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Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
FORM 10-Q
     
(Mark One)    
 
x  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2010
 
OR
o  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 
For the transition period from                                    to                     
 
Commission File Number: 33-59650
 
REVLON CONSUMER PRODUCTS CORPORATION
(Exact name of registrant as specified in its charter)
 
     
Delaware
(State or other jurisdiction of
incorporation or organization)
  13-3662953
(I.R.S. Employer
Identification No.)
     
237 Park Avenue, New York, New York
(Address of principal executive offices)
  10017
(Zip Code)
 
212-527-4000
(Registrant’s telephone number, including area code)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.                                                    Yes o     No x
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes o     No o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer o Accelerated filer o Non-accelerated filer þ Smaller reporting company o
(Do not check if a smaller reporting company)
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes o     No x
 
The number of shares outstanding of the registrant’s common stock was 5,260 shares as of September 30, 2010, all of which were held by one affiliate, Revlon, Inc.
 


 

 
REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
 
INDEX
 
             
         
        2  
        3  
        4  
        5  
        6  
      32  
      53  
      54  
      59  
      59  
        60  
 EX-31.1
 EX-31.2
 EX-32.1
 EX-32.2


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Table of Contents

 
PART I — FINANCIAL INFORMATION
 
Item 1.   Financial Statements
 
 
                 
    September 30,
    December 31,
 
    2010     2009  
    (Unaudited)        
 
ASSETS
               
Current assets:
               
Cash and cash equivalents
  $ 40.5     $ 54.5  
Trade receivables, less allowance for doubtful accounts of $3.2 and $3.8 as
of September 30, 2010 and December 31, 2009, respectively
    172.9       181.7  
Inventories
    132.9       119.2  
Prepaid expenses and other
    108.1       90.9  
                 
Total current assets
    454.4       446.3  
Property, plant and equipment, net
    109.5       111.7  
Other assets
    93.0       89.9  
Goodwill, net
    182.6       182.6  
                 
Total assets
  $ 839.5     $ 830.5  
                 
                 
LIABILITIES AND STOCKHOLDER’S DEFICIENCY                
Current liabilities:
               
Short-term borrowings
  $ 6.5     $ 0.3  
Current portion of long-term debt
    8.0       13.6  
Accounts payable
    89.8       82.4  
Accrued expenses and other
    208.9       208.9  
                 
Total current liabilities
    313.2       305.2  
Long-term debt
    1,102.1       1,127.8  
Long-term debt — affiliates
    107.0       107.0  
Long-term pension and other post-retirement plan liabilities
    199.2       216.3  
Other long-term liabilities
    61.4       68.0  
Stockholder’s deficiency:
               
RCPC Preferred Stock, par value $1.00 per share: 1,000 shares authorized;
546 shares issued and outstanding as of September 30, 2010 and
December 31, 2009, respectively
    54.6       54.6  
Common Stock, par value $1.00 per share: 10,000 shares authorized;
5,260 shares issued as of September 30, 2010 and December 31, 2009,
respectively
           
Additional paid-in capital
    941.2       938.4  
Accumulated deficit
    (1,791.7 )     (1,828.9 )
Accumulated other comprehensive loss
    (147.5 )     (157.9 )
                 
Total stockholder’s deficiency
    (943.4 )     (993.8 )
                 
Total liabilities and stockholder’s deficiency
  $ 839.5     $ 830.5  
                 
 
See Accompanying Notes to Unaudited Consolidated Financial Statements


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Table of Contents

REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in millions)
 
                                 
    Three Months Ended
    Nine Months Ended
 
    September 30,     September 30,  
    2010     2009     2010     2009  
 
Net sales
  $ 319.0     $ 326.2     $ 952.2     $ 951.3  
Cost of sales
    110.4       117.9       326.1       349.5  
                                 
Gross profit
    208.6       208.3       626.1       601.8  
Selling, general and administrative expenses
    167.9       152.2       489.2       465.0  
Restructuring costs and other, net
          2.6       (0.2 )     21.4  
                                 
Operating income
    40.7       53.5       137.1       115.4  
                                 
Other expenses (income):
                               
Interest expense
    24.7       23.0       72.1       71.1  
Interest income
    (0.1 )           (0.3 )     (0.4 )
Amortization of debt issuance costs
    1.1       1.4       3.5       4.2  
(Gain) loss on early extinguishment of debt, net
          (0.3 )     9.7       (7.8 )
Foreign currency losses, net
    0.8       0.2       4.7       4.7  
Miscellaneous, net
    0.4       0.4       1.2       0.7  
                                 
Other expenses, net
    26.9       24.7       90.9       72.5  
                                 
Income from continuing operations before income taxes
    13.8       28.8       46.2       42.9  
(Benefit from) provision for income taxes
    (0.5 )     2.5       9.3       0.6  
                                 
Income from continuing operations, net of taxes
    14.3       26.3       36.9       42.3  
(Loss) income from discontinued operations, net of taxes
    (0.1 )           0.3       0.3  
                                 
Net income
  $ 14.2     $ 26.3     $ 37.2     $ 42.6  
                                 
 
 
See Accompanying Notes to Unaudited Consolidated Financial Statements


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Table of Contents

 
                                         
                      Accumulated
       
          Additional
          Other
    Total
 
    Preferred
    Paid-In-
    Accumulated
    Comprehensive
    Stockholder’s
 
    Stock     Capital     Deficit     Loss     Deficiency  
 
Balance, January 1, 2010
  $ 54.6     $ 938.4     $ (1,828.9 )   $ (157.9 )   $ (993.8 )
Amortization of deferred compensation
for restricted stock
            2.8                       2.8  
Comprehensive income:
                                       
Net income
                    37.2               37.2  
Revaluation of financial derivative
instruments(a)
                            1.7       1.7  
Currency translation adjustment
                            4.7       4.7  
Amortization of pension related costs(b)
                            4.0       4.0  
                                         
Total comprehensive income
                                    47.6  
                                         
Balance, September 30, 2010
  $ 54.6     $ 941.2     $ (1,791.7 )   $ (147.5 )   $ (943.4 )
                                         
 
(a) See Note 4, “Comprehensive Income,” and Note 8, “Financial Instruments,” for details regarding the net amount of hedge accounting derivative losses recognized due to the Company’s use of derivative financial instruments and a reversal of net amounts accumulated in Accumulated Other Comprehensive Loss due to the discontinuance of hedge accounting on the 2008 Interest Rate Swap (as hereinafter defined) prior to its expiration in April 2010 as a result of the 2010 Refinancing (as hereinafter defined).
 
(b) See Note 2, “Pension and Post-retirement Benefits,” and Note 4, “Comprehensive Income,” for details on the change in Accumulated Other Comprehensive Loss as a result of the amortization of unrecognized prior service costs and actuarial losses arising during the first nine months of 2010.
 
 
See Accompanying Notes to Unaudited Consolidated Financial Statements


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REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in millions)
 
                 
    Nine Months
 
    Ended
 
    September 30,  
    2010     2009  
 
CASH FLOWS FROM OPERATING ACTIVITIES:
               
Net income
  $ 37.2     $ 42.6  
Adjustments to reconcile net income to net cash provided by operating activities:
               
Income from discontinued operations, net of taxes
    (0.3 )     (0.3 )
Depreciation and amortization
    42.3       45.5  
Amortization of debt discount
    1.7       0.5  
Stock compensation amortization
    2.8       4.6  
Loss (gain) on early extinguishment of debt, net
    9.7       (7.8 )
Amortization of debt issuance costs
    3.5       4.2  
Gain on sale of certain assets
          (1.6 )
Pension and other post-retirement expense
    7.1       20.7  
Change in assets and liabilities:
               
Decrease in trade receivables
    3.6       8.3  
(Increase) decrease in inventories
    (12.0 )     24.0  
Increase in prepaid expenses and other current assets
    (21.6 )     (10.6 )
Increase (decrease) in accounts payable
    18.0       (0.7 )
Increase (decrease) in accrued expenses and other current liabilities
    11.2       (7.2 )
Pension and other post-retirement plan contributions
    (20.1 )     (18.7 )
Purchases of permanent displays
    (25.8 )     (26.1 )
Other, net
    (7.8 )     (4.4 )
                 
Net cash provided by operating activities
    49.5       73.0  
                 
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Capital expenditures
    (12.0 )     (10.9 )
Proceeds from the sale of certain assets
    0.2       2.3  
                 
Net cash used in investing activities
    (11.8 )     (8.6 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES:
               
Net decrease in short-term borrowings and overdraft
    (2.9 )     (7.1 )
Repayments under the 2006 Term Loan Facility
    (815.0 )     (18.7 )
Borrowings under the 2010 Term Loan Facility
    786.0        
Repayments of long-term debt
    (4.0 )     (31.2 )
Payment of financing costs
    (17.0 )      
                 
Net cash used in financing activities
    (52.9 )     (57.0 )
                 
CASH FLOWS FROM DISCONTINUED OPERATIONS ACTIVITIES:
               
Net cash provided by discontinued operating activities
          0.2  
                 
Net cash provided by discontinued operations
          0.2  
                 
Effect of exchange rate changes on cash and cash equivalents
    1.2       2.1  
                 
Net (decrease) increase in cash and cash equivalents
    (14.0 )     9.7  
Cash and cash equivalents at beginning of period
    54.5       52.8  
                 
Cash and cash equivalents at end of period
  $ 40.5     $ 62.5  
                 
Supplemental schedule of cash flow information:
               
Cash paid during the period for:
               
Interest
  $ 63.6     $ 66.1  
Income taxes, net of refunds
  $ 11.0     $ 9.5  
 
 
See Accompanying Notes to Unaudited Consolidated Financial Statements


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(1)   Description of Business and Basis of Presentation
 
Revlon Consumer Products Corporation (“Products Corporation” and together with its subsidiaries, the “Company”) operates in a single segment and manufactures, markets and sells an extensive array of cosmetics, women’s hair color, beauty tools, anti-perspirant deodorants, fragrances, skincare and other beauty care products. Products Corporation is a direct wholly-owned operating subsidiary of Revlon, Inc., which is a direct and indirect majority-owned subsidiary of MacAndrews & Forbes Holdings Inc. (“MacAndrews & Forbes Holdings” and, together with certain of its affiliates other than Revlon, Inc. and the Company, “MacAndrews & Forbes”), a corporation wholly owned by Ronald O. Perelman.
 
The Company’s vision is glamour, excitement and innovation through high-quality products at affordable prices. The Company’s principal customers include large mass volume retailers and chain drug and food stores in the U.S., as well as certain department stores and other specialty stores, such as perfumeries, outside the U.S. The Company also sells beauty products to U.S. military exchanges and commissaries and has a licensing business pursuant to which the Company licenses certain of its key brand names to third parties for the manufacture and sale of complementary beauty-related products and accessories in exchange for royalties.
 
The accompanying Consolidated Financial Statements are unaudited. In management’s opinion, all adjustments necessary for a fair presentation have been made. The Unaudited Consolidated Financial Statements include the accounts of the Company after the elimination of all material intercompany balances and transactions.
 
The preparation of financial statements in conformity with U.S. generally accepted accounting principles 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 Unaudited Consolidated Financial Statements include, but are not limited to, allowances for doubtful accounts, inventory valuation reserves, expected sales returns and allowances, certain assumptions related to the recoverability of intangible and long-lived assets, deferred tax valuation allowances, reserves for estimated tax liabilities, restructuring costs, certain estimates and assumptions used in the calculation of the net periodic benefit costs and the projected benefit obligation 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. The Unaudited Consolidated Financial Statements should be read in conjunction with the consolidated financial statements and related notes contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009, filed with the Securities and Exchange Commission (the “SEC”) on February 25, 2010 (the “2009 Form 10-K”).
 
The Company’s results of operations and financial position for interim periods are not necessarily indicative of those to be expected for a full year.
 
Effective for periods beginning January 1, 2010, the Company is reporting Canada separately (previously Canada was included in the Europe region) and is reporting South Africa as part of the Europe, Middle East and Africa region (previously South Africa was included in the Asia Pacific region). As a result, prior year amounts have been reclassified to conform to this presentation.


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REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions)
 
(2)   Pension and Post-retirement Benefits
 
In May 2009, and effective December 31, 2009, Products Corporation amended its U.S. qualified defined benefit pension plan (the Revlon Employees’ Retirement Plan), covering a substantial portion of the Company’s employees in the U.S., to cease future benefit accruals under such plan after December 31, 2009. Products Corporation also amended its non-qualified pension plan (the Revlon Pension Equalization Plan) to similarly cease future benefit accruals under such plan after December 31, 2009. In connection with such amendments, all benefits accrued under such plans through December 31, 2009 will remain in effect and no additional benefits will accrue after December 31, 2009, other than interest credits on participant account balances under the cash balance program of the Company’s U.S. pension plans. Also, service credits for vesting and early retirement eligibility will continue to accrue in accordance with the terms of the respective plans. (The plan amendments described above in this Note 2 are hereinafter referred to as the “May 2009 Pension Plan Amendments.”)
 
In May 2009, Products Corporation also amended, effective December 31, 2009, its qualified and non-qualified defined contribution savings plans for its U.S.-based employees, creating a new discretionary profit sharing component under such plans that will enable the Company, should it elect to do so, to make discretionary profit sharing contributions. The Company will determine in the fourth quarter of each year whether and, if so, to what extent, profit sharing contributions would be made for the following year. In December 2009, the Company determined that the discretionary profit sharing contribution during 2010 would be 5% of eligible compensation, to be credited on a quarterly basis. (The savings plan amendments described above in this Note 2 are hereinafter referred to as the “May 2009 Savings Plan Amendments” and, together with the May 2009 Pension Plan Amendments, as the “May 2009 Plan Amendments.”)
 
In the three and nine months ended September 30, 2010, the Company recognized lower net periodic benefit cost primarily due to the impact of the May 2009 Plan Amendments which ceased future benefit accruals under the Revlon Employees’ Retirement Plan and the Revlon Pension Equalization Plan after December 31, 2009 and which resulted in a change in the amortization period of actuarial gains (losses) from the remaining service period to the remaining life expectancy of plan participants.
 
During 2009, the Company recorded an $8.6 million decrease in its pension liabilities which was offset against Accumulated Other Comprehensive Loss as a result of the pension curtailment and the re-measurement of the pension liabilities performed in the second quarter of 2009 in connection with the May 2009 Pension Plan Amendments and the May 2009 Program (as defined in Note 5, “Restructuring Costs and Other, Net”). The net decrease in pension liabilities was comprised of a non-cash curtailment gain of approximately $9.2 million which was recorded as an offset against the net actuarial losses previously reported within accumulated other comprehensive income (loss), partially offset by a net increase in pension liabilities of $0.6 million as a result of the re-measurements noted above.
 
In the three and nine months ended September 30, 2009, the Company recognized higher pension expense driven primarily by the significant decline in pension asset values in 2008, partially offset by a decrease in pension expense of $0.8 million and $1.9 million for the three and nine months ended September 30, 2009, respectively, as a result of the May 2009 Pension Plan Amendments and the May 2009 Program, as noted above. The pension expense for the nine months ended September 30, 2009 includes a non-cash curtailment gain of $0.8 million related to the recognition of previously unrecognized prior service costs that had been reported in accumulated other comprehensive loss in the second quarter of 2009.


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Table of Contents

REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions)
 
The components of net periodic benefit cost for the pension and the other post-retirement benefit plans for the third quarter of 2010 and 2009, respectively, are as follows:
 
                                 
          Other
 
          Post-retirement
 
    Pension Plans     Benefit Plans  
    Three Months Ended
    Three Months Ended
 
    September 30,     September 30,  
    2010     2009     2010     2009  
 
Net periodic benefit costs:
                               
Service cost
  $ 0.4     $ 1.8     $     $  
Interest cost
    8.5       8.6       0.2       0.2  
Expected return on plan assets
    (8.0 )     (7.0 )            
Amortization of actuarial loss
    1.2       3.1       0.1       0.1  
                                 
    $ 2.1     $ 6.5     $ 0.3     $ 0.3  
                                 
 
The components of net periodic benefit cost for the pension and the other post-retirement benefit plans for the nine-month periods ended September 30, 2010 and 2009, respectively, are as follows:
 
                                 
          Other
 
          Post-retirement
 
    Pension Plans     Benefit Plans  
    Nine Months Ended
    Nine Months Ended
 
    September 30,     September 30,  
    2010     2009     2010     2009  
 
Net periodic benefit costs:
                               
Service cost
  $ 1.2     $ 5.8     $     $  
Interest cost
    25.4       26.0       0.6       0.6  
Expected return on plan assets
    (24.1 )     (20.6 )            
Amortization of prior service cost
          (0.1 )            
Amortization of actuarial loss
    3.8       9.7       0.2       0.1  
Curtailment gain
          (0.8 )            
                                 
      6.3       20.0       0.8       0.7  
Portion allocated to Revlon Holdings LLC
    (0.1 )     (0.1 )            
                                 
    $ 6.2     $ 19.9     $ 0.8     $ 0.7  
                                 
 
The Company expects net periodic benefit costs for the pension and the other post-retirement benefit plans to be approximately $10 million for all of 2010, compared with $27.3 million in 2009. The Company currently expects to contribute approximately $25 million in the aggregate to its pension plans and other post-retirement benefits plans in 2010. During the third quarter of 2010, $8.1 million and $0.2 million were contributed to the Company’s pension plans and other post-retirement benefit plans, respectively. During the nine-month period ended September 30, 2010, $19.5 million and $0.6 million were contributed to the Company’s pension plans and other post-retirement benefit plans, respectively.
 
Relevant aspects of the qualified defined benefit pension plans, nonqualified pension plans and other post-retirement benefit plans sponsored by Products Corporation are disclosed in the Company’s 2009 Form 10-K.


