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EX-32.2 - EXHIBIT 32.2 - REVLON CONSUMER PRODUCTS CORPrcpc-2017q1xex322.htm
EX-32.1 - EXHIBIT 32.1 - REVLON CONSUMER PRODUCTS CORPrcpc-2017q1xex321.htm
EX-31.2 - EXHIBIT 31.2 - REVLON CONSUMER PRODUCTS CORPrcpc-2017q1xex312.htm
EX-31.1 - EXHIBIT 31.1 - REVLON CONSUMER PRODUCTS CORPrcpc-2017q1xex311.htm
EX-4.2 - EXHIBIT 4.2 - REVLON CONSUMER PRODUCTS CORPrcpc-2017q1xex42.htm
EX-4.1 - EXHIBIT 4.1 - REVLON CONSUMER PRODUCTS CORPrcpc-2017q1xex41.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 March 31, 2017

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, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ¨
 
 
 
Accelerated filer ¨
Non-accelerated filer x   (Do not check if a smaller reporting company)
 
Smaller reporting company ¨
 
 
 
 
Emerging growth company ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

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 March 31, 2017, 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 March 31, 2017 (Unaudited) and December 31, 2016
 
Unaudited Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three Months Ended March 31, 2017 and 2016
 
Unaudited Consolidated Statement of Stockholder's Deficiency for the Three Months Ended March 31, 2017
 
Unaudited Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2017 and 2016
 
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)
 
March 31, 2017
 
December 31, 2016
 
(Unaudited)
 
 
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
121.5

 
$
186.8

Trade receivables, less allowance for doubtful accounts of $11.8 and $11.1 as of March 31, 2017 and December 31, 2016, respectively
375.7

 
423.9

Inventories
453.1

 
424.6

Prepaid expenses and other
106.7

 
84.9

Receivable from Revlon, Inc.
136.4

 
132.7

Total current assets
1,193.4

 
1,252.9

Property, plant and equipment, net of accumulated depreciation of $342.6 and $304.7 as of March 31, 2017 and December 31, 2016, respectively
322.7

 
320.5

Deferred income taxes
179.9

 
136.1

Goodwill
701.9

 
689.5

Intangible assets, net of accumulated amortization of $97.1 and $84.8 as of March 31, 2017 and December 31, 2016, respectively
611.8

 
636.6

Other assets
108.2

 
103.1

Total assets
$
3,117.9

 
$
3,138.7

 
 
 
 
LIABILITIES AND STOCKHOLDER’S DEFICIENCY
 
 
 
Current liabilities:
 
 
 
Short-term borrowings
$
11.4

 
$
10.8

Current portion of long-term debt
59.0

 
18.1

Accounts payable
301.9

 
296.9

Accrued expenses and other
346.0

 
382.7

Total current liabilities
718.3

 
708.5

Long-term debt
2,660.6

 
2,663.1

Long-term pension and other post-retirement plan liabilities
185.9

 
184.1

Other long-term liabilities
84.1

 
89.8

Stockholder’s deficiency:
 
 
 
RCPC preferred stock, par value $1.00 per share; 1,000 shares authorized; 546 shares issued and outstanding as of March 31, 2017 and December 31, 2016, 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 March 31, 2017 and December 31, 2016

 

Additional paid-in capital
966.1

 
964.4

Accumulated deficit
(1,309.9
)
 
(1,274.1
)
Accumulated other comprehensive loss
(241.8
)
 
(251.7
)
Total stockholder’s deficiency
(531.0
)
 
(506.8
)
Total liabilities and stockholder’s deficiency
$
3,117.9

 
$
3,138.7





See Accompanying Notes to Unaudited Consolidated Financial Statements

2



REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME
(dollars in millions)
 
Three Months Ended March 31,
 
2017
 
2016
 
 
 
 
Net sales
$
594.9

 
$
439.6

Cost of sales
265.1

 
153.9

      Gross profit
329.8

 
285.7

Selling, general and administrative expenses
351.2

 
245.8

Acquisition and integration costs
17.5

 
0.5

Restructuring charges and other, net
1.2

 
1.3

      Operating (loss) income
(40.1
)
 
38.1

Other expenses, net:
 
 
 
   Interest expense
35.0

 
21.0

   Amortization of debt issuance costs
2.2

 
1.5

   Foreign currency gains, net
(4.3
)
 
(3.4
)
   Miscellaneous, net
1.2

 
0.3

      Other expenses, net
34.1

 
19.4

(Loss) income from continuing operations before income taxes
(74.2
)
 
18.7

(Benefit from) provision for income taxes
(38.1
)
 
6.1

(Loss) income from continuing operations, net of taxes
(36.1
)
 
12.6

Income from discontinued operations, net of taxes
0.3

 
0.4

Net (loss) income
$
(35.8
)
 
$
13.0

Other comprehensive income:


 


   Foreign currency translation adjustments, net of tax (a)   
4.7

 
2.7

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

 
1.8

Pension curtailment gain, net of tax(d)
2.6

 

Reclassification into earnings of accumulated losses from the de-designated 2013 Interest Rate Swap, net of tax(e)
0.6

 

Revaluation of derivative financial instruments, net of reclassifications into earnings, net of tax(f)

 
(0.9
)
Other comprehensive income, net
9.9

 
3.6

Total comprehensive (loss) income
$
(25.9
)
 
$
16.6


(a) 
Net of tax expense of $1.0 million and $0.1 million for the three months ended March 31, 2017 and 2016, respectively.
(b) 
Net of tax expense of $0.4 million and $0.3 million for three months ended March 31, 2017 and 2016, respectively.
(c)
This other comprehensive (loss) 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.
(d) 
Net of tax expense of $0.3 million for the three months ended March 31, 2017.
(e)
Net of tax benefit of $0.4 million for the three months ended March 31, 2017.
(f)
Net of tax benefit of $0.5 million for the three months ended March 31, 2016.



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)

 
Preferred Stock
 
Additional Paid-In-Capital
 
Accumulated Deficit
 
Accumulated Other Comprehensive Loss
 
Total Stockholder’s Deficiency
 
 
 
 
 
 
 
 
 
 
Balance, January 1, 2017
$
54.6

 
$
964.4

 
$
(1,274.1
)
 
$
(251.7
)
 
$
(506.8
)
Stock-based compensation amortization
 
 
1.7

 
 
 
 
 
1.7

Net loss
 
 
 
 
(35.8
)
 
 
 
(35.8
)
Other comprehensive income, net (a)
 
 
 
 
 
 
9.9

 
9.9

Balance, March 31, 2017
$
54.6

 
$
966.1

 
$
(1,309.9
)
 
(241.8
)
 
$
(531.0
)


(a)
See Note 13, “Accumulated Other Comprehensive Loss,” regarding the changes in the accumulated balances for each component of other comprehensive loss during the three months ended March 31, 2017.







See Accompanying Notes to Unaudited Consolidated Financial Statements

4



REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in millions)
 
Three Months Ended March 31,
 
2017
 
2016
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net (loss) income
$
(35.8
)
 
$
13.0

Adjustments to reconcile net (loss) income to net cash used in operating activities:
 
 
 
   Depreciation and amortization
37.1

 
25.9

   Foreign currency gains from re-measurement
(4.7
)
 
(4.2
)
   Amortization of debt discount
0.3

 
0.4

   Stock-based compensation amortization
1.7

 
2.2

   (Benefit from) provision for deferred income taxes
(38.1
)
 
2.0

   Amortization of debt issuance costs
2.2

 
1.5

 Loss on sale of certain assets
0.4

 
0.2

   Pension and other post-retirement income
(0.1
)
 
(0.3
)
   Change in assets and liabilities, net of acquisitions:
 
 


      Decrease (increase) in trade receivables
52.0

 
(23.1
)
      Increase in inventories
(24.9
)
 
(23.9
)
      Increase in prepaid expenses and other current assets
(23.6
)
 
(19.5
)
      Increase (decrease) in accounts payable
5.6

 
(13.6
)
      Decrease in accrued expenses and other current liabilities
(43.8
)
 
(47.4
)
      Pension and other post-retirement plan contributions
(1.9
)
 
