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EX-31.2 - EXHIBIT 31.2 - REVLON CONSUMER PRODUCTS CORPrcpc-2014930xex312.htm
EX-32.2 - EXHIBIT 32.2 - REVLON CONSUMER PRODUCTS CORPrcpc-2014930xex322.htm
EX-32.1 - EXHIBIT 32.1 - REVLON CONSUMER PRODUCTS CORPrcpc-2014930xex321.htm


 
 

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, 2014

OR
__
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: 33-59560
REVLON CONSUMER PRODUCTS CORPORATION
(Exact name of registrant as specified in its charter)
    
Delaware
13-3662953
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
 
 
1 New York Plaza, New York, New York
10004
(Address of principal executive offices)
(Zip Code)

Registrant's telephone number, including area code: 212-527-4000

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 ¨ 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 x No ¨

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 definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ¨
 
 Accelerated filer ¨
 
Non-accelerated filer x
 
Smaller reporting company ¨
 
 
 
 
(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 ¨ No x
The number of shares outstanding of the registrant's common stock was 5,260 as of September 30, 2014, all of which were held by one affiliate, Revlon, Inc.






REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
INDEX

PART I - Financial Information
Item 1.
Financial Statements
 
Consolidated Balance Sheets as of September 30, 2014 (Unaudited) and December 31, 2013
 
Unaudited Consolidated Statements of Income and Comprehensive Income for the Three and Nine Months Ended September 30, 2014 and 2013
 
Unaudited Consolidated Statement of Stockholder's Deficiency for the Nine Months Ended September 30, 2014
 
Unaudited Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2014 and 2013
 
     Notes to Unaudited Consolidated Financial Statements
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
Item 4.
Controls and Procedures
 
 
 
PART II - Other Information
Item 1.
Legal Proceedings
Item 1A.
Risk Factors
Item 6.
Exhibits
 
Signatures

1



PART I - FINANCIAL INFORMATION
Item 1. Financial Statements

REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in millions)
 
September 30,
2014
 
December 31, 2013(a)
 
(Unaudited)
 
 
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
178.4

 
$
244.1

Trade receivables, less allowance for doubtful accounts of $6.1 and $4.2 as of September 30, 2014 and December 31, 2013, respectively
256.0

 
253.5

Inventories
187.2

 
175.0

Deferred income taxes – current
61.8

 
65.1

Receivable from Revlon, Inc.
101.8

 
94.7

Prepaid expenses and other
61.5

 
61.4

Total current assets
846.7

 
893.8

Property, plant and equipment, net of accumulated depreciation of $244.5 and $243.1 as of September 30, 2014 and December 31, 2013, respectively
209.1

 
195.9

Deferred income taxes – noncurrent
21.6

 
50.9

Goodwill
466.8

 
472.3

Intangible assets, net of accumulated amortization of $34.6 and $19.0 as of September 30, 2014 and December 31, 2013, respectively
336.1

 
360.1

Other assets
117.1

 
123.8

Total assets
$
1,997.4

 
$
2,096.8

 
 
 
 
LIABILITIES AND STOCKHOLDER'S DEFICIENCY
 
 
 
Current liabilities:
 
 
 
Short-term borrowings
$
7.9

 
$
7.9

Current portion of long-term debt
7.0

 
65.4

Accounts payable
167.7

 
165.7

Accrued expenses and other
261.5

 
313.6

Total current liabilities
444.1

 
552.6

Long-term debt
1,858.3

 
1,862.3

Long-term pension and other post-retirement plan liabilities
96.4

 
118.3

Other long-term liabilities
84.6

 
80.1

Commitments and contingencies


 


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, 2014 and December 31, 2013, respectively
54.6

 
54.6

Common Stock, par value $1.00 per share; 10,000 shares authorized; 5,260 shares issued and outstanding as of September 30, 2014 and December 31, 2013, respectively



Additional paid-in capital
950.2

 
946.5

Accumulated deficit
(1,325.0
)
 
(1,367.8
)
Accumulated other comprehensive loss
(165.8
)
 
(149.8
)
Total stockholder's deficiency
(486.0
)
 
(516.5
)
Total liabilities and stockholder's deficiency
$
1,997.4

 
$
2,096.8


(a) During the nine months ended September 30, 2014, the Company recorded Measurement Period Adjustments (as hereinafter defined) to certain net assets and intangible assets acquired in the Colomer Acquisition (as hereinafter defined) on October 9, 2013. Accordingly, the prior period has been retrospectively adjusted for such Measurement Period Adjustments. Refer to Note 2, "Business Combination" for additional details.

See Accompanying Notes to Unaudited Consolidated Financial Statements

2



REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE (LOSS) INCOME
(dollars in millions)
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2014
 
2013
 
2014
 
2013
 
 
 
 
 
 
 
 
Net sales
$
472.3

 
$
333.1

 
$
1,440.0

 
$
1,003.7

Cost of sales
164.6

 
121.1

 
495.3

 
358.1

   Gross profit
307.7

 
212.0

 
944.7

 
645.6

Selling, general and administrative expenses
249.3

 
163.3

 
754.6

 
476.2

Acquisition and integration costs
0.9

 
5.9

 
5.4

 
6.3

Restructuring charges and other, net
0.8

 
(1.5
)
 
18.1

 
1.8

      Operating income
56.7

 
44.3

 
166.6

 
161.3

Other expenses, net:
 
 
 
 
 
 
 
   Interest expense
20.6

 
17.8

 
63.9

 
55.5

   Amortization of debt issuance costs
1.3

 
0.8

 
4.1

 
2.2

   Loss on early extinguishment of debt

 
0.2

 
2.0

 
28.1

   Foreign currency losses, net
9.3

 
0.4

 
17.9

 
3.2

   Miscellaneous, net
0.1

 
0.6

 
0.2

 
0.8

      Other expenses, net
31.3

 
19.8

 
88.1

 
89.8

Income from continuing operations before income taxes
25.4

 
24.5

 
78.5

 
71.5

Provision for income taxes
9.6

 
13.0

 
36.6

 
32.4

Income from continuing operations, net of taxes
15.8

 
11.5

 
41.9

 
39.1

Income (loss) from discontinued operations, net of taxes
0.4

 
(1.5
)
 
0.9

 
(6.3
)
Net income
$
16.2

 
$
10.0

 
$
42.8

 
$
32.8

Other comprehensive (loss) income:
 
 
 
 


 


   Currency translation adjustment, net of tax (a)   
(18.3
)
 
1.1

 
(17.1
)
 
(3.6
)
   Amortization of pension related costs, net of tax (b)(d)
1.1

 
2.0

 
3.4

 
5.8

Revaluation of derivative financial instruments, net of tax (c)
0.6

 

 
(2.3
)
 

Other comprehensive (loss) income
(16.6
)
 
3.1

 
(16.0
)
 
2.2

Total comprehensive (loss) income
$
(0.4
)
 
$
13.1

 
$
26.8

 
$
35.0


(a) 
Net of tax expense (benefit) of $0.2 million and $0.9 million for the three months ended September 30, 2014 and 2013, respectively, and $(0.4) million and $3.2 million for the nine months ended September 30, 2014 and 2013, respectively.
(b) 
Net of tax benefit of nil and $(0.2) million for the three months ended September 30, 2014 and 2013, respectively, and nil and $(0.9) million for the nine months ended September 30, 2014 and 2013, respectively.
(c) 
Net of tax expense (benefit) of $0.4 million and $(1.4) million for the three and nine months ended September 30, 2014, respectively.
(d) 
This other comprehensive income component is included in the computation of net periodic benefit (income) costs. See Note 5, “Pension and Post-Retirement Benefits,” for additional information regarding net periodic benefit (income) costs.

