in the first and second quarter, respectively, of certain trade names within the Company's Elizabeth Arden Fragrances, Elizabeth Arden Skin and Color, and Mass Portfolio reporting units.
We identified the evaluation of impairment of the trade names as a critical audit matter. There was a high degree of subjective auditor judgment in evaluating the key assumptions used in the relief from royalty method used to estimate the fair value of the trade names. Specifically, the key assumptions including forecasted net sales, discount rates, and royalty rate assumptions, involved a high degree of subjective auditor judgment as minor changes to those assumptions could have a significant effect on the Company’s assessment of the carrying value of indefinite-lived trade names.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls over the Company’s indefinite-lived trade names impairment assessment process. These included controls related to the determination of the estimated fair value of the trade names and the development of the assumptions described above. We evaluated the Company’s forecasted net sales used in the analyses by comparing the forecasted net sales to historical actual results. We compared the Company’s historical net sales forecasts to actual results to assess the Company’s ability to accurately forecast. In addition, we involved valuation professionals with specialized skill and knowledge, who assisted in:
•assessing the appropriateness of the valuation methodologies through comparison to standard valuation practices
•evaluating the royalty rate assumptions used in the trade names valuations, by comparing them to publicly available market data for comparable royalty rates
•evaluating the discount rates used in the valuations of the trade names by comparing them to discount rate ranges that were independently developed using publicly available market data for comparable companies.
Liquidity
As discussed in Note 1 to the consolidated financial statements, at December 31, 2020, the Company believes its cash and cash equivalents and its existing credit capacity and management’s actions in the normal course to reduce variable spending will be sufficient to fund the Company’s planned operations for at least the next 12 months beyond the date of the issuance of the consolidated financial statements.
We identified the assessment of liquidity and the Company’s ability to continue as a going concern as a critical audit matter. The evaluation of the Company’s estimate of its cash inflows and outflows used in its forecasted model of liquidity for at least 12 months beyond the date of the issuance of the consolidated financial statements involved a high degree of subjective auditor judgment due to uncertainty in the estimate of cash inflows and outflows.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls over the Company’s assessment of its ability to continue as a going concern. These included controls related to the assumptions used in the forecasted model of liquidity and sensitivity analyses over the forecasted models of liquidity. We assessed the reasonableness of key assumptions underlying management’s liquidity models, including forecasted net sales, forecasted earnings before interest, taxes, depreciation and amortization (EBITDA), and management’s actions in the normal course to reduce variable spending, by comparing the key assumptions to historical results to assess management’s ability to forecast. We performed sensitivity analyses to assess the impact of changes in the key assumptions included in management’s liquidity forecast models. We assessed management’s liquidity forecast model in the context of other audit evidence obtained during the audit to determine whether it supported or contradicted the conclusions reached by management.
/s/ KPMG LLP
We have served as the Company’s auditor since 1991.
New York, New York
March 11, 2021
REVLON, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in millions, except share and per share amounts)
| | | | | | | | | | | |
| December 31, 2020 | | December 31, 2019 |
| | | |
| ASSETS | | | |
| Current assets: | | | |
| Cash and cash equivalents | $ | 97.1 | | | $ | 104.3 | |
| Trade receivables, less allowance for doubtful accounts of $13.0 and $11.4 as of December 31, 2020 and December 31, 2019, respectively | 352.3 | | | 423.4 | |
| Inventories, net | 462.6 | | | 448.4 | |
| Prepaid expenses and other assets | 134.4 | | | 135.3 | |
| Total current assets | 1,046.4 | | | 1,111.4 | |
| Property, plant and equipment, net of accumulated depreciation of $528.9 and $488.1 as of December 31, 2020 and December 31, 2019, respectively | 352.0 | | | 408.6 | |
| Deferred income taxes | 25.7 | | | 175.1 | |
| Goodwill | 563.7 | | | 673.7 | |
| Intangible assets, net of accumulated amortization and impairment of $296.8 and $226.4 as of December 31, 2020 and December 31, 2019, respectively | 430.8 | | | 490.7 | |
| Other assets | 109.1 | | | 121.1 | |
| Total assets | $ | 2,527.7 | | | $ | 2,980.6 | |
| | | |
| LIABILITIES AND STOCKHOLDERS’ DEFICIENCY | | | |
| Current liabilities: | | | |
| Short-term borrowings | $ | 2.5 | | | $ | 2.2 | |
| Current portion of long-term debt | 217.5 | | | 288.0 | |
| Accounts payable | 203.3 | | | 251.8 | |
| Accrued expenses and other current liabilities | 420.9 | | | 414.9 | |
| | | |
| Total current liabilities | 844.2 | | | 956.9 | |
| Long-term debt | 3,105.0 | | | 2,906.2 | |
| Long-term pension and other post-retirement plan liabilities | 212.4 | | | 181.2 | |
| Other long-term liabilities | 228.1 | | | 157.5 | |
| | | |
| Stockholders’ deficiency: | | | |
| Class A Common Stock, par value $0.01 per share: 900,000,000 shares authorized; 56,742,513 and 56,470,490 shares issued as of December 31, 2020 and December 31, 2019, respectively | 0.5 | | | 0.5 | |
| Additional paid-in capital | 1,082.3 | | | 1,071.9 | |
| Treasury stock, at cost: 1,774,200 and 1,625,580 shares of Class A Common Stock as of December 31, 2020 and December 31, 2019, respectively | (35.2) | | | (33.5) | |
| Accumulated deficit | (2,631.7) | | | (2,012.7) | |
| Accumulated other comprehensive loss | (277.9) | | | (247.4) | |
| Total stockholders’ deficiency | (1,862.0) | | | (1,221.2) | |
| Total liabilities and stockholders’ deficiency | $ | 2,527.7 | | | $ | 2,980.6 | |
|
| | | | | | | |
| | December 31, 2017 | | December 31, 2016 |
| | | | (as adjusted)(a) |
| ASSETS | | | |
| Current assets: | | | |
| Cash and cash equivalents | $ | 87.1 |
| | $ | 186.4 |
|
| Trade receivables, less allowance for doubtful accounts of $13.5 and $11.1 as of December 31, 2017 and December 31, 2016, respectively | 444.8 |
| | 423.9 |
|
| Inventories | 497.9 |
| | 424.6 |
|
| Prepaid expenses and other | 113.4 |
| | 88.8 |
|
| Total current assets | 1,143.2 |
| | 1,123.7 |
|
| Property, plant and equipment, net of accumulated depreciation of $385.5 and $304.7 as of December 31, 2017 and December 31, 2016, respectively | 372.7 |
| | 320.5 |
|
| Deferred income taxes | 138.0 |
| | 149.7 |
|
| Goodwill | 692.5 |
| | 689.5 |
|
| Intangible assets, net of accumulated amortization of $130.9 and $84.8 as of December 31, 2017 and December 31, 2016, respectively | 592.1 |
| | 636.6 |
|
| Other assets | 118.4 |
| | 103.5 |
|
| Total assets | $ | 3,056.9 |
| | $ | 3,023.5 |
|
| | | | |
| LIABILITIES AND STOCKHOLDERS’ DEFICIENCY | | | |
| Current liabilities: | | | |
| Short-term borrowings | $ | 12.4 |
| | $ | 10.8 |
|
| Current portion of long-term debt | 170.2 |
| | 18.1 |
|
| Accounts payable | 336.9 |
| | 296.9 |
|
| Accrued expenses and other | 412.8 |
| | 382.9 |
|
| Total current liabilities | 932.3 |
| | 708.7 |
|
| Long-term debt | 2,653.7 |
| | 2,663.1 |
|
| Long-term pension and other post-retirement plan liabilities | 172.8 |
| | 184.1 |
|
| Other long-term liabilities | 68.5 |
| | 82.4 |
|
| Stockholders’ deficiency: | | | |
| Class A Common Stock, par value $0.01 per share; 900,000,000 shares authorized; 54,556,100 and 53,956,073 shares issued as of December 31, 2017 and December 31, 2016, respectively | 0.5 |
| | 0.5 |
|
| Additional paid-in capital | 1,040.0 |
| | 1,033.2 |
|
| Treasury stock, at cost: 1,114,528 and 1,024,908 shares of Class A Common Stock as of December 31, 2017 and December 31, 2016, respectively | (21.7 | ) | | (19.2 | ) |
| Accumulated deficit | (1,560.8 | ) | | (1,377.6 | ) |
| Accumulated other comprehensive loss | (228.4 | ) | | (251.7 | ) |
| Total stockholders’ deficiency | (770.4 | ) | | (614.8 | ) |
| Total liabilities and stockholders’ deficiency | $ | 3,056.9 |
| | $ | 3,023.5 |
|
(a)Adjusted as a result of the adoption of certain accounting pronouncements as of December 31, 2017. See Note 1, "Description of Business and Summary
of Significant Accounting Policies - Recently Adopted Accounting Pronouncements," for details of these adjustments.
See Accompanying Notes to Audited Consolidated Financial Statements
REVLON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOMELOSS
(dollars in millions, except share and per share amounts) |
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 |
| | | | | | |
| Net sales | $ | 2,693.7 |
| | $ | 2,334.0 |
| | $ | 1,914.3 |
|
| Cost of sales | 1,151.3 |
| | 917.1 |
| | 667.8 |
|
| Gross profit | 1,542.4 |
| | 1,416.9 |
| | 1,246.5 |
|
| Selling, general and administrative expenses | 1,467.6 |
| | 1,161.0 |
| | 1,002.5 |
|
| Acquisition and integration costs | 52.9 |
| | 43.2 |
| | 8.0 |
|
| Restructuring charges and other, net | 33.4 |
| | 34.0 |
| | 10.5 |
|
| Impairment charges | 10.8 |
| | 23.4 |
| | 9.7 |
|
| Operating (loss) income | (22.3 | ) | | 155.3 |
| | 215.8 |
|
| Other expenses: | | | | | |
| Interest expense | 149.8 |
| | 105.2 |
| | 83.3 |
|
| Amortization of debt issuance costs | 9.1 |
| | 6.8 |
| | 5.7 |
|
| Loss on early extinguishment of debt | — |
| | 16.9 |
| | — |
|
| Foreign currency (gains) losses, net | (18.5 | ) | | 18.5 |
| | 15.7 |
|
| Miscellaneous, net | 0.8 |
| | (0.6 | ) | | 0.4 |
|
| Other expenses | 141.2 |
| | 146.8 |
| | 105.1 |
|
| (Loss) income from continuing operations before income taxes | (163.5 | ) | | 8.5 |
| | 110.7 |
|
| Provision for income taxes | 21.8 |
| | 25.5 |
| | 51.4 |
|
| (Loss) income from continuing operations, net of taxes | (185.3 | ) | | (17.0 | ) | | 59.3 |
|
| Income (loss) from discontinued operations, net of taxes | 2.1 |
| | (4.9 | ) | | (3.2 | ) |
| Net (loss) income | $ | (183.2 | ) | | $ | (21.9 | ) | | $ | 56.1 |
|
| Other comprehensive income: | | | | |
|
|
Foreign currency translation adjustments, net of tax (a) | 9.0 |
| | (0.5 | ) | | (18.1 | ) |
Amortization of pension related costs, net of tax (b)(c) | 8.1 |
| | 7.6 |
| | 7.2 |
|
Pension re-measurement, net of tax (d) | 1.8 |
| | (14.3 | ) | | (6.9 | ) |
Pension settlement, net of tax (e) | — |
| | — |
| | 17.3 |
|
Pension curtailment, net of tax(f) | 2.1 |
| | — |
| | — |
|
Reclassification into earnings of accumulated losses from the de-designated 2013 Interest Rate Swap, net of tax(g) | 2.3 |
| | — |
| | — |
|
Revaluation of derivative financial instruments, net of reclassifications into earnings, net of tax(h) | — |
| | 0.8 |
| | (1.6 | ) |
| Other comprehensive income, net | 23.3 |
| | (6.4 | ) | | (2.1 | ) |
| Total comprehensive (loss) income | $ | (159.9 | ) | | $ | (28.3 | ) | | $ | 54.0 |
|
| | | | | | |
| Basic (loss) earnings per common share: | | | | | |
| Continuing operations | $ | (3.52 | ) | | $ | (0.33 | ) | | $ | 1.13 |
|
| Discontinued operations | 0.04 |
| | (0.09 | ) | | (0.06 | ) |
| Net (loss) income | $ | (3.48 | ) | | $ | (0.42 | ) | | $ | 1.07 |
|
| | | | | | |
| Diluted (loss) earnings per common share: | | | | | |
| Continuing operations | $ | (3.52 | ) | | $ | (0.33 | ) | | $ | 1.13 |
|
| Discontinued operations | 0.04 |
| | (0.09 | ) | | (0.06 | ) |
| Net (loss) income | $ | (3.48 | ) | | $ | (0.42 | ) | | $ | 1.07 |
|
| | | | | | |
| Weighted average number of common shares outstanding: | | | | | |
| Basic | 52,597,582 |
| | 52,504,196 |
| | 52,431,193 |
|
| Diluted | 52,597,582 |
| | 52,504,196 |
| | 52,591,545 |
|
| | | | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, | | |
| | | | |
| | | | | 2020 | | 2019 | | |
| | | | | | | | | |
| Net sales | | | | | $ | 1,904.3 | | | $ | 2,419.6 | | | |
| Cost of sales | | | | | 860.5 | | | 1,052.2 | | | |
| Gross profit | | | | | 1,043.8 | | | 1,367.4 | | | |
| Selling, general and administrative expenses | | | | | 1,071.8 | | | 1,316.6 | | | |
| Acquisition, integration and divestiture costs | | | | | 5.0 | | | 3.9 | | | |
| Restructuring charges and other, net | | | | | 49.7 | | | 12.8 | | | |
| Impairment charges | | | | | 144.1 | | | 0 | | | |
| Gain on divested assets | | | | | (0.5) | | | (26.6) | | | |
| Operating (loss) income | | | | | (226.3) | | | 60.7 | | | |
| Other expenses: | | | | | | | | | |
| Interest expense, net | | | | | 243.3 | | | 196.6 | | | |
| | | | | | | | | |
| Amortization of debt issuance costs | | | | | 26.8 | | | 14.6 | | | |
| Gain on early extinguishment of debt | | | | | (43.1) | | | 0 | | | |
| Foreign currency gains, net | | | | | (6.0) | | | (1.9) | | | |
| Miscellaneous, net | | | | | 12.9 | | | 16.4 | | | |
| Other expenses | | | | | 233.9 | | | 225.7 | | | |
| Loss from continuing operations before income taxes | | | | | (460.2) | | | (165.0) | | | |
| Provision for income taxes | | | | | 158.8 | | | 0.2 | | | |
| Loss from continuing operations, net of taxes | | | | | (619.0) | | | (165.2) | | | |
| Income from discontinued operations, net of taxes | | | | | 0 | | | 7.5 | | | |
| Net loss | | | | | $ | (619.0) | | | $ | (157.7) | | | |
| Other comprehensive income (loss): | | | | | | | | | |
Foreign currency translation adjustments(a) | | | | | 10.2 | | | (2.9) | | | |
Amortization of pension related costs, net of tax(b)(c) | | | | | 11.4 | | | 9.0 | | | |
Pension re-measurement, net of tax (d) | | | | | (52.1) | | | (19.3) | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Other comprehensive loss, net | | | | | (30.5) | | | (13.2) | | | |
| Total comprehensive loss | | | | | $ | (649.5) | | | $ | (170.9) | | | |
| | | | | | | | | |
| Basic and Diluted (loss) earnings per common share: | | | | | | | | | |
| Continuing operations | | | | | $ | (11.59) | | | $ | (3.11) | | | |
| Discontinued operations | | | | | 0 | | | 0.14 | | | |
| Net loss | | | | | $ | (11.59) | | | $ | (2.97) | | | |
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| | | | | | | | | |
| | | | | | | | | |
| Weighted average number of common shares outstanding: | | | | | | | | | |
| Basic | | | | | 53,401,324 | | | 53,081,321 | | | |
| Diluted | | | | | 53,401,324 | | | 53,081,321 | | | |
| |
(a)
| Net of tax (benefit) expense of $(0.4) million, $1.1 million and $(5.1) million for 2017, 2016 and 2015, respectively. |
| |
(b)
| Net of tax expense of $1.6 million for 2017, and $1.3 million for each of 2016 and 2015. |
| |
(c)
| This amount is included in the computation of net periodic benefit (income) costs. See Note 14, "Pension and Post-Retirement Benefits," for additional information regarding net periodic benefit (income) costs. |
| |
(d)
| Net of tax benefit of $0.3 million, $4.1 million and $3.3 million for 2017, 2016 and 2015, respectively. |
| |
(e)
| Net of tax expense of $3.7 million for 2015. |
| |
(f)
| Net of tax expense of $0.3 million for 2017. |
| |
(g)
| Net of tax benefit of $1.4 million for 2017. |
| |
(h)
| Net of tax expense (benefit) of $0.5 million and $(1.0) million for 2016 and 2015, respectively. |
(a) Net of tax expense of NaN and $1.8 million for the years ended December 31, 2020 and 2019, respectively.
(b) Net of tax expense of NaN and $1.1 million for the years ended December 31, 2020 and 2019, respectively.
(c) This amount is included in the computation of net periodic benefit costs (income). See Note 11, "Pension and Post-Retirement Benefits," for additional information regarding net periodic benefit costs (income).
(d) Net of tax benefit of $1.9 million and $5.2 million for the years ended December 31, 2020 and 2019, respectively.
See Accompanying Notes to Audited Consolidated Financial Statements
REVLON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIENCY
(dollars in millions, except share and per share amounts)
|
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| | Common Stock | | Additional Paid-In Capital | | Treasury Stock | | Accumulated Deficit | | Accumulated Other Comprehensive Loss | | Total Stockholders’ Deficiency |
| | | | | | | | | | | | |
| Balance, January 1, 2015 | $ | 0.5 |
| | $ | 1,020.9 |
| | $ | (10.5 | ) | | $ | (1,411.8 | ) | | $ | (243.2 | ) | | $ | (644.1 | ) |
Treasury stock acquired, at cost (a) | | | | | (2.8 | ) | | | | | | (2.8 | ) |
| Stock-based compensation amortization | | | 5.1 |
| | | | | | | | 5.1 |
|
| Excess tax benefits from stock-based compensation | | | 0.3 |
| | | | | | | | 0.3 |
|
| Net income | | | | | | | 56.1 |
| | | | 56.1 |
|
Other comprehensive loss, net (b) | | | | | | | | | (2.1 | ) | | (2.1 | ) |
| Balance, December 31, 2015 | $ | 0.5 |
| | $ | 1,026.3 |
| | $ | (13.3 | ) | | $ | (1,355.7 | ) | | $ | (245.3 | ) | | $ | (587.5 | ) |
Treasury stock acquired, at cost (a) | | | | | (3.2 | ) | | | | | | (3.2 | ) |
Repurchase of common stock (c) | | | | | (2.7 | ) | | | | | | (2.7 | ) |
| Stock-based compensation amortization | | | 6.4 |
| | | | | | | | 6.4 |
|
| Excess tax benefits from stock-based compensation | | | 0.5 |
| | | | | | | | 0.5 |
|
| Net loss | | | | | | | (21.9 | ) | | | | (21.9 | ) |
Other comprehensive loss, net (b) | | | | | | | | | (6.4 | ) | | (6.4 | ) |
| Balance, December 31, 2016 | $ | 0.5 |
| | $ | 1,033.2 |
| | $ | (19.2 | ) | | $ | (1,377.6 | ) | | $ | (251.7 | ) | | $ | (614.8 | ) |
Treasury stock acquired, at cost (a) | — |
| | — |
| | (2.5 | ) | | — |
| | — |
| | (2.5 | ) |
| Stock-based compensation amortization | — |
| | 6.8 |
| | — |
| | — |
| | — |
| | 6.8 |
|
| Net loss | — |
| | — |
| | — |
| | (183.2 | ) | | — |
| | (183.2 | ) |
Other comprehensive income, net (b) | — |
| | — |
| | — |
| | — |
| | 23.3 |
| | 23.3 |
|
| Balance, December 31, 2017 | $ | 0.5 |
| | $ | 1,040.0 |
| | $ | (21.7 | ) | | $ | (1,560.8 | ) | | $ | (228.4 | ) | | $ | (770.4 | ) |
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| Common Stock | | Additional Paid-In Capital | | Treasury Stock | | Accumulated Deficit | | Accumulated Other Comprehensive (Loss) Income | | Total Stockholders’ Deficiency |
| | | | | | | | | | | |
| Balance, January 1, 2020 | $ | 0.5 | | | $ | 1,071.9 | | | $ | (33.5) | | | $ | (2,012.7) | | | $ | (247.4) | | | $ | (1,221.2) | |
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Treasury stock acquired, at cost (a) | — | | | — | | | (1.7) | | | — | | | — | | | (1.7) | |
| Stock-based compensation amortization | — | | | 10.4 | | | — | | | — | | | — | | | 10.4 | |
| Net loss | — | | | — | | | — | | | (619.0) | | | — | | | (619.0) | |
Other comprehensive (loss) income, net (b) | — | | | — | | | — | | | — | | | (30.5) | | | (30.5) | |
| Balance, December 31, 2020 | $ | 0.5 | | | $ | 1,082.3 | | | $ | (35.2) | | | $ | (2,631.7) | | | $ | (277.9) | | | $ | (1,862.0) | |
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| |
(a) | Pursuant to the share withholding provisions of the Fourth Amended and Restated Revlon, Inc. Stock Plan (the "Stock Plan"), the Company withheld an aggregate of 89,620, 92,092 and 82,740 shares of Revlon Class A Common Stock during 2017, 2016 and 2015, respectively, to satisfy certain minimum statutory tax withholding requirements related to the vesting of restricted shares for certain senior executives. These withheld shares were recorded as treasury stock using the cost method, at a weighted-average price per share of $27.67, $34.83 and $34.40, respectively, during 2017, 2016 and 2015, based on the closing price of Revlon Class A Common Stock as reported on the New York Stock Exchange (the "NYSE") consolidated tape on each respective vesting date, for a total of $2.5 million, $3.2 million and $2.8 million in 2017, 2016 and 2015, respectively. See Note 15, "Stock Compensation Plan," for details regarding restricted stock awards under the Stock Plan. |
| |
(b) | See Note 17, "Accumulated Other Comprehensive Loss," regarding the changes in the accumulated balances for each component of other comprehensive loss during 2017, 2016 and 2015. |
| |
(c) | On April 21, 2016, in connection with his separation from the Company, the Company repurchased 72,895 shares of Revlon Class A Common Stock (representing vested shares of restricted stock) from Lorenzo Delpani, the Company's former President and Chief Executive Officer, at a price of $36.83 per share based upon the NYSE closing price of Revlon Class A Common Stock on April 20, 2016, for a total purchase price of $2.7 million. |
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| Common Stock | | Additional Paid-In Capital | | Treasury Stock | | Accumulated Deficit | | Accumulated Other Comprehensive (Loss) Income | | Total Stockholders’ Deficiency |
| Balance, January 1, 2019 | $ | 0.5 | | | $ | 1,063.8 | | | $ | (31.9) | | | $ | (1,855.0) | | | $ | (234.2) | | | $ | (1,056.8) | |
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Treasury stock acquired, at cost (a) | — | | | — | | | (1.6) | | | — | | | — | | | (1.6) | |
| Stock-based compensation amortization | — | | | 8.1 | | | — | | | — | | | — | | | 8.1 | |
| Net loss | — | | | — | | | — | | | (157.7) | | | — | | | (157.7) | |
Other comprehensive (loss) income, net (b) | — | | | — | | | — | | | — | | | (13.2) | | | (13.2) | |
| Balance, December 31, 2019 | $ | 0.5 | | | $ | 1,071.9 | | | $ | (33.5) | | | $ | (2,012.7) | | | $ | (247.4) | | | $ | (1,221.2) | |
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| | | | | | | | | | | |
(a) Pursuant to the share withholding provisions of the Fourth Amended and Restated Revlon, Inc. Stock Plan (as amended, the "Stock Plan"), the Company withheld an aggregate of 148,620 and 92,260 shares of Revlon Class A Common Stock during the years ended December 31, 2020 and 2019, respectively, to satisfy certain minimum statutory tax withholding requirements related to the vesting of restricted shares and restricted stock units ("RSUs") for certain senior executives and employees. These withheld shares were recorded as treasury stock using the cost method, at a weighted-average price per share of $10.98 and $17.75 during the years ended December 31, 2020 and 2019, respectively, based on the closing price of Revlon Class A Common Stock as reported on the New York Stock Exchange (the "NYSE") consolidated tape on each respective vesting date, for a total of approximately $1.7 million and $1.6 million during the years ended December 31, 2020 and 2019, respectively. See Note 12, "Stock Compensation Plan," for details regarding restricted stock awards and RSUs under the Stock Plan.
(b) See Note 14, "Accumulated Other Comprehensive Loss," regarding the changes in the accumulated balances for each component of other comprehensive loss during the years ended December 31, 2020 and 2019, respectively.
See Accompanying Notes to Audited Consolidated Financial Statements
REVLON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in millions)
| | | | | | | | | | | | | |
| Year Ended December 31, | | |
| 2020 | | 2019 | | |
| CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | |
| Net loss | $ | (619.0) | | | $ | (157.7) | | | |
| Adjustments to reconcile net loss to net cash used in operating activities: | | | | | |
| Depreciation and amortization | 143.3 | | | 162.9 | | | |
| Foreign currency (gains) losses from re-measurement | (6.0) | | | (1.9) | | | |
| Amortization of debt discount | 1.4 | | | 1.6 | | | |
| Stock-based compensation amortization | 10.4 | | | 8.1 | | | |
| Impairment charges | 144.1 | | | 0 | | | |
| Provision (benefit) from deferred income taxes | 152.8 | | | (29.8) | | | |
| | | | | |
| Amortization of debt issuance costs | 26.8 | | | 14.6 | | | |
| | | | | |
| Gain on divested assets | (0.5) | | | (26.6) | | | |
| Pension and other post-retirement cost | 4.0 | | | 7.2 | | | |
| Gain on early extinguishment of debt | (43.1) | | | 0 | | | |
| Paid-in-kind interest expense on the 2020 BrandCo Facilities | 10.8 | | | 0 | | | |
| Change in assets and liabilities: | | | | | |
| Decrease (increase) in trade receivables | 76.7 | | | 9.3 | | | |
| (Increase) decrease in inventories | (8.4) | | | 74.5 | | | |
| Decrease (increase) in prepaid expenses and other current assets | 8.0 | | | 16.8 | | | |
| (Decrease) increase in accounts payable | (53.1) | | | (73.2) | | | |
| (Decrease) increase in accrued expenses and other current liabilities | (9.9) | | | (42.4) | | | |
| Increase (decrease) in deferred revenue | 71.6 | | | 0 | | | |
| Pension and other post-retirement plan contributions | (9.8) | | | (12.1) | | | |
| Purchases of permanent displays | (30.8) | | | (46.2) | | | |
| Other, net | 33.4 | | | 26.6 | | | |
| Net cash used in operating activities | (97.3) | | | (68.3) | | | |
| CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | |
| Capital expenditures | (10.3) | | | (29.0) | | | |
| | | | | |
| | | | | |
| Proceeds from the sale of certain assets | 0 | | | 31.1 | | | |
| Net cash (used in) provided by investing activities | (10.3) | | | 2.1 | | | |
| CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | |
| Net increase (decrease) in short-term borrowings and overdraft | 4.3 | | | (17.3) | | | |
| Borrowings under the 2020 BrandCo Facilities | 880.0 | | | 0 | | | |
| Repurchases of the 5.75% Senior Notes | (281.4) | | | 0 | | | |
| Net borrowings (repayments) under the Amended 2016 Revolving Credit Facility | (133.5) | | | (62.6) | | | |
Net borrowings (repayments) under the 2019 Term Loan Facility (a) | (200.0) | | | 200.0 | | | |
| Repayments under the 2018 Foreign Asset-Based Term Loan | (31.4) | | | 0 | | | |
| Repayments under the 2016 Term Loan Facility | (11.5) | | | (18.0) | | | |
| Payment of financing costs | (122.0) | | | (15.3) | | | |
| Tax withholdings related to net share settlements of restricted stock and RSUs | (1.7) | | | (1.6) | | | |
| | | | | |
| Other financing activities | (0.3) | | | (0.9) | | | |
| Net cash provided by financing activities | 102.5 | | | 84.3 | | | |
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | 3.1 | | | (1.1) | | | |
Net increase (decrease) in cash, cash equivalents and restricted cash | (2.0) | | | 17.0 | | | |
Cash, cash equivalents and restricted cash at beginning of period (b) | 104.5 | | | 87.5 | | | |
Cash, cash equivalents and restricted cash at end of period (b) | $ | 102.5 | | | $ | 104.5 | | | |
| Supplemental schedule of cash flow information: | | | | | |
| Cash paid during the period for: | | | | | |
| Interest | $ | 238.6 | | | $ | 194.6 | | | |
| Income taxes, net of refunds | 18.6 | | | 9.9 | | | |
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| | Year Ended December 31, |
| | 2017 | | 2016 (as adjusted)(a) | | 2015 (as adjusted)(a) |
| CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | |
| Net (loss) income | $ | (183.2 | ) | | $ | (21.9 | ) | | $ | 56.1 |
|
| Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities: | | | | | |
| Depreciation and amortization | 155.8 |
| | 123.2 |
| | 103.2 |
|
| Foreign currency (gains) losses from re-measurement | (22.5 | ) | | 20.6 |
| | 19.5 |
|
| Amortization of debt discount | 1.2 |
| | 1.4 |
| | 1.4 |
|
| Stock-based compensation amortization | 6.8 |
| | 6.4 |
| | 5.1 |
|
| Impairment charge | 10.8 |
| | 23.4 |
| | 9.7 |
|
| Provision for (benefit from) deferred income taxes | 22.6 |
| | (6.2 | ) | | 28.3 |
|
| Loss on early extinguishment of debt | — |
| | 16.9 |
| | — |
|
| Amortization of debt issuance costs | 9.1 |
| | 6.8 |
| | 5.7 |
|
| Loss (gain) on sale of certain assets | 1.6 |
| | 0.4 |
| | (6.4 | ) |
| Pension and other post-retirement cost (income) | 1.5 |
| | (0.6 | ) | | 19.0 |
|
| Change in assets and liabilities, net of acquisitions: | | |
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| Increase in trade receivables | (9.9 | ) | | (59.5 | ) | | (18.5 | ) |
| (Increase) decrease in inventories | (63.0 | ) | | 74.5 |
| | (30.6 | ) |
| Increase in prepaid expenses and other current assets | (21.2 | ) | | (8.2 | ) | | (13.4 | ) |
| Increase (decrease) in accounts payable | 26.8 |
| | (12.6 | ) | | 34.9 |
|
| Increase in accrued expenses and other current liabilities | 12.3 |
| | 11.7 |
| | 10.1 |
|
| Pension and other post-retirement plan contributions | (8.5 | ) | | (8.3 | ) | | (18.1 | ) |
| Purchases of permanent displays | (65.5 | ) | | (52.1 | ) | | (47.4 | ) |
| Other, net | (14.0 | ) | | 4.2 |
| | (0.5 | ) |
| Net cash (used in) provided by operating activities | (139.3 | ) | | 120.1 |
| | 158.1 |
|
| CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | |
| Capital expenditures | (108.3 | ) | | (59.3 | ) | | (48.3 | ) |
| Business acquisition, net of acquired cash | — |
| | (1,028.7 | ) | | (41.7 | ) |
| Proceeds from the sale of certain assets | — |
| | 0.5 |
| | 6.2 |
|
| Net cash used in investing activities | (108.3 | ) | | (1,087.5 | ) | | (83.8 | ) |
| CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | |
| Net increase (decrease) in short-term borrowings and overdraft | 3.3 |
| | — |
| | 23.0 |
|
| Net borrowings under the 2016 Revolving Credit Facility | 157.0 |
| | — |
| | |
| Repayments under the 2016 Term Loan Facility | (18.0 | ) | | (4.5 | ) | | |
| Prepayments under the Old Acquisition Term Loan | — |
| | (15.1 | ) | | (19.3 | ) |
| Prepayments under the 2011 Term Loan | — |
| | (11.5 | ) | | (12.1 | ) |
| Repayment of Old Acquisition Term Loan | — |
| | (658.6 | ) | | — |
|
| Repayment of 2011 Term Loan | — |
| | (651.4 | ) | | — |
|
| Borrowings under the 2016 Term Loan Facility | — |
| | 1,791.0 |
| | — |
|
| Proceeds from the issuance of 6.25% Senior Notes | — |
| | 450.0 |
| | — |
|
| Payment of financing costs | (1.2 | ) | | (61.6 | ) | | — |
|
| Tax withholdings related to net share settlements of restricted stock units and awards | (2.5 | ) | | (3.2 | ) | | (2.8 | ) |
| Treasury stock purchased | — |
| | (2.7 | ) | | — |
|
| Other financing activities | (1.7 | ) | | (2.5 | ) | | (3.7 | ) |
| Net cash provided by (used in) financing activities | 136.9 |
| | 829.9 |
| | (14.9 | ) |
| Effect of exchange rate changes on cash and cash equivalents | 11.3 |
| | (2.6 | ) | | (7.8 | ) |
Net (decrease) increase in cash, cash equivalents and restricted cash | (99.4 | ) | | (140.1 | ) | | 51.6 |
|
| Cash, cash equivalents and restricted cash at beginning of period | 186.8 |
| | 326.9 |
| | 275.3 |
|
| Cash, cash equivalents and restricted cash at end of period | $ | 87.4 |
| | $ | 186.8 |
| | $ | 326.9 |
|
| Supplemental schedule of cash flow information: | | | | | |
| Cash paid during the period for: | | | | | |
| Interest | $ | 149.1 |
| | $ | 91.7 |
| | $ | 79.9 |
|
| Income taxes, net of refunds | 0.4 |
| | 21.9 |
| | $ | 25.4 |
|
| | | | | | | | | | | |
| Supplemental schedule of non-cash investing and financing activities: | | | |
| | | |
| Non-cash roll-up of participating lenders from the 2016 Term Loan Facility to the 2020 BrandCo Facilities | $ | 846.0 | | | $ | 0 | |
| | | |
| | | |
| | | |
| Paid-in-kind debt issuance costs capitalized to the 2020 BrandCo Facilities | 29.1 | | | 0 | |
| Paid-in-kind interest capitalized to the 2020 BrandCo Facilities | 9.6 | | | 0 | |
| Paid-in-kind fees for the B-2 Loans in the November 5.75% Senior Notes Exchange Offer | 17.5 | | | 0 | |
(a) The Company fully repaid the 2019 Term Loan Facility in May 2020.