(1.9
)
      Purchases of permanent displays
(10.2
)
 
(10.5
)
      Other, net
(1.8
)
 
(0.6
)
Net cash used in operating activities
(85.6
)
 
(99.8
)
CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
Capital expenditures
(15.4
)
 
(7.4
)
Proceeds from the sale of certain assets

 
0.4

Net cash used in investing activities
(15.4
)
 
(7.0
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
Net decrease in short-term borrowings and overdraft
(3.4
)
 
(10.6
)
Net borrowings under the 2016 Revolving Credit Facility
40.9

 

Repayments under the 2016 Term Loan Facility
(4.5
)
 

Repayments under the Old Acquisition Term Loan

 
(13.4
)
Prepayments under the 2011 Term Loan

 
(11.5
)
Payment of financing costs
(0.8
)
 

Tax withholdings related to net share settlements of restricted stock units and awards
(1.4
)
 
(2.6
)
Other financing activities
(0.4
)
 
(0.9
)
Net cash provided by (used in) financing activities
30.4

 
(39.0
)
Effect of exchange rate changes on cash and cash equivalents
5.3

 
1.1

   Net decrease in cash and cash equivalents
(65.3
)
 
(144.7
)
   Cash and cash equivalents at beginning of period
186.8

 
326.9

   Cash and cash equivalents at end of period
$
121.5

 
$
182.2

Supplemental schedule of cash flow information:
 
 
 
   Cash paid during the period for:
 
 
 
Interest
$
49.4

 
$
27.8

Income taxes, net of refunds
$
2.4

 
$
2.0



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, including Elizabeth Arden, Inc. ("Elizabeth Arden"), "the Company") is the direct wholly-owned operating subsidiary of Revlon, Inc. ("Revlon"). Revlon is an indirect majority-owned subsidiary of MacAndrews & Forbes Incorporated (together with certain of its affiliates other than the Company and Revlon, "MacAndrews & Forbes"), a corporation wholly-owned by Ronald O. Perelman. The Company is a leading global beauty company with an iconic portfolio of brands. The Company develops, manufactures, markets, distributes and sells an extensive array of color cosmetics, hair color, hair care and hair treatments, fragrances, skin care, beauty tools, men’s grooming products, anti-perspirant deodorants and other beauty care products across a variety of distribution channels. The Company is building a combined organization that is entrepreneurial, agile and boldly creative, with a passion for beauty. The Company has strategic brand builders developing a diverse portfolio of iconic brands that delight consumers around the world wherever and however they shop for beauty. The Company strives to be an ethical company that values inclusive leadership and is committed to sustainable and responsible growth. The Company operates in four reporting segments: the consumer division (“Consumer”); Elizabeth Arden; the professional division (“Professional”); and Other. 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 Elizabeth Arden segment include prestige retailers, the mass retail channel, perfumeries, boutiques, department and specialty stores, travel retailers and distributors, as well as direct sales to consumers via Elizabeth Arden branded retail stores and e-commerce business. Elizabeth Arden products are also sold through the Elizabeth Arden Red Door Spa beauty salons and spas. 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, which the Company acquired in April 2015 (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 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 Company's accounts 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 Products Corporation's Annual Report on Form 10-K for the year ended December 31, 2016, filed with the SEC on March 3, 2017 (the "2016 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 the full year.
Certain prior year amounts in the Consolidated Financial Statements have been reclassified to conform to the current period's presentation.


6

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

Recently Adopted 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 shares to satisfy the employer’s minimum statutory income tax withholding obligation, forfeitures and income taxes when awards vest or are settled. The Company adopted ASU No. 2016-09 beginning on January 1, 2017 and the adoption of this new guidance did not have a material impact on the Company’s results of operations, financial condition and/or financial statement disclosures. The adoption of ASU No. 2016-09 resulted in tax withholdings related to net share settlements of restricted stock units and awards in the amount of $2.6 million, previously reported in the Unaudited Consolidated Statement of Cash Flows for the first quarter of 2016 as a component of cash flows from operating activities, to be reclassified as a component of cash flows from financing activities.
In July 2015, the FASB issued ASU No. 2015-11, "Inventory (Topic 330): Simplifying the Measurement of Inventory," which simplifies the subsequent measurement of inventories by requiring inventory to be measured at the lower of cost or net realizable value, rather than at the lower of cost or market. Net realizable value is defined as the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. The Company adopted ASU No. 2015-11 beginning on January 1, 2017 and the adoption of this new guidance did not have a material impact on the Company’s results of operations, financial condition and/or financial statement disclosures.

Recently Issued Accounting Pronouncements
In March 2017, the FASB issued ASU No. 2017-07, “Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost,” which changes the way that employers present net periodic pension cost ("NPPC") and net periodic postretirement benefit cost ("NPPBC") within the income statement. The amendment requires an employer to present the service cost component of NPPC and NPPBC in the same income statement line item(s) as other employee compensation costs arising from services rendered during the period. The other components of NPPC and NPPBC would be presented separately from this line item and below any subtotal of operating income; companies will need to disclose the line items used to present these other components of NPPC and NPPBC, if not separately presented. In addition, only the service cost component would be eligible for capitalization in assets. This guidance is effective retrospectively for annual and quarterly periods beginning after December 15, 2017, with early adoption permitted. The Company expects to adopt ASU No. 2017-07 beginning as of January 1, 2018, and does not expect this new guidance will have a material impact on the Company’s results of operations, financial condition and/or financial statement disclosures.

In January 2017, the FASB issued ASU No. 2017-04, “Simplifying the Test for Goodwill Impairment,” which simplifies the annual goodwill impairment analysis test by eliminating Step 2 of the current two-step impairment test. Under this new guidance, an entity would continue to perform the first step of the annual impairment test by comparing the carrying amount of a reporting unit with its fair value. If the carrying value of the reporting unit exceeds the fair value of the reporting unit, the goodwill impairment charge would be equal to the amount of such difference. This guidance is effective for annual periods beginning after December 15, 2019, with early adoption permitted. The Company expects to adopt ASU No. 2017-04 beginning as of January 1, 2020 and is in the process of assessing the impact that this new guidance is expected to have on the Company’s results of operations, financial condition and/or financial statement disclosures.

In January 2017, the FASB issued ASU No. 2017-01, “Clarifying the Definition of a Business,” which further clarifies the definition of a business in an effort to assist entities in evaluating whether a set of transferred assets constitutes a business. Under this new guidance, if substantially all of the fair value of gross assets acquired is concentrated in a single asset or similar asset group, the set of transferred assets would not meet the definition of a business and no further evaluation is necessary. If this threshold is not met, the entity would then evaluate whether the set of transferred assets and activities meets the requirement that a business include, at a minimum, an input and a process that together have the ability to create an output. This guidance is effective for annual and quarterly periods beginning after December 15, 2017, with early adoption permitted. The Company expects to adopt ASU No. 2017-01 beginning as of January 1, 2018 and does not expect this new guidance will have an impact on the Company’s results of operations, financial condition and/or financial statement disclosures.


2. BUSINESS COMBINATIONS
The Elizabeth Arden Acquisition
On September 7, 2016 (the "Elizabeth Arden Acquisition Date"), the Company completed the acquisition of Elizabeth Arden,

7

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

Inc. ("Elizabeth Arden" and the "Elizabeth Arden Acquisition") for a total cash purchase price of $1,034.3 million pursuant to an agreement and plan of merger (the "Merger Agreement") by and among Revlon, Products Corporation, RR Transaction Corp. ("Acquisition Sub," then a wholly-owned subsidiary of Products Corporation), and Elizabeth Arden. On the Elizabeth Arden Acquisition Date, Elizabeth Arden merged (the “Merger”) with and into Acquisition Sub, with Elizabeth Arden surviving the Merger as a wholly-owned subsidiary of Products Corporation. Elizabeth Arden is a global prestige beauty products company with an iconic portfolio of brands that are highly complementary to the Company's existing brand portfolio and are sold worldwide. In North America, Elizabeth Arden’s principal customers include prestige retailers, specialty stores, the mass retail channel, distributors, department stores and other retailers, as well as direct sales to consumers via its Elizabeth Arden Red Door branded retail stores and ElizabethArden.com e-commerce business. Elizabeth Arden products are also sold through the Elizabeth Arden Red Door Spa beauty salons and spas. Internationally, Elizabeth Arden’s portfolio of owned and licensed brands is sold to perfumeries, boutiques, department stores, travel retailers and distributors.
Products Corporation financed the Elizabeth Arden Acquisition with the proceeds from (i) a 7-year $1,800.0 million senior secured term loan facility (the “2016 Term Loan Facility” and such agreement being the “2016 Term Loan Agreement”); (ii) $35.0 million of borrowings under a 5-year $400.0 million senior secured asset-based revolving credit facility (the “2016 Revolving Credit Facility” and such agreement being the “2016 Revolving Credit Agreement” and such facility, together with the 2016 Term Loan Facility, the “2016 Senior Credit Facilities” and such agreements being the "2016 Credit Agreements"); (iii) $450.0 million aggregate principal amount of Products Corporation’s 6.25% Senior Notes due 2024 (the “6.25% Senior Notes”); and (iv) approximately $126.7 million of cash on hand.