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REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions)
 
(3)   Inventories
 
                 
    September 30,
    December 31,
 
    2010     2009  
 
Raw materials and supplies
  $ 44.3     $ 42.7  
Work-in-process
    10.2       12.0  
Finished goods
    78.4       64.5  
                 
    $ 132.9     $ 119.2  
                 
 
(4)   Comprehensive Income
 
The components of comprehensive income for the third quarter of 2010 and 2009 and the nine-month periods ended September 30, 2010 and 2009, respectively, are as follows:
 
                                 
    Three Months
    Nine Months
 
    Ended
    Ended
 
    September 30,     September 30,  
    2010     2009     2010     2009  
 
Net income
  $ 14.2     $ 26.3     $ 37.2     $ 42.6  
Other comprehensive income:
                               
Revaluation of financial derivative instruments(a)
          1.7       1.7       3.0  
Currency translation adjustment
    5.5       1.6       4.7       9.0  
Amortization of pension related costs(b)
    1.3       3.2       4.0       8.9  
Pension re-measurement(c)
                      (0.6 )
Pension curtailment gain(c)
                      9.2  
                                 
Total other comprehensive income
    6.8       6.5       10.4       29.5  
                                 
Comprehensive income
  $ 21.0     $ 32.8     $ 47.6     $ 72.1  
                                 
 
(a) The amount for the nine months ended September 30, 2010 relates to (1) the reclassification of an unrecognized loss of $0.8 million on the 2008 Interest Rate Swap prior to its expiration in April 2010 from Accumulated Other Comprehensive Loss into earnings due to the discontinuance of hedge accounting as a result of the 2010 Refinancing (see Note 8, “Financial Instruments”) and (2) the reversal of amounts recorded in Accumulated Other Comprehensive Loss pertaining to a net settlement payment of $0.9 million on the 2008 Interest Rate Swap. The amount for the nine months ended September 30, 2009 relates to (1) net unrealized losses of $1.4 million on the 2008 Interest Rate Swap and the interest rate swap which expired in September 2009 (together, the “Interest Rate Swaps” as defined in Note 11, “Financial Instruments,” of the Company’s 2009 Form 10-K) and (2) the reversal of amounts recorded in Accumulated Other Comprehensive Loss pertaining to net settlement receipts of $0.8 million and net settlement payments of $5.2 million on the Interest Rate Swaps.
 
(b) The amounts represent the change in Accumulated Other Comprehensive Loss as a result of the amortization of actuarial losses arising during the third quarters of 2010 and 2009, respectively, and the nine-month periods ended September 30, 2010 and 2009, respectively, related to the Company’s pension and other post-retirement benefit plans.
 
(c) The $0.6 million increase in pension liabilities recorded within Accumulated Other Comprehensive Loss is the result of the re-measurement of the pension liabilities performed in the second quarter of 2009 in connection with the May 2009 Pension Plan Amendments, as well as the May 2009 Program. In connection with the May 2009 Pension Plan Amendments, the Company also recognized a curtailment gain of $9.2 million, which reduced its pension liability and was recorded as an offset against the net


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REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions)
 
actuarial losses previously reported within Accumulated Other Comprehensive Loss. (See Note 2, “Pension and Post-retirement Benefits.”)
 
(5)   Restructuring Costs and Other, Net
 
In May 2009, the Company announced a worldwide restructuring (the “May 2009 Program”), which involved consolidating certain functions; reducing layers of management, where appropriate, to increase accountability and effectiveness; streamlining support functions to reflect the new organizational structure; and further consolidating the Company’s office facilities in New Jersey.
 
The $20.6 million of charges related to the May 2009 Program has been or is expected to be paid out as follows: $11.0 million paid in 2009, $7.0 million expected to be paid in 2010 (of which $6.0 million was paid during the nine-month period ended September 30, 2010) and the balance of $2.6 million expected to be paid thereafter.
 
During the nine-month period ended September 30, 2010, a $0.2 million adjustment was recorded to restructuring costs and other, net to reflect lower than originally anticipated expenses associated with the May 2009 Program.
 
During the third quarter of 2009, the Company recorded charges of $2.6 million in restructuring costs and other, net for lease and equipment write-offs related to the May 2009 Program.
 
During the nine-month period ended September 30, 2009, the Company recorded charges of $21.4 million in restructuring costs and other, net, which are comprised of:
 
  •  a $20.8 million charge related to the May 2009 Program;
 
  •  $1.2 million of charges related to employee severance and other employee-related termination costs related to restructuring actions in the U.K., Mexico and Argentina announced in the first quarter of 2009 (together with the May 2009 Program, the “2009 Programs”); and
 
  •  a $1.0 million charge related to the 2008 Programs (as hereinafter defined);
 
with the foregoing partially offset by
 
  •  income of $1.6 million related to the sale of a facility in Argentina in the first quarter of 2009.
 
The Company recorded restructuring costs related to various other restructuring plans during 2008 (the “2008 Programs”). (See Note 3, “Restructuring Costs and Other, Net,” to the Consolidated Financial Statements in the Company’s 2009 Form 10-K.)
 
Details of the movements in the restructuring accrual for the 2008 Programs and 2009 Programs during the nine-month period ended September 30, 2010 are as follows:
 
                                         
    Balance
                      Balance
 
    as of
    (Income)
                as of
 
    January 1,
    Expenses,
    Utilized, Net     September 30,
 
    2010     Net     Cash     Noncash     2010  
 
Employee severance and other personnel benefits:
                                       
2008 Programs
  $ 0.3     $     $ (0.3 )   $     $  
2009 Programs
    7.6       (0.1 )     (5.6 )           1.9  
                                         
      7.9       (0.1 )     (5.9 )           1.9  
Lease exit
    2.3       (0.1 )     (0.4 )           1.8  
                                         
Total restructuring costs and other, net
  $ 10.2     $ (0.2 )   $ (6.3 )   $     $ 3.7  
                                         


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REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions)
 
(6)   Geographic, Financial and Other Information
 
The Company manages its business on the basis of one reportable operating segment. As of September 30, 2010, the Company had operations established in 14 countries outside of the U.S. and its products are sold throughout the world. Generally, net sales by geographic area are presented by attributing revenues from external customers on the basis of where the products are sold.
 
In the tables below, certain prior year amounts have been reclassified to conform to the current period’s presentation.
 
                                                                 
    Three Months Ended
    Nine Months Ended
 
    September 30,     September 30,  
    2010     2009     2010     2009  
 
Geographic area:
                                                               
Net sales:
                                                               
United States
  $ 166.7       52%     $ 183.7       56%     $ 528.1       55%     $ 560.9       59%  
Outside of the United States
    152.3       48%       142.5       44%       424.1       45%       390.4       41%  
                                                                 
    $ 319.0             $ 326.2             $ 952.2             $ 951.3          
                                                                 
 
                                 
    September 30,     December 31,  
    2010     2009  
 
Long-lived assets:
                               
United States
  $ 300.9       78%     $ 302.2       79%  
Outside of the United States
    84.2       22%       82.0       21%  
                                 
    $ 385.1             $ 384.2          
                                 
 
                                                                 
    Three Months Ended
    Nine Months Ended
 
    September 30,     September 30,  
    2010     2009     2010     2009  
 
Classes of similar products:
                                                               
Net sales:
                                                               
Color cosmetics
  $ 183.1       57%     $ 191.3       59%     $ 583.0       61%     $ 582.1       61%  
Beauty care and fragrance
    135.9       43%       134.9       41%       369.2       39%       369.2       39%  
                                                                 
    $ 319.0             $ 326.2             $ 952.2             $ 951.3          
                                                                 
 
(7)   Fair Value Measurements
 
The Fair Value Measurements and Disclosures Topic of the FASB Accounting Standards Codification (the “Fair Value Measurements and Disclosures Topic”) clarifies the definition of fair value of assets and liabilities, establishes a framework for measuring the fair value of assets and liabilities and expands the disclosures on fair value measurements. The Company adopted the provisions of the Fair Value Measurements and Disclosures Topic with respect to financial assets and liabilities effective January 1, 2008 and with respect to non-financial assets and liabilities effective as of January 1, 2009, neither of which had a material impact on the Company’s results of operations and/or financial condition.
 
The fair value framework under the Fair Value Measurements and Disclosures Topic requires the categorization of assets and liabilities into three levels based upon the assumptions used to price the assets or liabilities. Level 1 provides the most reliable measure of fair value, whereas Level 3, if applicable,


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REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions)
 
generally would require significant management judgment. The three levels for categorizing assets and liabilities fair value measurement requirements 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;
 
  •  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 September 30, 2010, the fair values of the Company’s financial assets and liabilities, namely its FX Contracts (as hereinafter defined), are categorized as presented in the table below:
 
                                 
    Total     Level 1     Level 2     Level 3  
 
Assets:
                               
Derivatives:
                               
FX Contracts(a)
  $ 0.3     $     $ 0.3     $  
                                 
Total assets at fair value
  $ 0.3     $     $ 0.3     $  
                                 
Liabilities:
                               
Derivatives:
                               
FX Contracts(a)
  $ 1.4     $     $ 1.4     $  
                                 
Total liabilities at fair value
  $ 1.4     $     $ 1.4     $  
                                 
 
(a) The fair value of the Company’s FX Contracts was measured based on observable market transactions of spot and forward rates at September 30, 2010. (See Note 8, “Financial Instruments.”)
 
(8)   Financial Instruments
 
The fair value of the Company’s debt, including the current portion of long-term debt, is based on the quoted market prices for the same issues or on the current rates offered for debt of similar remaining maturities. The estimated fair value of such debt at September 30, 2010 was approximately $1,242.1 million, which was more than the carrying value of such debt at September 30, 2010 of $1,217.1 million. The estimated fair value of such debt at December 31, 2009 was approximately $1,241.4 million, which was less than the carrying value of such debt at December 31, 2009 of $1,248.4 million.
 
The carrying amounts of cash and cash equivalents, marketable securities, trade receivables, notes receivable, accounts payable and short-term borrowings approximate their fair values.
 
Products Corporation also maintains standby and trade letters of credit for various corporate purposes under which Products Corporation is obligated, of which approximately $21.2 million and $12.2 million (including amounts available under credit agreements in effect at that time) were maintained at September 30, 2010 and December 31, 2009, respectively. Included in these amounts is approximately $9.1 million and $9.3 million at September 30, 2010 and December 31, 2009, respectively, in standby letters of credit which support Products Corporation’s self-insurance programs. The estimated liability under such programs is accrued by Products Corporation.


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REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions)
 
Derivative Financial Instruments
 
The Company uses derivative financial instruments, primarily (1) 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 on the Company’s net cash flows and (2) interest rate hedging transactions intended for the purpose of managing interest rate risk associated with Products Corporation’s variable rate indebtedness.
 
While the Company may be exposed to credit loss in the event of the counterparty’s non-performance, the Company’s exposure is limited to the net amount that Products Corporation would have received, if any, from the counterparty over the remaining balance of the terms of the FX Contracts. The Company does not anticipate any non-performance and, furthermore, even in the case of any non-performance by the counterparty, the Company expects that any such loss would not be material.
 
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 September 30, 2010 and December 31, 2009 was $42.9 million and $54.3 million, respectively.
 
Interest Rate Swap Transactions
 
Prior to its expiration in April 2010, the Company’s floating-to-fixed interest rate swap had a notional amount of $150.0 million initially relating to indebtedness under Products Corporation’s former 2006 Term Loan Facility (as hereinafter defined) (prior to its complete refinancing in March 2010) and which also related, through its expiration in April 2010, to a notional amount of $150.0 million relating to indebtedness under Products Corporation’s 2010 Term Loan Facility (as hereinafter defined in Note 9, “Long-Term Debt”) (the “2008 Interest Rate Swap”). Under the terms of the 2008 Interest Rate Swap, Products Corporation was required to pay to the counterparty a quarterly fixed interest rate of 2.66% on the $150.0 million notional amount under the 2008 Interest Rate Swap (which, based upon the 4.0% applicable margin, effectively fixed the interest rate on such notional amounts at 6.66% for the 2-year term of such swap), commencing in July 2008, while receiving a variable interest rate payment from the counterparty equal to three-month U.S. dollar LIBOR.
 
The 2008 Interest Rate Swap was initially designated as a cash flow hedge of the variable interest rate payments on Products Corporation’s former 2006 Term Loan Facility (prior to its complete refinancing in March 2010) under the Derivatives and Hedging Topic of the FASB Accounting Standards Codification (the “Derivatives and Hedging Topic”). However, as a result of the 2010 Refinancing (as hereinafter defined in Note 9, “Long-Term Debt”), effective March 11, 2010 (the closing date of the 2010 Refinancing), the 2008 Interest Rate Swap no longer met the criteria specified under the Derivatives and Hedging Topic to allow for the deferral of the effective portion of unrecognized hedging gains or losses in other comprehensive income since the scheduled variable interest payment specified on the date originally documented at the inception of the hedge will not occur. As a result, as of March 11, 2010, the Company reclassified an unrecognized loss of $0.8 million from Accumulated Other Comprehensive Loss into earnings.


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REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions)
 
Quantitative Information — Derivative Financial Instruments
 
The effects of the Company’s derivative instruments on its consolidated financial statements were as follows:
 
(a) Fair Value of Derivative Financial Instruments in Consolidated Balance Sheet at September 30, 2010 and December 31, 2009, respectively:
 
                                         
    Fair Values of Derivative Instruments  
    Assets     Liabilities  
        September 30,
    December 31,
        September 30,
    December 31,
 
    Balance Sheet
  2010
    2009
    Balance Sheet
  2010
    2009
 
Derivatives:
  Classification   Fair Value     Fair Value     Classification   Fair Value     Fair Value  
 
Derivatives designated as hedging instruments:
                                   
2008 Interest Rate Swap(a)(b)
  Prepaid expenses   $     $     Accrued expenses   $     $ 1.8  
Derivatives not designated as hedging instruments:
                                   
FX Contracts(c)
  Prepaid expenses     0.3       0.1     Accrued expenses     1.4       1.7  
                                         
        $ 0.3     $ 0.1         $ 1.4     $ 3.5  
                                         
 
(a) Effective March 11, 2010 (the closing date of the 2010 Refinancing), the 2008 Interest Rate Swap, which expired in April 2010, was no longer designated as a cash flow hedge. (See “Interest Rate Swap Transactions” in this Note 8.)
 
(b) At December 31, 2009, the fair value of the 2008 Interest Rate Swap, which expired in April 2010, was determined by using the three-month U.S. Dollar LIBOR index at the latest receipt date, or October 16, 2009.
 
(c) The fair values of the FX Contracts at September 30, 2010 and December 31, 2009 were determined by using observable market transactions of spot and forward rates at September 30, 2010 and December 31, 2009, respectively.
 
(b) Effects of Derivative Financial Instruments on Income and Other Comprehensive Income (Loss) (“OCI”) for the third quarter of 2010 and 2009, respectively:
 
                                     
    Derivative Instruments Gain (Loss) Effect on Consolidated
 
    Statement of Operations for the Three Months Ended
 
    September 30,  
                    Amount of
 
    Amount of
        Gain (Loss)
 
    Gain (Loss)
        Reclassified
 
    Recognized
    Income Statement
  from OCI
 
    in OCI
    Classification of
  to Income
 
    (Effective
    Gain (Loss)
  (Effective
 
    Portion)     Reclassified from
  Portion)  
    2010     2009     OCI to Income   2010     2009  
 
Derivatives designated as hedging instruments:
                                   
2008 Interest Rate Swap(a)
  $     $ 1.7     Interest expense   $     $ (2.0 )
                                     
 
                                     
                    Amount of
 
    Amount of
        Gain (Loss)
 
    Gain (Loss)
        Recognized in
 
    Recognized in
    Income Statement
  Interest
 
    Foreign
    Classification of
  Expense
 
    Currency Gains
    Gain (Loss)
  (Ineffective
 
    (Losses), Net     Reclassified from
  Portion)  
    2010     2009     OCI to Income   2010     2009  
 
Derivatives not designated as hedging instruments:
                                   
FX Contracts
  $ (2.1 )   $ (1.7 )   Interest expense   $     $  
                                     


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REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions)
 
(a) Effective March 11, 2010 (the closing date of the 2010 Refinancing), the 2008 Interest Rate Swap, which expired in April 2010, was no longer designated as a cash flow hedge. (See “Interest Rate Swap Transactions” in this Note 8.)
 
Effects of Derivative Financial Instruments on Income and OCI for the nine-month periods ended September 30, 2010 and 2009, respectively:
 
                                     
    Derivative Instruments Gain (Loss) Effect on Consolidated
 
    Statement of Operations for the Nine Months Ended September 30,  
                    Amount of
 
    Amount of
        Gain (Loss)
 
    Gain (Loss)
        Reclassified
 
    Recognized
    Income Statement
  from OCI
 
    in OCI
    Classification of
  to Income
 
    (Effective
    Gain (Loss)
  (Effective
 
    Portion)     Reclassified from
  Portion)  
    2010     2009     OCI to Income   2010     2009  
 
Derivatives designated as hedging instruments:
2008 Interest Rate Swap(a)
  $     $ (2.4 )   Interest expense   $ (0.9 )   $ (4.2 )
                                     
 
                                     
                    Amount of
 
    Amount of
        Gain (Loss)
 
    Gain (Loss)
        Recognized in
 
    Recognized in
    Income Statement
  Interest
 
    Foreign
    Classification of
  Expense
 
    Currency Gains
    Gain (Loss)
  (Ineffective
 
    (Losses), Net     Reclassified from
  Portion)  
    2010     2009     OCI to Income   2010     2009  
 
Derivatives not designated as hedging instruments:
FX Contracts
  $ (1.5 )   $ (5.1 )   Interest expense   $     $  
2008 Interest Rate Swap(a)
              Interest expense     (0.8 )      
                                     
    $ (1.5 )   $ (5.1 )       $ (0.8 )   $  
                                     
 
(a) Effective March 11, 2010 (the closing date of the 2010 Refinancing), the 2008 Interest Rate Swap, which expired in April 2010, was no longer designated as a cash flow hedge. (See “Interest Rate Swap Transactions” in this Note 8.)
 
(9)   Long-Term Debt
 
                 
    September 30,
    December 31,
 
    2010     2009  
 
2010 Term Loan Facility due 2015, net of discounts(a)
  $ 783.4     $  
2006 Term Loan Facility due 2012(a)
          815.0  
2010 Revolving Credit Facility due 2014(a)
           
93/4% Senior Secured Notes due 2015, net of discounts(b)
    326.7       326.4  
Contributed Loan portion of the Senior Subordinated Term Loan due 2013(c)
    48.6       48.6  
Non-Contributed Loan portion of the Senior Subordinated Term Loan due 2014(d)
    58.4       58.4  
                 
      1,217.1       1,248.4  
Less current portion
    (8.0 )     (13.6 )
                 
    $ 1,209.1     $ 1,234.8  
                 


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REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions)
 
(a) On March 11, 2010, the Company consummated the 2010 Refinancing. The 2010 Refinancing, among other things, extended the maturity of Products Corporation’s 2006 Term Loan Facility and 2006 Revolving Credit Facility, each due January 2012, by entering into the 2010 Term Loan Facility due March 2015 and the 2010 Revolving Credit Facility due March 2014, respectively (each as hereinafter defined).
 
