REV-2013.6.30-10Q





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, 2013

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: 1-11178
REVLON, INC.
(Exact name of registrant as specified in its charter)
    
Delaware
13-3662955
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
 
 
237 Park Avenue, New York, New York
10017
(Address of principal executive offices)
(Zip Code)

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

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 x
 
Non-accelerated filer ¨
 
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






As of June 30, 2013, 49,231,798 shares of Class A Common Stock, 3,125,000 shares of Class B Common Stock and 9,336,905 shares of Series A Preferred Stock were outstanding. At such date, 37,544,640 shares of Class A Common Stock were beneficially owned by MacAndrews & Forbes Holdings Inc. and certain of its affiliates and all of the shares of Class B Common Stock were owned by REV Holdings LLC, a Delaware limited liability company and an indirectly wholly-owned subsidiary of MacAndrews & Forbes Holdings Inc.






REVLON, INC. AND SUBSIDIARIES
INDEX

PART I – Financial Information
 
Item 1.
Financial Statements
 
 
Consolidated Balance Sheets as of June 30, 2013 (Unaudited) and December 31, 2012
 
Unaudited Consolidated Statements of Income and Comprehensive Income for the Three and Six Months Ended June 30, 2013 and 2012
 
 
Unaudited Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2013 and 2012
 
Notes to Unaudited Consolidated Financial Statements
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
Item 4.
Controls and Procedures
 
 
 
PART II – Other Information
 
Item 1.
Legal Proceedings
Item 1A.
Risk Factors
Item 6.
Exhibits
 
Signatures

1



PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

REVLON, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in millions, except share and per share amounts)

 
June 30,
2013
 
December 31,
2012
 
(Unaudited)
 
 
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
141.3

 
$
116.3

Trade receivables, less allowance for doubtful accounts of $3.4 and $3.5 as of June 30, 2013 and December 31, 2012, respectively
185.5

 
216.0

Inventories
133.2

 
114.7

Deferred income taxes – current
49.7

 
48.5

Prepaid expenses and other
68.2

 
45.7

Total current assets
577.9

 
541.2

Property, plant and equipment, net of accumulated depreciation of $231.1 and $226.0 as of June 30, 2013 and December 31, 2012, respectively
100.9

 
99.5

Deferred income taxes – noncurrent
203.9

 
215.2

Goodwill
217.8

 
217.8

Intangible assets, net of accumulated amortization of $32.7 and $29.7 as of June 30, 2013 and December 31, 2012, respectively
66.5

 
68.8

Other assets
102.7

 
94.1

Total assets
$
1,269.7

 
$
1,236.6

 
 
 
 
LIABILITIES AND STOCKHOLDERS’ DEFICIENCY
 
 
 
Current liabilities:
 
 
 
Short-term borrowings
$
5.2

 
$
5.0

Current portion of long-term debt

 
21.5

Accounts payable
108.2

 
101.9

Accrued expenses and other
235.4

 
276.3

Redeemable preferred stock
48.5

 
48.4

Total current liabilities
397.3

 
453.1

Long-term debt
1,227.9

 
1,145.8

Long-term pension and other post-retirement plan liabilities
220.7

 
233.7

Other long-term liabilities
56.2

 
53.3

Commitments and contingencies


 


Stockholders’ deficiency:
 
 
 
Class A Common Stock, par value $0.01 per share; 900,000,000 shares authorized; 49,986,651 shares issued as of June 30, 2013 and December 31, 2012
0.5

 
0.5

Class B Common Stock, par value $0.01 per share; 200,000,000 shares authorized; 3,125,000 shares issued and outstanding as of June 30, 2013 and December 31, 2012

 

Additional paid-in capital
1,015.1

 
1,015.1

Treasury stock, at cost: 754,853 shares of Class A Common Stock as of June 30, 2013 and December 31, 2012
(9.8
)
 
(9.8
)
Accumulated deficit
(1,429.1
)
 
(1,446.9
)
Accumulated other comprehensive loss
(209.1
)
 
(208.2
)
Total stockholders’ deficiency
(632.4
)
 
(649.3
)
Total liabilities and stockholders’ deficiency
$
1,269.7

 
$
1,236.6


See Accompanying Notes to Unaudited Consolidated Financial Statements

2



REVLON, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(dollars in millions, except share and per share amounts)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2013
 
2012
 
2013
 
2012
 
 
 
 
 
 
 
 
Net sales
$
350.1

 
$
357.1

 
$
682.0

 
$
687.8

Cost of sales
124.8

 
124.4

 
241.7

 
240.1

   Gross profit
225.3

 
232.7

 
440.3

 
447.7

Selling, general and administrative expenses
163.1

 
189.9

 
330.6

 
360.6

Restructuring charges and other, net
3.1

 

 
3.3

 

      Operating income
59.1

 
42.8

 
106.4

 
87.1

Other expenses, net:


 


 
 
 
 
   Interest expense
15.8

 
19.6

 
34.6

 
39.6

   Interest expense – preferred stock dividends
1.6

 
1.6

 
3.2

 
3.2

   Amortization of debt issuance costs
1.2

 
1.3

 
2.5

 
2.6

   Loss on early extinguishment of debt

 

 
27.9

 

   Foreign currency (gains) losses, net
(0.8
)
 
0.4

 
2.5

 
2.1

   Miscellaneous, net
(0.1
)
 
0.1

 

 
0.3

      Other expenses, net
17.7

 
23.0

 
70.7

 
47.8

Income from continuing operations before income taxes
41.4

 
19.8

 
35.7

 
39.3

Provision for income taxes
17.0

 
9.1

 
18.2

 
20.1

Income from continuing operations, net of taxes
24.4

 
10.7

 
17.5

 
19.2

Income from discontinued operations, net of taxes
0.3

 
0.4

 
0.3

 
0.4

Net income
$
24.7

 
$
11.1

 
$
17.8

 
$
19.6

Other comprehensive (loss) income:
 
 
 
 
 
 
 
   Currency translation adjustment, net of tax (a)   
(3.9
)
 
1.0

 
(4.7
)
 
2.2

   Amortization of pension related costs, net of tax (b)(c)
1.9

 
1.9

 
3.8

 
5.7

Other comprehensive (loss) income
(2.0
)
 
2.9

 
(0.9
)
 
7.9

Total comprehensive income
$
22.7

 
$
14.0

 
$
16.9

 
$
27.5

 
 
 
 
 
 
 
 
Basic earnings per common share:
 
 
 
 
 
 
 
Continuing operations
$
0.46

 
$
0.20

 
$
0.33

 
$
0.36

Discontinued operations
0.01

 
0.01

 
0.01

 
0.01

Net income
$
0.47

 
$
0.21

 
$
0.34

 
$
0.37

 
 
 
 
 
 
 
 
Diluted earnings per common share:
 
 
 
 
 
 
 
Continuing operations
$
0.46

 
$
0.20

 
$
0.33

 
$
0.36

Discontinued operations
0.01

 
0.01

 
0.01

 
0.01

Net income
$
0.47

 
$
0.21

 
$
0.34

 
$
0.37

 
 
 
 
 
 
 
 
Weighted average number of common shares outstanding:
 
 
 
 
 
 
 
      Basic
52,356,798

 
52,349,583

 
52,356,798

 
52,340,463

      Diluted
52,356,798

 
52,357,163

 
52,356,798

 
52,357,004


(a) 
Net of tax expense of $2.0 million and $2.1 million for the three months ended June 30, 2013 and 2012, respectively, and $2.3 million and $1.4 million for the six months ended June 30, 2013 and 2012, respectively.
(b) 
Net of tax benefit of $(0.4) million and $(0.2) million for the three months ended June 30, 2013 and 2012, respectively, and $(0.7) million and $(0.5) million for the six months ended June 30, 2013 and 2012, respectively.
(c) 
This other comprehensive income component is included in the computation of net periodic benefit (income) costs. See Note 2, “Pension and Post-Retirement Benefits,” for additional information regarding net periodic benefit (income) costs.

See Accompanying Notes to Unaudited Consolidated Financial Statements

3



REVLON, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIENCY
(dollars in millions)

 
Common Stock
 
Additional Paid-In-Capital
 
Treasury Stock
 
Accumulated Deficit
 
Accumulated Other Comprehensive Loss
 
Total Stockholders’ Deficiency
 
 
 
 
 
 
 
 
 
 
 
 
Balance, January 1, 2013
$
0.5

 
$
1,015.1

 
$
(9.8
)
 
$
(1,446.9
)
 
$
(208.2
)
 
$
(649.3
)
Net income


 


 


 
17.8

 


 
17.8

Other comprehensive loss (a)    


 


 


 


 
(0.9
)
 
(0.9
)
Balance, June 30, 2013
$
0.5

 
$
1,015.1

 
$
(9.8
)
 
$
(1,429.1
)
 
$
(209.1
)
 
$
(632.4
)

(a) 
See Note 8, “Accumulated Other Comprehensive Loss,” regarding the changes in the accumulated balances for each component of other comprehensive loss during the first six months of 2013.


See Accompanying Notes to Unaudited Consolidated Financial Statements

4



REVLON, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in millions)
 
Six Months Ended June 30,
 
2013
 
2012
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net income
$
17.8

 
$
19.6

Adjustments to reconcile net income to net cash provided by (used in) operating activities:
 
 
 
Income from discontinued operations, net of taxes
(0.3
)
 
(0.4
)
   Depreciation and amortization
34.0

 
31.3

   Amortization of debt discount
0.8

 
1.0

   Stock compensation amortization

 
0.3

   Provision for deferred income taxes
10.4

 
15.2

   Loss on early extinguishment of debt
27.9

 

   Amortization of debt issuance costs
2.5

 
2.6

(Gain) loss on sale of certain assets
(0.4
)
 
0.1

   Pension and other post-retirement (income) costs
(0.1
)
 
2.8

   Change in assets and liabilities:
 
 
 
      Decrease in trade receivables
23.9

 
6.9

      Increase in inventories
(22.9
)
 
(22.8
)
      Increase in prepaid expenses and other current assets
(24.3
)
 
(23.3
)
      Increase (decrease) in accounts payable
6.1

 
(4.5
)
      (Decrease) increase in accrued expenses and other current liabilities
(29.2
)
 
11.6

      Pension and other post-retirement plan contributions
(7.6
)
 
(19.4
)
      Purchases of permanent displays
(23.0
)
 
(24.3
)
      Other, net
(4.3
)
 
(18.4
)
Net cash provided by (used in) operating activities
11.3

 
(21.7
)
CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
Capital expenditures
(12.1
)
 
(8.9
)
Proceeds from the sale of certain assets
0.4

 
0.1

Net cash used in investing activities
(11.7
)
 
(8.8
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
Net increase in short-term borrowings and overdraft
2.5

 
12.8

Proceeds from the issuance of the 5¾% Senior Notes
500.0

 

Repayment of the 9¾% Senior Secured Notes
(330.0
)
 