See Accompanying Notes to Unaudited Consolidated Financial Statements

3



REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF STOCKHOLDER'S DEFICIENCY
(dollars in millions)

 
RCPC Preferred Stock
 
Additional Paid-In-Capital
 
Accumulated Deficit
 
Accumulated Other Comprehensive Loss
 
Total Stockholder's Deficiency
 
 
 
 
 
 
 
 
 
 
Balance, January 1, 2014
$
54.6

 
$
946.5

 
$
(1,367.8
)
 
$
(149.8
)
 
$
(516.5
)
Stock-based compensation amortization


 
3.7

 


 


 
3.7

Net income
 
 
 
 
42.8

 
 
 
42.8

Other comprehensive income, net (a)    
 
 
 
 
 
 
(16.0
)
 
(16.0
)
Balance, September 30, 2014
$
54.6

 
$
950.2

 
$
(1,325.0
)
 
$
(165.8
)
 
$
(486.0
)

(a) 
See Note 11, “Accumulated Other Comprehensive Loss,” regarding the changes in the accumulated balances for each component of other comprehensive income during the nine months ended September 30, 2014.


See Accompanying Notes to Unaudited Consolidated Financial Statements

4



REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in millions)
 
Nine Months Ended September 30,
 
2014
 
2013
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net income
$
42.8

 
$
32.8

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
   Depreciation and amortization
76.4

 
51.4

   Foreign currency loss from Venezuela re-measurement
6.0

 
0.6

   Amortization of debt discount
1.0

 
1.0

   Stock-based compensation amortization
3.7

 

   Provision for deferred income taxes
30.3

 
21.6

   Loss on early extinguishment of debt
2.0

 
28.1

   Amortization of debt issuance costs
4.1

 
2.2

   Insurance proceeds for property, plant and equipment

 
(13.1
)
 Gain on sale of certain assets
(0.4
)
 
(3.1
)
   Pension and other post-retirement income
(3.9
)
 
(0.2
)
   Change in assets and liabilities:
 
 


      (Increase) decrease in trade receivables
(16.4
)
 
16.9

      Increase in inventories
(17.9
)
 
(31.3
)
      Increase in prepaid expenses and other current assets
(8.8
)
 
(23.4
)
      Increase in accounts payable
10.3

 
4.3

      Decrease in accrued expenses and other current liabilities
(32.6
)
 
(32.1
)
      Pension and other post-retirement plan contributions
(16.4
)
 
(16.0
)
      Purchases of permanent displays
(33.1
)
 
(30.1
)
      Other, net
(0.4
)
 
(3.8
)
Net cash provided by operating activities
46.7

 
5.8

CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
Capital expenditures
(30.3
)
 
(17.9
)
Insurance proceeds for property, plant and equipment

 
13.1

Proceeds from the sale of certain assets
0.9

 
3.4

Net cash used in investing activities
(29.4
)
 
(1.4
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
Net (decrease) increase in short-term borrowings and overdraft
(3.1
)
 
0.2

Repayment under the Amended and Restated Senior Subordinated Term Loan
(58.4
)
 

Repayments under the Acquisition Term Loan
(5.3
)
 

Proceeds from the issuance of the 5¾% Senior Notes

 
500.0

Repayment of the 9¾% Senior Secured Notes

 
(330.0
)
Repayments under the 2011 Term Loan

 
(113.0
)
Payment of financing costs
(1.8
)
 
(32.7
)
Other financing activities
(2.1
)
 
(1.8
)
Net cash (used in) provided by financing activities
(70.7
)
 
22.7

Effect of exchange rate changes on cash and cash equivalents
(12.3
)
 
(4.1
)
   Net (decrease) increase in cash and cash equivalents
(65.7
)
 
23.0

   Cash and cash equivalents at beginning of period
244.1

 
116.3

   Cash and cash equivalents at end of period
$
178.4

 
$
139.3

Supplemental schedule of cash flow information:
 
 
 
   Cash paid during the period for:
 
 
 
Interest
$
72.7

 
$
60.8

Income taxes, net of refunds
16.7

 
10.6


See Accompanying Notes to Unaudited Consolidated Financial Statements

5

REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions)



1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Revlon Consumer Products Corporation ("Products Corporation" and together with its subsidiaries, the "Company") 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 to establish Revlon as the quintessential and most innovative beauty company in the world by offering products that make consumers feel attractive and beautiful. We want to inspire our consumers to express themselves boldly and confidently. The Company operates in two segments, the consumer division (“Consumer”) and the professional division (“Professional”), and manufactures, markets and sells worldwide an extensive array of beauty and personal care products, including cosmetics, hair color, hair care and hair treatments, beauty tools, men's grooming products, anti-perspirant deodorants, fragrances, skincare and other beauty care products. The Company’s principal customers for its products in the Consumer segment include large mass volume retailers and chain drug and food stores (collectively, the “mass retail channel”) in the U.S. and internationally, as well as certain department stores and other specialty stores, such as perfumeries, outside the U.S. The Company's principal customers for its products in the Professional segment include hair and nail salons and distributors in the U.S. and internationally.
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 (“U.S. GAAP”) requires management to make estimates and assumptions that affect amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the financial statements and reported amounts of revenues and expenses during the periods presented. Actual results could differ from these estimates. Estimates and assumptions are reviewed periodically and the effects of revisions are reflected in the consolidated financial statements in the period they are determined to be necessary. Significant estimates made in the accompanying Unaudited Consolidated Financial Statements include, but are not limited to, allowances for doubtful accounts, inventory valuation reserves, expected sales returns and allowances, trade support costs, certain assumptions related to the valuation of acquired intangible and long-lived assets and the recoverability of intangible and long-lived assets, income taxes, including deferred tax valuation allowances and reserves for estimated tax liabilities, restructuring costs, certain estimates and assumptions used in the calculation of the net periodic benefit (income) costs and the projected benefit obligations for the Company’s pension and other post-retirement plans, including the expected long-term return on pension plan assets and the discount rate used to value the Company’s pension benefit obligations. 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, 2013, filed with the U.S. Securities and Exchange Commission (the "SEC") on March 5, 2014 (the "2013 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.
Certain prior year amounts in the Unaudited Consolidated Financial Statements have been reclassified to conform to the current period's presentation.
Immaterial Correction - Presentation of Consolidated Balance Sheet as of December 31, 2013
The previously recorded deferred income taxes - noncurrent, which represent the Company's noncurrent deferred tax assets, and other long-term liabilities, which include the Company's noncurrent deferred tax liabilities, as of December 31, 2013 were retrospectively corrected to reflect the Consumer and Professional U.S. entities as one tax-paying component, as well as to appropriately reflect offsetting noncurrent deferred tax assets and noncurrent deferred tax liabilities within other Professional entities. The Company has deemed the correction to be immaterial as there is no impact to the Company’s results of operations, cash flows and stockholder's deficiency for any period, and there are no qualitative factors which would indicate that the change is material. This immaterial correction decreased deferred income taxes - noncurrent and other long-term liabilities, as of December 31, 2013, to $50.9 million and $80.1 million, respectively, as reported in the accompanying Consolidated Balance Sheet, from the previously reported amounts of $164.8 million and $194.0 million, respectively.
Discontinued Operations Presentation
As a result of the Company's decision on December 30, 2013 to exit its business operations in China, the Company is reporting the results of its China operations within income (loss) from discontinued operations, net of taxes in the Company's Unaudited Consolidated Statements of Income and Comprehensive Income. Accordingly, prior year amounts have been reclassified to conform to the current period's presentation. See Note 4, "Discontinued Operations," for further discussion.