(a)Adjusted(b)These amounts include restricted cash of $5.4 million and $0.2 million as of December 31,2020 and 2019, respectively. The balance as of December 31, 2020 represents: (i) cash on deposit in lieu of a resultmandatory prepayment under the 2018 Foreign Asset-Based Term Facility; and (ii) cash on deposit to support outstanding undrawn letters of credit. The balance as of December 31, 2019 represents: (i) cash on deposit in lieu of a mandatory prepayment under the adoption2018 Foreign Asset-Based Term Facility; and (ii) cash on deposit to support outstanding undrawn letters of certain accounting pronouncements beginning on January 1, 2017. See Note 1, "Descriptioncredit. These balances were included within prepaid expenses and other current assets and other assets in the Company's Consolidated Balance Sheets as of BusinessDecember 31, 2020 and SummaryDecember 31, 2019, respectively.
of Significant Accounting Policies - Recently Adopted Accounting Pronouncements," for details of these adjustments.
See Accompanying Notes to Audited Consolidated Financial Statements
REVLON INC.CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in millions, except share and per share amounts)
| | | | | | | | | | | |
| December 31, 2020 | | December 31, 2019 |
| | | |
| ASSETS | | | |
| Current assets: | | | |
| Cash and cash equivalents | $ | 97.1 | | | $ | 104.3 | |
| Trade receivables, less allowance for doubtful accounts of $13.0 and $11.4 as of December 31, 2020 and December 31, 2019, respectively | 352.3 | | | 423.4 | |
| Inventories, net | 462.6 | | | 448.4 | |
| Prepaid expenses and other assets | 130.5 | | | 131.4 | |
| Receivable from Revlon, Inc. | 170.0 | | | 161.2 | |
| Total current assets | 1,212.5 | | | 1,268.7 | |
| Property, plant and equipment, net of accumulated depreciation of $528.9 and $488.1 as of December 31, 2020 and December 31, 2019, respectively | 352.0 | | | 408.6 | |
| Deferred income taxes | 34.1 | | | 158.1 | |
| Goodwill | 563.7 | | | 673.7 | |
| Intangible assets, net of accumulated amortization and impairment of $296.8 and $226.4 as of December 31, 2020 and December 31, 2019, respectively | 430.8 | | | 490.7 | |
| Other assets | 109.1 | | | 121.1 | |
| Total assets | $ | 2,702.2 | | | $ | 3,120.9 | |
| | | |
| LIABILITIES AND STOCKHOLDER'S DEFICIENCY | | | |
| Current liabilities: | | | |
| Short-term borrowings | $ | 2.5 | | | $ | 2.2 | |
| Current portion of long-term debt | 217.5 | | | 288.0 | |
| Accounts payable | 203.3 | | | 251.8 | |
| Accrued expenses and other current liabilities | 423.2 | | | 418.2 | |
| | | |
| Total current liabilities | 846.5 | | | 960.2 | |
| Long-term debt | 3,105.0 | | | 2,906.2 | |
| Long-term pension and other post-retirement plan liabilities | 212.4 | | | 181.2 | |
| Other long-term liabilities | 241.3 | | | 162.7 | |
| | | |
| Stockholder's deficiency: | | | |
| Products Corporation Preferred stock, par value $1.00 per share; 1,000 shares authorized; 546 shares issued and outstanding as of December 31, 2020 and December 31, 2019, respectively | 54.6 | | | 54.6 | |
| Products Corporation Common Stock, par value $1.00 per share; 10,000 shares authorized; 5,260 shares issued and outstanding as of December 31, 2020 and December 31, 2019, respectively | 0 | | | 0 | |
| Additional paid-in capital | 1,006.9 | | | 996.5 | |
| Accumulated deficit | (2,486.6) | | | (1,893.1) | |
| Accumulated other comprehensive loss | (277.9) | | | (247.4) | |
| Total stockholder's deficiency | (1,703.0) | | | (1,089.4) | |
| Total liabilities and stockholder's deficiency | $ | 2,702.2 | | | $ | 3,120.9 | |
See Accompanying Notes to Consolidated Financial Statements
REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(dollars in millions)
| | | | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, | | |
| | | | |
| | | | | 2020 | | 2019 | | |
| | | | | | | | | |
| Net sales | | | | | $ | 1,904.3 | | | $ | 2,419.6 | | | |
| Cost of sales | | | | | 860.5 | | | 1,052.2 | | | |
| Gross profit | | | | | 1,043.8 | | | 1,367.4 | | | |
| Selling, general and administrative expenses | | | | | 1,064.6 | | | 1,308.7 | | | |
| Acquisition, integration and divestiture costs | | | | | 5.0 | | | 3.9 | | | |
| Restructuring charges and other, net | | | | | 49.7 | | | 12.8 | | | |
| Impairment charges | | | | | 144.1 | | | 0 | | | |
| Gain on divested assets | | | | | (0.5) | | | (26.6) | | | |
| Operating (loss) income | | | | | (219.1) | | | 68.6 | | | |
| Other expenses: | | | | | | | | | |
| Interest expense, net | | | | | 243.3 | | | 196.6 | | | |
| | | | | | | | | |
| Amortization of debt issuance costs | | | | | 26.8 | | | 14.6 | | | |
| Gain on early extinguishment of debt | | | | | (43.1) | | | 0 | | | |
| Foreign currency gains, net | | | | | (6.0) | | | (1.9) | | | |
| Miscellaneous, net | | | | | 12.9 | | | 16.4 | | | |
| Other expenses | | | | | 233.9 | | | 225.7 | | | |
| Loss from continuing operations before income taxes | | | | | (453.0) | | | (157.1) | | | |
| Provision for (benefit from) income taxes | | | | | 140.5 | | | 1.6 | | | |
| Loss from continuing operations, net of taxes | | | | | (593.5) | | | (158.7) | | | |
| Income from discontinued operations, net of taxes | | | | | 0 | | | 7.5 | | | |
| Net loss | | | | | $ | (593.5) | | | $ | (151.2) | | | |
| Other comprehensive income (loss): | | | | | | | | | |
Foreign currency translation adjustments(a) | | | | | 10.2 | | | (2.9) | | | |
Amortization of pension related costs, net of tax(b)(c) | | | | | 11.4 | | | 9.0 | | | |
Pension re-measurement, net of tax (d) | | | | | (52.1) | | | (19.3) | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Other comprehensive loss, net | | | | | (30.5) | | | (13.2) | | | |
| Total comprehensive loss | | | | | $ | (624.0) | | | $ | (164.4) | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
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| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
(a)Net of tax expense of NaN and $1.8 million for the years ended December 31, 2020 and 2019, respectively.
(b)Net of tax expense of NaN and $1.1 million for the years ended December 31, 2020 and 2019, respectively.
(c)This amount is included in the computation of net periodic benefit costs (income). See Note 11, "Pension and Post-Retirement Benefits," for additional information regarding net periodic benefit costs (income).
(d)Net of tax benefit of $1.9 million and $5.2 million for the years ended December 31, 2020 and 2019, respectively.
See Accompanying Notes to Consolidated Financial Statements
REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDER'S DEFICIENCY
(dollars in millions)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Preferred Stock | | Additional Paid-In Capital | | | | Accumulated Deficit | | Accumulated Other Comprehensive (Loss) Income | | Total Stockholder's Deficiency |
| | | | | | | | | | | |
| Balance, January 1, 2020 | $ | 54.6 | | | $ | 996.5 | | | | | $ | (1,893.1) | | | $ | (247.4) | | | $ | (1,089.4) | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Stock-based compensation amortization | — | | | 10.4 | | | | | — | | | — | | | 10.4 | |
| Net loss | — | | | — | | | | | (593.5) | | | — | | | (593.5) | |
Other comprehensive (loss) income, net (a) | — | | | — | | | | | — | | | (30.5) | | | (30.5) | |
| Balance, December 31, 2020 | $ | 54.6 | | | $ | 1,006.9 | | | | | $ | (2,486.6) | | | $ | (277.9) | | | $ | (1,703.0) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Preferred Stock | | Additional Paid-In Capital | | | | Accumulated Deficit | | Accumulated Other Comprehensive (Loss) Income | | Total Stockholder's Deficiency |
| | | | | | | | | | | |
| Balance, January 1, 2019 | $ | 54.6 | | | $ | 988.4 | | | | | $ | (1,741.9) | | | $ | (234.2) | | | $ | (933.1) | |
| | | | | | | | | | | |
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| | | | | | | | | | | |
| Stock-based compensation amortization | — | | | 8.1 | | | | | — | | | — | | | 8.1 | |
| Net loss | — | | | — | | | | | (151.2) | | | — | | | (151.2) | |
Other comprehensive (loss) income, net (a) | — | | | — | | | | | — | | | (13.2) | | | (13.2) | |
| Balance, December 31, 2019 | $ | 54.6 | | | $ | 996.5 | | | | | $ | (1,893.1) | | | $ | (247.4) | | | $ | (1,089.4) | |
| | | | | | | | | | | |
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(a)See Note 14, "Accumulated Other Comprehensive Loss," regarding the changes in the accumulated balances for each component of other comprehensive loss during the years ended December 31, 2020 and 2019, respectively.
See Accompanying Notes to Consolidated Financial Statements
REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in millions)
| | | | | | | | | | | | | |
| Year Ended December 31, | | |
| 2020 | | 2019 | | |
| CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | |
| Net loss | $ | (593.5) | | | $ | (151.2) | | | |
| Adjustments to reconcile net loss to net cash used in operating activities: | | | | | |
| Depreciation and amortization | 143.3 | | | 162.9 | | | |
| Foreign currency (gains) losses from re-measurement | (6.0) | | | (1.9) | | | |
| Amortization of debt discount | 1.4 | | | 1.6 | | | |
| Stock-based compensation amortization | 10.4 | | | 8.1 | | | |
| Impairment charges | 144.1 | | | 0 | | | |
| Benefit from deferred income taxes | 134.9 | | | (30.0) | | | |
| | | | | |
| Amortization of debt issuance costs | 26.8 | | | 14.6 | | | |
| | | | | |
| Gain on divested assets | (0.5) | | | (26.6) | | | |
| Pension and other post-retirement cost | 4.0 | | | 7.2 | | | |
| Gain on early extinguishment of debt | (43.1) | | | 0 | | | |
| Paid-in-kind interest expense on the 2020 BrandCo Facilities | 10.8 | | | 0 | | | |
| Change in assets and liabilities: | | | | | |
| Decrease (increase) in trade receivables | 76.7 | | | 9.3 | | | |
| (Increase) decrease in inventories | (8.4) | | | 74.5 | | | |
| Decrease (increase) in prepaid expenses and other current assets | (0.9) | | | 7.4 | | | |
| (Decrease) increase in accounts payable | (53.1) | | | (73.2) | | | |
| (Decrease) increase in accrued expenses and other current liabilities | (9.9) | | | (39.3) | | | |
| Increase (decrease) in deferred revenue | 71.6 | | | 0 | | | |
| Pension and other post-retirement plan contributions | (9.8) | | | (12.1) | | | |
| Purchases of permanent displays | (30.8) | | | (46.2) | | | |
| Other, net | 34.7 | | | 26.6 | | | |
| Net cash used in operating activities | (97.3) | | | (68.3) | | | |
| CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | |
| Capital expenditures | (10.3) | | | (29.0) | | | |
| | | | | |
| | | | | |
| Proceeds from the sale of certain assets | 0 | | | 31.1 | | | |
| Net cash (used in) provided by investing activities | (10.3) | | | 2.1 | | | |
| CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | |
| Net increase (decrease) in short-term borrowings and overdraft | 4.3 | | | (17.3) | | | |
| Borrowings under the 2020 BrandCo Facilities | 880.0 | | | 0 | | | |
| Repurchases of the 5.75% Senior Notes | (281.4) | | | 0 | | | |
| Net borrowings (repayments) under the Amended 2016 Revolving Credit Facility | (133.5) | | | (62.6) | | | |
Net borrowings (repayments) under the 2019 Term Loan Facility (a) | (200.0) | | | 200.0 | | | |
| Repayments under the 2018 Foreign Asset-Based Term Loan | (31.4) | | | 0 | | | |
| Repayments under the 2016 Term Loan Facility | (11.5) | | | (18.0) | | | |
| Payment of financing costs | (122.0) | | | (15.3) | | | |
| Tax withholdings related to net share settlements of restricted stock and RSUs | (1.7) | | | (1.6) | | | |
| | | | | |
| Other financing activities | (0.3) | | | (0.9) | | | |
| Net cash provided by financing activities | 102.5 | | | 84.3 | | | |
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | 3.1 | | | (1.1) | | | |
| Net increase (decrease) in cash, cash equivalents and restricted cash | (2.0) | | | 17.0 | | | |
Cash, cash equivalents and restricted cash at beginning of period (b) | 104.5 | | | 87.5 | | | |
Cash, cash equivalents and restricted cash at end of period (b) | $ | 102.5 | | | $ | 104.5 | | | |
| Supplemental schedule of cash flow information: | | | | | |
| Cash paid during the period for: | | | | | |
| Interest | $ | 238.6 | | | $ | 194.6 | | | |
| Income taxes, net of refunds | 18.6 | | | 9.9 | | | |
| | | | | |
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| Supplemental schedule of non-cash investing and financing activities: | | | | | |
| | | | | |
| Non-cash roll-up of participating lenders from the 2016 Term Loan Facility to the 2020 BrandCo Facilities | $ | 846.0 | | | $ | 0 | | | |
| | | | | |
| | | | | |
| | | | | |
| Paid-in-kind debt issuance costs capitalized to the 2020 BrandCo Facilities | 29.1 | | | 0 | | | |
| Paid-in-kind interest capitalized to the 2020 BrandCo Facilities | 9.6 | | 0 | | | |
| Paid-in-kind fees for the B-2 Loans in the November 5.75% Senior Notes Exchange Offer | 17.5 | | 0 | | | |
(a) The Company fully repaid the 2019 Term Loan Facility in May 2020.
(b)These amounts include restricted cash of $5.4 million and $0.2 million as of December 31,2020 and 2019, respectively, The balance as of December 31, 2020 represents: (i) cash on deposit in lieu of a mandatory prepayment under the 2018 Foreign Asset-Based Term Facility; and (ii) cash on deposit to support outstanding undrawn letters of credit. The balance as of December 31, 2019 represents: (i) cash on deposit in lieu of a mandatory prepayment under the 2018 Foreign Asset-Based Term Facility; and (ii) cash on deposit to support outstanding undrawn letters of credit. These balances were included within prepaid expenses and other current assets and other assets in the Company's Consolidated Balance Sheets as of December 31, 2020 and December 31, 2019, respectively.
See Accompanying Notes to Consolidated Financial Statements
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions, except share and per share amounts)
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revlon, Inc. ("Revlon" 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 is an indirect majority-owned subsidiary of MacAndrews & Forbes Incorporated (together with certain of its affiliates other than the Company, "MacAndrews & Forbes"), a corporation wholly-ownedbeneficially owned by Ronald O. Perelman.
Mr. Perelman is Chairman of Revlon's and Products Corporation's Board of Directors.
The Company is a leading global beauty company with an iconic portfolio of brands. The Companybrands that develops, manufactures, markets, distributes and sells an extensive array of color cosmetics,cosmetics; hair color, hair care and hair treatments, fragrances,treatments; fragrances; skin care,care; beauty tools,tools; men’s grooming products,products; anti-perspirant deodorantsdeodorants; and other beauty care products across a variety of distribution channels. The Company is building a combined organization that is entrepreneurial, agile and boldly creative, with a passion for beauty. The Company has strategic brand builders developing a diverse portfolio of iconic brands that delight consumers around the world wherever and however they shop for beauty. The Company strives to be an ethical company that values inclusive leadership and is committed to sustainable and responsible growth.
The Company operates in four4 brand-centric reporting segments: the consumer division ("Consumer");units that are aligned with its organizational structure based on 4 global brand teams: Revlon; Elizabeth Arden; Portfolio; and Fragrances, which represent the professional division ("Professional");Company's 4 reporting segments. For further information, refer to Note 16, "Segment Data and Other. The Company’s principal customers for its products in the Consumer segment include large volume retailers, chain drug and food stores, chemist shops, hypermarkets, general merchandise stores, e-commerce sites, television shopping, department stores, one-stop shopping beauty retailers, specialty cosmetics stores and perfumeries in the U.S. and internationally. The Company's principal customers for its products in the Elizabeth Arden segment include prestige retailers, the mass retail channel, perfumeries, boutiques, department and specialty stores, e-commerce sites and travel retailers and distributors, as well as direct sales to consumers via Elizabeth Arden branded retail stores and e-commerce business. Elizabeth Arden products are also sold through the Elizabeth Arden Red Door Spa beauty salons and spas. The Company's principal customers for its products in the Professional segment include hair and nail salons and distributors to professional salons in the U.S. and internationally. The Other segment primarily includes the operating results related to the development, marketing and distribution of certain licensed fragrances and other beauty products.Related Information."
Unless the context otherwise requires, all references to the Company mean Revlon and its subsidiaries.subsidiaries, including, without limitation, its wholly-owned operating subsidiary, Products Corporation. Revlon as a public holding company, has no business operations of its own and owns, as its only material asset, all of the outstanding capital stock of Products Corporation.As such, its net income/(loss) has historically consisted predominantly of the net income/(loss) of Products Corporation, and in 2017, 20162020 and 20152019 included $6.6 million, $9.4$7.2 million and $9.0$7.9 million, respectively, in expenses incidental to being a public holding company.
The accompanying Consolidated Financial Statements include the Company's accounts after the elimination of all material intercompany balances and transactions. In management's opinion, all adjustments necessary for a fair presentation of the Company's financial information have been made.
Certain prior year amounts have been reclassified to conform to the current year presentation.
The preparation of the Company's Consolidated Financial Statements in conformity with U.S. generally accepted accounting principles ("U.S. GAAP") requires management to make estimates and assumptions that affect amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the financial statements and reported amounts of revenues and expenses during the periods presented. Actual results could differ from these estimates. Estimates and assumptions are reviewed periodically and the effects of revisions are reflected in the Consolidated Financial Statements in the period they are determined to be necessary. Significant estimates made in the accompanying Consolidated Financial Statements include, but are not limited to, allowances for doubtful accounts, inventory valuation reserves,to: expected sales returns and allowances, trade support costs,returns; certain assumptions related to the valuation of acquired intangible and long-lived assets and the recoverability of goodwill, intangible and long-lived assets,assets; income taxes, including deferred tax valuation allowances and reserves for estimated tax liabilities, restructuring costs,liabilities; and certain estimates and assumptions used in the calculation of the net periodic benefit (income) costs and the projected benefit obligations for the Company’s pension and other post-retirement plans, including the expected long-term return on pension plan assets and the discount rate used to value the Company’s pension benefit obligations.
Discontinued Operations Presentation
As a result of the Company's decision on December 30, 2013 to exit its direct manufacturing, warehousing and sales business operations in mainland China within the Consumer segment, the Company has reported the results of its former China operations within income (loss) from discontinued operations, net of taxes in the Company's Consolidated Statements of Operations and Comprehensive (Loss) Income for all periods presented. See Note 4, "Discontinued Operations," for further discussion.
REVLON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions, except share and per share amounts)
Cash, Cash Equivalents and Restricted Cash
Cash and cash equivalents are primarilyinclude cash in banks and highly liquid investments in high-quality, short-term money market instruments with original maturitiesmaturity dates of three months or less and are carried at cost, which approximates fair value. Cash equivalents were $2.0 million and $2.5 million as of December 31, 2017 and 2016, respectively.less. Accounts payable include $21.8$15.2 million and $19.3$13.3 million of outstanding checks not yet presented for payment at December 31, 20172020 and 2016,2019, respectively. The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the statements of financial position that sum to the total of the same such amounts shown in the statements of cash flows:
| | | | | | | | | | | | | | |
| | December 31, |
| | 2020 | | 2019 |
| Cash and cash equivalents | | $ | 97.1 | | | $ | 104.3 | |
Restricted cash(a) | | 5.4 | | | 0.2 | |
| Total cash, cash equivalents and restricted cash | | $ | 102.5 | | | $ | 104.5 | |
|
| | | | | | | | | | | | |
| | | December 31, |
| | | 2017 | | 2016 | | 2015 |
| | | | | | | |
| Cash and cash equivalents | | $ | 87.1 |
| | $ | 186.4 |
| | $ | 326.9 |
|
Restricted cash(a) | | 0.3 |
| | 0.4 |
| | — |
|
| Total cash, cash equivalents and restricted cash | | $ | 87.4 |
| | $ | 186.8 |
| | $ | 326.9 |
|
(a)Amounts included in restricted cash represent cash on deposit to support the Company's letters of credit and is included within other assets in the Company's consolidated balance sheets.
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions, except share and per share amounts)
Trade Receivables
Trade receivables 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 period end. The Company grants credit terms in the normal course of business to its customers. Trade credit is extended based upon periodically updated evaluations of each customer's ability to perform its payment obligations. The Company does not normally require collateral or other security to support credit sales. The allowance for doubtful accounts is determined based on historical experience and ongoing evaluations of the Company's receivables and assessments of the risks of payment. The allowance for doubtful accounts is recorded against trade receivable balances when they are deemed uncollectible. Recoveries of trade receivables previously reserved are recorded in the consolidated statements of operations and comprehensive (loss) income when received. At December 31, 2017 and 2016, the Company's three largest customers accounted for an aggregate of approximately 31%41% and 27%, respectively,33% of the Company's outstanding trade receivables.
receivables at December 31, 2020 and 2019, respectively.
Inventories
Inventories are stated at the lower of cost or net realizable value. Cost is based on standard cost and production variances, which approximates actual cost on the first-in, first-out method. Cost components include direct materials, direct labor and direct overhead, as well as in-bound freight. The Company records adjustments to the value of its inventory based upon its forecasted plans to sell products included in inventory, as well as planned product discontinuances. 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, sales 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 as follows: land improvements, 20 to 30 years; buildings and improvements, 5 to 50 years; machinery and equipment, 3 to 15 years; counters and trade fixtures, 3 to 5 years; office furniture and fixtures, 3 to 15 years; and capitalized software, 2 to 10 years. Leasehold improvements and building improvements are amortized over their estimated useful lives or over the terms of the leases or remaining life of the original structure, whichever is shorter. Repairs and maintenance are charged to the statement of operations as incurred, and expenditures for additions and improvements are capitalized. Counters and trade fixtures are amortized over their estimated useful life of the in-store counter and display related assets. The estimated useful life may be subject to change based upon declines in net sales and/or changes in merchandising programs. See Note 7,5, "Property, Plant and Equipment," for further discussion.
Included in other assets are permanent wall displays amounting to $84.8$82.2 million and $64.1$101.0 million as of December 31, 20172020 and 2016,2019, respectively, which are amortized generally over a period of 1 to 3 years. In the event of product discontinuances, from time-to-time, the Company may accelerate the amortization of related permanent wall displays based on the estimated remaining useful life of the asset. Amortization expense for permanent wall displays was $55.4 million, $47.8$50.1 million and $41.3$55.6 million for 2017, 20162020 and 2015,2019, respectively.
REVLON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions, except share and per share amounts)
The Company capitalizes deferred financing costs related to the issuance of its revolving credit facilities, which costs were $5 million and $6 million as of December 31, 2017 and 2016, respectively, and amortizes such costs over the terms of the related debt instruments using the effective-interest method.
Long-lived assets, such as property, plant and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group 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. There were no significant0 impairment charges to long-lived assets during the years ended December 31, 2017, 20162020 and 2015.2019, respectively.
GoodwillDeferred Financing Costs
The Company capitalizes financing costs and amortizes such costs over the terms of the related debt instruments using the effective-interest method. Capitalized financing costs were $119.3 million and NaN during 2020 and 2019, respectively.
Leases
The Company adopted Accounting Standards Update ("ASU") No. 2016-02, "Leases (Topic 842)" ("ASU No. 2016-02" or "ASC 842"), beginning as of January 1, 2019, using a modified retrospective approach and applying the standard’s transition provisions at the effective date of January 1, 2019. ASU No. 2016-02 requires that a lessee recognize, for both finance leases and operating leases, a liability to make lease payments (the lease liability) and a Right-of-Use (“ROU”) asset representing its right to use the underlying leased asset for the lease term. The lease liability is equal to the present value of the lease payments and the ROU asset is based on the lease liability, subject to certain adjustments, such as pre-payments, initial direct costs, lease incentives and accrued rent. In addition, upon adoption the Company elected the available practical expedients allowed by the guidance under:
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions, except share and per share amounts)
•ASC 842-10-15-37, by not separating lease components from non-lease components and instead accounting for all components as a single lease component for all of its classes of underlying assets, i.e., for any type of equipment leases and real estate leases; and
•ASC 842-10-65-1, by not reassessing at the transition date: (i) whether any expired or existing contracts are or contain leases; (ii) lease classification for any expired or existing leases; and (iii) initial direct costs for any existing leases.
The Company determines if an arrangement is a lease at inception, considering whether the contract conveys a right to control the use of the identified asset for a period of time in exchange for consideration. Operating leases are included in ROU assets, recorded within “Property, Plant and Equipment,” and operating lease liabilities are recorded within either "Accrued expenses and other current liabilities" and/or "Other long-term liabilities" in the Company’s consolidated balance sheets. Finance leases are included in ROU assets recorded within “Property, Plant and Equipment,” and finance lease liabilities are recorded within either "Accrued expenses and other current liabilities" and/or "Other long-term liabilities" in the Company’s consolidated balance sheets, given their immateriality.
As most of the Company’s leases do not provide the lease implicit rates, the Company uses its incremental borrowing rates as the discount rate, adjusted as applicable, based on the information available at the lease commencement dates to determine the present value of lease payments. The Company may use the lease implicit rate, when readily determinable, as the discount rate to determine the present value of lease payments.
Lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Operating lease expense is recognized on a straight-line basis over the applicable lease term.
At lease commencement, for initial measurement, variable lease payments that do not depend on an index or rate, if any, are excluded from lease payments. Subsequent to initial measurement, these variable payments are recognized when the event determining the amount of the variable consideration to be paid occurs. Leases with an initial lease term of 12 months or less are not included in the lease liability or ROU asset.
After adoption, ROU assets and lease liabilities for operating leases are measured in accordance with the guidance in ASC 842-20-35-3, and ROU assets and lease liabilities for finance leases are measured in accordance with the guidance in ASC 842-30-35-1. The Company’s ROU assets for operating or finance leases are subject to the impairment guidance in ASC 360, Property, Plant, and Equipment.
See Note 5, "Property, Plant and Equipment," for further information on the Company's leases.
Goodwill
Goodwill represents the excess purchase price for businesses acquired over the fair value of net assets acquired. Goodwill is not amortized, but rather it is reviewed annually for impairment at the reporting unit level using October 1st1st carrying values, or when there is evidence that events or changes in circumstances indicate that the Company’s carrying amount may not be recovered.
In accordance with ASC Topic 350, “Intangibles – Goodwill and Other,” the Company performs its annual impairment test during the fourth quarter of each year. The Company also reviews goodwill for impairment whenever events or changes in circumstances indicate that the carrying value of its goodwill may not be recoverable. After the close of each interim quarter, management assesses whether there exists any indicators of impairment requiring the Company to perform an interim goodwill impairment analysis.
In performing its goodwill impairment assessments, the Company uses the simplified approach allowed under ASU No. 2017-04, "Simplifying the Test for Goodwill Impairment." Following the results of such assessments, the Company records non-cash impairment charges in the amount by which the carrying value of each reporting unit exceeded its respective fair value, limited to the amount of each reporting unit's goodwill. Impairment charges are included as a separate component of operating income within the "Impairment charges" caption on the face of the Company's Consolidated Statement of Operations and Comprehensive Loss for the applicable quarter-to-date and year-to-date periods.
During 2020, the Company performed interim goodwill impairment analyses during the first, second and third quarters of the year, which resulted in the recognition of $99.8 million and $11.2 million of non-cash goodwill impairment charges in the first and second quarter of 2020, respectively, as further specified in Note 6, "Goodwill and Intangible Assets, Net".
For 2017,2020, in assessing whether goodwill was impaired in connection with its annual impairment testtesting performed during the fourth quarter of 20172020 using October 1,st, 2017 2020 carrying values, the Company, performed qualitative assessments to determine whether it would be necessary to perform the two-step process, as prescribed byin accordance with Financial Accounting
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions, except share and per share amounts)
Standards Board ("FASB"), Accounting Standard Codification ("ASC") 350, Intangibles - Goodwill and Other ("ASC 350"), to assessperformed a qualitative assessment for its Revlon reporting unit and quantitative assessments for its (i) Elizabeth Arden Skin and Color, (ii) Elizabeth Arden Fragrances, (iii) Fragrances, and (iv) Professional Portfolio reporting units. As further specified in Note 6, "Goodwill", the Company's indefinite-lived intangible assets for indicatorsMass Portfolio reporting unit no longer has any goodwill associated with it starting from the second quarter of impairment. In performing the qualitative assessments,2020.
For 2019, the Company considered the results of the step one test performed in 2016 and the financial performance of the (i) Revlon, Almay and Other; (ii) Elizabeth Arden; and (iii) Professional reporting units. Based upon such assessment, the Company determined that it was more likely thandid not that the fair values of these reporting units exceeded their carrying amounts for 2017.
However, for 2017, the Company determined that it would utilize the two-step process to test the Global Color Brands ("GCB") reporting unit for impairment. In the first step of this test, the Company compared the fair value of the GCB reporting unit, determined based upon its discounted estimated future cash flows, to its carrying amount, including goodwill. The results of the step one test indicated that impairment indicators existed for the GCB reporting unit due to continued net sales declines for both the SinfulColors and the Pure Ice brands and lower promotional activity for the Pure Ice brand.
In the second step, the Company measured the potential impairment of the GCB reporting unit by comparing the implied fair value with the carrying amount of its goodwill at October 1, 2017. The implied fair value of the GCB reporting unit's goodwill was determined in the same manner as the amount of goodwill recognized in a business combination, where the estimated fair value of the GCB reporting unit was allocated to all of the assets and liabilities of that reporting unit (including both recognized and unrecognized intangible assets) as if GCB had been acquired in a business combination and the estimated fair value of the GCB reporting unit was the purchase price paid. When the carrying amount of a reporting unit's goodwill is greater than the implied fair value of its goodwill, an impairment loss is recognized. The Company determined the fair value of the GCB reporting unit using discounted estimated future cash flows. The weighted-average cost of capital used in testing the reporting unit for impairment was 12% with a perpetual growth rate of 2%. As a result of this annual impairment test, the Company recognized an aggregate $10.8 million non-cashhave any goodwill impairment charge related to the GCB reporting unit in the fourth quarter of 2017. Following the recognition of this non-cash goodwill impairment charge, the GCB reporting unit had $14.8 million in remaining goodwill as of December 31, 2017.charges.
For 2016, the Company utilized the two-step process in assessing whether goodwill was impaired for each of the Company's then-existing four reporting units, namely (i) Revlon, Almay and Other; (ii) GCB; (iii) Professional; and (iv) Other (comprised of the CBB business). As a result of the annual impairment testing for 2016, the Company recognized a $16.7 million non-cash goodwill impairment charge related to the Other reporting unit in the fourth quarter of 2016.
For 2015, the Company utilized the two-step process in assessing whether goodwill was impaired for each of the Company's four reporting units. As a result of the 2015 annual impairment test, the Company recognized a $9.7 million non-cash goodwill impairment charge related to the GCB reporting unit in the fourth quarter of 2015.
See Note 2, "Business Combinations," and Note 8,6, "Goodwill and Intangible Assets, Net," for further discussion ofinformation on the Company's goodwill and annual impairment test.testing.
Intangible Assets, net
Intangible Assets, net, include trade names and trademarks, customer relationships, patents and internally developed intellectual property ("IP") and acquired licenses.
Indefinite-lived intangible assets, consisting of certain trade names, are not amortized, but rather are tested for impairment annually during the fourth quarter using October 1st carrying values similar to
REVLON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts goodwill, in millions, except share and per share amounts)
goodwill,accordance with ASC 350, and the Company recognizes an impairment if the carrying amount of its intangible assets exceeds its fair value. Intangible assets with finite useful lives are amortized over their respective estimated useful lives to their estimated residual values. The Company writes off the gross carrying amount and accumulated amortization for intangible assets in the year in which the asset becomes fully amortized.
Finite-lived intangible assets are considered for impairment under ASC 360-10, Impairment and Disposal of Long-Lived Assets ("ASC 360"), upon the occurrence of certain "triggering events" and the Company recognizes an impairment if the carrying amount of the long-lived asset group exceeds the Company's estimate of the asset group's undiscounted future cash flows. No
During 2020, in connection with the interim goodwill impairment assessments during the first, second and third quarters of 2020, the Company also reviewed indefinite-lived and finite-lived intangible assets for impairment. These interim reviews resulted in no interim impairment charges in connection with the carrying value of any of the Company's finite-lived intangible assets and in $24.5 million and $8.6 million of interim non-cash impairment charges in the first and second quarter of 2020, respectively, in connection with the Company's indefinite-lived intangible assets, as further specified in Note 6, "Goodwill and Intangible Assets, Net".
For 2020 and 2019, 0 impairment was recognized related to the carrying value of any of the Company's finite or indefinite-lived intangible assets as a result of the annual impairment test for the years ended December 31, 2017 and 2015.
As a result of the 2016 annual impairment tests (described above), the Company also recognized a $6.7 million non-cash intangible assets impairment charge in the fourth quarter of 2016 related to the Other reporting unit.testing.
See Note 2, "Business Combinations," and Note 8,6, "Goodwill and Intangible Assets, Net," for further discussion of the Company's intangible assets, including a summary of finite-lived and indefinite-lived intangible assets.
Revenue Recognition and Sales Returns
The Company follows ASU No. 2014-09, "Revenue from Contracts with Customers". In accordance with the guidance, the Company's policy is to recognize revenue at an amount that reflects the consideration that the Company expects that it will be entitled to receive in exchange for transferring goods or services to its customers. The Company's policy is to record revenue when persuasive evidencecontrol of an arrangement exists, delivery has occurred, the sales price is fixed or determinable and collection is probable. The Company records revenue from the sale of its products when risk of loss and title to the productsgoods transfers to the customer. Net sales are comprised of gross revenues from sales of products less expected product returns, trade discounts and customer allowances, which include costs associated with off-invoice mark-downs and other price reductions, as well as trade promotions and 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 if and when they meet certain Company-established criteria as set forth in the Company's trade terms. The Company regularly reviews and revises, when deemed necessary, its estimates of sales returns based primarily upon the historical rate of actual product returns, planned product discontinuances, new product launches and estimates of customer inventory and promotional sales. TheFor returned products that the Company expects to resell at a profit, the Company records, in addition to sales returns as a reduction to sales and cost of sales and an increase to accrued liabilities and inventories. Returned products, which are recorded as inventories, arefor the amount expected to be refunded to the customer, an increase to the asset account used to reflect the Company's right to recover products. The amount of the asset account is valued based upon the former carrying amount of the product (i.e., inventory), less any expected costs to recover the products. As the estimated product returns that are expected to be resold at a profit do not comprise a significant amount of the Company's net sales or assets, the Company expectsdoes not separately report these amounts.