Repayments under the 2011 Term Loan Facility
(113.0
)
 
(4.0
)
Payment of financing costs
(28.7
)
 
(0.1
)
Other financing activities
(1.1
)
 
(0.2
)
Net cash provided by financing activities
29.7

 
8.5

Effect of exchange rate changes on cash and cash equivalents
(4.3
)
 
0.1

   Net increase (decrease) in cash and cash equivalents
25.0

 
(21.9
)
   Cash and cash equivalents at beginning of period
116.3

 
101.7

   Cash and cash equivalents at end of period
$
141.3

 
$
79.8

Supplemental schedule of cash flow information:
 
 
 
   Cash paid during the period for:
 
 
 
Interest
$
34.9

 
$
45.8

Preferred stock dividends
3.1

 
3.1

Income taxes, net of refunds
8.0

 
10.9

Supplemental schedule of non-cash investing and financing activities:
 
 
 
   Treasury stock received to satisfy minimum tax withholding liabilities
$

 
$
1.1


See Accompanying Notes to Unaudited Consolidated Financial Statements

5

REVLON, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions, except share and per share amounts)



1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Revlon, Inc. (and together with its subsidiaries, the "Company") conducts its business exclusively through its direct wholly-owned operating subsidiary, Revlon Consumer Products Corporation ("Products Corporation"), and its subsidiaries. Revlon, Inc. is a direct and indirect majority-owned subsidiary of MacAndrews & Forbes Holdings Inc. ("MacAndrews & Forbes Holdings" and, together with certain of its affiliates other than the Company, "MacAndrews & Forbes"), a corporation wholly-owned by Ronald O. Perelman.
The Company’s vision is glamour, excitement and innovation through high-quality products at affordable prices. The Company operates in a single segment and manufactures, markets and sells an extensive array of cosmetics, women’s hair color, beauty tools, anti-perspirant deodorants, fragrances, skincare and other beauty care products. The Company's principal customers include large mass volume retailers and chain drug and food stores in the U.S., as well as certain department stores and other specialty stores, such as perfumeries, outside the U.S. The Company also sells beauty products to U.S. military exchanges and commissaries and has a licensing business pursuant to which the Company licenses certain of its key brand names to third parties for the manufacture and sale of complementary beauty-related products and accessories in exchange for royalties.
The accompanying Consolidated Financial Statements are unaudited. In management’s opinion, all adjustments necessary for a fair presentation have been made. The Unaudited Consolidated Financial Statements include the accounts of the Company after the elimination of all material intercompany balances and transactions.
The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) requires management to make estimates and assumptions that affect amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the financial statements and reported amounts of revenues and expenses during the periods presented. Actual results could differ from these estimates. Estimates and assumptions are reviewed periodically and the effects of revisions are reflected in the consolidated financial statements in the period they are determined to be necessary. Significant estimates made in the accompanying Unaudited Consolidated Financial Statements include, but are not limited to, allowances for doubtful accounts, inventory valuation reserves, expected sales returns and allowances, trade support costs, certain assumptions related to the recoverability of intangible and long-lived assets, deferred tax valuation allowances, reserves for estimated tax liabilities, restructuring costs, certain estimates and assumptions used in the calculation of the net periodic benefit costs and the projected benefit obligations for the Company’s pension and other post-retirement plans, including the expected long-term return on pension plan assets and the discount rate used to value the Company’s pension benefit obligations. The Unaudited Consolidated Financial Statements should be read in conjunction with the consolidated financial statements and related notes contained in Revlon, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2012, filed with the U.S. Securities and Exchange Commission (the “SEC”) on February 13, 2013 (the "2012 Form 10-K").
The Company’s results of operations and financial position for interim periods are not necessarily indicative of those to be expected for a full year.
Effective beginning October 1, 2012, the Company is consolidating and reporting Latin America and Canada (previously reported separately) as the combined Latin America and Canada region.
Certain prior year amounts in the Unaudited Consolidated Financial Statements have been reclassified to conform to the current period’s presentation.

Recently Adopted Accounting Pronouncements
In February 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2013-02, “Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income,” which amends Accounting Standards Codification (“ASC”) 220, “Comprehensive Income.” The amendments require an entity to disclose the impact of amounts reclassified out of accumulated other comprehensive income and into net income, by the respective line items of net income, if the amounts reclassified are reclassified to net income in their entirety in the same reporting period. The disclosure is required either on the face of the statement where net income is presented or in the notes. For amounts that are not reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures required under U.S. GAAP that provide additional detail about those amounts. The Company prospectively adopted ASU No. 2013-02 beginning January 1, 2013, and has provided the required disclosures.

Recently Issued Accounting Pronouncements
In March 2013, the FASB issued ASU No. 2013-04, “Accounting for Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation is Fixed at the Reporting Date”, which will require an entity to record an obligation resulting from joint and several liability arrangements at the greater of the amount that the entity has agreed to pay

6

REVLON, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions, except share and per share amounts)


or the amount the entity expects to pay. Additional disclosures about joint and several liability arrangements will also be required. This guidance is effective for fiscal periods beginning after December 15, 2013, and is to be applied retrospectively for obligations that exist at the beginning of an entity's fiscal year of adoption, with early adoption permitted. The Company does not expect such adoption will have a material impact on the Company's consolidated financial statements or financial statement disclosures.

Other Events
Fire at Revlon Venezuela Facility
On June 5, 2011, the Company’s facility in Venezuela was destroyed by fire. For the years ended December 31, 2012, 2011 and 2010, the Company’s subsidiary in Venezuela (“Revlon Venezuela”) had net sales of approximately 2%, 2% and 3%, respectively, of the Company’s consolidated net sales. At December 31, 2012, 2011 and 2010, total assets of Revlon Venezuela were approximately 2%, 2% and 3%, respectively, of the Company’s total assets. Prior to the fire, approximately 50% of Revlon Venezuela’s net sales were comprised of products imported from the Company’s Oxford, North Carolina facility and approximately 50% were comprised of products locally manufactured at the Revlon Venezuela facility. Revlon Venezuela did not have any net sales from the date of the fire until August 12, 2011. The Company’s net sales in Venezuela since August 12, 2011 have been primarily comprised of (i) products imported from the Company’s Oxford, North Carolina facility; and (ii) commencing in the first quarter of 2012, certain products imported from third party manufacturers outside of Venezuela, which were locally manufactured at the Revlon Venezuela facility prior to the fire.
The Company maintains comprehensive property insurance, as well as business interruption insurance. Business interruption insurance is intended to reimburse for lost profits and other costs incurred, which are attributable to the loss, during the loss period, subject to the terms and conditions of the applicable policies. The Company’s insurance coverage provides for business interruption losses to be reimbursed, subject to the terms and conditions of such policy, for a period of time, which period for the coverage related to the fire ended on October 2, 2012.
The Company's business interruption losses include estimated profits lost as a result of the interruption of Revlon Venezuela’s business and costs incurred directly related to the fire. The Company recognizes income from insurance recoveries under the business interruption policy only to the extent it has recorded business interruption losses.
In January 2013, the Company received additional insurance proceeds of $3.4 million from its insurers related to the settlement of the Company’s claim for the loss of inventory. The $3.4 million of proceeds were in addition to $8.4 million of insurance proceeds received prior to December 31, 2012, for a total settlement amount of $11.8 million for the loss of inventory, of which $3.5 million was previously recognized as income from insurance recoveries in 2011. As a result of the final settlement of the claim for the loss of inventory, the Company recognized a gain from insurance proceeds of $8.3 million in the first quarter of 2013.
In June 2013, the Company settled its business interruption and property insurance claim in the amount of $32.0 million. The Company received $17.9 million of insurance proceeds for its business interruption and property claim prior to December 31, 2012, and the remaining $14.1 million was received in July 2013. The Company previously recognized $13.9 million as income from insurance recoveries in 2011 and 2012. As a result of the final settlement of the business interruption and property claim, the Company recognized a gain from insurance proceeds of $18.1 million in the second quarter of 2013 and recorded an insurance proceeds receivable of $14.1 million as of June 30, 2013.


7

REVLON, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions, except share and per share amounts)


The table below details the proceeds received and the income recognized to date for the inventory and business interruption and property claims:
 
Inventory
 
Business Interruption and Property
 
Total
Insurance proceeds received in 2011
$
4.7

 
$
15.0

 
$
19.7

Insurance proceeds received in 2012
3.7

 
2.9

 
6.6

Total proceeds received as of December 31, 2012
8.4

 
17.9

 
26.3

Income from insurance recoveries recognized in 2011 and 2012(a)
(3.5
)
 
(13.9
)
 
(17.4
)
Deferred income balance as of December 31, 2012
4.9

 
4.0

 
8.9

Insurance proceeds received in 2013
3.4

 

 
3.4

Insurance proceeds receivable as of June 30, 2013 (b)

 
14.1

 
14.1

Gain from insurance proceeds for the six months ended June 30, 2013(a)
(8.3
)
 
(18.1
)
 
(26.4
)
Deferred income balance as of June 30, 2013
$

 
$

 
$

(a) The gain from insurance proceeds and income from insurance recoveries is included within selling, general and administrative (“SG&A”) expenses in the Company’s Consolidated Statements of Income and Comprehensive Income in the respective periods.
(b) The insurance proceeds receivable is included within prepaid expenses and other in the Consolidated Balance Sheet as of June 30, 2013.
In the second quarter of 2013, the Company recorded an accrual of $4.5 million for estimated clean-up costs related to the destroyed facility in Venezuela. The accrual is included within accrued expenses and other and SG&A expenses in the Company's Consolidated Financial Statements for the three and six months ended June 30, 2013.

Impact of Foreign Currency Translation - Venezuela Currency Devaluation
On February 8, 2013, the Venezuelan government announced the devaluation of its local currency Venezuelan Bolivars (“Bolivars”) relative to the U.S. Dollar, effective beginning February 13, 2013. The devaluation changed the official exchange rate to 6.30 Bolivars per U.S. Dollar (the "Official Rate"). The Venezuelan government also announced that the currency market administered by the central bank known as the Sistema de Transacciones en Moneda Extranjera (“SITME”) would be eliminated. As previously disclosed in Revlon, Inc.’s 2012 Form 10-K, the Company was using the SITME rate to translate the financial statements of Revlon Venezuela beginning in April 2011.
As a result of the elimination of the SITME market, the Company began using the Official Rate of 6.30 Bolivars per U.S. Dollar to translate Revlon Venezuela’s financial statements beginning in the first quarter of 2013. For the six months ended June 30, 2013, the devaluation of the local currency had the impact of reducing reported net sales by $0.9 million and the impact on operating income was de minimis. Additionally, to reflect the impact of the currency devaluation, a one-time foreign currency loss of $0.6 million was recorded in the first quarter of 2013 as a result of the required re-measurement of Revlon Venezuela’s balance sheet. As Venezuela was designated as a highly inflationary economy effective January 1, 2010, the Company reflected this foreign currency loss in earnings.