(b) See Note 9, “Long-Term Debt,” to the Consolidated Financial Statements in the Company’s 2009 Form 10-K for certain details regarding Products Corporation’s 93/4% Senior Secured Notes which mature on November 15, 2015 (the “93/4% Senior Secured Notes”). Pursuant to a registration rights agreement, on June 1, 2010, Products Corporation commenced an offer to exchange the original 93/4% Senior Secured Notes (“Old Notes”) for up to $330 million in aggregate principal amounts of its 93/4% Senior Secured Notes due 2015 (“New Notes”) that have been registered under the Securities Act of 1933, as amended (the “Securities Act”). On July 16, 2010, all of the Old Notes were exchanged for New Notes which have substantially identical terms as the Old Notes, except that the New Notes are registered with the SEC under the Securities Act and the transfer restrictions and registration rights applicable to the Old Notes do not apply to the New Notes.
 
(c) See Note 9, “Long-Term Debt,” to the Consolidated Financial Statements in the Company’s 2009 Form 10-K for certain details regarding the aggregate principal amount outstanding under the Contributed Loan in which MacAndrews & Forbes contributed to Revlon, Inc. $48.6 million of the $107.0 million aggregate outstanding principal amount of the Senior Subordinated Term Loan made by MacAndrews & Forbes to Products Corporation, which matures on October 8, 2014.
 
(d) See Note 9, “Long-Term Debt,” to the Consolidated Financial Statements in the Company’s 2009 Form 10-K for certain details regarding the $58.4 million principal amount of the Senior Subordinated Term Loan which remains owing from Products Corporation to MacAndrews & Forbes (the “Non-Contributed Loan”), which matures on October 8, 2014.
 
Recent Debt Reduction Transactions
 
Refinancing of the 2006 Term Loan and Revolving Credit Facilities:  In March 2010, Products Corporation consummated a credit agreement refinancing (the “2010 Refinancing”) consisting of the following transactions:
 
  •  The 2010 Refinancing included refinancing Products Corporation’s term loan facility, which was scheduled to mature on January 15, 2012 and had $815.0 million aggregate principal amount outstanding at December 31, 2009 (the “2006 Term Loan Facility”), with a 5-year, $800.0 million term loan facility due March 11, 2015 (the “2010 Term Loan Facility”) under a second amended and restated term loan agreement dated March 11, 2010 (the “2010 Term Loan Agreement”), among Products Corporation, as borrower, the lenders party thereto, Citigroup Global Markets Inc. (“CGMI”), J.P. Morgan Securities Inc. (“JPM Securities”), Banc of America Securities LLC (“BAS”) and Credit Suisse Securities (USA) LLC (“Credit Suisse”), as joint lead arrangers, CGMI, JPM Securities, BAS, Credit Suisse and Natixis, New York Branch (“Natixis”), as joint bookrunners, JPMorgan Chase Bank, N.A. and Bank of America, N.A. as co-syndication agents, Credit Suisse and Natixis as co-documentation agents, and Citicorp USA, Inc. (“CUSA”), as administrative agent and collateral agent.
 
  •  The 2010 Refinancing also included refinancing Products Corporation’s 2006 revolving credit facility, which was scheduled to mature on January 15, 2012 and had nil outstanding borrowings at December 31, 2009, with a 4-year, $140.0 million asset-based, multi-currency revolving credit facility due March 11, 2014 (the “2010 Revolving Credit Facility” and, together with the 2010 Term Loan Facility, the “2010 Credit Facilities”) under a second amended and restated revolving credit agreement dated March 11, 2010 (the “2010 Revolving Credit Agreement” and, together with the


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REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions)
 
  2010 Term Loan Agreement, the “2010 Credit Agreements”), among Products Corporation, as borrower, the lenders party thereto, CGMI and Wells Fargo Capital Finance, LLC (“WFS”), as joint lead arrangers, CGMI, WFS, BAS, JPM Securities and Credit Suisse, as joint bookrunners, and CUSA, as administrative agent and collateral agent.
 
  •  Products Corporation used the approximately $786 million of proceeds from the 2010 Term Loan Facility, which was drawn in full on the March 11, 2010 closing date and issued to lenders at 98.25% of par, plus approximately $31 million of available cash and approximately $20 million then drawn on the 2010 Revolving Credit Facility to refinance in full the $815.0 million of outstanding indebtedness under its 2006 Term Loan Facility and to pay approximately $7 million of accrued interest and approximately $15 million of fees and expenses incurred in connection with consummating the 2010 Refinancing, of which approximately $9 million was capitalized.
 
2010 Revolving Credit Facility
 
Availability under the 2010 Revolving Credit Facility varies based on a borrowing base that is determined by the value of eligible accounts receivable and eligible inventory in the U.S. and the U.K. and eligible real property and equipment in the U.S. from time to time.
 
In each case subject to borrowing base availability, the 2010 Revolving Credit Facility is available to:
 
(i) Products Corporation in revolving credit loans denominated in U.S. dollars;
 
(ii) Products Corporation in swing line loans denominated in U.S. dollars up to $30.0 million;
 
(iii) Products Corporation in standby and commercial letters of credit denominated in U.S. dollars and other currencies up to $60.0 million; and
 
(iv) Products Corporation and certain of its international subsidiaries designated from time to time in revolving credit loans and bankers’ acceptances denominated in U.S. dollars and other currencies.
 
If the value of the eligible assets is not sufficient to support the $140.0 million borrowing base under the 2010 Revolving Credit Facility, Products Corporation will not have full access to the 2010 Revolving Credit Facility. Products Corporation’s ability to make borrowings under the 2010 Revolving Credit Facility is also conditioned upon the satisfaction of certain conditions precedent and Products Corporation’s compliance with other covenants in the 2010 Revolving Credit Agreement.
 
Borrowings under the 2010 Revolving Credit Facility bear interest at a rate equal to, at Products Corporation’s option, either (i) the Eurodollar Rate plus 3.00% per annum or (ii) the Alternate Base Rate plus 2.00% per annum.
 
Prior to the termination date of the 2010 Revolving Credit Facility, revolving loans are required to be prepaid (without any permanent reduction in commitment) with:
 
(i) the net cash proceeds from sales of Revolving Credit First Lien Collateral (as defined below) by Products Corporation or any of its subsidiary guarantors (other than dispositions in the ordinary course of business and certain other exceptions); and
 
(ii) the net proceeds from the issuance by Products Corporation or any of its subsidiaries of certain additional debt, to the extent there remains any such proceeds after satisfying Products Corporation’s repayment obligations under the 2010 Term Loan Facility.


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REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions)
 
Products Corporation pays to the lenders under the 2010 Revolving Credit Facility a commitment fee of 0.75% of the average daily unused portion of the 2010 Revolving Credit Facility, which fee is payable quarterly in arrears. Under the 2010 Revolving Credit Facility, Products Corporation also pays:
 
(i) to foreign lenders a fronting fee of 0.25% per annum on the aggregate principal amount of specified Local Loans (as defined in the 2010 Revolving Credit Agreement) (which fee is retained by foreign lenders out of the portion of the Applicable Margin payable to such foreign lender);
 
(ii) to foreign lenders an administrative fee of 0.25% per annum on the aggregate principal amount of specified Local Loans;
 
(iii) to the multi-currency lenders a letter of credit commission equal to the product of (a) the Applicable Margin (as defined in the 2010 Revolving Credit Agreement) for revolving credit loans that are Eurodollar Rate (as defined in the 2010 Revolving Credit Agreement) loans (adjusted for the term that the letter of credit is outstanding) and (b) the aggregate undrawn face amount of letters of credit; and
 
(iv) to the issuing lender, a letter of credit fronting fee of 0.25% per annum of the aggregate undrawn face amount of letters of credit, which fee is a portion of the Applicable Margin.
 
Under certain circumstances, Products Corporation will have the right to request that the 2010 Revolving Credit Facility be increased by up to $60.0 million, provided that the lenders are not committed to provide any such increase.
 
Under certain circumstances if and when the difference between (i) the borrowing base under the 2010 Revolving Credit Facility and (ii) the amounts outstanding under the 2010 Revolving Credit Facility is less than $20.0 million for a period of two consecutive days or more, and until such difference is equal to or greater than $20.0 million for a period of 30 consecutive business days, the 2010 Revolving Credit Facility requires Products Corporation to maintain a consolidated fixed charge coverage ratio (the ratio of EBITDA minus Capital Expenditures to Cash Interest Expense for such period, as each such term is defined in the 2010 Revolving Credit Facility) of 1.0 to 1.0.
 
The 2010 Revolving Credit Facility matures on March 11, 2014.
 
2010 Term Loan Facility
 
Under the 2010 Term Loan Facility, Eurodollar Loans (as defined in the 2010 Term Loan Agreement) bear interest at the Eurodollar Rate (as defined in the 2010 Term Loan Agreement) plus 4.00% per annum (provided that in no event shall the Eurodollar Rate be less than 2.00% per annum) and Alternate Base Rate (as defined in the 2010 Term Loan Agreement) loans bear interest at the Alternate Base Rate plus 3.00% per annum (provided that in no event shall the Alternate Base Rate be less than 3.00% per annum).
 
Prior to the termination date of the 2010 Term Loan Facility, on June 30, September 30, December 31 and March 31 of each year (commencing June 30, 2010), Products Corporation is required to repay $2.0 million of the principal amount of the term loans outstanding under the 2010 Term Loan Facility on each respective date. In addition, the term loans under the 2010 Term Loan Facility are required to be prepaid with:
 
(i) the net cash proceeds in excess of $10.0 million for each 12-month period ending on March 31 received during such period from sales of Term Loan First Lien Collateral (as defined below) by Products Corporation or any of its subsidiary guarantors (subject to a reinvestment right for 365 days and carryover of unused annual basket amounts up to a maximum of $25.0 million and subject to certain specified dispositions of up to an additional $25.0 million in the aggregate);


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REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions)
 
(ii) the net proceeds from the issuance by Products Corporation or any of its subsidiaries of certain additional debt; and
 
(iii) 50% of Products Corporation’s “excess cash flow” (as defined under the 2010 Term Loan Agreement), commencing with excess cash flow for the 2011 fiscal year payable in the first quarter of 2012.
 
Any such prepayments are applied to reduce Products Corporation’s future regularly scheduled term loan amortization payments, to be applied in the direct order of maturity to the remaining installments thereof or as otherwise directed by Products Corporation.
 
The 2010 Term Loan Facility contains a financial covenant limiting Products Corporation’s first lien senior secured leverage ratio (the ratio of Products Corporation’s Senior Secured Debt that has a lien on the collateral which secures the 2010 Term Loan Facility that is not junior or subordinated to the liens securing the 2010 Term Loan Facility (excluding debt outstanding under the 2010 Revolving Credit Facility) to EBITDA, as each such term is defined in the 2010 Term Loan Facility), to 4.0 to 1.0 for each period of four consecutive fiscal quarters ending during the period from March 31, 2010 to the March 2015 maturity date of the 2010 Term Loan Facility.
 
Under certain circumstances, Products Corporation will have the right to request the 2010 Term Loan Facility to be increased by up to $300.0 million, provided that the lenders are not committed to provide any such increase.
 
The 2010 Term Loan Facility matures on March 11, 2015.
 
Provisions Applicable to the 2010 Revolving Credit Facility and the 2010 Term Loan Facility
 
The 2010 Credit Facilities are supported by, among other things, guarantees from Revlon, Inc. and, subject to certain limited exceptions, Products Corporation’s domestic subsidiaries. The obligations of Products Corporation under the 2010 Credit Facilities and the obligations under such guarantees are secured by, subject to certain limited exceptions, substantially all of the assets of Products Corporation and the guarantors, including:
 
(i) mortgages on owned real property, including Products Corporation’s facility in Oxford, North Carolina;
 
(ii) the capital stock of Products Corporation and the subsidiary guarantors and 66% of the voting capital stock and 100% of the non-voting capital stock of Products Corporation’s and the subsidiary guarantors’ first-tier, non-U.S. subsidiaries;
 
(iii) intellectual property and other intangible property of Products Corporation and the subsidiary guarantors; and
 
(iv) inventory, accounts receivable, equipment, investment property and deposit accounts of Products Corporation and the subsidiary guarantors.
 
The liens on inventory, accounts receivable, deposit accounts, investment property (other than the capital stock of Products Corporation and its subsidiaries), real property, equipment, fixtures and certain intangible property related to the foregoing (the “Revolving Credit First Lien Collateral”) secure the 2010 Revolving Credit Facility on a first priority basis, the 2010 Term Loan Facility on a second priority basis and Products Corporation’s 93/4% Senior Secured Notes due November 2015 (the “93/4% Senior Secured Notes”) and the related guarantees on a third priority basis. The liens on the capital stock of Products Corporation and its subsidiaries, intellectual property and intangible property (other than intangible property included in the Revolving Credit First Lien Collateral) (the “Term Loan First Lien Collateral”) secure the 2010 Term


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REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions)
 
Loan Facility on a first priority basis and the 2010 Revolving Credit Facility and the 93/4% Senior Secured Notes and the related guarantees on a second priority basis. Such arrangements are set forth in the Third Amended and Restated Intercreditor and Collateral Agency Agreement, dated March 11, 2010, by and among Products Corporation and CUSA, as administrative agent and as collateral agent for the benefit of the secured parties for the 2010 Term Loan Facility, 2010 Revolving Credit Facility and the 93/4% Senior Secured Notes (the “2010 Intercreditor Agreement”). The 2010 Intercreditor Agreement also provides that the liens referred to above may be shared from time to time, subject to certain limitations, with specified types of other obligations incurred or guaranteed by Products Corporation, such as foreign exchange and interest rate hedging obligations and foreign working capital lines.
 
Each of the 2010 Credit Facilities contains various restrictive covenants prohibiting Products Corporation and its subsidiaries from:
 
(i) incurring additional indebtedness or guarantees, with certain exceptions;
 
(ii) making dividend and other payments or loans to Revlon, Inc. or other affiliates, with certain exceptions, including among others:
 
(a) exceptions permitting Products Corporation to pay dividends or make other payments to Revlon, Inc. to enable it to, among other things, pay expenses incidental to being a public holding company, including, among other things, professional fees such as legal, accounting and insurance fees, regulatory fees, such as SEC filing fees and NYSE listing fees, and other expenses related to being a public holding company;
 
(b) subject to certain circumstances, to finance the purchase by Revlon, Inc. of its Class A Common Stock in connection with the delivery of such Class A Common Stock to grantees under the Third Amended and Restated Revlon, Inc. Stock Plan and/or the payment of withholding taxes in connection with the vesting of restricted stock awards under such plan;
 
(c) subject to certain limitations, to pay dividends or make other payments to finance the purchase, redemption or other retirement for value by Revlon, Inc. of stock or other equity interests or equivalents in Revlon, Inc. held by any current or former director, employee or consultant in his or her capacity as such; and
 
(d) subject to certain limitations, to make other restricted payments to affiliates of Products Corporation in amounts up to $5.0 million per year ($10.0 million in 2010), other restricted payments in an aggregate amount not to exceed $20.0 million and other restricted payments based upon certain financial tests;
 
(iii) creating liens or other encumbrances on Products Corporation’s or its subsidiaries’ assets or revenues, granting negative pledges or selling or transferring any of Products Corporation’s or its subsidiaries’ assets, all subject to certain limited exceptions;
 
(iv) with certain exceptions, engaging in merger or acquisition transactions;
 
(v) prepaying indebtedness and modifying the terms of certain indebtedness and specified material contractual obligations, subject to certain exceptions;
 
(vi) making investments, subject to certain exceptions; and
 
(vii) entering into transactions with affiliates of Products Corporation involving aggregate payments or consideration in excess of $10.0 million other than upon terms that are not materially less favorable when taken as a whole to Products Corporation or its subsidiaries as terms that would be obtainable at the time for a comparable transaction or series of similar transactions in arm’s length dealings with an unrelated third person and where such payments or consideration exceed $20.0 million,


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REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions)
 
unless such transaction has been approved by all of the independent directors of Products Corporation, subject to certain exceptions.
 
The events of default under each of the 2010 Credit Facilities include customary events of default for such types of agreements, including, among others:
 
(i) nonpayment of any principal, interest or other fees when due, subject in the case of interest and fees to a grace period;
 
(ii) non-compliance with the covenants in such 2010 Credit Facilities or the ancillary security documents, subject in certain instances to grace periods;
 
(iii) the institution of any bankruptcy, insolvency or similar proceedings by or against Products Corporation, any of Products Corporation’s subsidiaries or Revlon, Inc., subject in certain instances to grace periods;
 
(iv) default by Revlon, Inc. or any of its subsidiaries (A) in the payment of certain indebtedness when due (whether at maturity or by acceleration) in excess of $25.0 million in aggregate principal amount or (B) in the observance or performance of any other agreement or condition relating to such debt, provided that the amount of debt involved is in excess of $25.0 million in aggregate principal amount, or the occurrence of any other event, the effect of which default referred to in this subclause (iv) is to cause or permit the holders of such debt to cause the acceleration of payment of such debt;
 
(v) in the case of the 2010 Term Loan Facility, a cross default under the 2010 Revolving Credit Facility, and in the case of the 2010 Revolving Credit Facility, a cross default under the 2010 Term Loan Facility;
 
(vi) the failure by Products Corporation, certain of Products Corporation’s subsidiaries or Revlon, Inc. to pay certain material judgments;
 
(vii) a change of control such that (A) Revlon, Inc. shall cease to be the beneficial and record owner of 100% of Products Corporation’s capital stock, (B) Ronald O. Perelman (or his estate, heirs, executors, administrator or other personal representative) and his or their controlled affiliates shall cease to “control” Products Corporation, and any other person or group of persons owns, directly or indirectly, more than 35% of the total voting power of Products Corporation, (C) any person or group of persons other than Ronald O. Perelman (or his estate, heirs, executors, administrator or other personal representative) and his or their controlled affiliates shall “control” Products Corporation or (D) during any period of two consecutive years, the directors serving on Products Corporation’s Board of Directors at the beginning of such period (or other directors nominated by at least a majority of such continuing directors) shall cease to be a majority of the directors;
 
(viii) Revlon, Inc. shall have any meaningful assets or indebtedness or shall conduct any meaningful business other than its ownership of Products Corporation and such activities as are customary for a publicly traded holding company which is not itself an operating company, in each case subject to limited exceptions; and
 
(ix) the failure of certain of Products Corporation’s affiliates which hold Products Corporation’s or its subsidiaries’ indebtedness to be party to a valid and enforceable agreement prohibiting such affiliate from demanding or retaining payments in respect of such indebtedness, subject to certain exceptions, including exceptions as to Products Corporation’s Senior Subordinated Term Loan.
 