6

REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions)


Impact of Foreign Currency Translation - Venezuela Currency
In January 2014, the Venezuela government announced that the Comisión de Administracion de Divisas (“CADIVI”) would be replaced by the government-operated National Center of Foreign Commerce (the "CENCOEX"), and indicated that the Sistema Complementario de Administración de Divisas (“SICAD”) market would continue to be offered as an alternative foreign currency exchange. Additionally, a parallel foreign currency exchange system has been developed, SICAD II, which started functioning in March 2014, and for the second quarter of 2014 the SICAD II exchange market had an average transaction rate to the Company of approximately 53 Bolivars per U.S. Dollar (the “SICAD II Rate”). The SICAD II market allows companies to apply for the purchase of foreign currency and foreign currency denominated securities for any legal use or purpose.
During the first nine months of 2014, the Company continued to exchange Bolivars for U.S. Dollars to the extent permitted through the CENCOEX, SICAD and SICAD II markets based on its ability to participate in those markets. As a result, the Company considered its specific facts and circumstances in order to determine the appropriate rate of exchange to translate Revlon Venezuela’s financial statements. Based on the Company’s assessment of factors, including of its legal ability and intent to continue to participate in the SICAD II exchange market to import finished goods into Venezuela, the Company determined that it was appropriate to utilize the SICAD II Rate of 53 Bolivars per U.S. Dollar to translate Revlon Venezuela’s financial statements beginning on June 30, 2014.
As a result of the change from the official rate of 6.3 Bolivars per U.S. Dollar to the SICAD II Rate on June 30, 2014, the Company was required to re-measure all of Revlon Venezuela’s monetary assets and liabilities at the rate of 53 Bolivars per U.S. Dollar as of June 30, 2014. Non-monetary assets and liabilities continue to be measured at their historical rates. The Company recorded a foreign currency loss of $6.0 million in the second quarter of 2014 as a result of the required re-measurement of Revlon Venezuela’s balance sheet. As Venezuela was designated as a highly inflationary economy effective January 1, 2010, the Company reflected this foreign currency loss in earnings. For both the three and nine months ended September 30, 2014, the change to the SICAD II Rate, as compared to the 6.3 Bolivars per U.S. Dollar official rate, had the impact of reducing net sales by $6.7 million and reducing operating income by $4.1 million.
Recently Adopted Accounting Pronouncements
In March 2013, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2013-04, “Accounting for Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation is Fixed at the Reporting Date,” requiring an entity to record an obligation resulting from joint and several liability arrangements at the greater of the amount that the entity has agreed to pay or the amount the entity expects to pay. Additional disclosures about joint and several liability arrangements will also be required. This guidance is effective for fiscal periods beginning after December 15, 2013, and is applied retrospectively for obligations that existed at the beginning of the fiscal year for which the entity adopted such guidance, with early adoption permitted. The Company adopted ASU No. 2013-04 beginning January 1, 2014, and such adoption did not have an impact on the Company's results of operations, financial condition or disclosures.
Recently Issued Accounting Pronouncements
In April 2014, the FASB issued ASU No. 2014-08, "Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity," which changes the requirements for reporting discontinued operations under Accounting Standards Codification Topic 205. Under ASU No. 2014-08, a disposal of a component of an entity or a group of components of an entity is required to be reported in discontinued operations if the disposal represents a strategic shift that has, or will have, a major effect on an entity’s operations and financial results. The standard states that a strategic shift could include a disposal of (i) a major geographical area of operations, (ii) a major line of business, (iii) a major equity method investment or (iv) other major parts of an entity. ASU No. 2014-08 no longer precludes presentation as a discontinued operation if (i) there are operations and cash flows of the component that have not been eliminated from the reporting entity’s ongoing operations or (ii) there is significant continuing involvement with a component after its disposal. Additional disclosures about discontinued operations will also be required. The guidance is effective for annual periods beginning on or after December 15, 2014, and is to be applied prospectively to new disposals and new classifications of disposal groups as held for sale after the effective date. The Company expects to adopt ASU No. 2014-08 on a prospective basis beginning January 1, 2015.
In May 2014, the FASB issued ASU No. 2014-09, "Revenue from Contracts with Customers," which supersedes the revenue recognition requirements in the Accounting Standards Codification ("Codification") Topic 605, Revenue Recognition, and most industry-specific guidance throughout the Industry Topics of the Codification. The core principle of the new ASU No. 2014-09 is for companies to recognize revenue from the transfer of goods or services to customers in amounts that reflect the consideration to which the company expects to be entitled in exchange for those goods or services. The new standard also will result in enhanced disclosures about revenue, provide guidance for transactions that were not previously addressed comprehensively (for example, service revenue and contract modifications) and improve guidance for multiple-element arrangements. The guidance is effective for annual and interim periods beginning after December 15, 2016, with early adoption prohibited. The Company expects to adopt

7

REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions)


ASU No. 2014-09 beginning January 1, 2017 and is in the process of assessing the impact that the new guidance will have on the Company's results of operations, financial condition and disclosures.
In August 2014, the FASB issued ASU No. 2014-15, "Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern" that will explicitly require management to assess an entity's ability to continue as a going concern and to provide related footnote disclosures if conditions give rise to substantial doubt. According to the new standard, substantial doubt exists if it is probable that the entity will be unable to meet its obligations within one year after the issuance date. The likelihood threshold of "probable", similar to its current use in U.S. GAAP for loss contingencies, is used to define substantial doubt. Disclosures will be required if conditions give rise to substantial doubt including whether and how management's plans will alleviate the substantial doubt. The guidance is effective for annual periods beginning after December 15, 2015, with early adoption prohibited. The Company expects to adopt ASU No. 2014-15 beginning January 1, 2016 and is in the process of assessing the impact that the new guidance will have on the Company's disclosures.

2. BUSINESS COMBINATION
The Colomer Acquisition
On October 9, 2013 (the "Acquisition Date"), Products Corporation completed its acquisition of The Colomer Group Participations, S.L. ("Colomer" and the "Colomer Acquisition"), a Spanish company which primarily manufactures, markets and sells professional products to hair and nail salons and other professional channels under brands such as Revlon Professional, CND, including CND Shellac, and American Crew, as well as retail and multi-cultural product lines. The cash purchase price for the Colomer Acquisition was $664.5 million, which Products Corporation financed with proceeds from the Acquisition Term Loan under the Amended Term Loan Facility (both as hereinafter defined). The Colomer Acquisition provides the Company with broad brand, geographic and channel diversification and substantially expands the Company's business, providing both distribution into new channels and cost synergy opportunities.
The results of operations of the Colomer business are included in the Company’s Consolidated Financial Statements commencing on the Acquisition Date.
For the three and nine months ended September 30, 2014 and 2013, respectively, the Company incurred acquisition and integration costs related to the Colomer Acquisition, which consist of the following:
 
Three Months Ended  
 September 30,
 
Nine Months Ended 
 September 30,
 
2014
 
2013
 
2014
 
2013
   Acquisition costs
$
0.1

 
$
5.9

 
$
0.5

 
$
6.3

   Integration costs
0.8

 

 
4.9

 

Total acquisition and integration costs
$
0.9

 
$
5.9

 
$
5.4

 
$
6.3

The acquisition costs primarily include legal and consulting fees related to the Colomer Acquisition. The integration costs consist of non-restructuring costs related to the Company's plans to integrate Colomer's operations into the Company's business, and, for 2014, primarily include employee-related costs related to management changes and audit-related fees.
Purchase Price Allocation
The Company accounted for the Colomer Acquisition as a business combination during the fourth quarter of 2013. The table below summarizes the amounts recognized for assets acquired and liabilities assumed as of the Acquisition Date, as well as adjustments made in the period after the Acquisition Date to the amounts initially recorded in 2013 (the "Measurement Period Adjustments"). Accordingly, the Company retrospectively adjusted its consolidated balance sheet as of December 31, 2013 to reflect these Measurement Period Adjustments. The Measurement Period Adjustments did not have a material impact on the Company's Consolidated Statements of Income and Comprehensive Income for the year ended December 31, 2013.