Elizabeth Arden's results of operations are included in the Company’s Consolidated Financial Statements commencing on the Elizabeth Arden Acquisition Date.

For the three months ended March 31, 2017 the Company incurred $17.2 million of acquisition and integration costs in the
Consolidated Statement of Operations and Comprehensive (Loss) Income, related to the Elizabeth Arden Acquisition, which consist of $0.3 million of acquisition costs and $16.9 million of integration costs. The acquisition costs primarily include legal and consulting fees to complete the Elizabeth Arden Acquisition. The integration costs consist of non-restructuring costs related to integrating Elizabeth Arden's operations into the Company's business.

Purchase Price Allocation
The Company accounted for the Elizabeth Arden Acquisition as a business combination during the third quarter of 2016. The table below summarizes the amounts recognized for assets acquired and liabilities assumed as of the Elizabeth Arden Acquisition Date, as well as adjustments made in the periods after the Elizabeth Arden Acquisition Date to the amounts initially recorded (the "Measurement Period Adjustments"). The effects of these Measurement Period Adjustments have been reflected in the Company's balance sheets as of December 31, 2016 and March 31, 2017, respectively, as each adjustment has been identified.


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 $1,034.3 million was recorded based on the respective estimated fair values of the net assets acquired on the Elizabeth Arden Acquisition Date with resulting goodwill, as follows:
 
Estimated Fair Value as Previously Reported(a)
 
Measurement Period Adjustments
 
Estimated Fair Value as Adjusted
Cash
$
41.1

 
 
 
$
41.1

Accounts Receivable
132.6

 

 
132.6

Inventories
323.3

 

 
323.3

Prepaid expenses and other current assets
30.7

 

 
30.7

Property and equipment
91.2

 

 
91.2

Deferred taxes, net (b)
68.7

 
10.0

 
78.7

Intangible assets(c)
336.8

 
(15.4
)
 
321.4

Goodwill
221.7

 
12.3

 
234.0

Other assets
16.6

 

 
16.6

     Total assets acquired
$
1,262.7

 
$
6.9

 
$
1,269.6

Accounts payable
(116.0
)
 

 
(116.0
)
Accrued expenses (d)
(109.3
)
 
1.7

 
(107.6
)
Other long-term liabilities(e)
(3.1
)
 
(8.6
)
 
(11.7
)
     Total liabilities acquired
$
(228.4
)
 
$
(6.9
)
 
$
(235.3
)
     Total consideration transferred
$
1,034.3

 
$

 
$
1,034.3

(a) As previously reported in Products Corporation's 2016 Form 10-K.

(b) The Measurement Period Adjustments to deferred taxes, net, related to net increases in deferred tax assets as a result of the changes to the estimated fair values and remaining useful lives of acquired trade name intangible assets and the recognition of non-qualified benefit plan obligations of Elizabeth Arden, as discussed further below.

(c) The Measurement Period Adjustments to intangible assets during the three months ended March 31, 2017 relate to a revised approach in the determination of the fair values for the acquired Elizabeth Arden trade names. During the first quarter of 2017, the Company obtained further clarity into the product portfolio acquired through the Elizabeth Arden Acquisition identifying that each brand has its own distinct profile, with its own defining attributes, as well as differing expected useful lives, which resulted in this revised approach. The Company valued the acquired trade names within the Elizabeth Arden product portfolio, including Visible Difference, Elizabeth Arden Ceramide, Prevage, Eight Hour Cream, Elizabeth Arden Red Door, Elizabeth Arden Green Tea, and Elizabeth Arden 5th Avenue. The Company determined the fair values of each acquired trade name using a risk-adjusted discounted cash flow approach, specifically the relief-from-royalty method. The relief-from-royalty method requires identifying the hypothetical cash flows generated by an assumed royalty rate that a third party would pay to license the trade names, and discounting them back to the Elizabeth Arden Acquisition Date. The royalty rate used in the valuation of each acquired trade name was based on a consideration of market rates for similar categories of assets.

The difference between the preliminary valuation of the Elizabeth Arden trade name and the sum of the fair values of the individual trade names within the Elizabeth Arden product portfolio resulted in an increase to goodwill of $15.4 million. As a result of the revised approach, the Company recognized amortization expense of approximately $1.8 million in its Unaudited Consolidated Statement of Operations and Comprehensive (Loss) Income during the first quarter of 2017 related to the amortization of the acquired trade names from the date of acquisition through December 31, 2016.

(d) The Measurement Period Adjustments to accrued expenses during the three months ended March 31, 2017 relate to changes in estimated payments for acquisition related costs.

(e) The Measurement Period Adjustments to other long-term liabilities during the three months ended March 31, 2017 relate to the recognition of the projected benefit obligation of a certain foreign non-qualified benefit plan of Elizabeth Arden.

The fair values of the net assets acquired in the Elizabeth Arden Acquisition were based on management’s preliminary estimate of the respective fair values of Elizabeth Arden’s net assets. The estimated fair values of net assets and resulting goodwill are subject to the Company finalizing its analysis of the fair value of Elizabeth Arden’s assets and liabilities as of the Elizabeth Arden Acquisition Date and may be adjusted upon completion of such analysis. In addition, information unknown at the time of the

9

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

Elizabeth Arden Acquisition could result in adjustments to the respective fair values and resulting goodwill within the year following the Elizabeth Arden Acquisition Date.

In determining the fair values of net assets acquired in the Elizabeth Arden Acquisition and resulting goodwill, the Company considered, among other factors, the analyses of Elizabeth Arden's historical financial performance and an estimate of the future performance of the acquired business, as well as the intended use of the acquired assets.

The intangible assets acquired in the Elizabeth Arden Acquisition based on the estimate of the fair values of the identifiable intangible assets are as follows:
 
As Previously Reported(a)
 
 
 
Adjusted
 
Estimated Fair Values
 
Remaining Useful Life at the Elizabeth Arden Acquisition Date (in years)
 
Measurement Period Adjustments (b)
 
Estimated Fair Values
 
Remaining Useful Life at the Elizabeth Arden Acquisition Date
(in years)
Trademarks, indefinite-lived
$
142.0

 
Indefinite
 
$
(103.0
)
 
39.0

 
Indefinite
Trademarks, finite-lived
15.0

 
15.0
 
87.6

 
102.6

 
5 - 20
Technology
2.5

 
10.0
 

 
2.5

 
10.0
Customer relationships
123.0

 
16.0
 

 
123.0

 
16.0
License agreements
22.0

 
19.0
 

 
22.0

 
19.0
Distribution rights
31.0

 
18.0
 

 
31.0

 
18.0
Favorable lease commitments
1.3

 
3.0
 

 
1.3

 
3.0
     Total acquired intangible assets
$
336.8

 
 
 
$
(15.4
)
(b) 
$
321.4

 
 
(a) As previously reported in Products Corporation's 2016 Form 10-K.

(b) The Measurement Period Adjustments to the Elizabeth Arden acquired trade names resulted in a $15.4 million increase to goodwill.

