Revlon posts wider-than-expected Q3 loss, praises effects of debt refinancing

By Paul Deckelman

New York, Nov. 10 - Revlon Inc. posted a third-quarter loss Wednesday that was both wider than the comparable year-ago deficit and wider than what Wall Street had been expecting. But executives of the underperforming New York-based cosmetics company sought to put the best possible face on the results.

Company president and chief executive officer Jack Stahl told analysts on a conference call following release of the results that while Revlon recognizes that it still has "a lot of work to do," it is making "very good progress" in its efforts to return to profitability and is "absolutely taking the right actions" in a number of financial and operational areas.

"It seems like a lifetime ago that we were taking questions [from analysts] about our available liquidity, [and] whether or not we'd have the time and the resources to turn this business around," Stahl said. With Revlon having recently completed several refinancing transactions that greatly improved the balance sheet and put it on a stronger financial footing, as well as having taken measures aimed at stopping its worrisome loss of market share and promoting its products more effectively, "we are very much a different business today," he declared.

That series of refinancing transactions, which began in February with the announcement of a massive and complex debt-for-equity swap, and which was completed during the third quarter ended Sept. 30, extended the maturities of much of the company's debt to 2010 at the earliest - it otherwise would have started coming due in 2005 - and reduced its annual interest costs considerably.

Debt-for-equity highlighted

Following the debt-for-equity swap, concluded in March, which reduced Revlon's debt and increased its equity by a total of $800 million, the centerpiece of the later transactions was Revlon's entry into a new $960 million credit facility, provided by Citigroup Global Markets Inc. and its Citicorp USA Inc. unit. This included an $800 million term loan and a $160 million unfunded revolving credit facility.

Proceeds of the new facility were used to replace the company's previous facility, repaying $292 million of outstanding borrowings, and to redeem all of subsidiary Revlon Consumer Products Corp.'s $363 million principal amount of remaining 12% secured notes due 2005 and to cover transactional fees and expenses.

The company announced the successful closing of the new facility and the purchase of $298 million of the 12% notes, or 82% of the outstanding amount, on July 9; on Aug. 23, Revlon announced that it had completed the redemption of the remaining $64.5 million principal amount of the 12% notes.

For its third-quarter results, Revlon recognized a charge against earnings of $59 million (16 cents per share) associated with the later refinancing transactions.

Net loss for 3Q at $91.6 million

For the quarter, Revlon posted a net loss of $91.6 million (25 cents per share), which included the effect of the $59 million charge from the debt refinancing. Analysts had expected a loss of around 8 to 10 cents per share. A year earlier, Revlon had lost $54.7 million (78 cents per share).

The lower per-share loss in the just-completed quarter, despite a larger volume of red ink, is attributable to the company's issuance of a significant number of common shares to debt holders during the debt-for-equity transaction.

Net sales decline 7%

Other factors besides the cost of the debt refinancing also impacted upon Revlon's bottom line, including a fall-off in sales of its products, which include the flagship Revlon brand and the Almay cosmetics line. Those two product lines' share of the U.S. color cosmetics market - products such as lipstick and blush - fell to 21.3% in the quarter from 22.5% a year earlier, as North American sales fell about 10% to $192 million from $212 million a year ago. Outside of the lipstick and makeup categories, Revlon gained market shares in hair color and beauty tools, but lost ground in anti-perspirants and deodorants.

Overall, the company's consolidated worldwide net sales fell 7% to $294.4 million from $316.5 million, mostly pulled down by the weaker U.S. color cosmetics sales and higher provisions for returns, allowances and discounts. International sales did get a boost from favorable foreign exchange rates.

Gross sales up 2%

Gross sales, which exclude those provisions, were up 2% for the quarter, to $400 million, Revlon said, projecting that for the full 2004 year, gross sales will be up 3% from 2003 levels, while net sales will be essentially flat from a year ago.

Revlon also projected that adjusted EBITDA would come in for the full year at $190 million, up from last year's $157 million, in line with its previous guidance. During the third quarter, adjusted EBITDA rose to $25.7 million from $14.7 million a year ago, and it totaled $94 million for the first nine months of 2004.

The debt-for-equity swap in February-March and the new credit facility and the takeout of the 12% notes in July-August cut the company's long-term debt to $1.32 billion at the end of the quarter from $1.87 billion at the end of 2003.

Interest cost shrinks

Accordingly, Revlon's chief financial officer, Thomas McGuire, said that cash interest costs on debt during the third quarter were $34.1 million, with $110.9 million paid out over the first nine months of the year. He projected that total cash interest costs for the year would come in between $130 million and $135 million - well down from the $161 million in cash interest that Revlon paid in 2003, reflecting the partial-year benefit of the refinancing actions that the company took earlier this year. McGuire said that will have been partially offset by a change in timing of a $14 million interest payment that will now come due next month, rather than in January, in accordance with the new credit agreement.

McGuire said that if the full-year cash-interest expenses were figured on a pro forma basis, with the refinancing benefits extended back to the beginning of the year, they would total just $110 million - a savings of more than $50 million from the 2003 interest totals.

As of Sept. 30, he said, Revlon had $800 million of outstanding borrowings on its term loan from Citigroup and $22 million of letters of credit issued but undrawn. Revlon had no borrowings outstanding under the $160 million Citigroup multi-currency revolver or the $152 million funding commitment extended to Revlon earlier in the year as part of its refinancing transactions by MacAndrews & Forbes - the investment vehicle through which Revlon's chairman, flamboyant New York billionaire Ronald O. Perelman, exercises control over the company.

At the end of the quarter, McGuire said, Revlon had about $56 million of unrestricted cash; that unrestricted cash, together with its unused borrowing capacity, totaled about $350 million.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.