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions, except share and per share amounts)
The Company's revenues are also net of certain marketing arrangements with its retail customers. Pursuant to realize uponits trade terms with these retail customers, the Company reimburses them for a portion of their subsequent disposition. The physical conditionadvertising costs, which provide advertising benefits to the Company. These arrangements are in the form of marketing development funds and/or cooperative advertising programs and marketability of the returned products are the major factors consideredused by the Company in estimating their realizable value.to drive sales. The advertising programs follow an annual schedule of planned events that is continually updated based on the Company's perceived needs and contractual terms. As these marketing expenditures cannot be directly linked to product sales, the Company records these expenses as a reduction of revenue at the higher of actual spend or estimated costs based on a reserve rate methodology. In limited instances when products are sold under consignment arrangements, the Company does not recognize revenue until control over such products has transferred to the end consumer. Other revenues, primarily royalties, do not comprise a material amount of the Company's net sales.
Revenues derivedThe Company incurs costs associated with product distribution, such as freight and handling costs. The Company has elected to treat these costs as fulfillment activities and recognizes these costs at the same time that it recognizes the underlying product revenue.
See Note 16, "Segment Data and Related Information," for additional disclosures related to ASU No. 2014-09, "Revenue from licensing arrangements, including any pre-payments, are recognized in the period in which they are earned, but not before the initial license term commences.Contracts with Customers".
Cost of Sales
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 cost represents 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 their net realizable value. These costs are reflected in the Company’s consolidated statements of operations and comprehensive (loss) income 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 their recoverable value. Additionally, cost of sales reflects the costs associated with anycertain free products included as sales and promotional incentives. These incentive costs are recognized onat the later of the datesame time that the Company recognizes the related revenue or the date on which the Company offers the incentive.revenue.
Selling, General and Administrative Expenses
Selling, general and administrative ("SG&A") expenses include expenses to advertise the Company's products, such as television advertising production costs and air-time costs, print advertising costs, digital marketing costs, promotional displays and consumer promotions. SG&A expenses also include the amortization of permanent wall displays and finite-lived intangible assets, depreciation of certain fixed assets, distribution costs (such as freight and handling), non-manufacturing overhead (principally personnel and related expenses), selling and trade educations fees, insurance and professional service fees.
Advertising
Advertising within SG&A expenses includes television, print, digital marketing and other advertising production costs that are expensed the first time the advertising takes place. The costs of promotional displays are expensed in the period in which they are shipped to customers. Advertising expenses were $550.0 million, $421.1$332.1 million and $368.7$446.8 million for 2017, 20162020 and 2015,2019, respectively, andwhich were included in SG&A expenses in the Company's consolidated statements of operations and comprehensive (loss) income. The Company also 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
REVLON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions, except share and per share amounts)
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 placement, shelf placement costs, slotting fees and marketing development funds, if any, are expensed as incurred and are recorded as a reduction within net sales.
Distribution Costs
Costs associated with product distribution, such as freight and handling costs, are recorded within SG&A expenses when incurred. Distribution costs were $131.1 million, $98.4$106.9 million and $80.2$135.7 million for 2017, 20162020 and 2015,2019, respectively.
Income Taxes
Income taxes are calculated using the asset and liability method. Under this method, the Company recognizes deferred tax assets and liabilities for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of assets and liabilities and their respective tax bases, as well as for operating loss and tax credit carryforwards. The Company measures deferred tax assets and liabilities using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The Company recognizes the effect of a change in income tax rates on deferred tax assets and liabilities in income in the period that includes the enactment
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions, except share and per share amounts)
date. The Company records valuation allowances to reduce deferred tax assets when management determines that it was more likely than not that a tax benefit will not be realized.
The Company recognizes a tax position in its financial statements when management determines that it was more likely than not that the position will be sustained upon examination, based on the merits of such position. The Company recognizes liabilities for unrecognized tax positions in the U.S. and other tax jurisdictions based on an estimate of whether and the extent to which additional taxes will be due. If payment of these amounts is ultimately not required, the reversal of the liabilities would result in additional tax benefits recognized in the period in which the Company determines that the liabilities are no longer required. If the estimate of tax liabilities is ultimately less than the final assessment, this will result in a further charge to expense. The Company recognizes interest and penalties related to income tax matters in income tax expense. See Note 16,13, "Income Taxes," to the Consolidated Financial Statements in this Form 10-K for discussion of the Tax Act (as hereinafter defined).additional disclosures.
Research and Development
Research and development expenditures are expensed as incurred and included within SG&A expenses. The amounts charged in 2017, 20162020 and 20152019 for research and development expenditures were $35.7 million, $37$29.3 million and $31.2$40.3 million, respectively.
Foreign Currency Translation
Assets and liabilities of foreign operations, whose functional currency is the local currency, are translated into U.S. Dollars at the rates of exchange in effect at the balance sheet date. Income and expense items are 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 the sale or upon the complete or substantially complete liquidation by the Company of its investment in a foreign entity. To the extent that foreign subsidiaries and branches operate in hyperinflationary economies, non-monetary assets and liabilities are translated at historical rates and translation adjustments are included in the Company's results of operations.
Basic and Diluted Earnings per Common Share and Classes of Stock
Shares used in basic earnings per share are computed using the weighted-average number of common shares outstanding during each period. Shares used in diluted earnings per share include the dilutive effect of unvested restricted shares and restricted stock units ("RSUs") issued under the stock planStock Plan using the treasury stock method. (See Note 20, "Basic17, "Revlon, Inc. Basic and Diluted Earnings (Loss) Per Common Share").
Stock-Based Compensation
The Company recognizes stock-based compensation costs for its restricted stock and restricted stock units, measured at the fair value of each award at the time of grant, as an expense over the period during which an employee is required to provide service. Upon the vesting of restricted stock and RSUs, any resulting tax benefits are recognized in the consolidated statements of operations and comprehensive (loss) income as the awards vest or are settled. The Company reflects such excess tax benefits as cash flows from financing activities in the consolidated statements of cash flows. The Company accounts for forfeitures as a reduction of compensation cost in the period when such forfeitures occur.
Derivative Financial InstrumentsLiquidity and Ability to Continue as a Going Concern
The Company is exposedongoing and prolonged COVID-19 pandemic has continued to certain risks relating to its ongoing business operations. The Company uses derivative financial instruments, including: (i) foreign currency forward exchange contracts ("FX Contracts") intended for the purpose of managing foreign currency exchange risk by reducing the effects of fluctuations in foreign currency exchange rates onadversely impact the Company’s business in 2020 and beyond, as social-distancing restrictions and related actions designed to curb the spread of the virus have remained in place or have been reinstated as the COVID-19 pandemic spikes across the globe. These adverse economic conditions have resulted in the general slowdown of the global economy, in turn contributing to a significant decline in net sales within each of the Company’s reporting segments and regions.
On October 23, 2020, Products Corporation commenced an amended exchange offer (as amended, the “Exchange Offer”) to exchange any and all of its outstanding 5.75% Senior Notes due 2021 (the “5.75% Senior Notes”), which closed on November 13, 2020. In the Exchange Offer, for each $1,000 principal amount of 5.75% Senior Notes validly tendered, holders received either, at their option, (i) $275 in cash (plus a $50 early tender/consent fee payable if such 5.75% Senior Notes were tendered at or before 11:59 p.m. New York City time on November 10, 2020 (the “Expiration Time”)), for an aggregate of $325 in cash (the “Cash Consideration”), or (ii) if the holder was an Eligible Holder, a combination of (1) $200 in cash (plus a $50 early tender/consent fee payable if such 5.75% Senior Notes were tendered at or before the Expiration Time), for an aggregate of $250 in cash, plus, (2) (A) the Per $1,000 Pro Rata Share (as hereinafter defined) of $50 million aggregate principal amount of new 2020 ABL FILO Term Loans (as hereinafter defined) and (B) the Per $1,000 Pro Rata Share of $75 million aggregate principal amount of the New BrandCo Second-Lien Term Loans (the “Mixed Consideration”). A holder was considered an “Eligible Holder” if the holder was: (a)(i) a qualified institutional buyer as defined in Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”); (ii) an institutional accredited investor within the meaning of Rule 501(a)(1), (a)(2),
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions, except share and per share amounts)
cash flows; and (ii) interest rate hedging transactions intended for the purpose of managing interest rate risk associated with Products Corporation’s variable rate indebtedness.
Foreign Currency Forward Exchange Contracts
Products Corporation enters into FX Contracts primarily to hedge the anticipated net cash flows resulting from inventory purchases and intercompany payments denominated in currencies other than the local currencies(a)(3) or (a)(7) of the Company’s foreignSecurities Act; or (iii) a person that is not a “U.S. person” within the meaning of Regulation S under the Securities Act, (b) not a natural person and domestic operations and generally have maturities of less than one year. The Company does(c) not apply hedge accounting to its FX Contracts. The Company records FX Contracts in its consolidated balance sheet at fair value and immediately recognizes changes in fair value in earnings. Fair value ofa “Disqualified Institution” (as defined under the Company’s FX Contracts is determined by using observable market transactions of spot and forward rates. See Note 13, "Financial Instruments," for further discussion of the Company's FX Contracts.
Interest Rate Swap
As a result of the Company completing several debt transactions in connection with the September 7,Amended 2016 acquisition of Elizabeth Arden, Inc. ("Elizabeth Arden," the "Elizabeth Arden Acquisition" and the "Elizabeth Arden Acquisition Date," respectively), the critical terms of the 2013 Interest Rate SwapRevolving Credit Facility (as hereinafter defined) no longer matchedand related security documents and intercreditor agreements or the 2020 BrandCo Term Loan Facility (as hereinafter defined) and related security documents and intercreditor agreements). The “Per $1,000 Pro Rata Share” is (1) $1,000, divided by (2) the aggregate principal amount of 5.75% Senior Notes tendered for Mixed Consideration by all Eligible Holders and accepted for payment by Products Corporation.
On November 13, 2020, the Company announced that the Exchange Offer was successfully consummated and that Products Corporation had accepted $236 million in aggregate principal amount of 5.75% Senior Notes tendered in the Exchange Offer. Products Corporation used cash on hand to redeem, effective as of November 13, 2020, the remaining $106.8 million in aggregate principal amount of 5.75% Senior Notes pursuant to the terms of the underlying debtindenture governing the 5.75% Senior Notes. Following the consummation of the Exchange Offer and the 2013 Interest Rate Swap was determined to no longer be highly effective. Accordingly,satisfaction and discharge of the remaining 5.75% Senior Notes, 0 5.75% Senior Notes remained outstanding.
On March 8, 2021, the Company discontinued hedge accounting foramended its Amended 2016 Revolving Credit Facility to, among other things, extend the 2013 Interest Rate Swap during the third quarter of 2016. Following the de-designationmaturity date of the 2013 Interest Rate Swap, changes inrevolving facility thereunder from September 7, 2021 to June 8, 2023. Additionally, on March 2, 2021, the fair valueCompany refinanced its 2018 Foreign Asset-Based Term Facility that was scheduled to mature on July 9, 2021 with a $75 million asset-based term loan facility with a scheduled maturity date of March 2, 2024, subject to a springing maturity date of August 1, 2023 if, on such date, any principal amount of loans under the 2013 Interest Rate Swap have been accounted for as a component of other non-operating expenses. Accumulated deferred losses on the 2013 Interest Rate Swap of $1.2 million, or $0.7 million net of tax, at December 31, 2017 that were previously recorded as a component of accumulated other comprehensive loss will be amortized into earnings over the remaining term of the 2013 Interest Rate Swap, which expires in May 2018. See Note 13, "Financial Instruments," for further discussion of the Company's 2013 Interest Rate Swap. Refer to Note 11, "Long-Term Debt," for2016 Term Loan Agreement due September 7, 2023 remain outstanding. For further details related toof these financing transactions, see Note 21, “Subsequent Events”.
Each reporting period, the Elizabeth Arden Acquisition and related debt restructuring transactions.
Recently Adopted Accounting Pronouncements
In August 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update ("ASU") No. 2014-15, "Disclosure of Uncertainties about and Entity's Ability to Continue as a Going Concern," which requires an entity to evaluate whether conditions or events, in the aggregate, raise substantial doubt about the entity'sCompany assesses its ability to continue as a going concern for one year from the date the financial statements are issuedissued. At December 31, 2020, the Company had a liquidity position of $249.9 million, consisting of: (i) $97.1 million of unrestricted cash and cash equivalents (with approximately $89.8 million held outside the U.S.); (ii) $168.0 million in available borrowing capacity under Products Corporation's Amended 2016 Revolving Credit Facility (which had $188.9 million drawn at such date); and less (iii) approximately $15.2 million of outstanding checks.The Company's evaluation includes its ability to meet its future contractual obligations and other conditions and events that may impact its liquidity.
The uncertainty as to Products Corporation’s ability to extend or are availablerefinance the Amended 2016 Revolving Credit Facility raised substantial doubt about the Company’s ability to be issued. The Company adopted ASU 2014-15 on January 1, 2017continue as a going concern as of the end of the third quarter of 2020. As a result of the transactions that were completed during the fourth quarter of 2020 and the adoptionfirst quarter of this guidance did not have2021, substantial doubt about the Company’s ability to continue as a material impactgoing concern no longer exists. However, the Company continues to focus on cost reduction and risk mitigation actions to address both the ongoing and prolonged impacts from the COVID-19 pandemic as well as other risks in the business environment. It expects to generate additional liquidity through continued actions related to the Revlon 2020 Restructuring Program and other cost control initiatives as well as funds provided by selling certain assets or other strategic transactions in connection with the Company's ongoing Strategic Review. If sales continue to decline, the Company’s cost control initiatives may include reductions in discretionary spend and reductions in investments in capital and permanent displays. Management believes that the recent successful closing of the Exchange Offer and the other recent debt activities, along with existing cash and cash equivalents and cost control initiatives provides the Company with sufficient liquidity to meet its obligations and maintain business operations for the next twelve months.
However, there can be no assurance that available funds will be sufficient to meet the Company’s cash requirements on a consolidated basis, as, among other things, the Company’s liquidity can be impacted by a number of factors, including its level of sales, costs and expenditures, as well as accounts receivable and inventory, which serve as the principal variables impacting the amount of liquidity available under the Amended 2016 Revolving Credit Facility and the 2018 Foreign Asset-Based Term Facility. For example, subject to certain exceptions, loans under the 2018 Foreign Asset-Based Term Facility must be prepaid to the extent that outstanding loans exceed the borrowing base, consisting of accounts receivable and inventory.
Recent Transactions
On December 22, 2020, certain of the Company's subsidiaries and Helen of Troy Limited (the “Licensee”) entered into a Trademark License Agreement (the “License Agreement”) to combine and revise the existing licenses that are in place between the parties. The License Agreement grants the Licensee the exclusive right to use the “Revlon” brand in connection with the manufacture, display, advertising, promotion, labeling, sale, marketing and distribution of certain hair and grooming products until December 31, 2060 (with 3 additional 20-year renewal periods) in exchange for a one-time, upfront cash fee of $72.5 million, which is included as deferred revenue within Other long-term liabilities and Accrued expenses and other current
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions, except share and per share amounts)
liabilities on the Company's financial statement disclosures.Consolidated Balance Sheets. The deferred revenue will be amortized to royalty income within "Net Sales" on the Company's Consolidated Statement of Operations over a period of 26 years, estimated based on the point in time in which 90% of the total discounted cash flows is captured.
Recently Evaluated and/or Adopted Accounting Pronouncements
In March 2016,August 2018, the FASB issued ASU No. 2016-09, "Improvements2018-14, "Compensation-Retirement Benefits-Defined Benefit Plans-General (Subtopic 715): Disclosure Framework-Changes to Employee Share-Based Payment Accounting," which simplifiesthe Disclosure Requirements for Defined Benefit Plans.” This new guidance removes certain aspects of accountingdisclosures that are not considered cost beneficial, clarifies certain required disclosures and requires certain additional disclosures. This guidance is effective for share-based payment transactions, including transactions in which an employee uses shares to satisfy the employer’s minimum statutory income tax withholding obligations, forfeitures and income taxes when awards vest or are settled.fiscal years ending after December 15, 2020. The Company adopted ASU No. 2016-09 beginning on January 1, 2017 and the adoption of this guidance did not have(on a materialretrospective basis for certain new additional disclosures), as of December 31, 2020. This pronouncement only affects disclosure items and has no impact on the Company’s results of operations, financial condition and/or financial statement disclosures. The adoption of ASU No. 2016-09 resulted in tax withholdings related to net share settlements of restricted stock units and awards in the amount of $3.2 million and $2.8 million for 2016 and 2015, respectively, previously reported in the Consolidated Statement of Cash Flows as a component of cash flows from operating activities, to be reclassified as a component of cash flows from financing activities.
In July 2015,August 2018, the FASB issued ASUAccounting Standard Update ("ASU") No. 2015-11, "Inventory (Topic 330): Simplifying the Measurement of Inventory,2018-15, "Internal Use Software (Subtopic 350-40) - Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract," which simplifiesrequires a customer in a cloud computing hosting arrangement that is a service contract to follow the subsequent measurement of inventories by requiring inventoryexisting guidance in ASC 350-40 on internal-use software to determine which implementation costs are to be measured at the lower of costdeferred and recognized as an asset and which costs are to be expensed as incurred. This guidance is effective for annual periods beginning after December 15, 2019, with early adoption permitted, and may be applied either retrospectively or net realizable value, rather than at the lower of cost or market. Net realizable value is defined as the estimated selling price in the ordinary course of business, less reasonably predictableprospectively to all software implementation costs of completion, disposal and transportation.incurred after adoption. The Company adopted ASU No. 2015-112018-15 prospectively, beginning onas of January 1, 2017 and the2020. The adoption of this new guidance did not have a material impact on the Company’s results of operations, financial condition and/or financial statement disclosures.
Recently Issued AccountingPronouncements
In November 2016,March 2020, the FASB issued ASU No. 2016-18, "Statement2020-04, "Reference Rate Reform (Topic 848): Facilitation of Cash Flows (Topic 230): Restricted Cash,the Effects of Reference Rate Reform on Financial Reporting." whichThe new guidance under ASU 2020-04 provides specific guidance on the presentation of changes in restricted cashoptional expedients and restricted cash equivalents on the statement of cash flows. Under the new standard, the changes in restricted cashexceptions for applying U.S. GAAP to contracts, hedging relationships and restricted cash equivalentsother transactions affected by reference rate reform if certain criteria are requiredmet. The amendments apply only to contracts and hedging relationships that reference LIBOR or another reference rate expected to be disclosed in reconciling the openingdiscontinued due to reference rate reform. These amendments are effective immediately and closing balancesmay be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on the statement of cash flows.or before December 31, 2022. The Company adoptedis in the process of assessing the impact, if any, that ASU No. 2016-18 during the fourth quarter of 2017 and the adoption of this new guidance did not2020-04 is expected to have a material impact on the Company’s results of operations, financial condition and/or financial statement disclosures, other than requiringdisclosures.
In December 2019, the FASB issued ASU No. 2019-12, "Income Taxes (Topic 740) - Simplifying the Accounting for Income Taxes," which removes certain exceptions for recognizing deferred taxes for investments, performing intra-period allocations, calculating income taxes in interim periods and how a company accounts for future events. This ASU also adds guidance to reduce complexity in certain areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group. This guidance is effective for annual periods beginning after December 15, 2020, with early adoption permitted, including adoption in any interim period. An entity that elects to early adopt the amendments in an interim period should reflect any adjustments as of the beginning of the annual period that includes that interim period. After reviewing this ASU, the Company will adopt this guidance beginning as of January 1, 2021. The Company completed its assessment of the possible effects of this ASU upon its implementation and determined that it is not expected to reconcile its cash balances from its statementshave significant impacts on the Company’s results of operations, financial positioncondition and/or financial statement disclosures.
In June 2016, the FASB issued ASU No. 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments," which was subsequently amended in November 2018 through ASU No. 2018-19, "Codification Improvements to its statementsTopic 326, Financial Instruments - Credit Losses." ASU No. 2016-13 will require entities to estimate lifetime expected credit losses for trade and other receivables, net investments in leases, financing receivables, debt securities and other instruments, which will result in earlier recognition of cash flows andcredit losses. Further, the new credit loss model will affect how entities in all industries estimate their allowance for losses for receivables that are current with respect to their payment terms. In November 2019, the FASB issued ASU No. 2019-10, which, among other things, deferred the application of the new guidance on credit losses for smaller reporting companies ("SRC") to fiscal years beginning after December 15, 2022, including restricted cashinterim periods within those fiscal years. This guidance will be applied through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective (i.e., a modified-retrospective approach). Under the above-mentioned deferral, the Company expects to adopt ASU No. 2016-03, and ending balancesthe related ASU No. 2018-19 amendments, beginning as of cash withinJanuary 1, 2023 and is in the Company's statementprocess of cash flow.
assessing the impact, if any, that this
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions, except share and per share amounts)
Recently Issued Accounting Pronouncements
In February 2018, the FASB issued ASU No. 2018-02, "Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income," which will permit entities to reclassify tax effects stranded in accumulated other comprehensive income as a result of tax reform to retained earnings. This new guidance can be applied retrospectively and provides entities with the option to reclassify the amounts. The new guidance is effective for annual and quarterly periods beginning after December 15, 2018, with early adoption permitted, and requires entities to make new disclosures regardless of whether they elect to reclassify tax effects. The Company is in the process of evaluating the impact that this new guidance is expected to have on its financial statements and/or financial statement disclosures.
In March 2017, the FASB issued ASU No. 2017-07, "Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost," which changes the way that employers present net periodic pension cost ("NPPC") and net periodic postretirement benefit cost ("NPPBC") within the income statement. The amendment requires an employer to present the service cost component of NPPC and NPPBC in the same income statement line item(s) as other employee compensation costs arising from services rendered during the period. The other components of NPPC and NPPBC would be presented separately from this line item and below any subtotal of operating income; companies will need to disclose the line items used to present these other components of NPPC and NPPBC, if not separately presented in the statement of operations. In addition, only the service cost component would be eligible for capitalization in assets. This guidance is effective retrospectively for annual and quarterly periods beginning after December 15, 2017, with early adoption permitted. The Company adopted ASU No. 2017-07 beginning as of January 1, 2018, and the Company expects that substantially all of the 2018 projected cost of approximately $9.0 million will be presented below operating income in the Company's 2018 Statement of Operations and Comprehensive (Loss) Income.
In January 2017, the FASB issued ASU No. 2017-04, "Simplifying the Test for Goodwill Impairment," which simplifies the annual goodwill impairment analysis test by eliminating Step 2 of the current two-step impairment test. Under the new guidance, an entity would continue to perform the first step of the annual impairment test by comparing the carrying amount of a reporting unit with its fair value. If the carrying value of the reporting unit exceeds the fair value of the reporting unit, the goodwill impairment charge would be equal to the amount of such difference. This guidance is effective for annual periods beginning after December 15, 2019, with early adoption permitted. The Company expects to adopt ASU No. 2017-04 beginning as of January 1, 2020 and is in the process of assessing the impact that this new guidance is expected to have on the Company’s results of operations, financial condition and/or financial statement disclosures.
2. RESTRUCTURING CHARGES
Revlon 2020 Restructuring Program
Building upon its previously completed 2018 Optimization Program, in March 2020 the Company announced that it was implementing a worldwide organizational restructuring (the “Revlon 2020 Restructuring Program”) designed to reduce the Company’s selling, general and administrative expenses, as well as cost of goods sold, improve the Company’s gross profit and Adjusted EBITDA and maximize productivity, cash flow and liquidity. The Revlon 2020 Restructuring Program includes rightsizing the organization and operating with more efficient workflows and processes. The leaner organizational structure is also expected to improve communication flow and cross-functional collaboration, leveraging the more efficient business processes.
As a result of the Revlon 2020 Restructuring Program, the Company expects to eliminate approximately 975 positions worldwide, including approximately 625 current employees and approximately 350 open positions of which approximately 915 were eliminated by December 31, 2020. In January 2017,March 2020, the FASB issued ASU No. 2017-01, "ClarifyingCompany began informing certain employees that were affected by the DefinitionRevlon 2020 Restructuring Program. While certain aspects of a Business," which further clarifies the definitionRevlon 2020 Restructuring Program may be subject to consultations with employees, works councils, unions and/or governmental authorities, the Company substantially completed the employee-related actions in 2020 and expects to complete the other consolidation and outsourcing actions during 2021 and 2022.
In connection with implementing the Revlon 2020 Restructuring Program, the Company recognized during 2020 $68.8 million of a business in an effort to assist entities in evaluating whether a settotal pre-tax restructuring and related charges (the “2020 Restructuring Charges”), consisting primarily of transferred assets constitutes a business. Under this new guidance, ifemployee-related costs, such as severance, retention and other contractual termination benefits. The Company expects that substantially all of the fair valuerestructuring and related charges under the Revlon 2020 Restructuring Program will be paid in cash, with $51.5 million of gross assets acquired is concentratedthe total charges paid in a single asset or similar asset group,2020, with the set of transferred assets would not meet the definition of a business and no further evaluation is necessary. If this threshold is not met, the entity would then evaluate whether the set of transferred assets and activities meets the requirement that a business include, at a minimum, an input and a process that together have the ability to create an output. This guidance is effective for annual and quarterly periods beginning after December 15, 2017, with early adoption permitted. The Company expects to adopt ASU No. 2017-01 beginning as of January 1, 2018 and expects that this new guidance will not have an impact on the Company’s results of operations, financial condition and/or financial statement disclosures.
In August 2016, the FASB issued ASU No. 2016-15, "Classification of Certain Receipts and Cash Payments," which aims to standardize how certain transactions are classified within the Statement of Cash Flows, including, among other issues, debt prepayment and extinguishment costs and contingent consideration payments made after a business combination. This guidance is effective for annual periods beginning after December 15, 2017, with early adoption permitted. The Company will adopt ASU No. 2016-15 beginning as of January 1, 2018 and is in the process of assessing the impact that this new guidance isremaining balance expected to have onbe paid after 2020.
A summary of the Company’s results of operations, financial condition and/or financial statement disclosures.
In February 2016, the FASB issued ASU No. 2016-02, "Leases (Topic 842)," which requires lessees to recognize a right-of-use asset2020 Restructuring Charges incurred since its inception in March 2020 and a liability on the balance sheet for all leases, with the exception of short-term leases. The lease liability will be equal to the present value of lease payments and the right-of-use asset will be based on the lease liability, subject to adjustment such as for initial direct costs. Leases will continue to be classified as either operating or finance leases in the income statement. This guidancethrough December 31, 2020 is effective for annual periods beginning after December 15, 2018, with early adoption permitted. The Company will adopt ASU No. 2016-02 beginning as of January 1, 2019 and is in the process of assessing the impact that this new guidance is expected to have on the Company’s results of operations, financial condition and/or financial statement disclosures.
In May 2014, the FASB issued ASU No. 2014-09, "Revenue from Contracts with Customers." This new standard will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The underlying principle of this new standard is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration for which the entity expects to be entitled in exchange for those goods or services. Entities may adopt this new standard either retrospectively for all periods presented in the financial statements (i.e.,following table:
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| Restructuring Charges and Other, Net | | | | | | |
| Employee Severance and Other Personnel Benefits | | Other Costs | | Total Restructuring Charges | | Leases (a) | | Other Related Charges (b) | | Total Restructuring and Related Charges |
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| Cumulative charges incurred through December 31, 2020 | $ | 48.6 | | | $ | 1.9 | | | $ | 50.5 | | | $ | 12.6 | | | $ | 5.7 | | | $ | 68.8 | |
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(a) Lease-related charges are recorded within SG&A in the full retrospective method) orCompany’s Consolidated Statement of Operations and Comprehensive Loss. These lease-related charges include: (i) $3.5 million for accelerated recognition of rent expense related to certain abandoned leases; (ii) $3.0 million for the disposal of leasehold improvements and other equipment in connection with certain leases; (iii) $5.2 million of rent expense related to the Revlon 2020 Restructuring Program; and (iv) $0.9 million of disposal of leasehold improvements and other equipment in connection with the abandoned leases identified in clause (i) of this footnote (a).
(b) Other related charges are recorded within SG&A and cost of sales in the Company’s Consolidated Statement of Operations and Comprehensive Loss.
A summary of the 2020 Restructuring Charges incurred since its inception in March 2020 and through December 31, 2020 by reportable segment is presented in the following table:
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| | Cumulative charges incurred through December 31, 2020 | |
| Revlon | | $ | 20.7 | | |
| Elizabeth Arden | | 9.4 | | |
| Portfolio | | 13.6 | | |
| Fragrances | | 6.8 | | |
| Total | | $ | 50.5 | | |
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions, except share and per share amounts)
as a cumulative-effect adjustment as2018 Optimization Restructuring Program
In November 2018, the Company announced that it was implementing the 2018 Optimization Restructuring Program (the "2018 Optimization Program") designed to streamline the Company’s operations, reporting structures and business processes, with the objective of maximizing productivity and improving profitability, cash flows and liquidity. The 2018 Optimization Program was substantially completed by December 31, 2019.
As of December 31, 2020, restructuring and related charges under the 2018 Optimization Program expected to be paid in cash are approximately $31.8 million of the datetotal $39.7 million of adoption (i.e.,recorded charges, of which $30.7 million were already paid since the modified retrospective method), without applying to comparative years’ financial statements.
In August 2015, the FASB issued ASU No. 2015-14, "Revenue from Contracts with Customers: Deferralinception of the Effective Date," which allows for a deferralprogram and through December 31, 2020, with any residual balance expected to be paid during 2021.
A summary of the adoption date for ASU No. 2014-09 until January 1,2018 Optimization Restructuring Charges incurred since its inception in November 2018 and permits early adoptionthrough December 31, 2020 is presented in the following table:
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| Restructuring Charges and Other, Net | | | | | | | | | | |
| Employee Severance and Other Personnel Benefits(a) | | Other Costs | | Total Restructuring Charges | | Inventory Adjustments(b) | | Other Related Charges(c) | | Total Restructuring and Related Charges | | | | |
| Charges incurred through December 31, 2019 | $ | 20.3 | | | $ | 0.3 | | | $ | 20.6 | | | $ | 4.9 | | | $ | 14.0 | | | $ | 39.5 | | | | | |
Charges incurred during the year ended December 31, 2020 | (0.6) | | | 0 | | | (0.6) | | | 0 | | | 0.8 | | | 0.2 | | | | | |
| Cumulative charges incurred through December 31, 2020 | $ | 19.7 | | | $ | 0.3 | | | $ | 20.0 | | | $ | 4.9 | | | $ | 14.8 | | | $ | 39.7 | | | | | |
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(a) Includes reversal due to true-up of ASU No. 2014-09, but not before the effective datepreviously-accrued restructuring charges.
(b) Inventory adjustments are recorded within cost of January 1, 2017.
The Company adopted ASU No. 2014-09 beginning as of January 1, 2018 using the modified retrospective method. While the Company is finalizing its assessment of all potential impacts of ASU No. 2014-09, given the nature of the Company's products and the terms and conditions applicable to sales to its customers, the timing and amount of revenue recognized based on the underlying principles of this new standard are consistent with the Company's revenue recognition policy under previous guidance. As a result, the Company does not currently expect that the adoption will have a material impact on its revenues, results of operations or financial position. The Company does, however, expect to expand its financial statement disclosures in order to comply with the new standard. The Company has drafted its accounting policy with respect to the new standard based on a review of its business. The new policy reflects updates to internal controls and processes to enable the preparation of financial information upon its adoption of ASU No. 2014-09.
2. BUSINESS COMBINATIONS
The Elizabeth Arden Acquisition
On the Elizabeth Arden Acquisition Date, the Company completed the Elizabeth Arden Acquisition for a total cash purchase price of $1,034.3 million pursuant to an agreement and plan of merger (the "Merger Agreement") by and among Revlon, Products Corporation, RR Transaction Corp. ("Acquisition Sub," then a wholly-owned subsidiary of Products Corporation), and Elizabeth Arden. On the Elizabeth Arden Acquisition Date, Elizabeth Arden merged (the "Merger") with and into Acquisition Sub, with Elizabeth Arden surviving the Merger as a wholly-owned subsidiary of Products Corporation.
In North America, Elizabeth Arden’s principal customers include prestige retailers, the mass retail channel, specialty stores, department stores and other retailers, distributors, e-commerce sites, as well as direct sales to consumers via its Elizabeth Arden branded retail stores and ElizabethArden.com e-commerce business. Elizabeth Arden products are also sold through the Elizabeth Arden Red Door Spa beauty salons and spas. Internationally, Elizabeth Arden’s portfolio of owned and licensed brands is sold to perfumeries, boutiques, department stores, travel retailers and distributors.
Products Corporation financed the Elizabeth Arden Acquisition with the proceeds from (i) a 7-year $1.8 billion senior secured term loan facility (the "2016 Term Loan Facility" and such agreement being the "2016 Term Loan Agreement"); (ii) $35 million of borrowings under a 5-year $400 million senior secured asset-based revolving credit facility (the "2016 Revolving Credit Facility" and such agreement being the "2016 Revolving Credit Agreement" and such facility, together with the 2016 Term Loan Facility, being the "2016 Senior Credit Facilities" and such agreements being the "2016 Credit Agreements"); (iii) $450 million aggregate principal amount of Products Corporation’s 6.25% Senior Notes due 2024 (the "6.25% Senior Notes"); and (iv) approximately $126.7 million of cash on hand. Refer to Note 11, "Long Term Debt" for further details related to financing the Elizabeth Arden Acquisition and related debt restructuring transactions.
Elizabeth Arden's results of operations are included in the Company’s Consolidated Financial Statements commencing onStatement of Operations and Comprehensive Loss.
(c) Other related charges are recorded within SG&A in the Elizabeth Arden Acquisition Date.Company’s Consolidated Statement of Operations and Comprehensive Loss.