If Products Corporation is in default under the senior secured leverage ratio under the 2010 Term Loan Facility or the consolidated fixed charge coverage ratio under the 2010 Revolving Credit Facility, Products


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REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions)
 
Corporation may cure such default by issuing certain equity securities to, or receiving capital contributions from, Revlon, Inc. and applying such cash which is deemed to increase EBITDA for the purpose of calculating the applicable ratio. This cure right may be exercised by Products Corporation two times in any four-quarter period.
 
Products Corporation was in compliance with all applicable covenants under the 2010 Credit Agreements upon closing the 2010 Refinancing and as of September 30, 2010. At September 30, 2010, the aggregate principal amount outstanding under the 2010 Term Loan Facility was $796.0 million and availability under the $140.0 million 2010 Revolving Credit Facility, based upon the calculated borrowing base less $21.2 million of outstanding undrawn letters of credit and nil then drawn on the 2010 Revolving Credit Facility, was $108.1 million.
 
(10)   Income Taxes
 
The provision for income taxes represents federal, foreign, state and local income taxes. The effective rate differs from statutory rates due to the effect of state and local income taxes, tax rates in foreign jurisdictions, utilization of tax loss carry-forwards and certain nondeductible expenses. The Company’s tax provision (benefit) changes quarterly based on recurring and non-recurring factors including, but not limited to, the geographical mix of earnings, enacted tax legislation, foreign, state and local income taxes, tax audit settlements, the ultimate disposition of deferred tax assets relating to stock-based compensation and the interaction of various global tax strategies. In addition, changes in judgment from the evaluation of new information resulting in the recognition, derecognition and/or re-measurement of a tax position taken in a prior annual period are recognized in the quarter in which any such change occurs.
 
For the third quarters of 2010 and 2009, the Company recorded a (benefit from) provision for income taxes for continuing operations of $(0.5) million and $2.5 million, respectively. The $0.5 million benefit from income taxes for the third quarter of 2010, as compared to the $2.5 million provision for income taxes for the third quarter of 2009, was primarily attributable to the favorable resolution of tax matters in the U.S. in the third quarter of 2010 and lower taxable income for taxable subsidiaries in certain jurisdictions in the third quarter of 2010, as compared to the third quarter of 2009.
 
For the nine-month periods ended September 30, 2010 and 2009, the Company recorded a provision for income taxes for continuing operations of $9.3 million and $0.6 million, respectively. The $9.3 million provision for income taxes in the nine-month period ended September 30, 2010, as compared to the $0.6 million provision for income taxes for the nine-month period ended September 30, 2009, was primarily attributable to the favorable resolution of tax contingencies and other tax matters in the U.S. and certain foreign jurisdictions in the nine-month period ended September 30, 2009 and higher taxable income for taxable subsidiaries in certain foreign jurisdictions in the nine-month period ended September 30, 2010, as compared to the nine-month period ended September 30, 2009.
 
The Company remains subject to examination of its income tax returns in various jurisdictions including, without limitation, the U.S. (federal), for tax years ended December 31, 2007 through December 31, 2009, and Australia and South Africa, for tax years ended December 31, 2006 through December 31, 2009.
 
(11)   Guarantor Financial Information
 
Products Corporation’s 93/4% Senior Secured Notes are fully and unconditionally guaranteed on a senior secured basis by Revlon, Inc. and Products Corporation’s domestic subsidiaries (other than certain immaterial subsidiaries) that guarantee Products Corporation’s obligations under its 2010 Credit Agreements (the “Guarantor Subsidiaries”).


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REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions)
 
The following Condensed Consolidating Financial Statements present the financial information as of September 30, 2010 and December 31, 2009, and for the three and nine months ended September 30, 2010 and 2009 for (i) Products Corporation on a stand-alone basis; (ii) the Guarantor Subsidiaries on a stand-alone basis; (iii) the subsidiaries of Products Corporation that do not guarantee Products Corporation’s 93/4% Senior Secured Notes (the “Non-Guarantor Subsidiaries”) on a stand-alone basis; and (iv) Products Corporation, the Guarantor Subsidiaries and the Non-Guarantor Subsidiaries on a consolidated basis. The Condensed Consolidating Financial Statements are presented on the equity method, under which the investments in subsidiaries are recorded at cost and adjusted for the applicable share of the subsidiary’s cumulative results of operations, capital contributions, distributions and other equity changes. The principal elimination entries eliminate investments in subsidiaries and intercompany balances and transactions.


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REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions)
 
Consolidating Condensed Balance Sheets
As of September 30, 2010
 
                                         
                Non-
             
    Products
    Guarantor
    Guarantor
             
    Corporation     Subsidiaries     Subsidiaries     Eliminations     Consolidated  
 
ASSETS
                                       
Cash and cash equivalents
  $ 4.4     $ 0.5     $ 35.6     $     $ 40.5  
Trade receivables, less allowances for doubtful accounts
    71.4       16.9       84.6             172.9  
Inventories
    84.4       3.8       44.7             132.9  
Prepaid expenses and other
    74.9       4.8       28.4             108.1  
Intercompany receivables
    890.5       451.9       321.7       (1,664.1 )      
Investment in subsidiaries
    (241.8 )     (210.5 )           452.3        
Property, plant and equipment, net
    92.7       0.8       16.0             109.5  
Other assets
    57.3       4.8       30.9             93.0  
Goodwill, net
    150.6       30.0       2.0             182.6  
                                         
Total assets
  $ 1,184.4     $ 303.0     $ 563.9     $ (1,211.8 )   $ 839.5  
                                         
 
LIABILITIES AND STOCKHOLDER’S DEFICIENCY
Short-term borrowings
  $     $ 3.7     $ 2.8     $     $ 6.5  
Current portion of long-term debt
    8.0                         8.0  
Accounts payable
    55.5       6.7       27.6             89.8  
Accrued expenses and other
    137.3       9.1       62.5             208.9  
Intercompany payables
    520.3       617.3       526.5       (1,664.1 )      
Long-term debt
    1,102.1                         1,102.1  
Long-term debt — affiliates
    107.0                         107.0  
Other long-term liabilities
    197.6       13.3       49.7             260.6  
                                         
Total liabilities
    2,127.8       650.1       669.1       (1,664.1 )     1,782.9  
Stockholder’s deficiency
    (943.4 )     (347.1 )     (105.2 )     452.3       (943.4 )
                                         
Total liabilities and stockholder’s deficiency
  $ 1,184.4     $ 303.0     $ 563.9     $ (1,211.8 )   $ 839.5  
                                         
 


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REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions)
 
Consolidating Condensed Balance Sheets
As of December 31, 2009
 
 
                                         
                Non-
             
    Products
    Guarantor
    Guarantor
             
    Corporation     Subsidiaries     Subsidiaries     Eliminations     Consolidated  
 
ASSETS
                                       
Cash and cash equivalents
  $ 27.4     $ 0.4     $ 26.7     $     $ 54.5  
Trade receivables, less allowances for doubtful accounts
    81.1       15.5       85.1             181.7  
Inventories
    76.2       3.5       39.5             119.2  
Prepaid expenses and other
    60.1       4.3       26.5             90.9  
Intercompany receivables
    855.1       443.7       299.8       (1,598.6 )      
Investment in subsidiaries
    (248.1 )     (215.1 )           463.2        
Property, plant and equipment, net
    94.3       1.1       16.3             111.7  
Other assets
    56.8       2.7       30.4             89.9  
Goodwill, net
    150.6       30.0       2.0             182.6  
                                         
Total assets
  $ 1,153.5     $ 286.1     $ 526.3     $ (1,135.4 )   $ 830.5  
                                         
 
LIABILITIES AND STOCKHOLDER’S DEFICIENCY
Short-term borrowings
  $     $     $ 0.3     $     $ 0.3  
Current portion of long-term debt
    13.6                         13.6  
Accounts payable
    55.8       5.0       21.6             82.4  
Accrued expenses and other
    133.2       9.5       66.2             208.9  
Intercompany payables
    495.1       604.6       498.9       (1,598.6 )      
Long-term debt
    1,127.8                         1,127.8  
Long-term debt — affiliates
    107.0                         107.0  
Other long-term liabilities
    214.8       15.7       53.8             284.3  
                                         
Total liabilities
    2,147.3       634.8       640.8       (1,598.6 )     1,824.3  
Stockholder’s deficiency
    (993.8 )     (348.7 )     (114.5 )     463.2       (993.8 )
                                         
Total liabilities and stockholder’s deficiency
  $ 1,153.5     $ 286.1     $ 526.3     $ (1,135.4 )   $ 830.5  
                                         
 


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REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions)
 
Consolidating Condensed Statement of Operations
For the Three Months Ended September 30, 2010
 
                                         
                Non-
             
    Products
    Guarantor
    Guarantor
             
    Corporation     Subsidiaries     Subsidiaries     Eliminations     Consolidated  
 
Net sales
  $ 196.7     $ 20.5     $ 137.9     $ (36.1 )   $ 319.0  
Cost of sales
    85.4       9.2       51.9       (36.1 )     110.4  
                                         
Gross profit
    111.3       11.3       86.0             208.6  
Selling, general and administrative expenses
    101.2       8.4       58.3             167.9  
                                         
Operating income
    10.1       2.9       27.7             40.7  
                                         
Other expenses (income):
                                       
Intercompany interest, net
    0.7       (0.4 )     1.3             1.6  
Interest expense
    22.9       0.1       0.1             23.1  
Interest income
                (0.1 )           (0.1 )
Amortization of debt issuance costs
    1.1                         1.1  
Foreign currency (gains) losses, net
    (0.3 )           1.1             0.8  
Miscellaneous, net
    (7.0 )     (3.8 )     11.2             0.4  
                                         
Other expenses, net
    17.4       (4.1 )     13.6             26.9  
                                         
(Loss) income from continuing
operations before income taxes
    (7.3 )     7.0       14.1             13.8  
(Benefit from) provision for income taxes
    (1.5 )     0.3       0.7             (0.5 )
                                         
(Loss) income from continuing operations
    (5.8 )     6.7       13.4             14.3  
Loss from discontinued operations, net of taxes
    (0.1 )                       (0.1 )
Equity in income of subsidiaries
    20.1       10.0             (30.1 )      
                                         
Net income
  $ 14.2     $ 16.7     $ 13.4     $ (30.1 )   $ 14.2  
                                         
 


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REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions)
 
Consolidating Condensed Statement of Operations
For the Three Months Ended September 30, 2009
 
                                         
                Non-
             
    Products
    Guarantor
    Guarantor
             
    Corporation     Subsidiaries     Subsidiaries     Eliminations     Consolidated  
 
Net sales
  $ 209.1     $ 17.4     $ 130.3     $ (30.6 )   $ 326.2  
Cost of sales
    90.6       7.9       50.0       (30.6 )     117.9  
                                         
Gross profit
    118.5       9.5       80.3             208.3  
Selling, general and administrative expenses
    92.0       8.6       51.6             152.2  
Restructuring costs and other, net
    2.5       0.2       (0.1 )           2.6  
                                         
Operating income
    24.0       0.7       28.8             53.5  
                                         
Other expenses (income):
                                       
Intercompany interest, net
    (0.8 )     (0.3 )     1.1              
Interest expense
    22.9             0.1             23.0  
Amortization of debt issuance costs
    1.4                         1.4  
Gain on early extinguishment of debt, net
    (0.3 )                       (0.3 )
Foreign currency (gains) losses, net
    (0.2 )     (0.4 )     0.8             0.2  
Miscellaneous, net
    (5.7 )     (5.1 )     11.2             0.4  
                                         
Other expenses (income), net
    17.3       (5.8 )     13.2             24.7  
                                         
Income from continuing operations
before income taxes
    6.7       6.5       15.6             28.8  
Provision for (benefit from) income taxes
    2.0       (1.7 )     2.2             2.5  
                                         
Income from continuing operations
    4.7       8.2       13.4             26.3  
Equity in income of subsidiaries
    21.6       10.7             (32.3 )      
                                         
Net income
  $ 26.3     $ 18.9     $ 13.4     $ (32.3 )   $ 26.3  
                                         
 


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REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions)
 
Consolidating Condensed Statement of Operations
For the Nine Months Ended September 30, 2010
 
                                         
                Non-
             
    Products
    Guarantor
    Guarantor
             
    Corporation     Subsidiaries     Subsidiaries     Eliminations     Consolidated  
 
Net sales
  $ 620.0     $ 50.7     $ 389.4     $ (107.9 )   $ 952.2  
Cost of sales
    265.0       22.3       146.7       (107.9 )     326.1  
                                         
Gross profit
    355.0       28.4       242.7             626.1  
Selling, general and administrative expenses
    297.2       24.8       167.2             489.2  
Restructuring costs and other, net
    (0.1 )           (0.1 )           (0.2 )
                                         
Operating income
    57.9       3.6       75.6             137.1  
                                         
Other expenses (income):
                                       
Intercompany interest, net
    2.2       (1.0 )     3.5             4.7  
Interest expense
    67.0       0.2       0.2             67.4  
Interest income
                (0.3 )           (0.3 )
Amortization of debt issuance costs
    3.5                         3.5  
Loss on early extinguishment of debt, net
    9.7                         9.7  
Foreign currency (gains) losses, net
    (4.6 )     (0.2 )     9.5             4.7  
Miscellaneous, net
    (35.9 )     3.6       33.5             1.2  
                                         
Other expenses, net
    41.9       2.6       46.4             90.9  
                                         
Income from continuing operations
before income taxes
    16.0       1.0       29.2             46.2  
(Benefit from) provision for income taxes
    (2.8 )     3.0       9.1             9.3  
                                         
Income (loss) from continuing operations
    18.8       (2.0 )     20.1             36.9  
Income from discontinued operations, net of taxes
    0.3                         0.3  
Equity in income of subsidiaries
    18.1       8.6             (26.7 )      
                                         
Net income
  $ 37.2     $ 6.6     $ 20.1     $ (26.7 )   $ 37.2  
                                         
 


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REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions)
 
Consolidating Condensed Statement of Operations
For the Nine Months Ended September 30, 2009
 
                                         
                Non-
             
    Products
    Guarantor
    Guarantor
             
    Corporation     Subsidiaries     Subsidiaries     Eliminations     Consolidated  
 
Net sales
  $ 641.0     $ 51.6     $ 355.6     $ (96.9 )   $ 951.3  
Cost of sales
    281.4       23.0       142.0       (96.9 )     349.5  
                                         
Gross profit
    359.6       28.6       213.6             601.8  
Selling, general and administrative expenses
    288.8       25.3       150.9             465.0  
Restructuring costs and other, net
    17.1       1.1       3.2             21.4  
                                         
Operating income
    53.7       2.2       59.5             115.4  
                                         
Other expenses (income):
                                       
Intercompany interest, net
    (2.6 )     (1.2 )     3.8              
Interest expense
    70.9             0.2             71.1  
Interest income
                (0.4 )           (0.4 )
Amortization of debt issuance costs
    4.2                         4.2  
Gain on early extinguishment of debt, net
    (7.8 )                       (7.8 )
Foreign currency (gains) losses, net
    (1.0 )     0.5       5.2             4.7  
Miscellaneous, net
    (33.7 )     2.0       32.4             0.7  
                                         
Other expenses, net
    30.0       1.3       41.2             72.5  
                                         
Income from continuing operations
before income taxes
    23.7       0.9       18.3             42.9  
(Benefit from) provision for income taxes
    (23.7 )     22.1       2.2             0.6  
                                         
Income (loss) from continuing operations
    47.4       (21.2 )     16.1             42.3  
Income from discontinued operations, net of taxes
    0.3                         0.3  
Equity in (loss) income of subsidiaries
    (5.1 )     13.9             (8.8 )      
                                         
Net income (loss)
  $ 42.6     $ (7.3 )   $ 16.1     $ (8.8 )   $ 42.6  
                                         
 


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REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions)
 
Consolidating Condensed Statement of Cash Flow
For the Nine Months Ended September 30, 2010
 
                                         
    Products
    Guarantor
    Non-Guarantor
             
    Corporation     Subsidiaries     Subsidiaries     Eliminations     Consolidated  
 
CASH FLOWS FROM OPERATING ACTIVITIES:
                               
Net cash provided by (used in) operating activities
  $ 45.4     $ (2.4 )   $ 6.5     $     $ 49.5  
                                         
CASH FLOWS FROM INVESTING ACTIVITIES:
                               
Capital expenditures
    (10.5 )     (0.1 )     (1.4 )           (12.0 )
Proceeds from sales of certain assets
                0.2             0.2  
                                         
Net cash used in investing activities
    (10.5 )     (0.1 )     (1.2 )           (11.8 )
                                         
CASH FLOWS FROM FINANCING ACTIVITIES:
                               
Net (decrease) increase in short-term
borrowings and overdraft
    (7.9 )     2.6       2.4             (2.9 )
Repayments under the 2006 Term Loan Facility
    (815.0 )                       (815.0 )
Borrowings under the 2010 Term Loan Facility
    786.0                         786.0  
Repayments of long-term debt
    (4.0 )                       (4.0 )
Payment of financing costs
    (17.0 )                       (17.0 )
                                         
Net cash (used in) provided by financing activities
    (57.9 )     2.6       2.4             (52.9 )
                                         
Effect of exchange rate changes on cash and
cash equivalents
                1.2             1.2  
                                         
Net (decrease) increase in cash and cash equivalents
    (23.0 )     0.1       8.9             (14.0 )
Cash and cash equivalents at beginning of period
    27.4       0.4       26.7             54.5  
                                         
Cash and cash equivalents at end of period
  $ 4.4     $ 0.5     $ 35.6     $     $ 40.5  
                                         
 


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REVLON, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions, except share and per share amounts)
 
Consolidating Condensed Statement of Cash Flow
For the Nine Months Ended September 30, 2009
 
                                         
    Products
    Guarantor
    Non-Guarantor
             
    Corporation     Subsidiaries     Subsidiaries     Eliminations     Consolidated  
 
CASH FLOWS FROM OPERATING ACTIVITIES:
                               
Net cash provided by (used in) operating activities
  $ 72.8     $ (1.7 )   $ 1.9     $     $ 73.0  
                                         
CASH FLOWS FROM INVESTING ACTIVITIES:
                               
Capital expenditures
    (8.7 )     (0.1 )     (2.1 )           (10.9 )
Proceeds from sales of certain assets
                2.3             2.3  
                                         
Net cash (used in) provided by investing activities
    (8.7 )     (0.1 )     0.2             (8.6 )
                                         
CASH FLOWS FROM FINANCING ACTIVITIES:
                               
Net (decrease) increase in short-term
borrowings and overdraft
    (8.2 )     0.7       0.4             (7.1 )
Repayments under the 2006 Term Loan Facility
    (18.7 )                       (18.7 )
Repayments of long-term debt
    (31.0 )           (0.2 )           (31.2 )
                                         
Net cash (used in) provided by financing activities
    (57.9 )     0.7       0.2             (57.0 )
                                         
Net cash provided by discontinued operations
    0.2                         0.2  
                                         
Effect of exchange rate changes on cash and
cash equivalents
          0.2       1.9             2.1  
                                         
Net increase (decrease) in cash and cash equivalents
    6.4       (0.9 )     4.2             9.7  
Cash and cash equivalents at beginning of period
    18.7       1.0       33.1             52.8  
                                         
Cash and cash equivalents at end of period
  $ 25.1     $ 0.1     $ 37.3     $     $ 62.5  
                                         
 


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REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(all tabular amounts in millions)
 
Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
Overview
 
Overview of the Business
 
The Company is providing this overview in accordance with the SEC’s December 2003 interpretive guidance regarding Management’s Discussion and Analysis of Financial Condition and Results of Operations.
 
