Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)

[X]    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2007

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 (I.R.S. Employer
incorporation or organization) 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 [ ]    No [X]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of ‘‘accelerated filer’’ and ‘‘large accelerated filer’’ in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer [ ]                    Accelerated filer [X]                    Non-accelerated filer [ ]

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 March 31, 2007, 477,188,940 shares of Class A Common Stock and 31,250,000 shares of Class B Common Stock were outstanding. 274,834,793 shares of Class A Common Stock and all of the 31,250,000 shares of Class B Common Stock were beneficially owned directly and indirectly by MacAndrews & Forbes Holdings Inc. and certain of its affiliates.




REVLON, INC. AND SUBSIDIARIES

INDEX


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PART I – FINANCIAL INFORMATION

Item 1.    Financial Statements.

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


  March 31,
2007
December 31,
2006
  (Unaudited)  
ASSETS    
Current assets:    
Cash and cash equivalents $ 46.9 $ 35.4
Trade receivables, less allowances of $16.3 and $17.7 as of
March 31, 2007 and December 31, 2006, respectively
176.8 207.8
Inventories 186.4 186.5
Prepaid expenses and other 59.7 58.3
Total current assets 469.8 488.0
Property, plant and equipment, net 112.7 115.3
Other assets 139.2 142.4
Goodwill, net 186.2 186.2
Total assets $ 907.9 $ 931.9
LIABILITIES AND STOCKHOLDERS’ DEFICIENCY    
Current liabilities:    
Short-term borrowings $ 5.4 $ 9.6
Current portion of long-term debt 167.4
Accounts payable 116.7 95.1
Accrued expenses and other 276.0 272.5
Total current liabilities 565.5 377.2
Long-term debt 1,227.5 1,501.8
Long-term pension and other post-retirement plan liabilities 164.4 175.7
Other long-term liabilities 80.4 107.0
Stockholders’ deficiency:    
Class B Common Stock, par value $.01 per share: 200,000,000 shares authorized; 31,250,000 shares issued and outstanding
as of March 31, 2007 and December 31, 2006, respectively
0.3 0.3
Class A Common Stock, par value $.01 per share: 900,000,000
shares authorized; 484,864,249 and 390,001,154 shares issued as of March 31, 2007 and December 31, 2006, respectively
4.8 3.8
Additional paid-in capital 984.2 884.9
Treasury stock, at cost: 429,666 and 429,666 shares of Class A Common Stock as of March 31, 2007 and December 31, 2006, respectively (1.4 )  (1.4 ) 
Accumulated deficit (2,004.5 )  (1,993.2 ) 
Accumulated other comprehensive loss (113.3 )  (124.2 ) 
Total stockholders’ deficiency (1,129.9 )  (1,229.8 ) 
Total liabilities and stockholders’ deficiency $ 907.9 $ 931.9

See Accompanying Notes to Unaudited Consolidated Financial Statements

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REVLON, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in millions, except per share amounts)


  Three Months Ended
March 31,
  2007 2006
Net sales $ 328.6 $ 325.5
Cost of sales 126.2 117.3
Gross profit 202.4 208.2
Selling, general and administrative expenses 195.1 216.4
Restructuring costs and other, net 4.3 9.0
Operating income (loss) 3.0 (17.2 ) 
Other expenses (income):    
Interest expense 33.8 35.2
Interest income (1.3 )  (0.3 ) 
Amortization of debt issuance costs 1.1 1.8
Foreign currency losses (gains), net 0.1 (0.8 ) 
Loss on early extinguishment of debt 0.1
Miscellaneous, net (0.3 ) 
Other expenses, net 33.8 35.6
Loss before income taxes (30.8 )  (52.8 ) 
Provision for income taxes 4.4 5.4
Net loss $ (35.2 )  $ (58.2 ) 
Basic and diluted loss per common share $ (0.07 )  $ (0.15 ) 
Weighted average number of common shares outstanding:    
Basic and diluted 486,359,349 390,518,489

See Accompanying Notes to Unaudited Consolidated Financial Statements

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


  Common
Stock
Additional
Paid-In
Capital
Treasury
Stock
Accumulated
Deficit
Accumulated
Other
Comprehensive
Loss
Total
Stockholders’
Deficiency
Balance, January 1, 2007 $ 4.1 $ 884.9 $ (1.4 )  $ (1,993.2 )  $ (124.2 )  $ (1,229.8 ) 
SFAS No. 158 adjustment(a)       (2.9 )  10.3 7.4
Adjusted balance, January 1, 2007 4.1 884.9 (1.4 )  (1,996.1 )  (113.9 )  (1,222.4 ) 
Net proceeds from $100 Million Rights Offering (see Note 11) 1.0 97.7       98.7
Stock option compensation   0.3       0.3
Amortization of deferred
compensation for restricted stock
  1.3       1.3
Adjustment for adoption of FIN
48(b)
      26.8   26.8
Comprehensive loss:            
Net loss       (35.2 )    (35.2 ) 
Recognition of hedge accounting derivative losses(c)         0.1 0.1
Currency translation adjustment         (0.1 )  (0.1 ) 
Amortization under SFAS No. 158(d)         0.6 0.6
Total comprehensive loss           (34.6 ) 
Balance, March 31, 2007 $ 5.1 $ 984.2 $ (1.4 )  $ (2,004.5 )  $ (113.3 )  $ (1,129.9 ) 
(a) Due to the Company’s early adoption of the provisions under SFAS No. 158 requiring a measurement date for determining defined benefit plan assets and obligations using the Company’s fiscal year end of December 31st, rather than using a September 30th measurement date (which will become effective for the fiscal year ending December 31, 2007), the Company recognized a net reduction to the beginning balance of Accumulated Other Comprehensive Loss of $10.3 million, as set forth in the table above, which is comprised of (1) a $9.4 million reduction to Accumulated Other Comprehensive Loss due to the revaluation of the pension liability as a result of the change in measurement date and (2) a $0.9 million reduction to Accumulated Other Comprehensive Loss of amortization of prior service costs, actuarial gains/losses and return on assets over the period from October 1, 2006 to December 31, 2006. In addition, the Company recognized a $2.9 million increase to the beginning balance of Accumulated Deficit, as set forth in the table above, which represents the total net periodic benefit costs incurred from October 1, 2006 to December 31, 2006. (See Note 3, ‘‘Post-retirement Benefits’’).
(b) Due to the Company’s adoption of FIN 48, ‘‘Accounting for Uncertainty in Income Taxes-an interpretation of SFAS No. 109’’ effective for the fiscal year beginning January 1, 2007, the Company reduced its total tax reserves by $26.8 million for the three-month fiscal period ended March 31, 2007, which resulted in a corresponding reduction to the accumulated deficit component of Accumulated Other Comprehensive Loss, as set forth in the table above. (See Note 1, ‘‘Basis of Presentation – Income Taxes’’).
(c) Amount pertains to the Company’s recognition of net losses accumulated in Accumulated Other Comprehensive Loss at January 1, 2007 upon the Company’s election to discontinue the application of hedge accounting under SFAS No. 133, ‘‘Accounting for Derivative Instruments and Hedging Activities’’. (See Note 9, ‘‘Derivative Financial Instruments’’ to the Unaudited Consolidated Financial Statements and the discussion of Critical Accounting Policies in this Form 10-Q).
(d) The $0.6 million represents a reduction in Accumulated Other Comprehensive Loss as a result of the amortization of unrecognized prior service costs and actuarial gains/losses arising during the three-month period ended March 31, 2007 related to the Company’s pension and other post-retirement plans.