ForA summary of the twelve months ended2018 Optimization Restructuring Charges incurred since its inception in November 2018 and through December 31, 2017,2020 by reportable segment is presented in the Company incurred $50 million of acquisition and integration costs in its consolidated statement of operations and comprehensive (loss) income related to the Elizabeth Arden Acquisition, which consisted of $49.2 million of integration costs and $0.8 million of acquisition costs. The integration costs consisted of non-restructuring costs related to integrating Elizabeth Arden's operations into the Company's business, including professional fees, lease termination costs and employee related costs. The acquisition costs primarily included legal fees directly attributable to the Elizabeth Arden Acquisition.following table:
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| | Charges incurred during the year ended December 31, 2020 | | Cumulative charges incurred through December 31, 2020 | |
| Revlon | | $ | (0.3) | | | $ | 8.5 | | |
| Elizabeth Arden | | (0.1) | | | 4.2 | | |
| Portfolio | | (0.1) | | | 3.9 | | |
| Fragrances | | (0.1) | | | 3.4 | | |
| Total | | $ | (0.6) | | | $ | 20.0 | | |
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions, except share and per share amounts)
Purchase Price of the Elizabeth Arden Acquisition
The components of the purchase price for the Elizabeth Arden Acquisition were as follows:
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Purchase price of Elizabeth Arden common stock (1) | $ | 431.5 |
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Repayment of Elizabeth Arden senior notes (2) | 350.0 |
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Repayment of Elizabeth Arden revolving credit facility, including accrued interest (3) | 142.5 |
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Repayment of Elizabeth Arden second lien credit facility, including accrued interest (3) | 25.0 |
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Repurchase of Elizabeth Arden preferred stock (4) | 55.0 |
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Payment of accrued interest and call premium on Elizabeth Arden Senior Notes (5) | 27.4 |
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Payment of Elizabeth Arden dividends payable at Elizabeth Arden Acquisition Date (6) | 2.9 |
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| Total Purchase Price | $ | 1,034.3 |
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(1) | All of Elizabeth Arden’s then issued and outstanding common stock was canceled and extinguished on the Elizabeth Arden Acquisition Date and converted into the right to receive $14 in cash per share, without interest, less any required withholding taxes, that was paid by Products Corporation upon the completion of the Elizabeth Arden Acquisition. The $431.5 million purchase price for Elizabeth Arden common stock included the settlement of all then outstanding Elizabeth Arden stock options and all then outstanding Elizabeth Arden restricted share units at the Elizabeth Arden Acquisition Date for a total cash payment of $11.1 million. |
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(2) | The purchase price included the repurchase of the entire $350 million aggregate principal amount then outstanding of Elizabeth Arden’s 7.375% senior notes due 2021 (the "Elizabeth Arden Old Senior Notes"). |
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(3) | The purchase price included the repayment of the entire $142 million aggregate principal amount of borrowings then outstanding as of the Elizabeth Arden Acquisition Date under Elizabeth Arden’s $300 million revolving credit facility and the entire $25 million aggregate principal amount of borrowings then outstanding as of the Elizabeth Arden Acquisition Date under Elizabeth Arden's second lien credit facility, each of which facilities were terminated as of the Elizabeth Arden Acquisition Date. |
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(4) | The purchase price included $55 million that was paid to retire the entire $55 million liquidation preference of all of the then issued and outstanding 50,000 shares of Elizabeth Arden preferred stock, par value $0.01 per share (the "Elizabeth Arden Preferred Stock"), which amount included a $5 million change of control premium. |
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(5) | Interest on the Elizabeth Arden Old Senior Notes accrued at a rate of 7.375% per annum and was payable semi-annually on March 15 and September 15 of every year. The approximately $12.3 million of accrued and unpaid interest was calculated based on 176 days of accrued interest as of the Elizabeth Arden Acquisition Date. Pursuant to the terms of the indenture governing the Elizabeth Arden Old Senior Notes, upon a change in control, such notes were repurchased at a price equal to 103.69% of their principal amount, plus accrued and unpaid interest and additional interest, if any, to the date of such repurchase. The repurchase of the Elizabeth Arden Old Senior Notes was consummated on October 7, 2016. |
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(6) | The purchase price included the payment of approximately $2.9 million in accrued dividends payable at the Elizabeth Arden Acquisition Date to the holders of the then outstanding Elizabeth Arden Preferred Stock. |
REVLON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions, except share and per share amounts)
Purchase Price Allocation
The Company accounted for the Elizabeth Arden Acquisition as a business combination during the third quarter of 2016. The Company finalized the allocation of the Elizabeth Arden purchase price to the Elizabeth Arden assets acquired and liabilities assumed in the third quarter of 2017, which resulted in several adjustments to their previously-disclosed estimated fair value (the "Measurement Period Adjustments"). The table below summarizes the allocation of the total consideration of $1,034.3 million paid on the Elizabeth Arden Acquisition Date, both as previously reported and as adjusted by the measurement period adjustments.
|
| | | | | | | | | | | |
| | Estimated Fair Value as Previously Reported(a) | | Measurement Period Adjustments | | Fair Value as Adjusted |
| Cash | $ | 41.1 |
| | $ | — |
| | $ | 41.1 |
|
| Accounts Receivable | 132.6 |
| | — |
| | 132.6 |
|
| Inventories | 323.3 |
| | — |
| | 323.3 |
|
| Prepaid expenses and other current assets | 30.7 |
| | — |
| | 30.7 |
|
| Property and equipment | 91.2 |
| | — |
| | 91.2 |
|
Deferred taxes, net (b) | 68.7 |
| | 10.0 |
| | 78.7 |
|
Intangible assets (c) | 336.8 |
| | (15.4 | ) | | 321.4 |
|
| Goodwill | 221.7 |
| | 12.3 |
| | 234.0 |
|
| Other assets | 16.6 |
| | — |
| | 16.6 |
|
| Total assets acquired | $ | 1,262.7 |
| | $ | 6.9 |
| | $ | 1,269.6 |
|
| Accounts payable | (116.0 | ) | | — |
| | (116.0 | ) |
Accrued expenses (d) | (109.3 | ) | | 1.7 |
| | (107.6 | ) |
Other long-term liabilities(e) | (3.1 | ) | | (8.6 | ) | | (11.7 | ) |
| Total liabilities assumed | $ | (228.4 | ) | | $ | (6.9 | ) | | $ | (235.3 | ) |
| Total consideration transferred | $ | 1,034.3 |
| | $ | — |
| | $ | 1,034.3 |
|
(a)As previously reported in Revlon's 2016 Form 10-K.
(b)The Measurement Period Adjustments to deferred taxes, net, related to net increases in deferred tax assets as a result of the changes to the estimated fair values and remaining useful lives of acquired trade name intangible assets and the recognition of non-qualified benefit plan obligations of Elizabeth Arden, as discussed further below.
(c) The Measurement Period Adjustments to intangible assets related to a revised approach in the determination of the fair values for the acquired Elizabeth Arden trade names. During the first quarter of 2017, the Company obtained further clarity into the product portfolio acquired through the Elizabeth Arden Acquisition, and, recognizing that each brand has its own distinct profile with its own defining attributes, as well as differing expected useful lives, determined that a revised valuation approach was needed. The Company valued the acquired trade names within the Elizabeth Arden product portfolio, including Visible Difference, Elizabeth Arden Ceramide, Prevage, Eight Hour, Elizabeth Arden Red Door, Elizabeth Arden Green Tea and Elizabeth Arden 5th Avenue. The Company determined the fair values of each acquired trade name using a risk-adjusted discounted cash flow approach, specifically the relief-from-royalty method, which requires identifying the hypothetical cash flows generated by an assumed royalty rate that a third party would pay to license the trade names, and discounting them back to the Elizabeth Arden Acquisition Date. The royalty rate used in the valuation of each acquired trade name was based on a consideration of market rates for similar categories of assets.
The difference between the preliminary valuation of the Elizabeth Arden trade name and the sum of the fair values of the individual trade names within the Elizabeth Arden product portfolio resulted in an increase to goodwill of $15.4 million, which was recorded in the fiscal quarter ended March 31, 2017. As a result of this revised approach, the Company recognized amortization expense of approximately $1.8 million in its consolidated statement of operations and comprehensive (loss) income in 2017 related to the amortization of the acquired trade names from the Elizabeth Arden Acquisition Date through December 31, 2016.
(d)The Measurement Period Adjustments to accrued expenses related to changes in estimated payments for acquisition-related costs.
(e)The Measurement Period Adjustments to other long-term liabilities related to the recognition of the projected benefit obligation of a certain foreign non-qualified benefit plan of Elizabeth Arden.
REVLON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions, except share and per share amounts)
In determining the fair values of net assets acquired in the Elizabeth Arden Acquisition and resulting goodwill, the Company considered, among other factors, the analyses of Elizabeth Arden's historical financial performance and an estimate of the future performance of the acquired business, as well as the intended use of the acquired assets.
Goodwill of $234 million represents the excess of the purchase price paid by Products Corporation for the Elizabeth Arden Acquisition over the fair value of the identifiable net assets acquired by Products Corporation in the Elizabeth Arden Acquisition. Factors contributing to the purchase price resulting in the recognition of goodwill include estimated annualized synergies and cost reductions, expanded category mix, channel diversification and a broader geographic footprint.
The intangible assets acquired in the Elizabeth Arden Acquisition based on the estimate of the fair values of the identifiable intangible assets are as follows:
|
| | | | | | | | | | | | | | | |
| | As Previously Reported(a) | | | | As Adjusted |
| | Estimated Fair Values | | Remaining Useful Life at the Elizabeth Arden Acquisition Date (in years) | | Measurement Period Adjustments(b) | | Fair Values | | Remaining Useful Life at the Elizabeth Arden Acquisition Date
(in years) |
| Trademarks, indefinite-lived | $ | 142.0 |
| | Indefinite | | $ | (103.0 | ) | | $ | 39.0 |
| | Indefinite |
| Trademarks, finite-lived | 15.0 |
| | 15 | | 87.6 |
| | 102.6 |
| | 5 - 20 |
| Technology | 2.5 |
| | 10 | | — |
| | 2.5 |
| | 10 |
| Customer relationships | 123.0 |
| | 16 | | — |
| | 123.0 |
| | 16 |
| License agreements | 22.0 |
| | 19 | | — |
| | 22.0 |
| | 19 |
| Distribution rights | 31.0 |
| | 18 | | — |
| | 31.0 |
| | 18 |
| Favorable lease commitments | 1.3 |
| | 3 | | — |
| | 1.3 |
| | 3 |
| Total acquired intangible assets | $ | 336.8 |
| | | | $ | (15.4 | ) | (b) | $ | 321.4 |
| | |
(a)As previously reported in Revlon's 2016 Form 10-K.
(b) The Measurement Period Adjustments to the Elizabeth Arden acquired trade names resulted in a $15.4 million increase to goodwill, which was recorded in the fiscal quarter ended March 31, 2017.
In 2017, the Company recorded a $54.8 million deferred tax liability related to the $321.4 million of acquired intangible assets outlined in the above table. This deferred tax liability represents the tax effect of the difference between the $321.4 million assigned fair value of the intangible assets and the $148.6 million tax basis of such assets.
The goodwill and intangible assets acquired in the Elizabeth Arden Acquisition are notexpected to be deductible for income tax purposes.
Unaudited Pro Forma Results
The following table presents the Company's pro forma consolidated net sales and income from continuing operations before income taxes for the years ended December 31, 2016 and 2015, respectively. The unaudited pro forma results include the historical consolidated statements of operations of the Company and Elizabeth Arden, giving effect to the Elizabeth Arden Acquisition and related financing transactions as if they had occurred at the beginning of the earliest period presented.
|
| | | | | | | | |
| | Unaudited Pro Forma Results |
| | | Year Ended December 31, |
| | | 2016 | | 2015 |
| Net sales | | $ | 2,858.9 |
| | $ | 2,863.5 |
|
| Loss from continuing operations, before income taxes | | (57.1 | ) | | (74.6 | ) |
REVLON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions, except share and per share amounts)
The pro forma results, prepared in accordance with U.S. GAAP, include the following pro forma adjustments related to the Elizabeth Arden Acquisition:
(i) as a result of a $38 million increase in the fair value of acquired inventory at the Elizabeth Arden Acquisition Date, the Company recognized a $20.7 million increase in its cost of sales during 2016 in its consolidated financial statements. The pro forma adjustments include an adjustment to reverse the $20.7 million recognized in the year ended December 31, 2016 within cost of sales because it does not have a recurring impact;
(ii) the elimination of $68.0 million of acquisition and integration costs recognized by the Company and Elizabeth Arden in connection with consummating the Elizabeth Arden Acquisition during 2016;
(iii) a $1.4 million pro forma decrease in depreciation as a result of the fair value adjustments to property and equipment for the twelve months ended December 31, 2016;
(iv) a $5.6 million pro forma increase in amortization expense of acquired finite-lived intangible assets recorded in connection with the Elizabeth Arden Acquisition for the twelve months ended December 31, 2016; and
(v) a pro forma increase in interest expense and amortization of debt issuance costs related to financing the Elizabeth Arden Acquisition and related debt restructuring transactions as summarized in the following table. Refer to Note 11, "Long Term Debt" for further details related to financing the Elizabeth Arden Acquisition and related debt restructuring transactions.
|
| | | | | | | | |
| | | Year Ended December 31, |
| ($ in millions) | | 2016 | | 2015 |
| Interest Expense | | | | |
| Pro forma interest on 2016 Senior Credit Facilities and 6.25% Senior Notes | | $ | 121.9 |
| | $ | 106.4 |
|
| Reversal of Elizabeth Arden’s historical interest expense | | (19.5 | ) | | (26.2 | ) |
| Company historical interest expense, as reflected in the historical consolidated financial statements | | (75.9 | ) | | (50.9 | ) |
| Total adjustment for pro forma interest expense | | $ | 26.5 |
| | $ | 29.3 |
|
| Debt issuance costs | | | | |
| Pro forma amortization of debt issuance costs | | $ | 8.1 |
| | $ | 8.1 |
|
| Company historical amortization of debt issuance costs, as reflected in the historical consolidated financial statements | | (3.3 | ) | | (4.4 | ) |
| Reversal of Elizabeth Arden’s historical amortization of debt issuance costs | | (1.3 | ) | | (1.5 | ) |
| Total adjustment for pro forma amortization of debt issuance costs | | $ | 3.5 |
| | $ | 2.2 |
|
The unaudited pro forma results do not include: (1) any incremental revenue generation, synergies or cost reductions that may be achieved as a result of the Elizabeth Arden Acquisition; or (2) the impact of non-operating or non-recurring items directly related to the Elizabeth Arden Acquisition. In addition, the unaudited pro forma results do not purport to project the future consolidated operating results of the combined company.
The Cutex International Acquisition
On May 31, 2016 (the "Cutex International Acquisition Date"), the Company completed the acquisition of Cutex International from Coty Inc. (the "Cutex International Acquisition") for total cash consideration of $29.1 million. Following the Company's October 2015 acquisition of the Cutex business and related assets in the U.S. from Cutex Brands, LLC (the "Cutex U.S. Acquisition" and together with the Cutex International Acquisition, the "Cutex Acquisitions"), combined with other Cutex businesses that the Company acquired in 1998, the Cutex International Acquisition completed the Company's global consolidation of the Cutex brand. Cutex International's results of operations are included in the Company’s Consolidated Financial Statements commencing on the Cutex International Acquisition Date. Pro forma results of operations have not been presented, as the impact of the Cutex International Acquisition on the Company’s consolidated financial results is not material.
REVLON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions, except share and per share amounts)
The Company accounted for the Cutex International Acquisition as a business combination in the second quarter of 2016. The table below summarizes the allocation of the total consideration paid:
|
| | | |
| | Amounts Recognized as of May 31, 2016 |
| Inventory | $ | 0.8 |
|
Purchased Intangible Assets (a) | 17.2 |
|
| Goodwill | 11.1 |
|
| Total consideration transferred | $ | 29.1 |
|
(a) Purchased intangible assets include customer networks fair valued at $11.9 million and intellectual property fair valued at $0.8 million, which are amortized over useful lives of 15 and 10 years, respectively, and indefinite lived trade names fair valued at $4.5 million.
As part of the Cutex International Acquisition, the Company reacquired the Cutex trade name from Coty under an assignment of a license agreement, which had previously provided Coty with an exclusive right to manufacture, market and sell Cutex branded products for an initial term and perpetual automatic 20-year renewals. Based on the terms and conditions of the existing license agreement and other factors, the Cutex trade name was assigned an indefinite-life and, therefore, will not be amortized.
In determining the estimated fair values of net assets acquired and resulting goodwill related to the Cutex International Acquisition, the Company considered, among other factors, the analysis of Cutex International's historical financial performance and an estimate of the future performance of the acquired business, as well as the intended use of the acquired assets. Factors contributing to the purchase price resulting in the recognition of goodwill include the anticipated benefits that the Company expects to achieve through the expansion of its nail product portfolio. Neither the intangible assets nor goodwill acquired in the Cutex International Acquisition are deductible for income tax purposes.
3. RESTRUCTURING CHARGES
EA Integration Restructuring Program
In December 2016, in connection with integrating the Elizabeth Arden and Revlon organizations, the Company began the process of implementing certain integration activities, including consolidating offices, eliminating certain duplicative activities and streamlining back-office support (the "EA Integration Restructuring Program"). The EA Integration Restructuring Program is designed to reduce the Company’s cost of goods sold and selling, general and administrative ("SG&A") expenses. As a result of the EA Integration Restructuring Program, the Company expects to eliminate approximately 425 positions worldwide.
In connection with implementing the EA Integration Restructuring Program, the Company expects to recognize approximately $90 million to $95 million of total pre-tax restructuring charges (the "EA Integration Restructuring Charges"), consisting of: (i) approximately $65 million to $70 million of employee-related costs, including severance, retention and other contractual termination benefits; (ii) approximately $15 million of lease termination costs; and (iii) approximately $10 million of other related charges.
A summary of the restructuring and related charges incurred through December 31, 2017 in connection with the EA Integration Restructuring Program is presented in the following table:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Restructuring Charges and Other, Net | | | | | | |
| | Employee Severance and Other Personnel Benefits | | Lease Termination and Other Costs(a) | | Total Restructuring Charges | | Inventory Adjustments(b) | | Other Related Charges(c) | | Total Restructuring and Related Charges |
| Charges incurred through December 31, 2016 | $ | 31.5 |
| | $ | 0.2 |
| | $ | 31.7 |
| | $ | 0.5 |
| | $ | 2.3 |
| | $ | 34.5 |
|
| Charges incurred during the year ended December 31, 2017 | 31.3 |
| | 4.8 |
| | 36.1 |
| | 0.9 |
| | 0.7 |
| | 37.7 |
|
| Cumulative charges incurred through December 31, 2017 | $ | 62.8 |
| | $ | 5.0 |
| | $ | 67.8 |
| | $ | 1.4 |
| | $ | 3.0 |
| | $ | 72.2 |
|
(a) Includes primarily lease termination costs related to certain exited Elizabeth Arden office space.
(b) Inventory adjustments are recorded within cost of sales in the Company’s consolidated statement of operations and comprehensive (loss) income.
(c) Other related charges are recorded within SG&A in the Company’s consolidated statement of operations and comprehensive (loss) income.
REVLON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions, except share and per share amounts)
A summary of the restructuring charges incurred through December 31, 2017 in connection with the EA Integration Restructuring Program by reportable segment is presented in the following table:
|
| | | | | | | | |
| | | Charges incurred during the twelve months ended December 31, 2017 | | Cumulative charges incurred through December 31, 2017 |
| Elizabeth Arden | | $ | 16.1 |
| | $ | 22.6 |
|
| Consumer | | 12.1 |
| | 16.3 |
|
| Professional | | 4.2 |
| | 9.8 |
|
| Unallocated Corporate Expenses | | 3.7 |
| | 19.1 |
|
| Total | | $ | 36.1 |
| | $ | 67.8 |
|
The Company expects that cash payments will total $90 million to $95 million in connection with the EA Integration Restructuring Charges, of which $42.5 million was paid in 2017. The remaining balance is expected to be substantially paid by the end of 2020.
REVLON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions, except share and per share amounts)
Restructuring Reserve
The liability balance and related activity for each of the Company's restructuring programs are presented in the following table:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | Utilized, Net | | |
Liability
Balance at January 1, 2020 | | Expense, Net | | Foreign Currency Translation | |
Cash | |
Non-cash | | Liability Balance at December 31, 2020 |
| Revlon 2020 Restructuring Program: | | | | | | | | | | | |
| Employee severance and other personnel benefits | $ | 0 | | | $ | 48.6 | | | $ | 0 | | | $ | (36.0) | | | $ | 0 | | | $ | 12.6 | |
| Other | 0 | | | 1.9 | | | 0 | | | (1.9) | | | 0 | | | 0 | |
| Total Revlon 2020 Restructuring Program | 0 | | | 50.5 | | | 0 | | | (37.9) | | | 0 | | | 12.6 | |
| | | | | | | | | | | |
| 2018 Optimization Program: | | | | | | | | | | | |
| Employee severance and other personnel benefits | 5.7 | | | (0.6) | | | 0 | | | (4.0) | | | 0 | | | 1.1 | |
| | | | | | | | | | | |
| Total 2018 Optimization Program | 5.7 | | | (0.6) | | | 0 | | | (4.0) | | | 0 | | | 1.1 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Other immaterial actions:(a) | | | | | | | | | | | |
| Employee severance and other personnel benefits | 4.3 | | | (0.2) | | | 0.2 | | | (4.2) | | | 0 | | | 0.1 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Total restructuring reserve | $ | 10.0 | | | $ | 49.7 | | | $ | 0.2 | | | $ | (46.1) | | | $ | 0 | | | $ | 13.8 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | Utilized, Net | | |
Liability Balance at January 1, 2017 | | Expense (Income), Net | | Foreign Currency Translation | |
Cash | |
Non-cash | | Liability Balance at December 31, 2017 |
| 2017 | | | | | | | | | | | |
EA Integration Restructuring Program:(a) | | | | | | | | | | | |
| Employee severance and other personnel benefits | $ | 31.5 |
| | $ | 31.3 |
| | $ | — |
| | $ | (37.0 | ) | | $ | — |
| | $ | 25.8 |
|
| Other | 3.0 |
| | 6.4 |
| | — |
| | (5.5 | ) | | — |
| | 3.9 |
|
2015 Efficiency Program:(b) | | | | | | | | | | | |
| Employee severance and other personnel benefits | 4.5 |
| | (3.2 | ) | | — |
| | (1.0 | ) | | — |
| | 0.3 |
|
| Other | 0.2 |
| | — |
| | — |
| | — |
| | — |
| | 0.2 |
|
December 2013 Program:(c) |
| |
| |
| |
| |
| | |
| Employee severance and other personnel benefits | 1.2 |
| | — |
| | — |
| | (0.1 | ) | | — |
| | 1.1 |
|
Other immaterial actions: (d) |
| |
| |
| |
| |
| | |
| Employee severance and other personnel benefits | 1.4 |
| | 0.6 |
| | — |
| | (0.9 | ) | | — |
| | 1.1 |
|
| Other | 1.0 |
| | 1.1 |
| | 0.1 |
| | (0.7 | ) | | — |
| | 1.5 |
|
| Total restructuring reserve | $ | 42.8 |
| | $ | 36.2 |
| | $ | 0.1 |
| | $ | (45.2 | ) | | $ | — |
| | $ | 33.9 |
|
| | | | | | | | | | | | |
| | Liability Balance at January 1, 2016 | | Expense (Income), Net | | Foreign Currency Translation | |
Cash | |
Non-cash | | Liability Balance at December 31, 2016 |
| 2016 | | | | | | | | | | | |
| EA Integration Restructuring Program: | | | | | | | | | | | |
| Employee severance and other personnel benefits | $ | — |
| | $ | 31.5 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 31.5 |
|
| Other | — |
| | 3.0 |
| | | | | | | | 3.0 |
|
| 2015 Efficiency Program: | | | | | | | | | | | |
| Employee severance and other personnel benefits | 6.6 |
| | 0.6 |
| | — |
| | (2.7 | ) | | — |
| | 4.5 |
|
| Other | 0.1 |
| | 0.7 |
| | — |
| | (0.6 | ) | | — |
| | 0.2 |
|
2014 Integration Program:(e) | | | | | | | | | | | |
| Employee severance and other personnel benefits | 0.8 |
| | — |
| | — |
| | (0.8 | ) | | — |
| | — |
|
| Other | 0.1 |
| | — |
| | — |
| | (0.1 | ) | | — |
| | — |
|
| December 2013 Program: | | | | | | | | | | | |
| Employee severance and other personnel benefits | 1.2 |
| | — |
| | — |
| | — |
| | — |
| | 1.2 |
|
| Other immaterial actions: | | | | | | | | | | | |
| Employee severance and other personnel benefits | 2.3 |
| | 2.1 |
| | — |
| | (3.0 | ) | | — |
| | 1.4 |
|
| Other | 0.7 |
| | 1.5 |
| | — |
| | (1.5 | ) | | 0.3 |
| | 1.0 |
|
| Total restructuring reserve | $ | 11.8 |
| | $ | 39.4 |
| | $ | — |
| | $ | (8.7 | ) | | $ | 0.3 |
| | $ | 42.8 |
|
(a)Includes $1.6 million The balance of other immaterial restructuring initiatives primarily consists of balances outstanding under the EA Integration Restructuring Program implemented by the Company in December 2016, which was completed by December 2018. The reversal of charges and payments made during the year ended December 31, 2020 primarily related to inventory adjustmentsother individually and collectively immaterial restructuring initiatives.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Utilized, Net | | |
Liability Balance at January 1, 2019 | | Expense, Net | | Foreign Currency Translation | |
Cash | |
Non-cash | | Liability Balance at December 31, 2019 |
| 2018 Optimization Program: | | | | | | | | | | | |
| Employee severance and other personnel benefits | $ | 3.7 | | | $ | 15.8 | | | $ | 0 | | | $ | (13.8) | | | $ | 0 | | | $ | 5.7 | |
| Other | 0 | | | 0.3 | | | 0 | | | (0.3) | | | 0 | | | 0 | |
| Total 2018 Optimization Program | 3.7 | | | 16.1 | | | 0 | | | (14.1) | | | 0 | | | 5.7 | |
| | | | | | | | | | | |
| EA Integration Restructuring Program: | | | | | | | | | | | |
| Employee severance and other personnel benefits | 13.8 | | | (1.9) | | | (0.2) | | | (7.7) | | | 0 | | | 4.0 | |
Other(a) | 3.4 | | | 0 | | | 0 | | | (0.3) | | | (3.5) | | | (0.4) | |
| Total EA Integration Restructuring Program | 17.2 | | | (1.9) | | | (0.2) | | | (8.0) | | | (3.5) | | | 3.6 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Other immaterial actions:(b) | | | | | | | | | | | |
| Employee severance and other personnel benefits | 4.6 | | | (1.4) | | | 0 | | | (1.8) | | | (1.1) | | | 0.3 | |
| Other | 0.9 | | | 0 | | | — | | | (0.5) | | | 0 | | | 0.4 | |
| Total other immaterial actions | 5.5 | | | (1.4) | | | 0 | | | (2.3) | | | (1.1) | | | 0.7 | |
| Total restructuring reserve | $ | 26.4 | | | $ | 12.8 | | | $ | (0.2) | | | $ | (24.4) | | | $ | (4.6) | | | $ | 10.0 | |
(a) Non-cash utilization relates to approximately $3.5 million of lease termination liabilities related to certain exited office space that were adjusted following the implementation of ASC 842. See Note 5, "Property, Plant, and Equipment," for additional information.
(b) Consists primarily of the Company's other individually and collectively immaterial restructuring initiatives, including those in Denmark, Norway and Sweden.
As of December 31, 2020 and 2019, all of the restructuring reserve balances were included within accrued expenses and other restructuring-related charges that were reflected within cost of sales and SG&A, respectively,current liabilities in the Company’s December 31, 2017Company's Consolidated Statement of Operations and Comprehensive (Loss) Income.Balance Sheets.
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions, except share and per share amounts)
3. INVENTORIES
(b) In September 2015, the Company initiated restructuring actions to drive certain organizational efficiencies, including reducing general and administrative expenses, within the
The Company's Consumer and Professional segments (the "2015 Efficiency Program"). These actions were completed by the end of 2017. During the third quarter of 2017, the Company performed a reviewnet inventory balances consisted of the 2015 Efficiency Programfollowing:
| | | | | | | | | | | |
| December 31, |
| 2020 | | 2019 |
| Finished goods | $ | 356.7 | | | $ | 326.5 | |
| Raw materials and supplies | 97.1 | | | 110.4 | |
| Work-in-process | 8.8 | | | 11.5 | |
| $ | 462.6 | | | $ | 448.4 | |
4. PREPAID EXPENSES AND OTHER
The Company's prepaid expenses and determined that employees in certain positions thatother balances were initially identified to be eliminated would continue to be employed by the Company in varying positions in connection with integrating the Elizabeth Arden and Revlon organizations. As a result, the Company reversed approximately $3.2 million in previously accrued restructuring charges recognized in connection with the 2015 Efficiency Program. Total cash payments madeas follows:
| | | | | | | | | | | |
| December 31, |
| 2020 | | 2019 |
| Prepaid expenses | $ | 66.7 | | | $ | 68.9 | |
Taxes (a) | 36.1 | | | 40.4 | |
| Other | 31.6 | | | 26.0 | |
| $ | 134.4 | | | $ | 135.3 | |
(a) Taxes for the 2015 Efficiency Program were $7.1 million. A summary of the restructuring and related charges incurred through December 31, 2017 in connection with the 2015 Efficiency Program by reportable segment is presented in the following table:
|
| | | | |
| | | 2015 Efficiency Program cumulative charges incurred through December 31, 2017 |
| Consumer | | $ | 3.6 |
|
| Professional | | 3.5 |
|
| Unallocated Corporate Expenses | | 0.5 |
|
| Total | | $ | 7.6 |
|
(c) In December 2013, the Company announced restructuring actions that primarily included exiting its direct manufacturing, warehousing and sales business operations in mainland China within the Consumer segment (the "December 2013 Program"). The December 2013 Program resulted in the elimination of approximately 1,100 positions in 2014, primarily in China.
(d) Consists primarily of $1.1 million in charges related to the program that Elizabeth Arden commenced prior to the Elizabeth Arden Acquisition to further align their organizational structure and distribution arrangements for the purpose of improving its go-to-trade capabilities and execution and to streamline their organization (the "Elizabeth Arden 2016 Business Transformation Program").
(e) Following Products Corporation's October 2013 acquisition of The Colomer Group Participations, S.L. ("Colomer" and the "Colomer Acquisition"), the Company implemented actions to integrate Colomer's operations into the Company's business, which reduced costs across the Company's businesses and generated synergies and operating efficiencies within the Company's global supply chain and consolidated offices and back office support (all such actions, together, the "2014 Integration Program"). The 2014 Integration Program was substantially completedCorporation as of December 31, 2015.
At December 31, 20172020 and December 31, 2016, all2019 were $32.1 million and $36.5 million, respectively.
5. PROPERTY, PLANT AND EQUIPMENT
The Company's property, plant and equipment, net balances consisted of the restructuring reserve balances were included within accrued expensesfollowing:
| | | | | | | | | | | |
| | | |
| December 31, |
| 2020 | | 2019 |
| Land and improvements | $ | 11.4 | | | $ | 10.8 | |
| Building and improvements | 48.3 | | | 51.6 | |
| Machinery and equipment | 98.7 | | | 114.7 | |
| Office furniture, fixtures and capitalized software | 76.2 | | | 100.3 | |
| Leasehold improvements | 21.3 | | | 24.5 | |
| Construction-in-progress | 9.1 | | | 14.0 | |
| Right-of-Use assets | 87.0 | | | 92.7 | |
| Property, plant and equipment and Right-of-Use assets, net | $ | 352.0 | | | $ | 408.6 | |
| | | |
| | | |
Depreciation and otheramortization expense on property, plant and equipment and right-of-use assets for December 31, 2020 and December 31, 2019 was $76.3 million and $86.4 million, respectively. Accumulated depreciation and amortization was $528.9 million and $488.1 million as of December 31, 2020 and December 31, 2019, respectively.
Leases
The Company leases facilities for executive offices, warehousing, research and development and sales operations and leases various types of equipment under operating and finance lease agreements. The majority of the Company’s real estate leases, in terms of total undiscounted payments, are located in the Company's Consolidated Balance Sheets.U.S.
4. DISCONTINUED OPERATIONS
On December 30, 2013,At the effective date of January 1, 2019, the Company announcedadopted ASU No. 2016-02 using a modified retrospective approach applying the standard’s transition provisions provided by such ASU. Refer to Note 1, "Description of Business and Summary of Significant Accounting Policies," in the 2019 Form 10-K for additional information regarding the Company's adoption of ASU No. 2016-02.
Impairment Considerations
During the first, second and third quarter of 2020, as a result of COVID-19’s impact on the Company’s operations, the Company considered whether indicators of impairment existed for its Property, Plant and Equipment ("PP&E"), including its Right-of-Use ("ROU") assets consisting of the Company's leases as described above. The Company also considered whether indicators of impairment on its PP&E existed as of December 31, 2020.
In accordance with ASC Topic 360, "Property, Plant and Equipment," for purposes of recognition and measurement of an impairment loss, long-lived assets are grouped with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. An impairment loss is recognized only if the carrying amount of a long-lived asset and/or asset group is not recoverable and exceeds its fair value. The carrying amount of a long-lived asset and/or asset group is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the long-lived asset and/or asset group and the impairment loss is measured as the amount by which the carrying amount of a long-lived asset and/or asset group exceeds its fair value. In performing such review, the Company considers several indicators of impairment, including, among other factors, the following: (i) whether there exists any significant adverse change in the extent or manner in which a long-lived asset and/or asset group is being used; (ii) whether there exists any projection or forecast demonstrating losses associated with the use of a long-lived asset and/or asset group; and (iii) whether there exists a current expectation that, more likely than not, a long-lived asset and/or asset group will be sold or otherwise disposed of significantly before the end of its previously-estimated useful life.
Following its interim assessments during 2020, as well as its year-end assessment as of December 31, 2020, the Company concluded that the carrying amounts of its PP&E, including its lease ROU assets, were 0t impaired as of December 31, 2020.
The following table includes disclosure related to the ASC 842 lease standard for the periods presented, after application of the applicable practical expedients and short-term lease considerations:
| | | | | | | | | | | | | | |
| | Year Ended |
| | December 31, 2020 | | December 31, 2019 |
| Lease Cost: | | | | |
| Finance Lease Cost: | | | | |
| Amortization of ROU assets | | $ | 0.3 | | | $ | 0.3 | |
| Interest on lease liabilities | | 0.1 | | | 0.2 | |
| Operating Lease Cost | | 38.9 | | | 41.7 | |
| Total Lease Cost | | $ | 39.3 | | | $ | 42.2 | |
| | | | |
| Other Information: | | | | |
| Cash paid for amounts included in the measurement of lease liabilities: | | | | |
| Operating cash flows from finance leases | | 0.1 | | | 0.2 | |
| Operating cash flows from operating leases | | 36.3 | | | 39.4 | |
| Financing cash flows from finance leases | | 0.2 | | | 0.8 | |
| | | | |
| | December 31, 2020 | | December 31, 2019 |
| ROU assets for finance leases | | 0.6 | | | 1.0 | |
| ROU assets for operating leases | | 86.3 | | | 91.4 | |
| Accumulated amortization on ROU assets for finance leases | | 0.6 | | | 0.3 | |
| Accumulated amortization on ROU assets for operating leases | | 39.9 | | | 23.2 | |
| | | | |
| Weighted-average remaining lease term - finance leases | | 2.1 years | | 2.8 years |
| Weighted-average remaining lease term - operating leases | | 6.5 years | | 6.2 years |
| | | | |
| Weighted-average discount rate - finance leases | | 15.0 | % | | 15.6 | % |
| Weighted-average discount rate - operating leases | | 15.8 | % | | 15.8 | % |
| | | | |
Maturities of lease liabilities as of December 31, 2020 were as follows:
| | | | | | | | | | | |
| Operating Leases | | Finance Leases |
| 2021 | $ | 36.5 | | | $ | 0.5 | |
| 2022 | 27.7 | | | 0.3 | |
| 2023 | 22.9 | | | 0 | |
| 2024 | 18.8 | | | 0 | |
| 2025 | 13.7 | | | 0 | |
| Thereafter | 52.7 | | | 0 | |
| Total undiscounted cash flows | $ | 172.3 | | | $ | 0.8 | |
| | | |
| Present value: | | | |
| Short-term lease liability | $ | 16.3 | | | $ | 0.3 | |
| Long-term lease liability | 86.6 | | | 0.3 | |
| Total lease liability | $ | 102.9 | | | $ | 0.6 | |
| Difference between undiscounted cash flows and discounted cash flows | $ | 69.4 | | | $ | 0.2 | |
6. GOODWILL AND INTANGIBLE ASSETS, NET
2020 Interim Goodwill Assessments
As of March 31, 2020, June 30, 2020 and September 30, 2020, as a result of COVID-19’s impact on the Company’s operations, the Company determined that indicators of potential impairment existed requiring the Company to perform interim goodwill impairment analyses. These indicators included a deterioration in the general economic conditions, adverse developments in equity and credit markets, deterioration in some of the economic channels in which the Company's operates (especially in the mass retail channel), the recent trading values of the Company's capital stock and the corresponding decline in the Company’s market capitalization and the revision of the Company's internal forecasts as a result of the ongoing and prolonged COVID-19 pandemic.
