Revlon, Inc. has delayed the filing of its annual 10-K report for the fiscal year ended Dec. 31, 2018, saying it has identified a material weakness in its internal financial reporting related to the implementation of its enterprise resource planning (ERP) system in the U.S.
In addition to the company’s dwindling liquidity position, service level disruptions at its Oxford, N.C. manufacturing facility following the February 2018 implementation of the new ERP system have been a key concern for investors in light of the impact on the company's ability to manufacture and fulfill shipments to U.S and international retail customers.
According to preliminary numbers released by Revlon, net sales fell 4.8% to $2.56 billion for the full-year 2018. The company said the performance reflects a net sales reduction of $64 million related to the previously referenced service level disruptions stemming from the ERP system implementation.
Operating losses widened to $85.2 million in 2018, from $23.8 million in 2017, again, driven primarily by lower net sales and costs associated with remediating the SAP disruption at its North Carolina manufacturing facility, as well as a $20.1 million loss related to reacquiring certain iconic Elizabeth Arden trademark rights.
Revlon's net loss came in at $294 million for 2018, compared to a net loss of $183.2 million last year.
The unaudited results showed adjusted EBITDA of $237.9 million for the year, compared to $257.3 million in 2017.
Revlon said the assessment of its internal controls over financial reporting for 2018 is not expected to result in any changes to the disclosed financial results.
In terms of liquidity, the company’s liquidity position had fallen to $118 million as of Feb. 28, from $160 million at year-end 2018. Its current liquidity consists of $75 million of unrestricted cash and cash equivalents, as well as approximately $50 million in available borrowing capacity under its revolving credit facility, less float of $7 million. As of Dec. 31, Revlon had $87.3 million of unrestricted cash and cash equivalents, as well as $96.4 million in available borrowing capacity under the revolving credit facility (which had $335 million drawn at the time), less float of $23.4 million.
Revlon bonds were in the red ahead of the filing, but losses deepened post the aftermarket disclosure. Revlon Consumer Products 5.75% notes due 2021 (CCC/Caa3) traded in clips at 84, down roughly 2.5 points on the day. The notes started the year at 75, before trading up alongside the broad-market rally to peak levels this month on either side of 87.
Revlon earlier this month entered into an amendment to its asset-based revolving credit agreement to extend the maturity date applicable to the $41.5 million senior secured FILO tranche to April 2020, from April 2019. The fully-drawn FILO tranche was placed in April last year to provide for the additional first-in/last-out tranche commitment under its ABL revolver. See “Revlon TL gains on new FILO "liquidity comfort", LCD News, April 20, 2018.
Revlon manufactures, markets, distributes, and sells beauty and personal care products. Corporate issuer ratings are CCC+/Caa1.
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