8

REVLON, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions, except share and per share amounts)


2. 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 2013 and 2012 are as follows:
 


Pension Plans
 
Other
 Post-retirement
Benefit Plans
 
Three Months Ended June 30,
 
Three Months Ended June 30,
 
2013
 
2012
 
2013
 
2012
Net periodic benefit (income) costs:
 
Service cost
$
0.2

 
$
0.4

 
$

 
$

Interest cost
6.9

 
7.5

 
0.2

 
0.2

Expected return on plan assets
(9.6
)
 
(8.8
)
 

 

Amortization of actuarial loss
2.2

 
2.1

 
0.1

 

 
(0.3
)
 
1.2

 
0.3

 
0.2

Portion allocated to Revlon Holdings LLC
(0.1
)
 
(0.1
)
 

 

 
$
(0.4
)
 
$
1.1

 
$
0.3

 
$
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 2013 and 2012 are as follows:
 


Pension Plans
 
Other
 Post-retirement
Benefit Plans
 
Six Months Ended June 30,
 
Six Months Ended June 30,
 
2013
 
2012
 
2013
 
2012
Net periodic benefit (income) costs:
 
Service cost
$
0.4

 
$
0.8

 
$

 
$

Interest cost
13.8

 
15.0

 
0.3

 
0.4

Expected return on plan assets
(19.1
)
 
(17.6
)
 

 

Amortization of actuarial loss
4.3

 
4.1

 
0.2

 
0.1

 
(0.6
)
 
2.3

 
0.5

 
0.5

Portion allocated to Revlon Holdings LLC
(0.1
)
 
(0.1
)
 

 

 
$
(0.7
)
 
$
2.2

 
$
0.5

 
$
0.5


In the three and six months ended June 30, 2013, the Company recognized net periodic benefit income of $(0.1) million and $(0.2) million, respectively, compared to net periodic benefit costs of $1.3 million and $2.7 million in the three and six months ended June 30, 2012, respectively, primarily due to an increase in the fair value of pension plan assets at December 31, 2012, as well as the impact of the decrease in the weighted-average discount rate. Of the total net periodic benefit income of $(0.1) million for the three months ended June 30, 2013, $(0.5) million is recorded in cost of sales, $0.6 million is recorded in SG&A expenses and $(0.2) million is capitalized in inventory. Of the total net periodic benefit income of $(0.2) million for the six months ended June 30, 2013, $(0.9) million is recorded in cost of sales, $1.2 million is recorded in SG&A expenses and $(0.5) million is capitalized in inventory. The Company expects that it will have net periodic benefit income of approximately $(0.5) million for its pension and other post-retirement benefit plans for all of 2013, compared with net periodic benefit costs of $3.9 million in 2012.
During the second quarter of 2013, $4.7 million and $0.2 million were contributed to the Company's pension and other post-retirement benefit plans, respectively. During the first six months of 2013, $7.2 million and $0.4 million were contributed to the Company’s pension plans and other post-retirement benefit plans, respectively. The Company currently expects to contribute approximately $20 million in the aggregate to its pension and other post-retirement benefit plans in 2013.
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 Revlon, Inc.’s 2012 Form 10-K.




9

REVLON, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions, except share and per share amounts)


3. RESTRUCTURING CHARGES AND OTHER, NET
September 2012 Program
In September 2012, the Company announced a worldwide restructuring (the “September 2012 Program”), which primarily involved the Company exiting its owned manufacturing facility in France and its leased manufacturing facility in Maryland; rightsizing its organizations in France and Italy; and realigning its operations in Latin America, including consolidating Latin America and Canada into a single operating region, which became effective in the fourth quarter of 2012.
A summary of the restructuring and related charges incurred through June 30, 2013 and expected to be incurred for the September 2012 Program, are as follows:
 
Restructuring Charges and Other, Net
 
 
 
 
 
 
 
 
 
Employee Severance and Other Personnel Benefits
 
Other
 
Total Restructuring Charges and Other, Net
 
Returns (a)
 

Inventory Write-offs (b)
 

Other Charges (c)
 
Total Restructuring and Related Charges
Charges incurred through December 31, 2012 (d)
$
18.4

 
$
2.3

 
$
20.7

 
$
1.6

 
$
1.2

 
$
0.6

 
$
24.1

Charges (benefits) incurred for the six months ended June 30, 2013
2.5

 
0.8

 
3.3

 
(0.1
)
 
0.2

 
0.2

 
3.6

Cumulative charges incurred through June 30, 2013
$
20.9

 
$
3.1

 
$
24.0

 
$
1.5

 
$
1.4

 
$
0.8

 
$
27.7

Total expected net charges (e)   
$
20.9

 
$
1.3

 
$
22.2

 
$
1.5

 
$
1.4

 
$
0.8

 
$
25.9


(a) 
Returns are recorded as a reduction to net sales in the Company’s Consolidated Statements of Income and Comprehensive Income.
(b) 
Inventory write-offs are recorded within cost of sales in the Company’s Consolidated Statements of Income and Comprehensive Income.
(c) 
Other charges are recorded within SG&A expenses within the Company’s Consolidated Statements of Income and Comprehensive Income.
(d) 
Included within the $18.4 million of employee severance and other personnel benefits is a net pension curtailment gain of $1.5 million recognized in the year ended December 31, 2012.
(e) 
The Company expects to recognize an additional net benefit of approximately $2 million during the remainder of 2013. This expected net benefit includes a $2.4 million gain as a result of the July 2013 sale of the Company's manufacturing facility in France, which is included within the $1.3 million of other.

The Company expects to pay net cash of approximately $24 million related to the September 2012 Program, of which $3.8 million was paid in 2012, $13.2 million was paid during the six months ended June 30, 2013, and the remainder is expected to be paid during the remaining six months of 2013. The total expected net cash payments of $24 million include cash proceeds of $2.6 million received in July 2013 related to the sale of the Company's manufacturing facility in France.
Details of the movements in the restructuring reserve during the first six months of 2013 are as follows:
 
 
 
 
 
 
 
Utilized, Net
 
 
Balance
as of January 1, 2013
 
(Income)
Expense, Net (a)
 
Foreign Currency Translation
 

Cash
 

Noncash
 
Balance as of June 30,
2013
September 2012 Program:
 
 
 
 
 
 
 
 
 
Employee severance and other personnel benefits
$
18.0

 
$
2.5

 
$
(0.4
)
 
$
(11.3
)
 
$

 
$
8.8

Other
0.9

 
0.8

 

 
(1.7
)
 

 

Lease exit
0.3

 

 

 
(0.2
)
 

 
0.1

Total restructuring charges and other, net
$
19.2

 
$
3.3

 
$
(0.4
)
 
$
(13.2
)
 
$

 
$
8.9


(a) During the six months ended June 30, 2013, the Company recorded additional charges related to the September 2012 Program primarily due to changes in estimates related to severance and other termination benefits.


10

REVLON, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions, except share and per share amounts)


As of June 30, 2013 and December 31, 2012, the restructuring reserve balance was included in “Accrued expenses and other” in the Company's Consolidated Balance Sheets.

4. INVENTORIES
 
June 30,
2013
 
December 31,
2012
Raw materials and supplies
$
35.4

 
$
36.6

Work-in-process
11.9

 
8.8

Finished goods
85.9

 
69.3

 
$
133.2

 
$
114.7


5. ACCRUED EXPENSES AND OTHER
 
June 30,
2013
 
December 31,
2012
Sales returns and allowances
$
73.0

 
$
87.0

Advertising and promotional costs
44.1

 
38.6

Compensation and related benefits
34.2

 
56.4

Restructuring reserve
8.9

 
19.2

Interest
14.2

 
15.2

Taxes
14.9

 
15.6

Other
46.1

 
44.3

 
$
235.4

 
$
276.3


6. LONG-TERM DEBT AND REDEEMABLE PREFERRED STOCK

 
June 30,
2013
 
December 31,
2012
2011 Term Loan Facility due 2017, net of discounts (a)    
$
669.5

 
$
780.9

2011 Revolving Credit Facility due 2016

 

5¾% Senior Notes due 2021 (b)    
500.0

 

9¾% Senior Secured Notes due 2015, net of discounts (b)    

 
328.0

Amended and Restated Senior Subordinated Term Loan due 2014 (c)
58.4

 
58.4

 
1,227.9

 
1,167.3

Less current portion (a)    

 
(21.5
)
 
1,227.9

 
1,145.8

Redeemable Preferred Stock (d)    
48.5

 
48.4

 
$
1,276.4

 
$
1,194.2


(a) 
On February 21, 2013, Products Corporation consummated an amendment (the "2013 Bank Term Loan Amendments") to its third amended and restated term loan agreement dated as of May 19, 2011 (as amended, the "2011 Term Loan Agreement") for its 6.5 year term loan facility due November 19, 2017 (the “2011 Term Loan Facility”), to among other things: (i) reduce the total aggregate principal amount outstanding under the 2011 Term Loan Facility from $788.0 million to $675.0 million; (ii) reduce the minimum Eurodollar Rate on Eurodollar Loans from 1.25% to 1.00%; and (iii) reduce the Applicable Margin on Eurodollar Loans from 3.50% to 3.00%. Refer to “Recent Debt Transactions – 2013 Bank Term Loan Amendments to the 2011 Term Loan Agreement” below for further discussion. Additionally, see Note 10, “Long-Term Debt and Redeemable Preferred Stock,” to the Consolidated Financial Statements in Revlon, Inc.’s 2012 Form 10-K for additional details regarding Products Corporation’s 2011 Term Loan Facility prior to the 2013 Bank Term Loan Amendments.

(b) 
On February 8, 2013, Products Corporation issued $500.0 million aggregate principal amount of 5¾% Senior Notes due February 15, 2021 (the “5¾% Senior Notes”) to investors at par. Products Corporation used $491.2 million of net

11

REVLON, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions, except share and per share amounts)


proceeds (net of underwriters' fees) from the issuance of the 5¾% Senior Notes to repay or redeem all of the $330 million outstanding aggregate principal amount of its 9¾% Senior Secured Notes due November 2015 (the “9¾% Senior Secured Notes"), as well as to pay an aggregate of $27.7 million for the applicable redemption and tender offer premiums, accrued interest and related fees and expenses. Products Corporation used a portion of the remaining proceeds, together with existing cash, to pay approximately $113.0 million of principal on its 2011 Term Loan Facility in conjunction with the consummation of the 2013 Bank Term Loan Amendments. Products Corporation expects to use the remaining balance available from the issuance of the 5¾% Senior Notes for general corporate purposes, including, without limitation, debt reduction transactions, such as repaying to Revlon, Inc. at maturity in October 2013 the Contributed Loan (as defined below), which Revlon, Inc. expects to use to pay the liquidation preference of Revlon, Inc.'s Series A Preferred Stock, par value $0.01 per share (the "Preferred Stock"), on October 8, 2013, subject to Revlon, Inc. having sufficient surplus in accordance with Delaware law. Refer to “Recent Debt Transactions – 2013 Senior Notes Refinancing” below for further discussion.