For its first and second quarter of 2020 interim assessments, the Company examined and performed quantitative interim goodwill impairment assessments for all its reporting units, namely: (i) Revlon; (ii) Elizabeth Arden Skin and Color; (iii) Elizabeth Arden Fragrances; (iv) Fragrances; (v) Mass Portfolio; and (vi) Professional Portfolio.
For the first quarter of 2020, as of March 31, 2020:
•The Company determined that it was implementingmore likely than not that the December 2013 Program, which primarily included exiting its direct manufacturing, warehousingfair values of each of its: (i) Revlon; (ii) Elizabeth Arden Skin and sales business operations in mainland ChinaColor; and (iii) Fragrances reporting units exceeded their respective carrying amounts for the first quarter of 2020. As of March 31, 2020, prior to the recording of any impairment charges, the Revlon, Elizabeth Arden Skin and Color and Fragrances reporting units had goodwill balances of $264.7 million, $67.4 million and $120.8 million, respectively; and
•The Company also determined that indicators of impairment existed for each of its: (i) Elizabeth Arden Fragrances; (ii) Mass Portfolio; and (iii) Professional Portfolio reporting units. Accordingly, for the three months ended March 31, 2020, the Company recognized a total of $99.8 million of non-cash goodwill impairment charges consisting of: $54.3 million and $19.6 million for the Mass Portfolio and Professional Portfolio reporting units, respectively, within the ConsumerCompany's Portfolio segment and $25.9 million for the Elizabeth Arden Fragrances reporting unit within the Company's Elizabeth Arden segment. Following the recognition of these non-cash goodwill impairment charges, as of March 31, 2020, the Elizabeth Arden Fragrances, Mass Portfolio and Professional Portfolio reporting units had approximately $23.5 million, NaN and $97.2 million, respectively, in remaining goodwill.
For the second quarter of 2020, as of June 30, 2020:
•The resultsCompany determined that it was more likely than not that the fair values of the China discontinued operations are included within income (loss) from discontinued operations, neteach of taxes,its: (i) Revlon; (ii) Elizabeth Arden Skin and relate entirely to the Consumer segment. The summary comparative financial results of discontinued operations were as follows:Color; and (iii) Fragrances reporting units exceeded their respective carrying amounts
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 |
| Net sales | $ | — |
| | $ | — |
| | $ | — |
|
| Income (loss) from discontinued operations, before taxes | 2.4 |
| | (4.9 | ) | | (3.2 | ) |
| Provision for income taxes | 0.3 |
| | — |
| | — |
|
| Income (loss) from discontinued operations, net of taxes | 2.1 |
| | (4.9 | ) | | (3.2 | ) |
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions, except share and per share amounts)
for the second quarter of 2020. As of June 30, 2020, prior to the recording of any impairment charges, the Revlon, Elizabeth Arden Skin and Color and Fragrances reporting units had goodwill balances of $264.9 million, $67.4 million and $120.8 million, respectively; and
Assets and liabilities•Primarily due to the continued worldwide effects of the China discontinued operations includedongoing and prolonged COVID-19 pandemic, the Company also determined that indicators of impairment existed for each of its: (i) Elizabeth Arden Fragrances; and (ii) Professional Portfolio reporting units. Accordingly, for the three months ended June 30, 2020, the Company recognized a total of $11.2 million of non-cash goodwill impairment charges consisting of: $9.6 million for the Professional Portfolio reporting unit within the Company's Portfolio segment and $1.6 million for the Elizabeth Arden Fragrances reporting unit within the Company's Elizabeth Arden segment. Following the recognition of these non-cash goodwill impairment charges, as of June 30, 2020, the Elizabeth Arden Fragrances and Professional Portfolio reporting units had approximately $22.0 million and $87.6 million, respectively, in remaining goodwill.
For its third quarter of 2020 interim assessment, the Company, in accordance with ASC 350, performed qualitative analyses for its (i) Revlon; (ii) Elizabeth Arden Skin and Color; (iii) Elizabeth Arden Fragrances; (iv) Professional Portfolio; and (v) Fragrances reporting units. As discussed above, the Mass Portfolio reporting unit's goodwill was written down to NaN during the first quarter of 2020. In performing its third quarter of 2020 qualitative interim goodwill assessment, the Company considered, among other factors, the financial performance of each of its reporting units, the Company's revised expected future cash flows as affected by the ongoing and prolonged COVID-19 pandemic, as well as the results of the second quarter of 2020 quantitative interim analysis.
For the third quarter of 2020, as of September 30, 2020:
•The Company, in accordance with ASC 350, performed qualitative analyses for its: (i) Revlon; (ii) Elizabeth Arden Skin and Color; (iii) Elizabeth Arden Fragrances; (iv) Professional Portfolio; and (v) Fragrances reporting units; and
•Based upon such assessment, the Company determined that it was more likely than not that the fair value of each of its previously mentioned reporting units exceeded their respective carrying amounts as of September 30, 2020. Consequently, 0 impairment changes were recognized during the three months ended September 30, 2020.
2020 Annual Goodwill Impairment Testing
In assessing whether goodwill was impaired in connection with its annual impairment testing performed during the fourth quarter of 2020 using October 1, 2020 carrying values, the Company, in accordance with ASC 350, performed a qualitative assessment for its Revlon reporting unit and quantitative assessments for its (i) Elizabeth Arden Skin and Color, (ii) Elizabeth Arden Fragrances, (iii) Fragrances, and (iv) Professional Portfolio reporting units (as previously noted, the Mass Portfolio reporting unit no longer has any goodwill associated with it starting from the second quarter of 2020).
In performing its 2020 annual qualitative goodwill assessment, the Company considered, among other factors, the financial performance of the Revlon reporting unit, the Company's revised expected future cash flows as affected by the ongoing and prolonged COVID-19 pandemic, as well as the results of the second quarter of 2020 quantitative interim analysis. Based upon such assessment, the Company determined that it was more likely than not that the fair value of its Revlon reporting unit exceeded its respective carrying amount for 2020.
In performing its 2020 quantitative assessments, the Company used the simplified approach allowed under ASU No. 2017-04 to test its (i) Elizabeth Arden Skin and Color, (ii) Elizabeth Arden Fragrances, (iii) Fragrances, and (iv) Professional Portfolio reporting units for impairment. Based upon such assessment, the Company determined that it was more likely than not that the fair value of each of such aforementioned reporting units exceeded their respective carrying amounts for 2020.
Consequently, 0 additional impairment changes were recognized during the 2020 annual impairment assessment test.
Inputs and Assumptions Considerations
The above-mentioned fair values were primarily determined using a weighted average market and income approach. The income approach requires several assumptions including those regarding future sales growth, EBITDA (earnings before interest, taxes, depreciation and amortization) margins, and capital expenditures, which are the basis for the information used in the Consolidated Balance Sheets consisteddiscounted cash flow model. The weighted-average cost of capital used in the following:income approach ranged from 9.5% to 12.5%,
|
| | | | | | | |
| | December 31, |
| | 2017 | | 2016 |
| Cash and cash equivalents | $ | 1.3 |
| | $ | 1.7 |
|
| Trade receivables, net | 0.2 |
| | 0.2 |
|
| Total current assets | 1.5 |
| | 1.9 |
|
| Total assets | $ | 1.5 |
| | $ | 1.9 |
|
| |
| |
|
| Accounts payable | $ | 0.5 |
| | $ | 0.5 |
|
| Accrued expenses and other | 3.5 |
| | 3.3 |
|
| Total current liabilities | 4.0 |
| | 3.8 |
|
| Total liabilities | $ | 4.0 |
| | $ | 3.8 |
|
5. INVENTORIES
As of December 31, 2017 and 2016, the Company's inventory balances consisted of the following:
|
| | | | | | | |
| | December 31, |
| | 2017 | | 2016 |
| Raw materials and supplies | $ | 123.4 |
| | $ | 72.9 |
|
| Work-in-process | 22.0 |
| | 33.5 |
|
| Finished goods | 352.5 |
| | 318.2 |
|
| | $ | 497.9 |
| | $ | 424.6 |
|
6. PREPAID EXPENSES AND OTHER
As of December 31, 2017 and 2016, the Company's prepaid expenses and other balances were as follows:
|
| | | | | | | |
| | December 31, |
| | 2017 | | 2016 |
| Prepaid expenses | $ | 43.3 |
| | $ | 34.6 |
|
| Other | 70.1 |
| | 54.2 |
|
| | $ | 113.4 |
| | $ | 88.8 |
|
REVLON, INC. AND SUBSIDIARIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions, except share and per share amounts)
with a perpetual growth rate of 2%. For the market approach, the Company considered the market comparable method based upon total enterprise value multiples of other comparable publicly-traded companies.
7. PROPERTY, PLANT AND EQUIPMENT
AsThe key assumptions used to determine the estimated fair values of December 31, 2017 and 2016, the Company's property, plantreporting units for its interim and equipment balances consistedannual assessments included the expected success of the following:Company's future new product launches, the Company's achievement of its expansion plans, the Company's realization of its cost reduction initiatives and other efficiency efforts, as well as certain assumptions regarding the COVID-19 pandemic's expected impact on the Company. If such plans and assumptions do not materialize as anticipated, or if there are further challenges in the business environment in which the Company's reporting units operate, a resulting change in actual results from the Company's key assumptions could have a negative impact on the estimated fair values of the reporting units, which could require the Company to recognize additional impairment charges in future reporting periods.
|
| | | | | | | |
| | December 31, |
| | 2017 | | 2016 |
| Land and improvements | $ | 11.6 |
| | $ | 10.4 |
|
| Building and improvements | 97.0 |
| | 88.6 |
|
| Machinery, equipment and capital leases | 275.1 |
| | 243.3 |
|
| Office furniture, fixtures and capitalized software | 168.3 |
| | 122.7 |
|
| Counters and trade fixtures | 62.0 |
| | 60.8 |
|
| Leasehold improvements | 51.4 |
| | 46.0 |
|
| Construction-in-progress | 92.8 |
| | 53.4 |
|
| Property, plant and equipment, gross | 758.2 |
| | 625.2 |
|
| Accumulated depreciation and amortization | (385.5 | ) | | (304.7 | ) |
| Property, plant and equipment, net | $ | 372.7 |
| | $ | 320.5 |
|
Depreciation and amortization expense on property, plant and equipment for 2017, 2016 and 2015 was $54.4 million, $45 million, and $37 million, respectively.
8. GOODWILL AND INTANGIBLE ASSETS, NET
Goodwill
The following table presents the changes in goodwill by segment duringfor theyear ended December 31,2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| Revlon | | Portfolio | | Elizabeth Arden | | Fragrances | | Total |
| Balance at January 1, 2019 | $ | 265.0 | | | $ | 171.2 | | | $ | 116.9 | | | $ | 120.8 | | | $ | 673.9 | |
| | | | | | | | | |
| Foreign currency translation adjustment | (0.1) | | | (0.1) | | | 0 | | | 0 | | | (0.2) | |
| | | | | | | | | |
| Balance at December 31, 2019 | $ | 264.9 | | | $ | 171.1 | | | $ | 116.9 | | | $ | 120.8 | | | $ | 673.7 | |
| Foreign currency translation adjustment | 0.5 | | | 0.3 | | | 0.1 | | | 0.1 | | | 1.0 | |
| | | | | | | | | |
| Goodwill impairment charge | 0 | | | (83.5) | | | (27.5) | | | 0 | | | (111.0) | |
| Balance at December 31, 2020 | $ | 265.4 | | | $ | 87.9 | | | $ | 89.5 | | | $ | 120.9 | | | $ | 563.7 | |
| | | | | | | | | |
Cumulative goodwill impairment charges(a) | | | | | | | | | $ | (166.2) | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
(a) Amount refers to cumulative goodwill impairment charges related to impairments recognized in 2015, 2017, 2018 and 2016:
|
| | | | | | | | | | | | | | | | | | | |
| | Consumer | | Professional | | Elizabeth Arden | | Other | | Total |
| Balance at January 1, 2016 | $ | 210.1 |
| | $ | 240.7 |
| | $ | — |
| | $ | 18.9 |
| | $ | 469.7 |
|
Goodwill acquired (a) | 17.4 |
| | — |
| | 221.7 |
| | — |
| | 239.1 |
|
| Foreign currency translation adjustment | — |
| | (0.4 | ) | | — |
| | (2.2 | ) | | (2.6 | ) |
| Goodwill impairment charge | — |
| | — |
| | — |
| | (16.7 | ) | | (16.7 | ) |
| Balance at December 31, 2016 | $ | 227.5 |
| | $ | 240.3 |
| | $ | 221.7 |
| | $ | — |
| | $ | 689.5 |
|
Measurement Period Adjustments (b) | — |
| | — |
| | 12.3 |
| | — |
| | 12.3 |
|
| Foreign currency translation adjustment | — |
| | 1.5 |
| | — |
| | — |
| | 1.5 |
|
| Goodwill impairment charge | (10.8 | ) | | — |
| | — |
| | — |
| | (10.8 | ) |
| Balance at December 31, 2017 | $ | 216.7 |
| | $ | 241.8 |
| | $ | 234.0 |
| | $ | — |
| | $ | 692.5 |
|
| | | | | | | | | | |
| Cumulative goodwill impairment charges | $ | (20.5 | ) | | $ | — |
| | $ | — |
| | $ | (16.7 | ) | | $ | (37.2 | ) |
(a) The goodwill acquired during 2016 relates to: (i) $221.72020; $111.0 million of such impairment charges were recognized during the year ended December 31, 2020.
In connection with recognizing these goodwill acquired inimpairment charges during 2020, the Elizabeth Arden Acquisition; and (ii) $17.4Company recognized a tax benefit of approximately $9.2 million, of goodwill acquired in the Cutex Acquisitions. See Note 2, "Business Combinations," for further discussionsince a portion of the Elizabeth Arden Acquisitiongoodwill is amortizable for tax purposes.
Intangible Assets, Net
Finite-Lived Intangibles
In accordance with ASC Topic 360, and Cutex Acquisitions.
(b) Refer to Note 2, "Business Combinations,"in conjunction with the performance of its interim goodwill impairment testing for more information on the Measurement Period Adjustments related to the Elizabeth Arden Acquisition.
For 2017, in assessing whetherfirst, second and third quarters of 2020, and its 2020 annual goodwill was impaired in connection with its annual impairment test performed during the fourth quarter of 2017 using October 1st, 2017 carrying values,testing, the Company performed qualitative assessments to determine whether it would be necessary to perform the two-step process, as prescribed by ASC 350, Intangibles - Goodwill and Other, to assess the Company's indefinite-livedreviewed its finite-lived intangible assets for impairment.
In performing such reviews, the Company makes judgments about the recoverability of its purchased finite-lived intangible assets whenever events or changes in circumstances indicate that an impairment to its finite-lived intangible assets may exist. The Company also considers several indicators of impairment. In performingimpairment, including, among other factors, the qualitative assessments,following: (i) whether there exists any significant adverse change in the Company consideredextent or manner in which a long-lived asset and/or asset group is being used; (ii) whether there exists any projection or forecast demonstrating losses associated with the resultsuse of the step one test performed in 2016 and the financial performance of the (i) Revlon, Almay and Other; (ii) Elizabeth Arden;a long-lived asset and/or asset group; and (iii) Professional reporting units. Based upon such assessment, the Company determinedwhether there exists a current expectation that, it was more likely than not, thata long-lived asset and/or asset group will be sold or otherwise disposed of significantly before the end of its previously-estimated useful life. The carrying amount of a finite-lived intangible asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the finite-lived intangible asset and/or asset group and the impairment loss is measured as the amount by which the carrying amount of the finite-lived intangible asset exceeds its fair value. NaN impairment charges were recognized related to the carrying value of any of the Company's finite-lived intangible assets as a result of the first, second and third quarters of 2020 interim impairment assessments and of the 2020 annual impairment testing.
Indefinite-Lived Intangibles
In connection with the interim goodwill impairment assessment for the first and second quarters of 2020, the Company also quantitatively reviewed indefinite-lived intangible assets, consisting of certain trade names, using March 31, 2020 and June 30, 2020 carrying values, of these reporting units exceeded their carrying amounts for 2017.
respectively, similar to goodwill, in accordance with ASC Topic 350.
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions, except share and per share amounts)
However, for 2017, the Company determined that it would utilize the two-step process to test the GCB reporting unit for impairment. In the first step of this test, the Company compared the fair value of the GCB reporting unit, determined based upon discounted estimated future cash flows, to the carrying amount, including goodwill. The results of the step one test indicated that impairment indicators existed for the GCB reporting unit due to continued net sales declines for both the SinfulColors and Pure Ice brands and lower promotional activity for the Pure Ice brand, and accordingly, the Company performed step two of the goodwill impairment test for the GCB reporting unit.
In the second step, the Company measured the potential impairment of the GCB reporting unit by comparing the implied fair value with the carrying amount of its goodwill at October 1, 2017. The implied fair value of the GCB reporting unit's goodwill was determined in the same manner as the amount of goodwill recognized in a business combination, where the estimated fair value of GCB reporting unit was allocated to all the assets and liabilities of that reporting unit (including both recognized and unrecognized intangible assets) as if the GCB had been acquired in a business combination and the estimated fair value of the GCB reporting unit was the purchase price paid. When the carrying amount of the reporting unit's goodwill is greater than the implied fair value of that reporting unit's goodwill, an impairment loss is recognized. The Company determined the fair value of the GCB reporting unit using discounted estimated future cash flows. The weighted-average cost of capital used in testing the GCB reporting unit for impairment was 12% with a perpetual growth rate of 2%. As a result of thisCOVID-19’s impact on the Company’s operations and on the expected future cash flows of certain asset groups, the quantitative interim assessments of indefinite-lived intangible assets in the first and second quarters of 2020 resulted in the recognition of:
•$24.5 million of total non-cash impairment charges related to certain indefinite-lived intangible assets within the Company's Mass Portfolio, Elizabeth Arden Fragrances and Elizabeth Arden Skin and Color reporting units in the first quarter of 2020; and
•$8.6 million of total non-cash impairment charges related to certain indefinite-lived intangible assets within the Company's Elizabeth Arden Fragrances and Elizabeth Arden Skin and Color reporting units in the second quarter of 2020.
For the third and fourth quarter of 2020, in accordance with the approaches followed for the third quarter interim goodwill assessment and for the 2020 annual goodwill impairment test,testing, the Company recognized an aggregate $10.8 million non-cash goodwillperformed qualitative and quantitative assessments, respectively, of its indefinite-lived intangible assets considering, among other factors, the financial performance of certain asset groups within its reporting units, the Company's revised, expected future cash flows (also as affected by COVID-19), as well as the results of the second quarter of 2020 quantitative interim analysis of indefinite-lived intangibles. NaN impairment chargecharges were recognized related to the GCB reporting unit in the fourth quartercarrying value of 2017. Following the recognition of this non-cash goodwill impairment charge, the GCB reporting unit had $14.8 million remaining goodwill as of December 31, 2017.
For 2016 and 2015, the Company also utilized the two-step process in assessing whether goodwill was impaired for eachany of the Company's then existing four reporting units (i.e., for 2016 (i) Revlon, Almay and Other; (ii) GCB; (iii) Professional; and (iv) Other). Asindefinite-lived intangible assets as a result of these impairment assessments. Consequently, total non-cash impairment charges recorded on the annualCompany's indefinite-lived intangible assets were $33.1 million during the year ended December 31, 2020.
Inputs and Assumptions Considerations
The fair values of the Company's intangible assets were determined based on the undiscounted cash flows method for its finite-lived intangibles and based on the relief from royalty method for its indefinite-lived intangibles, respectively. The inputs and assumptions utilized in the impairment testinganalyses are classified as Level 3 inputs in the fair value hierarchy as defined in ASC Topic 820, “Fair Value Measurements.” These impairment charges were included as a separate component of operating income within the "Impairment charges" caption on the face of the Company's Consolidated Statement of Operations and Comprehensive Loss for 2016 and 2015,the year ended December 31, 2020. A summary of such impairment charges by segments is included in the following table:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| Year Ended |
| December 31, 2020 |
| Revlon | | Portfolio | | Elizabeth Arden | | Fragrances | | Total |
| | | | | | | | | |
| Indefinite-lived intangible assets | $ | 0 | | | $ | (2.5) | | | $ | (30.6) | | | $ | 0 | | | $ | (33.1) | |
| Total Intangibles Impairment | $ | 0 | | | $ | (2.5) | | | $ | (30.6) | | | $ | 0 | | | $ | (33.1) | |
In connection with recognizing these intangible assets impairment charges for the year ended December 31, 2020, the Company recognized a $16.7 million non-cash goodwill impairment charge related to the Other reporting unit in the fourth quartertax benefit of 2016 and a $9.7 million non-cash goodwill impairment charge related to the GCB reporting unit in the fourth quarter of 2015.
approximately $6.9 million.
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions, except share and per share amounts)
Intangible Assets, Net
The following tables present details of the Company's total intangible assets as of December 31, 20172020 and 2016:December 31, 2019: | | | | December 31, 2017 | | December 31, 2020 | |
| | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Weighted-Average Useful Life (in Years) | | Gross Carrying Amount | | Accumulated Amortization | | Impairment | | Net Carrying Amount | | Weighted-Average Useful Life (in Years) | |
| Finite-lived intangible assets: | | | | | | | Finite-lived intangible assets: | | | | | | | | | | |
| Trademarks and licenses | $ | 271.4 |
| | $ | (72.8 | ) | | $ | 198.6 |
| | 13 | Trademarks and licenses | $ | 272.8 | | | $ | (128.6) | | | $ | 0 | | | $ | 144.2 | | | 12 | |
| Customer relationships | 250.6 |
| | (46.8 | ) | | 203.8 |
| | 13 | Customer relationships | 249.9 | | | (110.7) | | | 0 | | | 139.2 | | | 11 | |
| Patents and internally-developed IP | 20.8 |
| | (8.4 | ) | | 12.4 |
| | 7 | |
| Patents and internally-developed intellectual property | | Patents and internally-developed intellectual property | 23.6 | | | (15.6) | | | 0 | | | 8.0 | | | 5 | |
| Distribution rights | 31.0 |
| | (2.3 | ) | | 28.7 |
| | 17 | Distribution rights | 31.0 | | | (7.5) | | | 0 | | | 23.5 | | | 14 | |
| Other | 1.3 |
| | (0.6 | ) | | 0.7 |
| | 2 | Other | 1.3 | | | (1.3) | | | 0 | | | 0 | | | 0 | |
| Total finite-lived intangible assets | $ | 575.1 |
| | $ | (130.9 | ) | | $ | 444.2 |
| | Total finite-lived intangible assets | $ | 578.6 | | | $ | (263.7) | | | $ | 0 | | | $ | 314.9 | | | |
| | | | | | | | | | | | | | | | | |
| Indefinite-lived intangible assets: | | | | | | | Indefinite-lived intangible assets: | | |
| Trade names | $ | 147.9 |
| | $ | — |
| | $ | 147.9 |
| | Trade names | $ | 149.0 | | | N/A | | $ | (33.1) | | | $ | 115.9 | | | |
| Total indefinite-lived intangible assets | $ | 147.9 |
| | $ | — |
| | $ | 147.9 |
| | Total indefinite-lived intangible assets | $ | 149.0 | | | N/A | | $ | (33.1) | | | $ | 115.9 | | | |
| | | | | | | | | | | | | | | | | |
| Total intangible assets | $ | 723.0 |
| | $ | (130.9 | ) | | $ | 592.1 |
| | Total intangible assets | $ | 727.6 | | | $ | (263.7) | | | $ | (33.1) | | | $ | 430.8 | | | |
| | | | | | | | | | | | | | | | | |
| | December 31, 2016 | | December 31, 2019 | |
| | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Weighted-Average Useful Life (in Years) | | Gross Carrying Amount | | Accumulated Amortization | | Impairment | | Net Carrying Amount | | Weighted-Average Useful Life (in Years) | |
| Finite-lived intangible assets: | | | | | | | Finite-lived intangible assets: | | | | | | | | | | |
| Trademarks and licenses | $ | 177.9 |
| | $ | (47.9 | ) | | $ | 130.0 |
| | 13 | Trademarks and licenses | $ | 271.2 | | | $ | (110.9) | | | $ | 0 | | | $ | 160.3 | | | 13 | |
| Customer relationships | 247.6 |
| | (30.1 | ) | | 217.5 |
| | 14 | Customer relationships | 248.3 | | | (96.5) | | | 0 | | | 151.8 | | | 11 | |
| Patents and internally-developed IP | 20.3 |
| | (6.1 | ) | | 14.2 |
| | 8 | |
| Patents and internally-developed intellectual property | | Patents and internally-developed intellectual property | 21.5 | | | (12.1) | | | 0 | | | 9.4 | | | 5 | |
| Distribution rights | 31.0 |
| | (0.5 | ) | | 30.5 |
| | 18 | Distribution rights | 31.0 | | | (5.6) | | | 0 | | | 25.4 | | | 15 | |
| Other | 1.3 |
| | (0.2 | ) | | 1.1 |
| | 3 | Other | 1.3 | | | (1.3) | | | 0 | | | 0 | | | 0 | |
| Total finite-lived intangible assets | $ | 478.1 |
| | $ | (84.8 | ) | | $ | 393.3 |
| | Total finite-lived intangible assets | $ | 573.3 | | | $ | (226.4) | | | $ | 0 | | | $ | 346.9 | | | |
| | | | | | | | | | | | | | | | | |
| Indefinite-lived intangible assets: | | | | | | | Indefinite-lived intangible assets: | | |
| Trade names | $ | 243.3 |
| | $ | — |
| | $ | 243.3 |
| | Trade names | $ | 143.8 | | | N/A | | $ | 0 | | | $ | 143.8 | | | |
| Total indefinite-lived intangible assets | $ | 243.3 |
| | $ | — |
| | $ | 243.3 |
| | Total indefinite-lived intangible assets | $ | 143.8 | | | N/A | | $ | 0 | | | $ | 143.8 | | | |
| | | | | | | | | | | | | | | | | |
| Total intangible assets | $ | 721.4 |
| | $ | (84.8 | ) | | $ | 636.6 |
| | Total intangible assets | $ | 717.1 | | | $ | (226.4) | | | $ | 0 | | | $ | 490.7 | | | |
| | |
Amortization expense for finite-lived intangible assets was $43.2 million, $27.5$34.2 million and $22.4$40.3 million for 2017, 2016, and 2015 respectively.
The Company reviews finite-lived intangible assets for impairment whenever facts and circumstances indicate that their carrying values may not be fully recoverable. This test compares the current carrying values of the intangible assets to the undiscounted pre-tax cash flows expected to result from the use of the assets.
Based upon the results of the annual goodwill impairment testing for the Company's GCB reporting unit during 2017, the Company performed an impairment review of the acquired finite-lived intangible assets. No impairment was recognized related to the carrying value of any of the finite or indefinite-lived intangible assets as a result of the annual impairment test for the year ended December 31, 2017.
Based upon2020 and 2019, respectively. The variance with the resultsprevious comparable year was attributable primarily to the accelerated amortization of the annual goodwill impairment testing for the Company's Other reporting unitPure Ice intangible assets during 2016, the Company performed an impairment review2019 as a result of the finite-livedrevision of the brand’s intangible assets acquired as partuseful lives following the termination of a business relationship with the 2015 acquisition of CBBeautybrand's principal customer.
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions, except share and per share amounts)
Group and certain of its related entities (collectively "CBB" and, such transaction, the "CBB Acquisition"). As a result of this review, the Company recognized during the fourth quarter of 2016 within the Other reporting unit $4.2 million, $2.0 million and $0.5 million of non-cash impairment charges as a result of the change in the fair value of customer relationships, distribution rights and trade names, respectively, in the aggregate amount of $6.7 million.
The Company did not recognize any impairment charges related to the carrying value of any of the Company's identifiable intangible assets in 2015.
The following table reflects the estimated future amortization expense for each period presented, a portion of which is subject to exchange rate fluctuations, for the Company's finite-lived intangible assets as of December 31, 2017:2020:
| | | | | |
| |
| Estimated Amortization Expense |
| 2021 | $ | 33.5 | |
| 2022 | 32.6 | |
| 2023 | 31.0 | |
| 2024 | 27.6 | |
| 2025 | 26.4 | |
| Thereafter | 163.8 | |
| Total | $ | 314.9 | |
|
| | | |
| | Estimated Amortization Expense |
| 2018 | $ | 40.2 |
|
| 2019 | 37.3 |
|
| 2020 | 36.5 |
|
| 2021 | 35.3 |
|
| 2022 | 34.1 |
|
| Thereafter | 260.8 |
|
| Total | $ | 444.2 |
|
9.7. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
As of December 31, 2017 and 2016, the
The Company's accrued expenses and other current liabilities consisted of the following:
| | | | | | | | December 31, | | December 31, |
| | December 31, | | 2020 | | 2019 |
| | 2017 | | 2016 | |
| Sales returns and allowances | | Sales returns and allowances | $ | 95.5 | | | $ | 89.7 | |
| Advertising, marketing and promotional costs | | Advertising, marketing and promotional costs | 96.3 | | | 82.8 | |
Taxes (a) | | Taxes (a) | 41.8 | | | 54.3 | |
| Compensation and related benefits | $ | 59.6 |
| | $ | 75.8 |
| Compensation and related benefits | 50.1 | | | 42.1 | |
| Advertising and promotional costs | 84.0 |
| | 66.7 |
| |
| Sales returns and allowances | 61.7 |
| | 51.9 |
| |
| Taxes | 48.4 |
| | 39.2 |
| |
| Interest | | Interest | 29.6 | | | 34.0 | |
| Professional services and insurance | | Professional services and insurance | 18.6 | | | 16.3 | |
| Short-term lease liability | | Short-term lease liability | 16.6 | | | 14.5 | |
| Freight and distribution costs | | Freight and distribution costs | 9.5 | | | 13.2 | |
| Restructuring reserve | 33.3 |
| | 38.0 |
| Restructuring reserve | 13.8 | | | 10.0 | |
| Interest | 23.8 |
| | 24.4 |
| |
| Other | 102.0 |
| | 86.9 |
| |
| | $ | 412.8 |
| | $ | 382.9 |
| |
| Software | | Software | 3.1 | | | 4.0 | |
Other (b) | | Other (b) | 46.0 | | | 54.0 | |
| Total | | Total | $ | 420.9 | | | $ | 414.9 | |
10. SHORT-TERM BORROWINGS
(a) Accrued Taxes for Products Corporation had outstanding short-term borrowings (excluding borrowings under the 2016 Senior Credit Facilities for 2016, which are reflected in Note 11, "Long-Term Debt"), aggregating to $12.4as of December 31, 2020 and December 31, 2019 were $44.8 million and $10.8$57.6 million, atrespectively.
(b) Accrued Other as of December 31, 20172019 includes approximately $2.3 million of severance to Mr. Fabian Garcia, the Company's former President and 2016, respectively. The weighted average interest rate on these short-term borrowings outstanding at both December 31, 2017 and 2016Chief Executive Officer, which was 5.0%.paid in 2020.
REVLON, INC. AND SUBSIDIARIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions, except share and per share amounts)
11. LONG-TERM8. DEBT
As of December 31, 2017 and 2016,
The table below details the Company's debt balances consisted of the following:balances. See also Note 21, "Subsequent Events," for recent debt activity updates.
| | | | | | | | | | | |
| December 31, | | December 31, |
| 2020 | | 2019 |
2020 New BrandCo Second-Lien Term Loans due 2025 (a) | $ | 75.0 | | | $ | 0 | |
2020 New ABL FILO Term Loans due 2023 (a) | 50.0 | | | 0 | |
2020 Troubled-debt-restructuring: future interest (a) | 57.8 | | | 0 | |
5.75% Senior Notes due 2021, net of debt issuance costs (a) / (d) | 0 | | | 498.1 | |
2020 BrandCo Term Loan Facility due 2025, net of debt issuance costs (b) | 1,644.8 | | | 0 | |
2016 Term Loan Facility: 2016 Term Loan due 2023 and 2025, net of discounts and debt issuance costs (c) | 874.8 | | | 1,713.6 | |
2019 Term Loan Facility due 2023, net of discounts and debt issuance costs (e) | 0 | | | 187.1 | |
2018 Foreign Asset-Based Term Facility due 2021, net of discounts and debt issuance costs (f) | 57.7 | | | 82.3 | |
Amended 2016 Revolving Credit Facility due 2021, net of debt issuance costs (g) | 136.7 | | | 269.9 | |
6.25% Senior Notes due 2024, net of debt issuance costs (h) | 425.4 | | | 442.8 | |
| Spanish Government Loan due 2025 | 0.3 | | | 0.4 | |
| | | |
| | | |
| Debt | $ | 3,322.5 | | | $ | 3,194.2 | |
Less current portion(*) | (217.5) | | | (288.0) | |
| Long-term debt | $ | 3,105.0 | | | $ | 2,906.2 | |
| | | |
Short-term borrowings (**) | $ | 2.5 | | | $ | 2.2 | |
| | | |
| | | |
| | | |
| | | |
|
| | | | | | | |
| | December 31, |
| | 2017 | | 2016 |
| 2016 Term Loan Facility: 2016 Term Loan due 2023, net of discounts and debt issuance costs (see (a) below) | $ | 1,735.9 |
| | $ | 1,747.8 |
|
| 2016 Revolving Credit Facility due 2021, net of debt issuance costs (see (b) below) | 152.1 |
| | — |
|
| 6.25% Senior Notes due 2024, net of debt issuance costs (see (c) below) | 440.3 |
| | 439.1 |
|
| 5.75% Senior Notes due 2021, net of debt issuance costs (see (d) below) | 495.1 |
| | 493.8 |
|
| Spanish Government Loan due 2025 | 0.5 |
| | 0.5 |
|
| | 2,823.9 |
| | 2,681.2 |
|
Less current portion (*) | (170.2 | ) | | (18.1 | ) |
| | $ | 2,653.7 |
| | $ | 2,663.1 |
|
(*) At December 31, 2017,2020, the Company classified $170.2$217.5 million as its current portion of long-term debt, comprised primarily of $152.1$136.7 million of net borrowings under the Amended 2016 Revolving Credit Facility, net of debt issuance costs, and $18.1$57.7 million of amortizationthe 2018 Foreign Asset-Based Term Facility due July 9, 2021, net of debt issuance costs and debt discount, $13.7 million of payments under the 2020 BrandCo Term Loan Facility due within one year and $9.2 million of payments on the 2016 Term Loan Facility scheduled to be paid over the next four calendar quarters.due within one year. At December 31, 2016,2019, the Company classified $18.1$288.0 million as its current portion of long-term debt, comprised primarily of $18$269.9 million of amortizationnet borrowings under the Amended 2016 Revolving Credit Facility, net of debt issuance costs, and $18.0 million of payments on the 2016 Term Loan Facility. See below in this Note 8, "Debt," and Note 21, "Subsequent Events," for details regarding the Company's recent debt-related transactions.