The Company recorded a $54.8 million deferred tax liability related to the $321.4 million of acquired intangible assets outlined in the above table. This deferred tax liability represents the tax effect of the difference between the $321.4 million estimated assigned fair value of the intangible assets and the $148.6 million tax basis of such assets.

The goodwill and intangible assets acquired in the Elizabeth Arden Acquisition are not expected to be deductible for income tax purposes.

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 months ended March 31, 2016, respectively. The unaudited pro forma results include the historical consolidated statements of operations of the Company and Elizabeth Arden, giving effect to the Elizabeth Arden Acquisition and related financing transactions as if they had occurred at the beginning of the earliest period presented.

 
Unaudited Pro Forma Results
 
Three Months Ended
 
 
March 31, 2016
Net sales
 
$
631.5

Loss from continuing operations, before income taxes
 
$
(17.7
)

The pro forma results, prepared in accordance with U.S. GAAP, include the following pro forma adjustments related to the Elizabeth Arden Acquisition:

(i) a $0.6 million pro forma decrease in depreciation as a result of the preliminary fair value adjustments to property and equipment;

10

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


(ii) a $1.5 million pro forma increase in amortization expense of acquired finite-lived intangible assets recorded in connection with the Elizabeth Arden Acquisition for the three months ended March 31, 2016; and

(iii) a pro forma increase in interest expense and amortization of debt issuance costs, related to financing the Elizabeth Arden Acquisition and related debt restructuring transactions as summarized in the following table:
 
 
 
($ in millions)
 
March 31, 2016 (a)
Interest Expense
 
 
Pro forma interest on 2016 Senior Credit Facilities and 6.25% Senior Notes
 
$
26.9

Reversal of Elizabeth Arden’s historical interest expense
 
(6.5
)
Products Corporation's historical interest expense, as reflected in the historical consolidated financial statements
 
(12.5
)
Total Adjustment for Pro Forma Interest Expense
 
$
7.9

Debt issuance costs
 
 
Pro forma amortization of debt issuance costs
 
$
1.9

Products Corporation's historical amortization of debt issuance costs, as reflected in the historical consolidated financial statements
 
(1.1
)
Reversal of Elizabeth Arden’s historical amortization of debt issuance costs
 
(0.4
)
Total Adjustment for Pro Forma Amortization of Debt Issuance Costs
 
$
0.4


(a) 2016 pro forma adjustments are for the period January 1, 2016 through March 31, 2016.

The unaudited pro forma results do not include: (1) any incremental revenue generation, synergies or cost reductions that may be achieved as a result of the Elizabeth Arden Acquisition; or (2) the impact of non-operating or non-recurring items directly related to the Elizabeth Arden Acquisition. In addition, the unaudited pro forma results do not purport to project the future consolidated operating results of the combined company.


3. RESTRUCTURING CHARGES
EA Integration Restructuring Program
In December 2016, in connection with integrating the Elizabeth Arden and Revlon organizations, the Company began the process of implementing certain integration activities, including consolidating offices, eliminating certain duplicative activities and streamlining back-office support (the “EA Integration Restructuring Program”). The EA Integration Restructuring Program is designed to reduce the Company’s SG&A expenses. As a result of the EA Integration Restructuring Program, the Company expects to eliminate approximately 350 positions worldwide.
In connection with implementing the EA Integration Restructuring Program, the Company expects to recognize approximately $65 million to $75 million of total pre-tax restructuring charges (the “EA Integration Restructuring Charges”), consisting of: (i) approximately $40 million to $50 million of employee-related costs, including severance, retention and other contractual termination benefits; (ii) approximately $15 million of lease termination costs; and (iii) approximately $10 million of other related charges.


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 March 31, 2017 in connection with the EA Integration Restructuring Program is presented in the following table:
 
Restructuring Charges and Other, Net
 
 
 
 
 
 
 
Employee Severance and Other Personnel Benefits
 
Other
 
Total Restructuring Charges
 
Inventory Adjustments (a)
 
Other Related Charges(b)
 
Total Restructuring and Related Charges
Charges incurred through December 31, 2016
$
31.5

 
$
0.2

 
$
31.7

 
$
0.5

 
$
2.3

 
$
34.5

Charges incurred during the three months ended March 31, 2017
1.1

 
0.1

 
1.2

 

 
(0.1
)
 
1.1

Cumulative charges incurred through March 31, 2017
$
32.6

 
$
0.3

 
$
32.9

 
$
0.5

 
$
2.2

 
$
35.6


(a) Inventory adjustments are recorded within cost of sales in the Company’s Consolidated Statement of Operations and Comprehensive (Loss) Income.
(b) Other restructuring related charges are recorded within SG&A in the Company’s Consolidated Statement of Operations and Comprehensive (Loss) Income.

A summary of the restructuring charges incurred through March 31, 2017 in connection with the EA Integration Restructuring Program by reportable segment is presented in the following table:
 
 
Charges incurred during the three months ended
 
Cumulative Charges incurred through
 
 
March 31, 2017
 
March 31, 2017
Elizabeth Arden
 
$
1.5

 
$
8.0

Consumer
 
(0.5
)
 
3.7

Professional
 
0.2

 
5.8

Unallocated Corporate Expenses
 

 
15.4

     Total
 
$
1.2

 
$
32.9



The Company expects that cash payments will total $65 million to $75 million in connection with the EA Integration Restructuring Charges, of which $5.1 million was paid in the three months ended March 31, 2017. The remaining balance is expected to be substantially paid by the end of 2020.


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 each of the Company's restructuring programs are presented in the following table:
 
 
 
 
 
 
 
Utilized, Net
 
 
Liability
Balance at January 1, 2017
 
(Income) Expense, Net
 
Foreign Currency Translation
 

Cash
 

Non-cash
 
Liability Balance at March 31, 2017
 
 
 
 
 
 
 
 
 
 
 
 
EA Integration Restructuring Program:(a)
 
 
 
 
 
 
 
 
 
 
 
Employee severance and other personnel benefits
$
31.5

 
$
1.1

 
$

 
$
(3.7
)
 
$

 
$
28.9

Other
3.0

 

 

 
(1.4
)
 
(0.5
)
 
1.1

2015 Efficiency Program:(c)
 
 
 
 
 
 
 
 
 
 
 
Employee severance and other personnel benefits
4.5

 

 

 
(0.6
)
 
(0.1
)
 
3.8

Other
0.2

 

 

 

 

 
0.2

Other immaterial actions: (b)

 

 

 

 

 

Employee severance and other personnel benefits
2.6

 
0.3

 

 
(0.5
)
 

 
2.4

Other
1.0

 
0.1

 

 
(0.1
)
 

 
1.0

Total restructuring reserve
$
42.8

 
$
1.5

 
$

 
$
(6.3
)
 
$
(0.6
)
 
$
37.4


(a) Includes $(0.1) million in other restructuring related charges that were reflected within SG&A in the Company’s March 31, 2017 Unaudited Consolidated Statement of Operations and Comprehensive (Loss) Income.

(b) Consists primarily of: $0.4 million in charges related to the program that Elizabeth Arden commenced prior to the Elizabeth Arden Acquisition to further align their organizational structure and distribution arrangements for the purpose of improving its go-to-trade capabilities and execution and to streamline their organization (the "Elizabeth Arden 2016 Business Transformation Program").

(c) 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 are planned to occur through 2017 and are expected to reduce general and administrative expenses within the Consumer and Professional segments. Of the approximately $12.0 million total expected cash payments related to the 2015 Efficiency Program, $6.7 million was paid through March 31, 2017, with the remaining balance expected to be paid by the end of 2017. A summary of the restructuring and related charges incurred through March 31, 2017 in connection with the 2015 Efficiency Program by reportable segment is presented in the following table:
 
Cumulative Charges incurred through
 
March 31, 2017
Consumer
$
6.4

Professional
3.7

Unallocated Corporate Expenses
0.7

     Total
$
10.8


At March 31, 2017 and 2016, all of the restructuring reserve balances were included within accrued expenses and other in the Company's Consolidated Balance Sheets.


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 within the Consumer segment.