(c) 
For detail regarding Products Corporation’s Amended and Restated Senior Subordinated Term Loan (the “Amended and Restated Senior Subordinated Term Loan”), consisting of (i) the $58.4 million principal amount which remains owing from Products Corporation to various third parties (the “Non-Contributed Loan”), which matures on October 8, 2014 and (ii) the $48.6 million principal amount due from Products Corporation to Revlon, Inc. (the “Contributed Loan”), which matures on October 8, 2013, see Note 10, “Long-Term Debt and Redeemable Preferred Stock,” to the Consolidated Financial Statements in Revlon, Inc.’s 2012 Form 10-K.

(d) 
The Preferred Stock is mandatorily redeemable on October 8, 2013, subject to Revlon, Inc. having sufficient surplus in accordance with Delaware law, and is presented as a current liability on the Company’s Consolidated Balance Sheets as of June 30, 2013 and December 31, 2012. See Note 10, “Long-Term Debt and Redeemable Preferred Stock,” to the Consolidated Financial Statements in Revlon, Inc.’s 2012 Form 10-K for certain details regarding Revlon, Inc.’s Preferred Stock.
Recent Debt Transactions
2013 Bank Term Loan Amendments to the 2011 Term Loan Agreement
On February 21, 2013, Products Corporation consummated the 2013 Bank Term Loan Amendments, among Products Corporation, as borrower, a syndicate of lenders and Citicorp, USA, Inc. (“CUSA”), as administrative agent and collateral agent.
Pursuant to the 2013 Bank Term Loan Amendments, Products Corporation reduced the total aggregate principal amount outstanding under the 2011 Term Loan Facility from $788.0 million to $675.0 million, using a portion of the proceeds from Products Corporation’s issuance of its 5¾% Senior Notes (see “2013 Senior Notes Refinancing” below), together with cash on hand.  The 2013 Bank Term Loan Amendments also reduced the interest rates on the 2011 Term Loan Facility such that Eurodollar Loans bear interest at the Eurodollar Rate plus 3.00% per annum, with the Eurodollar Rate not to be less than 1.00% (compared to 3.50% and 1.25%, respectively, prior to the 2013 Bank Term Loan Amendments), while Alternate Base Rate loans bear interest at the Alternate Base Rate plus 2.00%, with the Alternate Base Rate not to be less than 2.00% (compared to 2.50% and 2.25%, respectively, prior to the 2013 Bank Term Loan Amendments) (and as each such term is defined in the 2011 Term Loan Agreement). 
Pursuant to the 2013 Bank Term Loan Amendments, Products Corporation, under certain circumstances, also has the right to request the 2011 Term Loan Facility be increased by up to the greater of (i) $300 million and (ii) an amount such that Products Corporation’s First Lien Secured Leverage Ratio (as defined in the 2011 Term Loan Agreement) does not exceed 3.50:1.00 (compared to $300 million prior to the 2013 Bank Term Loan Amendments), provided that the lenders are not committed to provide any such increase.
Products Corporation’s existing 5-year, $140.0 million asset-based, multi-currency revolving credit facility due June 16, 2016 (the “2011 Revolving Credit Facility”) under a third amended and restated revolving credit agreement dated June 16, 2011 (the “2011 Revolving Credit Agreement”) remained unchanged in connection with the 2013 Bank Term Loan Amendments.
For the six months ended June 30, 2013, the Company incurred approximately $1.2 million of fees and expenses in connection with the 2013 Bank Term Loan Amendments, of which, $0.2 million was capitalized. The Company expensed the remaining $1.0 million of fees and expenses and wrote-off $1.5 million of unamortized debt discount and deferred financing costs. These amounts, totaling $2.5 million, were recognized within loss on early extinguishment of debt in the Company’s Consolidated Statements of Income and Comprehensive Income for the six months ended June 30, 2013.

2013 Senior Notes Refinancing

12

REVLON, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions, except share and per share amounts)


On February 8, 2013, Products Corporation completed its offering (the "2013 Senior Notes Refinancing"), pursuant to an exemption from registration under the Securities Act of 1933 (as amended, the "Securities Act"), of $500.0 million aggregate principal amount of the 5¾% Senior Notes. The 5¾% Senior Notes are unsecured and were issued to investors at par. The 5¾% Senior Notes mature on February 15, 2021. Interest on the 5¾% Senior Notes accrues at 5¾% per annum, paid every six months on February 15th and August 15th, with the first interest payment due on August 15, 2013.
The 5¾% Senior Notes were issued pursuant to an indenture (the “5¾% Senior Notes Indenture”), dated as of February 8, 2013 (the “Closing Date”), by and among Products Corporation, Products Corporation’s domestic subsidiaries (the “Guarantors”), which also currently guarantee Products Corporation’s 2011 Term Loan Facility and 2011 Revolving Credit Facility, and U.S. Bank National Association, as trustee. The Guarantors issued guarantees (the “Guarantees”) of Products Corporation’s obligations under the 5¾% Senior Notes and the 5¾% Senior Notes Indenture, jointly and severally, on a senior unsecured basis.
Products Corporation used a portion of the $491.2 million of net proceeds from the issuance of the 5¾% Senior Notes (net of underwriters' fees), to repay and redeem all of the $330 million outstanding aggregate principal amount of its 9¾% Senior Secured Notes, as well as to pay $8.6 million of accrued interest. Products Corporation incurred an aggregate of $19.1 million of fees for the applicable redemption and tender offer premiums, related fees and expenses in connection with redemption and repayment of the 9¾% Senior Secured Notes and other fees and expenses in connection with the issuance of the 5¾% Senior Notes. Products Corporation used a portion of the remaining proceeds from the issuance of the 5¾% Senior Notes, together with existing cash, to pay approximately $113.0 million of principal on its 2011 Term Loan Facility in conjunction with the 2013 Bank Term Loan Amendments. Products Corporation expects to use the remaining balance available from the issuance of the 5¾% Senior Notes for general corporate purposes, including, without limitation, debt reduction transactions, such as repaying to Revlon, Inc. at maturity in October 2013 the Contributed Loan, which Revlon, Inc. expects to use to pay the liquidation preference of Revlon, Inc.'s Preferred Stock on October 8, 2013, subject to Revlon, Inc. having sufficient surplus in accordance with Delaware law.
In connection with these refinancing transactions, the Company capitalized $10.3 million of fees and expenses incurred related to the issuance of the 5¾% Senior Notes, which is being amortized over the term of such notes using the effective interest method. The Company also recognized a loss on the early extinguishment of debt of $25.4 million during the first six months of 2013, comprised of $17.6 million of redemption and tender offer premiums, as well as fees and expenses which were expensed as incurred in connection with the redemption and repayment of the 9¾% Senior Secured Notes, as well as the write-off of $7.8 million of unamortized debt discount and deferred financing costs associated with the 9¾% Senior Secured Notes.

Ranking
The 5¾% Senior Notes are Products Corporation’s unsubordinated, unsecured obligations and rank senior in right of payment to any future subordinated obligations of Products Corporation and rank pari passu in right of payment with all existing and future senior debt of Products Corporation. Similarly, each Guarantee is the relevant Guarantor’s joint and several, unsubordinated and unsecured obligation and ranks senior in right of payment to any future subordinated obligations of such Guarantor and ranks pari passu in right of payment with all existing and future senior debt of such Guarantor.

The 5¾% Senior Notes and the Guarantees rank effectively junior to Products Corporation’s 2011 Term Loan Facility and 2011 Revolving Credit Facility, which are secured, as well as indebtedness and preferred stock of Products Corporation’s foreign and immaterial subsidiaries (the “Non-Guarantor Subsidiaries”), none of which guarantee the 5¾% Senior Notes.

Optional Redemption
On and after February 15, 2016, the 5¾% Senior Notes may be redeemed at Products Corporation's option, at any time as a whole, or from time to time in part, at the following redemption prices (expressed as percentages of principal amount), plus accrued interest to the date of redemption, if redeemed during the 12-month period beginning on February 15th of the years indicated below:

Year
 
Percentage
2016
 
104.313
%
2017
 
102.875
%
2018
 
101.438
%
2019 and thereafter
 
100.000
%

Products Corporation may redeem the 5¾% Senior Notes at its option at any time or from time to time prior to February 15, 2016, as a whole or in part, at a redemption price per 5¾% Senior Note equal to the sum of (1) the then outstanding principal

13

REVLON, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions, except share and per share amounts)


amount thereof, plus (2) accrued and unpaid interest (if any) to the date of redemption, plus (3) the applicable premium based on the applicable treasury rate plus 75 basis points.

Prior to February 15, 2016, Products Corporation may, from time to time, redeem up to 35% of the aggregate principal amount of the 5¾% Senior Notes and any additional notes with, and to the extent Products Corporation actually receives, the net proceeds of one or more equity offerings from time to time, at 105.75% of the principal amount thereof, plus accrued interest to the date of redemption.

Change of Control
Upon the occurrence of specified change of control events, Products Corporation is required to make an offer to purchase all of the 5¾% Senior Notes at a purchase price of 101% of the outstanding principal amount of the 5¾% Senior Notes as of the date of any such repurchase, plus accrued and unpaid interest to the date of repurchase.

Certain Covenants
The 5¾% Senior Notes Indenture limits Products Corporation’s and the Guarantors’ ability, and the ability of certain other subsidiaries, to:

incur or guarantee additional indebtedness (“Limitation on Debt”);
pay dividends, make repayments on indebtedness that is subordinated in right of payment to the 5¾% Senior Notes and make other “restricted payments” (“Limitation on Restricted Payments”);
make certain investments;
create liens on their assets to secure debt;
enter into transactions with affiliates;
merge, consolidate or amalgamate with another company (“Successor Company”);
transfer and sell assets (“Limitation on Asset Sales”); and
permit restrictions on the payment of dividends by Products Corporation’s subsidiaries (“Limitation on Dividends from Subsidiaries”).

These covenants are subject to important qualifications and exceptions. The 5¾% Senior Notes Indenture also contains customary affirmative covenants and events of default.

In addition, if during any period of time the 5¾% Senior Notes receive investment grade ratings from both Standard & Poor’s and Moody’s Investors Services, Inc. and no default or event of default has occurred and is continuing under the 5¾% Senior Notes Indenture, Products Corporation and its subsidiaries will not be subject to the covenants on Limitation on Debt, Limitation on Restricted Payments, Limitation on Asset Sales, Limitation on Dividends from Subsidiaries and certain provisions of the Successor Company covenant.