(**)The weighted average interest rate on these short-term borrowings outstanding at December 31, 2020 and 2019 was 11.7% and 8.3%, respectively.
The Company completed the following debt transactions during 2016:
2016 Debt-RelatedCurrent Year Debt Transactions
In connection with and substantially concurrently with closing the Elizabeth Arden Acquisition, Products Corporation entered into the 2016 Term Loan Facility and the 2016 Revolving Credit Facility. Additionally, as part of financing the Elizabeth Arden Acquisition, in August 2016(a) 5.75% Senior Notes Exchange Offer
On November 13, 2020, Products Corporation completed its previously-announced offer to exchange (as amended, the issuance“Exchange Offer”) any and all of $450the then-outstanding $342.8 million aggregate principal amount of its 6.25%5.75% Senior Notes scheduled to mature on February 15, 2021 (see hereinafter under "Previous Year Debt Related Transaction" for more details on the 5.75% Senior Notes), on terms set forth in the amended and restated Offering Memorandum and Consent Solicitation Statement dated October 23, 2020. Concurrently with the Exchange Offer, Products Corporation solicited consents (the "6.25%“Consent Solicitation”) to adopt certain proposed amendments to the indenture governing the 5.75% Senior Notes Offering"), which funds were released from escrow (the "Escrow Release") on the Elizabeth Arden Acquisition Date. In connection with entering into the 2016 Senior Credit Facilities,dated as of February 13, 2013, among Products Corporation, maintainedthe guarantors party thereto and U.S. Bank National Association (the “5.75% Senior Notes Indenture”) to eliminate substantially all of the restricted covenants and certain events of default provisions from the 5.75% Senior Notes Indenture. The Exchange Offer and Consent Solicitation expired at 11:59 p.m., New York City time, on November 10, 2020 (the “Expiration Time”).
For each $1,000 principal amount of 5.75% Senior Notes validly tendered before the 2016 Term Loan Facility its existing floating-to-fixed 2013 Interest Rate SwapExpiration Time, holders received either, at their option, (i) $275 in cash (plus a $50 early tender/consent fee payable for an aggregate of $325 in cash, or (ii) if the holder was an Eligible Holder (as hereinafter defined), a combination of (1) $200 in cash (plus a $50 early tender/consent fee, for an aggregate of $250 in cash, plus, (2) (A) the Per $1,000 Pro Rata Share (as hereinafter defined) based on a notional amount of $400$50 million that previously applied to Products Corporation’s Old Acquisition Term Loan, which loan was refinanced in full in connection with Products Corporation's consummation of the 2016 Senior Credit Facilities and the 6.25% Senior Notes Offering. The proceeds of Products Corporation's 6.25% Senior Notes Offering and the 2016 Term Loan Facility, together with approximately $35 million of borrowings under the 2016 Revolving Credit Facility, and approximately $126.7 million of cash on hand, were used to: (A) fund the Elizabeth Arden Acquisition, including: (i) repurchasing the entire $350 million aggregate principal amount then-outstanding of the Elizabeth Arden Old Senior Notes; (ii) repaying the entire $142 million aggregate principal amount of borrowings outstanding asnew 2020 ABL FILO Term Loans (as hereinafter defined) and (B) the Per $1,000 Pro Rata Share of the Elizabeth Arden Acquisition Date under Elizabeth Arden’s $300$75 million revolving credit facility (which facility was terminated upon such repayment); (iii) repaying the entire $25 millionin aggregate principal amount of borrowings then outstanding as of the Elizabeth Arden Acquisition Date under Elizabeth Arden's second lien credit facility (which facility was terminated upon such repayment); and (iv) retiring the entire $55 million liquidation preference of all 50,000 shares of Elizabeth Arden's then issued and outstanding preferred stock, which amount included a $5 million change of control premium; and (B) to completely refinance and repay all of the $651.4 million in aggregate principal balance then outstanding under Products Corporation’s then-existing 2011New BrandCo Second-Lien Term Loan and all of the $658.6 million in aggregate principal balance outstanding under Products Corporation’s Old Acquisition Term Loan (each of which facilities were terminated upon such prepayment). The Company did not incur any material early termination penalties in connection with repaying such facilities and preferred stock. See below for a summary description of the agreements governing the 2016 Senior Credit Facilities and 6.25% Senior Notes.
Amended Term Loan Facility - Excess Cash Flow Payment
In February 2016, Products Corporation prepaid $23.2 millionof indebtedness, then outstanding under its Old Term Loan Facility, representing 50% of its 2015 "excess cash flow" as defined by, and required under, Old Term Loan Agreement. The prepayment was applied on a ratable basis between the principal amounts outstanding under the 2011 Term Loan and the Old Acquisition Term Loan. The amount of the prepayment that was applied to the 2011 Term Loan reduced the principal amount outstanding by $11.5 million to $651.4 millionLoans (as all amortization payments under the 2011 Term Loan had been paid)hereinafter defined) (the “Mixed Consideration”). The $11.7 million that was applied to the Old Acquisition Term Loan reduced Products Corporation's future annual amortization payments
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions, except share and per share amounts)
At the Expiration Time, $236 million in aggregate principal amount of 5.75% Senior Notes, representing 68.8% of the total outstanding principal amount of the 5.75% Senior Notes, was validly tendered and not validly withdrawn. On November 13, 2020, immediately after Products Corporation accepted for exchange the 5.75% Senior Notes that were validly tendered and made payment therefore, Products Corporation used cash on hand to redeem, effective as of November 13, 2020, the remaining $106.8 million in aggregate principal amount of 5.75% Senior Notes pursuant to the terms of the 5.75% Senior Notes Indenture. Following the consummation of the Exchange Offer and the satisfaction and full discharge of the 5.75% Senior Notes, 0 5.75% Senior Notes remained outstanding. Accrued and unpaid interest on the 5.75% Senior Notes that were tendered in the Exchange Offer was paid to, but not including, the settlement date of the Exchange Offer.
The 2020 ABL FILO Term Loans are new “Tranche B” term loans in the aggregate principal amount of $50 million, ranking junior in right of payment to the “Tranche A” revolving loans under such loanthe Amended 2016 Revolving Credit Agreement (as hereinafter defined) and equal in right of payment with all existing and future unsubordinated indebtedness of Products Corporation and the guarantors under the Amended 2016 Revolving Credit Agreement (such new Tranche B term loans, the “2020 ABL FILO Term Loans”). The 2020 ABL FILO Term Loans will mature the earlier of December 15, 2023 and six months after the maturity date of the Tranche A Loans (and any extension thereof in part or in whole). The 2020 ABL FILO Term Loans bear interest at a rate of LIBOR (subject to a 1.75% floor) plus 8.50% per annum, accruing from the settlement date of the Exchange Offer. The borrowing base for the 2020 ABL FILO Term Loans consists of an advance rate of 100% of eligible collateral with a customary push down reserve, with collateral consisting of: (i) a first-priority lien on accounts receivable, inventory, cash, negotiable instruments, chattel paper, investment property (other than capital stock), equipment and real property of Products Corporation and the subsidiary guarantors, subject to customary exceptions (the “Priority Collateral”); and (ii) a second-priority lien on substantially all tangible and intangible personal property of Products Corporation and the subsidiary guarantors, subject to customary exclusions (other than the Priority Collateral).
The New BrandCo Second Lien Term Loans issued pursuant to the Exchange Offer are “Term B-2 Loans” in the aggregate principal amount of $75 million (ranking junior to the Term B-1 Loans and senior to the Term B-3 Loans with respect to liens on certain specified collateral) under the 2020 BrandCo Term Loan Facility (such Term B-2 Loans, the “New BrandCo Second-Lien Term Loans”).
The Exchange Offer with respect to the tendering holders represented a Troubled Debt Restructuring ("TDR") in accordance with ASC 470, Debt, as both criteria for a TDR where met, namely: (i) the creditors granted a concession, and (ii) the Company was experiencing financial difficulties. Since the expected future undiscounted cash flows under the New 2020 ABL FILO Term Loan and the New BrandCo Second-Lien Term Loans exchanged in the transaction are higher than the net carrying value of the original 5.75% Senior Notes remaining after any partial cash settlement (once prior loans with same lenders have also been considered, as applicable), 0 gain was recorded and a new effective interest rate was established based on the revised cash flows and the remaining net carrying value of the original 5.75% Senior Notes.
Following the closing of the Exchange Offer, as of December 31, 2020, the following aggregate principal amounts are outstanding:
•$50.0 million of New 2020 ABL FILO Term Loans; and
•$75.0 million of New BrandCo Second-Lien Term Loans.
Following the applicability of the TDR guidance and based on a ratablenet carrying value of the original 5.75% Senior Notes of approximately $175.5 million remaining after partial cash settlements, future interest payments of approximately $50.5 million were also included in the carrying value of the restructured debt as of the day of closing of the Exchange Offer. Additionally, to the amounts stated above, $17.5 million of New BrandCo Second-Lien Term Loans was added following the recognition of Paid-In-Kind ("PIK") consent fees that were earned by the lenders on the day of closing of the Exchange Offer, (which are amortized over the term of the restructured debt agreements), in accordance with the BrandCo TSA as defined further below in this Note 8, "Debt", within "Subsequent Amendments to the 2020 BrandCo Term Loan Facility".
In accordance with the aforementioned TDR guidance, fees and expenses incurred to third parties in connection with consummating the Exchange Offer of approximately $13.8 million were expensed as professional fees within SG&A on the Company's Consolidated Statement of Operations and Comprehensive Loss for the year ended December 31, 2020.
(b)2020 BrandCo Refinancing Transactions
On May 7, 2020 (the “BrandCo 2020 Facilities Closing Date”), Products Corporation entered into a term credit agreement (the “2020 BrandCo Credit Agreement”) with Jefferies Finance LLC, as administrative agent and collateral agent, and certain financial institutions (the “2020 Facilities Lenders”) that are lenders or the affiliates of lenders under Products Corporation’s
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions, except share and per share amounts)
Term Loan Credit Agreement, dated as of September 7, 2016 and amended on April 30, 2020 and as amended on the BrandCo 2020 Facilities Closing Date, as further described below (as amended to date, the “2016 Term Loan Facility”) and the Amended 2016 Revolving Credit Facility, collectively referred to as the "2016 Senior Credit Facilities"). Pursuant to the 2020 BrandCo Credit Agreement, the 2020 Facilities Lenders provided Products Corporation with new and roll-up senior secured term loan facilities (the “2020 BrandCo Facilities” and, collectively, the "2020 BrandCo Term Loan Facility" and, together with the use of proceeds thereof and the Extension Amendment, the “2020 BrandCo Refinancing Transactions”).
Principal and Maturity: The 2020 BrandCo Facilities consist of: (i) a senior secured term loan facility in an aggregate principal amount outstanding on the BrandCo 2020 Facilities Closing Date of $815.0 million, plus the amount of certain fees and accrued interest that have been capitalized (the “2020 BrandCo Facility”); (ii) commitments in respect of a senior secured term loan facility in an aggregate principal amount of $950 million (the “Roll-up BrandCo Facility”); and (iii) a senior secured term loan facility in an aggregate principal amount outstanding on the BrandCo 2020 Facilities Closing Date of $3.0 million (the “Junior Roll-up BrandCo Facility”). Additionally, on May 28, 2020, Products Corporation borrowed from the 2020 Facilities Lenders an additional $65.0 million of term loans under the 2020 BrandCo Facility to repay in full the 2020 Incremental Facility under the 2016 Term Loan Facility, as a result of which the 2020 BrandCo Facility at June 30, 2020 had an aggregate principal amount outstanding of $910.6 million (including paid-in-kind closing fees of $29.1 million and paid-in-kind interest of $1.5 million that were capitalized). Additionally, during 2020, certain lenders under the 2016 Term Loan Facility, representing $846.0 million in aggregate principal outstanding, rolled-up to the Roll-up BrandCo Facility and the Junior Roll-up BrandCo Facility, as a result of which the Roll-up BrandCo Facility and the Junior Roll-up BrandCo Facility at September 30, 2020 had an aggregate principal amount outstanding of $846.0 million. The Company determined that the roll-up of such 2016 Term Loan Facility lenders into the Roll-up BrandCo Facility and the Junior Roll-up BrandCo Facility represented a debt modification under U.S. GAAP, as the cash flow effect between the amount that Products Corporation owed to the participating lenders under the old debt instrument (i.e., the 2016 Term Loan Facility) and the amount that Products Corporation owed to such lenders after the consummation of the roll-up into the new debt instrument (i.e., the Roll-up BrandCo Facility and the Junior Roll-up BrandCo Facility) on a present value basis from $6.9was less than 10% and, thus, the debt instruments were not considered to be substantially different within the meaning of ASC 470, Debt, under U.S. GAAP.
The proceeds of the 2020 BrandCo Facility were used: (i) to repay in full approximately $200 million of indebtedness outstanding under Products Corporation’s 2019 Term Loan Facility; (ii) to repay in full and terminate commitments under the 2020 Incremental Facility; and (iii) to pay fees and expenses in connection with the 2020 BrandCo Facilities and the 2020 BrandCo Refinancing Transactions. The Company will use the remaining net proceeds for general corporate purposes. The proceeds of the Roll-up BrandCo Facility are available prior to the third anniversary of the BrandCo 2020 Facilities Closing Date to purchase at par an equivalent amount of any remaining term loans under the 2016 Term Loan Facility held by the lenders participating in the 2020 BrandCo Facility or their transferees. During the three months ended June 30, 2020 and the three months ended September 30, 2020, certain lenders under the 2016 Term Loan Facility due June 2023, representing $846.0 million in aggregate principal outstanding, rolled-up to the Roll-up BrandCo Facility and the Junior Roll-up BrandCo Facility due June 2025, as a result of which the Roll-up BrandCo Facility and the Junior Roll-up BrandCo Facility at September 30, 2020 have an aggregate principal amount outstanding of $846.0 million, with a remaining capacity for the roll-up of loans under the 2016 Term Loan Facility of $107.0 million. See “Subsequent Amendments to the 2020 BrandCo Term Loan Facility” regarding the Supporting BrandCo Lenders subsequently relinquishing certain Roll-up Rights and Products Corporation’s issuance of the BrandCo Support and Consent Consideration.
The 2020 BrandCo Facilities will mature on June 30, 2025, subject to a springing maturity 91 days prior to the August 1, 2024 maturity date of Products Corporation’s 6.25% Senior Notes if, on such date, $100 million or more in aggregate principal amount of the 6.25% Senior Notes remain outstanding.
The Company incurred approximately $119.3 million of new debt issuance costs in connection with closing the 2020 BrandCo Facility, which include paid-in kind amounts that are recorded as an adjustment to the carrying amount of the related liability and amortized to interest expense in accordance with the effective interest method over the term of the 2020 BrandCo Facilities.
Borrower, Guarantees and Security: Products Corporation is the borrower under the 2020 BrandCo Facilities and the 2020 BrandCo Facilities are guaranteed by certain of Products Corporation's indirect subsidiaries (the “BrandCos”) that hold certain intellectual property assets related to the Elizabeth Arden and American Crew brands, certain other Portfolio segment brands and certain owned Fragrance segment brands (the “Specified Brand Assets”). While the BrandCos do not guarantee the 2016 Term Loan Facility, all guarantors of the 2016 Term Loan Facility guarantee the 2020 BrandCo Facilities. All of the assets of the BrandCos (including all capital stock issued by the BrandCos) have been pledged to secure the 2020 BrandCo Facility on a first-priority basis, the Roll-up BrandCo Facility on a second-priority basis and the Junior Roll-up BrandCo Facility on a third-
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions, except share and per share amounts)
priority basis and while such assets do not secure the 2016 Term Loan Facility, the 2020 BrandCo Facilities are secured on a pari passu basis by the assets securing the 2016 Term Loan Facility.
Contribution and License Agreements: In connection with the pledge of the Specified Brand Assets, Products Corporation and certain of its subsidiaries contributed the Specified Brand Assets to the BrandCos. Products Corporation entered into license and royalty arrangements on arm’s length terms with the relevant BrandCos to provide for the continued use of the Specified Brand Assets by Products Corporation and its subsidiaries during the term of the 2020 BrandCo Facilities.
Interest and Fees: Loans under the 2020 BrandCo Facility bear interest at a rate equal to LIBOR (with a LIBOR floor of 1.50%) plus (x) 10.50% per annum, payable not less than quarterly in arrears in cash and (y) 2.00% per annum payable not less than quarterly in-kind by adding such amount to the principal amount of outstanding loans under the 2020 BrandCo Facility. Loans under the Roll-up BrandCo Facility and the Junior Roll-up BrandCo Facility bear interest at a rate equal to LIBOR (with a LIBOR floor of 0.75%) plus 3.50% per annum, payable not less than quarterly in arrears in cash.
Affirmative and Negative Covenants: The 2020 BrandCo Facilities contain certain affirmative and negative covenants that, among other things, limit Products Corporation’s and its restricted subsidiaries’ ability to: (i) incur additional debt; (ii) incur liens; (iii) sell, transfer or dispose of assets; (iv) make investments; (v) make dividends and distributions on, or repurchases of, equity; (vi) make prepayments of contractually subordinated, unsecured or junior lien debt; (vii) enter into certain transactions with their affiliates; (viii) enter into sale-leaseback transactions; (ix) change their lines of business; (x) restrict dividends from their subsidiaries or restrict liens; (xi) change their fiscal year; and (xii) modify the terms of certain debt. The 2020 BrandCo Facilities also restrict distributions and other payments from the BrandCos based on certain minimum thresholds of net sales with respect to the Specified Brand Assets. The 2020 BrandCo Facilities also contain certain customary representations, warranties and events of default, including a cross default provision making it an event of default under the 2020 BrandCo Credit Agreement if there is an event of default under Products Corporation’s existing 2016 Credit Agreements, the 2018 Foreign Asset-Based Term Agreement or the indentures governing the 6.25% Senior Notes Indenture. The lenders under the 2020 BrandCo Credit Agreement may declare all outstanding loans under the 2020 BrandCo Facilities to be due and payable immediately upon an event of default. Under such circumstances, the lenders under the 2016 Credit Agreements, the 2018 Foreign Asset-Based Term Agreement, and the holders under the Senior Notes Indentures may also declare all outstanding amounts under such instruments to be due and payable immediately as a result of similar cross default or cross acceleration provisions, subject to certain exceptions and limitations described in the relevant instruments.
Prepayments: The 2020 BrandCo Facilities are subject to certain mandatory prepayments, including from the net proceeds from the issuance of certain additional debt and asset sale proceeds of certain non-ordinary course asset sales or other dispositions of property, subject to certain exceptions. The 2020 BrandCo Facilities may be repaid at any time, subject to customary prepayment premiums.
The aggregate principal amount outstanding under the 2020 BrandCo Term Loan Facility at December 31, 2020 was $1,868.4 million, including $846.0 million of principal rolled-up from the 2016 Term Loan Facility to $6.8the Roll-up BrandCo Facility and the Junior Roll-up BrandCo Facility.
Subsequent Amendments to the 2020 BrandCo Term Loan Facility
Prior to consummating the Exchange Offer Products Corporation and certain lenders under the 2020 BrandCo Term Loan Facility, representing more than a majority in aggregate principal amount of loans thereunder (the “Supporting BrandCo Lenders”), entered into a Transaction Support Agreement (the “BrandCo TSA”) under which the Supporting BrandCo Lenders agreed to take certain actions to facilitate the Exchange Offer and Consent Solicitation, including, among other things:
•Relinquishing certain rights of such Supporting BrandCo Lenders to “roll-up” loans held by such Supporting BrandCo Lenders under the 2016 Term Loan Facility into New BrandCo Second-Lien Term Loans under the 2020 BrandCo Term Loan Facility (the “Roll-up Rights”);
•Tendering any then-existing 5.75% Senior Notes held by such Supporting BrandCo Lenders into the Exchange Offer and Consent Solicitation;
•Consenting to amendments to the 2020 BrandCo Term Loan Facility to permit the exchange of then-existing 5.75% Senior Notes for the New BrandCo Second-Lien Term Loans under the 2020 BrandCo Term Loan Facility as contemplated by the Offering Memorandum and the payment of the BrandCo Support and Consent Consideration (as hereinafter defined);
•Consenting to other amendments to the 2020 BrandCo Term Loan Facility and the Amended 2016 Revolving Credit Facility to permit the Exchange Offer and Consent Solicitation to be completed as contemplated by the Offering Memorandum; and
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions, except share and per share amounts)
•Supporting and cooperating with Products Corporation to consummate the transactions contemplated by the BrandCo TSA and the Offering Memorandum, including the Exchange Offer and Consent Solicitation.
In connection with such amendments, Products Corporation agreed to provide the following consideration (collectively, the “BrandCo Support and Consent Consideration”) upon the successful consummation of the Exchange Offer:
1.$12.5 million aggregate principal amount of New BrandCo Second-Lien Term Loans as a fee to the Supporting BrandCo Lenders under the BrandCo TSA in connection with such Supporting BrandCo Lenders’ relinquishment of their Roll-up Rights;
2.$10.0 million aggregate principal amount of New BrandCo Second-Lien Term Loans to one of the Supporting BrandCo Lenders in exchange for $18.7 million aggregate principal amount of Products Corporation’s 6.25% Senior Notes held by such Supporting BrandCo Lender; and
3.to all lenders under the 2020 BrandCo Term Loan Facility (including the Supporting BrandCo Lenders), an amendment fee that was payable pro rata based on principal amount of loans consenting, consisting of, at Products Corporation's option, either (x) an aggregate of $2.5 million of cash or (y) $5.0 million aggregate principal amount of New BrandCo Second-Lien Term Loans. Pursuant to the BrandCo Amendment, Products Corporation elected to pay this fee in-kind in the form of $5.0 million aggregate principal amount of New BrandCo Second-Lien Term Loans.
Upon the successful closing of the Exchange Offer, the Company capitalized the aforementioned paid-in-kind closing fees of $12.5 million and $5.0 million to the aggregate principal amount of New BrandCo Second-Lien Term Loans issued in connection with the Exchange Offer.
Upon the successful closing of the Exchange Offer, the Company evaluated the aforementioned $10.0 million of New BrandCo Second-Lien Term Loans issued to one of the Supporting BrandCo Lenders in exchange for $18.7 million aggregate principal amount of Products Corporation's 6.25% Senior Notes due 2024 held by such Supporting BrandCo Lender and determined that it represented a TDR in accordance with ASC 470, Debt, as both criteria for a TDR where met, namely: (i) the creditors granted a concession, and (ii) the Company was experiencing financial difficulties. Since the expected future undiscounted cash flows under the New BrandCo Second-Lien Term Loans exchanged in the transaction are higher than the net carrying value of the original 6.25% Senior Notes held by this lender (once prior loans with the same lender have also been considered), 0 gain was recorded and a new effective interest rate was established based on the revised cash flows and the net carrying value of the above-mentioned 6.25% Senior Notes that were exchanged in the transaction. Following the applicability of the TDR guidance, future interest payments of $8.7 million as of the day of closing of the Exchange Offer were also included in the carrying value of the restructured debt.
On November 13, 2020, Products Corporation entered into that certain Amendment No. 1 (the “BrandCo Amendment”) to the 2020 BrandCo Credit Agreement in connection with the Exchange Offer in order to, among other things, provide for the incurrence of $75 million in aggregate principal amount of New BrandCo Second-Lien Term Loans (exclusive of the BrandCo Support and Consent Consideration). The New BrandCo Second Lien Term Loans are a separate tranche of “Term B-2 Loans” (ranking junior to the Term B-1 Loans and senior to the Term B-3 Loans with respect to liens on certain specified collateral) under the BrandCo Credit Agreement. Except as to the use of proceeds, the terms of the New BrandCo Second-Lien Term Loans are substantially consistent with the other Term B-2 Loans. In connection with the BrandCo Amendment, Products Corporation paid certain fees to the lenders in-kind in the form of New BrandCo Second-Lien Term Loans in accordance with the BrandCo TSA.
(c) 2016 Term Loan Facility Extension Amendment
In connection with the closing of the 2020 BrandCo Facility on May 7, 2020, term loan lenders under the 2016 Term Loan Facility were offered the opportunity to participate at par in the 2020 BrandCo Facilities based on their holdings of term loans under the 2016 Term Loan Facility. Lenders participating in the 2020 BrandCo Facilities, as well as other consenting lenders representing, in the aggregate, a majority of the loans and commitments under the 2016 Term Loan Facility, consented to an amendment to the 2016 Term Loan Facility (the “Extension Amendment”) that, among other things, made certain modifications to the covenants thereof and extended the maturity date of certain consenting lenders’ term loans (“Extended Term Loans”) to June 30, 2025, subject to (i) the same September 7, 2023 springing maturity date of the non-extended term loans under the 2016 Term Loan Facility if, on such date, $75 million or more in aggregate principal amount of the non-extended term loans under the 2016 Term Loan Facility remains outstanding, and (ii) a springing maturity of 91 days prior to the August 1, 2024 maturity date of the 6.25% Senior Notes if, on such date, $100 million or more in aggregate principal amount of the 6.25% Senior Notes remains outstanding. The Extension Amendment became effective on the BrandCo 2020 Facilities Closing Date. As of December 31, 2020, approximately $30.6 million in aggregate principal amount of Extended Term Loans were outstanding after giving effect to the prepayment2020 BrandCo Refinancing Transactions. The Extended Term Loans bear interest at a rate of LIBOR (with a LIBOR floor of 0.75%) plus 3.50% per annum, payable not less than quarterly in arrears in cash, consistent with the
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions, except share and through its maturityper share amounts)
interest rate applicable to the non-extended term loans. Approximately $17.0 million of accrued interest outstanding on October 8, 2019. The 2011the 2016 Term Loan and Old AcquisitionFacility was paid on the BrandCo 2020 Facilities Closing Date. As a result of such transaction, as of December 31, 2020, $853.3 million of the 2016 Term Loan Facility is scheduled to mature on the Original Maturity Date and $30.6 million is scheduled to mature on the Extended Maturity Date and, thus, the aggregate principal amount outstanding under the 2016 Term Loan Facility at December 31, 2020 was $883.9 million.
(d) Repurchases of 5.75% Senior Notes due 2021
On May 7, 2020, Products Corporation used a portion of the proceeds from the 2020 BrandCo Facility to repurchase and subsequently cancel $50 million in aggregate principal face amount of its 5.75% Senior Notes. Products Corporation also paid approximately $0.7 million of accrued interest outstanding on the 5.75% Senior Notes on May 7, 2020. After the BrandCo 2020 Facilities Closing Date, Products Corporation repurchased and subsequently canceled in July 2020 a further $62.8 million in aggregate principal face amount of its 5.75% Senior Notes. Furthermore, during the remainder of the year ended December 31, 2020, Products Corporation repurchased and subsequently canceled an additional $44.4 million in aggregate principal face amount of its 5.75% Senior Notes. Accordingly, as of December 31, 2020, Products Corporation had repurchased and subsequently cancelled a total of approximately $157.2 million in aggregate principal face amount of its 5.75% Senior Notes, resulting in a gain on extinguishment of debt of approximately $43.1 million for the year ended December 31, 2020, which was recorded within "Gain on early extinguishment of debt" on the Company's Consolidated Statement of Operations and Comprehensive Loss for the year ended December 31, 2020.See hereinafterfor more information regarding Products Corporation's5.75% Senior Notes and the related Exchange Offer. Following the consummation of the Exchange Offer and the satisfaction and full discharge of the remaining 5.75% Senior Notes, 0 5.75% Senior Notes remain outstanding as of December 31, 2020.
(e)Prepayment of the 2019 Term Loan Facility due 2023
On the BrandCo 2020 Facilities Closing Date, Products Corporation used a portion of the proceeds from the 2020 BrandCo Facility to fully prepay the entire principal amount outstanding under its 2019 Term Loan Facility, totaling $200 million, plus approximately $1.3 million of accrued interest outstanding thereon, as well as approximately $33.5 million in prepayment premiums, $10.3 million in lenders' fees, $0.3 million in legal fees and approximately $2.0 million in other third party fees. As the lenders under the 2019 Term Loan Facility participated in the 2020 BrandCo Term Loan Facility, the Company determined that the full repayment of the 2019 Term Loan Facility represented a debt modification under U.S. GAAP as the cash flow effect between the old debt instrument (i.e., the 2019 Term Loan Facility) and the new debt instrument (i.e., the 2020 BrandCo Facility) on a present value basis was less than 10% and, thus, the debt instruments were completely refinancednot considered to be substantially different within the meaning of ASC 470, Debt, under U.S. GAAP. Accordingly, the $33.5 million of prepayment premiums, as well as the $10.3 million in other lenders' fees were capitalized as part of the aforementioned $119.3 million of total new debt issuance costs for the 2020 BrandCo Term Loan Facility, while the aforementioned $0.3 million of legal fees and terminated$2.0 million in other third party fees were expensed as incurred in the Company's Consolidated Statement of Operations and Comprehensive Loss for the year ended December 31, 2020.
(f) Amendment to the 2018 Foreign Asset-Based Term Facility
On May 4, 2020, the Company entered into an amendment to the 2018 Foreign Asset Based Term Facility, which had an original outstanding principal amount of €77 million. Such amendment provided for the following:
•increasing the interest rate on the loan from EURIBOR (with a floor 0.50%) plus a margin of 6.50% to EURIBOR (with a floor 0.50%) plus a margin of 7.00%;
•amending the percentages applied in computing the borrowing base from 85% to 78.75% for eligible accounts receivable and from 90% to 80% against the net orderly liquidation value of eligible inventory;
•adding a springing maturity date of 91 days prior to the February 15, 2021 maturity of the 5.75% Senior Notes if any of Products Corporation's 5.75% Senior Notes remained outstanding on such date;
•requiring a mandatory prepayment of €5.0 million; and
•clarifying certain terms and waiving certain provisions in connection with financing the Elizabeth Arden Acquisition.2020 BrandCo Refinancing Transactions.
Long-TermApproximately $0.4 million of amendment fees paid to the lenders under 2018 Foreign Asset-Based Term Facility were capitalized and are amortized to interest expense, together with any unamortized debt issuance costs outstanding prior to the amendment. The 2018 Foreign Asset-Based Term Facility was a euro-denominated senior secured asset-based term loan facility that various, mostly foreign subsidiaries of Products Corporation entered into on July 9, 2018 and which was scheduled to mature on July 9, 2021. As of December 31, 2020, there was the Euro equivalent of $59.2 million aggregate principal
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions, except share and per share amounts)
outstanding under the 2018 Foreign Asset-Based Term Facility, reflecting a repayment of €28.5 million made during the quarter ended June 30, 2020.
(g) Amendments to the 2016 Revolving Credit Facility Agreement
On October 23, 2020 (the “Amendment No. 5 Effective Date”), Products Corporation entered into Amendment No. 5 (“Amendment No. 5”) to its Asset-Based Revolving Credit Agreement, dated as of September 7, 2016 (as amended from time to time, the “Amended 2016 Revolving Credit Facility”, and the revolving credit facility thereunder, the “Amended 2016 Revolving Credit Facility”; the Amended 2016 Revolving Credit Agreement, together with the 2016 Credit Agreement, the “2016 Credit Agreements”).
The Amendment No. 5 amended and restated the Amended 2016 Revolving Credit Agreement to add a new Tranche B consisting of $50 million aggregate principal amount of “first-in, last-out” Tranche B term loans (such new Tranche B, the “2020 ABL FILO Term Loan Facility”). The Amendment No. 5 also required Products Corporation to maintain "Excess Availability" (as defined in Amendment No. 5) of at least $85 million from the Amendment No. 5 Effective Date until the transactions contemplated by the Exchange Offer were consummated (such date, the “Exchange Offer Effective Date”). As a result, on October 23, 2020, Products Corporation repaid $35 million of Tranche A loans under the Amended 2016 Revolving Credit Agreement.
On the Exchange Offer Effective Date, Products Corporation’s As-Adjusted Liquidity was required to be at least $175 million (which condition was satisfied) and Products Corporation could not hold more than $100 million in cash or Cash Equivalents (as defined in the 5th Amendment). Furthermore, the 5th Amendment provided that a $30 million reserve will be automatically and immediately established against the Tranche A Borrowing Base (as defined in the 5th Amendment) if the results of ongoing appraisals and field exams were not delivered to the administrative agent prior to the occurrence of certain specified defaults.
Products Corporation paid customary fees to Alter Domus (US) LLC as the administrative agent for the 2020 ABL FILO Term Loan Facility. Except as to maturity date, interest, borrowing base and differences due to their nature as term loans, the terms of the 2020 ABL FILO Term Loans are otherwise substantially consistent with the Tranche A Revolving Loans.
On May 7, 2020, in connection with consummating the 2020 BrandCo Refinancing Transactions, Products Corporation entered into Amendment No. 4 to (the “Amendment No. 4”) to the 2016 Revolving Credit Facility. Amendment No. 4, among other things, made certain amendments and provided for certain waivers relating to the 2020 BrandCo Refinancing Transactions under the 2016 Revolving Credit Facility. In exchange for such amendments and waivers, the interest rate margin applicable to loans under Tranche A of the 2016 Revolving Credit Facility increased by 0.75%. In connection with the amendments to the 2018 Tranche B of the 2016 Revolving Credit Facility (which was fully repaid on its May 17, 2020 extended maturity date), Products Corporation incurred approximately $1.1 million in lender's fees that upon its full repayment were entirely expensed within “Miscellaneous, net” on the Company's Consolidated Statement of Operations and Comprehensive Loss as of December 31, 2020.
On April 17, 2020 (the “FILO Closing Date”), Products Corporation entered into Amendment No. 3 to the 2016 Revolving Credit Facility (“Amendment No. 3”), pursuant to which, the maturity date applicable to $36.3 million of loans under the $41.5 million senior secured first in, last out 2018 Tranche B under the 2016 Revolving Credit Facility (the “2018 FILO Tranche”) was extended from April 17, 2020 to May 17, 2020 (the “Amendment No. 3 Extended Maturity Date”). Products Corporation repaid the remaining approximately $5.2 million of the 2018 FILO Tranche loans as of the FILO Closing Date. In addition, Amendment No. 3 increased the applicable interest margin for the 2018 FILO Tranche by 0.75%, subject to a LIBOR floor of 0.75%. Products Corporation fully repaid the 2018 FILO Tranche on the Amendment No. 3 Extended Maturity Date.
Total borrowings at face amount under Tranche A and Tranche B of the Amended 2016 Revolving Credit Facility at December 31, 2020 were $138.9 million and $50 million, respectively.