Revlon Consumer Products Corporation (“Products Corporation” and together with its subsidiaries, the “Company”) is a wholly-owned operating subsidiary of Revlon, Inc. which is a direct and indirect majority-owned subsidiary of MacAndrews & Forbes Holdings Inc. (“MacAndrews & Forbes Holdings” and together with certain of its affiliates other than Revlon, Inc. and the Company, “MacAndrews & Forbes”), a corporation wholly owned by Ronald O. Perelman.
 
The Company’s vision is glamour, excitement and innovation through high-quality products at affordable prices. The Company operates in a single segment and manufactures, markets and sells an extensive array of cosmetics, women’s hair color, beauty tools, anti-perspirant deodorants, fragrances, skincare and other beauty care products. The Company is one of the world’s leading cosmetics companies in the mass retail channel (as hereinafter defined). The Company believes that its global brand name recognition, product quality and marketing experience have enabled it to create one of the strongest consumer brand franchises in the world.
 
The Company’s products are sold worldwide and marketed under such brand names as Revlon, including the Revlon ColorStay, Revlon Super Lustrous and Revlon Age Defying franchises, as well as the Almay brand, including the Almay Intense i-Color and Almay Smart Shade franchises, in cosmetics; Revlon ColorSilk women’s hair color; Revlon in beauty tools; Mitchum anti-perspirant deodorants; Charlie and Jean Naté in fragrances; and Ultima II and Gatineau in skincare.
 
The Company’s principal customers include large mass volume retailers and chain drug and food stores (collectively, the “mass retail channel”) in the U.S., as well as certain department stores and other specialty stores, such as perfumeries, outside the U.S. The Company also sells beauty products to U.S. military exchanges and commissaries and has a licensing business pursuant to which the Company licenses certain of its key brand names to third parties for complementary beauty-related products and accessories in exchange for royalties.
 
The Company was founded by Charles Revson, who revolutionized the cosmetics industry by introducing nail enamels matched to lipsticks in fashion colors over 75 years ago. Today, the Company has leading market positions in a number of its principal product categories in the U.S. mass retail channel, including color cosmetics (face, lip, eye and nail categories), women’s hair color, beauty tools and anti-perspirant deodorants. The Company also has leading market positions in several product categories in certain foreign countries, including Australia, Canada and South Africa.
 
Effective for periods beginning January 1, 2010, the Company is reporting Canada separately (previously Canada was included in the Europe region) and is reporting South Africa as part of the Europe, Middle East and Africa region (previously South Africa was included in the Asia Pacific region). As a result, prior year amounts have been reclassified to conform to this presentation.


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REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(all tabular amounts in millions)
 
Overview of the Company’s Strategy
 
The Company’s strategic goal is to profitably grow our business. The business strategies employed by the Company to achieve this goal are:
 
1. Building our strong brands.  We continue to build our strong brands by focusing on innovative, high-quality, consumer-preferred brand offering; effective consumer brand communication; appropriate levels of advertising and promotion; and superb execution with our retail partners.
 
2. Developing our organizational capability.  We continue to develop our organizational capability through attracting, retaining and rewarding highly capable people and through performance management, development planning, succession planning and training.
 
3. Driving our company to act globally.  We continue to drive common global processes which are designed to provide the most efficient allocation of our resources.
 
4. Increasing our operating profit and cash flow.  We continue to focus on increasing our operating profit and cash flow.
 
5. Improving our capital structure.  We continue to improve our capital structure by focusing on strengthening our balance sheet and reducing debt.
 
Overview of Net Sales and Earnings Results
 
Consolidated net sales in the third quarter of 2010 were $319.0 million, a decrease of $7.2 million, or 2.2%, compared to $326.2 million in the third quarter of 2009. Consolidated net sales for the nine-month period ended September 30, 2010 were $952.2 million, an increase of $0.9 million, or 0.1%, compared to $951.3 million for the nine-month period ended September 30, 2009. Excluding the unfavorable impact of foreign currency fluctuations of $5.8 million, consolidated net sales in the third quarter of 2010 were essentially unchanged from the third quarter of 2009, as lower net sales in the U.S. were largely offset by higher net sales in the Company’s Latin America and Europe, Middle East and Africa regions. Net sales in the Company’s Canada and Asia Pacific regions in the third quarter of 2010 were essentially unchanged from the third quarter of 2009. Excluding the favorable impact of foreign currency fluctuations of $2.7 million, consolidated net sales in the nine-month period ended September 30, 2010 were essentially unchanged from the nine-month period ended September 30, 2009, as lower net sales in the U.S. and the Company’s Asia Pacific region were largely offset by higher net sales in the Company’s Latin America and Europe, Middle East and Africa regions. Net sales in the Company’s Canada region in the nine-month period ended September 30, 2010 were essentially unchanged from the nine-month period ended September 30, 2009.
 
Consolidated net income for the third quarter of 2010 was $14.2 million, compared to $26.3 million in the third quarter of 2009. The decline in consolidated net income in the third quarter of 2010, compared to the third quarter of 2009, was primarily due to $15.7 million of higher SG&A expenses, driven primarily by $16.3 million of higher advertising expenses to support the Company’s brands. In the nine-month period ended September 30, 2010, consolidated net income was $37.2 million, compared to $42.6 million in the nine-month period ended September 30, 2009. The decline in consolidated net income in the nine-month period ended September 30, 2010 compared to the nine-month period ended September 30, 2009 was primarily due to:
 
  •   $24.2 million of higher SG&A expenses, driven primarily by $27.6 million of higher advertising expenses to support the Company’s brands;


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REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(all tabular amounts in millions)
 
 
  •   a $9.7 million loss on the early extinguishment of debt in connection with the 2010 Refinancing (as defined below) in the nine months ended September 30, 2010, as compared to the $7.8 million gain on the early extinguishment of debt related to repurchases of the Company’s 91/2% Senior Notes (prior to their complete refinancing in November 2009 with the 93/4% Senior Secured Notes) in the nine-month period ended September 30, 2009; and
 
  •   a $9.3 million provision for income taxes in the nine-month period ended September 30, 2010, as compared to a $0.6 million provision for income taxes in the nine-month period ended September 30, 2009;
 
with the foregoing partially offset by:
 
  •   $24.3 million of higher gross profit primarily due to a $23.4 million improvement in cost of sales; and
 
  •   $21.6 million of lower restructuring costs and other, net.
 
Overview of Financing Activities
 
Refinancing of the 2006 Term Loan and Revolving Credit Facilities: In March 2010, Products Corporation consummated a credit agreement refinancing (the “2010 Refinancing”) consisting of the following transactions:
 
The 2010 Refinancing included refinancing Products Corporation’s term loan facility, which was scheduled to mature on January 15, 2012 and had $815.0 million aggregate principal amount outstanding at December 31, 2009 (the “2006 Term Loan Facility”), with a 5-year, $800.0 million term loan facility due March 11, 2015 (the “2010 Term Loan Facility”) under a second amended and restated term loan agreement dated March 11, 2010 (the “2010 Term Loan Agreement”), among Products Corporation, as borrower, the lenders party thereto, Citigroup Global Markets Inc. (“CGMI”), J.P. Morgan Securities Inc. (“JPM Securities”), Banc of America Securities LLC (“BAS”) and Credit Suisse Securities (USA) LLC (“Credit Suisse”), as joint lead arrangers, CGMI, JPM Securities, BAS, Credit Suisse and Natixis, New York Branch (“Natixis”), as joint bookrunners, JPMorgan Chase Bank, N.A. and Bank of America, N.A. as co-syndication agents, Credit Suisse and Natixis as co-documentation agents, and Citicorp USA, Inc. (“CUSA”), as administrative agent and collateral agent.
 
The 2010 Refinancing also included refinancing Products Corporation’s 2006 revolving credit facility, which was scheduled to mature on January 15, 2012 and had nil outstanding borrowings at December 31, 2009, with a 4-year, $140.0 million asset-based, multi-currency revolving credit facility due March 11, 2014 (the “2010 Revolving Credit Facility” and, together with the 2010 Term Loan Facility, the “2010 Credit Facilities”) under a second amended and restated revolving credit agreement dated March 11, 2010 (the “2010 Revolving Credit Agreement” and, together with the 2010 Term Loan Agreement, the “2010 Credit Agreements”), among Products Corporation, as borrower, the lenders party thereto, CGMI and Wells Fargo Capital Finance, LLC (“WFS”), as joint lead arrangers, CGMI, WFS, BAS, JPM Securities and Credit Suisse, as joint bookrunners, and CUSA, as administrative agent and collateral agent.
 
Products Corporation used the approximately $786 million of proceeds from the 2010 Term Loan Facility, which was drawn in full on the March 11, 2010 closing date and issued to lenders at 98.25% of par, plus approximately $31 million of available cash and approximately $20 million then drawn on the 2010 Revolving Credit Facility to refinance in full the $815.0 million of outstanding indebtedness under the 2006 Term Loan Facility and to pay approximately $7 million of accrued interest and approximately $15 million of fees and expenses incurred in connection with consummating the 2010 Refinancing, of which approximately $9 million was capitalized.


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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(all tabular amounts in millions)
 
Results of Operations
 
In the tables, all amounts are in millions and numbers in parentheses ( ) denote unfavorable variances.
 
Net sales:
 
Third quarter results
 
Consolidated net sales in the third quarter of 2010 were $319.0 million, a decrease of $7.2 million, or 2.2%, compared to $326.2 million in the third quarter of 2009. Excluding the unfavorable impact of foreign currency fluctuations of $5.8 million, consolidated net sales in the third quarter of 2010 were essentially unchanged from the third quarter of 2009, as lower net sales of Revlon and Almay color cosmetics were largely offset by higher net sales of Revlon ColorSilk hair color and fragrances.
 
Year-to-date results
 
Consolidated net sales in the nine-month period ended September 30, 2010 were $952.2 million, an increase of $0.9 million, or 0.1%, compared to $951.3 million in the nine-month period ended September 30, 2009. Excluding the favorable impact of foreign currency fluctuations of $2.7 million, consolidated net sales in the nine-month period ended September 30, 2010 were essentially unchanged from the nine-month period ended September 30, 2009, as lower net sales of Almay color cosmetics, due to the cycling of the 2009 launch of Almay Pure Blends, and lower net sales of Mitchum anti-perspirant deodorant, were largely offset by higher net sales of Revlon ColorSilk hair color, fragrances and Revlon color cosmetics.
 
                                                 
    Three Months Ended
             
    September 30,     Change     XFX Change(a)  
    2010     2009     $     %     $     %  
 
United States
  $ 166.7     $ 183.7     $ (17.0 )     (9.3 )%   $ (17.0 )     (9.3 )%
Asia Pacific
    54.5       51.7       2.8       5.4       0.1       0.2  
Europe, Middle East and Africa
    50.6       44.6       6.0       13.5       6.6       14.8  
Latin America
    29.3       29.0       0.3       1.0       9.2       31.7  
Canada
    17.9       17.2       0.7       4.1       (0.3 )     (1.7 )
                                                 
Total Net Sales
  $ 319.0     $ 326.2     $ (7.2 )     (2.2 )%   $ (1.4 )     (0.4 )%
                                                 
 
                                                 
    Nine Months Ended
             
    September 30,     Change     XFX Change(a)  
    2010     2009     $     %     $     %  
 
United States
  $ 528.1     $ 560.9     $ (32.8 )     (5.8 )%   $ (32.8 )     (5.8 )%
Asia Pacific
    149.1       138.8       10.3       7.4       (1.5 )     (1.1 )
Europe, Middle East and Africa
    143.7       128.5       15.2       11.8       8.1       6.3  
Latin America
    78.0       75.7       2.3       3.0       24.1       31.8  
Canada
    53.3       47.4       5.9       12.4       0.3       0.6  
                                                 
Total Net Sales
  $ 952.2     $ 951.3     $ 0.9       0.1 %   $ (1.8 )     (0.2 )%
                                                 
 
(a) XFX excludes the impact of foreign currency fluctuations.


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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(all tabular amounts in millions)
 
 
United States
 
Third quarter results
 
In the U.S., net sales in the third quarter of 2010 were $166.7 million, a decrease of $17.0 million, or 9.3%, compared to $183.7 million in the third quarter of 2009, primarily driven by lower net sales of Revlon and Almay color cosmetics.
 
Year-to-date results
 
In the U.S., net sales in the nine-month period ended September 30, 2010 were $528.1 million, a decrease of $32.8 million, or 5.8%, compared to $560.9 million in the nine-month period ended September 30, 2009, primarily driven by lower net sales of Almay color cosmetics and Revlon beauty tools, due to the cycling of the 2009 launches of Almay Pure Blends and Revlon Pedi-Expert, respectively, and lower net sales of Revlon color cosmetics and Mitchum anti-perspirant deodorant.
 
Asia Pacific
 
Third quarter results
 
In Asia Pacific, net sales in the third quarter of 2010 increased 5.4% to $54.5 million, compared to $51.7 million in the third quarter of 2009. Excluding the favorable impact of foreign currency fluctuations, net sales in the third quarter of 2010 were essentially unchanged from the third quarter of 2009. From a country perspective, higher net sales in certain distributor markets, Hong Kong and the Company’s duty-free businesses (which together contributed approximately 5.8 percentage points to the increase in the region’s net sales in the third quarter of 2010, as compared with the third quarter of 2009) were partially offset by lower net sales in Australia (which offset by approximately 5.2 percentage points the increase in the region’s net sales in the third quarter of 2010, as compared with the third quarter of 2009).
 
Year-to-date results
 
In Asia Pacific, net sales in the nine-month period ended September 30, 2010 increased 7.4% to $149.1 million, compared to $138.8 million in the nine-month period ended September 30, 2009. Excluding the favorable impact of foreign currency fluctuations, net sales decreased $1.5 million, or 1.1%, in the nine-month period ended September 30, 2010, primarily driven by lower net sales of Revlon color cosmetics, partially offset by higher net sales of Revlon ColorSilk hair color. From a country perspective, lower net sales in Australia (which contributed approximately 4.6 percentage points to the decrease in the region’s net sales in the nine-month period ended September 30, 2010, as compared with the nine-month period ended September 30, 2009) were partially offset by higher net sales in the Company’s duty-free businesses, certain distributor markets and China (which together offset by approximately 3.5 percentage points the decrease in the region’s net sales in the nine-month period ended September 30, 2010, as compared with the nine-month period ended September 30, 2009).
 
Europe, Middle East and Africa
 
Third quarter results
 
In Europe, the Middle East and Africa, net sales in the third quarter of 2010 increased 13.5% to $50.6 million, compared to $44.6 million in the third quarter of 2009. Excluding the unfavorable impact of foreign currency fluctuations, net sales increased $6.6 million, or 14.8%, in the third quarter of 2010, primarily driven by higher net sales of fragrances, Revlon color cosmetics and other beauty care products. From a country perspective, higher net sales in the U.K. and South Africa contributed approximately


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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(all tabular amounts in millions)
 
13.4 percentage points to the increase in the region’s net sales in the third quarter of 2010, as compared to the third quarter of 2009.
 
Year-to-date results
 
In Europe, the Middle East and Africa, net sales in the nine-month period ended September 30, 2010 increased 11.8% to $143.7 million, compared to $128.5 million in the nine-month period ended September 30, 2009. Excluding the favorable impact of foreign currency fluctuations, net sales increased $8.1 million, or 6.3%, in the nine-month period ended September 30, 2010, primarily driven by higher net sales of fragrances, Revlon color cosmetics and Almay color cosmetics. From a country perspective, higher net sales in South Africa and the U.K. contributed approximately 5.3 percentage points to the increase in the region’s net sales in the nine-month period ended September 30, 2010, as compared to the nine-month period ended September 30, 2009.
 
Latin America
 
Third quarter results
 
In Latin America, net sales in the third quarter of 2010 increased 1.0% to $29.3 million, compared to $29.0 million in the third quarter of 2009. Excluding the unfavorable impact of foreign currency fluctuations (including the unfavorable impact of the January 2010 devaluation of Venezuela’s local currency relative to the U.S. dollar), net sales increased $9.2 million, or 31.7%, in the third quarter of 2010, primarily driven by higher net sales of Revlon color cosmetics, Revlon ColorSilk hair color and other beauty care products. From a country perspective, higher net sales in Venezuela and certain distributor markets contributed approximately 26.5 percentage points to the increase in the region’s net sales in the third quarter of 2010, as compared to the third quarter of 2009. Higher selling prices in Venezuela, as a result of market conditions and inflation, accounted for approximately half of the $9.2 million increase in net sales in the region.
 
Year-to-date results
 
In Latin America, net sales in the nine-month period ended September 30, 2010 increased 3.0% to $78.0 million, compared to $75.7 million in the nine-month period ended September 30, 2009. Excluding the unfavorable impact of foreign currency fluctuations (including the unfavorable impact of the January 2010 devaluation of Venezuela’s local currency relative to the U.S. dollar), net sales increased $24.1 million, or 31.8%, in the nine-month period ended September 30, 2010, primarily driven by higher net sales of Revlon ColorSilk hair color, Revlon color cosmetics and other beauty care products. From a country perspective, higher net sales in Venezuela and certain distributor markets contributed approximately 26.0 percentage points to the increase in the region’s net sales in the nine-month period ended September 30, 2010, as compared to the nine-month period ended September 30, 2009. Higher selling prices in Venezuela, as a result of market conditions and inflation, accounted for approximately half of the $24.1 million increase in net sales in the region.
 