Registration Rights
On the Closing Date, Products Corporation, the Guarantors and the representatives of the initial purchasers of the 5¾% Senior Notes entered into a Registration Rights Agreement, pursuant to which Products Corporation and the Guarantors agreed with the representatives of the initial purchasers, for the benefit of the holders of the 5¾% Senior Notes, that Products Corporation will, at its cost, among other things: (i) file a registration statement with respect to the 5¾% Senior Notes within 150 days after the Closing Date to be used in connection with the exchange of the 5¾% Senior Notes and related guarantees for publicly registered notes and related guarantees with substantially identical terms in all material respects (except for the transfer restrictions relating to the 5¾% Senior Notes and interest rate increases as described below); (ii) use its reasonable best efforts to cause the applicable registration statement to become effective under the Securities Act within 210 days after the Closing Date; and (iii) use its reasonable best efforts to effect an exchange offer of the 5¾% Senior Notes and the related guarantees for registered notes and related guarantees within 270 days after the Closing Date. In addition, under certain circumstances, Products Corporation may be required to file a shelf registration statement to cover resales of the 5¾% Senior Notes. If Products Corporation fails to satisfy such obligations, it will be obligated to pay additional interest to each holder of the 5¾% Senior Notes that are subject to transfer restrictions, with respect to the first 90-day period immediately following any such failure, at a rate of 0.25% per annum on the principal amount of the 5¾% Senior Notes that are subject to transfer restrictions held by such holder. The amount of additional interest will increase by an additional 0.25% per annum with respect to each subsequent 90-day period until all registration requirements have been satisfied, up to a maximum amount of additional interest of 0.50% per annum on the principal amount of the 5¾% Senior Notes that are subject to transfer restrictions. Pursuant to the Registration Agreement, in May 2013 Products Corporation filed a registration statement, and filed amended registration statements in June and July 2013, with the SEC that,

14

REVLON, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions, except share and per share amounts)


when such statement becomes effective, will permit holders of the 5¾% Senior Notes to exchange such notes for new notes that will have substantially identical terms to the 5¾% Senior Notes, except that (1) the new notes and the related guarantees will be registered with the SEC under the Securities Act, and (2) the transfer restrictions and registration rights currently applicable to the 5¾% Senior Notes would no longer apply to the new notes. The registration statement is not yet effective.

Covenants
Products Corporation was in compliance with all applicable covenants under the 2011 Term Loan Agreement and 2011 Revolving Credit Agreement (together, the “2011 Credit Agreements”) as of June 30, 2013. At June 30, 2013, the aggregate principal amount outstanding under the 2011 Term Loan Facility was $675.0 million and availability under the $140.0 million 2011 Revolving Credit Facility, based upon the calculated borrowing base less $9.8 million of outstanding undrawn letters of credit and nil then drawn on the 2011 Revolving Credit Facility, was $130.2 million.

Products Corporation was in compliance with all applicable covenants under its 5¾% Senior Notes Indenture as of June 30, 2013 and its 9¾% Senior Secured Notes Indenture as of December 31, 2012.

7. BASIC AND DILUTED EARNINGS PER COMMON SHARE
Shares used in basic earnings per common share are computed using the weighted average number of common shares outstanding during each period. Shares used in diluted earnings per common share include the dilutive effect of unvested restricted shares and outstanding stock options under the Company’s stock plan using the treasury stock method. For the three and six months ended June 30, 2013 and 2012, all outstanding options to purchase shares of Revlon, Inc. Class A common stock, par value of $0.01 per share (the “Class A Common Stock”), that could potentially dilute basic earnings per common share in the future were excluded from the calculation of diluted earnings per common share as their effect would be anti-dilutive, as in each case their exercise price was in excess of the NYSE closing price of the Class A Common Stock at all times during these periods.
For the three and six months ended June 30, 2012, 3,588 and 6,740 weighted average shares of unvested restricted stock that could potentially dilute basic earnings per common share in the future were excluded from the calculation of diluted earnings per common share as their effect would be anti-dilutive. For the three and six months ended June 30, 2013, there were no shares of unvested restricted stock outstanding.
The components of basic and diluted earnings per common share for the three and six months ended June 30, 2013 and 2012 are as follows:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2013
 
2012
 
2013
 
2012
Numerator:
 
 
 
 
 
 
 
Income from continuing operations
$
24.4

 
$
10.7

 
$
17.5

 
$
19.2

Income from discontinued operations
0.3

 
0.4

 
0.3

 
0.4

Net income
$
24.7

 
$
11.1

 
$
17.8

 
$
19.6

Denominator:
 
 
 
 
 
 
 
Weighted average common shares outstanding – Basic
52,356,798

 
52,349,583

 
52,356,798

 
52,340,463

Effect of dilutive restricted stock

 
7,580

 

 
16,541

Weighted average common shares outstanding – Diluted
52,356,798

 
52,357,163

 
52,356,798

 
52,357,004

Basic earnings per common share:
 
 
 
 
 
 
 
Continuing operations
$
0.46

 
$
0.20

 
$
0.33

 
$
0.36

Discontinued operations
0.01

 
0.01

 
0.01

 
0.01

Net income
$
0.47

 
$
0.21

 
$
0.34

 
$
0.37

Diluted earnings per common share:
 
 
 
 
 
 
 
Continuing operations
$
0.46

 
$
0.20

 
$
0.33

 
$
0.36

Discontinued operations
0.01

 
0.01

 
0.01

 
0.01

Net income
$
0.47

 
$
0.21

 
$
0.34

 
$
0.37



15

REVLON, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions, except share and per share amounts)


8. ACCUMULATED OTHER COMPREHENSIVE LOSS
The components of accumulated other comprehensive loss as of June 30, 2013 are as follows:
 
Foreign Currency Translation
 
Actuarial (Loss) Gain on Post-retirement Benefits
 
Accumulated Other Comprehensive Loss
Balance January 1, 2013
$
23.3

 
$
(231.5
)
 
$
(208.2
)
Currency translation adjustment, net of tax expense of $2.3
(4.7
)
 

 
(4.7
)
Amortization of pension related costs, net of tax benefit of $(0.7)     

 
3.8

 
3.8

Other comprehensive (loss) income
(4.7
)
 
3.8

 
(0.9
)
Balance June 30, 2013
$
18.6

 
$
(227.7
)
 
$
(209.1
)

9. GEOGRAPHIC, FINANCIAL AND OTHER INFORMATION
The Company manages its business on the basis of one reportable operating segment. As of June 30, 2013, the Company had operations established in 14 countries outside of the U.S. and its products are sold throughout the world. Generally, net sales by geographic area are presented by attributing revenues from external customers on the basis of where the products are sold.
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2013
 
2012
 
2013
 
2012
Geographic area:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   Net sales:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      United States
$
203.9

 
58%
 
$
203.9

 
57%
 
$
396.0

 
58%
 
$
388.6

 
56%
  Outside of the United States
146.2

 
42%
 
153.2

 
43%
 
286.0

 
42%
 
299.2

 
44%
 
$
350.1

 

 
$
357.1

 

 
$
682.0

 
 
 
$
687.8

 
 

 
June 30,
2013
 
December 31,
2012
Long-lived assets, net:
 
 
 
 
 
 
United States
$
441.3

 
90%
 
$
431.7

 
90%
Outside of the United States
46.6

 
10%
 
48.5

 
10%
 
$
487.9

 
 
$
480.2

 
 

 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2013
 
2012
 
2013
 
2012
Classes of similar products:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   Net sales:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Color cosmetics
$
235.3

 
67%
 
$
236.7

 
66%
 
$
459.9

 
67%
 
$
455.0

 
66%
      Beauty care and fragrance
114.8

 
33%
 
120.4

 
34%
 
222.1

 
33%
 
232.8

 
34%
 
$
350.1

 

 
$
357.1

 

 
$
682.0

 
 
 
$
687.8

 
 

10. 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;

16

REVLON, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions, except share and per share amounts)



Level 2: Fair valuing the asset or liability using inputs other than quoted prices that are observable for the applicable asset or liability, either directly or indirectly, such as quoted prices for similar (as opposed to identical) assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active; and

Level 3: Fair valuing the asset or liability using unobservable inputs that reflect the Company’s own assumptions regarding the applicable asset or liability.
As of June 30, 2013, the fair values of the Company’s financial assets and liabilities that are required to be measured at fair value, namely its foreign currency forward exchange contracts (“FX Contracts”), are categorized in the table below:
 
Total
 
Level 1
 
Level 2
 
Level 3
Assets:
 
 
 
 
 
 
 
Derivatives:
 
 
 
 
 
 
 
FX Contracts(a)     
$
1.9

 
$

 
$
1.9

 
$

Total assets at fair value
$
1.9

 
$

 
$
1.9

 
$

Liabilities:
 
 
 
 
 
 
 
Derivatives:
 
 
 
 
 
 
 
FX Contracts(a)    
$
0.2

 
$

 
$
0.2

 
$

Total liabilities at fair value
$
0.2

 
$

 
$
0.2

 
$



As of December 31, 2012, the fair values of the Company’s financial assets and liabilities that are required to be measured at fair value, namely its FX Contracts, are categorized in the table below:

 
Total
 
Level 1
 
Level 2
 
Level 3
Assets:
 
 
 
 
 
 
 
Derivatives:
 
 
 
 
 
 
 
FX Contracts(a)     
$
0.1

 
$

 
$
0.1

 
$

Total assets at fair value
$
0.1

 
$

 
$
0.1

 
$

Liabilities:
 
 
 
 
 
 
 
Derivatives:
 
 
 
 
 
 
 
FX Contracts(a)    
$
0.4

 
$

 
$
0.4

 
$

Total liabilities at fair value
$
0.4

 
$

 
$
0.4

 
$


(a) 
The fair value of the Company’s FX Contracts was measured based on observable market transactions of spot and forward rates on the respective dates. (See Note 11, “Financial Instruments.”)

As of June 30, 2013, the fair values and carrying values of the Company’s long-term debt, including the current portion of long-term debt, and Preferred Stock, are categorized in the table below:
 
Fair Value
 
 
 
Level 1
 
Level 2
 
Level 3
 
Total
 
Carrying Value
Liabilities:
 
 
 
 
 
 
 
 
 
Long-term debt, including current portion
$

 
$
1,224.9

 
$

 
$
1,224.9

 
$
1,227.9

Preferred Stock

 
49.3

 

 
49.3

 
48.5

 
$

 
$
1,274.2

 
$

 
$
1,274.2

 
$
1,276.4


17

REVLON, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions, except share and per share amounts)


As of December 31, 2012, the fair values and carrying values of the Company’s long-term debt, including the current portion of long-term debt, and Preferred Stock, are categorized in the table below:
 
Fair Value
 
 
 
Level 1
 
Level 2
 
Level 3
 
Total
 
Carrying Value
Liabilities:
 
 
 
 
 
 
 
 
 
Long-term debt, including current portion
$

 
$
1,196.7

 
$

 
$
1,196.7

 
$
1,167.3

Preferred Stock

 
49.2

 

 
49.2

 
48.4

 
$

 
$
1,245.9

 
$

 
$
1,245.9

 
$
1,215.7


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

11. FINANCIAL INSTRUMENTS

Products Corporation maintains standby and trade letters of credit for various corporate purposes under which Products Corporation is obligated, of which $9.8 million and $10.4 million (including amounts available under credit agreements in effect at that time) were maintained at June 30, 2013 and December 31, 2012, respectively. Included in these amounts is approximately $8.2 million and $8.7 million at June 30, 2013 and December 31, 2012, respectively, in standby letters of credit which support Products Corporation’s self-insurance programs. The estimated liability under such programs is accrued by Products Corporation.