See Accompanying Notes to Unaudited Consolidated Financial Statements

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REVLON, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in millions)


  Three Months Ended
March 31,
  2007 2006
CASH FLOWS FROM OPERATING ACTIVITIES:    
Net loss $ (35.2 )  $ (58.2 ) 
Adjustments to reconcile net loss to net cash provided by operating activities:    
Depreciation and amortization 28.8 30.5
Amortization of debt discount 0.2 0.2
Stock compensation amortization 1.6 3.7
Loss on early extinguishment of debt 0.1
Change in assets and liabilities:    
Decrease in trade receivables 31.0 115.9
Decrease (increase) in inventories 0.2 (18.3 ) 
Increase in prepaid expenses and other current assets (1.0 )  (8.2 ) 
Increase (decrease) in accounts payable 19.2 (7.1 ) 
Decrease in accrued expenses and other current liabilities (3.6 )  (12.8 ) 
Purchases of permanent displays (23.8 )  (48.3 ) 
Other, net 7.2 11.1
Net cash provided by operating activities 24.7 8.5
CASH FLOWS FROM INVESTING ACTIVITIES:    
Capital expenditures (2.7 )  (4.8 ) 
Net cash used in investing activities (2.7 )  (4.8 ) 
CASH FLOWS FROM FINANCING ACTIVITIES:    
Net decrease in short-term borrowings and overdrafts (2.1 )  (4.3 ) 
(Repayment) borrowings under the 2006 Revolving Credit Facility, net (57.5 )  1.0
Proceeds from the issuance of long-term debt 0.4
Repayment of long-term debt (50.0 ) 
Payment of financing costs (0.7 )  (3.1 ) 
Net proceeds from the $110 Million Rights Offering 107.7
Net proceeds from the $100 Million Rights Offering 99.5
Proceeds from exercise of stock options for common stock 0.1
Net cash (used in) provided by financing activities (10.4 )  101.4
Effect of exchange rate changes on cash and cash equivalents (0.1 )  (0.4 ) 
Net increase (decrease) in cash and cash equivalents 11.5 104.7
Cash and cash equivalents at beginning of period 35.4 32.5
Cash and cash equivalents at end of period $ 46.9 $ 137.2
Supplemental schedule of cash flow information:    
Cash paid during the period for:    
Interest $ 26.6 $ 32.5
Income taxes, net of refunds $ 2.6 $ 2.4
Supplemental schedule of non-cash investing and financing activities:    
Treasury stock received to satisfy minimum tax withholding liabilities $ $ 0.1

See Accompanying Notes to Unaudited Consolidated Financial Statements

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

(1) 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 and its subsidiaries (‘‘Products Corporation’’). The Company operates in a single segment and manufactures, markets and sells an extensive array of cosmetics, skincare, fragrances, beauty tools, women’s hair color, anti-perspirants/deodorants and personal care products. The Company’s principal customers include large mass volume retailers and chain drug 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 complimentary beauty-related products and accessories.

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 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 elimination of all material intercompany balances and transactions.

The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the financial statements and reported amounts of revenues and expenses during the periods presented. Actual results could differ from these estimates. Estimates and assumptions are reviewed periodically and the effects of revisions are reflected in the consolidated financial statements in the period they are determined to be necessary. Significant estimates made in the accompanying Unaudited Consolidated Financial Statements include, but are not limited to, allowances for doubtful accounts, inventory valuation reserves, expected sales returns and allowances, certain assumptions related to the recoverability of intangible and long-lived assets, reserves for estimated tax liabilities, restructuring costs, certain estimates and assumptions used in the calculation of the fair value of stock options issued to employees and the derived compensation expense and certain estimates regarding the calculation of the net periodic benefit costs and the projected benefit obligation for the Company’s pension and other post-retirement plans. The Unaudited Consolidated Financial Statements should be read in conjunction with the consolidated financial statements and related notes contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006 filed with the Securities and Exchange Commission (the ‘‘SEC’’) on March 13, 2007.

The Company’s results of operations and financial position for interim periods are not necessarily indicative of those to be expected for a full year.

Certain prior year amounts have been reclassified to conform to the current period’s presentation, as a result of the transfer, during the second quarter of 2006, of management responsibility for the Company’s Canadian operations from the Company’s North America operations to the European region of its international operations.

Income Taxes

Effective January 1, 2007, the Company adopted FASB Interpretation No. 48 (‘‘FIN 48’’), ‘‘Accounting for Uncertainty in Income Taxes – an interpretation of SFAS No. 109’’. This interpretation provides guidance on recognition and measurement for uncertainties in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109, ‘‘Accounting for Income Taxes’’. FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods,

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

disclosure and transition. As a result of the Company’s adoption of FIN 48 on January 1, 2007, the Company reduced its total tax reserves by approximately $26.8 million, which resulted in a corresponding reduction of accumulated deficit. As of the date of adoption and after the impact of recognizing the decrease in tax reserves noted above, the Company had tax reserves of $59.2 million, all of which to the extent reduced and unutilized in future periods, would affect the Company’s effective tax rate. The Company remains subject to examination of its income tax returns in various jurisdictions including the U.S. (federal) and South Africa for tax years ended December 31, 2003 through December 31, 2006 and Australia for tax years ending December 31, 2002 through December 31, 2006. The Company classifies interest and penalties recognized under FIN 48 as a component of the provision for income taxes in the consolidated statement of operations. After the implementation of FIN 48 on January 1, 2007, the Company had $23.1 million of accrued interest and $1.1 million of accrued tax penalties, respectively, included in tax reserves.

Recent Accounting Pronouncements

In September 2006, the FASB issued SFAS No. 157, ‘‘Fair Value Measurements’’. This statement clarifies the definition of fair value of assets and liabilities, establishes a framework for measuring fair value of assets and liabilities and expands the disclosures on fair value measurements. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007. The Company is currently evaluating the impact that SFAS No. 157 could have on its results of operations or financial condition.