8

REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions)


The total consideration of $664.5 million was recorded based on the respective estimated fair values of the net assets acquired on the Acquisition Date with resulting goodwill, as follows:
 
Amounts Previously Recognized as of October 9, 2013 (Provisional) (a)
 
Measurement Period Adjustments
 
Amounts Recognized as of Acquisition Date (Adjusted)
Cash and cash equivalents
$
36.9

 
$

 
$
36.9

Trade receivables
83.9

 

 
83.9

Inventories
75.1

 

 
75.1

Prepaid expenses and other
31.3

 

 
31.3

Property, plant and equipment
96.7

 

 
96.7

Intangible assets(b)
292.7

 
5.4

 
298.1

Goodwill(b)(c)
255.7

 
(2.4
)
 
253.3

Deferred tax asset - noncurrent
53.1

 

 
53.1

Other assets(c)
1.9

 
3.9

 
5.8

         Total assets acquired
927.3

 
6.9

 
934.2

Accounts payable
48.0

 

 
48.0

Accrued expenses and other
65.6

 

 
65.6

Long-term debt
0.9

 

 
0.9

Long-term pension and other benefit plan liabilities
4.5

 

 
4.5

Deferred tax liability(b)
123.3

 
2.1

 
125.4

Other long-term liabilities(c)
20.5

 
4.8

 
25.3

        Total liabilities assumed
262.8

 
6.9

 
269.7

        Total consideration
$
664.5

 
$

 
$
664.5

(a) As previously reported in the Company's 2013 Form 10-K.
(b) The Measurement Period Adjustments to intangible assets, deferred tax liability and goodwill in the first quarter of 2014 related to a change in assumptions used to calculate the fair value of an acquired customer relationship intangible asset, which increased the intangible asset by $5.4 million and extended the life of the asset from 10 to 20 years, increased deferred tax liabilities by $2.1 million, and resulted in a net decrease to goodwill of $3.3 million.
(c) The Company recorded a $3.9 million income tax adjustment to the beginning tax balance within other assets and a $4.8 million adjustment to other long-term liabilities, resulting in a net increase to goodwill of $0.9 million.
In determining the fair values of net assets acquired and resulting goodwill, the Company considered, among other factors, an analysis of Colomer's historical financial performance and an estimate of the future performance of the acquired business, as well as market participants' intended use of the acquired assets.
The acquired intangible assets, based on the fair values of the identifiable intangible assets, are as follows:
 
Fair Values at October 9, 2013
 
Weighted Average Useful Life (in years)
Trade names, indefinite-lived
$
108.6

 
Indefinite
Trade names, finite-lived
109.4

 
5 - 20
Customer relationships
62.4

 
15 - 20
License agreement
4.1

 
10
Internally-developed IP
13.6

 
10
Total acquired intangible assets
$
298.1

 



9

REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions)


Unaudited Pro Forma Results
The following table presents the Company's pro forma consolidated net sales and income from continuing operations, before income taxes for the three and nine months ended September 30, 2013. The unaudited pro forma results include the historical consolidated statements of operations of the Company and Colomer, giving effect to the Colomer Acquisition and related financing transactions as if they had occurred on January 1, 2012.
 
Unaudited Pro Forma Results
 
Three Months Ended  
 September 30, 2013
 
Nine Months Ended September 30, 2013
Net sales
$
473.9


$
1,408.1

Income from continuing operations, before income taxes
45.3


100.4

The pro forma results, prepared in accordance with U.S. GAAP, include the following pro forma adjustments related to the Colomer Acquisition:
(i) the pro forma increase in depreciation and amortization expense based on the fair value adjustments to property, plant and equipment and acquired finite-lived intangible assets recorded in connection with the Colomer Acquisition of $4.6 million and $13.8 million in the three and nine months ended September 30, 2013, respectively;
(ii) the elimination of goodwill impairment charges recognized by Colomer of $9.0 million, in both the three and nine months ended September 30, 2013;
(iii) the elimination of acquisition and integration costs recognized by the Company and Colomer aggregating to $5.9 million and $6.7 million in the three and nine months ended September 30, 2013, respectively;
(iv) the elimination of Colomer's debt facility fees of $3.6 million, in both the three and nine months ended September 30, 2013, respectively, as the debt facility was terminated on the Acquisition Date; and
(v) the pro forma increase in interest expense and amortization of debt issuance costs, resulting from the issuance of the Acquisition Term Loan used by Products Corporation to finance the Colomer Acquisition, for a total combined increase of $6.2 million and $18.5 million for the three and nine months ended September 30, 2013, respectively.
The unaudited pro forma results do not include: (1) any revenue or cost reductions that may be achieved through the business combination; or (2) the impact of non-recurring items directly related to the business combination.
The unaudited pro forma results are not necessarily indicative of the operating results that would have occurred if the Colomer Acquisition had been completed as of the date for which the pro forma financial information is presented. In addition, the unaudited pro forma results do not purport to project the future consolidated operating results of the combined company.
3. RESTRUCTURING CHARGES
Integration Program
In January 2014, the Company announced that it was implementing actions to integrate Colomer’s operations into the Company’s business, as well as additional restructuring actions identified to reduce costs across the Company’s businesses (all such actions, together, the “Integration Program”).
The Company expects to recognize total restructuring charges, capital expenditures and related non-restructuring costs under the Integration Program of approximately $50 million in the aggregate over the periods described below.
The Integration Program is designed to deliver cost reductions throughout the combined organization by generating synergies and operating efficiencies within the Company’s global supply chain and consolidating offices and back office support, and other actions designed to reduce selling, general and administrative ("SG&A") expenses. Certain actions that are part of the Integration Program are subject to consultations with employees, works councils or unions and governmental authorities. The Company expects to substantially complete the Integration Program by the end of 2015.
The approximately $50 million of total expected non-restructuring costs, capital expenditures and restructuring charges under the Integration Program referred to above consist of the following:
1.
$12.5 million and $4.9 million of non-restructuring integration costs recognized in 2013 and for the nine months ended September 30, 2014, respectively. Such costs have been reflected within acquisition and integration costs in the Company's Consolidated Statements of Income and Comprehensive Income and are related to combining Colomer’s operations into the Company’s business;

10

REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions)


2.
Expected integration-related capital expenditures of approximately $7 million, $3.3 million of which has been paid in the nine months ended September 30, 2014, approximately $1.9 million is expected to be paid during the remainder of 2014 and the remaining balance in 2015; and
3.
The Company expects total restructuring and related charges of approximately $26 million, $17.1 million of which was recognized for the nine months ended September 30, 2014. Approximately $4 million of charges are expected to be recognized during the remainder of 2014 and any remaining charges to be recognized in 2015. A summary of the restructuring and related charges incurred through September 30, 2014 and expected to be incurred for the Integration Program, are as follows:
 
Restructuring Charges and Other, Net
 
 
 
 
 
 
 
Employee Severance and Other Personnel Benefits
 
Other
 
Total Restructuring Charges
 
Inventory Write-offs and Other Manufacturing-Related Costs (a)
 
Other Charges (b)
 
Total Restructuring and Related Charges
Charges incurred through the nine months ended September 30, 2014
$
15.2

 
$
1.2

 
$
16.4

 
$
0.2

 
$
0.5

 
$
17.1

Total expected charges
$
17.5

 
$
3.0

 
$
20.5

 
$
2.0

 
$
3.5

 
$
26.0

(a) 
Inventory write-offs and other manufacturing-related costs are recorded within cost of sales within the Company’s Consolidated Statements of Income and Comprehensive Income.
(b) 
Other charges are recorded within SG&A expenses within the Company’s Consolidated Statements of Income and Comprehensive Income.
Of the $17.1 million of restructuring and related charges recognized through the third quarter 2014, $7.3 million relate to the Consumer segment and $9.8 million relate to the Professional segment.
The Company expects that cash payments related to the restructuring and related charges in connection with the Integration Program will total approximately $25 million, of which $6.4 million was paid during the nine months ended September 30, 2014, approximately $7 million is expected to be paid during the remainder of 2014 and the majority of the remaining balance is expected to be paid in 2015.
December 2013 Program
In December 2013, the Company announced restructuring actions that include exiting its business operations in China, as well as implementing other immaterial restructuring actions outside the U.S. that are expected to generate other operating efficiencies (the "December 2013 Program"). Certain of these restructuring actions are subject to consultations with employees, works councils or unions and governmental authorities and has resulted in the Company eliminating approximately 1,100 positions in 2014, primarily in China, which included eliminating in the first quarter of 2014 approximately 940 beauty advisors retained indirectly through a third-party agency. The charges incurred for the December 2013 Program relate entirely to the Consumer segment.



