Derivative Financial Instruments
The Company uses derivative financial instruments, primarily 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. The Company may also enter into interest rate hedging transactions 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, 2013 and December 31, 2012 was $51.7 million and $43.9 million, respectively.
While the Company may be exposed to credit loss in the event of the counterparty’s non-performance, the Company’s exposure is limited to the net amount that Products Corporation would have received, if any, from the counterparty over the remaining balance of the terms of the FX Contracts. The Company does not anticipate any non-performance and, furthermore, even in the case of any non-performance by the counterparty, the Company expects that any such loss would not be material.

18

REVLON, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions, except share and per share amounts)


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 Consolidated Balance Sheets:
 
Fair Values of Derivative Instruments
 
Assets
 
Liabilities
 
Balance Sheet
 
June 30,
2013
 
December 31,
2012
 
Balance Sheet
 
June 30,
2013
 
December 31,
2012
 
Classification
 
Fair Value
 
Fair Value
 
Classification
 
Fair Value
 
Fair Value
Derivatives not designated as hedging instruments:
 
 
 
 
 
 
 
 
 
 
 
FX Contracts(i)   
Prepaid expenses and other
 
$
1.9

 
$
0.1

 
Accrued Expenses
 
$
0.2

 
$
0.4


(i) The fair values of the FX Contracts at June 30, 2013 and December 31, 2012 were determined by using observable market transactions of spot and forward rates at June 30, 2013 and December 31, 2012, 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, 2013 and 2012:
 
Amount of Gain (Loss) Recognized in Foreign Currency Losses, Net
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2013
 
2012
 
2013
 
2012
Derivatives not designated as hedging instruments:
 
 
 
 
 
 
 
FX Contracts
$
1.8

 
$
0.5

 
$
2.3

 
$
(1.1
)
 
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 carry-forwards, foreign earnings taxable in the U.S., nondeductible 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 re-measurement 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 2013 and 2012, the Company recorded a provision for income taxes from continuing operations of $17.0 million and $9.1 million, respectively. The $7.9 million increase in the provision for income taxes was primarily attributable to the favorable resolution of tax matters in a foreign jurisdiction in the second quarter of 2012 that did not recur in the second quarter of 2013, as well as increased pre-tax income in the second quarter of 2013, partially offset by certain favorable discrete items that benefited the second quarter of 2013.
For the first six months of 2013 and 2012, the Company recorded a provision for income taxes from continuing operations of $18.2 million and $20.1 million, respectively. The $1.9 million decrease in the provision for income taxes was primarily attributable to the loss on early extinguishment of debt recognized in the first quarter of 2013 related to the 2013 Senior Notes Refinancing and the 2013 Bank Term Loan Amendments, partially offset by the favorable resolution of tax matters in a foreign jurisdiction in the first six months of 2012 that did not recur in the first six months of 2013.
The Company's effective tax rate for the three months ended June 30, 2013 was higher than the federal statutory rate of 35% due principally to foreign dividends and earnings taxable in the U.S. and state and local taxes, net of U.S. federal income tax benefit; partially offset by foreign and U.S. tax effects attributable to operations outside the U.S.
The Company's effective tax rate for the six months ended June 30, 2013 was higher than the federal statutory rate of 35% due principally to foreign dividends and earnings taxable in the U.S.

19

REVLON, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions, except share and per share amounts)


The Company remains subject to examination of its income tax returns in various jurisdictions including, without limitation, the U.S. (federal) and South Africa for tax years ended December 31, 2009 through December 31, 2011 and Australia for tax years ended December 31, 2008 through December 31, 2011.

13. 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 unlikely to have a material adverse effect on the Company’s business, financial condition and/or its results of operations. 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.

As previously disclosed in Revlon, Inc.'s 2012 Form 10-K, Revlon, Inc., certain of Revlon, Inc.'s current and former directors and MacAndrews & Forbes Holdings Inc. entered into settlement agreements with the plaintiffs in class and derivative actions related to the voluntary exchange offer Revlon, Inc. launched and consummated in 2009 (the "2009 Exchange Offer"). In the second quarter of 2012, the Company recorded a charge of $6.7 million with respect to the Company’s then-estimated costs of resolving the actions, including the Company's estimate at that time of additional payments to be made to the settling stockholders. This charge is included within SG&A expenses in the Company’s Consolidated Statements of Income and Comprehensive Income for the three and six months ended June 30, 2012.

In March 2013, the parties executed an amendment to one of the settlement agreements, specifically the class action settlement agreement. The amendment did not affect the financial terms of the class action settlement; rather, it modified the scope of the releases given by those class members who did not participate in the 2009 Exchange Offer.  Later in March 2013, the class action settlement, as amended, was presented to the Delaware Court of Chancery, and approved. The class action settlement is conditioned, and will be effective, upon final approval of the derivative action settlement and final dismissal of the actions pending outside of the Delaware Court of Chancery. The derivative action settlement was approved by the U.S. District Court for the District of Delaware on April 30, 2013. In early May 2013, the U.S. District Court for the District of Delaware dismissed the purported class action filed by John Garofalo, and in late July 2013, the Supreme Court of New York, New York County dismissed the Sullivan action. The entire settlement of all the actions noted above will become effective if no appeal is filed within thirty days of the dismissal of the Sullivan action.

Revlon, Inc. agreed with the staff of the SEC (or the “Commission”) on the terms of a proposed settlement of an investigation relating to certain disclosures made by Revlon, Inc. in its public filings in 2009 in connection with the 2009 Exchange Offer. On June 13, 2013, the Commission approved such settlement and Revlon, Inc. entered into the settlement without admitting or denying the findings set forth therein and, pursuant to its terms, Revlon, Inc., among other things, paid a civil penalty of $850,000. The settlement amount was previously accrued in the fourth quarter of 2012 within SG&A expenses and accrued expenses and other in Revlon, Inc.'s consolidated financial statements.

14. RELATED PARTY TRANSACTIONS
Reimbursement Agreements
As previously disclosed in Revlon, Inc.'s 2012 Form 10-K, Revlon, Inc., Products Corporation and MacAndrews & Forbes Inc. (a wholly-owned subsidiary of MacAndrews & Forbes Holdings) have entered into reimbursement agreements (the "Reimbursement Agreements") pursuant to which (i) MacAndrews & Forbes Inc. is obligated to provide (directly or through its affiliates) certain professional and administrative services, including, without limitation, employees, to Revlon, Inc. and its subsidiaries, including, without limitation, Products Corporation, and to purchase services from third party providers, such as insurance, legal, accounting and air transportation services, on behalf of Revlon, Inc. and its subsidiaries, including Products Corporation, 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 purchased for or provided by MacAndrews & Forbes to the Company and its subsidiaries and for the reasonable out-of-pocket expenses incurred by MacAndrews & Forbes in connection with the provision of such services. MacAndrews & Forbes reimburses Products Corporation for the allocable costs of the services purchased for or provided by Products Corporation to MacAndrews & Forbes and for the reasonable

20

REVLON, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions, except share and per share amounts)


out-of-pocket expenses incurred in connection with the purchase or provision of such services. Each of the Company, on the one hand, and MacAndrews & Forbes Inc., on the other, has agreed to indemnify the other party for losses arising out of the services provided by it under the Reimbursement Agreements, other than losses resulting from its willful misconduct or gross negligence.
The Reimbursement Agreements may be terminated by either party on 90 days' notice. The Company does not intend to request services under the Reimbursement Agreements unless their costs would be at least as favorable to the Company as could be obtained from unaffiliated third parties.
The Company participates in MacAndrews & Forbes' directors and officers liability insurance program (the “D&O Insurance Program”), as well as its other insurance coverages, such as property damage, business interruption, liability and other coverages, which cover the Company, as well as MacAndrews & Forbes and its subsidiaries. The limits of coverage for certain of the policies are available on an aggregate basis for losses to any or all of the participating companies and their respective directors and officers. The Company reimburses MacAndrews & Forbes from time to time for their allocable portion of the premiums for such coverage or the Company pays the insurers directly, which premiums the Company believes are more favorable than the premiums the Company would pay were it to secure stand-alone coverage. Any amounts paid by the Company directly to MacAndrews & Forbes in respect of premiums are included in the amounts paid under the Reimbursement Agreements.
The net activity related to services provided and/or purchased under the Reimbursement Agreements during the six months ended June 30, 2013 was $6.1 million, which relates to a partial payment made by the Company to MacAndrews & Forbes during the first quarter of 2013 for premiums related to the Company's allocable portion of the 5-year renewal of the D&O Insurance Program for the period from January 31, 2012 through January 31, 2017. The net activity related to services provided and/or purchased under the Reimbursement Agreements during the six months ended June 30, 2012 was $0.8 million, which included the initial $14.6 million partial pre-payment made by the Company to MacAndrews & Forbes during the first quarter of 2012 for premiums related to the Company’s allocable portion of the D&O Insurance Program, partially offset by $13.8 million from MacAndrews & Forbes for reimbursable costs incurred by the Company related to matters covered by the D&O Insurance Program. As of June 30, 2013 and December 31, 2012, a receivable balance of nil and $0.3 million, respectively, from MacAndrews & Forbes was included within prepaid expenses and other in the Company’s Consolidated Balance Sheets for transactions subject to the Reimbursement Agreements.