In September 2006, the FASB issued SFAS No. 158, ‘‘Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans – an amendment of FASB Statement Nos. 87, 88, 106, and 132(R)’’ (‘‘SFAS No. 158’’). SFAS No. 158 is intended by FASB to improve financial reporting by requiring an employer to recognize the overfunded or underfunded status of a defined benefit post-retirement plan (other than a multi-employer plan) as an asset or liability in its statement of financial position and to recognize changes in that funded status in the year in which the changes occur through comprehensive income. SFAS No. 158 is also intended by the FASB to improve financial reporting by requiring an employer to measure the funded status of a plan as of the date of its year-end statement of financial position, with limited exceptions. As of December 31, 2006, the Company has adopted the requirements of SFAS No. 158 that requires an employer that sponsors one or more single-employer defined benefit plans to:

a.  Recognize the funded status of a benefit plan – measured as the difference between plan assets at fair value (with limited exceptions) and the benefit obligation – in its statement of financial position. For a pension plan, the benefit obligation is the projected benefit obligation; for any other post-retirement benefit plan, such as a retiree health care plan, the benefit obligation is the accumulated post-retirement benefit obligation;
b.  Recognize as a component of other comprehensive income (loss), net of tax, the gains or losses recognized and prior service costs or credits that arise during the year but are not recognized in net income (loss) as components of net periodic benefit cost pursuant to FASB Statement No. 87, ‘‘Employers’ Accounting for Pensions’’, or No. 106, ‘‘Employers’ Accounting for Postretirement Benefits Other Than Pensions’’. Amounts recognized in accumulated other comprehensive income (loss), including the gains or losses, prior service costs or credits, and the transition assets or obligations remaining from the initial application of Statements Nos. 87 and 106, are adjusted as they are subsequently recognized as components of net periodic benefit cost pursuant to the recognition and amortization provisions of Statements Nos. 87 and 106; and
c.  Disclose in the notes to financial statements additional information about certain effects on net periodic benefit cost for the next fiscal year that arise from delayed recognition of the gains or losses, prior service costs or credits, and transition assets or obligations. (See Note 11, ‘‘Savings Plan, Pension and Post-Retirement Benefits’’ in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006 filed with the SEC on March 13, 2007.)

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

As of January 1, 2007, the Company adopted the requirement to measure defined benefit plan assets and obligations as of the date of the Company’s fiscal year-ending December 31, 2007, rather than using a September 30th measurement date. (See Note 3, ‘‘Post-retirement Benefits’’, for further discussion of the impact of adopting the measurement date provision of SFAS No. 158 on the Company’s results of operations or financial condition.)

(2) Stock Compensation Plan

Revlon, Inc. maintains the Second Amended and Restated Revlon, Inc. Stock Plan (the ‘‘Stock Plan’’), which provides for the issuance of awards of stock options, stock appreciation rights, restricted or unrestricted stock and restricted stock units to eligible employees and directors of Revlon, Inc. and its affiliates, including Products Corporation.

Stock options:

At each of March 31, 2007 and 2006, there were 17,336,426 and 16,885,382 stock options exercisable under the Stock Plan, respectively. However, as of March 31, 2007, all stock options held by grantees were ‘‘out-of-the-money’’ in that, in each case, the stock options had a strike price that was above the closing market price of the Company’s Class A Common Stock (as hereinafter defined) as reported on the NYSE consolidated tape on March 30, 2007 (the last trading day of the first quarter of 2007) of $1.07 per share. The lowest exercise price of any options held by grantees is $1.46 per share. Accordingly, all of the stock options held by grantees had no realizable monetary value at March 31, 2007.

Total net stock option compensation expense includes amounts attributable to the granting of, and the remaining requisite service period of, stock options issued under the Stock Plan, which awards were unvested at January 1, 2006 or granted on or after such date. Net stock option compensation expense in each of the three-month fiscal periods ended March 31, 2007 and 2006 was $0.3 million and $2.4 million, or nil and $0.01, respectively, for both basic and diluted earnings per share. As of March 31, 2007, the total unrecognized compensation cost related to unvested stock option awards in the aggregate was $2.1 million, which is expected to be recognized over a weighted-average period of 1.2 years. The total fair value of stock options that vested during the three-month fiscal period ended March 31, 2007 was $2.2 million.

A summary of the status of grants under the Stock Plan as of March 31, 2007, which includes both excercisable and unexcercisable grants, and changes during the three-month fiscal period then ended is presented below:


  Shares
(000’s)
Weighted Average
Exercise Price
Outstanding at January 1, 2007 24,993.0 $ 4.54
Granted
Exercised
Forfeited and expired (2,152.6 )  3.78
Outstanding at March 31, 2007 22,840.4 4.61

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

There were no options granted during the three-month fiscal period ended March 31, 2007. The weighted average grant date fair value of options granted during the three-month fiscal period ended March 31, 2006 was approximately $1.67, which was estimated using the Black-Scholes option valuation model with the following weighted-average assumptions:


  Three Months Ended March 31,
  2007 2006
Expected life of option(a) N/A 4.75 years
Risk-free interest rate(b) N/A %  4.61 % 
Expected volatility(c) N/A %  62 % 
Expected dividend yield(d) N/A N/A
(a) The expected life of an option is calculated using a formula based on the vesting term and contractual life of the option.
(b) The risk-free interest rate is based upon the rate in effect at the time of the option grant on a zero coupon U.S. Treasury bill for periods approximating the expected life of the option.
(c) Expected volatility is based on the daily historical volatility of the closing price of the Company’s Class A Common Stock as reported on the NYSE consolidated tape over the expected life of the option.
(d) Assumes no dividends on the Company’s Class A Common Stock for options granted during the three-month periods ended March 31, 2007 and 2006, respectively.