11

REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions)


A summary of the restructuring and related charges incurred through September 30, 2014 and expected to be incurred for the December 2013 Program, are as follows:
 
Restructuring Charges and Other, Net
 
 
 
 
 
 
 
 
 
Employee Severance and Other Personnel Benefits
 
Other
 
Total Restructuring Charges
 
Allowances and Returns
 
Inventory Write-offs
 
Other Charges
 
Total Restructuring and Related Charges
Charges incurred through December 31, 2013
$
9.1

 
$
0.5

 
$
9.6

 
$
7.4

 
$
4.0

 
$
0.4

 
$
21.4

Adjustments recorded for the nine months ended September 30, 2014 (a)
(0.5
)
 
(0.2
)
 
(0.7
)
 
(0.9
)
 
(0.9
)
 

 
(2.5
)
Cumulative charges incurred through September 30, 2014
$
8.6

 
$
0.3

 
$
8.9

 
$
6.5

 
$
3.1

 
$
0.4

 
$
18.9

Total expected charges
$
8.6

 
$
0.3

 
$
8.9

 
$
6.5

 
$
3.1

 
$
0.4

 
$
18.9

(a) 
Of the $2.5 million adjustments for the nine months ended September 30, 2014 related to the December 2013 Program, $2.3 million relates to the Company's exit of its business operations in China and is recorded within income (loss) from discontinued operations, net of taxes. See Note 4, "Discontinued Operations," for further discussion. The remaining $0.2 million is recorded in restructuring charges and other, net within income from continuing operations, net of taxes.
The Company expects cash payments related to the December 2013 Program to total approximately $17 million, of which $0.1 million was paid in 2013, $15.1 million was paid during the nine months ended September 30, 2014, and the majority of the remaining balance is expected to be paid during the remainder of 2014.
September 2012 Program
In September 2012, the Company announced a restructuring (the “September 2012 Program”), which primarily involved the Company exiting its owned manufacturing facility in France and its leased manufacturing facility in Maryland; rightsizing its organizations in France and Italy; and realigning its operations in Latin America and Canada. The charges incurred related to the September 2012 Program relate entirely to the Consumer segment.
During the first nine months of 2013, the Company recorded charges related to the September 2012 Program of $2.2 million. Of the $2.2 million charge, $1.8 million was recorded in restructuring charges, $0.2 million was recorded in cost of sales and $0.2 million was recorded in SG&A expenses. The Company recognized cumulative charges of $27.2 million through December 31, 2013 related to the September 2012 Program, all of which relate to the Company's Consumer segment. There were no charges related to such program for the nine months ended September 30, 2014.
The Company expects net cash payments to total approximately $25 million related to the September 2012 Program, of which $21.1 million was paid cumulatively through December 31, 2013, $3.2 million was paid during the nine months ended September 30, 2014 and the balance is expected to be paid during the remainder of 2014.
Other Immaterial Actions
During the first nine months of 2014, the Company recorded net charges totaling $1.9 million within restructuring charges and other, net, for other immaterial restructuring actions within the Consumer segment, primarily due to $2.2 million of charges related to employee-related costs, partially offset by a $0.3 million gain related to the sale of equipment.

12

REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions)


Restructuring Reserve
The related liability balance and activity for the restructuring costs are presented below:
 
 
 
 
 
 
 
Utilized, Net
 
 
Balance
Beginning of Year
 
(Income) Expense, Net
 
Foreign Currency Translation
 

Cash
 

Non-cash
 
Balance End of Year
Integration Program:
 
 
 
 
 
 
 
 
 
 
 
Employee severance and other personnel benefits
$

 
$
15.2

 
$

 
$
(5.1
)
 
$

 
$
10.1

Other

 
1.2

 

 
(1.0
)
 

 
0.2

December 2013 Program:

 

 

 

 

 

Employee severance and other personnel benefits
9.0

 
(0.5
)
 
(0.2
)
 
(7.3
)
 
0.2

 
1.2

Other
0.5

 
(0.2
)
 

 
(0.3
)
 

 

September 2012 Program:

 

 

 

 

 

Employee severance and other personnel benefits
2.7

 

 
(0.1
)
 
(2.4
)
 


 
0.2

Other
1.5

 

 

 
(0.8
)
 

 
0.7

2014 Other Immaterial Actions:
 
 
 
 
 
 
 
 
 
 
 
Employee severance and other personnel benefits

 
2.2

 
(0.1
)
 
(1.8
)
 

 
0.3

Other

 

 

 

 

 

Total restructuring reserve
$
13.7

 
$
17.9

 
$
(0.4
)
 
$
(18.7
)
 
$
0.2

 
$
12.7

 
 
 
 
 
 
 
 
 
 
 
 
Gain on sale of equipment for 2014 Other Immaterial Actions
 
 
(0.3
)
 
 
 
 
 
 
 
 
Portion of restructuring benefits recorded within income (loss) from discontinued operations (a)
 
 
0.5

 
 
 
 
 
 
 
 
Total restructuring charges and other, net, from continuing operations
 
 
$
18.1

 
 
 
 
 
 
 
 

(a) Refer to Note 4, "Discontinued Operations" for additional information regarding the Company's exit of its business operations in China.
As of September 30, 2014, $12.2 million of the restructuring reserve balance was included within accrued expenses and other and $0.5 million was included within other long-term liabilities in the Company's Consolidated Balance Sheet. As of December 31, 2013, the entire restructuring reserve balance was included within accrued expenses and other in the Company's Consolidated Balance Sheet.

4. DISCONTINUED OPERATIONS
On December 30, 2013, the Company announced that it was implementing restructuring actions that include exiting its business operations in China (refer to Note 3, "Restructuring Charges"). The Company expects to complete such exit by the end of 2014.
The results of the China discontinued operations are included within income (loss) from discontinued operations, net of taxes, within the Consumer segment. The summary comparative financial results of discontinued operations are as follows:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2014
 
2013
 
2014
 
2013
Net sales (a)
$

 
$
6.3

 
$
2.6

 
$
17.7

Income (loss) from discontinued operations, before taxes
0.4

 
(1.6
)
 
1.1

 
(6.7
)
Provision for income taxes

 
0.1

 
0.2

 
0.4

Income (loss) from discontinued operations, net of taxes
0.4

 
(1.5
)
 
0.9

 
(6.3
)
(a) Net sales during the first nine months of 2014 primarily represent favorable adjustments to sales returns related to the Company's exit of its China operations.


13

REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions)


Assets and liabilities of discontinued operations included in the Consolidated Balance Sheets consist of the following:
 
September 30,
2014
 
December 31, 2013
Cash and cash equivalents
$
3.4

 
$
0.9

Trade receivables, net
0.2

 
1.9

Inventories

 

Other current assets
0.1

 

Total current assets
3.7

 
2.8

Total assets
$
3.7

 
$
2.8

 

 

Accounts payable
$
1.5

 
$
4.7

Accrued expenses and other
4.0

 
27.6

Total current liabilities
5.5

 
32.3

Other long-term liabilities

 
2.8

Total liabilities
$
5.5

 
$
35.1


5. PENSION AND POST-RETIREMENT BENEFITS
The components of net periodic benefit (income) costs for the Company’s pension and the other post-retirement benefit plans for the third quarter of 2014 and 2013 were as follows:
 


Pension Plans
 
Other
Post-Retirement
Benefit Plans
 
Three Months Ended September 30,
 
Three Months Ended September 30,
 
2014
 
2013
 
2014
 
2013
Net periodic benefit (income) costs:
 
Service cost
$
0.2

 
$
0.3

 
$

 
$

Interest cost
7.5

 
6.9

 
0.2

 
0.1

Expected return on plan assets
(10.3
)
 
(9.6
)
 

 

Amortization of actuarial loss
1.1

 
2.1

 

 
0.1

 
(1.5
)
 
(0.3
)
 
0.2

 
0.2

Portion allocated to Revlon Holdings
(0.1
)
 

 

 

 
$
(1.6
)
 
$
(0.3
)
 
$
0.2

 
$
0.2


14

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 (income) costs for the Company's pension and the other post-retirement benefit plans for the first nine months of 2014 and 2013 were as follows:
 


Pension Plans
 
Other
Post-Retirement
Benefit Plans
 
Nine Months Ended September 30,
 
Nine Months Ended September 30,
 
2014
 
2013
 
2014
 
2013
Net periodic benefit (income) costs:
 
Service cost
$
0.6

 
$
0.7

 
$

 
$

Interest cost
22.6

 
20.7

 
0.5

 
0.4

Expected return on plan assets
(31.0
)
 
(28.7
)
 

 

Amortization of actuarial loss
3.3

 
6.4

 
0.1

 
0.3

 
(4.5
)
 
(0.9
)
 
0.6

 
0.7

Portion allocated to Revlon Holdings
(0.1
)
 
(0.1
)
 

 

 
$
(4.6
)
 
$
(1.0
)
 
$
0.6

 
$
0.7

In the three and nine months ended September 30, 2014, the Company recognized net periodic benefit income of $(1.4) million and $(4.0) million, respectively, compared to $(0.1) million and $(0.3) million in the three and nine months ended September 30, 2013, respectively, primarily due to an increase in the fair value of pension plan assets at December 31, 2013, as well as lower amortization of actuarial losses.
Net periodic benefit (income) costs are reflected in the Company's Unaudited Consolidated Financial Statements as follows:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2014
 
2013
 
2014
 
2013
Net periodic benefit (income) costs:
 
 
 
 
 
 
 
Cost of sales
$
(1.2
)

$
(0.6
)
 
$
(3.0
)

$
(1.5
)
Selling, general and administrative expense
(0.2
)

0.6

 
(0.5
)

1.8

Inventories


(0.1
)
 
(0.5
)

(0.6
)
 
$
(1.4
)
 
$
(0.1
)
 
$
(4.0
)
 
$
(0.3
)
The Company expects that it will have net periodic benefit income of approximately $(5) million for its pension and other post-retirement benefit plans for all of 2014, compared with net periodic benefit income of $(0.4) million in 2013.
During the third quarter of 2014, $4.5 million and $0.2 million were contributed to the Company's pension and post-retirement benefit plans, respectively. During the first nine months of 2014, $15.8 million and $0.6 million were contributed to the Company’s pension plans and other post-retirement benefit plans, respectively. The Company currently expects to contribute approximately $20 million in the aggregate to its pension and other post-retirement benefit plans in 2014.
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 Note 15, "Savings Plan, Pension and Post-Retirement Benefits," to the Consolidated Financial Statements in the Company's 2013 Form 10-K.
        
6. SEGMENT DATA AND RELATED INFORMATION
Reportable operating segments include components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker (the “Chief Executive Officer”) in deciding how to allocate resources and in assessing performance. As a result of the similarities in the procurement, marketing and distribution processes for all of the Company’s products, much of the information provided in the consolidated financial statements is similar to, or the same as, that reviewed on a regular basis by the Company's management.

15

REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions)


At September 30, 2014, the Company’s operations are organized into the following two operating segments, which also represent the Company’s reportable segments:
Consumer - The Consumer segment is comprised of the Company's consumer brands, which primarily include Revlon, Almay, SinfulColors and Pure Ice in cosmetics; Revlon ColorSilk in women’s hair color; Revlon in beauty tools; and Mitchum in anti-perspirant deodorants. The Company’s principal customers for its consumer products include the mass retail channel, consisting of large mass volume retailers and chain drug and food stores in the U.S. and internationally, as well as certain department stores and other specialty stores, such as perfumeries, outside the U.S. The Consumer segment also includes a skincare and hair color line sold in the mass retail channel, primarily in Spain, which were acquired as part of the Colomer Acquisition.
Professional - The Professional segment is comprised primarily of the brands which the Company acquired in the Colomer Acquisition, which include Revlon Professional in hair color and hair care; CND-branded products in nail polishes and nail enhancements; and American Crew in men’s grooming products, all of which are sold worldwide in the professional salon channel. The Company’s principal customers for its professional products include hair and nail salons and distributors in the U.S. and internationally. The Professional segment also includes a multi-cultural line consisting of Creme of Nature hair care products sold in the mass retail channel and in professional salons, primarily in the U.S.
The Company's management evaluates segment profit, which is defined as income from continuing operations before interest, taxes, depreciation, amortization, stock-based compensation expense, gains/losses on foreign currency fluctuations, gains/losses on the early extinguishment of debt and miscellaneous expenses, for each of the Company's Consumer and Professional segments. Segment profit also excludes unallocated corporate expenses and the impact of certain items that are not directly attributable to the segments' underlying operating performance, which for the three and nine months ended September 30, 2014 and 2013 include the impact of: (i) restructuring and related charges; (ii) acquisition and integration costs; (iii) costs of sales resulting from a fair value adjustment to inventory acquired in the Colomer Acquisition; (iv) insurance proceeds received in 2013 related to the 2011 fire that destroyed the Company's facility in Venezuela; and (v) an accrual for estimated clean-up costs related to the Company's facility in Venezuela. Such items are shown in the table reconciling segment profit to consolidated income from continuing operations before income taxes. Unallocated corporate expenses primarily include general and administrative expenses related to the corporate organization. These expenses are recorded in unallocated corporate expenses as these items are centrally directed and controlled and are not included in internal measures of segment operating performance. The Company does not have any material inter-segment sales.
The accounting policies for each of the reportable segments are the same as those described in Note 1, “Description of Business and Summary of Significant Accounting Policies” in the Company's 2013 Form 10-K. The assets and liabilities of the Company are managed centrally and are reported internally in the same manner as the consolidated financial statements; thus, no additional information regarding assets and liabilities of the Company’s operating segments is produced for the Company's management or included herein.

16

REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions)


The following table is a comparative summary of the Company’s net sales and segment profit by operating segment for the three and nine months ended September 30, 2014 and 2013:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2014 (a)
 
2013
 
2014 (a)
 
2013
Segment Net Sales:
 
 
 
 
 
 
 
Consumer
$
348.2

 
$
333.1

 
$
1,055.0

 
$
1,003.7

Professional
124.1

 

 
385.0

 

Total
$
472.3

 
$
333.1

 
$
1,440.0

 
$
1,003.7

 
 
 
 
 
 
 
 
Segment Profit:
 
 
 
 
 
 
 
Consumer
$
78.1

 
$
78.9

 
$
232.0

 
$
240.2

Professional
25.2

 

 
88.5

 

Total
$
103.3

 
$
78.9

 
$
320.5

 
$
240.2

 
 
 
 
 
 
 
 
Reconciliation:
 
 
 
 
 
 
 
Segment Profit
$
103.3

 
$
78.9

 
$
320.5

 
$
240.2

Less:
 
 
 
 
 
 
 
Unallocated corporate expenses
15.8

 
12.7

 
47.0

 
40.9

Depreciation and amortization
25.6

 
17.4

 
76.4

 
51.4

Non-cash stock compensation expense
3.2

 

 
3.7



Non-recurring items:
 
 
 
 
 
 
 
Restructuring and related charges
1.1

 
(1.4
)
 
18.8

 
2.2

Acquisition and integration costs
0.9

 
5.9

 
5.4

 
6.3

Inventory purchase accounting adjustment, cost of sales

 

 
2.6

 

Gain from insurance proceeds related to Venezuela fire

 

 

 
(26.4
)
Accrual for clean-up costs related to destroyed facility in Venezuela

 

 

 
4.5

Operating Income
56.7

 
44.3

 
166.6

 
161.3

Less:
 
 
 
 
 
 
 
Interest Expense
20.6

 
17.8

 
63.9

 
55.5

Amortization of debt issuance costs
1.3

 
0.8

 
4.1

 
2.2

Loss on early extinguishment of debt

 
0.2

 
2.0

 
28.1

Foreign currency losses (gains), net
9.3

 
0.4

 
17.9

 
3.2

Miscellaneous, net
0.1

 
0.6

 
0.2

 
0.8

Income from continuing operations before income taxes
$
25.4

 
$
24.5

 
$
78.5

 
$
71.5

(a) Consumer segment net sales and segment profit include the results of retail brands acquired in the Colomer Acquisition, which had previously been included in the Professional segment.
As of September 30, 2014, the Company had operations established in 24 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.

17

REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions)


In the tables below, certain prior year amounts have been reclassified to conform to the current period’s presentation.
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2014
 
2013
 
2014
 
2013
Geographic area:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   Net sales:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      United States
$
243.8

 
52%
 
$
185.8

 
56%
 
$
749.2

 
52%
 
$
581.8

 
58%
  Outside of the United States
228.5

 
48%
 
147.3

 
44%
 
690.8

 
48%
 
421.9

 
42%
 
$
472.3

 

 
$
333.1

 

 
$
1,440.0

 
 
 
$
1,003.7

 
 

 
September 30,
2014
 
December 31,
2013
Long-lived assets, net:
 
 
 
 
 
 
United States
$
847.6

 
75%
 
$
837.0

 
73%
Outside of the United States
281.5

 
25%
 
315.1

 
27%
 
$
1,129.1

 
 
$
1,152.1

 
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2014
 
2013
 
2014
 
2013
Classes of similar products:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   Net sales:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Color cosmetics
$
242.6

 
51%
 
$
212.3

 
64%
 
$
763.5

 
53%
 
$
662.1

 
66%
Hair care
132.8

 
28%
 
43.1

 
13%
 
405.5

 
28%
 
131.0

 
13%
Beauty care and fragrance
96.9

 
21%
 
77.7

 
23%
 
271.0

 
19%
 
210.6

 
21%
 
$
472.3

 

 
$
333.1

 

 
$
1,440.0

 
 
 
$
1,003.7

 
 

7. INVENTORIES
 
September 30, 2014
 
December 31,
2013
Raw materials and supplies
$
53.7

 
$
50.8

Work-in-process
13.4

 
12.8

Finished goods
120.1

 
111.4

 
$
187.2

 
$
175.0

8. GOODWILL AND INTANGIBLE ASSETS, NET
Goodwill

The following table presents the changes in goodwill by segment during the nine months ended September 30, 2014:
 
Consumer
 
Professional
 
Total
Balance at December 31, 2013 before Measurement Period Adjustments (a)
$
217.9

 
$
256.8

 
$
474.7

Measurement Period Adjustments

 
(2.4
)
 
(2.4
)
Balance at December 31, 2013
217.9

 
254.4

 
472.3

Foreign currency translation adjustment

 
(5.5
)
 
(5.5
)
Balance at September 30, 2014
$
217.9

 
$
248.9

 
$
466.8

(a) As previously reported in the Company's 2013 Form 10-K.

18

REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions)



During the first quarter of 2014, the Company recorded Measurement Period Adjustments to certain net assets and intangible assets acquired in the Colomer Acquisition on October 9, 2013. See Note 2, "Business Combination" for further discussion of the Colomer Acquisition.

Intangible Assets, Net

The following tables present details of the Company's total intangible assets:
 
September 30, 2014
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net Carrying Amount
Finite-lived intangible assets:
 
 
 
 
 
Trademarks and Licenses
$
140.6

 
$
(20.8
)
 
$
119.8

Customer relationships
110.0

 
(11.8
)
 
98.2

Patents and Internally-Developed IP
16.1

 
(2.0
)
 
14.1

Total finite-lived intangible assets
$
266.7

 
$
(34.6
)
 
$
232.1

 
 
 
 
 
 
Indefinite-lived intangible assets:
 
 
 
 
 
Trade Names
$
104.0

 
 
 
$
104.0

Total indefinite-lived intangible assets
$
104.0

 
 
 
$
104.0

 
 
 
 
 
 
Total intangible assets
$
370.7

 
$
(34.6
)
 
$
336.1

 
 
 
 
 
 
 
December 31, 2013 (a)
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net Carrying Amount
Finite-lived intangible assets:
 
 
 
 
 
Trademarks and Licenses
$
142.1

 
$
(11.0
)
 
$
131.1

Customer relationships
111.5

 
(6.7
)
 
104.8

Patents and Internally-Developed IP
15.8

 
(1.3
)
 
14.5

Total finite-lived intangible assets
$
269.4

 
$
(19.0
)
 
$
250.4

 
 
 
 
 
 
Indefinite-lived intangible assets:
 
 
 
 
 
Trade Names
$
109.7

 
 
 
$
109.7

Total indefinite-lived intangible assets
$
109.7

 
 
 
$
109.7

 
 
 
 
 
 
Total intangible assets
$
379.1

 
$
(19.0
)
 
$
360.1


(a) During the first quarter of 2014, the Company recorded Measurement Period Adjustments to customer relationships acquired in the Colomer Acquisition on October 9, 2013. Accordingly, the prior period has been retrospectively adjusted for such Measurement Period Adjustments. Refer to Note 2, "Business Combination" for additional details.








19

REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions)


9. ACCRUED EXPENSES AND OTHER
 
September 30,
2014
 
December 31,
2013
 
 
Sales returns and allowances
$
61.3

 
$
91.5

Compensation and related benefits
71.2

 
74.5

Advertising and promotional costs
48.1

 
42.9

Taxes
21.0

 
28.4

Interest
3.8

 
13.8

Restructuring reserve
12.2

 
13.7

Other
43.9

 
48.8

 
$
261.5

 
$
313.6


10. LONG-TERM DEBT
 
September 30,
2014
 
December 31, 2013
Amended Term Loan Facility: Acquisition Term Loan due 2019, net of discounts (a)
$
693.3

 
$
698.3

Amended Term Loan Facility: 2011 Term Loan due 2017, net of discounts (a)
671.3

 
670.1

Amended Revolving Credit Facility (b)

 

5¾% Senior Notes due 2021 (c)
500.0

 
500.0

Non-Contributed Loan Portion of the Amended and Restated Senior Subordinated Term Loan due 2014 (d)

 
58.4

Spanish Government Loan due 2025 (e)
0.7

 
0.9

 
1,865.3

 
1,927.7

Less current portion   
(7.0
)
 
(65.4
)
 