13

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

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 March 31,
 
2017
 
2016
Net sales
$

 
$

Income from discontinued operations, before taxes
0.3

 
0.4

Provision for income taxes

 

Income from discontinued operations, net of taxes
0.3

 
0.4

Assets and liabilities of the China discontinued operations included in the Consolidated Balance Sheets consist of the following:
 
March 31, 2017
 
December 31, 2016
Cash and cash equivalents
$
1.7

 
$
1.7

Trade receivables, net
0.2

 
0.2

Total current assets
1.9

 
1.9

Total assets
$
1.9

 
$
1.9

 

 

Accounts payable
$
0.5

 
$
0.5

Accrued expenses and other
3.3

 
3.3

Total current liabilities
3.8

 
3.8

Total liabilities
$
3.8

 
$
3.8



5. INVENTORIES
 
March 31, 2017
 
December 31, 2016
Raw materials and supplies
$
90.2

 
$
72.9

Work-in-process
12.5

 
33.5

Finished goods
350.4

 
318.2

 
$
453.1

 
$
424.6



6. GOODWILL AND INTANGIBLE ASSETS, NET

Goodwill

The following table presents the changes in goodwill by segment during the three months ended March 31, 2017:
 
Consumer
 
Professional
 
Elizabeth Arden
 
 Other
 
Total
Balance at January 1, 2017
$
227.5

 
$
240.3

 
$
221.7

 
$

 
$
689.5

Measurement Period Adjustments(a)

 

 
12.3

 

 
12.3

Foreign currency translation adjustment

 
0.1

 

 

 
0.1

Balance at March 31, 2017
$
227.5

 
$
240.4

 
$
234.0

 
$

 
$
701.9

 
 
 
 
 
 
 
 
 
 
Cumulative goodwill impairment charges(b)
$
(9.7
)
 
$

 
$

 
$
(16.7
)
 
$
(26.4
)


14

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

(a) Refer to Note 2, "Business Combinations," for more information on the Measurement Period Adjustments related to the Elizabeth Arden Acquisition.

(b) Cumulative goodwill impairment charges relate to impairments recognized in 2015 within the Consumer segment and in 2016 within the Other segment.

Intangible Assets, Net

The following tables present details of the Company's total intangible assets:
 
March 31, 2017
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net Carrying Amount
 
Weighted Average Useful Life (in Years)
Finite-lived intangible assets:
 
 
 
 
 
 
 
Trademarks and Licenses
$
266.6

 
$
(55.0
)
 
$
211.6

 
14
Customer relationships
248.3

 
(34.1
)
 
214.2

 
14
Patents and Internally-Developed IP
20.7

 
(6.7
)
 
14.0

 
8
Distribution rights
31.0

 
(1.0
)
 
30.0

 
17
Other
1.3

 
(0.3
)
 
1.0

 
2
Total finite-lived intangible assets
$
567.9

 
$
(97.1
)
 
$
470.8

 
 
 
 
 
 
 
 
 
 
Indefinite-lived intangible assets:
 
 
 
 
 
 
 
Trade Names
$
141.0

 
$

 
$
141.0

 
 
Total indefinite-lived intangible assets
$
141.0

 
$

 
$
141.0

 
 
 
 
 
 
 
 
 
 
Total intangible assets
$
708.9

 
$
(97.1
)
 
$
611.8

 
 
 
 
 
 
 
 
 
 
 
December 31, 2016
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net Carrying Amount
 
Weighted Average Useful Life (in Years)
Finite-lived intangible assets:
 
 
 
 
 
 
 
Trademarks and Licenses
$
177.9

 
$
(47.9
)
 
$
130.0

 
13
Customer relationships
247.6

 
(30.1
)
 
217.5

 
14
Patents and Internally-Developed IP
20.3

 
(6.1
)
 
14.2

 
8
Distribution rights
31.0

 
(0.5
)
 
30.5

 
18
Other
$
1.3

 
$
(0.2
)
 
$
1.1

 
3
Total finite-lived intangible assets
$
478.1

 
$
(84.8
)
 
$
393.3

 
 
 
 
 
 
 
 
 
 
Indefinite-lived intangible assets:
 
 
 
 
 
 
 
Trade Names
$
243.3

 
$

 
$
243.3

 
 
Total indefinite-lived intangible assets
$
243.3

 
$

 
$
243.3

 
 
 
 
 
 
 
 
 
 
Total intangible assets
$
721.4

 
$
(84.8
)
 
$
636.6

 
 

Amortization expense for finite-lived intangible assets was $11.9 million and $5.9 million for the three months ended March 31, 2017 and 2016, respectively.


15

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 March 31, 2017:
 
Estimated Amortization Expense
2017
$
27.9

2018
39.0

2019
36.4

2020
35.6

2021
34.5

Thereafter
297.4

Total
$
470.8



7. ACCRUED EXPENSES AND OTHER
 
March 31, 2017
 
December 31, 2016
Compensation and related benefits
53.1

 
75.8

Advertising and promotional costs
78.4

 
66.7

Sales returns and allowances
50.8

 
51.9

Taxes
32.2

 
39.0

Restructuring reserve
36.5

 
38.0

Interest
9.7

 
24.4

Other
85.3

 
86.9

 
$
346.0

 
$
382.7



8. LONG-TERM DEBT
 
March 31, 2017
 
December 31, 2016
2016 Term Loan Facility: 2016 Term Loan due 2023, net of discounts and debt issuance costs (a)
$
1,744.7

 
$
1,747.8

2016 Revolving Credit Facility, due 2021 (b)
40.9

 

6.25% Senior Notes due 2024, net of debt issuance costs (c)
439.4

 
439.1

5.75% Senior Notes due 2021, net of debt issuance costs (d)
494.1

 
493.8

Spanish Government Loan due 2025  (e)
0.5

 
0.5

 
2,719.6

 
2,681.2

Less current portion (*)   
(59.0
)
 
(18.1
)
 
$
2,660.6

 
$
2,663.1


(*) At March 31, 2017, the Company classified $59.0 million as the current portion of long-term debt, comprised primarily of $40.9 million of borrowings under the 2016 revolving credit facility and $18.0 million of amortization payments on the 2016 Term Loan Facility scheduled to be paid over the next four calendar quarters. At December 31, 2016, the Company classified $18.1 million as the current portion of long-term debt, comprised primarily of $18.0 million of amortization payments on the 2016 Term Loan Facility.

(a) See Note 11, "Long-Term Debt," to the Consolidated Financial Statements in Products Corporation's 2016 Form 10-K for certain details regarding Products Corporation's 2016 Term Loan that matures on the earlier of: (x) the seventh anniversary of the Elizabeth Arden Acquisition Date and (y) the 91st day prior to the maturity of Products Corporation’s 5.75% Senior Notes due 2021 if, on that date (and solely for so long as), (i) any of Products Corporation's 5.75% Senior Notes remain outstanding and (ii) Products Corporation’s available liquidity does

16

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

not exceed the aggregate principal amount of the then outstanding 5.75% Senior Notes by at least $200.0 million. The aggregate principal amount outstanding under the 2016 Term Loan Facility at March 31, 2017 was $1,791.0 million.

(b) See Note 11, "Long-Term Debt," to the Consolidated Financial Statements in Products Corporation's 2016 Form 10-K for certain details regarding Products Corporation's 2016 Revolving Credit Facility, which matures on the earlier of: (x) the fifth anniversary of the Elizabeth Arden Acquisition Date; and (y) the 91st day prior to the maturity of Products Corporation’s 5.75% Senior Notes if, on that date (and solely for so long as), (i) any of Products Corporation’s 5.75% Senior Notes remain outstanding and (ii) Products Corporation’s available liquidity does not exceed the aggregate principal amount of the then outstanding 5.75% Senior Notes by at least $200.0 million. Total net borrowings under the 2016 Revolving Credit Facility at March 31, 2017 were $40.9 million.
(c) See Note 11, "Long-Term Debt," to the Consolidated Financial Statements in Products Corporation's 2016 Form 10-K for certain details regarding Products Corporation's 6.25% Senior Notes that mature on August 1, 2024. The aggregate principal amount outstanding under the 6.25% Senior Notes at March 31, 2017 was $450 million.
(d) See Note 11, "Long-Term Debt," to the Consolidated Financial Statements in Products Corporation's 2016 Form 10-K for certain details regarding Products Corporation's 5.75% Senior Notes that mature on February 15, 2021. The aggregate principal amount outstanding under the 5.75% Senior Notes at March 31, 2017 was $500 million.
(e) See Note 11, "Long-Term Debt," to the Consolidated Financial Statements in Products Corporation's 2016 Form 10-K for certain details regarding the euro-denominated loan payable to the Spanish government that matures on June 30, 2025.