The following table summarizes information about the Stock Plan’s options outstanding at March 31, 2007:


  Outstanding (Exercisable and Unexercisable) Exercisable
Range of
Exercise Prices
Number of
Options
(000’s)
Weighted
Average
Years
Remaining
Weighted
Average
Exercise
Price
Aggregate
Intrinsic
Value
Number of
Options
(000’s)
Weighted
Average
Years
Remaining
Weighted
Average
Exercise
Price
$  1.46 to $  2.19 35.0 8.66 $ 1.55 $
    2.31 to     3.47 18,810.3 4.32 2.95 13,341.3 4.26 2.97
    3.76 to     5.64 1,784.9 5.28 3.93 1,784.9 5.28 3.93
    5.66 to     8.49 796.9 3.86 6.22 796.9 3.86 6.22
    8.81 to   13.22 300.1 2.87 8.81 300.1 2.87 8.81
  15.00 to   22.50 362.5 1.88 15.01 362.5 1.88 15.01
  24.13 to   36.19 446.6 0.53 32.62 446.6 0.53 32.62
  36.38 to   50.00 304.1 1.07 49.90 304.1 1.07 49.90
    1.46 to   50.00 22,840.4 4.21 4.61 17,336.4 4.12 5.16

Restricted stock awards:

The Stock Plan and Supplemental Stock Plan (as hereinafter defined) allow for awards of restricted stock and restricted stock units to employees and directors of Revlon, Inc. and its affiliates, including Products Corporation. The restricted stock awards granted under the Stock Plan vest over service periods that generally range from 19 months to three years. At March 31, 2007 and 2006, there were 7,245,643 and 3,510,002 shares of restricted stock and restricted stock units outstanding and unvested under the Stock Plan, respectively. All of the restricted shares granted under the Supplemental Stock Plan were fully vested at March 31, 2007.

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

A summary of the status of grants of restricted stock and restricted stock units under the Stock Plan and Supplemental Stock Plan as of March 31, 2007 and changes during the years then ended is presented below:


  Shares (000’s) Weighted
Average Grant
Date Fair Value
Nonvested at January 1, 2007 8,120.6 $ 1.92
Granted 1.5 1.16
Vested (500.0 )  3.82
Forfeited (376.5 )  1.59
Nonvested at March 31, 2007 7,245.6 1.81

In 2002, Revlon, Inc. adopted the Revlon, Inc. 2002 Supplemental Stock Plan (the ‘‘Supplemental Stock Plan’’), the purpose of which was to provide Mr. Jack Stahl, the Company’s former President and Chief Executive Officer, the sole eligible participant under the Supplemental Stock Plan, with inducement awards to entice him to join the Company. All of the 530,000 shares of Class A Common Stock covered by the Supplemental Stock Plan were issued in the form of restricted shares to Mr. Stahl in February 2002 and all of these shares were fully vested at March 31, 2007.

The Company recognizes non-cash compensation expense related to restricted stock awards and restricted stock units under the Stock Plan and Supplemental Stock Plan using the straight-line method over the remaining service period. The Company recorded compensation expense related to restricted stock awards under the Stock Plan and Supplemental Stock Plan of $1.3 million and $1.3 million during the three-month fiscal periods ended March 31, 2007 and 2006, respectively. The deferred stock-based compensation related to restricted stock awards is $7.9 million at March 31, 2007. The deferred stock-based compensation related to restricted stock awards is expected to be recognized over a weighted-average period of 2.0 years. The total fair value of restricted stock and restricted stock units that vested during the three-month period ended March 31, 2007 was $1.9 million. At March 31, 2007, there were 7,245,643 shares of unvested restricted stock and restricted stock units under the Stock Plan and nil under the Supplemental Stock Plan.

Treasury stock

During the three-month fiscal period ended March 31, 2007, there were no shares of Revlon, Inc. Class A Common Stock withheld in lieu of paying withholding taxes on the vesting of certain restricted stock.

Pursuant to the share withholding provisions of the Stock Plan, during the three-month fiscal period ended March 31, 2006, an executive, in lieu of paying withholding taxes on the vesting of certain restricted stock, authorized the withholding of an aggregate 17,594 shares of Revlon, Inc. Class A Common Stock to satisfy the minimum statutory tax withholding requirements related to such vesting. These shares were recorded as treasury stock using the cost method, at $3.56, the market price on the vesting date, for a total of approximately $0.1 million.

(3) Post-retirement Benefits

The Company sponsors pension plans and certain other post-retirement benefit plans for a substantial portion of its U.S. employees, as well as certain other non-U.S. employees. Relevant aspects of these plans are disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006, filed with the SEC on March 13, 2007.

On January 1, 2007, the Company early adopted the measurement date provisions of SFAS No. 158. These provisions of SFAS No. 158 require the Company to measure defined benefit plan assets and

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

obligations as of the date of the Company’s fiscal year-end, which for the Company will apply beginning with respect to the fiscal year ended December 31, 2007, rather than using a September 30th measurement date. Due to the Company’s early adoption of the measurement date provisions under SFAS No. 158, the Company recognized a net reduction to the beginning balance of Accumulated Other Comprehensive Loss of $10.3 million, which is comprised of (1) a $9.4 million reduction to Accumulated Other Comprehensive Loss due to the revaluation of the pension liability and (2) a $0.9 million reduction to Accumulated Other Comprehensive Loss of amortization of prior service costs and actuarial gains/losses over the period from October 1, 2006 to December 31, 2006. In addition, the Company recognized a $2.9 million increase to the beginning balance of Accumulated Deficit for the total net periodic benefit costs incurred from October 1, 2006 to December 31, 2006.

The components of net periodic benefit cost for the pension and the other post-retirement benefit plans for the three-month fiscal period ended March 31, 2007 and 2006, respectively, are as follows:


  Pension Plans Other
Post-retirement
Benefit Plans
  2007 2006 2007 2006
Net periodic benefit costs:        
Service cost $ 2.5 $ 2.6 $ $
Interest cost 8.2 7.9 0.2 0.2
Expected return on plan assets (8.9 )  (7.9 ) 
Amortization of prior service cost (0.1 )  (0.1 ) 
Amortization of actuarial loss 0.7 1.7 0.1
  2.4 4.2 0.3 0.2
Portion allocated to Revlon Holdings (0.1 ) 
  $ 2.3 $ 4.2 $ 0.3 $ 0.2

The Company currently expects to contribute approximately $34 million to its pension plans and approximately $1 million to other post-retirement benefit plans in 2007.

(4) Inventories


  March 31,
2007
December 31,
2006
Raw materials and supplies $ 58.4 $ 50.5
Work-in-process 15.1 15.9
Finished goods 112.9 120.1
  $ 186.4 $ 186.5

(5) Basic and Diluted Loss Per Common Share

Shares used in basic loss per share are computed using the weighted average number of common shares outstanding each period. Shares used in diluted loss per share include the dilutive effect of unvested restricted shares and outstanding stock options under the Stock Plan using the treasury stock method. Options to purchase 22,840,404 and 32,405,192 shares of Revlon, Inc. Class A common stock, par value of $0.01 per share (the ‘‘Class A Common Stock’’), with weighted average exercise prices of $4.61 and $4.24, respectively, were outstanding at March 31, 2007 and 2006, respectively. Additionally, 7,245,643 and 3,510,002 shares of unvested restricted stock were outstanding as of March 31, 2007 and 2006, respectively. Because the Company incurred losses for the three-month fiscal period ended March 31, 2007 and 2006, these options and restricted shares are excluded from the calculation of diluted loss per common

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

share as their effect would be antidilutive. For each period presented, the amount of loss used in the calculation of diluted loss per common share was the same as the amount of loss used in the calculation of basic loss per common share.