Canada
 
Third quarter results
 
In Canada, net sales in the third quarter of 2010 were $17.9 million, an increase of $0.7 million, or 4.1%, compared to $17.2 million in the third quarter of 2009. Excluding the favorable impact of foreign currency fluctuations, net sales in the third quarter of 2010 were essentially unchanged from the third quarter of 2009.


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REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(all tabular amounts in millions)
 
Year-to-date results
 
In Canada, net sales in the nine-month period ended September 30, 2010 were $53.3 million, an increase of $5.9 million, or 12.4%, compared to $47.4 million in the nine-month period ended September 30, 2009. Excluding the favorable impact of foreign currency fluctuations, net sales in the nine-month period ended September 30, 2010 were essentially unchanged from the nine-month period ended September 30, 2009.
 
Gross profit:
 
                                                 
    Three Months Ended
      Nine Months Ended
   
    September 30,       September 30,    
    2010   2009   Change   2010   2009   Change
 
Gross profit
  $ 208.6     $ 208.3     $ 0.3     $ 626.1     $ 601.8     $ 24.3  
Percentage of net sales
    65.4 %     63.9 %     1.5 %     65.8 %     63.3 %     2.5 %
 
The 1.5 percentage point increase in gross profit as a percentage of net sales for the third quarter of 2010, compared to the third quarter of 2009, was primarily due to:
 
  •   lower costs related to inventory obsolescence and sales returns, which increased gross profit as a percentage of net sales by 0.9 percentage points;
 
  •   lower material costs as a result of purchasing initiatives and savings as a result of the May 2009 Program (as hereinafter defined), which increased gross profit as a percentage of net sales by 0.8 percentage points;
 
  •   lower net pension and profit sharing expenses within cost of goods of $1.7 million, which increased gross profit as a percentage of net sales by 0.5 percentage points; and
 
  •   lower allowances on color cosmetics, which increased gross profit as a percentage of net sales by 0.5 percentage points;
 
with the foregoing partially offset by:
 
  •   the unfavorable impact of product mix, which reduced gross profit as a percentage of net sales by 0.7 percentage points.
 
The 2.5 percentage point increase in gross profit as a percentage of net sales for the nine-month period ended September 30, 2010, compared to the nine-month period ended September 30, 2009, was primarily due to:
 
  •   lower costs related to inventory obsolescence and sales returns, which increased gross profit as a percentage of net sales by 1.2 percentage points;
 
  •   lower material costs as a result of purchasing initiatives and savings as a result of the May 2009 Program, which increased gross profit as a percentage of net sales by 1.2 percentage points;
 
  •   lower allowances on color cosmetics, which increased gross profit as a percentage of net sales by 0.6 percentage points; and
 
  •   favorable foreign currency fluctuations which resulted in lower cost of goods in most international markets on goods purchased from the Company’s facility in Oxford, North Carolina, which increased gross profit as a percentage of net sales by 0.5 percentage points;


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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(all tabular amounts in millions)
 
 
with the foregoing partially offset by:
 
  •   the unfavorable impact of product mix, which reduced gross profit as a percentage of net sales by 0.5 percentage points.
 
SG&A expenses:
 
                                                 
    Three Months Ended
      Nine Months Ended
   
    September 30,       September 30,    
    2010   2009   Change   2010   2009   Change
 
SG&A expenses
  $ 167.9     $ 152.2     $ (15.7 )   $ 489.2     $ 465.0     $ (24.2 )
 
The $15.7 million increase in SG&A expenses for the third quarter of 2010, as compared to the third quarter of 2009, was driven primarily by $16.3 million of higher advertising expenses to support the Company’s brands, which is consistent with the Company’s business strategy to build its strong brands. The Company increased media pressure while benefitting from lower advertising rates in the third quarter of 2010, as compared to the third quarter of 2009. The higher advertising expenses were partially offset by favorable foreign currency fluctuations and lower pension expenses.
 
The $24.2 million increase in SG&A expenses for the nine-month period ended September 30, 2010, as compared to the nine-month period ended September 30, 2009, was driven primarily by $27.6 million of higher advertising expenses to support the Company’s brands, as well as higher compensation expenses, partially offset by savings as a result of the May 2009 Program, lower pension expenses and lower permanent display amortization. The Company increased media pressure while benefitting from lower advertising rates in the nine-month period ended September 30, 2010, as compared to the nine-month period ended September 30, 2009.
 
Restructuring costs and other, net:
 
                                                 
    Three Months Ended
      Nine Months Ended
   
    September 30,       September 30,    
    2010   2009   Change   2010   2009   Change
 
Restructuring costs and other, net
  $     $ 2.6     $ 2.6     $ (0.2 )   $ 21.4     $ 21.6  
 
In May 2009, the Company announced a worldwide restructuring (the “May 2009 Program”), which involved consolidating certain functions; reducing layers of management, where appropriate, to increase accountability and effectiveness; streamlining support functions to reflect the new organizational structure; and further consolidating the Company’s office facilities in New Jersey.
 
The $20.6 million of charges related to the May 2009 Program have been or will be paid out as follows: $11.0 million paid in 2009, $7.0 million expected to be paid in 2010 (of which $6.0 million was paid during the nine-month period ended September 30, 2010) and the balance of $2.6 million is expected to be paid thereafter. The May 2009 Program delivered savings of approximately $15 million in 2009 and the Company expects annualized savings of approximately $30 million in 2010 and thereafter (inclusive of the approximately $15 million in 2009).
 
During the nine-month period ended September 30, 2010 a $0.2 million adjustment was recorded to restructuring costs and other, net to reflect lower than originally anticipated expenses associated with the May 2009 Program.
 
During the third quarter of 2009, the Company recorded charges of $2.6 million in restructuring costs and other, net for lease and equipment write-offs related to the May 2009 Program.


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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(all tabular amounts in millions)
 
During the nine-month period ended September 30, 2009, the Company recorded charges of $21.4 million in restructuring costs and other, net, which are comprised of:
 
  •   a $20.8 million charge related to the May 2009 Program;
 
  •   $1.2 million of charges related to employee severance and other employee-related termination costs related to restructuring actions in the U.K., Mexico and Argentina announced in the first quarter of 2009; and
 
  •   a $1.0 million charge related to the 2008 Programs (as defined in Note 3, “Restructuring Costs and Other, Net,” to the Consolidated Financial Statements in the Company’s 2009 Form 10-K);
 
with the foregoing partially offset by
 
  •   income of $1.6 million related to the sale of a facility in Argentina in the first quarter of 2009.
 
Interest expense:
 
                                                 
    Three Months Ended
      Nine Months Ended
   
    September 30,       September 30,    
    2010   2009   Change   2010   2009   Change
 
Interest expense
    $24.7       $23.0       $(1.7 )     $72.1       $71.1       $(1.0 )
 
The $1.7 million increase in interest expense for the third quarter of 2010, as compared to the third quarter of 2009, was due to higher weighted average borrowing rates, partially offset by lower debt levels.
 
The $1.0 million increase in interest expense for the nine-month period ended September 30, 2010, as compared to the nine-month period ended September 30, 2009, was primarily due to higher weighted average borrowing rates, partially offset by lower debt levels. Interest expense throughout the remainder of 2010 will continue to be impacted by higher weighted average borrowing rates primarily as a result of the 2010 Refinancing.
 
(Gain) loss on early extinguishment of debt, net:
 
                                                 
    Three Months Ended
      Nine Months Ended
   
    September 30,       September 30,    
    2010   2009   Change   2010   2009   Change
 
(Gain) loss on early
extinguishment of debt, net
    $—       $(0.3 )     $(0.3 )     $9.7       $(7.8 )     $(17.5 )
 
As a result of the 2010 Refinancing, the Company recognized a loss on the extinguishment of debt of $9.7 million during the first half of 2010, primarily due to $5.9 million of fees and expenses which were expensed as incurred in connection with the 2010 Refinancing, as well as the write-off of $3.8 million of unamortized deferred financing fees in connection with such refinancing.
 
In the third quarter of 2009, Products Corporation used $8.2 million to repurchase an aggregate principal amount of $8.6 million of its 91/2% Senior Notes (prior to their complete refinancing in November 2009 with the 93/4% Senior Secured Notes), and paid an additional $0.4 million of accrued and unpaid interest and fees through the respective dates of the repurchases. In the first nine months of 2009, Products Corporation used $31.0 million to repurchase an aggregate principal amount of $39.5 million of its 91/2% Senior Notes (prior to their complete refinancing in November 2009 with the 93/4% Senior Secured Notes) and paid an additional $1.7 million of accrued and unpaid interest and fees through the respective dates of the repurchases. As a result of these 2009 repurchases, the Company recorded a gain of $0.3 million


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REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(all tabular amounts in millions)
 
during the third quarter of 2009 and a gain of $7.8 million during the first nine months of 2009, which are net of the write-off of the ratable portion of unamortized debt discounts and deferred financing fees.
 
Foreign currency losses:
 
                                                 
    Three Months Ended
      Nine Months Ended
   
    September 30,       September 30,    
    2010   2009   Change   2010   2009   Change
 
Foreign currency losses
    $0.8       $0.2       $(0.6 )     $4.7       $4.7       $—  
 
The $0.6 million increase in foreign currency losses during the third quarter of 2010, as compared to the third quarter of 2009, was primarily driven by higher foreign currency losses related to the Company’s outstanding foreign currency forward exchange contracts (“FX Contracts”) for the third quarter of 2010, as compared to foreign currency losses related to the Company’s FX Contracts for the third quarter of 2009.
 
The foreign currency losses during the nine-month period ended September 30, 2010 included a $2.8 million one-time foreign currency loss related to the required re-measurement of the balance sheet of the Company’s subsidiary in Venezuela (“Revlon Venezuela”) during the first quarter of 2010 to reflect the impact of the devaluation of Venezuela’s local currency relative to the U.S. dollar, as Venezuela has been designated as a highly inflationary economy effective January 1, 2010 (see “Financial Condition, Liquidity and Capital Resources — Impact of Foreign Currency Translation — Venezuela”). In addition, foreign currency losses during the nine-month period ended September 30, 2010 were driven by $1.5 million of foreign currency losses related to the Company’s outstanding FX Contracts.
 
The foreign currency losses during the nine-month period ended September 30, 2009 were primarily driven by $5.1 million of foreign currency losses related to the Company’s outstanding FX Contracts.
 
(Benefit from) provision for income taxes:
 
                                                 
    Three Months Ended
      Nine Months Ended
   
    September 30,       September 30,    
    2010   2009   Change   2010   2009   Change
 
(Benefit from) provision for income taxes
    $(0.5 )     $2.5       $3.0       $9.3       $0.6       $(8.7 )
 
The $0.5 million benefit from income taxes for the third quarter of 2010, as compared to the $2.5 million provision for income taxes for the third quarter of 2009, was primarily attributable to the favorable resolution of tax matters in the U.S. in the third quarter of 2010 and lower taxable income for taxable subsidiaries in certain jurisdictions in the third quarter of 2010, as compared to the third quarter of 2009.
 
The $9.3 million provision for income taxes in the nine-month period ended September 30, 2010, as compared to the $0.6 million provision for income taxes for the nine-month period ended September 30, 2009, was primarily attributable to the favorable resolution of tax contingencies and other tax matters in the U.S. and certain foreign jurisdictions in the nine-month period ended September 30, 2009 and higher taxable income for taxable subsidiaries in certain foreign jurisdictions in the nine-month period ended September 30, 2010, as compared to the nine-month period ended September 30, 2009.
 
The Company has previously disclosed the details of its deferred tax assets, including the amount of its domestic tax loss carryforwards, the expiration dates thereof and the valuation allowance related to its deferred tax assets. (See Note 12, “Income Taxes,” to the Consolidated Financial Statements in the Company’s 2009 Form 10-K for further details regarding the Company’s deferred tax assets.) 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


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RESULTS OF OPERATIONS
(all tabular amounts in millions)
 
position in accordance with the Income Taxes Topic of the FASB Accounting Standards Codification (the “Income Taxes Topic”). The ultimate realization of deferred tax assets is 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. At December 31, 2009, the Company’s net U.S. deferred tax assets were approximately $300 million, which were fully reserved at such date.
 
In accordance with the Income Taxes Topic, based upon the level of historical taxable losses for the U.S., the Company has maintained a deferred tax valuation allowance against its deferred tax assets in the U.S. through September 30, 2010. For 2008 and 2009, however, the Company has experienced continued improved earnings trends and has had cumulative taxable income in the U.S. The nine-month period ended September 30, 2010 has continued with positive earnings. If such earnings trends and our tax position continue, and based upon current expectations for future taxable income in the U.S., the Company is likely to realize the benefits of all or a significant portion of its net U.S. deferred tax assets in the near term, perhaps as early as the fourth quarter of 2010. The Company would realize this non-cash benefit through a reduction in its deferred tax valuation allowance, which would be primarily reflected in the tax provision and would benefit net income in the period of such reduction. If such a reduction were to occur, the Company expects that, beginning with the first quarter after such reduction, the tax provision would reflect a higher effective tax rate. However, any such increase in the effective tax rate would not affect the Company’s cash taxes paid until the domestic tax loss carryforwards were fully utilized.
 
Financial Condition, Liquidity and Capital Resources
 
At September 30, 2010, the Company had a liquidity position (excluding cash in compensating balance accounts) of $140.2 million, consisting of cash and cash equivalents (net of any outstanding checks) of $32.1 million, as well as $108.1 million in available borrowings under the 2010 Revolving Credit Facility.
 
Cash Flows
 
At September 30, 2010, the Company had cash and cash equivalents of $40.5 million, compared with $62.5 million at September 30, 2009. The following table summarizes the Company’s cash flows from operating, investing and financing activities for the nine-month periods ended September 30, 2010 and September 30, 2009, respectively:
 
                 
    Nine Months Ended
    September 30,
    2010   2009
 
Net cash provided by operating activities
  $ 49.5     $ 73.0  
Net cash used in investing activities
    11.8       8.6  
Net cash used in financing activities
    52.9       57.0  
 
Operating Activities
 
Net cash provided by operating activities in the nine-month period ended September 30, 2010 was $49.5 million, as compared to $73.0 million in the nine-month period ended September 30, 2009. As compared to the nine-month period ended September 30, 2009, cash flow in the nine-month period ended September 30, 2010 was impacted by unfavorable changes in working capital, primarily inventory, partially offset by higher operating income during the 2010 period.


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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(all tabular amounts in millions)
 
Investing Activities
 
Net cash used in investing activities was $11.8 million and $8.6 million for the nine-month periods ended September 30, 2010 and 2009, respectively. Net cash used in investing activities for the nine-month period ended September 30, 2010 included $12.0 million of cash used for capital expenditures. Net cash used in investing activities for the nine-month period ended September 30, 2009 included $10.9 million of cash used for capital expenditures, partially offset by cash provided by investing activities of $2.3 million from the net proceeds from the sale of certain assets.
 
Financing Activities
 
Net cash used in financing activities was $52.9 million and $57.0 million for the nine-month periods ended September 30, 2010 and 2009, respectively. Net cash used in financing activities for the nine-month period ended September 30, 2010 included cash used for repayment of the $815.0 million remaining aggregate principal amount of Products Corporation’s 2006 Term Loan Facility, partially offset by cash provided by Products Corporation’s issuance of the $800.0 million aggregate principal amount of the 2010 Term Loan Facility, or $786.0 million, net of discounts. In addition, the Company made an aggregate $4.0 million of scheduled amortization payments on the 2010 Term Loan Facility in the nine-month period ended September 30, 2010. Net cash used in financing activities for the nine-month period ended September 30, 2010 also included payment of financing costs of $17.0 million, which is comprised of (i) the payment of $15.3 million of fees incurred in connection with the 2010 Refinancing and (ii) the payment of $1.7 million of the $25.1 million of fees incurred in connection with the refinancing of Product Corporation’s 91/2% Senior Notes in November 2009 with the 93/4% Senior Secured Notes due November 2015.
 
Net cash used in financing activities for the nine-month period ended September 30, 2009 includes debt reduction payments of $49.9 million, which is primarily comprised of the repurchases of $39.5 million in aggregate principal amount of Products Corporation’s 91/2% Senior Notes (prior to their complete refinancing in November 2009 with the 93/4% Senior Secured Notes) at an aggregate purchase price of $31.0 million, plus an additional $1.7 million of accrued and unpaid interest and fees through the respective dates of the repurchases, and the repayment of $18.7 million in principal amount of Products Corporation’s 2006 Term Loan Facility (prior to its complete refinancing in March 2010 with the 2010 Term Loan Facility).
 
Long-Term Debt Instruments
 
For further detail regarding Products Corporation’s long-term debt instruments, see Note 9, “Long-Term Debt,” to the Consolidated Financial Statements in the Company’s 2009 Form 10-K.
 
2010 Bank Credit Agreements
 
In March 2010, Products Corporation consummated the 2010 Refinancing, which included refinancing its 2006 Term Loan Facility with the 2010 Term Loan Facility and Products Corporation’s 2006 Revolving Credit Facility with the 2010 Revolving Credit Facility.
 
2010 Revolving Credit Facility
 
Availability under the 2010 Revolving Credit Facility varies based on a borrowing base that is determined by the value of eligible accounts receivable and eligible inventory in the U.S. and the U.K. and eligible real property and equipment in the U.S. from time to time.
 
In each case subject to borrowing base availability, the 2010 Revolving Credit Facility is available to:
 
(i) Products Corporation in revolving credit loans denominated in U.S. dollars;


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RESULTS OF OPERATIONS
(all tabular amounts in millions)
 
(ii) Products Corporation in swing line loans denominated in U.S. dollars up to $30.0 million;
 
(iii) Products Corporation in standby and commercial letters of credit denominated in U.S. dollars and other currencies up to $60.0 million; and
 
(iv) Products Corporation and certain of its international subsidiaries designated from time to time in revolving credit loans and bankers’ acceptances denominated in U.S. dollars and other currencies.
 
If the value of the eligible assets is not sufficient to support the $140.0 million borrowing base under the 2010 Revolving Credit Facility, Products Corporation will not have full access to the 2010 Revolving Credit Facility. Products Corporation’s ability to make borrowings under the 2010 Revolving Credit Facility is also conditioned upon the satisfaction of certain conditions precedent and Products Corporation’s compliance with other covenants in the 2010 Revolving Credit Agreement.
 
Borrowings under the 2010 Revolving Credit Facility bear interest at a rate equal to, at Products Corporation’s option, either (i) the Eurodollar Rate plus 3.00% per annum or (ii) the Alternate Base Rate plus 2.00% per annum.
 