(h)6.25% Senior Notes
See "Previous Years' Debt AgreementsRelated Transactions" below.
(a)
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions, except share and per share amounts)
Other 2020 Debt Related Transactions
MacAndrews & Forbes 2020 Restated Line of Credit Facility
In light of the upcoming maturity on July 9, 2021 of the 2018 Foreign Asset-Based Term Facility (as hereinafter defined) and the expiration on December 31, 2020 of the Amended 2019 Senior Line of Credit Facility (see "Previous Years' Debt Related Transaction" for further details about the Amended 2019 Senior Line of Credit Agreement),the Company sought to refinance or extend both the 2018 Foreign Asset-Based Term Facility and the Amended 2019 Senior Line of Credit Facility. Products Corporation sought to do so in order to reinforce its liquidity position to be better able to address the current business and economic environment and prepare for any further potential disruptions to its business and operations as may be brought on by the ongoing COVID-19 pandemic or other events.
As a result, and anticipating a future refinancing of the 2018 Foreign Asset-Based Term Facility (a “Future Refinanced European ABL Facility”), on September 28, 2020, Products Corporation and MacAndrews & Forbes Group, LLC (“M&F”) entered into the Second Amended and Restated 2019 Senior Unsecured Line of Credit Facility (the “2020 Restated Line of Credit Facility”), which amended and restated the Amended 2019 Senior Line of Credit Facility and will provide Products Corporation with up to a $30 million tranche of a new facility of the 2018 Foreign Asset-Based Term Facility (the “New European ABL FILO Facility”) that would be secured on a “last-out” basis by the same collateral as the 2018 Foreign Asset-Based Term Facility or, if no Future Refinanced European ABL Facility is obtained, a stand-alone $30 million credit facility secured by the same collateral as the 2018 Foreign Asset-Based Term Facility when that facility is terminated, in each case, subject to a borrowing base. As of December 31, 2020, there were 0 borrowings outstanding under the 2020 Restated Line of Credit Facility, and the 2020 Restated Line of Credit Facility terminated on such date. M&F’s commitment in respect of the New European ABL FILO Facility survived the termination of the 2020 Restated Line of Credit Facility and, if not used, would have terminated on July 9, 2021.
The New European ABL FILO Facility would mature on (x) the maturity date of any such Future Refinanced European ABL Facility or (y) if there is no Future Refinanced European ABL Facility, July 9, 2022. To the extent the Future Refinanced European ABL Facility exceeds $35.0 million in principal amount, the amount available under the New European ABL FILO Facility would decrease on a dollar-for-dollar basis, such that, if Products Corporation were able to obtain a Future Refinanced ABL Facility of $65.0 million from third parties, there would be no amounts available under the New European ABL FILO Facility. The interest rate for the New European ABL FILO Facility will be LIBOR plus 10.00%. The covenants for the New European ABL FILO Facility would be substantially the same as those applicable to the 2018 European ABL Facility.
Upon the closing of the 2021 Asset-Based Term Facility on March 2, 2021 without the participation of M&F as a lender, M&F’s commitment in respect of the New European ABL FILO Facility under the 2020 Restated Line of Credit Facility terminated in accordance with its terms (see Note 21, “Subsequent Events,” to the Company's Consolidated Financial Statements).
Incremental Revolving Credit Facility under the 2016 Term Loan Agreement
On April 30, 2020, Products Corporation entered into a Joinder Agreement (the “2020 Joinder Agreement”), with Revlon, certain of their subsidiaries and certain existing lenders (the “Incremental Lenders”) under Products Corporation’s 2016 Term Loan Agreement (the “2016 Term Loan Agreement”) to provide for a $65 million incremental revolving credit facility (the “2020 Incremental Facility”). On the closing of the 2020 Incremental Facility, Products Corporation borrowed $63.5 million of revolving loans for working capital purposes and subsequently on May 11, 2020 Products Corporation also borrowed the additional $1.5 million of delayed funding revolving loans. Prior to its full repayment on May 28, 2020, amounts outstanding under the 2020 Incremental Facility bore interest at a rate of (x) LIBOR plus 16% or (y) an Alternate Base Rate plus 15%, at Products Corporation’s option. Except as to pricing, maturity and differences due to its revolving nature, the terms of the 2020 Incremental Facility were otherwise substantially consistent with the existing term loans under the 2016 Term Loan Facility. On May 28, 2020, the 2020 Incremental Facility was repaid in full, and the commitments thereunder terminated. Upon such repayment, approximately $2.9 million of upfront commitment fees that Products Corporation incurred in connection with consummating the 2020 Incremental Facility were entirely expensed within "Miscellaneous, net" on the Company's Consolidated Statement of Operations and Comprehensive Loss for the year ended December 31, 2020.
Previous Years' Debt Related Transactions
2019 Term Loan Facility
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions, except share and per share amounts)
In August 2019, Products Corporation entered into a senior secured term loan facility among certain affiliated funds, investment vehicles or accounts managed or advised by Ares Management LLC, as lender, in an initial aggregate principal amount of $200 million (the “2019 Term Loan Facility” and such agreement being the “2019 Term Loan Agreement”), and Wilmington Trust, National Association (“Wilmington Trust”), as administrative and collateral agent.
On the BrandCo 2020 Facilities Closing Date, Products Corporation used a portion of the proceeds from the 2020 BrandCo Facility to fully prepay the entire principal amount outstanding under its 2019 Term Loan Facility, totaling $200 million, plus approximately $1.3 million of accrued interest outstanding thereon, as well as approximately $33.5 million in prepayment premiums, $10.3 million in lenders’ fees, $0.3 million in legal fees and approximately $2.0 million in other third party fees. As the lenders under the 2019 Term Loan Facility participated in the 2020 BrandCo Term Loan Facility, the Company determined that the full repayment of the 2019 Term Loan Facility represented a debt modification under U.S. GAAP as the cash flow effect between the old debt instrument (i.e., the 2019 Term Loan Facility) and the new debt instrument (i.e., the 2020 BrandCo Facility) on a present value basis was less than 10% and, thus, the debt instruments were not considered to be substantially different within the meaning of ASC 470, Debt, under U.S. GAAP. Accordingly, the $33.5 million of prepayment premiums, as well as the $10.3 million in other lenders' fees were capitalized as part of the aforementioned $119.3 million of total new debt issuance costs for the 2020 BrandCo Term Loan Facility, while the aforementioned $0.3 million of legal fees and $2.0 million in other third party fees were expensed as incurred in the Company's Unaudited Consolidated Statement of Operations and Comprehensive Loss for the year ended December 31, 2020.
2019 Senior Line of Credit Facility Agreement
The 2019 Senior Unsecured Line of Credit Agreement was obtained in June 2019 from MacAndrews & Forbes Group, LLC, and provides Products Corporation with a $30 million senior unsecured line of credit, which facility allowed Products Corporation to request loans thereunder and to use the proceeds of such loans for working capital and other general corporate purposes until the facility matured. In November 2019, Products Corporation and MacAndrews & Forbes Group, LLC entered into the Amended and Restated 2019 Senior Unsecured Line of Credit Agreement (the “Amended 2019 Senior Line of Credit Agreement”) to extend the maturity of such facility by 1-year, expiring December 31, 2020 (the "Amended 2019 Senior Line of Credit Facility"). As of December 31, 2019 and as of the November 7, 2019 extension date, there were 0 borrowings outstanding or repayments under the Amended 2019 Senior Line of Credit Facility. Any loans outstanding under the Amended 2019 Senior Line of Credit Facility would bear interest at an annual rate of 8%, payable quarterly in arrears in cash. Products Corporation may, at its option, prepay any borrowings under the Amended 2019 Senior Line of Credit Facility, in whole or in part (together with accrued and unpaid interest), at any time prior to maturity, without premium or penalty. Products Corporation was required to repay any outstanding loans under the Amended 2019 Senior Line of Credit Facility, together with accrued interest thereon, if for any reason Products Corporation or any of its subsidiaries had available unrestricted cash that Products Corporation determined, in its reasonable judgment, was not required to run their operations in the ordinary course of business, provided that such repayment would not result in material adverse tax consequences. The Amended 2019 Senior Line of Credit Agreement included customary events of default, including a cross default provision making it an event of default under the Amended 2019 Senior Line of Credit Agreement if there exists and continues an event default under Products Corporation’s 2016 Credit Agreements, the 2018 Foreign Asset-Based Term Agreement, the 2019 Term Loan Agreement or the Senior Notes Indentures. If any such event of default occurred, MacAndrews & Forbes Group, LLC could declare all outstanding loans under the Amended 2019 Senior Line of Credit Facility to be due and payable immediately.
In September 2020, Products Corporation entered into the Second Amended and Restated 2019 Senior Unsecured Line of Credit Agreement, which further amended and restated the Amended and Restated 2019 Senior Unsecured Line of Credit Agreement and subsequently terminated on December 31, 2020.
March 2019 Amendment to the 2016 Revolving Credit Facility Agreement
In March 2019, Products Corporation, Revlon and certain of their subsidiaries entered into Amendment No. 2 (“Amendment No. 2”) to the 2016 Revolving Credit Agreement. Pursuant to the terms of Amendment No. 2, the maturity date applicable to the $41.5 million senior secured first in, last out Tranche B of the Amended 2016 Revolving Credit Facility was extended from April 17, 2019 to April 17, 2020. The 2016 Revolving Credit Agreement provided that the “Liquidity Amount” (defined in the Amended 2016 Revolving Credit Agreement as the sum of each borrowing base less the sum of (x) the aggregate outstanding extensions of credit under the Amended 2016 Revolving Credit Facility, and (y) any availability reserve in effect on such date) may exceed the aggregate commitments under the Amended 2016 Revolving Credit Facility by up to 5%. Amendment No. 2 limited the Liquidity Amount to no more than the aggregate commitments under the Amended 2016 Revolving Credit Facility. Under the 2016 Revolving Credit Agreement, a “Liquidity Event Period” generally occurred if Products Corporation’s Liquidity Amount fell below the greater of $35 million and 10% of the maximum availability under the 2016 Revolving Credit Facility. Amendment No. 2 changed these thresholds to $50 million and 15%, respectively, only for
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions, except share and per share amounts)
purposes of triggering certain notification obligations of Products Corporation, increased borrowing base reporting frequency and the ability of the administrative agent to apply amounts collected in controlled accounts for the repayment of loans under the Amended 2016 Revolving Credit Facility. After entering into Amendment No. 2, in March 2019 Products Corporation’s availability under the Amended 2016 Revolving Credit Facility was $37.3 million, which was less than the greater of $35 million and 10% of the maximum availability under the Amended 2016 Revolving Credit Facility, which at such date equated to $41.3 million. Accordingly, effective beginning in March 2019 Products Corporation is required to maintain a FCCR of a minimum of 1.0 to 1.0 (which it currently satisfies), the administrative agent may apply amounts collected in controlled accounts for the repayment of loans under the Amended 2016 Revolving Credit Facility, which the administrative agent began applying in March 2019, and Products Corporation is required to provide the administrative agent with weekly borrowing base certificates. Products Corporation will be required to: (i) maintain such 1.0 to 1.0 minimum FCCR until such time that availability under the Amended 2016 Revolving Credit Facility equals or exceeds the greater of $35 million and 10% of the maximum availability under such facility for at least 20 consecutive business days; and (ii) Products Corporation will continue to provide the administrative agent with weekly borrowing base certificates and the administrative agent may continue to apply amounts collected in controlled accounts as set forth above in each case until such time that availability under such facility is equal or exceeds the greater of $50 million and 15% of the maximum availability under such facility for at least 20 consecutive business days. Amendment No. 2 also adjusts, among other things, the “payment conditions” required to make unlimited restricted payments.
2018 Foreign Asset-Based Term Loan Credit Agreement
In July 2018, Revlon Holdings B.V. (the "Dutch Borrower"), a wholly owned indirect foreign subsidiary of Products Corporation, Revlon Finance LLC, a wholly owned direct subsidiary of the Dutch Borrower (the "U.S. Co-Borrower" and, together with the Dutch Borrower, the "2018 ABTL Borrowers"), the other loan parties and guarantors party thereto, the lenders party thereto and Citibank, N.A., acting as administrative agent and collateral agent (the "2018 ABTL Agent"), entered into an Asset-Based Term Loan Credit Agreement (the "2018 Foreign Asset-Based Term Facility" and the "2018 Foreign Asset-Based Term Agreement," respectively) and related guarantee and security agreements.
Principal and Maturity: The 2018 Foreign Asset-Based Term Facility provides for a euro-denominated senior secured asset-based term loan facility in an aggregate principal amount of €77 million, the full amount of which was funded on the closing of the facility in July 2018. The 2018 Foreign Asset-Based Term Facility has an uncommitted incremental facility pursuant to which it may be increased from time to time by up to €43 million, subject to certain conditions and the agreement of the lenders providing such increase. The proceeds of the loans under the 2018 Foreign Asset-Based Term Facility were used for working capital and other general corporate purposes. The 2018 Foreign Asset-Based Term Facility matures on July 9, 2021.
The 2018 Foreign Asset-Based Term Agreement requires the maintenance of a borrowing base supporting the borrowing thereunder, to be evidenced with the delivery of monthly borrowing base certificates customary for facilities of this type, with more frequent reporting required upon the triggering of certain events. The borrowing base calculation under the 2018 Foreign Asset-Based Term Facility is based on the sum of: (i) 85% of eligible accounts receivable; and (ii) 90% of the net orderly liquidation value of eligible inventory, in each case with respect to certain of Products Corporation’s subsidiaries organized in Australia, Bermuda, Germany, Italy, Spain and Switzerland (the "2018 ABTL Borrowing Base Guarantors" and, together with the 2018 ABTL Borrowers, the "2018 ABTL Loan Parties"). The borrowing bases in each jurisdiction are subject to certain customary availability reserves set by the Agent.
Guarantees and Security: The 2018 Foreign Asset-Based Term Facility is guaranteed by the 2018 ABTL Borrowing Base Guarantors, as well as by the direct parent entities of each Borrowing Base Guarantor (not including Revlon or Products Corporation) on a limited recourse basis (the "2018 ABTL Parent Guarantors"). The obligations of the 2018 ABTL Loan Parties and the 2018 ABTL Parent Guarantors under the 2018 Foreign Asset-Based Term Facility are secured by first-ranking pledges of the equity of each 2018 ABTL Loan Party, the inventory and accounts receivable of the 2018 ABTL Borrowing Base Guarantors, the material bank accounts of each 2018 ABTL Loan Party, the material intercompany indebtedness owing to any Loan Party (including any intercompany loans made with the proceeds of the 2018 Foreign Asset-Based Term Facility) and 2018 ABTL certain other material assets of the 2018 ABTL Borrowing Base Guarantors. The 2018 Foreign Asset-Based Term Facility includes a cash dominion feature customary for transactions of this type.
Interest and Fees: Interest is payable on each interest payment date as set forth in the 2018 Foreign Asset-Based Term Agreement, and in any event at least quarterly, and accrues on borrowings under the 2018 Foreign Asset-Based Term Facility at a rate per annum equal to the EURIBOR rate, with a floor of 0.50%, plus an applicable margin equal to 6.50%. The Borrowers are obligated to pay certain fees and expenses in connection with the 2018 Foreign Asset-Based Term Facility, including a fee payable to Citibank, N.A. for its services as 2018 ABTL Agent. Loans under the 2018 Foreign Asset-Based Term Facility may be prepaid without premium or penalty.
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions, except share and per share amounts)
Affirmative and Negative Covenants: The 2018 Foreign Asset-Based Term Agreement contains certain affirmative and negative covenants that, among other things, limit the 2018 ABTL Loan Parties’ ability to, subject to various exceptions and qualifications: (i) incur additional debt; (ii) incur liens; (iii) sell, transfer or dispose of assets; (iv) make investments; (v) make dividends and distributions on, or repurchases of, equity; (vi) make prepayments of contractually subordinated or junior lien debt; (vii) enter into certain transactions with their affiliates, including amending certain material intercompany agreements or trade terms; (viii) enter into sale-leaseback transactions; (ix) change their lines of business; (x) restrict dividends from their subsidiaries or restrict liens; (xi) change their fiscal year; and (xii) modify the terms of certain debt. The 2018 ABTL Parent Guarantors are subject to certain customary holding company covenants. The ability of the 2018 ABTL Loan Parties to make certain intercompany asset sales, investments, restricted payments and prepayments of intercompany debt is contingent on certain "cash movement conditions" or "payment conditions" being met, which among other things, require a certain level of liquidity for the applicable 2018 ABTL Loan Party to effect such type of transactions. The 2018 Foreign Asset-Based Term Agreement also contains certain customary representations, warranties and events of default.
Prepayments: The 2018 ABTL Borrowers must prepay loans under the 2018 Foreign Asset-Based Term Facility to the extent that outstanding loans exceed the borrowing base. In lieu of a mandatory prepayment, the 2018 ABTL Loan Parties may deposit cash in an amount not to exceed 10% of the borrowing base into a designated U.S. bank account with the 2018 ABTL Agent that is subject to a control agreement (such cash, the "Qualified Cash"). If any such over-advance has not been cured within 60 days, the Qualified Cash may be applied, at the 2018 ABTL's Agent’s option, to prepay the loans under the 2018 Foreign Asset-Based Term Facility. To the extent certain levels of availability are obtained during a certain period of time, the 2018 ABTL Borrowers can withdraw the Qualified Cash from such bank account. In addition, the 2018 Foreign Asset-Based Term Facility is subject to mandatory prepayments from the net proceeds from the incurrence by the 2018 ABTL Loan Parties of debt not permitted thereunder.
During 2018, the Company incurred approximately $5.7 million of fees and expenses in connection with consummating the 2018 Foreign Asset-Based Term Agreement, which were capitalized and are being amortized over the remaining term of the 2018 Foreign Asset-Based Term Facility using the effective interest method. As of December 31, 2020, there was the Euro equivalent of $59.2 million aggregate principal outstanding under the 2018 Foreign Asset-Based Term Facility, reflecting a repayment of €28.5 million made during the quarter ended June 30, 2020.
The 2018 Foreign Asset Based Term Facility was subsequently refinanced and replaced in its entirety by the 2021 Foreign Asset-Based Term Facility. See Note 21, “Subsequent Events,” to the Company's Consolidated Financial Statements in this Form 10-K.
2016 Term Loan Facility
Principal and Maturity: On the Elizabeth Arden Acquisition Date, Products Corporation entered into the 2016 Term Loan Agreement, for which Citibank, N.A. acts as administrative and collateral agent and which has an initial aggregate principal amount of $1.8 billion and matures on the earlier of: (x) the seventh anniversary of the Elizabeth Arden Acquisition Date and (y) the 91st day prior to the maturity of Products Corporation’s 5.75% Senior Notes due 2021 (the "5.75% Senior Notes") if, on that date (and solely for so long as), (i) any of Products Corporation's 5.75% Senior Notes remain outstanding and (ii) Products Corporation’s available liquidity does not exceed the aggregate principal amount of the then outstanding 5.75% Senior Notes by at least $200 million.September 7, 2023. The loans under the 2016 Term Loan Facility were borrowed at an original issue discount of 0.5% to their principal amount. The 2016 Term Loan Facility may be increased by an amount equal to the sum of (x) the greater of $450 million and 90% of Products Corporation’s pro forma consolidated EBITDA, plus (y) an unlimited amount to the extent that (1) the first lien leverage ratio (defined as the ratio of Products Corporation’s net senior secured funded debt that is not junior or subordinated to the liens of the Senior Facilities to EBITDA) is less than or equal to 3.5 to 1.0 (for debt secured pari passu with the 2016 Term Loan Facility) or (2) the secured leverage ratio (defined as the ratio of Products Corporation’s net senior secured funded debt to EBITDA) is less than or equal to 4.25 to 1.0 (for junior lien or unsecured debt), plus (z) up to an additional $400 million if the 2016 Revolving Credit Facility has been repaid and terminated. The aggregate principal amount outstanding under the 2016 Term Loan Facility at December 31, 2020 was $883.9 million.
Guarantees and Security:Security: Products Corporation and the restricted subsidiaries under the 2016 Term Loan Facility, which include Products Corporation’s domestic subsidiaries, including Elizabeth Arden and its domestic subsidiaries (collectively, the "Restricted Group"), are subject to the covenants under the 2016 Term Loan Agreement. The 2016 Term Loan Facility is guaranteed by each of Products Corporation's existing and future direct or indirect wholly-owned domestic restricted subsidiaries (subject to various exceptions), certain foreign subsidiaries, as well as by Revlon, on a limited recourse basis. The obligations of Revlon, Products Corporation and the subsidiary guarantors under the 2016 Term Loan Facility are secured by pledges of the equity of Products Corporation held by Revlon and the equity of the Restricted Group held by Products Corporation and each subsidiary guarantor (subject to certain exceptions, including equity of first-tier foreign subsidiaries in excess of 65% of the voting equity interests of such entity) and by substantially all tangible and intangible personal and real property of Products Corporation and the subsidiary guarantors (subject to certain exclusions). The obligors and guarantors under the 2016 Term Loan Facility and the Amended 2016 Revolving Credit Facility are identical. The liens securing the 2016 Term Loan Facility on the accounts, inventory, equipment, chattel paper, documents, instruments, deposit accounts, real estate and investment property and general intangibles (other than intellectual property) related thereto (the "Revolving Facility Collateral") rank second in priority to the
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions, except share and per share amounts)
liens thereon securing the Amended 2016 Revolving Credit Facility. The liens securing the 2016 Term Loan Facility on all other property, including capital stock, intellectual property and certain other intangible property (the "Term Loan Collateral"), rank first in priority to the liens thereon securing the Amended 2016 Revolving Credit Facility, while the liens thereon securing the Amended 2016 Revolving Credit Facility rank second in priority to the liens thereon securing the 2016 Term Loan Facility.
Interest and Fees:Fees: Interest accrues on term loans under the 2016 Term Loan Facility at a rate per annum of Adjustedadjusted LIBOR (which has a floor of 0.75%) plus a margin of 3.50%3.5% or an alternate base rate plus a margin of 2.50%2.5%, at Products Corporation’s option, and is payable quarterly, at a minimum. Products Corporation is obligated to pay certain fees and expenses in connection with the 2016 Term Loan Facility.
Affirmative and Negative Covenants:Covenants: The 2016 Term Loan Agreement contains certain affirmative and negative covenants that, among other things, limit the Restricted Group’s ability to: (i) incur additional debt; (ii) incur liens; (iii) sell, transfer or dispose of assets; (iv) make investments; (v) make dividends and distributions on, or repurchases of, equity; (vi) make prepayments of contractually subordinated or junior lien debt; (vii) enter into certain transactions with their affiliates; (viii) enter into sale-leaseback transactions; (ix) change their lines of business; (x) restrict dividends from their subsidiaries or restrict liens; (xi) change their fiscal year; and (xii) modify the terms of certain debt. The negative covenants are subject to various exceptions, including an "available amount basket" based on 50% of Products Corporation’s cumulative consolidated net income, plus a "starter" basket of $200 million, subject to Products Corporation’s compliance with a 5.0 to 1.0 ratio of Products Corporation’s net debt to Consolidated EBITDA (as defined in the 2016 Term Loan Agreement), except such compliance is not required when such baskets are used to make investments. While the 2016 Term Loan Agreement contains certain customary representations, warranties and events of default, it does not contain any financial maintenance covenants.
Prepayments: The
Incremental Revolving Credit Facility under the 2016 Term Loan Agreement: On April 30, 2020, Products Corporation entered into the 2020 Joinder Agreement, with Revlon, certain of their subsidiaries and the Incremental Lenders under the 2016 Term Loan Agreement to provide for the 2020 Incremental Facility. On the closing of the 2020 Incremental Facility, Products Corporation borrowed $63.5 million of revolving loans for working capital purposes and subsequently on May 11, 2020 Products Corporation also borrowed the additional $1.5 million of delayed funding revolving loans. On May 28, 2020, the 2020 Incremental Facility was repaid in full, and the commitments thereunder terminated.
2016 Term Loan Facility isExtension Amendment: In connection with the 2020 BrandCo Refinancing Transactions, term loan lenders under the 2016 Term Loan Facility were offered the opportunity to participate at par in the 2020 BrandCo Facilities based on their holdings of term loans under the 2016 Term Loan Facility. Lenders participating in the 2020 BrandCo Facilities, as well as other consenting lenders representing, in the aggregate, a majority of the loans and commitments under the 2016 Term Loan Facility, consented to the Extension Amendment, which, among other things, made certain modifications to the covenants thereof and extended the maturity date of certain consenting lenders’ term loans to June 30, 2025, subject to mandatory prepayments from: (i) the net proceeds fromsame September 7, 2023 springing maturity date of the issuance by Products Corporationnon-extended term loans under the 2016 Term Loan Facility if, on such date, $75 million or anymore in aggregate principal amount of its restricted subsidiariesthe non-extended term loans under the 2016 Term Loan Facility remains outstanding, and (ii) a springing maturity of certain additional debt; (ii) commencing91 days prior to the August 1, 2024 maturity date of the 6.25% Senior Notes if, on such date, $100 million or more in aggregate principal amount of the 6.25% Senior Notes remains outstanding. The Extension Amendment became effective on the BrandCo 2020 Facilities Closing Date. As of December 31, 2020, approximately $30.6 million in aggregate principal amount of Extended Term Loans were outstanding after giving effect to the 2020 BrandCo Refinancing Transactions. The Extended Term Loans bear interest at a rate of LIBOR (with a LIBOR floor of 0.75%) plus 3.50% per annum, payable not less than quarterly in arrears in cash, consistent with the excess cash flowinterest rate applicable to the non-extended term loans. Approximately $17.0 million of accrued interest outstanding on the 2016 Term Loan Facility was paid on the BrandCo 2020 Facilities Closing Date. The aggregate principal amount of non-extended term loans under the 2016 Term Loan Facility as of December 31, 2020 was approximately $853.3 million.
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions, except share and per share amounts)
calculation with respect to fiscal year ending December 31, 2017, 50% of excess cash flow, with step-downs to 25% and 0% upon achievement of certain first lien leverage ratios and reduced by voluntary prepayments of loans under the 2016 Term Loan Facility and revolving loans under the 2016 Revolving Credit Facility to the extent commitments thereunder are permanently reduced; and (iii) asset sale proceeds of certain non-ordinary course asset sales or other dispositions of property that have not been reinvested to the extent in excess of certain minimum amounts. Products Corporation may voluntarily prepay the 2016 Term Loan Facility without premium or penalty. No excess cash flow payments were due and payable with respect to 2017.
During 2016, the Company incurred approximately $45.2 million of fees and expenses in connection with consummating the 2016 Term Loan Facility, of which $39.3 million were capitalized and are being amortized over the remaining term of the 2016 Term Loan Credit Facility using the effective interest method. The Company expensed the remaining $6 million of fees and expenses and wrote-off $10.9 million of unamortized debt discount and deferred financing costs related to the Old Term Loan Facility. These amounts, totaling $16.9 million, were recognized within loss on early extinguishment of debt in the Company’s Consolidated Statements of Operations and Comprehensive (Loss) Income for the year ended December 31, 2016.
(b) 2016 Revolving Credit Facility
Principal and Maturity: On the Elizabeth Arden Acquisition Date, Products Corporation entered into the 2016 Revolving Credit Agreement, for which Citibank, N.A. acts as administrative agent and collateral agent. The 2016 Revolving Credit Facility has an initial maximum availability of $400 million (with a $100 million sublimit for letters of credit and up to $70 million available for swing line loans), which availability is subject to the amount of the borrowing base. The 2016 Revolving Credit Facility may be increased by the greater of (x) $50 million and (y) the excess of the borrowing base over the amounts of then-effective commitments. The 2016 Revolving Credit Facility permits certain non-U.S. subsidiaries to borrow in local currencies. The borrowing base calculation under the 2016 Revolving Credit Facility is based on the sum of: (i) 85% of eligible accounts receivable; (ii) the lesser of 85% of the net orderly liquidation value and a percentage of the value specified in respect of different types of eligible inventory; (iii) qualified restricted cash (capped at $75 million); and (iv) a temporary increase amount between August 15 and October 31 of each year, which are collectively subject to certain availability reserves set by the administrative agent. The 2016 Revolving Credit Facility matures on the earlier of: (x) the fifth anniversary of the Elizabeth Arden Acquisition Date; and (y) the 91st day prior to the maturity of Products Corporation’s 5.75% Senior Notes if, on that date (and solely for so long as), (i) any of Products Corporation’s 5.75% Senior Notes remain outstanding and (ii) Products Corporation’s available liquidity does not exceed the aggregate principal amount of the then outstanding 5.75% Senior Notes by at least $200 million.
Guarantees and Security: The Restricted Group under the 2016 Revolving Credit Agreement (which is the same as the Restricted Group under the 2016 Term Loan Agreement) is subject to the covenants under the 2016 Revolving Credit Agreement. The 2016 Revolving Credit Facility is guaranteed by each of Products Corporation's existing and future direct or indirect wholly-owned domestic restricted subsidiaries (subject to various exceptions), as well as by Revlon on a limited recourse basis. The obligations of Revlon, Products Corporation and the subsidiary guarantors under the 2016 Revolving Credit Facility are secured by pledges of the equity of Products Corporation held by Revlon and the equity of Products Corporation’s restricted subsidiaries held by Products Corporation and each subsidiary guarantor (subject to certain exceptions, including equity of first-tier foreign subsidiaries in excess of 65% of the voting equity interests of such entity) and by substantially all tangible and intangible personal and real property of Products Corporation and the subsidiary guarantors (subject to certain exclusions). The obligors and guarantors under the 2016 Revolving Credit Facility and the 2016 Term Loan Facility are identical. The liens on the 2016 Revolving Facility Collateral securing the 2016 Revolving Credit Facility rank first in priority to the liens thereon securing the 2016 Term Loan Facility, which rank second in priority on such collateral. The liens on the Term Loan Collateral securing the 2016 Revolving Credit Facility rank second in priority to the liens thereon securing the 2016 Term Loan Facility, which rank first in priority on such collateral.
Interest and Fees: Under the 2016 Revolving Credit Facility, interest is payable quarterly and accrues on borrowings under such facility at a rate per annum equal to either: (i) the alternate base rate plus an applicable margin equal to 0.25%, 0.50% or 0.75%, depending on the average excess availability (based on the borrowing base as most recently reported by Products Corporation to the administrative agent from time to time); or (ii) the Eurocurrency rate plus an applicable margin equal to 1.25%, 1.50% or 1.75%, depending on the average excess availability (based on the borrowing base as most recently reported by Products Corporation to the administrative agent from time to time), at Products Corporation’s option. The applicable margin decreases as average excess availability under the 2016 Revolving Credit Facility increases. Products Corporation is obligated to pay certain fees and expenses in connection with the 2016 Revolving Credit Facility, including a commitment fee of 0.25% for any unused amounts. Loans under the 2016 Revolving Credit Facility may be prepaid without premium or penalty.
Affirmative and Negative Covenants: The 2016 Revolving Credit Agreement contains affirmative and negative covenants that are similar to those in the 2016 Term Loan Agreement, other than the "available amount basket" (as described above in the description of the 2016 Term Loan Facility); provided, however, under the 2016 Revolving Credit Agreement the Restricted Group will be able to incur unlimited additional junior secured debt and unsecured debt, make unlimited asset sales and dispositions, make unlimited investments and acquisitions, prepay junior debt and make unlimited restricted payments to the extent that certain
REVLON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions, except share and per share amounts)
"payment conditions" for asset-based credit facilities are satisfied. The 2016 Revolving Credit Agreement contains certain customary representations, warranties and events of default. If Products Corporation’s "Liquidity Amount" (defined in the 2016 Revolving Credit Agreement as the Borrowing Base less the sum of (x) the aggregate outstanding extensions of credit under the 2016 Revolving Credit Facility, and (y) any availability reserve in effect on such date) falls below the greater of $35 million and 10% of the maximum availability under the 2016 Revolving Credit Facility (a "Liquidity Event Period"), then the Restricted Group will be required to maintain a consolidated fixed charge coverage ratio (the ratio of Products Corporation’s EBITDA minus capital expenditures to cash interest expense for such period) of a minimum of 1.0 to 1.0 until the first date after 20 consecutive business days for which the Liquidity Amount is equal to or greater than such threshold. If Products Corporation is in default under the consolidated fixed charge coverage ratio under the 2016 Revolving Credit Agreement, Products Corporation may cure such default by Products Corporation and/or Revlon issuing certain equity securities and Products Corporation receiving capital contributions from Revlon, with such cash being deemed to increase EBITDA for the purpose of calculating the applicable ratio. Products Corporation may exercise this cure right no more than two times in any four-quarter period, and no more than five times in total during the term of the 2016 Revolving Credit Facility.
Prepayments: Products Corporation must prepay borrowings under the 2016 Revolving Credit Facility to the extent that outstanding loans and letters of credit exceed availability. During a Liquidity Event Period, the administrative agent may apply amounts collected in controlled accounts for the repayment of loans under the 2016 Revolving Credit Facility. The above descriptions of the terms of the 2016 Term Loan Agreement and the 2016 Revolving Credit Facility and the related security and collateral agreements are qualified in their entirety by reference to such agreements, which are incorporated by reference as exhibits to this Form 10-K.
During 2016, the Company incurred approximately $5.7 million of fees and expenses in connection with consummating the 2016 Revolving Credit Facility, of which $5.6 million were capitalized as deferred financing costs and are being amortized over the remaining term of the 2016 Revolving Credit Facility using the effective interest method. The Company expensed the remaining $0.1 million of fees and expenses, which were recognized within loss on early extinguishment of debt in the Company’s Consolidated Statements of Operations and Comprehensive (Loss) Income for the year ended December 31, 2016.
(c) 6.25% Senior Notes
On
In August 4, 2016, Revlon Escrow Corporation (the "Escrow Issuer"), which on such date was a wholly owned subsidiary of Products Corporation, completed the 6.25% Senior Notes offering, pursuant to an exemption from registration under the Securities Act of 1933 (as amended, the "Securities Act"), of $450 million aggregate principal amount of the 6.25% Senior Notes due 2024. The 6.25% Senior Notes are unsecured and were initially issued by the Escrow Issuer to the initial purchasers under an Indenture, dated as of August 4, 2016 (the "6.25% Senior Notes Indenture"), between the Escrow Issuer and U.S. Bank National Association, as trustee (the "6.25% Senior Notes Trustee"). The 6.25% Senior Notes mature on August 1, 2024. Interest on the 6.25% Senior Notes accrues at 6.25% per annum, paid every six months through maturity on each February 1 and August 1, beginning on February 1, 2017.1. The proceeds from the 6.25% Senior Notes were released from escrow on the September 7, 2016 The Elizabeth Arden Acquisition Date (the "Escrow Release"). On the Elizabeth Arden Acquisition Date, the Escrow Issuer was merged with and into Products Corporation and in connection with the Escrow Release, Products Corporation and certain of its direct and indirect wholly-owned domestic subsidiaries, including Elizabeth Arden and certain of its subsidiaries (collectively, the "6.25% Senior Notes Guarantors"), and the 6.25% Senior Notes Trustee entered into a supplemental indenture (the "6.25% Senior Notes Supplemental Indenture") to the 6.25% Senior Notes Indenture, pursuant to which Products Corporation assumed the obligations of the Escrow Issuer under the 6.25% Senior Notes and the 6.25% Senior Notes Indenture and the 6.25% Senior Notes Guarantors jointly and severally, fully and unconditionally guaranteed the 6.25% Senior Notes on a senior unsecured basis (the "6.25% Senior Notes Guarantees"). The 6.25% Senior Notes Guarantors are the same entities that are subsidiary guarantors under the 2016 Senior Credit Facilities.