21

REVLON, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(all tabular amounts in millions, except share and per share amounts)


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview
Overview of the Business
The Company (as defined below) is providing this overview in accordance with the SEC's December 2003 interpretive guidance regarding Management's Discussion and Analysis of Financial Condition and Results of Operations.
Revlon, Inc. (and together with its subsidiaries, the "Company") conducts its business exclusively through its direct wholly-owned operating subsidiary, Revlon Consumer Products Corporation ("Products Corporation"), and its subsidiaries. Revlon, Inc. is a direct and indirect majority-owned subsidiary of MacAndrews & Forbes Holdings Inc. ("MacAndrews & Forbes Holdings" and together with certain of its affiliates other than the Company, "MacAndrews & Forbes"), a corporation wholly-owned by Ronald O. Perelman.
The Company’s vision is glamour, excitement and innovation through high-quality products at affordable prices. The Company operates in a single segment and manufactures, markets and sells an extensive array of cosmetics, women’s hair color, beauty tools, anti-perspirant deodorants, fragrances, skincare and other beauty care products. The Company is one of the world's leading cosmetics companies in the mass retail channel (as hereinafter defined). The Company believes that its global brand name recognition, product quality and marketing experience have enabled it to create one of the strongest consumer brand franchises in the world.
The Company's products are sold worldwide and marketed under such brand names as Revlon, including the Revlon ColorStay, Revlon Super Lustrous, Revlon Age Defying, Revlon PhotoReady and Revlon ColorBurst franchises; Almay, including the Almay Intense i-Color and Almay Smart Shade franchises; SinfulColors and Pure Ice in cosmetics; Revlon ColorSilk in women’s hair color; Revlon in beauty tools; Mitchum in anti-perspirant deodorants; Charlie and Jean Naté in fragrances; and Ultima II and Gatineau in skincare.
The Company's principal customers include large mass volume retailers and chain drug and food stores (collectively, the “mass retail channel”) in the U.S., as well as certain department stores and other specialty stores, such as perfumeries, outside the U.S. The Company also sells beauty products to U.S. military exchanges and commissaries and has a licensing business pursuant to which the Company licenses certain of its key brand names to third parties for complementary beauty-related products and accessories in exchange for royalties.
The Company was founded by Charles Revson, who revolutionized the cosmetics industry by introducing nail enamels matched to lipsticks in fashion colors over 80 years ago. Today, the Company has leading market positions in a number of its principal product categories in the U.S. mass retail channel, including color cosmetics (face, lip, eye and nail categories), women’s hair color and beauty tools. The Company also has leading market positions in several product categories in certain foreign countries, including Australia, Canada and South Africa.
Effective beginning October 1, 2012, the Company is consolidating and reporting Latin America and Canada (previously reported separately) as the combined Latin America and Canada region. As a result, prior year amounts have been reclassified to conform to this presentation.
Overview of the Company’s Business Strategy
The Company’s strategic goal is to profitably grow our business. The business strategies employed by the Company to achieve this goal are:
1.
Building our strong brands.  We continue to build our strong brands by focusing on innovative, high-quality, consumer-preferred brand offering; effective consumer brand communication; appropriate levels of advertising and promotion; and superb execution with our retail partners.
2.
Developing our organizational capability.  We continue to develop our organizational capability through retaining, attracting and rewarding highly capable people and through performance management, development planning, succession planning and training.
3.
Driving our company to act globally.  We continue to drive common global processes which are designed to provide the most efficient and effective allocation of our resources.
4.
Pursue growth opportunities.  We are focusing on pursuing growth opportunities with our existing brands as well as seeking to acquire brands to complement our core business.
5.
Improving our financial performance.  We continue to drive our collective business activities to deliver improved financial performance.

22

REVLON, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(all tabular amounts in millions, except share and per share amounts)


Overview of Net Sales and Earnings Results
Consolidated net sales in the second quarter of 2013 were $350.1 million, a decrease of $7.0 million, or 2.0%, compared to $357.1 million in the second quarter of 2012. Excluding the unfavorable impact of foreign currency fluctuations of $6.4 million, consolidated net sales decreased $0.6 million, or 0.2%, in the second quarter of 2013, driven by lower net sales in the Company’s Latin America and Canada region, partially offset by higher net sales in the Company’s Europe, Middle East and Africa and Asia Pacific regions. Consolidated net sales in the Company's U.S. region were essentially flat in the second quarter of 2013 compared to the second quarter of 2012.
Consolidated net sales in the first six months of 2013 were $682.0 million, a decrease of $5.8 million, or 0.8%, compared to $687.8 million in the first six months of 2012. Excluding the unfavorable impact of foreign currency fluctuations of $12.3 million, consolidated net sales increased $6.5 million, or 0.9%, in the first six months of 2013, driven by higher net sales in the Company’s U.S. region, partially offset by lower net sales in the Company’s Asia Pacific and Europe, Middle East and Africa regions. Consolidated net sales in the Company's Latin America and Canada region were essentially flat in the first six months of 2013 compared to the first six months of 2012.
Consolidated net income in the second quarter of 2013 was $24.7 million, compared to $11.1 million in the second quarter of 2012. The increase in consolidated net income in the second quarter of 2013, compared to the second quarter of 2012, was primarily due to:
$26.8 million of lower selling, general and administrative (“SG&A”) expenses primarily driven by a $18.1 million gain from insurance proceeds in the second quarter of 2013 due to the settlement of the Company’s claim for business interruption and property losses as a result of the fire at the Company's Venezuela facility;
with the foregoing partially offset by:
$7.4 million of lower gross profit due to a $7.0 million decrease in consolidated net sales and a $0.4 million increase in cost of sales.
Consolidated net income in the first six months of 2013 was $17.8 million, compared to $19.6 million in the first six months of 2012. The decrease in consolidated net income in the first six months of 2013, compared to the first six months of 2012 was primarily due to:
a $27.9 million aggregate loss on early extinguishment of debt in the first six months of 2013 due to the 2013 Senior Notes Refinancing (as hereinafter defined) and the 2013 Bank Term Loan Amendments (as hereinafter defined); and
$7.4 million of lower gross profit due to a $5.8 million decrease in consolidated net sales and a $1.6 million increase in cost of sales;
with the foregoing partially offset by:
$30.0 million of lower SG&A expenses primarily driven by a $26.4 million gain from insurance proceeds in the first six months of 2013 due to the settlement of the Company’s claims for inventory, business interruption and property losses as a result of the fire at the Company's Venezuela facility.

These items are discussed in more detail below.

Recent Events
2013 Debt Transactions
During the first quarter of 2013, the Company completed several debt transactions, including:
On February 8, 2013, Products Corporation issued $500.0 million aggregate principal amount of 5¾% Senior Notes due February 15, 2021 (the “5¾% Senior Notes”) to investors at par. Products Corporation used $491.2 million of net proceeds (net of underwriters' fees) from the issuance of the 5¾% Senior Notes to repay and redeem all of the $330 million outstanding aggregate principal amount of its 9¾% Senior Secured Notes due November 2015 (the “9¾% Senior Secured Notes”), as well as to pay an aggregate of $27.7 million for the applicable redemption and tender offer premiums, accrued interest and related fees and expenses. Products Corporation used a portion of the remaining proceeds, together with existing cash, to pay approximately $113.0 million of principal on its 2011 Term Loan Facility in conjunction with the consummation of the 2013 Bank Term Loan Amendments to the 2011 Term Loan Agreement in February 2013, as discussed below. Products Corporation expects to use the remaining balance available from the issuance of the 5¾% Senior Notes for general corporate purposes, including, without limitation,

23

REVLON, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(all tabular amounts in millions, except share and per share amounts)


debt reduction transactions, such as repaying to Revlon, Inc. at maturity in October 2013 the Contributed Loan (as hereinafter defined), which Revlon, Inc. expects to use to pay the liquidation preference of Revlon, Inc.'s Series A Preferred Stock, par value $0.01 per share (the “Preferred Stock”), on October 8, 2013, subject to Revlon, Inc. having sufficient surplus in accordance with Delaware law.
On February 21, 2013, Products Corporation consummated an amendment (the "2013 Bank Term Loan Amendments") to its third amended and restated term loan agreement, dated as of May 19, 2011 (as amended, the "2011 Term Loan Agreement"), for its 6.5 year term loan facility due November 19, 2017 (the “2011 Term Loan Facility”), to among other things: (i) reduce the total aggregate principal amount outstanding under the 2011 Term Loan Facility from $788.0 million to $675.0 million; (ii) reduce the minimum Eurodollar Rate on Eurodollar Loans from 1.25% to 1.00%; and (iii) reduce the Applicable Margin on Eurodollar Loans from 3.50% to 3.00%.
Refer to “Financial Condition, Liquidity and Capital Resources – Long-Term Debt Instruments” for further discussion of the above transactions.
Venezuela Insurance Settlements
In January 2013, the Company received additional insurance proceeds of $3.4 million from its insurers in connection with the June 5, 2011 fire at the Company's facility in Venezuela. These additional proceeds relate to the settlement of the Company’s claim for the loss of inventory. The $3.4 million of proceeds were in addition to $3.7 million of insurance proceeds received in 2012 and $4.7 million received in 2011, for a total settlement amount of $11.8 million for the loss of inventory, of which $3.5 million was previously recognized as income from insurance recoveries in 2011. As a result of the final settlement of the claim for the loss of inventory, the Company recognized a gain from insurance proceeds of $8.3 million in the first quarter of 2013.
In June 2013, the Company settled its business interruption and property insurance claim in the amount of $32.0 million. The Company received $2.9 million of insurance proceeds in 2012 and $15.0 million of insurance proceeds in 2011 for its business interruption and property claim, and the remaining $14.1 million was received in July 2013. The Company previously recognized $13.9 million as income from insurance recoveries in 2011 and 2012. As a result of the final settlement of the business interruption and property claim, the Company recognized a gain from insurance proceeds of $18.1 million in the second quarter of 2013 and recorded an insurance proceeds receivable of $14.1 million as of June 30, 2013.
For further discussion, see Note 1, “Description of Business and Basis of Presentation – Other Events – Fire at Revlon Venezuela Facility,” to the Unaudited Consolidated Financial Statements in this Form 10-Q.

Results of Operations
In the tables, all amounts are in millions and numbers in parentheses ( ) denote unfavorable variances.

Net sales:
Second quarter results:
Consolidated net sales in the second quarter of 2013 were $350.1 million, a decrease of $7.0 million, or 2.0%, compared to $357.1 million in the second quarter of 2012. Excluding the unfavorable impact of foreign currency fluctuations of $6.4 million, consolidated net sales decreased $0.6 million, or 0.2%, in the second quarter of 2013, primarily driven by lower net sales of Almay color cosmetics, as well as lower net sales in Venezuela due to the negative impact of business conditions in Venezuela. The decrease in net sales of Almay color cosmetics was primarily due to a reallocation of brand support from advertising, which is included in SG&A expenses, to promotional allowances, which are a deduction in arriving at net sales. The decreases in net sales were mostly offset by higher net sales of SinfulColors color cosmetics, as well as the inclusion of the net sales of Pure Ice color cosmetics which began upon its acquisition in July 2012.
Year-to-date results:
Consolidated net sales in the first six months of 2013 were $682.0 million, a decrease of $5.8 million, or 0.8%, compared to $687.8 million in the first six months of 2012. Excluding the unfavorable impact of foreign currency fluctuations of $12.3 million, consolidated net sales increased $6.5 million, or 0.9%, in the first six months of 2013, primarily driven by higher net sales of SinfulColors color cosmetics, as well as the inclusion of the net sales of Pure Ice color cosmetics which began upon its acquisition in July 2012. The increases in net sales were partially offset by lower net sales of Almay color cosmetics, as well as lower net sales in Venezuela due to the negative impact of business conditions in Venezuela. The decrease in net sales of Almay color cosmetics was partially due to a reallocation of brand support from advertising, which is included in SG&A expenses, to promotional allowances, which are a deduction in arriving at net sales.