Covenants
Products Corporation was in compliance with all applicable covenants under the 2016 Senior Credit Facilities as of March 31, 2017. At March 31, 2017, the aggregate principal amounts outstanding under the 2016 Term Loan Facility and the 2016 Revolving Credit Facility were $1,791.0 million and $40.9 million, respectively, and availability under the $400.0 million 2016 Revolving Credit Facility, based upon the calculated borrowing base of $330.4 million less $10.0 million of outstanding undrawn letters of credit, less $15.4 million of outstanding checks and $40.9 million then drawn on the 2016 Revolving Credit Facility was $264.1 million.
Products Corporation was in compliance with all applicable covenants under the indentures governing Products Corporation's 6.25% Senior Notes and 5.75% Senior Notes (together, the "Senior Notes Indentures") as of March 31, 2017.


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.

17

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

As of March 31, 2017, 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)     
$
1.3

 
$

 
$
1.3

 
$

Total assets at fair value
$
1.3

 
$

 
$
1.3

 
$

Liabilities:
 
 
 
 
 
 
 
Derivatives:
 
 
 
 
 
 
 
FX Contracts(a)    
$
0.5

 
$

 
$
0.5

 
$

2013 Interest Rate Swap(b)
3.5

 

 
3.5

 

Total liabilities at fair value
$
4.0

 
$

 
$
4.0

 
$


As of December 31, 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)     
$
2.3

 
$

 
$
2.3

 
$

Total assets at fair value
$
2.3

 
$

 
$
2.3

 
$

Liabilities:
 
 
 
 
 
 
 
Derivatives:
 
 
 
 
 
 
 
FX Contracts(a)    
$
1.1

 
$

 
$
1.1

 
$

2013 Interest Rate Swap(b)
4.7

 

 
4.7

 

Total liabilities at fair value
$
5.8

 
$

 
$
5.8

 
$


(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."
(b) 
The fair value of Products Corporation'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 March 31, 2017, 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
$

 
$
2,785.9

 
$

 
$
2,785.9

 
$
2,719.6

As of December 31, 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
$

 
$
2,770.9

 
$

 
$
2,770.9

 
$
2,681.2


18

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 $10.0 million and $10.4 million (including amounts available under credit agreements in effect at that time) were maintained at March 31, 2017 and December 31, 2016, respectively. Included in these amounts are approximately $6.9 million and $7.3 million at March 31, 2017 and December 31, 2016, 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, 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 March 31, 2017 and December 31, 2016 was $124.7 million and $79.6 million, respectively.
Interest Rate Swap Transaction
In November 2013, Products Corporation executed a forward-starting floating-to-fixed interest rate swap transaction (the "2013 Interest Rate Swap") that, at its inception, was based on a notional amount of $400 million in respect of indebtedness under Products Corporation’s 2013 term loan, that was incurred in connection with completing the 2013 acquisition of The Colomer Group (the "Old Acquisition Term Loan"). The 2013 Interest Rate Swap initially had a floor of 1.00% that in December 2016 was amended to 0.75%. In connection with entering into the 2016 Term Loan Facility, the 2013 Interest Swap was carried over to apply to a notional amount of $400 million in respect of indebtedness under such loan for the remaining balance of the term of such swap. The Company initially designated the 2013 Interest Rate Swap as a cash flow hedge of the variability of the forecasted three-month LIBOR interest rate payments initially related to the $400 million notional amount under the Old Acquisition Term Loan over the three-year term of the 2013 Interest Rate Swap (and subsequently to the $400 million notional amount under the 2016 Term Loan Facility for the remaining balance of the term of such swap). Under the terms of the 2013 Interest Rate Swap, commencing in May 2015, Products Corporation receives from the counterparty a floating interest rate based on the higher of the three-month U.S. Dollar LIBOR or the floor percentage in effect, while paying a fixed interest rate payment to the counterparty equal to 2.0709% (which, with respect to the 2016 Term Loan Facility, effectively fixes the interest rate on such notional amount at 5.5709% over the remaining balance of the three-year term of the 2013 Interest Rate Swap). At March 31, 2017, the fair value of the 2013 Interest Rate Swap was a liability of $3.5 million and the accumulated loss recorded in accumulated other comprehensive loss was $2.4 million, net of tax.
As a result of completely refinancing the Old Acquisition Term Loan with a portion of the proceeds from Product's Corporation's consummation of the 2016 Senior Credit Facilities and the 6.25% Senior Notes Offering in connection with consummating the Elizabeth Arden Acquisition, the critical terms of the 2013 Interest Rate Swap no longer matched the terms of the underlying debt under the 2016 Term Loan Facility. At the refinancing date, which was the same as the September 7, 2016 Elizabeth Arden Acquisition Date (the "De-designation Date"), the 2013 Interest Rate Swap was determined to no longer be highly effective and the Company discontinued hedge accounting for the 2013 Interest Rate Swap. Following the de-designation of the 2013 Interest Rate Swap, changes in fair value are accounted for as a component of other non-operating expenses. Accumulated deferred losses of $6.3 million, or $3.9 million net of tax, at the De-designation Date that were previously recorded as a component of accumulated other comprehensive loss will be amortized into earnings over the remaining term of the 2013 Interest Rate Swap. At March 31, 2017, $3.9 million, or $2.4 million net of tax, remains as a component of accumulated other comprehensive loss related to the 2013 Interest Rate Swap. See "Quantitative Information – Derivative Financial Instruments" below).

19

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 $2.1 million of the net of tax deferred net losses related to the 2013 Interest Rate Swap will be amortized into earnings over the next 12 months.
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 $1.3 million and $2.3 million as of March 31, 2017 and December 31, 2016, 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.

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
 
March 31,
2017
 
December 31,
2016
 
Balance Sheet
 
March 31,
2017
 
December 31,
2016
 
Classification
 
Fair Value
 
Fair Value
 
Classification
 
Fair Value
 
Fair Value
Derivatives not designated as hedging instruments:
 
 
 
 
 
 
 
 
FX Contracts(ii)   
Prepaid expenses and other
 
$
1.3

 
$
2.3

 
Accrued Expenses
 
$
0.5

 
$
1.1

2013 Interest Rate Swap(i)
Prepaid expenses and other
 
$

 
$

 
Accrued expenses and other
 
$
3.1

 
$
3.7

 
Other assets
 
$

 
$

 
Other long-term liabilities
 
$
0.4

 
$
1.0


(i) The fair values of the 2013 Interest Rate Swap at March 31, 2017 and December 31, 2016 were measured based on the implied forward rates from the U.S. Dollar three-month LIBOR yield curve at March 31, 2017 and December 31, 2016, respectively.

(ii) The fair values of the FX Contracts at March 31, 2017 and December 31, 2016 were measured based on observable market transactions of spot and forward rates at March 31, 2017 and December 31, 2016, respectively.

(b) Effects of Derivative Financial Instruments on the Consolidated Statements of Operations and Comprehensive (Loss)Income for the three months ended March 31, 2017 and 2016:
 
Amount of Gain (Loss) Recognized in Other Comprehensive (Loss) Income
Three Months Ended March 31,
2017

2016
Derivatives designated as hedging instruments:
 
 
 
2013 Interest Rate Swap, net of tax (a)
$
0.6

 
$
(0.9
)
(i) 
Net of tax benefit of $0.4 million and $0.5 million for the three months ended March 31, 2017 and 2016, respectively.