Prior to the termination date of the 2010 Revolving Credit Facility, revolving loans are required to be prepaid (without any permanent reduction in commitment) with:
 
(i) the net cash proceeds from sales of Revolving Credit First Lien Collateral (as defined below) by Products Corporation or any of its subsidiary guarantors (other than dispositions in the ordinary course of business and certain other exceptions); and
 
(ii) the net proceeds from the issuance by Products Corporation or any of its subsidiaries of certain additional debt, to the extent there remains any such proceeds after satisfying Products Corporation’s repayment obligations under the 2010 Term Loan Facility.
 
Products Corporation pays to the lenders under the 2010 Revolving Credit Facility a commitment fee of 0.75% of the average daily unused portion of the 2010 Revolving Credit Facility, which fee is payable quarterly in arrears. Under the 2010 Revolving Credit Facility, Products Corporation also pays:
 
(i) to foreign lenders a fronting fee of 0.25% per annum on the aggregate principal amount of specified Local Loans (as defined in the 2010 Revolving Credit Agreement) (which fee is retained by foreign lenders out of the portion of the Applicable Margin payable to such foreign lender);
 
(ii) to foreign lenders an administrative fee of 0.25% per annum on the aggregate principal amount of specified Local Loans;
 
(iii) to the multi-currency lenders a letter of credit commission equal to the product of (a) the Applicable Margin (as defined in the 2010 Revolving Credit Agreement) for revolving credit loans that are Eurodollar Rate (as defined in the 2010 Revolving Credit Agreement) loans (adjusted for the term that the letter of credit is outstanding) and (b) the aggregate undrawn face amount of letters of credit; and
 
(iv) to the issuing lender, a letter of credit fronting fee of 0.25% per annum of the aggregate undrawn face amount of letters of credit, which fee is a portion of the Applicable Margin.
 
Under certain circumstances, Products Corporation will have the right to request that the 2010 Revolving Credit Facility be increased by up to $60.0 million, provided that the lenders are not committed to provide any such increase.
 
Under certain circumstances if and when the difference between (i) the borrowing base under the 2010 Revolving Credit Facility and (ii) the amounts outstanding under the 2010 Revolving Credit Facility is less


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RESULTS OF OPERATIONS
(all tabular amounts in millions)
 
than $20.0 million for a period of two consecutive days or more, and until such difference is equal to or greater than $20.0 million for a period of 30 consecutive business days, the 2010 Revolving Credit Facility requires Products Corporation to maintain a consolidated fixed charge coverage ratio (the ratio of EBITDA minus Capital Expenditures to Cash Interest Expense for such period, as each such term is defined in the 2010 Revolving Credit Facility) of 1.0 to 1.0.
 
The 2010 Revolving Credit Facility matures on March 11, 2014.
 
2010 Term Loan Facility
 
Under the 2010 Term Loan Facility, Eurodollar Loans (as defined in the 2010 Term Loan Agreement) bear interest at the Eurodollar Rate (as defined in the 2010 Term Loan Agreement) plus 4.00% per annum (provided that in no event shall the Eurodollar Rate be less than 2.00% per annum) and Alternate Base Rate (as defined in the 2010 Term Loan Agreement) loans bear interest at the Alternate Base Rate plus 3.00% per annum (provided that in no event shall the Alternate Base Rate be less than 3.00% per annum).
 
Prior to the termination date of the 2010 Term Loan Facility, on June 30, September 30, December 31 and March 31 of each year (commencing June 30, 2010), Products Corporation is required to repay $2.0 million of the principal amount of the term loans outstanding under the 2010 Term Loan Facility on each respective date. In addition, the term loans under the 2010 Term Loan Facility are required to be prepaid with:
 
(i) the net cash proceeds in excess of $10.0 million for each 12-month period ending on March 31 received during such period from sales of Term Loan First Lien Collateral (as defined below) by Products Corporation or any of its subsidiary guarantors (subject to a reinvestment right for 365 days and carryover of unused annual basket amounts up to a maximum of $25.0 million and subject to certain specified dispositions of up to an additional $25.0 million in the aggregate);
 
(ii) the net proceeds from the issuance by Products Corporation or any of its subsidiaries of certain additional debt; and
 
(iii) 50% of Products Corporation’s “excess cash flow” (as defined under the 2010 Term Loan Agreement), commencing with excess cash flow for the 2011 fiscal year payable in the first quarter of 2012.
 
Any such prepayments are applied to reduce Products Corporation’s future regularly scheduled term loan amortization payments, to be applied in the direct order of maturity to the remaining installments thereof or as otherwise directed by Products Corporation.
 
The 2010 Term Loan Facility contains a financial covenant limiting Products Corporation’s first lien senior secured leverage ratio (the ratio of Products Corporation’s Senior Secured Debt that has a lien on the collateral which secures the 2010 Term Loan Facility that is not junior or subordinated to the liens securing the 2010 Term Loan Facility (excluding debt outstanding under the 2010 Revolving Credit Facility) to EBITDA, as each such term is defined in the 2010 Term Loan Facility), to 4.0 to 1.0 for each period of four consecutive fiscal quarters ending during the period from March 31, 2010 to the March 2015 maturity date of the 2010 Term Loan Facility.
 
Under certain circumstances, Products Corporation will have the right to request the 2010 Term Loan Facility to be increased by up to $300.0 million, provided that the lenders are not committed to provide any such increase.
 
The 2010 Term Loan Facility matures on March 11, 2015.


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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(all tabular amounts in millions)
 
Provisions Applicable to the 2010 Revolving Credit Facility and the 2010 Term Loan Facility
 
The 2010 Credit Facilities are supported by, among other things, guarantees from Revlon, Inc. and, subject to certain limited exceptions, Products Corporation’s domestic subsidiaries. The obligations of Products Corporation under the 2010 Credit Facilities and the obligations under such guarantees are secured by, subject to certain limited exceptions, substantially all of the assets of Products Corporation and the guarantors. (See Note 9, “Long-Term Debt,” to the Consolidated Financial Statements).
 
Each of the 2010 Credit Facilities contains various restrictive covenants prohibiting Products Corporation and its subsidiaries from:
 
(i) incurring additional indebtedness or guarantees, with certain exceptions;
 
(ii) making dividend and other payments or loans to Revlon, Inc. or other affiliates, with certain exceptions, including among others:
 
(a) exceptions permitting Products Corporation to pay dividends or make other payments to Revlon, Inc. to enable it to, among other things, pay expenses incidental to being a public holding company, including, among other things, professional fees such as legal, accounting and insurance fees, regulatory fees, such as SEC filing fees and NYSE listing fees, and other expenses related to being a public holding company;
 
(b) subject to certain circumstances, to finance the purchase by Revlon, Inc. of its Class A Common Stock in connection with the delivery of such Class A Common Stock to grantees under the Third Amended and Restated Revlon, Inc. Stock Plan and/or the payment of withholding taxes in connection with the vesting of restricted stock awards under such plan;
 
(c) subject to certain limitations, to pay dividends or make other payments to finance the purchase, redemption or other retirement for value by Revlon, Inc. of stock or other equity interests or equivalents in Revlon, Inc. held by any current or former director, employee or consultant in his or her capacity as such; and
 
(d) subject to certain limitations, to make other restricted payments to affiliates of Products Corporation in amounts up to $5.0 million per year ($10.0 million in 2010), other restricted payments in an aggregate amount not to exceed $20.0 million and other restricted payments based upon certain financial tests;
 
(iii) creating liens or other encumbrances on Products Corporation’s or its subsidiaries’ assets or revenues, granting negative pledges or selling or transferring any of Products Corporation’s or its subsidiaries’ assets, all subject to certain limited exceptions;
 
(iv) with certain exceptions, engaging in merger or acquisition transactions;
 
(v) prepaying indebtedness and modifying the terms of certain indebtedness and specified material contractual obligations, subject to certain exceptions;
 
(vi) making investments, subject to certain exceptions; and
 
(vii) entering into transactions with affiliates of Products Corporation involving aggregate payments or consideration in excess of $10.0 million other than upon terms that are not materially less favorable when taken as a whole to Products Corporation or its subsidiaries as terms that would be obtainable at the time for a comparable transaction or series of similar transactions in arm’s length dealings with an unrelated third person and where such payments or consideration exceed


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RESULTS OF OPERATIONS
(all tabular amounts in millions)
 
$20.0 million, unless such transaction has been approved by all of the independent directors of Products Corporation, subject to certain exceptions.
 
The events of default under each of the 2010 Credit Facilities include customary events of default for such types of agreements, including, among others:
 
(i) nonpayment of any principal, interest or other fees when due, subject in the case of interest and fees to a grace period;
 
(ii) non-compliance with the covenants in such 2010 Credit Facilities or the ancillary security documents, subject in certain instances to grace periods;
 
(iii) the institution of any bankruptcy, insolvency or similar proceedings by or against Products Corporation, any of Products Corporation’s subsidiaries or Revlon, Inc., subject in certain instances to grace periods;
 
(iv) default by Revlon, Inc. or any of its subsidiaries (A) in the payment of certain indebtedness when due (whether at maturity or by acceleration) in excess of $25.0 million in aggregate principal amount or (B) in the observance or performance of any other agreement or condition relating to such debt, provided that the amount of debt involved is in excess of $25.0 million in aggregate principal amount, or the occurrence of any other event, the effect of which default referred to in this subclause (iv) is to cause or permit the holders of such debt to cause the acceleration of payment of such debt;
 
(v) in the case of the 2010 Term Loan Facility, a cross default under the 2010 Revolving Credit Facility, and in the case of the 2010 Revolving Credit Facility, a cross default under the 2010 Term Loan Facility;
 
(vi) the failure by Products Corporation, certain of Products Corporation’s subsidiaries or Revlon, Inc. to pay certain material judgments;
 
(vii) a change of control such that (A) Revlon, Inc. shall cease to be the beneficial and record owner of 100% of Products Corporation’s capital stock, (B) Ronald O. Perelman (or his estate, heirs, executors, administrator or other personal representative) and his or their controlled affiliates shall cease to “control” Products Corporation, and any other person or group of persons owns, directly or indirectly, more than 35% of the total voting power of Products Corporation, (C) any person or group of persons other than Ronald O. Perelman (or his estate, heirs, executors, administrator or other personal representative) and his or their controlled affiliates shall “control” Products Corporation or (D) during any period of two consecutive years, the directors serving on Products Corporation’s Board of Directors at the beginning of such period (or other directors nominated by at least a majority of such continuing directors) shall cease to be a majority of the directors;
 
(viii) Revlon, Inc. shall have any meaningful assets or indebtedness or shall conduct any meaningful business other than its ownership of Products Corporation and such activities as are customary for a publicly traded holding company which is not itself an operating company, in each case subject to limited exceptions; and
 
(ix) the failure of certain of Products Corporation’s affiliates which hold Products Corporation’s or its subsidiaries’ indebtedness to be party to a valid and enforceable agreement prohibiting such affiliate from demanding or retaining payments in respect of such indebtedness, subject to certain exceptions, including exceptions as to Products Corporation’s Senior Subordinated Term Loan.


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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(all tabular amounts in millions)
 
If Products Corporation is in default under the senior secured leverage ratio under the 2010 Term Loan Facility or the consolidated fixed charge coverage ratio under the 2010 Revolving Credit Facility, Products Corporation may cure such default by issuing certain equity securities to, or receiving capital contributions from, Revlon, Inc. and applying such cash which is deemed to increase EBITDA for the purpose of calculating the applicable ratio. This cure right may be exercised by Products Corporation two times in any four-quarter period.
 
Products Corporation was in compliance with all applicable covenants under the 2010 Credit Agreements upon closing the 2010 Refinancing and as of September 30, 2010. At September 30, 2010, the aggregate principal amount outstanding under the 2010 Term Loan Facility was $796.0 million and availability under the $140.0 million 2010 Revolving Credit Facility, based upon the calculated borrowing base less $21.2 million of outstanding undrawn letters of credit and nil then drawn on the 2010 Revolving Credit Facility, was $108.1 million.
 
93/4% Senior Secured Notes due 2015
 
For detail regarding the 93/4% Senior Secured Notes, due November 2015, see Note 9, “Long-Term Debt,” to the Consolidated Financial Statements in the Company’s 2009 Form 10-K.
 
Products Corporation was in compliance with all applicable covenants under its 93/4% Senior Secured Notes as of September 30, 2010.
 
Senior Subordinated Term Loan
 
For detail regarding Products Corporation’s Senior Subordinated Term Loan from MacAndrews & Forbes (the “Senior Subordinated Term Loan”), consisting of (i) the $48.6 million of the $107.0 million aggregate outstanding principal amount of the Senior Subordinated Term Loan that was contributed to Revlon, Inc. by MacAndrews & Forbes (the “Contributed Loan”), which matures on October 8, 2013, and (ii) the $58.4 million principal amount of the Senior Subordinated Term Loan which remains owing from Products Corporation to MacAndrews & Forbes (the “Non-Contributed Loan”), which matures on October 8, 2014, see Note 9, “Long-Term Debt,” to the Consolidated Financial Statements in the Company’s 2009 Form 10-K.
 
Interest Rate Swap Transaction
 
Prior to its expiration in April 2010, the Company’s floating-to-fixed interest rate swap had a notional amount of $150.0 million initially relating to indebtedness under Products Corporation’s former 2006 Term Loan Facility (prior to its complete refinancing in March 2010) and which also related, through its expiration in April 2010, to a notional amount of $150.0 million relating to indebtedness under Products Corporation’s 2010 Term Loan Facility (the “2008 Interest Rate Swap”). Under the terms of the 2008 Interest Rate Swap, Products Corporation was required to pay to the counterparty a quarterly fixed interest rate of 2.66% on the $150.0 million notional amount under the 2008 Interest Rate Swap (which, based upon the 4.0% applicable margin, effectively fixed the interest rate on such notional amounts at 6.66% for the 2-year term of such swap), commencing in July 2008, while receiving a variable interest rate payment from the counterparty equal to three-month U.S. dollar LIBOR.
 
The 2008 Interest Rate Swap was initially designated as a cash flow hedge of the variable interest rate payments on Products Corporation’s former 2006 Term Loan Facility (prior to its complete refinancing in March 2010) under the Derivatives and Hedging Topic of the FASB Accounting Standards Codification (the “Derivatives and Hedging Topic”). However, as a result of the 2010 Refinancing, effective March 11, 2010 (the closing date of the 2010 Refinancing), the 2008 Interest Rate Swap no longer met the criteria


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RESULTS OF OPERATIONS
(all tabular amounts in millions)
 
specified under the Derivatives and Hedging Topic to allow for the deferral of the effective portion of unrecognized hedging gains or losses in other comprehensive income since the scheduled variable interest payment specified on the date originally documented at the inception of the hedge will not occur. As a result, as of March 11, 2010, the Company reclassified an unrecognized loss of $0.8 million from Accumulated Other Comprehensive Loss into earnings.
 
Impact of Foreign Currency Translation — Venezuela
 
Highly-Inflationary Economy:  Effective January 1, 2010, Venezuela has been designated as a highly inflationary economy under U.S. GAAP. As a result, beginning January 1, 2010, the U.S. dollar is the functional currency for the Company’s subsidiary in Venezuela. Through December 31, 2009, prior to Venezuela being designated as highly inflationary, currency translation adjustments of Revlon Venezuela’s balance sheet were reflected in shareholders’ equity as part of Other Comprehensive Income; however, subsequent to January 1, 2010, such adjustments are reflected in earnings.
 
Currency Devaluation:  On January 8, 2010, the Venezuelan government announced the devaluation of its local currency (“Bolivars”) relative to the U.S. dollar and the official exchange rate for non-essential goods changed from 2.15 to 4.30. The Company uses Venezuela’s official rate to translate the financial statements of Revlon Venezuela. In the third quarter of 2010, the devaluation had the impact of reducing reported net sales and operating income by $8.8 million and $1.3 million, respectively. In the nine-month period ended September 30, 2010, the devaluation had the impact of reducing reported net sales and operating income by $22.0 million and $5.2 million, respectively. Additionally, to reflect the impact of the currency devaluation, a one-time foreign currency loss of $2.8 million was recorded in January 2010 as a result of the required re-measurement of Revlon Venezuela’s balance sheet. As Venezuela has been designated as a highly inflationary economy effective January 1, 2010, this foreign currency loss was reflected in earnings in the first quarter of 2010.
 
During the three and nine months ended September 30, 2010, the Company’s subsidiary in Venezuela had net sales of approximately 3% and 2%, respectively, of the Company’s consolidated net sales. As of September 30, 2010, total assets in the Company’s subsidiary in Venezuela were approximately 3% of the Company’s total assets.
 
Sources and Uses
 
The Company’s principal sources of funds are expected to be operating revenues, cash on hand and funds available for borrowing under the 2010 Revolving Credit Facility and other permitted lines of credit. The 2010 Credit Agreements, the indenture governing Products Corporation’s 93/4% Senior Secured Notes and the Senior Subordinated Term Loan Agreement contain certain provisions that by their terms limit Products Corporation and its subsidiaries’ ability to, among other things, incur additional debt.
 
The Company’s principal uses of funds are expected to be the payment of operating expenses, including expenses in connection with the continued execution of the Company’s business strategy, purchases of permanent wall displays, capital expenditure requirements, payments in connection with the Company’s restructuring programs, severance not otherwise included in the Company’s restructuring programs, debt service payments and costs, debt repurchases and regularly scheduled pension and post-retirement benefit plan contributions and benefit payments. The Company’s cash contributions to its pension and post-retirement benefit plans in the nine-month period ended September 30, 2010 were $20.1 million. In accordance with the minimum pension contributions required under the Employee Retirement Income Security Act of 1974, as amended by the Pension Protection Act of 2006 and as amended by the Worker, Retiree and Employer Recovery Act of 2008, the Company expects cash


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RESULTS OF OPERATIONS
(all tabular amounts in millions)
 
contributions to its pension and post-retirement benefit plans to be approximately $25 million in the aggregate for full year 2010. The Company’s purchases of permanent wall displays and capital expenditures in the nine-month period ended September 30, 2010 were $25.8 million and $12.0 million, respectively. The Company expects purchases of permanent wall displays and capital expenditures in the aggregate for full year 2010 to be approximately $40 million and $20 million, respectively, inclusive of amounts expended in the nine-month period ended September 30, 2010. (See “Restructuring Costs and Other, Net” above for discussion of the Company’s expected uses of funds in connection with its various restructuring programs.)
 