24

REVLON, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(all tabular amounts in millions, except share and per share amounts)


 
Three Months Ended June 30,


Change
 
XFX Change (a)
 
2013
 
2012
 
$
 
%
 
$
 
%
United States
$
203.9

 
$
203.9

 
$

 
 %
 
$

 
 %
Asia Pacific
54.3

 
55.8

 
(1.5
)
 
(2.7
)
 
0.5

 
0.9

Europe, Middle East and Africa
42.7

 
44.4

 
(1.7
)
 
(3.8
)
 
1.6

 
3.6

Latin America and Canada
49.2

 
53.0

 
(3.8
)
 
(7.2
)
 
(2.7
)
 
(5.1
)
    Total Net Sales
$
350.1

 
$
357.1

 
$
(7.0
)
 
(2.0
)%
 
$
(0.6
)
 
(0.2
)%
 
Six Months Ended June 30,


Change
 
XFX Change (a)
 
2013
 
2012
 
$
 
%
 
$
 
%
United States
$
396.0

 
$
388.6

 
$
7.4

 
1.9
 %
 
$
7.4

 
1.9
 %
Asia Pacific
107.9

 
111.9

 
(4.0
)
 
(3.6
)%
 
(0.6
)
 
(0.5
)%
Europe, Middle East and Africa
83.4

 
90.2

 
(6.8
)
 
(7.5
)%
 
(0.3
)
 
(0.3
)%
Latin America and Canada
94.7

 
97.1

 
(2.4
)
 
(2.5
)%
 

 
 %
    Total Net Sales
$
682.0

 
$
687.8

 
$
(5.8
)
 
(0.8
)%
 
$
6.5

 
0.9
 %
(a) XFX excludes the impact of foreign currency fluctuations.

United States
Second quarter results:
In the U.S., net sales in the second quarter of 2013 were essentially flat compared to the second quarter of 2012, primarily driven by higher net sales of SinfulColors color cosmetics, as well as the inclusion of the net sales of Pure Ice color cosmetics which began upon its acquisition in July 2012, offset by lower net sales of Revlon color cosmetics and Almay color cosmetics. The decrease in net sales of Almay color cosmetics was primarily due to a reallocation of brand support from advertising, which is included in SG&A expenses, to promotional allowances, which are a deduction in arriving at net sales. Excluding the results of Pure Ice color cosmetics, net sales in the U.S. decreased in the second quarter of 2013.
Year-to-date results:
In the U.S., net sales in the first six months of 2013 increased $7.4 million, or 1.9%, to $396.0 million, compared to $388.6 million in the first six months of 2012, primarily driven by higher net sales of SinfulColors color cosmetics, as well as the inclusion of the net sales of Pure Ice color cosmetics which began upon its acquisition in July 2012, partially offset by lower net sales of Almay color cosmetics. The decrease in net sales of Almay color cosmetics was partially due to a reallocation of brand support from advertising, which is included in SG&A expenses, to promotional allowances, which are a deduction in arriving at net sales. Excluding the results of Pure Ice color cosmetics, net sales in the U.S. decreased in the first six months of 2013.
Asia Pacific
Second quarter results:
In Asia Pacific, net sales in the second quarter of 2013 decreased 2.7% to $54.3 million, compared to $55.8 million in the second quarter of 2012. Excluding the unfavorable impact of foreign currency fluctuations, net sales increased $0.5 million, or 0.9%. From a country perspective, net sales increased in Japan (which contributed 4.9 percentage points to the increase in the region’s net sales in the second quarter of 2013, as compared to the second quarter of 2012). The increase in the region's net sales was partially offset by a decrease in net sales in China (which offset by 3.2 percentage points the increase in the region’s net sales in the second quarter of 2013, as compared to the second quarter of 2012).
Year-to-date results:
In Asia Pacific, net sales in the first six months of 2013 decreased 3.6% to $107.9 million, compared to $111.9 million in the first six months of 2012. Excluding the unfavorable impact of foreign currency fluctuations, net sales decreased $0.6 million, or 0.5%, primarily driven by lower net sales of Revlon color cosmetics, mostly offset by higher net sales of SinfulColors color cosmetics. From a country perspective, net sales decreased in China (which contributed 4.5 percentage points to the decrease in the region’s net sales in the first six months of 2013, as compared to the first six months of 2012). The decrease in the region's net

25

REVLON, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(all tabular amounts in millions, except share and per share amounts)


sales was partially offset by an increase in net sales in Japan (which offset by 3.6 percentage points the decrease in the region’s net sales in the first six months of 2013, as compared to the first six months of 2012).
Europe, Middle East and Africa
Second quarter results:
In Europe, the Middle East and Africa, net sales in the second quarter of 2013 decreased 3.8% to $42.7 million, compared to $44.4 million in the second quarter of 2012. Excluding the unfavorable impact of foreign currency fluctuations, net sales increased $1.6 million, or 3.6%, primarily driven by higher net sales of fragrances and SinfulColors color cosmetics, partially offset by lower net sales of other beauty care products. From a country perspective, net sales increased in the U.K. and Italy (which together contributed 4.9 percentage points to the increase in the region’s net sales in the second quarter of 2013, as compared to the second quarter of 2012). The increase in the region's net sales was partially offset by a decrease in net sales in France (which offset by 3.2 percentage points the increase in the region’s net sales in the second quarter of 2013, as compared to the second quarter of 2012).
Year-to-date results:
In Europe, the Middle East and Africa, net sales in the first six months of 2013 decreased 7.5% to $83.4 million, compared to $90.2 million in the first six months of 2012. Excluding the unfavorable impact of foreign currency fluctuations, net sales decreased $0.3 million, or 0.3%, primarily driven by lower net sales of Revlon color cosmetics and other beauty care products, mostly offset by higher net sales of fragrances. From a country perspective, net sales decreased in France (which contributed 3.7 percentage points to the decrease in the region’s net sales in the first six months of 2013, as compared to the first six months of 2012). The decrease in the region's net sales was partially offset by an increase in net sales in South Africa and the U.K. (which together offset by 3.3 percentage points the decrease in the region’s net sales in the first six months of 2013, as compared to the first six months of 2012).
Latin America and Canada
Second quarter results:
In Latin America and Canada, net sales in the second quarter of 2013 decreased 7.2% to $49.2 million, compared to $53.0 million in the second quarter of 2012. Excluding the unfavorable impact of foreign currency fluctuations, net sales decreased $2.7 million, or 5.1%, primarily driven by lower net sales of Almay color cosmetics and Revlon ColorSilk hair color, partially offset by higher net sales of Revlon color cosmetics. From a country perspective, the negative impact of business conditions in Venezuela, including currency restrictions, contributed $6.3 million, or 11.9 percentage points, to the decrease in the region's net sales in the second quarter of 2013, as compared to the second quarter of 2012. The decrease in the region's net sales was partially offset by an increase in net sales in Argentina, Mexico and certain distributor territories (which together offset by 8.0 percentage points the decrease in the region’s net sales in the second quarter of 2013, as compared to the second quarter of 2012). Net sales in Argentina benefited from higher selling prices resulting from market conditions and inflation.
Year-to-date results:
In Latin America and Canada, net sales in the first six months of 2013 decreased 2.5% to $94.7 million, compared to $97.1 million in the first six months of 2012. Excluding the unfavorable impact of foreign currency fluctuations, net sales were essentially flat, primarily driven by higher net sales of Revlon color cosmetics, offset by lower net sales of Almay color cosmetics and Revlon ColorSilk hair color. From a country perspective, net sales increased in Argentina, Mexico and certain distributor territories (which together contributed 7.7 percentage points to the increase in the region’s net sales in the first six months of 2013, as compared to the first six months of 2012). Net sales in Argentina benefited from higher selling prices resulting from market conditions and inflation. The increase in the region's net sales was partially offset by the negative impact of business conditions in Venezuela, including currency restrictions, which offset by $6.2 million, or 6.4 percentage points, the increase in the region’s net sales in the first six months of 2013, as compared to the first six months of 2012.










26

REVLON, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(all tabular amounts in millions, except share and per share amounts)


Gross profit:
 
Three Months Ended June 30,
 
 
 
Six Months Ended June 30,
 
 
 
2013
 
2012
 
Change
 
2013
 
2012
 
Change
Gross profit
$
225.3

 
$
232.7

 
$
(7.4
)
 
$
440.3

 
$
447.7

 
$
(7.4
)
Percentage of net sales   
64.4
%
 
65.2
%
 
(0.8
)%
 
64.6
%
 
65.1
%
 
(0.5
)%

Gross profit in the second quarter of 2013 decreased $7.4 million compared to the second quarter of 2012. As a percentage of net sales, gross profit decreased 0.8 percentage points in the second quarter of 2013, compared to the second quarter of 2012. The drivers of gross profit in the second quarter of 2013, compared to the second quarter of 2012 primarily included:
higher sales returns and markdowns, which reduced gross profit by $6.2 million and reduced gross profit as a percentage of net sales by 0.6 percentage points;
higher promotional allowances, which reduced gross profit by $3.7 million and reduced gross profit as a percentage of net sales by 0.3 percentage points; and
unfavorable foreign currency fluctuations, which reduced gross profit by $5.1 million and reduced gross profit as a percentage of net sales by 0.3 percentage points;
with the foregoing offset by:
favorable volume, which increased gross profit by $6.4 million, with no impact on gross profit as a percentage of net sales; and
favorable product mix, which increased gross profit by $1.5 million and increased gross profit as a percentage of net sales by 0.4 percentage points.
Gross profit in the first six months of 2013 decreased $7.4 million compared to the first six months of 2012. As a percentage of net sales, gross profit decreased 0.5 percentage points in the first six months of 2013, compared to the first six months of 2012. The drivers of gross profit in the first six months of 2013, compared to the first six months of 2012 primarily included:
higher sales returns and markdowns, which reduced gross profit by $9.6 million and reduced gross profit as a percentage of net sales by 0.5 percentage points;
unfavorable foreign currency fluctuations, which reduced gross profit by $9.4 million and reduced gross profit as a percentage of net sales by 0.2 percentage points; and
unabsorbed fixed costs of $1.1 million due to the Company exiting its previously-owned manufacturing facility in France, which reduced gross profit as a percentage of net sales by 0.2 percentage points;
with the foregoing offset by:
favorable volume, which increased gross profit by $11.3 million, with no impact on gross profit as a percentage of net sales; and
favorable product mix, which increased gross profit by $2.2 million and increased gross profit as a percentage of net sales by 0.3 percentage points.

SG&A expenses:
 
Three Months Ended June 30,
 
 
 
Six Months Ended June 30,