20

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

 
Statement of Operations Classification
Amount of Gain (Loss) Recognized in Net (Loss) Income
Three Months Ended March 31,
2017
 
2016
Derivatives designated as hedging instruments:
 
 
 
2013 Interest Rate Swap
Interest Expense
$
(1.0
)
 
$
(1.1
)
Derivatives not designated as hedging instruments:
 
 
 
FX Contracts
Foreign currency gain (loss), net
$
(0.4
)
 
$
(0.8
)
2013 Interest Rate Swap
Miscellaneous, net
$
0.2

 
$



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 first quarter of 2017 and 2016 were as follows:
 


Pension Plans
 
Other
Post-Retirement
Benefit Plans
 
Three Months Ended March 31,
 
2017
 
2016
 
2017
 
2016
Net periodic benefit (income) costs:
 
Service cost
$
0.5

 
$
0.1

 
$

 
$

Interest cost
4.8

 
5.2

 
0.1

 
0.1

Expected return on plan assets
(7.1
)
 
(7.8
)
 

 

Amortization of actuarial loss
2.4

 
2.1

 
0.1

 

Curtailment gain
(0.8
)
 

 

 

 
(0.2
)
 
(0.4
)
 
0.2

 
0.1

Portion allocated to Revlon Holdings
(0.1
)
 

 

 

 
$
(0.3
)
 
$
(0.4
)
 
$
0.2

 
$
0.1

In the three months ended March 31, 2017, the Company recognized net periodic benefit income of $0.1 million, compared to net periodic benefit income of $0.3 million in the three months ended March 31, 2016. The decrease was primarily due to lower return on plan assets during the first quarter of 2017, partially offset by a curtailment gain resulting from a certain foreign non-qualified benefit plan of Elizabeth Arden.
Net periodic benefit costs (income) are reflected in the Company's Consolidated Financial Statements as follows:
 
Three Months Ended March 31,
 
2017
 
2016
Net periodic benefit (income) costs:
 
 
 
Cost of sales
$
(0.4
)
 
$
(0.8
)
Selling, general and administrative expense
0.3

 
0.5

 
$
(0.1
)
 
$
(0.3
)
The Company expects that it will have net periodic benefit cost of approximately $3 million for its pension and other post-retirement benefit plans for all of 2017, compared with net periodic benefit income of $0.6 million in 2016.
During the first quarter of 2017, $1.7 million and $0.2 million were contributed to the Company’s pension plans and other post-retirement benefit plans, respectively. During 2017, the Company expects to contribute approximately $10.0 million in the aggregate to its pension and other post-retirement benefit plans.

21

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

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, "Pension and Post-Retirement Benefits," to the Consolidated Financial Statements in Products Corporation's 2016 Form 10-K.


12. INCOME TAXES
The Company's provision for income taxes represents federal, foreign, state and local income taxes. The Company's 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, 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.
The Company recorded a $38.1 million benefit from income taxes in the first quarter of 2017 and a $6.1 million expense for income taxes in the first quarter of 2016. The $44.2 million decrease in the provision for income taxes was primarily due to the pretax loss from continuing operations in the first quarter of 2017.
The Company's effective tax rate for the three months ended March 31, 2017 was higher than the federal statutory rate of 35% as a result of foreign dividends and earnings taxable in the U.S., state and local taxes, as well as the effect of certain favorable discrete items.
The Company's effective tax rate for the three months ended March 31, 2016 was approximately equal to the federal statutory rate of 35% as a result of foreign dividends and earnings taxable in the U.S., as well as state and local taxes that were largely offset by the effect of certain favorable discrete items.


13. ACCUMULATED OTHER COMPREHENSIVE LOSS
The components of accumulated other comprehensive loss as of March 31, 2017 were 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, 2017
$
(24.0
)
 
$
(224.4
)
 
$
(3.0
)
 
$
(0.3
)
 
$
(251.7
)
Currency translation adjustment, net of tax of $1.0 million
4.7

 

 

 

 
4.7

Amortization of pension related costs, net of tax of $0.4 million(a)     

 
2.0

 

 

 
2.0

Amortization of deferred losses related to the de-designated 2013 Interest Rate Swap, net of tax benefit of $0.4 million(b)   

 

 
0.6

 

 
0.6

Curtailment gain, net of tax of $0.3 million(c)

 
2.6

 

 

 
2.6

Other comprehensive income
$
4.7

 
$
4.6

 
$
0.6

 
$

 
$
9.9

Balance at March 31, 2017
$
(19.3
)
 
$
(219.8
)
 
$
(2.4
)
 
$
(0.3
)
 
$
(241.8
)
(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)  
Represents the amortization of deferred losses related to the de-designated 2013 Interest Rate Swap. See Note 10, "Financial Instruments," for further discussion of the 2013 Interest Rate Swap.
(c)  
As a result of the Elizabeth Arden Acquisition, the Company recognized $2.6 million in curtailment gains related to a foreign non-qualified defined benefit plan of Elizabeth Arden.


22

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

As shown above, other comprehensive income includes changes in the fair value of the 2013 Interest Rate Swap. A roll-forward of the amounts reclassified out of accumulated other comprehensive loss into earnings as of March 31, 2017 is provided below:
 
 
2013
Interest Rate Swap
Beginning accumulated losses at December 31, 2016
 
$
(3.0
)
Reclassifications into earnings (net of $0.4 million tax benefit)(a)    
 
0.6

Ending accumulated losses at March 31, 2017
 
$
(2.4
)
(a) 
Reclassified to interest expense.
A roll-forward of the amounts reclassified out of accumulated other comprehensive loss into earnings as of March 31, 2016 are as follows:
 
 
2013
Interest Rate Swap
Beginning accumulated losses at December 31, 2015
 
$
(3.8
)
Reclassifications into earnings (net of $0.4 million tax expense)(a)
 
0.7

Change in fair value (net of $0.9 million tax benefit)
 
(1.6
)
Ending accumulated losses at March 31, 2016
 
$
(4.7
)
(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 Unaudited 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. As of March 31, 2017, and since the Elizabeth Arden Acquisition Date, the Elizabeth Arden organization has continued to operate and be evaluated on a stand-alone basis.
At March 31, 2017, the Company’s operations are organized into the following reportable segments:
Consumer - The Company’s Consumer segment is comprised of products that are marketed, distributed and sold in 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 cosmetic stores and perfumeries in the U.S. and internationally under brands such as RevlonAlmaySinfulColors and Pure Ice in cosmetics; Revlon ColorSilk in women’s hair color; Revlon in beauty tools; and Mitchum in anti-perspirant deodorants. The Consumer segment also includes a skin care line under the Natural Honey brand and hair color line under the Llongueras brand (licensed from a third party), that are sold in large volume retailers and other retailers, primarily in Spain, as well as Cutex nail care products.
Elizabeth Arden - The Elizabeth Arden segment markets, distributes and sells fragrances, skin care and color cosmetics to prestige retailers, specialty stores, the mass retail channel, distributors, perfumeries, department stores, boutiques, travel retailers and other retailers in the U.S. and internationally, as well as direct sales to consumers via its Elizabeth Arden Red Door branded retail stores, Elizabeth Arden.com e-commerce business and Elizabeth Arden Red Door spa beauty salons and spas under brands such as Skin Illuminating, SUPERSTART, Prevage, Eight Hour Cream, Elizabeth Arden Ceramide and Visible Difference in the Elizabeth Arden skin care brands; Elizabeth Arden Red Door, Elizabeth Arden 5th Avenue, Elizabeth Arden Green Tea and UNTOLD in Elizabeth Arden fragrances; Juicy Couture, John Varvatos and Wildfox Couture in designer fragrances; and Curve, Elizabeth Taylor, Britney Spears, Christina Aguilera, Halston, Ed HardyGeoffrey Beene, Alfred Sung, Giorgio Beverly Hills, Lucky Brand, PS Fine Cologne for MenWhite Shoulders and Jennifer Aniston in heritage fragrances.