As a result of the consummation of the $100 Million Rights Offering in January 2007, Revlon, Inc. issued a total of 95,238,095 shares of its Class A Common Stock, increasing the number of outstanding shares of Revlon, Inc.’s Class A Common Stock as of March 31, 2007 to 477,188,940 shares and the total number of shares of common stock outstanding, including Revlon, Inc.’s existing 31,250,000 shares of Class B common stock, with a par value of $0.01 per share (‘‘Class B Common Stock,’’ and together with the Class A Common Stock, the ‘‘Common Stock’’), to 508,438,940 shares, with MacAndrews & Forbes beneficially owning, as of March 31, 2007, approximately 58% of Revlon, Inc.’s outstanding Class A Common Stock and approximately 60% of Revlon, Inc.’s total outstanding Common Stock, which together represented approximately 74% of the combined voting power of such shares at such date. Upon consummation of the $100 Million Rights Offering, the fair value of Revlon, Inc.’s Class A Common Stock was more than the $1.05 per share subscription price. Accordingly, basic and diluted loss per common share has been restated for the prior period presented to reflect a stock dividend of 11,715,499 shares of Revlon, Inc.’s Class A Common Stock.

(6) Comprehensive Loss

The components of comprehensive loss for the three-month fiscal period ended March 31, 2007 and 2006 are as follows:


  Three Months Ended
March 31,
  2007 2006
Net loss $ (35.2 )  $ (58.2 ) 
Other comprehensive (loss) income:    
Recognition of hedging accounting derivative losses(a) 0.1 0.6
Currency translation adjustment (0.1 ) 
Amortization under SFAS No. 158(b) 0.6
Other comprehensive (loss) income 0.6 0.6
Comprehensive loss $ (34.6 )  $ (57.6 ) 
(a) Amount pertains to the Company’s recognition of net losses accumulated in Accumulated Other Comprehensive Loss at January 1, 2007 upon the Company’s election to discontinue the application of hedge accounting under SFAS No. 133, ‘‘Accounting for Derivative Instruments and Hedging Activities’’. (See Note 9, ‘‘Derivative Financial Instruments’’ to the Unaudited Consolidated Financial Statements and the discussion of Critical Accounting Policies in this Form 10-Q).
(b) The $0.6 million represents a reduction in Accumulated Other Comprehensive Loss as a result of the amortization of unrecognized prior service costs and actuarial gains/losses arising during the three-month period ended March 31, 2007 related to the Company’s pension and other post-retirement plans.

(7) Restructuring Costs and other, net

During the three-month fiscal period ended March 31, 2007, the Company recorded total restructuring charges of $4.3 million, of which $0.2 million was associated with a new restructuring program implemented in March 2007 (the ‘‘2007 Program’’), primarily for employee severance and other-related termination costs relating principally to the closure of the Company’s facility in Irvington, New Jersey. In

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

addition, approximately $4.0 million was associated with the restructuring announced in September 2006 (the ‘‘September 2006 Program’’), primarily for commissions related to vacating a portion of the leased space in the Company’s New York City headquarters, employee severance and other related termination costs, and an additional approximately $0.1 million was associated with the restructuring announced in February 2006 (the ‘‘February 2006 Program’’), primarily for employee severance and other related termination costs. (See Note 2, ‘‘Restructuring Costs and Other, Net’’ to the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006.)

Details of the activities described above during the three-month fiscal period ended March 31, 2007 are as follows:


  Balance
as of
January 1,
2007
Expenses,
Net
Utilized, Net Balance
as of
March 31,
2007
Cash Noncash
Employee severance and other personnel benefits:          
2003 program $ 0.1 $ $ (0.1 )  $ $
2004 program 0.1 0.1
February 2006 Program 3.4 0.1 (1.1 )  2.4
September 2006 Program 13.8 4.0 (4.5 )  (1.3 )  12.0
Other 2006 programs(a) 0.1 0.1
2007 Program 0.2 0.2
  17.5 4.3 (5.7 )  (1.3 )  14.8
Leases and equipment write-offs 0.4 (0.1 )  0.3
  $ 17.9 $ 4.3 $ (5.7 )  $ (1.4 )  $ 15.1
(a) Other 2006 programs refer to various immaterial international restructurings in respect of Chile, Brazil and Israel.

(8) Geographic Information

The Company manages its business on the basis of one reportable operating segment. As of March 31, 2007, the Company has operations established in 16 countries including 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 to consumers.

In the tables below, certain prior year amounts have been reclassified to conform to the current period’s presentation, including the transfer, during the second quarter of 2006, of management responsibility for the Company’s Canadian operations from the Company’s North American operations to the European region of its international operations.


  Three Months Ended March 31,
  2007   2006  
Geographic area:        
Net sales:        
United States $ 193.3 59 %  $ 198.3 61 % 
International 135.3 41 %  127.2 39 % 
  $ 328.6   $ 325.5  

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


  March 31,
2007
  December 31,
2006
 
Long-lived assets:        
United States $ 356.3 81 %  $ 362.1 82 % 
International 81.8 19 %  81.8 18 % 
  $ 438.1   $ 443.9  

  Three Months Ended
March 31,
  2007   2006  
Classes of similar products:        
Net sales:        
Cosmetics, skin care and fragrances $ 221.1 67 %  $ 216.6 67 % 
Personal care 107.5 33 %  108.9 33 % 
  $ 328.6   $ 325.5  

(9) Derivative Financial Instruments

As disclosed in Note 1 to the Consolidated Financial Statements of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2006 filed with the SEC on March 13, 2007, the Company uses derivative financial instruments, primarily foreign currency forward exchange contracts, to reduce the effects of fluctuations in foreign currency exchange rates. The derivative financial instruments are entered into primarily to hedge anticipated inventory purchases and certain intercompany payments denominated in foreign currencies and have maturities of less than one year.

While the Company continues to utilize derivative financial instruments to reduce the effects of fluctuations in foreign currency exchange rates in connection with its inventory purchases and intercompany payments, the Company has elected to discontinue the application of hedge accounting under Statement of Financial Accounting Standards (‘‘SFAS’’) No. 133, ‘‘Accounting for Derivative Instruments and Hedging Activities’’ (‘‘SFAS No. 133’’) effective January 1, 2007. Accordingly, effective January 1, 2007, the Company no longer designates its derivative financial instruments as hedging instruments. By removing such designation, any changes in the fair value of the Company’s derivative financial instruments subsequent to the Company’s discontinuance of hedge accounting will be recognized in earnings. Also, upon the removal of the hedging designation, any unrecognized gains (losses) accumulated in Accumulated Other Comprehensive Loss related to the Company’s prior application of hedge accounting becomes fixed and will be recognized in earnings as the underlying transactions pertaining to the derivative instrument occur. If the underlying transaction is not forecasted to occur, the related gain (loss) accumulated in Accumulated Other Comprehensive Loss is recognized in earnings immediately.

The notional amount of the foreign currency forward exchange contracts outstanding at March 31, 2007 and December 31, 2006 was $29.8 million and $42.5 million, respectively. At March 31, 2007, the change in the fair value of the Company’s derivative financial instruments subsequent to the Company’s discontinuance of hedge accounting was $(0.2) million, which was recognized in earnings. Also at March 31, 2007, net derivative losses of $0.1 million were reclassified from Accumulated Other Comprehensive Loss into earnings as a result of discontinuing the application of hedge accounting. The amount of unrecognized gains (losses) accumulated in Accumulated Other Comprehensive Loss at March 31, 2007 and December 31, 2006 was $(0.2) million and $(0.3) million, respectively.

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

(10) Long-term Debt


  March 31,
2007
December 31,
2006
2006 Term Loan Facility due 2012 $ 840.0 $ 840.0
2006 Revolving Credit Facility due 2012 57.5
8 5/8% Senior Subordinated Notes due 2008 167.4 217.4
9½% Senior Notes due 2011, net of discounts 387.1 386.9
2004 Consolidated MacAndrews & Forbes Line of Credit
Other long-term debt 0.4
  1,394.9 1,501.8
Less current portion (167.4 ) 
  $ 1,227.5 $ 1,501.8

Complete Refinancing of the 2004 Credit Amendment

In December 2006, Products Corporation replaced the $800 million term loan facility under its 2004 credit agreement with a new 5-year, $840 million term loan facility (the ‘‘2006 Term Loan Facility’’) by entering into a new term loan agreement (the ‘‘2006 Term Loan Agreement’’), dated as of December 20, 2006, among Products Corporation, as borrower, the lenders party thereto, and Citicorp USA, Inc., as administrative agent and collateral agent. As part of the December 2006 bank refinancing, Products Corporation also amended and restated its multi-currency revolving credit facility under its 2004 credit agreement (the ‘‘2006 Revolving Credit Facility’’ and together with the 2006 Term Loan Facility the ‘‘2006 Credit Facilities’’) by entering into a new $160.0 million asset-based, multi-currency revolving credit agreement that amended and restated the 2004 credit agreement among Products Corporation, certain of its subsidiaries as local borrowing subsidiaries, a syndicate of lenders, and Citicorp USA, Inc., as multi-currency administrative agent, term loan administrative agent and collateral agent (the ‘‘2006 Revolving Credit Agreement’’ and together with the 2006 Term Loan Agreement, the ‘‘2006 Credit Agreements’’). The 2006 Credit Facilities mature on January 15, 2012. (For further detail regarding the 2006 Credit Agreements, as well as for detail as to Products Corporation’s other debt instruments, see Note 8, ‘‘Long-Term Debt’’ to the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006 filed with the SEC on March 13, 2007).

Partial Redemption of 8 5/8% Senior Subordinated Notes

On February 22, 2007, using certain of the proceeds of the $100 Million Rights Offering (as hereinafter defined), Products Corporation completed the redemption of $50.0 million aggregate principal amount of Products Corporation’s outstanding 8 5/8% Senior Subordinated Notes due February 1, 2008 (the ‘‘8 5/8% Senior Subordinated Notes’’) at an aggregate redemption price of $50.3 million, including $0.3 million of accrued and unpaid interest up to, but not including, the redemption date. Following such redemption, there remained outstanding $167.4 million in aggregate principal amount of the 8 5/8% Senior Subordinated Notes which are due on February 1, 2008, and, accordingly, such amount is classified on the balance sheet at March 31, 2007 as the current portion of long-term debt.

(11) Rights Offering

In January 2007, Revlon, Inc. completed a $100 million Rights Offering of Class A Common Stock (including the related private placement to MacAndrews & Forbes, the ‘‘$100 Million Rights Offering’’), which it launched in December 2006. The $100 Million Rights Offering allowed each stockholder of record of Revlon, Inc.’s Class A and Class B Common Stock, as of the close of business on December 11, 2006, the record date set by Revlon, Inc.’s Board of Directors, to purchase additional shares of Class A Common Stock. The subscription price for each share of Class A Common Stock purchased

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

in the $100 Million Rights Offering, including shares purchased in the private placement by MacAndrews & Forbes, was $1.05 per share. Upon completing the $100 Million Rights Offering, Revlon, Inc. promptly transferred the proceeds to Products Corporation, which it used to redeem $50.0 million in aggregate principal amount of its 8 5/8% Senior Subordinated Notes, and repay approximately $43.3 million of indebtedness outstanding under Products Corporation’s 2006 Revolving Credit Facility, without any permanent reduction of that commitment, after incurring approximately $1.3 million of fees and expenses incurred in connection with such rights offering, with approximately $5 million of the remaining proceeds being available for general corporate purposes.

In completing the $100 Million Rights Offering, Revlon, Inc. issued an additional 95,238,095 shares of its Class A Common Stock, including 37,847,472 shares subscribed for by public shareholders (other than MacAndrews & Forbes) and 57,390,623 shares issued to MacAndrews & Forbes in a private placement directly from Revlon, Inc. The shares issued to MacAndrews & Forbes represented the number of shares of Revlon, Inc.’s Class A Common Stock that MacAndrews & Forbes would otherwise have been entitled to purchase pursuant to its basic subscription privilege in the $100 Million Rights Offering (which was approximately 60% of the shares of Revlon, Inc.’s Class A Common Stock offered in the $100 Million Rights Offering).

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

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

Overview

        Overview of the Business

The Company is providing this overview in accordance with the SEC’s December 2003 interpretive guidance regarding Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Revlon, Inc. (and together with its subsidiaries, the ‘‘Company’’) conducts its business exclusively through its direct wholly-owned operating subsidiary, Revlon Consumer Products Corporation and its subsidiaries (‘‘Products Corporation’’). 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 operates in a single segment and manufactures, markets and sells an extensive array of cosmetics, skincare, fragrances, beauty tools, hair color, anti-perspirants/deodorants and personal care products. The Company is one of the world’s leading mass-market cosmetics companies. 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, ColorStay, Fabulash, Super Lustrous and Revlon Age Defying makeup with Botafirm, as well as the Almay brand, including the Company’s Almay Intense i-Color collection, in cosmetics; Almay, Ultima II and Gatineau in skincare; Charlie and Jean Naté in fragrances; Revlon and Expert Effect in beauty tools; Colorsilk and Colorist in women’s hair color; and Mitchum, Flex and Bozzano in personal care products.

The Company’s principal customers include large mass volume retailers and chain drug 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 complimentary beauty-related products and accessories.

The Company was founded by Charles Revson, who revolutionized the cosmetics industry by introducing nail enamels matched to lipsticks in fashion colors 75 years ago. Today, the Company has leading market positions in a number of its principal product categories in the U.S. mass-market distribution channel, including the lip, eye, face makeup and nail enamel categories. The Company also has leading market positions in several product categories in certain markets outside of the U.S., including Australia, Canada and South Africa. The Company’s products are sold throughout the world.

Overview of the Company’s Strategy

The Company’s business strategy includes:

  Building and leveraging our strong brands:    We intend to build and leverage our brands, particularly the Revlon brand, across the categories in which we compete. In addition to Revlon and Almay brand color cosmetics, we plan to drive growth in other beauty care categories, including women’s hair color, beauty tools, fragrances and anti-perspirants and deodorants. We intend to implement this strategy by: 1) reinvigorating new product development, fully utilizing our creative, marketing and research and development capabilities, 2) reinforcing clear, consistent brand positioning through effective, innovative advertising and promotion, and 3) working with our retail customers to continue to increase the effectiveness of our in-store marketing, promotion and display walls across categories in which we compete.

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

  Improving the execution of our strategies and plans and providing for continued improvement in our organizational capability through enabling and developing our employees. We intend to continue to build our organizational capability primarily through a focus on recruitment and retention of skilled people, providing opportunities for professional development and expanded responsibilities and roles and rewarding our employees for success.
  Continuing to strengthen our international business. We plan to leverage our U.S.-based marketing, research and development and new product development. In addition, in our international business, we plan to focus on our well-established, strong national and multi-national brands, investing at appropriate competitive levels, controlling spending and working capital and optimizing the supply chain and cost structure.
  Improving our operating profit margins and cash flow. We plan to capitalize on what we believe are significant opportunities to improve our operating profit margins and cash flow over time. The key areas of our focus will continue to be reducing sales returns, costs of goods sold, general and administrative expenses and improving working capital management.
  Continuing to improve our capital structure. We plan to continue to take advantage of opportunities to reduce and refinance our debt, including, without limitation, refinancing the remaining balance of Products Corporation’s 8 5/8% Senior Subordinated Notes due on February 1, 2008 (the ‘‘8 5/8% Senior Subordinated Notes’’).

Certain prior year amounts have been reclassified to conform to the current period’s presentation, including the transfer, during the second quarter of 2006, of management responsibility for the Company’s Canadian operations from the Company’s North American operations to the European region of its international operations.

Restructuring Programs

In March 2007, the Company implemented a restructuring plan involving the consolidation of facilities and certain functions, principally the closure of its facility in Irvington, New Jersey (the ‘‘2007 Program’’), which actions are designed to reduce costs and improve the Company’s operating profit margins. The Company anticipates that the 2007 Program will generate ongoing annualized savings of approximately $4.6 million that will primarily benefit cost of sales.

During the first quarter 2007, the Company recorded restructuring charges of $4.3 million, primarily for commissions of $2.8 million related to vacating a portion of leased space in the Company’s New York City headquarters related to the September 2006 Program (as hereinafter defined), as well as employee severance and other personnel benefits of $1.3 million related to the 2006 Programs (as hereinafter defined) and $0.2 million of employee severance and other personnel benefits related to the 2007 Program.

Overview of Net Sales and Earnings Results

Consolidated net sales in the first quarter of 2007 increased $3.1 million, or 1.0%, to $328.6 million, as compared with $325.5 million in the first quarter of 2006.

In the United States, net sales for the first quarter of 2007 decreased $5.0 million, or 2.5%, to $193.3 million, from $198.3 million in the first quarter of 2006. This decrease was primarily due to lower shipments of color cosmetics products, partially offset by higher net sales of beauty care products.

In the Company’s international operations, net sales for the first quarter of 2007 increased $8.1 million, or 6.4%, to $135.3 million, from $127.2 million in the first quarter of 2006. The increase in the first quarter of 2007, as compared with the first quarter of 2006, was due primarily to higher shipments in all three of the Company’s international regions.

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

Net loss for the first quarter of 2007 decreased $23.0 million to $35.2 million, as compared with $58.2 million in the first quarter of 2006. The decrease in net loss was due to higher net sales, lower general and administrative expenses (‘‘G&A’’) primarily due to the Company’s organizational streamlining activities, which resulted in lower personnel-related expenses and lower occupancy expenses (primarily related to the Company’s exit of a portion of its New York City headquarters leased space, including a benefit of $4.4 million related to the reversal of a deferred rental liability upon exit of the space), lower restructuring costs and lower interest expense, partially offset by an increase in cost of sales.

Overview of U.S. Market Share Data

In terms of U.S. marketplace performance, the U.S. color cosmetics category for the first quarter of 2007 increased approximately 0.5% versus the first quarter of 2006. Combined U.S. mass-market share for the Revlon, Almay and Vital Radiance brands are summarized in the table below:


  $ Share %
  Three Months Ended
March 31,
Point
Change
  2007 2006
Total Company Color Cosmetics* 20.3 %  21.5 %  (1.2 ) 
Revlon Brand* 13.2 14.6 (1.4 ) 
Almay Brand 6.5 6.4 0.1
Vital Radiance Brand (Discontinued September 2006) 0.6 0.6
Total Company Women’s Hair Color 10.1 8.8 1.3
Total Company Anti-perspirants/deodorants 6.3 6.1 0.2
Revlon Beauty Tools 25.8 26.5 (0.7 ) 
* The Revlon brand experienced a market share decline, which reflects a decrease in share by products launched in prior years, partially offset by performance from new products launched in the second half of 2006 and the beginning of 2007. Since September 2006, following the Company’s decision to discontinue Vital Radiance, the Company’s strategy has been to fully focus its efforts on building and leveraging its established brands, particularly its Revlon brand.

All U.S. market share and market position data herein for the Company’s brands are based upon retail dollar sales, which are derived from ACNielsen data. ACNielsen measures retail sales volume of products sold in the U.S. mass-market distribution channel. Such data represent ACNielsen’s estimates based upon data gathered by ACNielsen from market samples and are therefore subject to some degree of variance and may contain slight rounding differences. ACNielsen’s data does not reflect sales volume from Wal-Mart, Inc., which is the Company’s largest customer, representing approximately 23% of the Company’s 2006 worldwide net sales. From time to time, ACNielsen adjusts its methodology for data collection and reporting, which may result in adjustments to the categories and market shares tracked by ACNielsen for both current and prior periods.

Overview of Financing Activities

In January 2007 Revlon, Inc. completed the $100 Million Rights Offering (as hereinafter defined), which it launched in December 2006 and used the proceeds from such offering to further reduce Products Corporation’s debt. Revlon, Inc. transferred the proceeds from the $100 Million Rights Offering to Products Corporation, which it used to redeem $50.0 million in aggregate principal amount of its 8 5/8% Senior Subordinated Notes and repay approximately $43.3 million of indebtedness outstanding under Products Corporation’s 2006 Revolving Credit Facility (as hereinafter defined), without any permanent

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

reduction of that commitment, after incurring approximately $1.3 million of fees and expenses incurred in connection with such rights offering, with approximately $5 million of the remaining proceeds being available for general corporate purposes. Also, effective upon the consummation of the $100 Million Rights Offering, $50.0 million of the 2004 Consolidated MacAndrews & Forbes Line of Credit (as hereinafter defined) will remain available to Products Corporation through January 31, 2008 on substantially the same terms.

Discussion of Critical Accounting Policies

As disclosed in Note 1 to the Consolidated Financial Statements of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2006, the Company uses derivative financial instruments, primarily foreign currency forward exchange contracts, to reduce the effects of fluctuations in foreign currency exchange rates. The contracts are entered into primarily to hedge anticipated inventory purchases and certain intercompany payments denominated in foreign currencies and have maturities of less than one year.

While the Company continues to utilize derivative financial instruments to reduce the effects of fluctuations in foreign currency exchange rates in connection with its inventory purchases and intercompany payments, the Company has elected to discontinue the application of hedge accounting under SFAS No. 133, ‘‘Accounting for Derivative Instruments and Hedging Activities’’, effective January 1, 2007. Accordingly, the Company no longer designates its derivative financial instruments as hedging instruments. By removing such designation, any changes in the fair value of the Company’s derivative financial instruments subsequent to the Company’s discontinuance of hedge accounting are recognized in earnings. Also, upon the removal of the hedging designation, any unrecognized gains (losses) accumulated in Accumulated Other Comprehensive Loss related to the Company’s prior application of hedge accounting becomes fixed and will be recognized in earnings as the underlying transaction pertaining to the derivative instrument occur. If the underlying transaction is not forecasted to occur, the related gain (loss) accumulated in Accumulated Other Comprehensive Loss is recognized in earnings immediately.

For a discussion of the Company’s other critical accounting policies, see the Company’s Annual Report on Form 10-K for the year ended December 31, 2006 filed with the SEC on March 13, 2007.

Results of Operations

In the tables, numbers in parenthesis ( ) denote unfavorable variances.

Net sales:

Consolidated net sales in the first quarter of 2007 increased $3.1 million, or 1.0%, to $328.6 million, as compared with $325.5 million in the first quarter of 2006.


  Three Months Ended
March 31,
Change
  2007 2006 $ %
United States $ 193.3 $ 198.3 (5.0 )  (2.5 ) 
International 135.3 127.2 8.1 6.4 (a) 
  $ 328.6 $ 325.5 $ 3.1 1.0 (b) 
(a) Excluding the impact of foreign currency fluctuations, International net sales increased 5.5%.
(b) Excluding the impact of foreign currency fluctuations, consolidated net sales increased 0.6%.

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

United States.

In the U.S., net sales were $193.3 million for the first quarter of 2007, compared with $198.3 million for the first quarter of 2006, a decrease of $5.0 million or 2.5%. This decrease in net sales in the U.S. in the first quarter of 2007, as compared with the first quarter of 2006, was primarily due to lower shipments of color cosmetic products, partially offset by higher net sales of beauty care products.

International.

In the Company’s international operations, net sales were $135.3 million for the first quarter of 2007, compared with $127.2 million for the first quarter of 2006, an increase of $8.1 million or 6.4%. Excluding the impact of foreign currency fluctuations, international sales increased by $7.0 million, or 5.5%, in the first quarter of 2007, as compared with the first quarter 2006. The increase in net sales from the Company’s international operations in the first quarter of 2007, as compared with the first quarter of 2006, was driven primarily from higher shipments and lower returns.

In Asia Pacific and Africa, net sales increased by $2.6 million, or 4.6%, to $58.9 million for the first quarter of 2007, as compared with $56.3 million for the first quarter of 2006. Excluding the impact of foreign currency fluctuations, net sales in Asia Pacific and Africa increased $4.7 million, or 8.3%, in the first quarter of 2007, as compared with the first quarter of 2006. This increase in net sales, excluding the impact of foreign currency fluctuations, was due to increased shipments in South Africa, Australia, New Zealand, certain distributor markets and lower returns in Japan (which factors together the Company estimates contributed to an approximate 11.4% increase in net sales for the region for the first quarter of 2007, as compared with the first quarter of 2006), which was partially offset by lower shipments in Hong Kong and Taiwan (which the Company estimates contributed to an approximate 3.4% reduction in net sales for the region for the first quarter of 2007, as compared with the first quarter of 2006).

In Europe, which is comprised of Europe, Canada and the Middle East, net sales increased by $4.7 million, or 10.4%, to $49.6 million for the first quarter of 2007, as compared with $44.9 million for the first quarter of 2006. Excluding the impact of foreign currency fluctuations, net sales in Europe increased by $1.6 million, or 3.5%, in the first quarter of 2007, as compared with the first quarter of 2006. The increase in net sales, excluding the impact of foreign currency fluctuations, was due to increased shipments and lower returns, allowances and discounts in the U.K. (which the Company estimates contributed to an approximate 8.2% increase in net sales for the region for the first quarter of 2007, as compared with the first quarter of 2006), which increase was partially offset by lower shipments in Canada (which contributed to approximately 5.6% reduction in net sales for the region for the first quarter of 2007).

In Latin America, which is comprised of Mexico, Central America and South America, net sales increased by $0.8 million, or 3.2%, to $26.8 million for the first quarter of 2007, as compared with $26.0 million for the first quarter of 2006. Excluding the impact of foreign currency fluctuations, net sales in Latin America increased by $0.8 million, or 3.0%, in the first quarter of 2007, as compared with the first quarter of 2006. The increase in net sales, excluding the impact of foreign currency fluctuations, was driven primarily by increased shipments in Mexico, Venezuela and Argentina (which the Company estimates contributed to an approximate 9.5% increase in net sales for the region in the first quarter of 2007, as compared with the first quarter of 2006), which increase was partially offset by lower shipments in Brazil (which contributed to approximately 5.5% reduction in net sales for the region for the first quarter of 2007).

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Table of Contents

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

Gross profit:


  Three Months Ended
March 31,
Change