Revlon unveils product initiatives, will issue $75 million new debt, cut existing debt $110 million

By Paul Deckelman

New York, Aug. 4 - Revlon Inc. on Thursday outlined plans for two new product initiatives that it said would "significantly accelerate top-line growth and further build the company's position in the mass-market color cosmetics category. It also reported a somewhat narrower second-quarter net loss versus a year ago, and announced its intention of issuing $75 million of new debt in the current third quarter.

However, the New York-based cosmetics company offered no other details about the proposed debt issue, in terms of whether it would be bank financing, bonds or convertible debt, or even more specificity as to the likely timing, citing federal securities laws. It did say that proceeds from the anticipated debt issue would be used to help fund investments in the two product initiatives, and that further information about the debt issue would be released "at the appropriate time."

Also on the financing front, Revlon said that it has decided to increase the amount of new equity it plans to issue to $185 million from the previously announced $110 million, and it reiterated its earlier commitment to use the originally announced $110 million for debt reduction, with the balance available for general corporate purposes.

As to which debt the company intends to take out, Revlon's chief financial officer, Thomas E. McGuire, said during the question-and-answer portion of the conference call with analysts following the release of the quarterly financial data, that "we haven't specifically allocated [the planned reduction] to specific debt, but what we have said is that $110 million can be used only - and is fully committed - to pay down debt." He told the analyst that Revlon is not obligated to redeem any particular portion of debt first, say term loan debt before bonds.

Revlon's consolidated balance sheet showed $1.337 billion of long-term debt as of June 30, unchanged from what it was at the end of the first quarter on March 30, according to the Revlon 10-Q filing for that first quarter, which was submitted to the Securities and Exchange Commission in May. The company's capital structure included $700 million of term-loan debt due 2010, $116.2 million of 8 1/8% senior notes due 2006, $75.5 million of 9% senior notes due 2006, $327 million of 8 5/8% senior subordinated notes due 2008, and $310 million of 9½% senior notes due 2011, which were issued in March, for a subtotal of about $1.528 billion; less $191.7 million as the current portion, long-term debt at the end of the first quarter stood at $1.337 billion - the same debt level at which Revlon ended the second quarter.

The second quarter marked the first period in quite some time in which Revlon did not engage in any large financing transactions to either augment its liquidity or whittle down its debt load; the company has been undergoing a balance-sheet makeover for most of the past three years, with a dizzying series of bond buybacks, exchanges, and debt issues, particularly since early 2004.

The balance sheet showed Revlon had $66.7 million of cash and cash equivalents as of June 30, down from $104.1 million as of March 30. McGuire said that $30 million of the cash was unrestricted.

He said that in addition to the $700 million of outstanding term loan debt, the company had $16 million of issued, but undrawn letters of credit. It had no borrowings as of June 30 under a $152 million line of credit provided by to Revlon by its largest single stockholder and one of its largest creditors, MacAndrews & Forbes - the investment vehicle controlled by Revlon's chairman, New York billionaire Ronald O. Perelman - and likewise none outstanding under a $129 million multicurrency line of credit. As of June 30, the CFO noted, Revlon had $311 million of unused cash and credit available to it - the credit line from MacAndrews & Forbes, the multicurrency credit facility, and the $30 million of unrestricted cash. However, that liquidity dropped to $246 million the following day, July 1, as a $65 million portion of the MacAndrews & Forbes credit facility expired as scheduled, leaving the company with $87 million of availability from this source.

Revlon announced Thursday that MacAndrews & Forbes had agreed to extend that remaining portion of its credit line through March 31, which is also the date by which Revlon expects to have completed the $185 million equity issuance. Revlon also said that MacAndrews & Forbes had also agreed to "backstop" the equity issue should it fall short of generating the full $185 million of proceeds, buying enough of the shares to make up the difference.

New product plans

Apart from the financing-related developments, Revlon announced two major new product-related initiatives; one, focused on the company's Almay brand, "is designed to capitalize on unmet consumer needs for simplicity and healthy beauty and builds on the inherent strengths of the Almay brand and the dramatic success achieved this year with the Almay Intense i-Color Collection," Revlon said in its statement announcing its results and its initiatives.

The second initiative is focused on the more mature cosmetics consumer segment, which the company terms "a large and growing demographic group currently under-served by existing cosmetics offerings." Revlon said it has developed a full range of products specifically for this particular segment of the cosmetics-buying public, "who have told us that their current products no longer work for them."

McGuire and Revlon's president and chief executive officer, Jack L. Stahl, told the analysts on the conference call that the two new programs will have a "very positive impact" on revenues in 2005, by perhaps as much as $50 million by year's end. However, they cautioned that expenses tied to the launch of the new Almay products and the mature-woman cosmetics would pretty much offset those revenue gains, and so the initiatives will not have much impact on earnings this year.

Sees "strong, solid EBITDA growth"

Looking ahead to 2006, however, Stahl said that the net sales benefits from the new products could be "as much as twice" what they will total in 2005, and once the launch costs are out of the way, Revlon should see "absolutely strong, solid EBITDA growth in 2006."

For the quarter, Revlon's net loss narrowed slightly from year-ago levels, to $35.8 million (10 cents per diluted share), versus a year-ago net loss of $38.8 million (11 cents per share).

It had an operating loss in the quarter of $300,000, narrower than the year-ago operating loss of $1.8 million.

Net sales advanced approximately 1% versus year-ago to $318.3 million from $316.1 million, and adjusted EBITDA was up about 2%, to $24.2 million from $23.7 million.

McGuire told an analyst who asked that "we don't anticipate having to do anything with our banks. We're in good shape on our covenants, so we won't be seeking any sort of an amendment or anything like that."

He said the company currently has a leverage ratio of secured debt to EBITDA of 5.5 times, which will decrease to 5 times at the end of the year. The company is not required to generate any specific minimum amount of EBITDA, the CFO added.

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