The Company has undertaken, and continues to assess, refine and implement, a number of programs to efficiently manage its cash and working capital, including, among other things, programs intended to reduce inventory levels over time; centralized purchasing to secure discounts and efficiencies in procurement; providing discounts to U.S. customers for more timely payment of receivables; prudent management of accounts payable; and targeted controls on general and administrative spending.
 
Continuing to execute the Company’s business strategy 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, further refining the Company’s approach to retail merchandising and/or taking further actions to optimize its manufacturing, sourcing and organizational size and structure. Any of these actions, whose intended purpose would be to create value through profitable growth, could result in the Company making investments and/or recognizing charges related to executing against such opportunities.
 
The Company may also, from time to time, seek to retire or purchase its outstanding debt obligations in open market purchases, in privately negotiated transactions or otherwise and may seek to refinance some or all of its indebtedness based upon market conditions. Any retirement, purchase of debt or other refinancing 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.
 
The Company expects that operating revenues, cash on hand and funds available for borrowing under the 2010 Revolving Credit Facility and other permitted lines of credit will be sufficient to enable the Company to cover its operating expenses for 2010, including cash requirements in connection with the payment of operating expenses, including expenses in connection with the execution of the Company’s business strategy, purchases of permanent wall displays, capital expenditure requirements, payments in connection with the Company’s restructuring programs (including, without limitation, the 2008 Programs and the 2009 Programs), severance not otherwise included in the Company’s restructuring programs, debt service payments and costs, debt repurchases and regularly scheduled pension and post-retirement plan contributions and benefit payments.
 
There can be no assurance that available funds will be sufficient to meet the Company’s cash requirements on a consolidated basis. 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 cosmetics category in the mass retail channel; adverse changes in currency exchange rates; decreased sales of the Company’s products as a result of increased competitive activities by the Company’s competitors; changes in consumer purchasing habits, including with respect to shopping channels; retailer inventory management, retailer space reconfigurations or reductions in retailer display space; changes in retailer pricing or promotional strategies; or less than anticipated results from the Company’s existing or new products or from its advertising, promotional and/or marketing plans; or if the Company’s expenses, including, without limitation, for pension expense under its benefit plans, advertising, promotional and marketing activities or for sales returns related to any reduction of retail space, product discontinuances or


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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(all tabular amounts in millions)
 
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 development, if significant, could reduce the Company’s revenues and could adversely affect Products Corporation’s ability to comply with certain financial covenants under the 2010 Credit Agreements and in such event the Company could be required to take measures, including, among other things, reducing discretionary spending. (See also Item 1A. “Risk Factors” in the Company’s 2009 Form 10-K for further discussion of certain risks associated with the Company’s business and indebtedness.)
 
If the Company is unable to satisfy its cash requirements from the sources identified above or comply with its debt covenants, the Company could be required to adopt one or more of the following alternatives:
 
  •   delaying the implementation of or revising certain aspects of the Company’s business strategy;
 
  •   reducing or delaying purchases of wall displays or advertising, promotional or marketing expenses;
 
  •   reducing or delaying capital spending;
 
  •   delaying, reducing or revising the Company’s restructuring programs;
 
  •   refinancing Products Corporation’s indebtedness;
 
  •   selling assets or operations;
 
  •   seeking additional capital contributions and/or loans from MacAndrews & Forbes, Revlon, Inc., the Company’s other affiliates and/or third parties;
 
  •   selling additional debt securities of Products Corporation; or
 
  •   reducing other discretionary spending.
 
There can be no assurance that the Company would be able to take any of the actions referred to above because of a variety of commercial or market factors or constraints in Products Corporation’s debt instruments, including, without limitation, market conditions being unfavorable for an equity or debt issuance, additional capital contributions and/or loans not being available from affiliates and/or third parties, or that the transactions may not be permitted under the terms of Products Corporation’s various debt instruments then in effect, such as due to restrictions on the incurrence of debt, incurrence of liens, asset dispositions and related party transactions. In addition, such actions, if taken, may not enable the Company to satisfy its cash requirements or enable Products Corporation to comply with its debt covenants if the actions do not generate a sufficient amount of additional capital. (See also Item 1A. “Risk Factors” in the Company’s 2009 Form 10-K for further discussion of certain risks associated with the Company’s business and indebtedness.)
 
Products Corporation enters into foreign currency forward exchange contracts and option 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 foreign currency forward exchange 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 September 30, 2010, the notional amount of FX Contracts outstanding was $42.9 million. The fair value of FX Contracts outstanding at September 30, 2010 was $(1.1) million.


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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(all tabular amounts in millions)
 
Disclosures about Contractual Obligations and Commercial Commitments
 
As of September 30, 2010, there had been no material changes to the Company’s total contractual cash obligations, as set forth in the contractual obligations and commercial commitments table included in the Company’s 2009 Form 10-K, other than those entered into in connection with consummating the 2010 Refinancing.
 
The following table reflects the impact of the 2010 Refinancing on the Company’s long-term debt obligations:
 
                                           
      Payments Due by Period
 
      (dollars in millions)  
Contractual Obligations
          2010
                   
As of September 30, 2010     Total     Q4     2011-2012     2013-2014     After 2014  
Long-term debt, including current portion
    $ 1,126.0     $ 2.0     $ 16.0     $ 16.0     $ 1,092.0  
Interest on long-term debt(a)
      387.1       16.4       171.9       157.8       41.0  
                                           
 
(a) Consists of interest on the $330.0 million in aggregate principal amount of the 93/4% Senior Secured Notes and on the $796.0 million in aggregate principal amount outstanding under the 2010 Term Loan Facility through the respective maturity dates based upon assumptions regarding the amount of debt outstanding under the 2010 Credit Facilities and assumed interest rates.
 
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
 
For a discussion of the Company’s critical accounting policies, see the Company’s 2009 Form 10-K.
 
Effect of Recent Accounting Pronouncements
 
During the third quarter of 2010, there were no recent accounting pronouncements applicable to the Company.


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Item 3.   Quantitative and Qualitative Disclosures about Market Risk
 
The Company has exposure to market risk both as a result of changing interest rates and movements in foreign currency exchange rates. The Company’s policy is to manage market risk through a combination of fixed and floating rate debt, the use of foreign exchange forward contracts, interest rate hedging transactions and option contracts. The Company does not hold or issue financial instruments for trading purposes. The qualitative and quantitative information presented in Item 7A of the Company’s 2009 Form 10-K (“Item 7A”) describes significant aspects of the Company’s financial instrument programs that have material market risk as of December 31, 2009. The following table presents the information required by Item 7A as of September 30, 2010:
 
                                                                 
    Expected maturity date for the Year Ended December 31,
          Fair Value
 
    (dollars in millions, except for rate information)           September 30,
 
Debt
  2010     2011     2012     2013     2014     Thereafter     Total     2010  
 
Short-term variable rate (various currencies)
  $ 6.5                                             $ 6.5     $ 6.5  
Average interest rate(a)
    5.2 %                                                        
Long-term fixed rate — third party ($US)
                                          $ 330.0       330.0       343.2  
Average interest rate
                                            9.75 %                
Long-term fixed rate — affiliates ($US)
                          $ 48.6(b )   $ 58.4(b )             107.0       104.9  
Average interest rate
                            12.75 %     12.0 %                        
Long-term variable rate — third party ($US)
    2.0     $ 8.0     $ 8.0       8.0       8.0       762.0       796.0       794.0  
Average interest rate(a)
    6.0 %     6.0 %     6.0 %     6.0 %     6.1 %     6.1 %                
                                                                 
Total debt
  $ 8.5     $ 8.0     $ 8.0     $ 56.6     $ 66.4     $ 1,092.0     $ 1,239.5     $ 1,248.6  
                                                                 
 
(a) Weighted average variable rates are based upon implied forward rates from the U.S. Dollar LIBOR yield curves at September 30, 2010.
 
(b) Represents $107.0 million aggregate principal amount outstanding of the Senior Subordinated Term Loan as of September 30, 2010, which Contributed Loan ($48.6 million) matures on October 8, 2013 and bears interest at an annual rate of 12.75% and which Non-Contributed Loan ($58.4 million) matures on October 8, 2014 and bears interest at an annual rate of 12%. Interest on the Senior Subordinated Term Loan is payable in arrears in cash on January 8, April 8, July 8, and October 8 of each year.
 
                                 
    Average
    Original
    Contract
       
    Contractual
    US Dollar
    Value
    Fair Value
 
    Rate
    Notional
    September 30,
    September 30,
 
FX Contracts
  $/FC     Amount     2010     2010  
 
Sell Canadian Dollars/Buy USD
    0.9625     $ 13.4     $ 13.3     $ (0.1 )
Sell Australian Dollars/Buy USD
    0.8711       7.5       6.8       (0.7 )
Sell British Pounds/Buy USD
    1.5370       5.0       4.9       (0.1 )
Sell South African Rand/Buy USD
    0.1328       5.1       4.8       (0.3 )
Sell USD/Buy Japanese Yen
    0.0119       2.7       2.7        
Sell USD/Buy South African Rand
    0.1424       5.7       5.8       0.1  
Buy Australian Dollars/Sell New Zealand Dollars
    1.2874       3.2       3.2        
Sell New Zealand Dollars/Buy USD
    0.6996       0.3       0.3        
                                 
Total FX Contracts
          $ 42.9     $ 41.8     $ (1.1 )
                                 


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Item 4T.   Controls and Procedures
 
(a)  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 Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the three-month period covered by this Quarterly Report on Form 10-Q. Based upon such evaluation, the 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.
 
(b)  Changes in Internal Control Over Financial Reporting.  There have not been any changes in the Company’s internal control over financial reporting during the third quarter of 2010 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
 
Forward-Looking Statements
 
This Quarterly Report on Form 10-Q for the third quarter and nine months ended September 30, 2010, as well as other public documents and statements of the Company, contain forward-looking statements that involve risks and uncertainties, which 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’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 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 and estimates (whether qualitative or quantitative) as to:
 
  (i)  the Company’s future financial performance;
 
  (ii)  the effect on sales of decreased consumer spending in response to weak economic conditions or weakness in the cosmetics category in the mass retail channel; adverse changes in currency exchange rates; decreased sales of the Company’s products as a result of increased competitive activities by the Company’s competitors, changes in consumer purchasing habits, including with respect to shopping channels; retailer inventory management, retailer space reconfigurations or reductions in retailer display space; changes in retailer pricing or promotional strategies; less than anticipated results from the Company’s existing or new products or from its advertising, promotional and/or marketing plans; or if the Company’s expenses, including, without limitation, for pension expense under its benefit plans, advertising, promotional and marketing activities or for sales returns related to any reduction of retail space, product discontinuances or otherwise, exceed the anticipated level of expenses;
 
  (iii)  the Company’s belief that the continued execution of its business strategy 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, 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, whose intended purpose would be to create value through profitable growth, could result in the Company making investments and/or recognizing charges related to executing against such opportunities;


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  (iv)  our expectations regarding our strategic goal to profitably grow our business and as to the business strategies employed to achieve this goal, which are: (a) continuing to build our strong brands by focusing on innovative, high-quality, consumer-preferred brand offering; effective consumer brand communication; appropriate levels of advertising and promotion; and superb execution with our retail partners; (b) continuing to develop our organizational capability through attracting, retaining and rewarding highly capable people and through performance management, development planning, succession planning and training; (c) continuing to drive common global processes which are designed to provide the most efficient allocation of our resources; (d) continuing to focus on increasing our operating profit and cash flow; and (e) continuing to improve our capital structure by focusing on strengthening our balance sheet and reducing debt;
 
  (v)  restructuring activities, restructuring costs and charges, the timing of restructuring payments and the benefits from such activities, including, without limitation, our expectation of annualized savings of approximately $30 million in 2010 and thereafter (inclusive of the approximately $15 million in 2009) from the May 2009 Program;
 
  (vi)  the Company’s expectation that operating revenues, cash on hand and funds available for borrowing under Products Corporation’s 2010 Revolving Credit Facility and other permitted lines of credit will be sufficient to enable the Company to cover its operating expenses for 2010, including the cash requirements referred to in item (viii) below;
 
  (vii)  the Company’s expected principal sources of funds, including operating revenues, cash on hand and funds available for borrowing under Products Corporation’s 2010 Revolving Credit Facility and other permitted lines of credit, as well as the availability of funds from refinancing Products Corporation’s indebtedness, selling assets or operations, capital contributions and/or loans from MacAndrews & Forbes, Revlon, Inc., the Company’s other affiliates and/or third parties and/or the sale of additional debt securities of Products Corporation;
 
  (viii)  the Company’s expected principal uses of funds, including amounts required for the payment of operating expenses, including expenses in connection with the continued execution of the Company’s business strategy, payments in connection with the Company’s purchases of permanent wall displays, capital expenditure requirements, restructuring programs, severance not otherwise included in the Company’s restructuring programs, debt service payments and costs, debt repurchases (including, without limitation, that the Company may also, from time to time, seek to retire or purchase its outstanding debt obligations in open market purchases, in privately negotiated transactions or otherwise and may seek to refinance some or all of its indebtedness based upon market conditions) and regularly scheduled pension and post-retirement benefit plan contributions and benefit payments, and its estimates of the amount and timing of its operating expenses, restructuring costs and payments, severance costs and payments, debt service payments (including payments required under Products Corporation’s debt instruments), debt repurchases, cash contributions to the Company’s pension plans and its other post-retirement benefit plans and benefit payments in 2010, purchases of permanent wall displays and capital expenditures;
 
  (ix)  matters concerning the Company’s market-risk sensitive instruments, including the Company’s expectations as to the counterparty’s performance, including that any loss arising from the non-performance by the counterparty would not be material;
 
  (x)  the Company’s plan to efficiently manage its cash and working capital, including, among other things, programs to reduce inventory levels over time; centralized purchasing to secure discounts and efficiencies in procurement; providing discounts to U.S. customers for more timely payment of receivables; prudent management of accounts payable; and targeted controls on general and administrative spending;


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  (xi)  the Company’s expectations regarding its future pension expense, cash contributions and benefit payments under its benefit plans;
 
  (xii)  the Company’s expectations that interest expense throughout the remainder of 2010 will be impacted by higher weighted average borrowing rates primarily as a result of the 2010 Refinancing; and
 
  (xiii)  the Company’s expectation that if the positive earnings trends reflected in 2008, 2009 and the nine-month period ended September 30, 2010 and our tax position continue, and based upon current expectations for future taxable income in the U.S., the Company is likely to realize the benefits of all or a significant portion of its net U.S. deferred tax assets in the near term, perhaps as early as the fourth quarter of 2010, which non-cash benefit would be realized by the Company through a reduction in its deferred tax valuation allowance, which would be primarily reflected in the tax provision and would benefit net income in the period of such reduction, and the Company’s expectation that if such reduction were to occur that, beginning with the first quarter after such reduction, its tax provision would reflect a higher effective tax rate, which increase the Company believes would not affect its cash taxes paid until the domestic tax loss carryforwards were fully utilized.
 
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 2009 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 2010 (which, among other places, can be found on the SEC’s website at http://www.sec.gov). Except as expressly set forth in this Form 10-Q, the information available from time to time on such website shall not be deemed incorporated by reference into this Quarterly Report on Form 10-Q. 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 the Company’s 2009 Form 10-K for further discussion of risks associated with the Company’s business and indebtedness.) 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:
 
  (i)  unanticipated circumstances or results affecting the Company’s financial performance, including decreased consumer spending in response to weak economic conditions or weakness in the cosmetics category in the mass retail channel; 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 shopping channels; lower than expected retail customer acceptance or consumer acceptance of, or less than anticipated results from, the Company’s existing or new products; higher than expected pension expense and/or cash contributions under its benefit plans and/or benefit payments, advertising, promotional and/or marketing expenses or lower than expected results from the Company’s advertising, promotional and/or marketing plans; higher than expected sales returns or decreased sales of the Company’s existing or new products; actions by the Company’s


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  customers, such as retailer inventory management and greater than anticipated retailer space reconfigurations or reductions in retail space and/or product discontinuances or a greater than expected impact from retailer pricing or promotional strategies; and changes in the competitive environment and actions by the Company’s competitors, including business combinations, technological breakthroughs, new products offerings, increased advertising, promotional and marketing spending and advertising, promotional and/or marketing successes by competitors, including increases in share in the mass retail channel;
 
  (ii)  in addition to the items discussed in (i) above, the effects of and changes in economic conditions (such as continued volatility in the financial markets, inflation, monetary conditions and foreign currency fluctuations, as well as in trade, monetary, fiscal and tax policies in international markets) and political conditions (such as military actions and terrorist activities);
 
  (iii)  unanticipated costs or difficulties or delays in completing projects associated with the continued execution of the Company’s business strategy or lower than expected revenues or the inability to create value through profitable growth as a result of such strategy, 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 difficulties or delays, or higher than expected expenses, including for sales returns, in launching its new products, acquiring businesses or brands, 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;
 
  (iv)  difficulties, delays or unanticipated costs in achieving our strategic goal to profitably grow our business and as to the business strategies employed to achieve this goal, such as (a) difficulties, delays or our inability to build our strong brands, such as due to less than effective product development, less than expected acceptance of our new or existing products by consumers and/or retail customers, less than expected acceptance of our advertising, promotional and/or marketing plans by our consumers and/or retail customers, less than expected investment in advertising, promotional and/or marketing activities or greater than expected competitive investment, less than expected acceptance of our brand communication by consumers and/or retail partners, less than expected levels of advertising, promotional and/or marketing activities for our new product launches and/or less than expected levels of execution with our retail partners or higher than expected costs and expenses; (b) difficulties, delays or the inability to develop our organizational capability; (c) difficulties, delays or unanticipated costs in connection with our plans to drive our company to act globally, such as due to higher than anticipated levels of investment required to support and build our brands globally or less than anticipated results from our national and multi-national brands; (d) difficulties, delays or unanticipated costs in connection with our plans to improve our operating profit and cash flow, such as difficulties, delays or the inability to take actions intended to improve results in sales returns, cost of goods sold, general and administrative expenses, working capital management and/or sales growth; and/or (e) difficulties, delays or unanticipated costs in consummating, or our inability to consummate, transactions to improve our capital structure, strengthen our balance sheet and/or reduce debt, including higher than expected costs (including interest rates);
 
  (v)  difficulties, delays or unanticipated costs or less than expected savings and other benefits resulting from the Company’s restructuring activities, such as less than anticipated cost reductions or other benefits from the 2009 Programs and/or 2008 Programs and the risk that any of such programs 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 2010 Revolving Credit Facility and/or other permitted lines of credit or higher than anticipated operating expenses, such as referred to in clause (viii) below;
 
  (vii)