23

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

Professional - The Company’s Professional segment markets, distributes and sells professional products primarily to hair and nail salons and professional salon distributors in the U.S. and internationally under brands such as Revlon Professional in hair color, hair care and hair treatments; CND in nail polishes and nail enhancements, including CND Shellac and CND Vinylux nail polishes; and American Crew in men’s grooming products. The Professional segment also includes a multi-cultural hair care line consisting of Creme of Nature hair care products, which are sold in both professional salons and in large volume retailers and other retailers, primarily in the U.S. 
Other - The Other segment includes the operating results of the CBB business and related purchase accounting for the CBB Acquisition. CBB develops, markets and distributes fragrances and other beauty products under various 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 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; (iv) costs of sales resulting from a fair value adjustment to inventory acquired in the Elizabeth Arden Acquisition; and (v) charges related to the Elizabeth Arden 2016 Business Transformation Program. 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.” The Company's assets and liabilities are managed centrally and are reported internally in the same manner as the Unaudited 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 Unaudited Consolidated Financial Statements.













24

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 each the three months ended March 31, 2017 and 2016.
 
Three Months Ended March 31,
 
2017
 
2016
Segment Net Sales:
 
 
 
Consumer
$
290.4

 
$
320.0

Elizabeth Arden
192.0

 

Professional
108.0

 
115.1

Other
4.5

 
4.5

Total
$
594.9

 
$
439.6

 
 
 
 
Segment Profit:
 
 
 
Consumer
$
32.9

 
$
58.4

Elizabeth Arden
14.3

 

Professional
16.1

 
25.6

Other
(1.3
)
 
(0.9
)
Total
$
62.0

 
$
83.1

 
 
 
 
Reconciliation:
 
 
 
Segment Profit
$
62.0

 
$
83.1

Less:
 
 
 
Unallocated corporate expenses
27.4

 
14.2

Depreciation and amortization
37.1

 
25.9

Non-cash stock compensation expense
1.7

 
2.2

Non-Operating items:
 
 
 
Restructuring and related charges
1.1

 
1.3

Acquisition and integration costs
17.5

 
0.5

Elizabeth Arden 2016 Business Transformation Program
0.4

 

Elizabeth Arden inventory purchase accounting adjustment, cost of sales
16.0

 

Deferred compensation related to CBB Acquisition
0.9

 
0.9

Operating (loss) income
(40.1
)
 
38.1

Less:
 
 
 
Interest Expense
35.0

 
21.0

Amortization of debt issuance costs
2.2

 
1.5

Foreign currency losses, net
(4.3
)
 
(3.4
)
Miscellaneous, net
1.2

 
0.3

(Loss) income from continuing operations before income taxes
$
(74.2
)
 
$
18.7


As of March 31, 2017, after giving effect to the Elizabeth Arden Acquisition, the Company had operations established in 26 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.

25

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

 
Three Months Ended March 31,
 
2017

2016
Geographic area:
 
 
 
 
 
 
 
   Net sales:
 
 
 
 
 
 
 
      United States
$
288.9

 
49%
 
$
247.7

 
56%
  International
306.0

 
51%
 
191.9

 
44%
 
$
594.9

 
 
 
$
439.6

 
 

 
March 31, 2017
 
December 31, 2016
Long-lived assets, net:
 
 
 
 
 
 
United States
$
1,486.3

 
85%
 
$
1,494.3

 
85%
International
258.3

 
15%
 
255.4

 
15%
 
$
1,744.6

 
 
$
1,749.7

 
 

 
Three Months Ended March 31,
 
2017

2016
Classes of similar products:
 
 
 
 
 
 
 
   Net sales:
 
 
 
 
 
 
 
Color cosmetics
$
213.7

 
36%
 
$
223.5

 
51%
Hair care
126.2

 
21%
 
132.1

 
30%
Fragrance
141.2

 
24%
 
12.5

 
3%
Beauty care
61.0

 
10%
 
68.5

 
15%
Skin care
52.8

 
9%
 
3.0

 
1%
 
$
594.9

 
 
 
$
439.6

 
 


15. CONTINGENCIES
The Company is involved in various routine legal proceedings incidental to the ordinary course of its business. The Company believes that the outcome of all pending legal proceedings in the aggregate is not reasonably likely to have a material adverse effect on the Company’s business, prospects, results of operations, financial condition and/or cash flows.

As previously disclosed, following the announcement of the execution of the Elizabeth Arden Merger Agreement, several putative shareholder class action lawsuits and a derivative lawsuit were filed challenging the Merger. In addition to the complaints filed on behalf of plaintiffs Parker, Christiansen, Ross and Stein, on July 25, 2016, a lawsuit (Hutson v. Elizabeth Arden, Inc., et al., Case No. CACE-16-013566) (referred to as the “Hutson complaint”) was filed in the Seventeenth Judicial Circuit in and for Broward County, Florida (the “Court”) against Elizabeth Arden, the members of the board of directors of Elizabeth Arden, Revlon, Products Corporation and Acquisition Sub. In general, the Hutson complaint alleges that: (i) the members of Elizabeth Arden’s board of directors breached their fiduciary duties to Elizabeth Arden’s shareholders with respect to the Merger, by, among other things, approving the Merger pursuant to an unfair process and at an inadequate and unfair price; and (ii) Revlon, Products Corporation and Acquisition Sub aided and abetted the breaches of fiduciary duty by the members of Elizabeth Arden’s board. The plaintiff seeks relief similar to that sought in the Parker case.
By Order dated August 4, 2016, all five cases were consolidated by the Court into a Consolidated Amended Class Action. Thereafter, on August 11, 2016 a Consolidated Amended Class Action Complaint was filed, seeking to enjoin defendants from consummating the Merger and/or from soliciting shareholder votes. To the extent that the Merger was consummated, the Consolidated Amended Class Action Complaint seeks to rescind the Merger or recover rescissory or other compensatory damages, along with costs and fees. The grounds for relief set forth in the Consolidated Amended Class Action Complaint in large part track

26

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

those grounds as asserted in the five individual complaints, as previously disclosed. Class counsel advised that post consummation of the Merger they were going to file a Second Consolidated Amended Class Action Complaint. The Second Consolidated Amended Class Action Complaint (which superseded the Consolidated Amended Class Action Complaint) was ultimately filed on or about January 26, 2017. Like the Consolidated Amended Class Action complaint, the grounds for relief set forth in the Second Consolidated Amended Class Action Complaint in large part track those grounds as asserted in the five individual complaints.
The Company believes the allegations contained in the Second Consolidated Amended Class Action Complaint are without merit and intends to vigorously defend against them. Additional lawsuits arising out of or relating to the Elizabeth Arden Merger Agreement or the Merger may be filed in the future. Motions to dismiss the Second Consolidated Amended Class Action Complaint were filed on March 28, 2017.
The Company believes that the outcome of all pending legal proceedings in the aggregate is not reasonably likely to have a material adverse effect on the Company’s business, prospects, results of operations, financial condition and/or cash flows. However, in light of the uncertainties involved in legal proceedings generally, the ultimate outcome of a particular matter could be material to the Company’s operating results for a particular period depending on, among other things, the size of the loss or the nature of the liability imposed and the level of the Company’s income for that particular period.


16. RELATED PARTY TRANSACTIONS
Reimbursement Agreements
Revlon, Products Corporation and MacAndrews & Forbes Inc. (a wholly-owned subsidiary of MacAndrews & Forbes) have entered into reimbursement agreements (the "Reimbursement Agreements") pursuant to which: (i) MacAndrews & Forbes is obligated to provide (directly or through its affiliates) certain professional and administrative services, including, without limitation, employees, to the Company, and to purchase services from third party providers, such as insurance, legal, accounting and air transportation services, on behalf of the Company, to the extent requested by Products Corporation; and (ii) Products Corporation is obligated to provide certain professional and administrative services, including, without limitation, employees, to MacAndrews & Forbes and to purchase services from third party providers, such as insurance, legal and accounting services, on behalf of MacAndrews & Forbes, to the extent requested by MacAndrews & Forbes, provided that in each case the performance of such services does not cause an unreasonable burden to MacAndrews & Forbes or Products Corporation, as the case may be.
The Company reimburses MacAndrews & Forbes for the allocable costs of the services that MacAndrews & Forbes purchases for or provides to the Company and for the reasonable out-of-pocket expenses that MacAndrews & Forbes incurs in connection with the provision of such services. MacAndrews & Forbes reimburses Products Corporation for the allocable costs of the services that Products Corporation purchases for or provides to MacAndrews &