$
1,858.3

 
$
1,862.3

(a) In February 2014, Products Corporation entered into an amendment (the “February 2014 Term Loan Amendment”) to its amended term loan agreement, which is comprised of (i) the $675.0 million term loan due November 19, 2017 (the "2011 Term Loan") and (ii) the $700.0 million term loan due October 8, 2019 (the "Acquisition Term Loan"), which had $694.8 million in aggregate principal balance outstanding as of September 30, 2014 (together, the "Amended Term Loan Agreement"). The February 2014 Term Loan Amendment reduced the interest rates applicable to the 2011 Term Loan. See "Recent Debt Transactions - February 2014 Term Loan Amendment" below for further discussion. Additionally, see Note 11, "Long-Term Debt," to the Consolidated Financial Statements in the Company's 2013 Form 10-K for additional details regarding Products Corporation's Amended Term Loan Agreement.
(b) See Note 11, "Long-Term Debt," to the Consolidated Financial Statements in the Company's 2013 Form 10-K for certain details regarding Products Corporation's existing $175.0 million asset-based, multi-currency revolving credit facility (the "Amended Revolving Credit Facility").
(c) See Note 11, "Long-Term Debt," to the Consolidated Financial Statements in the Company's 2013 Form 10-K for certain details regarding Products Corporation's 5¾% Senior Notes that mature on February 15, 2021.
(d) See "Recent Debt Transactions - Repayment of Non-Contributed Loan" below and Note 11, "Long-Term Debt," to the Consolidated Financial Statements in the Company's 2013 Form 10-K for certain details regarding the $58.4 million non-contributed loan portion of the Amended and Restated Senior Subordinated Term Loan Agreement (the "Non-Contributed Loan"), which Products Corporation optionally prepaid in full on May 1, 2014.
(e) See Note 11, "Long-Term Debt," to the Consolidated Financial Statements in the Company's 2013 Form 10-K for certain details regarding the euro-denominated loan payable to the Spanish government which matures on June 30, 2025.

20

REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions)


Recent Debt Transactions
February 2014 Term Loan Amendment
In February 2014, Products Corporation entered into the February 2014 Term Loan Amendment to its Amended Term Loan Agreement among Products Corporation, as borrower, a syndicate of lenders and Citicorp USA, Inc., as administrative and collateral agent.
Pursuant to the February 2014 Term Loan Amendment, the interest rates applicable to Eurodollar Loans under the $675.0 million 2011 Term Loan bear interest at the Eurodollar Rate plus 2.5% per annum, with the Eurodollar Rate not to be less than 0.75% (compared to 3.0% and 1.0%, respectively, prior to the February 2014 Term Loan Amendment), while Alternate Base Rate Loans under the 2011 Term Loan bear interest at the Alternate Base Rate plus 1.5%, with the Alternate Base Rate not to be less than 1.75% (compared to 2.0% in each case prior to the February 2014 Term Loan Amendment) (and as each such term is defined in the Amended Term Loan Agreement). The 2011 Term Loan is subject to a 1% premium in connection with any repricing transaction occurring prior to the date that is 12 months after the closing of such amendment (or February 26, 2015).
Products Corporation's Acquisition Term Loan and Amended Revolving Credit Facility were not amended in connection with the February 2014 Term Loan Amendment.
For the nine months ended September 30, 2014, the Company incurred approximately $1.1 million of fees and expenses in connection with the February 2014 Term Loan Amendment, which were expensed as incurred, and wrote-off $0.8 million of unamortized debt discount and deferred financing costs as a result of the February 2014 Term Loan Amendment. These amounts, totaling $1.9 million, were recognized within loss on early extinguishment of debt in the Company’s Consolidated Statements of Income and Comprehensive Income for the nine months ended September 30, 2014.
Repayment of Non-Contributed Loan
On May 1, 2014, Products Corporation used available cash on hand to optionally prepay in full the remaining $58.4 million principal amount outstanding under the Non-Contributed Loan that remained owing from Products Corporation to various third parties.  The Non-Contributed Loan would have otherwise matured on October 8, 2014. In connection with the repayment, the Company wrote-off $0.1 million of deferred financing costs, which were recognized within loss on early extinguishment of debt in the Company's Consolidated Statements of Income and Comprehensive Income for the nine months ended September 30, 2014.
Covenants
Products Corporation was in compliance with all applicable covenants under the Amended Term Loan Agreement and the Amended Revolving Credit Facility as of September 30, 2014. At September 30, 2014, the aggregate principal amounts outstanding under the Acquisition Term Loan and the 2011 Term Loan were $694.8 million and $675.0 million, respectively, and availability under the $175.0 million Amended Revolving Credit Facility, based upon the calculated borrowing base less $9.0 million of outstanding undrawn letters of credit and nil then drawn on the Amended Revolving Credit Facility, was $166.0 million.
Products Corporation was in compliance with all applicable covenants under its 5¾% Senior Notes Indenture as of September 30, 2014.


21

REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions)



11. ACCUMULATED OTHER COMPREHENSIVE LOSS
The components of accumulated other comprehensive loss as of September 30, 2014 are as follows:
 
Foreign Currency Translation
 
Actuarial (Loss) Gain on Post-retirement Benefits
 
Deferred Gain (Loss) - Hedging
 
Accumulated Other Comprehensive Loss
Balance, January 1, 2014
$
19.2

 
$
(170.5
)
 
$
1.5

 
$
(149.8
)
Currency translation adjustment, net of tax benefit of $0.4 million
(17.1
)
 

 

 
(17.1
)
Amortization of pension related costs, net of tax of nil (a)     

 
3.4

 

 
3.4

Revaluation of derivative financial instrument, net of tax benefit of $1.4 million(b)

 

 
(2.3
)
 
(2.3
)
Other comprehensive income (loss)
(17.1
)
 
3.4

 
(2.3
)
 
(16.0
)
Balance, September 30, 2014
$
2.1

 
$
(167.1
)
 
$
(0.8
)
 
$
(165.8
)
(a) 
Amount represents the change in accumulated other comprehensive loss as a result of the amortization of unrecognized prior service costs and actuarial losses (gains) arising during each year related to the Company’s pension and other post-retirement plans. See Note 5, “Pension and Post-retirement Benefits,” for further discussion of the Company’s pension and other post-retirement plans.
(b)  
For the nine months ended September 30, 2014, the 2013 Interest Rate Swap (as hereinafter defined) was deemed effective and therefore the changes in fair value related to the 2013 Interest Rate Swap are recorded in other comprehensive income. See Note 13, "Financial Instruments," for further discussion of the 2013 Interest Rate Swap.

12. FAIR VALUE MEASUREMENTS
Assets and liabilities are required to be categorized into three levels of fair value 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, generally would require significant management judgment. The three levels for categorizing the fair value measurement of assets and liabilities are as follows:
Level 1: Fair valuing the asset or liability using observable inputs, such as quoted prices in active markets for identical assets or liabilities;

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.

22

REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions)


As of September 30, 2014, the fair values of the Company’s financial assets and liabilities that are required to be measured at fair value are categorized in the table below:
 
Total
 
Level 1
 
Level 2
 
Level 3
Assets:
 
 
 
 
 
 
 
Derivatives:
 
 
 
 
 
 
 
FX Contracts(a)     
$
0.6

 
$

 
$
0.6

 
$

Total assets at fair value
$
0.6

 
$

 
$
0.6

 
$

Liabilities:
 
 
 
 
 
 
 
Derivatives:
 
 
 
 
 
 
 
FX Contracts(a)    
$

 
$

 
$

 
$

2013 Interest Rate Swap(b)
1.2

 

 
1.2

 

Total liabilities at fair value
$
1.2

 
$

 
$
1.2

 
$


As of December 31, 2013, the fair values of the Company’s financial assets and liabilities that are required to be measured at fair value are categorized in the table below:
 
Total
 
Level 1
 
Level 2
 
Level 3
Assets:
 
 
 
 
 
 
 
Derivatives:
 
 
 
 
 
 
 
FX Contracts(a)     
$
1.0

 
$

 
$
1.0

 
$

2013 Interest Rate Swap(b)
2.5

 

 
2.5

 

Total assets at fair value
$
3.5

 
$

 
$
3.5

 
$

Liabilities:
 
 
 
 
 
 
 
Derivatives:
 
 
 
 
 
 
 
FX Contracts(a)    
$
0.2

 
$

 
$
0.2

 
$

Total liabilities at fair value
$
0.2

 
$