In December 2016, Products Corporation consummated an offer to exchange the original 6.25% Senior Notes for $450 million of new 6.25% Senior Notes, which have substantially the same terms as the original 6.25% Senior Notes, except that they are registered under the Securities Act (such registered new notes being the "6.25% Senior Notes").
Ranking:
Ranking: The 6.25% Senior Notes are Products Corporation’s senior, unsubordinated and unsecured obligations, ranking: (i) pari passu in right of payment with all of Products Corporation’s existing and future senior unsecured indebtedness; (ii) senior in right of payment to all of Products Corporation’s and the 6.25% Senior Notes Guarantors’ future subordinated indebtedness; and (iii) effectively junior to all of Products Corporation’s and the 6.25% Senior Notes Guarantors’ existing and future senior secured indebtedness, including indebtedness under Products Corporation’s 2016 Senior Credit Facilities and the 2019 Term Loan Facility, to the extent of the value of the assets securing such indebtedness. The 6.25% Senior Notes and the 6.25% Senior Notes Guarantees are: (i) structurally subordinated to all of the liabilities and preferred stock of any of the Company’s subsidiaries that do not guarantee the 6.25% Senior Notes; and (ii) pari passu in right of payment with liabilities of the 6.25% Senior Notes Guarantors other than expressly subordinated indebtedness. The 6.25% Senior Notes and the 6.25% Senior Notes Guarantees rank effectively junior to indebtedness
REVLON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions, except share and per share amounts)
and preferred stock of Products Corporation’s foreign and immaterial subsidiaries (including the 2018 Foreign Asset-Based Term Facility) (the "6.25% Senior Notes Non-Guarantor Subsidiaries"), none of which guarantee the 6.25% Senior Notes.
Optional Redemption: Prior to August 1, 2019, Products Corporation may redeem the 6.25% Senior Notes at its option, at any time as a whole or from time to time in part, upon Products Corporation’s payment of an applicable make-whole premium based on the comparable treasury rate plus 50 basis points. Prior to August 1, 2019, up to 40% of the aggregate principal amount of 6.25% Senior Notes that have been issued may also be redeemed at Products Corporation’s option at any time as a whole or from time-to-time in part, at a redemption price equal to 106.250% of the principal amount thereof, plus accrued and unpaid interest to (but not including) the date of redemption with the proceeds of certain equity offerings and capital contributions (so long as at least 60% of the 6.25% Senior Notes that have been issued thereafter remain outstanding). On and after August 1, 2019,Redemption: Products Corporation may redeem the 6.25% Senior Notes at its option, at any time as a whole, or from time to time in part, at the following redemption prices (expressed as percentages of principal amount), plus accrued interest to (but not including) the date of redemption, if redeemed during the 12-month period beginning on August 1 of the years indicated below:
| | | Period | | Optimal Redemption Premium Percentage | Period | | Optimal Redemption Premium Percentage |
| 2019 | | 104.688 | % | |
| 2020 | | 103.125 | % | 2020 | | 103.125 | % |
| 2021 | | 101.563 | % | 2021 | | 101.563 | % |
| 2022 and thereafter | | 100.000 | % | 2022 and thereafter | | 100.000 | % |
All redemptions (and notices thereof) may be subject to various conditions precedent, and redemption dates specified in such notices may be extended so that such conditions precedent may be fulfilled (to the extent redemption on such dates is otherwise permitted by the 6.25% Senior Notes Indenture).
Change of Control: Control: Upon the occurrence of specified change of control events, Products Corporation is required to make an offer to purchase all of the 6.25% Senior Notes at a purchase price of 101% of the outstanding principal amount of the 6.25% Senior Notes as of the date of any such repurchase, plus accrued and unpaid interest to (but not including) the date of repurchase.
Certain Covenants: Covenants: The 6.25% Senior Notes Indenture imposes certain limitations on Products Corporation’s and the 6.25% Senior Notes Guarantors’ ability, and the ability of certain other subsidiaries, to: (i) incur or guarantee additional indebtedness or issue preferred stock; (ii) pay dividends, make certain investments and make repayments on indebtedness that is
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions, except share and per share amounts)
subordinated in right of payment to the 6.25% Senior Notes and make other "restricted payments"; (iii) create liens on their assets to secure debt; (iv) enter into transactions with affiliates; (v) merge, consolidate or amalgamate with another company; (vi) transfer and sell assets; and (vii) permit restrictions on the payment of dividends by Products Corporation's subsidiaries.
These covenants are subject to important qualifications and exceptions. The 6.25% Senior Notes Indenture also contains customary affirmative covenants and events of default. In addition, if during any period of time the 6.25% Senior Notes receive investment grade ratings from both Standard & Poor’s and Moody’s Investors Services, Inc. and no default or event of default has occurred and is continuing under the 6.25% Senior Notes Indenture, Products Corporation and its subsidiaries will not be subject to the covenants regarding limitations on debt, limitations on restricted payments, limitation on guarantees by restricted subsidiaries, limitation on transactions with affiliates, certain provisions of the successor company covenant, limitation on asset sales and limitation on dividends from restricted subsidiaries.
During
Under the BrandCo TSA, Supporting BrandCo Lenders agreed to take certain actions to facilitate the Exchange Offer and Consent Solicitation, including, among other things: (i) consenting to amendments to the 2020 BrandCo Term Loan Facility to permit the exchange of Existing 5.75% Senior Notes for, among other things, the New BrandCo Second-Lien Term Loans under the 2020 BrandCo Term Loan Facility as contemplated by the Offering Memorandum and the payment of the BrandCo Support and Consent Consideration and (ii) consenting to other amendments to the 2020 BrandCo Term Loan Facility and the Amended 2016 inRevolving Credit Facility to permit the Exchange Offer and Consent Solicitation to be completed as contemplated by the Offering Memorandum. In connection with consummating the 6.25% Senior Notes Offering, the Company incurred approximately $11.3 million of fees and expenses, all of which were capitalized and are being amortized over the remaining term of the 6.25% Senior Notes using the effective interest method.
(d) 5.75% Senior Notes
On February 8, 2013,such amendments, Products Corporation completed its offering (the "2013 Senior Notes Refinancing"), pursuantagreed to an exemption from registration under the Securities Act, of $500provide, among other things, $10.0 million aggregate principal amount of the 5.75% Senior Notes. The 5.75% Senior Notes are unsecured and were issuedNew BrandCo Second-Lien Term Loans to investors at par. The 5.75% Senior Notes mature on February 15, 2021. Interest on the 5.75% Senior Notes accrues at 5.75% per annum, paid every six months on February 15th and August 15th.
The 5.75% Senior Notes were issued pursuant to the 5.75% Senior Notes Indenture (the "5.75% Senior Notes Indenture" and together with the 6.25% Senior Notes Indenture, the "Senior Notes Indentures"), dated as of February 8, 2013 (the "5.75% Senior Notes Closing Date"), by and among Products Corporation, Products Corporation’s domestic subsidiaries (the "5.75% Senior Notes Guarantors"), which also currently guarantee Products Corporation’s 2016 Senior Credit Facilities and the 6.25% Senior Notes, and U.S. Bank National Association, as trustee (the "5.75% Senior Notes Trustee"). The 5.75% Senior Notes Guarantors
REVLON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions, except share and per share amounts)
issued guarantees (the "5.75% Senior Notes Guarantees") of Products Corporation’s obligations under the 5.75% Senior Notes and the 5.75% Senior Notes Indenture on a joint and several, senior unsecured basis.
In December 2013, Products Corporation consummated an offer to exchange the original 5.75% Senior Notes for $500 million of new 5.75% Senior Notes, which have substantially the same terms as the original 5.75% Senior Notes, except that they are registered under the Securities Act (such registered new notes being the "5.75% Senior Notes").
Products Corporation used a portionone of the $491.2Supporting BrandCo Lenders in exchange for $18.7 million of net proceeds from the issuance of the 5.75% Senior Notes (net of underwriters' fees) to repay and redeem all of the $330 million then outstanding aggregate principal amount of its 9.75%Products Corporation’s 6.25% Senior Secured Notes held by such Supporting BrandCo Lender as well as to pay $8.6 million of accrued interest. Products Corporation incurred an aggregate of $19.4 million of fees forconsideration upon the applicable redemption and tender offer premiums, related fees and expenses in connection with redemption and repaymentsuccessful consummation of the 9.75% Senior Secured Notes and other fees and expenses in connection withExchange Offer: The aggregate principal amount outstanding under the issuance of the 5.75% Senior Notes. Products Corporation used a portion of the remaining proceeds from the issuance of the 5.75% Senior Notes, together with existing cash, to pay approximately $113 million of principal on its then outstanding 2011 Term Loan in conjunction with the February 2013 Term Loan Amendments. Products Corporation used the remaining balance available from the issuance of the 5.75% Senior Notes for general corporate purposes, including, without limitation, debt reduction transactions, such as repaying a loan to Revlon at its maturity on October 8, 2013, which proceeds Revlon used to pay the liquidation preference of Revlon's then outstanding Series A Preferred Stock, in connection with its mandatory redemption on such date.
Ranking: The 5.75% Senior Notes are Products Corporation’s unsubordinated, unsecured obligations and rank senior in right of payment to any future subordinated obligations of Products Corporation and rank pari passu in right of payment with all existing and future senior debt of Products Corporation. Similarly, each 5.75% Senior Notes Guarantee is the relevant 5.75% Senior Notes Guarantor’s joint and several, unsubordinated and unsecured obligation, ranking senior in right of payment to any future subordinated obligations of such 5.75% Senior Notes Guarantor and ranking pari passu in right of payment with all existing and future senior debt of such 5.75% Senior Notes Guarantor. The 5.75% Senior Notes Guarantees were issued on a joint and several basis.
The 5.75% Senior Notes and the 5.75% Senior Notes Guarantees rank effectively junior to Products Corporation’s 2016 Senior Credit Facilities, which are secured, as well as indebtedness and preferred stock of Products Corporation’s foreign and immaterial subsidiaries (the "5.75% Senior Notes Non-Guarantor Subsidiaries" and together with the 6.25% Senior Notes Non-Guarantor Subsidiaries, the "Non-Guarantor Subsidiaries"), none of which guarantee the 5.75% Senior Notes.
Optional Redemption: The 5.75% Senior Notes may be redeemed at Products Corporation's option, at any time as a whole, or from time-to-time in part, at the following redemption prices (expressed as percentages of principal amount), plus accrued interest to the date of redemption, if redeemed during the 12-month period beginning on February 15th of the years indicated below:
|
| | | |
| Period | | Percentage |
| 2017 | | 102.875 | % |
| 2018 | | 101.438 | % |
| 2019 and thereafter | | 100.000 | % |
Change of Control: Upon the occurrence of specified change of control events, Products Corporation is required to make an offer to purchase all of the 5.75% Senior Notes at a purchase price of 101% of the outstanding principal amount of the 5.75% Senior Notes as of the date of any such repurchase, plus accrued and unpaid interest to the date of repurchase.December 31, 2020 was $431.3 million.
Certain Covenants: The 5.75% Senior Notes Indenture limits Products Corporation’s and the 5.75% Senior Notes Guarantors’ ability, and the ability of certain other subsidiaries, to:
incur or guarantee additional indebtedness ("Limitation on Debt");
pay dividends, make repayments on indebtedness that is subordinated in right of payment to the 5.75% Senior Notes and make other "restricted payments" ("Limitation on Restricted Payments");
make certain investments;
create liens on their assets to secure debt;
enter into transactions with affiliates;
merge, consolidate or amalgamate with another company ("Successor Company");
REVLON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions, except share and per share amounts)
transfer and sell assets ("Limitation on Asset Sales"); and
permit restrictions on the payment of dividends by Products Corporation’s subsidiaries ("Limitation on Dividends from Subsidiaries").
These covenants are subject to important qualifications and exceptions. The 5.75% Senior Notes Indenture also contains customary affirmative covenants and events of default.
In addition, if during any period of time the 5.75% Senior Notes receive investment grade ratings from both Standard & Poor’s and Moody’s Investors Services, Inc. and no default or event of default has occurred and is continuing under the 5.75% Senior Notes Indenture, Products Corporation and its subsidiaries will not be subject to the covenants on Limitation on Debt, Limitation on Restricted Payments, Limitation on Asset Sales, Limitation on Dividends from Subsidiaries and certain provisions of the Successor Company covenant.
Covenants
Products Corporation was in compliance with all applicable covenants under the 2020 BrandCo Credit Agreement, 2016 Senior Credit Facilities asAgreements, the 2018 Foreign Asset-Based Term Agreement, the 2020 Restated Line of December 31, 2017. At December 31, 2017, the aggregate principal amounts outstanding under the 2016 Term Loan Facility and the 2016 Revolving Credit Facility, were $1,777.5 million and $157 million, respectively. At December 31, 2017, availability under the $400 million 2016 Revolving Credit Facility was $193 million, based upon the calculated borrowing base of $381.9 million, less $10.1 million of outstanding undrawn letters of credit, $21.8 million in outstanding checks and $157 million then drawn on the 2016 Revolving Credit Facility.
Products Corporation was in complianceas well as with all applicable covenants under its 6.25% Senior Notes IndenturesIndenture, in each case as of December 31, 2017.2020. At December 31, 2020, the aggregate principal amounts outstanding and availability under Products Corporation’s various revolving credit facilities were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| Commitment | | Borrowing Base | | Aggregate principal amount outstanding at December 31, 2020 | | Availability at December 31, 2020 (a) | | |
| Amended 2016 Revolving Credit Facility | $ | 400.0 | | | $ | 356.9 | | | $ | 188.9 | | | $ | 168.0 | | | |
| | | | | | | | | |
| | | | | | | | | |
| 2020 Restated Line of Credit Facility | $ | 30.0 | | | N/A | | $ | 0 | | | $ | 0 | | | |
Long-Term Debt Maturities(a) Availability as of December 31, 2020 is based upon the borrowing base then in effect under the Amended 2016 Revolving Credit Facility of $356.9 million, less $188.9 million then drawn consisting of $138.9 million Tranche A revolving loans and $50 million of 2020 ABL FILO Term Loans. As Products Corporation’s consolidated fixed charge coverage ratio was greater than 1.0 to 1.0 as of December 31, 2020, all of the $168.0 million of availability under the Amended 2016 Revolving Credit Facility was available as of such date. The 2018 Tranche B under the Amended 2016 Revolving Credit Facility was fully repaid in May 2020. The revolving commitments under the 2020 Restated Line of Credit Facility were terminated on December 31, 2020.
The aggregate amountsCompany’s foreign subsidiaries held $89.8 million out of contractual long-term debt maturities atthe Company's total $97.1 million in cash and cash equivalents as of December 31, 2017 in2020. While the years 2018 through 2022cash held by the Company’s foreign subsidiaries is primarily used to fund their operations, the Company regularly assesses its global cash needs and thereafter are as follows:the available sources of cash to fund these needs, which regularly includes repatriating foreign-held cash to settle historical intercompany loans and other intercompany payables.
|
| | | | | |
| Years Ended December 31, | | Long-Term Debt Maturities | |
| 2018 | | $ | 175.1 |
| (a) |
| 2019 | | 18.1 |
| (b) |
| 2020 | | 18.1 |
| (b) |
| 2021 | | 518.1 |
| (c) |
| 2022 | | 18.1 |
| (b) |
| Thereafter | | 2,137.5 |
| |
| Total long-term debt | | 2,885.0 |
| |
| Discounts and deferred finance charges | | (61.1 | ) | |
| Total long-term debt, net of discounts and deferred finance charges | | $ | 2,823.9 |
| |
| |
(a)
| Amount consists primarily of $157 million in aggregate principal amount of borrowings under the 2016 Revolving Credit Facility and the quarterly amortization payments required under the 2016 Term Loan Facility. |
| |
(b)
| Amount consists primarily of quarterly amortization payments described in (a) above. |
| |
(c)
| Amount is primarily comprised of the $500 million in aggregate principal amount outstanding as of December 31, 2017 under the 5.75% Senior Notes, which mature on February 15, 2021, and the quarterly amortization payment described in (a) above. |
REVLON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions, except share and per share amounts)
12.9. FAIR VALUE MEASUREMENTS
Assets and liabilities are required to be categorized into three levels of fair value based upon the assumptions used to pricevalue the assets or liabilities. Level 1 provides the most reliable measure of fair value, whereas Level 3, if applicable, generally would require significant management judgment. The three levels for categorizing the fair value measurement of assets and liabilities are as follows:
•Level 1: Fair valuing the asset or liability using observable inputs, such as quoted prices in active markets for identical assets or liabilities;
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions, except share and per share amounts)
•Level 2: Fair valuing the asset or liability using inputs other than quoted prices that are observable for the applicable asset or liability, either directly or indirectly, such as quoted prices for similar (as opposed to identical) assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active; and
•Level 3: Fair valuing the asset or liability using unobservable inputs that reflect the Company’s own assumptions regarding the applicable asset or liability.
As of both December 31, 2017,2020 and December 31, 2019, the fair values of the Company’sCompany did 0t have any financial assets and liabilities that were required to be measured at fair value are categorized in the table below:value.
|
| | | | | | | | | | | | | | | |
| | Total | | Level 1 | | Level 2 | | Level 3 |
| Assets: | | | | | | | |
| Derivatives: | | | | | | | |
FX Contracts(a) | $ | 0.6 |
| | $ | — |
| | $ | 0.6 |
| | $ | — |
|
| Total assets at fair value | $ | 0.6 |
| | $ | — |
| | $ | 0.6 |
| | $ | — |
|
| Liabilities: | | | | | | | |
| Derivatives: | | | | | | | |
FX Contracts(a) | $ | 1.9 |
| | $ | — |
| | $ | 1.9 |
| | $ | — |
|
2013 Interest Rate Swap(b) | 0.9 |
| | — |
| | 0.9 |
| | — |
|
| Total liabilities at fair value | $ | 2.8 |
| | $ | — |
| | $ | 2.8 |
| | $ | — |
|
As of December 31, 2016, the fair values of the Company’s financial assets and liabilities that were required to be measured at fair value are categorized in the table below:
|
| | | | | | | | | | | | | | | |
| | Total | | Level 1 | | Level 2 | | Level 3 |
| Assets: | | | | | | | |
| Derivatives: | | | | | | | |
FX Contracts(a) | $ | 2.3 |
| | $ | — |
| | $ | 2.3 |
| | $ | — |
|
| Total assets at fair value | $ | 2.3 |
| | $ | — |
| | $ | 2.3 |
| | $ | — |
|
| Liabilities: | | | | | | | |
| Derivatives: | | | | | | | |
FX Contracts(a) | $ | 1.1 |
| | $ | — |
| | $ | 1.1 |
| | $ | — |
|
2013 Interest Rate Swap(b) | 4.7 |
| | — |
| | 4.7 |
| | — |
|
| Total liabilities at fair value | $ | 5.8 |
| | $ | — |
| | $ | 5.8 |
| | $ | — |
|
(a)The fair value of the Company’s FX Contracts was measured based on observable market transactions for similar transactions in actively quoted markets of spot and forward rates on the respective dates. See Note 13, "Financial Instruments."
(b)The fair value of Products Corporation's 2013 Interest Rate Swap, which expires in May 2018 (as hereinafter defined) was measured based on the implied forward rates from the U.S. Dollar three-month LIBOR yield curve on the respective dates. See Note 13, "Financial Instruments."
REVLON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions, except share and per share amounts)
As of December 31, 2017,2020, the fair value and carrying value of the Company’s long-term debt, including the current portion of long-term debt, are categorized in the table below:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 |
| Fair Value | | |
| Level 1 | | Level 2 | | Level 3 | | Total | | Carrying Value |
| Liabilities: | | | | | | | | | |
Long-term debt, including current portion(a) | $ | 0 | | | $ | 2,168.9 | | | $ | 0 | | | $ | 2,168.9 | | | $ | 3,322.5 | |
|
| | | | | | | | | | | | | | | | | | | |
| | Fair Value | | |
| | Level 1 | | Level 2 | | Level 3 | | Total | | Carrying Value |
| Liabilities: | | | | | | | | | |
| Long-term debt, including current portion | $ | — |
| | $ | 2,131.5 |
| | $ | — |
| | $ | 2,131.5 |
| | $ | 2,823.9 |
|
As of December 31, 2016,2019, the fair value and carrying value of the Company’s long-term debt, including the current portion of long-term debt, are categorized in the table below:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2019 |
| Fair Value | | |
| Level 1 | | Level 2 | | Level 3 | | Total | | Carrying Value |
| Liabilities: | | | | | | | | | |
Long-term debt, including current portion(a) | $ | 0 | | | $ | 2,522.2 | | | $ | 0 | | | $ | 2,522.2 | | | $ | 3,194.2 | |
| | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | |
| | Fair Value | | |
| | Level 1 | | Level 2 | | Level 3 | | Total | | Carrying Value |
| Liabilities: | | | | | | | | | |
| Long-term debt, including current portion | $ | — |
| | $ | 2,770.9 |
| | $ | — |
| | $ | 2,770.9 |
| | $ | 2,681.2 |
|
(a) The fair value of the Company's long-term debt, including the current portion of long-term debt, is based on quoted market prices for similar issuances and maturities.
The carrying amounts of the Company's cash and cash equivalents, trade receivables, notes receivable, accounts payable and short-term borrowings approximate their respective fair values.
13.10. FINANCIAL INSTRUMENTS
Letters of Credit
Products Corporation maintains standby and trade letters of credit for various corporate purposes under which Products Corporation is obligated, of which $10.1$7.8 million and $10.4$11.4 million (including amounts available under credit agreements in effect at that time) were maintained atas of December 31, 20172020 and December 31, 2016,2019, respectively. Included in these amounts are approximately $7.3$5.3 million and $8.3 million in standby letters of credit that primarily support Products Corporation’s self-insuranceworkers compensation, general liability and automobile insurance programs, in each case as outstanding as of both December 31, 20172020 and 2016.December 31, 2019, respectively. At December 31, 2020 all of the outstanding letters of credit were collateralized with a deposit of cash at the issuing financial institution. The estimated liability under such programs is accrued by Products Corporation.
Derivative Financial Instruments
The Company uses derivative financial instruments, primarily: (i) FX Contracts, intended for the purpose of managing foreign currency exchange risk by reducing the effects of fluctuations in foreign currency exchange rates on the Company’s net cash flows; and (ii) interest rate hedging transactions, such as the 2013 Interest Rate Swap, intended for the purpose of managing interest rate risk associated with Products Corporation’s variable rate indebtedness. The Company does not hold or issue financial instruments for speculative or trading purposes.
Foreign Currency Forward Exchange Contracts
The FX Contracts are entered into primarily to hedge the anticipated net cash flows resulting from inventory purchases and intercompany payments denominated in currencies other than the local currencies of the Company’s foreign and domestic operations and generally have maturities of less than one year.
The U.S. Dollar notional amount of the FX Contracts outstanding at December 31, 2017 and December 31, 2016 was $147.1 million and $79.6 million, respectively.
Interest Rate Swap Transaction
In November 2013, Products Corporation executed a forward-starting floating-to-fixed interest rate swap transaction (the "2013 Interest Rate Swap") that, at its inception, was based on a notional amount of $400 million in respect of indebtedness under Products Corporation’s 2013 bank term loan, that was incurred in connection with completing the October 2013 Colomer Acquisition (the "Old Acquisition Term Loan"). The 2013 Interest Rate Swap initially had a floor of 1.00% that in December 2016 was amended to 0.75%. In connection with entering into the 2016 Term Loan Facility, the 2013 Interest Swap was carried over to apply to a notional amount of $400 million in respect of indebtedness under such loan for the remaining balance of the term of such swap, which expires in May 2018. The Company initially designated the 2013 Interest Rate Swap as a cash flow hedge of the variability of the forecasted three-month LIBOR interest rate payments initially related to the $400 million notional amount under the Old Acquisition Term Loan over the three-year term of the 2013 Interest Rate Swap (and subsequently to the $400 million notional
REVLON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions, except share and per share amounts)
amount under the 2016 Term Loan Facility for the remaining balance of the term of such swap, which expires in May 2018). Under the terms of the 2013 Interest Rate Swap, commencing in May 2015, Products Corporation receives from the counterparty a floating interest rate based on the higher of the three-month U.S. Dollar LIBOR or the floor percentage in effect, while paying a fixed interest rate payment to the counterparty equal to 2.0709% (which, with respect to the 2016 Term Loan Facility, effectively fixes the interest rate on such notional amount at 5.5709% through May 2018). At December 31, 2017, the fair value of the 2013 Interest Rate Swap was a liability of $0.9 million and the accumulated loss recorded in accumulated other comprehensive loss was $0.7 million, net of tax.
As a result of completely refinancing the Old Acquisition Term Loan with a portion of the proceeds from Product's Corporation's consummation of the 2016 Senior Credit Facilities and the 6.25% Senior Notes Offering in connection with consummating the Elizabeth Arden Acquisition, the critical terms of the 2013 Interest Rate Swap no longer matched the terms of the underlying debt under the 2016 Term Loan Facility. At the refinancing date, which was the same as the September 7, 2016 Elizabeth Arden Acquisition Date (the "De-designation Date"), the 2013 Interest Rate Swap was determined to no longer be highly effective and the Company discontinued hedge accounting for the 2013 Interest Rate Swap. Following the de-designation of the 2013 Interest Rate Swap, changes in fair value have been accounted for as a component of other non-operating expenses. Accumulated deferred losses of $6.3 million, or $3.9 million net of tax, at the De-designation Date, that were previously recorded as a component of accumulated other comprehensive loss, will be fully amortized into earnings over the remaining term of the 2013 Interest Rate Swap, which expires in May 2018. At December 31, 2017, $1.2 million, or $0.7 million net of tax, remains as a component of accumulated other comprehensive loss related to the 2013 Interest Rate Swap, all of which will be amortized into earnings over the next 12 months. See "Quantitative Information – Derivative Financial Instruments" below.
Credit Risk
Exposure to credit risk in the event of nonperformance by any of the counterparties is limited to the gross fair value of the derivative instruments in asset positions, which totaled $0.6 million and $2.3 million as of December 31, 2017 and December 31, 2016, respectively. The Company attempts to minimize exposure to credit risk by generally entering into derivative contracts with counterparties that have investment-grade credit ratings and are major financial institutions. The Company also periodically monitors any changes in the credit ratings of its counterparties. Given the current credit standing of the Company's counterparties to its derivative instruments, the Company believes that the risk of loss under these derivative instruments arising from any non-performance by any of the counterparties is remote.
Quantitative Information – Derivative Financial Instruments
As of December 31, 2017 and 2016, the fair values of the Company's derivative financial instruments in its Consolidated Balance Sheets were as follows:
|
| | | | | | | | | | | | | | | | | | | |
| | Fair Values of Derivative Instruments |
| | Assets | | Liabilities |
| | Balance Sheet | | December 31,
2017 | | December 31,
2016 | | Balance Sheet | | December 31,
2017 | | December 31,
2016 |
| | Classification | | Fair Value | | Fair Value | | Classification | | Fair Value | | Fair Value |
| Derivatives not designated as hedging instruments: | | | | | | | | |
FX Contracts(a) | Prepaid expenses and other | | $ | 0.6 |
| | $ | 2.3 |
| | Accrued Expenses | | $ | 1.9 |
| | $ | 1.1 |
|
2013 Interest Rate Swap(b) | Prepaid expenses and other | | — |
| | — |
| | Accrued expenses and other | | 0.9 |
| | 3.7 |
|
| | Other assets | | — |
| | — |
| | Other long-term liabilities | | — |
| | 1.0 |
|
(a) The fair values of the FX Contracts at December 31, 2017 and December 31, 2016 were measured based on observable market transactions of spot and forward rates at December 31, 2017 and December 31, 2016, respectively.
(b) The fair values of the 2013 Interest Rate Swap at December 31, 2017 and December 31, 2016 were measured based on the implied forward rates from the U.S. Dollar three-month LIBOR yield curve at December 31, 2017 and December 31, 2016, respectively.
REVLON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions, except share and per share amounts)
The effects of the Company's derivative financial instruments on its Consolidated Statements of Operations and Comprehensive (Loss) Income were as follows for the periods presented:
|
| | | | | | | | | | | |
| | Amount of Gain (Loss) Recognized in Other Comprehensive (Loss) Income |
| Year Ended December 31, |
| 2017 | | 2016 | | 2015 |
| Derivatives previously designated as hedging instruments: | | | | | |
2013 Interest Rate Swap, net of tax (a) | $ | 2.3 |
| | $ | 0.8 |
| | $ | (1.6 | ) |
(a) Net of tax (benefit) expense of $(1.4) million, $0.5 million and $(1.0) million for 2017, 2016 and 2015, respectively.
|
| | | | | | | | | | | | | | | |
| Derivative Instruments | | Statement of Operations Classification | | Amount of Gain (Loss) Recognized in Net (Loss) Income |
| | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 |
| Derivatives designated as hedging instruments: | | | | | | |
| 2013 Interest Rate Swap | | Interest Expense | | $ | (3.7 | ) | | $ | (4.3 | ) | | $ | (2.6 | ) |
| Derivatives not designated as hedging instruments: | | | | | | |
| FX Contracts | | Foreign currency gain (loss), net | | $ | (4.1 | ) | | $ | 2.1 |
| | $ | 3.8 |
|
| 2013 Interest Rate Swap | | Miscellaneous, net | | 0.1 |
| | 0.7 |
| | — |
|
14.11. PENSION AND POST-RETIREMENT BENEFITS
Savings Plan:
The Company offers a qualified defined contribution plan for its U.S.-based employees, the Revlon Employees' Savings, Investment and Profit Sharing Plan (as amended, the "Savings Plan"), which allows eligible participants to contribute up to 25%, and highly compensated participants to contribute up to 8%12%, of eligible compensation through payroll deductions, subject to certain annual dollar limitations imposed by the Internal Revenue Service (the "IRS"). The Company matches employee contributions at fifty50 cents for each dollar contributed up to the first 6% of eligible compensation. The Company made cash matching contributions to the Savings Plan of $3 million, $2.6$1.4 million and $2.5$5.5 million during 2017, 20162020 and 2015,2019, respectively. In addition, the Company made cash contributionsThe
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions, except share and $0.8 million during 2017 and 2016, respectively, to the Elizabeth Arden defined contribution plan, which it acquired in the 2016 Elizabeth Arden Acquisition. Effective January 1, 2018, the Company merged the Elizabeth Arden defined contribution plan into the Company's Savings Plan. The per share amounts)
Company also offers a non-qualified defined contribution plan (the "Excess Savings Plan") providing benefits for certain U.S. employees who are in excess of IRS limitations. These non-qualified defined contribution benefits are funded from the Company's general assets.
The Company’s qualified and non-qualified defined contribution savings plans for its U.S.-based employees contain a discretionary profit sharingprofit-sharing component that enables the Company, should it elect to do so, to make discretionary profit sharingprofit-sharing contributions. For 2017,2020, the Company did 0t make discretionary profit-sharing contributions to the Savings Plan and Excess Savings Plan. For 2019, the Company made discretionary profit sharingprofit-sharing contributions to the Savings Plan and Excess Savings Plan of $5.1$7.2 million (of which $4.0$5.6 million was paid in 20172019 and $1.1$1.6 million was paid in January 2018)2020), or 3% of eligible compensation, which was credited on a quarterly basis. For 2016, the Company made discretionary profit sharing contributionsup to the Savings Plan and Excess Savings Plan of $5 million (of which $3.9 million was paid in 2016 and $1.1 million was paid in January 2017), or 3% of eligible compensation, which was credited on a quarterly basis. For 2015, the Company made discretionary profit sharing contributions to the Savings Plan and Excess Savings Plan of $4.8 million (of which $3.7 million was paid in 2015 and $1.1 million was paid in January 2016), or 3% of eligible compensation, which was credited on a quarterly basis.
Pension Benefits:
In 2009, Products Corporation’s U.S. qualified defined benefit pension plan (the Revlon Employees’ Retirement Plan, which covered a substantial portion of the Company's employees in the U.S.) and its non-qualified pension plan (the Revlon Pension Equalization Plan) were amended to cease future benefit accruals under such plans after December 31, 2009. No additional benefits have accrued since 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. In 2010, the Company amended its Canadian defined benefit pension plan (the Affiliated Revlon Companies Employment Plan) to reduce future benefit accruals under such plan after December 31, 2010.
REVLON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions, except share and per share amounts)
Additionally, while the Company closed its U.K. defined pension plan to new entrants in 2002, then-existing participants continue to accrue pension benefits.
Effective December 31, 2012,
Products Corporation merged two of itsalso sponsors 2 U.S. qualified defined benefit pension plans; therefore, as of December 31, 2012, Products Corporation sponsors two U.S. qualified defined benefit pension plans. The Company alsoplans, has non-qualified pension plans that provide benefits for certain U.S. and non-U.S. employees, and for U.S. employees in excess of IRS limitations in the U.S. and in certain limited cases contractual benefits for certain former officers of the Company. These non-qualified plans are funded from the Company's general assets.
In the fourth quarter of 2015, the Company offered certain former employees who had vested benefits in the Revlon Employees’ Retirement Plan the option of receiving the present value of the participant’s pension benefit in a one-time cash lump sum payment, an annuity form of benefit or the ability to maintain their deferred vested status in the pension plan. Based upon the participants' acceptance of that offer, $53.4 million was paid from the plan's assets in December 2015, with a corresponding decrease in the plan's benefit obligation. As a result of such program, the Company recorded a $20.7 million charge as a result of the pension lump sum settlement in the fourth quarter of 2015. Of this charge, $10.3 million and $10.4 million was included in cost of sales and SG&A expenses, respectively.
Other Post-retirement Benefits:
The Company previously sponsored an unfunded retiree benefit plan, which provides death benefits payable to beneficiaries of a very limited number of former employees. Participation in this plan was limited to participants enrolled as of December 31, 1993. The Company also administers an unfunded medical insurance plan on behalf of Revlon Holdings, certain costs of which have been apportioned to Revlon Holdings under the transfer agreements among Revlon, Products Corporation and MacAndrews & Forbes. (See Note 22,19, "Related Party Transactions - Transfer Agreements"Transactions").
With respect to the above accrued expenses and other, the Company has recorded receivables from affiliates of $2.6$2.2 million and $2.7$2.3 million at December 31, 20172020 and 2016,2019, respectively, relating to pension plan liabilities retained by such affiliates.
The following weighted average assumptions were used to determine the Company’s net periodic benefit (income) cost of the Company’s U.S. and International pension plans during the respective years: