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EX-32.2 - EXHIBIT 32.2 - REVLON CONSUMER PRODUCTS CORPrcpc-2016q2xex322.htm
EX-32.1 - EXHIBIT 32.1 - REVLON CONSUMER PRODUCTS CORPrcpc-2016q2xex321.htm
EX-31.2 - EXHIBIT 31.2 - REVLON CONSUMER PRODUCTS CORPrcpc-2016q2xex312.htm
EX-31.1 - EXHIBIT 31.1 - REVLON CONSUMER PRODUCTS CORPrcpc-2016q2xex311.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 June 30, 2016

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.)
 
 
One 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 June 30, 2016, 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 June 30, 2016 (Unaudited) and December 31, 2015
 
Unaudited Consolidated Statements of Income and Comprehensive Income for the Three and Six Months Ended June 30, 2016 and 2015
 
Unaudited Consolidated Statement of Stockholder's Deficiency for the Six Months Ended June 30, 2016
 
Unaudited Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2016 and 2015
 
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 5.
Other Information
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)
 
June 30, 2016
 
December 31, 2015
 
(Unaudited)
 
(as adjusted)(a)
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
185.8

 
$
326.9

Trade receivables, less allowance for doubtful accounts of $10.7 and $10.5 as of June 30, 2016 and December 31, 2015, respectively
268.4

 
244.9

Inventories
209.6

 
183.8

Prepaid expenses and other
74.3

 
53.3

Receivable from Revlon, Inc.
127.2

 
117.4

Total current assets
865.3

 
926.3

Property, plant and equipment, net of accumulated depreciation of $286.3 and $271.7 as of June 30, 2016 and December 31, 2015, respectively
216.8

 
215.3

Deferred income taxes
41.7

 
49.8

Goodwill
476.7

 
469.7

Intangible assets, net of accumulated amortization of $72.8 and $61.1 as of June 30, 2016 and December 31, 2015, respectively
328.9

 
318.0

Other assets
89.4

 
84.1

Total assets
$
2,018.8

 
$
2,063.2

 
 
 
 
LIABILITIES AND STOCKHOLDER'S DEFICIENCY
 
 
 
Current liabilities:
 
 
 
Short-term borrowings
$
14.1

 
$
11.3

Current portion of long-term debt
6.8

 
30.0

Accounts payable
187.6

 
201.3

Accrued expenses and other
233.2

 
272.4

Total current liabilities
441.7

 
515.0

Long-term debt
1,783.6

 
1,783.7

Long-term pension and other post-retirement plan liabilities
178.2

 
185.3

Other long-term liabilities
72.8

 
70.8

Stockholder's deficiency:
 
 
 
RCPC Preferred Stock, par value $1.00 per share; 1,000 shares authorized and 546 shares issued as of June 30, 2016 and December 31, 2015, respectively
54.6

 
54.6

Common Stock, par value $1.00 per share; 10,000 shares authorized and 5,260 shares issued as of June 30, 2016 and December 31, 2015 respectively

 

Additional paid-in-capital
960.9

 
957.5

Accumulated deficit
(1,236.1
)
 
(1,258.4
)
Accumulated other comprehensive loss
(236.9
)
 
(245.3
)
Total stockholder's deficiency
(457.5
)
 
(491.6
)
Total liabilities and stockholder's deficiency
$
2,018.8

 
$
2,063.2


(a) Adjusted as a result of the adoption of certain accounting pronouncements beginning on January 1, 2016. See Note 1, "Description of Business and Summary of Significant Accounting Policies - Recently Adopted Accounting Pronouncements" for details of these adjustments.

See Accompanying Notes to Unaudited Consolidated Financial Statements

2



REVLON CONSUMER PRODUCTS CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(dollars in millions)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
 
 
 
 
 
 
 
 
Net sales
$
488.9

 
$
482.4

 
$
928.5

 
$
920.9

Cost of sales
171.5

 
161.3

 
325.4

 
303.6

   Gross profit
317.4

 
321.1

 
603.1

 
617.3

Selling, general and administrative expenses
256.8

 
256.9

 
502.6

 
503.8

Acquisition and integration costs
5.5

 
4.7

 
6.0

 
5.9

Restructuring charges and other, net
0.5

 
(3.6
)
 
1.8

 
(3.1
)
      Operating income
54.6

 
63.1

 
92.7

 
110.7

Other expenses, net:
 
 
 
 
 
 
 
   Interest expense
20.9

 
20.5

 
41.9

 
40.5

   Amortization of debt issuance costs
1.4

 
1.4

 
2.9

 
2.8

   Foreign currency loses (gains), net
8.5

 
(7.9
)
 
5.1

 
8.0

   Miscellaneous, net
0.2

 
0.2

 
0.5

 
0.2

      Other expenses, net
31.0

 
14.2

 
50.4

 
51.5

Income from continuing operations before income taxes
23.6

 
48.9

 
42.3

 
59.2

Provision for income taxes
11.8

 
21.4

 
17.9

 
31.0

Income from continuing operations, net of taxes
11.8

 
27.5

 
24.4

 
28.2

Loss from discontinued operations, net of taxes
(2.5
)
 

 
(2.1
)
 
(0.1
)
Net income
$
9.3

 
$
27.5

 
$
22.3

 
$
28.1

Other comprehensive income (loss):
 
 
 
 


 


   Foreign currency translation adjustments, net of tax (a)   
2.6

 
0.8

 
5.3

 
(12.6
)
   Amortization of pension related costs, net of tax (b)(d)
2.0

 
1.8

 
3.8

 
3.5

Revaluation of derivative financial instruments, net of reclassifications into earnings (c)
0.2

 
(0.1
)
 
(0.7
)
 
(2.0
)
Other comprehensive income (loss)
4.8

 
2.5

 
8.4

 
(11.1
)
Total comprehensive income
$
14.1

 
$
30.0

 
$
30.7

 
$
17.0


(a) 
Net of tax expense (benefit) of $0.5 million and $0.2 million for the three months ended June 30, 2016 and 2015, respectively, and $0.6 million and $(2.8) million for the six months ended June 30, 2016 and 2015, respectively.
(b) 
Net of tax expense of $0.4 million for each of the three months ended June 30, 2016 and 2015, respectively, and $0.7 million for each of the six months ended June 30, 2016 and 2015.
(c) 
Net of tax expense (benefit) of $0.1 million and nil for the three months ended June 30, 2016 and 2015, respectively, and $(0.4) million and $(1.2) million for the six months ended June 30, 2016 and 2015, respectively.
(d) 
This other comprehensive income component is included in the computation of net periodic benefit (income) costs. See Note 11, “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
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, 2016
$
54.6

 
$
957.5

 
$
(1,258.4
)
 
$
(245.3
)
 
$
(491.6
)
Stock-based compensation amortization
 
 
3.3

 
 
 
 
 
3.3

Excess tax benefits from stock-based compensation
 
 
0.1

 
 
 
 
 
0.1

Net income
 
 
 
 
22.3

 
 
 
22.3

Other comprehensive loss, net (a)    
 
 
 
 
 
 
8.4

 
8.4

Balance, June 30, 2016
$
54.6

 
$
960.9

 
$
(1,236.1
)
 
$
(236.9
)
 
$
(457.5
)


(a) 
See Note 13, “Accumulated Other Comprehensive Loss,” regarding the changes in the accumulated balances for each component of other comprehensive income during the six months ended June 30, 2016.




See Accompanying Notes to Unaudited Consolidated Financial Statements

4



REVLON CONSUMER PRODUCTS CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in millions)
 
Six Months Ended June 30,
 
2016
 
2015
(as adjusted)(a)
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net income
$
22.3

 
$
28.1

Adjustments to reconcile net income to net cash used in by operating activities:
 
 
 
   Depreciation and amortization
52.2

 
50.8

   Foreign currency losses from re-measurement
4.2

 
8.8

   Amortization of debt discount
0.7

 
0.7

   Stock-based compensation amortization
3.3

 
2.8

   Provision for deferred income taxes
7.1

 
19.5

   Amortization of debt issuance costs
2.9

 
2.8

Loss (gain) on sale of certain assets
0.3

 
(3.0
)
   Pension and other post-retirement income
(0.3
)
 
(1.3
)
   Change in assets and liabilities:
 
 


      Increase in trade receivables
(24.7
)
 
(18.7
)
      Increase in inventories
(25.6
)
 
(36.1
)
      Increase in prepaid expenses and other current assets
(31.0
)
 
(25.1
)
      (Decrease) increase in accounts payable
(0.7
)
 
29.6

      Decrease in accrued expenses and other current liabilities
(43.1
)
 
(25.5
)
      Pension and other post-retirement plan contributions
(3.6
)
 
(5.2
)
      Purchases of permanent displays
(17.5
)
 
(22.0
)
      Other, net
(3.7
)
 
(3.7
)
Net cash (used in) provided by operating activities
(57.2
)
 
2.5

CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
Capital expenditures
(18.6
)
 
(17.2
)
Business acquisitions
(29.2
)
 
(34.2
)
Proceeds from the sale of certain assets
0.4

 
2.0

Net cash used in investing activities
(47.4
)
 
(49.4
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
Net (decrease) increase in short-term borrowings and overdraft
(8.4
)
 
6.6

Repayments under the Acquisition Term Loan
(15.1
)
 
(15.9
)
Prepayments under the 2011 Term Loan
(11.5
)
 
(12.1
)
Other financing activities
(1.6
)
 
(2.1
)
Net cash used in financing activities
(36.6
)
 
(23.5
)
Effect of exchange rate changes on cash and cash equivalents
0.1

 
(5.9
)
   Net decrease in cash and cash equivalents
(141.1
)
 
(76.3
)
   Cash and cash equivalents at beginning of period
326.9

 
275.3

   Cash and cash equivalents at end of period
$
185.8

 
$
199.0

Supplemental schedule of cash flow information:
 
 
 
   Cash paid during the period for:
 
 
 
Interest
$
41.2

 
$
37.9

Income taxes, net of refunds
12.9

 
10.8


(a) Adjusted as a result of the adoption of certain accounting pronouncements beginning on January 1, 2016. See Note 1, "Description of Business and Summary of Significant Accounting Policies - Recently Adopted Accounting Pronouncements" for details of these adjustments.


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)

Item 1. Financial Statements

1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revlon Consumer Products Corporation ("Products Corporation" and together with its subsidiaries, the "Company") is the direct wholly-owned operating subsidiary of Revlon, Inc., which is an indirect majority-owned subsidiary of MacAndrews & Forbes Incorporated (together with certain of its affiliates other than the Company and Revlon, Inc., "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. The Company wants to inspire its consumers to express themselves boldly and confidently. The Company operates in three reporting segments: the consumer division (“Consumer”); the professional division (“Professional”); and Other. The Company manufactures, markets and sells worldwide an extensive array of beauty and personal care products, including color 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 volume retailers, chain drug and food stores, chemist shops, hypermarkets, general merchandise stores, the Internet/e-commerce, television shopping, department stores, one-stop shopping beauty retailers, specialty cosmetics stores and perfumeries in the U.S. and internationally. The Company's principal customers for its products in the Professional segment include hair and nail salons and distributors to professional salons in the U.S. and internationally. The Other segment primarily includes the operating results of the CBBeauty Group and certain of its related entities (collectively "CBB" and such transaction, the "CBB Acquisition"). CBB develops, manufactures, markets and distributes fragrances and other beauty products under a variety of celebrity, lifestyle and fashion brands licensed from third parties, principally through department stores and selective distribution in international territories. The results included within the Other segment are not material to the Company’s consolidated results of operations.
The accompanying Consolidated Financial Statements are unaudited. In management's opinion, all adjustments necessary for a fair presentation have been made. The Consolidated Financial Statements include the accounts of the Company after the elimination of all material intercompany balances and transactions.
The preparation of the Company's Consolidated 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 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 goodwill, 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 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, 2015, filed with the SEC on February 26, 2016 (the "2015 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 Consolidated Financial Statements have been reclassified to conform to the current period's presentation.

Recently Adopted Accounting Pronouncements
In November 2015, the FASB issued ASU No. 2015-17, "Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes," which requires deferred income tax assets and liabilities to be classified as noncurrent within a company's balance sheet. Under previous guidance, the Company was required to separate deferred income tax assets and liabilities into current and noncurrent amounts. Netting deferred tax assets and deferred tax liabilities by tax jurisdiction is still required under ASU 2015-17. The Company adopted ASU No. 2015-17 beginning on January 1, 2016 and the Company's previously recorded deferred tax assets were adjusted to reflect the adoption of ASU No. 2015-17. The adoption of ASU No. 2015-17 resulted in no adjustment to the Company’s results of operations and stockholder's deficiency and had the following impact on the previously reported Consolidated

6

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

Balance Sheets for the fiscal year ended December 31, 2015 and the Consolidated Statements of Cash Flows for the fiscal period ended June 30, 2015:
Consolidated Balance Sheets
 
Total as reported at 12/31/2015
 
Adjustment
 
Total as adjusted at 12/31/2015
     Deferred income taxes - current
 
58.0

 
(58.0
)
 

     Deferred income taxes - noncurrent
 
38.5

 
11.3

 
49.8

     Other long-term liabilities
 
117.5

 
(46.7
)
 
70.8

 
 
 
 
 
 
 
Consolidated Statements of Cash Flows
 
Total as reported at 6/30/2015
 
Adjustment
 
Total as adjusted at 6/30/2015
     Increase in prepaid expense and other current assets
 
(25.2
)
 
0.1

 
(25.1
)
     Decrease in accrued expenses and other current liabilities
 
(25.4
)
 
(0.1
)
 
(25.5
)

In September 2015, the FASB issued ASU No. 2015-16, "Business Combinations (Topic 805): Simplifying the Accounting for Measurement Period Adjustments," which eliminates the requirement for an acquirer in a business combination to account for measurement-period adjustments retrospectively. Instead, acquirers must recognize measurement-period adjustments during the period in which they determine the amounts, including the effect on earnings of any amounts they would have recorded in previous periods if the accounting had been completed at the acquisition date. The guidance is effective for annual periods beginning after December 15, 2015, with early adoption permitted. The Company adopted ASU No. 2015-16 beginning on January 1, 2016 and the adoption of the new guidance did not have a material impact on the Company’s results of operations, financial condition and financial statement disclosures.

In April 2015, the FASB issued ASU No. 2015-03, "Simplifying the Presentation of Debt Issuance Costs," which requires debt issuance costs to be presented in the financial statements as a deduction from the corresponding debt liability, consistent with the presentation of debt discounts. The guidance is effective for annual periods beginning after December 15, 2015, with early adoption permitted, and is to be applied retrospectively. The Company adopted ASU No. 2015-03 beginning on January 1, 2016 and the Company's previously recorded other assets and long-term debt were adjusted to reflect the adoption of ASU No. 2015-03. The adoption of ASU No. 2015-03 resulted in no adjustment to the Company’s results of operations, cash flows and stockholder's deficiency and had the following impact on the previously reported Consolidated Balance Sheets for the fiscal year ended December 31, 2015:

Consolidated Balance Sheets
 
Total as reported at 12/31/2015
 
Adjustment
 
Total as adjusted at 12/31/2015
     Long-Term Debt
 
1,803.7

 
(20.0
)
 
1,783.7

     Other Assets
 
104.1

 
(20.0
)
 
84.1


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 ASU No. 2014-15, 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, will be used to define substantial doubt. Disclosures will be required under ASU No. 2014-15 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 adopted ASU No. 2014-15 beginning January 1, 2016 and the adoption of the new guidance did not have a material impact on the Company’s results of operations, financial condition and financial statement disclosures.

Recently Issued Accounting Pronouncements
In March 2016, the FASB issued ASU No. 2016-09, “Improvements to Employee Share-Based Payment Accounting,” which simplifies certain aspects of accounting for share-based payment transactions including transactions in which an employee uses

7

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

shares to satisfy the employer’s minimum statutory income tax withholding obligation, forfeitures and income taxes when awards vest or are settled. The guidance is effective for annual periods beginning after December 15, 2016, with early adoption permitted. The Company expects to adopt ASU No. 2016-09 beginning on 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 financial statement disclosures.
In February 2016, the FASB issued ASU No. 2016-02, "Leases (Topic 842)" which requires lessees to recognize a right-of-use asset and a liability on the balance sheet for all leases, with the exception of short-term leases. The lease liability will be equal to the present value of lease payments and the right-of-use asset will be based on the lease liability, subject to adjustment such as for initial direct costs. Leases will continue to be classified as either operating or finance leases in the income statement. The guidance is effective for annual periods beginning after December 15, 2018, with early adoption permitted. The Company expects to adopt ASU No. 2016-02 beginning on January 1, 2019 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 financial statement disclosures.


2. BUSINESS COMBINATIONS
The Cutex International Acquisition
On May 31, 2016 (the "Cutex International Acquisition Date"), the Company completed the acquisition of certain international Cutex businesses ("Cutex International") from Coty Inc. (the "Cutex International Acquisition"), which primarily operate in Australia and the U.K., and related assets for total cash consideration of $29.1 million. Following the Company's October 2015 acquisition of the Cutex business and related assets in the U.S. from Cutex Brands, LLC, the Cutex International Acquisition completed the Company's global consolidation of the Cutex brand and enhances and complements the Company's existing brand portfolio of nail care products. Cutex International's results of operations are included in the Company’s Consolidated Financial Statements commencing on the Cutex International Acquisition Date. Pro forma results of operations have not been presented, as the impact of the Cutex International Acquisition on the Company’s consolidated financial results is not material.
The Company accounted for the Cutex International Acquisition as a business combination in the second quarter of 2016. The table below summarizes the allocation of the total consideration of $29.1 million paid on the Cutex International Acquisition Date:
 
Fair Value at May 31, 2016
Inventory
$
0.8

Purchased Intangible Assets (a)
19.7

Goodwill
8.6

        Total consideration transferred
$
29.1


(a) Purchased intangible assets include customer networks fair valued at $14.0 million, intellectual property fair valued at $0.9 million, which are amortized over useful lives of 15 and 10 years, respectively, and indefinite lived trade names fair valued at $4.8 million.

The Company reacquired the Cutex trade name, which had previously provided Coty with an exclusive right to manufacture, market and sell Cutex branded products for an initial term and perpetual automatic 20-year renewals. Based on the terms and conditions of the existing license agreements and other factors, the Cutex trade name was assigned an indefinite-life and, therefore, will not be amortized.
The fair values of the net assets acquired in the Cutex International Acquisition were based on management’s preliminary estimate of the respective fair values. The estimated fair values of net assets and resulting goodwill are subject to the Company finalizing its analysis of the fair value of Cutex International's assets as of the Cutex International Acquisition Date and may be adjusted upon completion of such analysis. In addition, information unknown at the time of the Cutex International Acquisition Date could result in adjustments to the respective fair values and resulting goodwill within the year following the Cutex International Acquisition Date.
In determining the estimated fair values of net assets acquired and resulting goodwill related to the Cutex International Acquisition, the Company considered, among other factors, the analysis of Cutex International'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. Factors contributing to the purchase price resulting in the recognition of goodwill include the anticipated benefits the


8

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


Company expects to achieve through the expansion of its nail product portfolio. Both the intangible assets acquired and goodwill are not deductible for income tax purposes.

3. RESTRUCTURING CHARGES
2015 Efficiency Program
In September 2015, the Company initiated certain restructuring actions to drive certain organizational efficiencies across the Company's Consumer and Professional segments (the "2015 Efficiency Program"). These actions, which commenced during 2015 and are planned to occur through 2017, are expected to reduce general and administrative expenses within the Consumer and Professional segments. Of the $1.2 million of restructuring and related charges recognized in the first six months of 2016 for the 2015 Efficiency Program, $0.5 million related to the Consumer segment and $0.6 million related to the Professional segment, with the remaining charges included within unallocated corporate expenses. The Company expects to recognize total restructuring and related charges for the 2015 Efficiency Program of $11.7 million by the end of 2017, of which $6.9 million is expected to relate to the Consumer segment, $4.4 million is expected to relate to the Professional segment and the remaining charge relates to unallocated corporate expenses.
A summary of the restructuring and related charges incurred through June 30, 2016 in connection with the 2015 Efficiency Program is presented in the following table:
 
Restructuring Charges and Other, Net
 
Employee Severance and Other Personnel Benefits
 
Other
 
Total Restructuring Charges
Charges incurred through December 31, 2015
$
9.4

 
$
0.1

 
$
9.5

Charges incurred in the six months ended June 30, 2016
$
0.6

 
$
0.6

 
$
1.2

Cumulative charges incurred through June 30, 2016
$
10.0

 
$
0.7

 
$
10.7

Total expected charges
$
10.0

 
$
1.7

 
$
11.7

    
Of the cumulative $10.7 million of restructuring and related charges recognized through the second quarter of 2016 related to the 2015 Efficiency Program, $6.5 million related to the Consumer segment, $3.8 million related to the Professional segment and the remaining charges related to unallocated corporate expenses.
The Company expects that cash payments will total approximately $12 million in connection with the 2015 Efficiency Program, including $0.2 million for capital expenditures (which capital expenditures are excluded from total restructuring and related charges expected to be recognized for the 2015 Efficiency Program), of which $1.6 million was paid in the six months ended June 30, 2016 and $2.8 million was paid in 2015. A total of $6.2 million is expected to be paid during the remainder of 2016, with the remaining balance expected to be paid in 2017.













9

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 each of the Company's restructuring programs are presented in the following table:
 
 
 
 
 
 
 
Utilized, Net
 
 
Balance
Beginning of Year
 
(Income) Expense, Net
 
Foreign Currency Translation
 

Cash
 

Non-cash
 
Balance
End of Period
2015 Efficiency Program:
 
 
 
 
 
 
 
 
 
 
 
Employee severance and other personnel benefits
$
6.6

 
$
0.6

 
$

 
$
(1.2
)
 
$

 
$
6.0

Other
0.1

 
0.6

 

 
(0.4
)
 
(0.1
)
 
0.2

Integration Program:(a)
 
 
 
 
 
 
 
 
 
 
 
Employee severance and other personnel benefits
0.8

 

 

 
(0.8
)
 

 

Other
0.1

 

 

 

 

 
0.1

December 2013 Program:(b)

 

 

 

 

 

Employee severance and other personnel benefits
1.2

 

 

 

 

 
1.2

Other

 

 

 

 

 

Other immaterial actions: 

 

 

 

 

 

Employee severance and other personnel benefits
2.3

 
0.3

 

 
(1.0
)
 

 
1.6

Other
0.7

 
0.3

 

 
(0.3
)
 

 
0.7

Total restructuring reserve
$
11.8

 
$
1.8

 
$

 
$
(3.7
)
 
$
(0.1
)
 
$
9.8


(a) Following Products Corporation's October 2013 acquisition of The Colomer Group Participations, S.L. ("Colomer" and the "Colomer Acquisition"), the Company implemented actions to integrate Colomer's operations into the Company's business which reduced costs across the Company's businesses and generated synergies and operating efficiencies within the Company's global supply chain and consolidated offices and back office support (all such actions, together, the "Integration Program"). The Integration Program was substantially completed as of December 31, 2015.

(b) In December 2013, the Company announced restructuring actions that primarily included exiting its direct manufacturing, warehousing and sales business operations in mainland China (the "December 2013 Program"). The December 2013 Program resulted in the elimination of approximately 1,100 positions in 2014, primarily in China.

At June 30, 2016, $9.8 million of the restructuring reserve balance was included within accrued expenses and other in the Company's Consolidated Balance Sheet. At December 31, 2015, $11.8 million of the restructuring reserve balance was included within accrued expenses in the Company's Consolidated Balance Sheet.

4. DISCONTINUED OPERATIONS
On December 30, 2013, the Company announced that it was implementing the December 2013 Program, which primarily included exiting its direct manufacturing, warehousing and sales business operations in mainland China.

The results of the China discontinued operations are included within Loss from discontinued operations, net of taxes, and relate entirely to the Consumer segment. The summary comparative financial results of discontinued operations are as follows:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
Net sales
$

 
$

 
$

 
$

Loss from discontinued operations, before taxes
(2.5
)
 

 
(2.1
)
 
(0.1
)
Provision for income taxes

 

 

 

Loss from discontinued operations, net of taxes
(2.5
)
 

 
(2.1
)
 
(0.1
)

10

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 the China discontinued operations included in the Consolidated Balance Sheets consist of the following:
 
June 30, 2016
 
December 31, 2015
Cash and cash equivalents
$
1.8

 
$
2.0

Trade receivables, net
0.2

 
0.2

Total current assets
2.0

 
2.2

Total assets
$
2.0

 
$
2.2

 

 

Accounts payable
$
0.6

 
$
0.7

Accrued expenses and other
3.5

 
3.6

Total current liabilities
4.1

 
4.3

Total liabilities
$
4.1

 
$
4.3



5. INVENTORIES
 
June 30, 2016

December 31, 2015
Raw materials and supplies
$
61.9

 
$
58.2

Work-in-process
12.0

 
8.3

Finished goods
135.7

 
117.3

 
$
209.6

 
$
183.8



6. GOODWILL AND INTANGIBLE ASSETS, NET
Goodwill

The following table presents the changes in goodwill by segment during the six months ended June 30, 2016:
 
Consumer
 
Professional
 
Other
 
Total
Balance at January 1, 2016
$
210.1

 
$
240.7

 
$
18.9

 
$
469.7

Goodwill acquired (a)
8.6

 

 

 
8.6

Foreign currency translation adjustment

 
0.2

 
(1.8
)
 
(1.6
)
Balance at June 30, 2016
$
218.7

 
$
240.9

 
$
17.1

 
$
476.7

(a) On May 31, 2016, the Company completed the Cutex International Acquisition. See Note 2, "Business Combinations," to the Unaudited Consolidated Financial Statements in this Form 10-Q for details related to the Cutex International Acquisition.










11

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

Intangible Assets, Net

The following tables present details of the Company's total intangible assets:

 
June 30, 2016
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net Carrying Amount
Finite-lived intangible assets:
 
 
 
 
 
Trademarks and Licenses
$
147.2

 
$
(42.3
)
 
$
104.9

Customer relationships
132.5

 
(24.4
)
 
108.1

Patents and Internally-Developed IP
17.9

 
(5.2
)
 
12.7

Distribution rights
3.1

 
(0.9
)
 
2.2

Total finite-lived intangible assets
$
300.7

 
$
(72.8
)
 
$
227.9

 
 
 
 
 
 
Indefinite-lived intangible assets:
 
 
 
 
 
Trade Names
$
101.0

 
$

 
$
101.0

Total indefinite-lived intangible assets
$
101.0

 
$

 
$
101.0

 
 
 
 
 
 
Total intangible assets
$
401.7

 
$
(72.8
)
 
$
328.9

 
 
 
 
 
 
 
December 31, 2015
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net Carrying Amount
Finite-lived intangible assets:
 
 
 
 
 
Trademarks and Licenses
$
145.0

 
$
(36.0
)
 
$
109.0

Customer relationships
118.8

 
(20.5
)
 
98.3

Patents and Internally-Developed IP
16.8

 
(4.0
)
 
12.8

Distribution rights
3.5

 
(0.6
)
 
2.9

Total finite-lived intangible assets
$
284.1

 
$
(61.1
)
 
$
223.0

 
 
 
 
 
 
Indefinite-lived intangible assets:
 
 
 
 
 
Trade Names
$
95.0

 
$

 
$
95.0

Total indefinite-lived intangible assets
$
95.0

 
$

 
$
95.0

 
 
 
 
 
 
Total intangible assets
$
379.1

 
$
(61.1
)
 
$
318.0


Amortization expense for finite-lived intangible assets was $6.1 million and $5.3 million for the three months ended June 30, 2016 and 2015, respectively. Amortization expense for finite-lived intangible assets was $12.0 million and $10.4 million for the six months ended June 30, 2016 and 2015, respectively.


    








    

12

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


The following table reflects the estimated future amortization expense, a portion of which is subject to exchange rate fluctuations, for the Company's finite-lived intangible assets as of June 30, 2016:
 
Estimated Amortization Expense
2016
$
11.5

2017
23.6

2018
22.7

2019
20.1

2020
19.5

Thereafter
130.5

Total
$
227.9



7. ACCRUED EXPENSES AND OTHER
 
June 30, 2016
 
December 31, 2015
Sales returns and allowances
$
50.8

 
$
61.1

Compensation and related benefits
49.4

 
75.6

Advertising and promotional costs
37.0

 
38.4

Taxes
23.4

 
20.8

Interest
12.3

 
12.4

Restructuring reserve
9.8

 
11.8

Other
50.5

 
52.3

 
$
233.2

 
$
272.4


8. LONG-TERM DEBT
 
June 30, 2016
 
December 31, 2015
Amended Term Loan Facility: Acquisition Term Loan due 2019, net of discounts and debt issuance costs (a)
$
648.5

 
$
662.1

Amended Term Loan Facility: 2011 Term Loan due 2017, net of discounts and debt issuance costs (a)
648.2

 
658.5

Amended Revolving Credit Facility (b)

 

5¾% Senior Notes due 2021, net of debt issuance costs (c)
493.1

 
492.5

Spanish Government Loan due 2025  (d)
0.6

 
0.6

 
1,790.4

 
1,813.7

Less current portion (*)   
(6.8
)
 
(30.0
)
 
$
1,783.6

 
$
1,783.7


(*) At December 31, 2015, the Company classified $30.0 million as the current portion of long-term debt, which was comprised of a $23.2 million required “excess cash flow” prepayment (as defined under the Amended Term Loan Agreement, as hereinafter defined) that was paid on February 29, 2016, and the Company’s regularly scheduled $1.7 million quarterly principal amortization payments (after giving effect to such prepayment) due in 2016.
(a) See Note 17, "Subsequent Events," to the Unaudited Consolidated Financial Statements in this Form 10-Q for debt-related matters that occurred subsequent to the second quarter of 2016 and see Note 11, "Long-Term Debt," to the Consolidated Financial Statements in the Company's 2015 Form 10-K for certain details regarding Products Corporation's Amended Term

13

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

Loan Agreement, which facility is comprised of: (i) the term loan due November 19, 2017 in the original aggregate amount of $675.0 million (the "2011 Term Loan"); and (ii) the term loan due October 8, 2019 in the original aggregate amount of $700.0 million (the "Acquisition Term Loan") which, respectively, had $651.4 million and $658.6 million in aggregate principal balance outstanding at June 30, 2016 (together, the "Amended Term Loan Agreement").
(b) See Note 11, "Long-Term Debt," to the Consolidated Financial Statements in the Company's 2015 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") which matures on the earlier of August 14, 2018 and the date that is 90 days prior to the earliest maturity date of any term loans then outstanding under the Amended Term Loan Agreement.
(c) See Note 11, "Long-Term Debt," to the Consolidated Financial Statements in the Company's 2015 Form 10-K for certain details regarding Products Corporation's 5¾% Senior Notes that mature on February 15, 2021. The aggregate principal amount outstanding at June 30, 2016 was $500 million.
(d) See Note 11, "Long-Term Debt," to the Consolidated Financial Statements in the Company's 2015 Form 10-K for certain details regarding the euro-denominated loan payable to the Spanish government that matures on June 30, 2025.

2016 Debt Related Transaction
Amended Term Loan Facility - Excess Cash Flow Payment
On February 29, 2016, Products Corporation prepaid $23.2 million of indebtedness, representing 50% of its 2015 “excess cash flow” as defined under the Amended Term Loan Agreement, in accordance with the terms of its Amended Term Loan Facility. The prepayment was applied on a ratable basis between the principal amounts outstanding under the 2011 Term Loan and the Acquisition Term Loan. The amount of the prepayment that was applied to the 2011 Term Loan reduced the principal amount outstanding by $11.5 million to $651.4 million (as all amortization payments under the 2011 Term Loan had been paid). The $11.7 million that was applied to the Acquisition Term Loan reduced Products Corporation's future annual amortization payments under the Acquisition Term Loan on a ratable basis from $6.9 million prior to the prepayment to $6.8 million after giving effect to the prepayment and through its maturity on October 8, 2019.
See Note 17, "Subsequent Events," to the Unaudited Consolidated Financial Statements in this Form 10-Q for debt-related transaction details that occurred subsequent to the second quarter of 2016.
Covenants
Products Corporation was in compliance with all applicable covenants under the Amended Term Loan Agreement and the Amended Revolving Credit Facility as of June 30, 2016. At June 30, 2016, the aggregate principal amounts outstanding under the Acquisition Term Loan and the 2011 Term Loan were $658.6 million and $651.4 million, respectively, and availability under the $175.0 million Amended Revolving Credit Facility, based upon the calculated borrowing base less $8.3 million of outstanding undrawn letters of credit and nil then drawn on the Amended Revolving Credit Facility, was $166.7 million.
Products Corporation was in compliance with all applicable covenants under its 5¾% Senior Notes Indenture as of June 30, 2016 and December 31, 2015.

9. 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.

14

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

As of June 30, 2016, 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)     
$
1.1

 
$

 
$
1.1

 
$

Total assets at fair value
$
1.1

 
$

 
$
1.1

 
$

Liabilities:
 
 
 
 
 
 
 
Derivatives:
 
 
 
 
 
 
 
FX Contracts(a)    
$
1.8

 
$

 
$
1.8

 
$

2013 Interest Rate Swap(b)
7.6

 

 
7.6

 

Total liabilities at fair value
$
9.4

 
$

 
$
9.4

 
$


As of December 31, 2015, 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)     
$
2.0

 
$

 
$
2.0

 
$

Total assets at fair value
$
2.0

 
$

 
$
2.0

 
$

Liabilities:
 
 
 
 
 
 
 
Derivatives:
 
 
 
 
 
 
 
FX Contracts(a)    
$
0.6

 
$

 
$
0.6

 
$

2013 Interest Rate Swap(b)

$
6.5

 
$

 
$
6.5

 
$

Total liabilities at fair value
$
7.1

 
$

 
$
7.1

 
$


(a) 
The fair value of the Company’s foreign currency forward exchange contracts ("FX Contracts") was measured based on observable market transactions for similar transactions in actively quoted markets of spot and forward rates on the respective dates. See Note 10, “Financial Instruments," to the Unaudited Consolidated Financial Statements in this Form 10-Q.
(b) 
The fair value of the Company's 2013 Interest Rate Swap (as hereinafter defined) was measured based on the implied forward rates from the U.S. Dollar three-month LIBOR yield curve on the respective dates. See Note 10, “Financial Instruments.”

As of June 30, 2016, the fair values and carrying values of the Company’s long-term debt, including the current portion of long-term debt, are categorized in the table below:
 
Fair Value
 
 
 
Level 1
 
Level 2
 
Level 3
 
Total
 
Carrying Value
Liabilities:
 
 
 
 
 
 
 
 
 
Long-term debt, including current portion
$

 
$
1,793.2

 
$

 
$
1,793.2

 
$
1,790.4

As of December 31, 2015, the fair values and carrying values of the Company’s long-term debt, including the current portion of long-term debt, are categorized in the table below:
 
Fair Value
 
 
 
Level 1
 
Level 2
 
Level 3
 
Total
 
Carrying Value
Liabilities:
 
 
 
 
 
 
 
 
 
Long-term debt, including current portion
$

 
$
1,818.0

 
$

 
$
1,818.0

 
$
1,813.7


15

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

The fair value of the Company's long-term debt, including the current portion of long-term debt, is based on quoted market prices for similar issues and maturities.
The carrying amounts of cash and cash equivalents, trade receivables, notes receivable, accounts payable and short-term borrowings approximate their respective fair values.

10. FINANCIAL INSTRUMENTS
Products Corporation maintains standby and trade letters of credit for various corporate purposes under which Products Corporation is obligated, of which $8.3 million and $8.8 million (including amounts available under credit agreements in effect at that time) were maintained at June 30, 2016 and December 31, 2015, respectively. Included in these amounts are approximately $7.2 million and $7.5 million at June 30, 2016 and December 31, 2015, respectively, in standby letters of credit that support Products Corporation’s self-insurance programs. The estimated liability under such programs is accrued by Products Corporation.

Derivative Financial Instruments
The Company uses derivative financial instruments, primarily: (i) 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 (ii) interest rate hedging transactions, such as the 2013 Interest Rate Swap referred to below, intended for the purpose of managing interest rate risk associated with Products Corporation’s variable rate indebtedness.
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 June 30, 2016 and December 31, 2015 was $74.2 million and $76.3 million, respectively.
Interest Rate Swap Transaction
In November 2013, Products Corporation executed a forward-starting floating-to-fixed interest rate swap transaction with a 1.00% floor, based on a notional amount of $400 million in respect of indebtedness under the Acquisition Term Loan over a period of three years (the "2013 Interest Rate Swap"). The Company designated the 2013 Interest Rate Swap as a cash flow hedge of the variability of the forecasted three-month LIBOR interest rate payments related to the $400 million notional amount under the Acquisition Term Loan over the three-year term of the 2013 Interest Rate Swap. Products Corporation receives from the counterparty a floating interest rate based on the higher of three-month USD LIBOR or 1.00%, while paying a fixed interest rate payment to the counterparty equal to 2.0709% (which effectively fixes the interest rate on such notional amount at 5.0709% over the three-year term of the 2013 Interest Rate Swap). For the six months ended June 30, 2016, the 2013 Interest Rate Swap was deemed effective and therefore the changes in fair value related to the 2013 Interest Rate Swap have been recorded in Other Comprehensive Loss. As of June 30, 2016, the balance of deferred net losses on derivatives included in accumulated other comprehensive loss was $4.5 million after-tax. (See "Quantitative Information – Derivative Financial Instruments" below).
The Company expects that $2.6 million of the after-tax deferred net losses related to the 2013 Interest Rate Swap will be reclassified into earnings over the next 12 months as a result of transactions that are expected to occur over that period. The amount ultimately realized in earnings may differ, as LIBOR is subject to change. Realized gains and losses are ultimately determined by actual rates at maturity of the derivative.

Credit Risk
Exposure to credit risk in the event of nonperformance by any of the counterparties is limited to the gross fair value of the derivative instruments in asset positions, which totaled $1.1 million and $2.0 million as of June 30, 2016 and December 31, 2015, respectively. The Company attempts to minimize exposure to credit risk by generally entering into derivative contracts with counterparties that have investment-grade credit ratings and are major financial institutions. The Company also periodically monitors any changes in the credit ratings of its counterparties. Given the current credit standing of the Company's counterparties to its derivative instruments, the Company believes that the risk of loss under these derivative instruments arising from any non-performance by any of the counterparties is remote.

16

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 Values of Derivative Financial Instruments in the Consolidated Balance Sheets:
 
Fair Values of Derivative Instruments
 
Assets
 
Liabilities
 
Balance Sheet
 
June 30,
2016
 
December 31,
2015
 
Balance Sheet
 
June 30,
2016
 
December 31,
2015
 
Classification
 
Fair Value
 
Fair Value
 
Classification
 
Fair Value
 
Fair Value
Derivatives designated as hedging instruments:
 
 
 
 
 
 
 
 
2013 Interest Rate Swap(i)
Prepaid expenses and other
 
$

 
$

 
Accrued expenses and other
 
$
4.2

 
$
4.0

 
Other assets
 

 

 
Other long-term liabilities
 
3.4

 
2.5

Derivatives not designated as hedging instruments:
 
 
 
 
 
 
 
 
FX Contracts(ii)   
Prepaid expenses and other
 
$
1.1

 
$
2.0

 
Accrued Expenses
 
$
1.8

 
$
0.6


(i) The fair values of the 2013 Interest Rate Swap at June 30, 2016 and December 31, 2015 were measured based on the implied forward rates from the U.S. Dollar three-month LIBOR yield curve at June 30, 2016 and December 31, 2015, respectively.

(ii) The fair values of the FX Contracts at June 30, 2016 and December 31, 2015 were measured based on observable market transactions of spot and forward rates at June 30, 2016 and December 31, 2015, respectively.

(b) Effects of Derivative Financial Instruments on the Consolidated Statements of Income and Comprehensive Income for the three and six months ended June 30, 2016 and 2015:
 
Amount of Gain (Loss) Recognized in Other Comprehensive Income (Loss)
Three Months Ended June 30,

Six Months Ended June 30,
2016

2015

2016

2015
Derivatives designated as hedging instruments:
 
 
 
 
 
 
 
2013 Interest Rate Swap, net of tax (a)
$
0.2

 
$
(0.1
)
 
$
(0.7
)
 
$
(2.0
)
(a) 
Net of tax expense (benefit) of $0.1 million and nil for the three months ended June 30, 2016 and 2015, respectively, and $(0.4) million and $(1.2) million for the six months ended June 30, 2016 and 2015, respectively.
 
Income Statement Classification
 
Amount of Gain (Loss) Recognized in Net Income
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
Derivatives designated as hedging instruments:
 
 
 
 
 
 
 
 
2013 Interest Rate Swap
Interest Expense
 
$
(1.1
)
 
$
(0.5
)
 
$
(2.2
)
 
$
(0.5
)
Derivatives not designated as hedging instruments:
 
 
 
 
 
 
 
 
FX Contracts
Foreign currency gain (loss), net
 
$
0.3

 
$
0.4

 
$
(0.5
)
 
$
0.9









17

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

11. 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 second quarter of 2016 and 2015 are as follows:
 


Pension Plans
Other
Post-Retirement
Benefit Plans
 
Three Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
Net periodic benefit (income) costs:
 
Service cost
$
0.2

 
$
0.2

 
$

 
$

Interest cost
5.1

 
7.1

 
0.1

 
0.1

Expected return on plan assets
(7.8
)
 
(10.2
)
 

 

Amortization of actuarial loss
2.3

 
2.1

 
0.1

 
0.1

 
(0.2
)
 
(0.8
)
 
0.2

 
0.2

Portion allocated to Revlon Holdings
(0.1
)
 
(0.1
)
 

 

 
$
(0.3
)
 
$
(0.9
)
 
$
0.2

 
$
0.2

The components of net periodic benefit (income) costs for the Company's pension and the other post-retirement benefit plans for the first six months of 2016 and 2015 are as follows:
 


Pension Plans
Other
Post-Retirement
Benefit Plans
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
Net periodic benefit (income) costs:
 
Service cost
$
0.3

 
$
0.4

 
$

 
$

Interest cost
10.3

 
14.3

 
0.2

 
0.2

Expected return on plan assets
(15.6
)
 
(20.3
)
 

 

Amortization of actuarial loss
4.4

 
4.1

 
0.1

 
0.1

 
(0.6
)
 
(1.5
)
 
0.3

 
0.3

Portion allocated to Revlon Holdings
(0.1
)
 
(0.1
)
 

 

 
$
(0.7
)
 
$
(1.6
)
 
$
0.3

 
$
0.3

In the three and six months ended June 30, 2016, the Company recognized net periodic benefit income of $0.1 million and $0.4 million, respectively, compared to net periodic benefit income of $0.7 million and $1.3 million in the three and six months ended June 30, 2015, primarily due to the lower expected return on plan assets, partially offset by lower interest cost as a result of the Company's adoption of the alternative approach to calculating the service and interest components of net periodic benefit cost for pension and other post-retirement benefits (the “full yield curve” approach) which was adopted by the Company at December 31, 2015.
Net periodic benefit costs (income) are reflected in the Company's Consolidated Financial Statements as follows:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
Net periodic benefit (income) costs:
 
 
 
 
 
 
 
Cost of sales
$
(0.5
)
 
$
(1.0
)
 
$
(1.3
)
 
$
(2.0
)
Selling, general and administrative expense
0.4

 
0.3

 
0.9

 
0.7

 
$
(0.1
)
 
$
(0.7
)
 
$
(0.4
)
 
$
(1.3
)

18

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

The Company expects that it will have net periodic benefit income of approximately $1 million for its pension and other post-retirement benefit plans for all of 2016, compared with net periodic benefit cost of $18.8 million in 2015.
During the second quarter of 2016, $1.4 million and $0.3 million were contributed to the Company’s pension plans and other post-retirement benefit plans, respectively. During the first six months of 2016, $3.1 million and $0.5 million were contributed to the Company’s pension plans and other post-retirement benefit plans, respectively. During 2016, the Company expects to contribute approximately $10 million in the aggregate to its pension and other post-retirement benefit plans.
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 14, "Savings Plan, Pension and Post-Retirement Benefits," to the Consolidated Financial Statements in the Company's 2015 Form 10-K.

12. INCOME TAXES
The provision for income taxes represents federal, foreign, state and local income taxes. The effective tax rate differs from the applicable federal statutory rate due to the effect of state and local income taxes, tax rates and income in foreign jurisdictions, utilization of tax loss carryforwards, foreign earnings taxable in the U.S., non-deductible expenses and other items. The Company’s tax provision changes quarterly based on various factors including, but not limited to, the geographical mix of earnings, enacted tax legislation, foreign, state and local income taxes, tax audit settlements 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 remeasurement of a tax position taken in a prior period are recognized in the quarter in which any such change occurs.
For the second quarter of 2016 and 2015, the Company recorded a provision for income taxes of $11.8 million and $21.4 million, respectively. The $9.6 million decrease in the provision for income taxes was primarily due to lower pre-tax income and the phasing of the recognition of income taxes.
For the first six months of 2016 and 2015, the Company recorded a provision for income taxes of $17.9 million and $31.0 million, respectively. The $13.1 million decrease in the provision for income taxes was primarily due to lower pre-tax income and the phasing of the recognition of income taxes.
The Company's effective tax rate for the three months ended June 30, 2016 was higher than the federal statutory rate of 35% as a result of foreign and U.S. tax effects attributable to operations outside the U.S. and foreign dividends and earnings taxable in the U.S.
The Company's effective tax rate for the six months ended June 30, 2016 was higher than the federal statutory rate of 35% as a result of certain foreign dividends and earnings taxable in the U.S.
The Company remains subject to examination of its income tax returns in various jurisdictions including, without limitation: Australia and Spain for tax years ended December 31, 2011 through December 31, 2014; South Africa, the U.K. and the U.S. (federal) for tax years ended December 31, 2012 through December 31, 2014; and Canada for tax years ended December 31, 2012 through December 31, 2015.


19

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

13. ACCUMULATED OTHER COMPREHENSIVE LOSS
The components of accumulated other comprehensive loss as of June 30, 2016 are as follows:
 
Foreign Currency Translation
 
Actuarial (Loss) Gain on Post-retirement Benefits
 
Deferred Gain (Loss) - Hedging
 
Other
 
Accumulated Other Comprehensive Loss
Balance at January 1, 2016
$
(23.5
)
 
$
(217.7
)
 
$
(3.8
)
 
$
(0.3
)
 
$
(245.3
)
Currency translation adjustment, net of tax of $0.6 million
5.3

 


 


 


 
5.3

Amortization of pension related costs, net of tax of $0.7 million(a)     


 
3.8

 


 


 
3.8

Revaluation of derivative financial instrument, net of amounts reclassified into earnings and tax benefit of $0.4 million(b)


 


 
$
(0.7
)
 


 
(0.7
)
Other comprehensive income (loss)
5.3

 
3.8

 
(0.7
)
 

 
8.4

Balance at June 30, 2016
$
(18.2
)
 
$
(213.9
)
 
$
(4.5
)
 
$
(0.3
)
 
$
(236.9
)
(a) 
Amounts represent the change in accumulated other comprehensive loss as a result of the amortization of actuarial losses (gains) arising during each year related to the Company’s pension and other post-retirement plans. See Note 11, “Pension and Post-retirement Benefits,” for further discussion of the Company’s pension and other post-retirement plans.
(b)  
For the six months ended June 30, 2016, the Company's 2013 Interest Rate Swap was deemed effective and therefore, the changes in fair value related to the 2013 Interest Rate Swap were recorded in other comprehensive income (loss). See Note 10, "Financial Instruments," for further discussion of the 2013 Interest Rate Swap.

As shown above, comprehensive loss includes changes in the fair value of the 2013 Interest Rate Swap, which qualifies for hedge accounting. A rollforward of the amounts reclassified out of accumulated other comprehensive loss into earnings as of June 30, 2016 are as follows:
 
 
2013
Interest Rate Swap
Beginning accumulated losses at March 31, 2016
 
(4.7
)
Reclassifications into earnings (net of $0.4 million tax expense)(a)    
 
0.7

Change in fair value (net of $0.3 million tax benefit)
 
(0.5
)
Ending accumulated losses at June 30, 2016
 
$
(4.5
)
 
 
2013
Interest Rate Swap
Beginning accumulated losses at December 31, 2015
 
(3.8
)
Reclassifications into earnings (net of $0.8 million tax expense)(a)    
 
1.3

Change in fair value (net of $1.2 million tax benefit)
 
(2.0
)
Ending accumulated losses at June 30, 2016
 
$
(4.5
)
(a) 
Reclassified to interest expense.



20

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

A rollforward of the amounts reclassified out of accumulated other comprehensive loss into earnings as of June 30, 2015 are as follows:
 
 
2013
Interest Rate Swap
Beginning accumulated losses at March 31, 2015
 
(4.1
)
Reclassifications into earnings (net of $0.2 million tax expense)(a)    
 
0.3

Change in fair value (net of $0.2 million tax benefit)
 
(0.4
)
Ending accumulated losses at June 30, 2015
 
$
(4.2
)
 
 
2013
Interest Rate Swap
Beginning accumulated losses at December 31, 2014
 
(2.2
)
Reclassifications into earnings (net of $0.2 million tax expense)(a)
 
0.3

Change in fair value (net of $1.4 million tax benefit)
 
(2.3
)
Ending accumulated losses at June 30, 2015
 
$
(4.2
)
(a) 
Reclassified to interest expense.

14. SEGMENT DATA AND RELATED INFORMATION
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 Company's “Chief Executive Officer”) in deciding how to allocate resources and in assessing the Company's performance. As a result of the similarities in the procurement, manufacturing and distribution processes for the Company’s products, much of the information provided in the Consolidated Financial Statements, and provided in the segment table below, is similar to, or the same as, that reviewed on a regular basis by the Company's Chief Executive Officer.
 
At June 30, 2016, the Company’s operations are organized into the following reportable segments:
Consumer - The Consumer segment is comprised of the Company's consumer brands, which primarily include Revlon, Almay, SinfulColors and Pure Ice in color 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 large volume retailers, chain drug and food stores, chemist shops, hypermarkets, general merchandise stores, the Internet/e-commerce, television shopping, department stores, one-stop shopping beauty retailers, specialty cosmetics stores and perfumeries in the U.S. and internationally. The Consumer segment also includes a skincare line under the Natural Honey brand and a hair color line under the Llongueras brand sold to large volume retailers and other retailers, primarily in Spain, which were acquired as part of the Colomer Acquisition. In October 2015 and in May 2016, the Company acquired the U.S. Cutex business and Cutex International business and related assets, respectively. The results of operations relating to the sales of Cutex nail care products are included within the Consumer segment.
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 to professional salons. The Company’s principal customers for its professional products include hair and nail salons and distributors to professional salons in the U.S. and internationally. The Professional segment also includes a multi-cultural line consisting of Creme of Nature hair care products sold to large volume retailers, other retailers and professional salons, primarily in the U.S.
Other - The Other segment primarily includes the operating results of the CBB business and related purchase accounting for the CBB Acquisition. CBB develops, manufactures, markets and distributes fragrances and other beauty products under various celebrity, lifestyle and fashion brands licensed from third parties, principally through

21

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

department stores and selective distribution in international territories. The results included within the Other segment are not material to the Company’s consolidated results of operations.
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 reportable segments. Segment profit also excludes unallocated corporate expenses and the impact of certain items that are not directly attributable to the reportable segments' underlying operating performance, which includes the impacts of: (i) restructuring and related charges; (ii) acquisition and integration costs; (iii) deferred compensation related to the accounting for the CBB Acquisition; and (iv) costs of sales resulting from a fair value adjustment in the second quarter of 2016 and 2015 to inventory acquired in the Cutex International Acquisition and CBB Acquisition, respectively. Such items are shown below 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 2015 Form 10-K. The Company's assets and liabilities 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 reportable segments is produced for the Company's Chief Executive Officer or included in these Consolidated Financial Statements.


























22

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 reportable segment for the three and six months ended June 30, 2016 and 2015.
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
Segment Net Sales:
 
 
 
 
 
 
 
Consumer
$
359.5

 
$
354.7

 
$
679.5

 
$
679.0

Professional
123.3

 
123.4

 
238.4

 
237.6

Other
$
6.1

 
$
4.3

 
10.6

 
4.3

Total
$
488.9

 
$
482.4

 
$
928.5

 
$
920.9

 
 
 
 
 
 
 
 
Segment Profit:
 
 
 
 
 
 
 
Consumer
$
81.0

 
$
83.8

 
$
139.4

 
$
146.0

Professional
24.1

 
24.3

 
49.7

 
53.5

Other
$
0.1

 
$
0.2

 
(0.8
)
 
0.2

Total
$
105.2

 
$
108.3

 
$
188.3

 
$
199.7

 
 
 
 
 
 
 
 
Reconciliation:
 
 
 
 
 
 
 
Segment Profit
$
105.2

 
$
108.3

 
$
188.3

 
$
199.7

Less:


 


 
 
 
 
Unallocated corporate expenses
16.2

 
15.8

 
30.4

 
30.5

Depreciation and amortization
26.3

 
25.2

 
52.2

 
50.8

Non-cash stock compensation expense
1.1

 
1.2

 
3.3

 
2.8

Non-Operating items:
 
 
 
 
 
 
 
Restructuring and related charges
0.5

 
(3.0
)
 
1.8

 
(2.3
)
Acquisition and integration costs
5.5

 
4.7

 
6.0

 
5.9

Deferred compensation related to CBB acquisition
0.9

 
0.7

 
1.8


0.7

Inventory purchase accounting adjustment, cost of sales
0.1

 
0.6

 
0.1

 
0.6

Operating Income
54.6

 
63.1

 
92.7

 
110.7

Less:
 
 
 
 
 
 
 
Interest Expense
20.9

 
20.5

 
41.9

 
40.5

Amortization of debt issuance costs
1.4

 
1.4

 
2.9

 
2.8

Foreign currency losses (gains), net
8.5

 
(7.9
)
 
5.1

 
8.0

Miscellaneous, net
0.2

 
0.2

 
0.5

 
0.2

Income from continuing operations before income taxes
$
23.6

 
$
48.9

 
$
42.3

 
$
59.2







23

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


As of June 30, 2016, the Company had operations established in 23 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.
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016

2015
Geographic area:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   Net sales:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      United States
$
263.0

 
54%
 
$
267.0

 
55%
 
$
510.7

 
55%
 
$
511.4

 
56%
  Outside of the United States
225.9

 
46%
 
215.4

 
45%
 
417.8

 
45%
 
409.5

 
44%
 
$
488.9

 

 
$
482.4

 

 
$
928.5

 
 
 
$
920.9

 
 

 
June 30, 2016
 
December 31, 2015
Long-lived assets, net:
 
 
 
 
 
 
United States
$
853.0

 
77%
 
$
854.7

 
79%
Outside of the United States
258.8

 
23%
 
232.4

 
21%
 
$
1,111.8

 
 
$
1,087.1

 
 

 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016

2015
Classes of similar products:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   Net sales: