Revlon, Inc. Annual Report 2005

FY2005 Annual Report · Revlon, Inc.

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2 0 0 5 A N N U A L R E P O R T

Jack L. Stahl
President and Chief Executive Ofﬁcer

DEAR SHAREHOLDERS:

As you read this letter, one of our Company’s most ambitious
new product launch programs in recent history has just made its
way to retail shelves across the U.S. At the same time, we just
completed a $110 million equity rights offering, and we are
planning an additional $75 million equity offering for the second
quarter of this year. Importantly, the proceeds of the $110 million
offering were used to reduce our outstanding debt and
strengthen our balance sheet.

These activities, along with countless others, demonstrate the tremendous progress we have
made to strengthen our brands, our retail partnerships and the Revlon organization. With
these fundamental building blocks solidly in place, along with our much-improved capital
structure, we have revved up our Company’s innovation engine to drive accelerated growth
and move us closer to achieving our objective of long-term proﬁtable growth.

Speciﬁc highlights of our Company’s progress in 2005 include:

(cid:127) Grew net sales 3% to $1,332 million;

(cid:127) Achieved Adjusted EBITDA1 of $167 million, albeit below year-ago levels, but in line with

expectations;

(cid:127) Grew our U.S. market share in color cosmetics, hair color and beauty tools;

(cid:127) Restaged and improved several important Revlon franchises, reversing U.S. consumption

declines of 2004;

(cid:127) Developed and prepared for the 2006 launch of Vital Radiance, a ﬁrst-to-market complete

line of color cosmetics in the mass channel for women 50 plus;

(cid:127) Completely restaged Almay for 2006, capitalizing on the healthy beauty opportunity in the

mass market; and

(cid:127) Gained a dramatic increase of over 20% in color cosmetics retail space in the U.S. for 2006.

The following provides a more detailed look at 2005 and our outlook for 2006 and beyond.

THE YEAR IN REVIEW
2005 marked another very important year for Revlon. We made signiﬁcant and measurable
business progress, adding meaningful innovation and ever-strengthening retail partnerships
to our growing list of important building blocks for long-term value creation. Importantly, the
progress we are now making is becoming far more measurable and evident in the market-
place, and we believe that all the progress made over the past several years will result in strong
performance for the year in 2006.

Key Financial Data

Our ﬁnancial performance in 2005 was mixed. Net sales advanced 3% versus 2004 and our
net loss decreased by 41% due to a substantial decline in the loss on the early extinguishment
of debt. However, operating proﬁt and Adjusted EBITDA1 were below year-ago levels. We are
committed to signiﬁcantly increasing our operating proﬁt margin by 2008, through a number
of actions discussed below. We do recognize that 2005 did not move us in that direction due,
in large part, to planned signiﬁcant investment spending to establish a strong top-line growth
platform for the future.

($ in millions, except per share data)

Key Data
Net Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating Income . . . . . . . . . . . . . . . . . . . . . . . . .
Net Loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted Earnings Per Share . . . . . . . . . . . . . . . . . .
Weighted Average # Shares Outstanding . . . . . .

2005
$1,332
$65
($84)*
($0.23)*
371,132,302

2004
$1,297
$89
($143)*
($0.47)*
301,053,334

Change
+3%
–27%
+41%
+51%
+23%

* Includes charges of $9 million ($0.02 per diluted share) and $91 million ($0.30 per diluted share) in 2005 and 2004, respectively,

for the loss on the early extinguishment of debt.

Other Data
Adjusted EBITDA1. . . . . . . . . . . . . . . . . . . . . . . . . .

2005
$167

2004
$193

Change
–13%

Our Destination Model

Our Destination Model is a long-term proﬁt model that details the opportunities we believe
exist to increase our operating proﬁt margins to approximately 12% of gross sales by the end
of 2008. Our focus in 2005 was on continuing to increase our efﬁciency and effectiveness in
our merchandising and promotional processes, reducing our global manufacturing and supply
chain costs, extending the life cycle of our products, and delivering market effective innova-
tion. We made progress in each of these areas during the year, and we expect to continue to
implement these and other productivity programs in 2006 and beyond to achieve our
Destination Model objective.

Our Brand Strategy

Over the past two years, we have made strengthening our existing brand franchises a
centerpiece of our strategy for achieving long-term, proﬁtable growth. During the year, we
developed a completely new marketing and in-store merchandising approach for our impor-
tant Almay brand. This new approach leverages Almay’s healthy beauty heritage and
positioning along with new consumer insights regarding the desire among this consumer base
for simplicity and personalization. This new approach, which is discussed in more detail on the
following pages, served as an important innovation platform for us for 2006.

In 2005, we also rejuvenated three very important and strategic color cosmetics franchises —
namely, Revlon Age Defying Makeup, Revlon Super Lustrous Lipstick, and Revlon Nail Enamel.
In each of these cases, we reversed consumption declines in the U.S. in 2004. In the case of
Revlon Age Defying, we grew consumption 28% in 2005 and, for Revlon Super Lustrous, we
grew consumption 12% for the year.

We also continued to strengthen our important Revlon Beauty Tools business. This business
had been in decline for many years, despite holding a leading share position in its market. In
2003, we took action to re-energize this business and have enjoyed signiﬁcant market share
gains ever since. Similarly, we stepped up our focus behind our Revlon Hair Color business,
which has been among the fastest growing businesses in the women’s hair color mass market
in the U.S., and we have gained share for the past four years.

We believe these strong results across our categories demonstrate the underlying power of
the Revlon brand. We expect to continue to capitalize on this strength in our existing
categories and, as we look ahead, we believe that we have untapped opportunities in related
categories – like fragrances, for example.

This strategy to support and re-energize important businesses across our portfolio is a key
component of our objective to drive proﬁtable growth. In 2006, we will continue to pursue
similar actions on our existing franchises, the most notable being the 2006 restage of our
Revlon ColorStay Makeup franchise. This important business created the long-wear segment
of the color cosmetics category in the mid-1990’s, and it is getting a complete make-over in
2006, with a rich, new formula, new contemporary packaging, and a new marketing
campaign. We expect this restage to breathe new life into a very important franchise for us.

Our International strategy to leverage our brand strengths in key markets continues to deliver
solid results. In 2005, we achieved net sales growth of 6%, excluding the beneﬁt of favorable
foreign currency ﬂuctuations, due to solid growth in each of our three regions. As we move
forward, we will continue to evaluate and pursue opportunities to drive growth and improve
efﬁciencies across the International business.

The Role of Innovation

New products are an important part of our business, particularly when layered on top of
strong existing franchises. In 2005, in addition to the restage actions that we undertook, we
also introduced completely new products across our portfolio. The most signiﬁcant of these
was Almay Intense i-Color. This new collection claimed the top spot in the U.S. color cosmetics
category as the #1 new product introduced in 2005. More importantly, it validated our
strategy to simplify and personalize the in-store shopping experience for our Almay consumer,
and it served as the foundation for launching, in 2006, our most ambitious effort behind
Almay in recent history.

Other successful 2005 new products included Revlon Fabulash Mascara, Revlon ColorStay
12-Hour Eye Shadow, and Revlon Expert Effect Beauty Tools, to name a few. These new
products are an important component of our longer-term portfolio strategy to extend the
lifecycle of our products, tap into consumer insights to ﬁll gaps in our portfolio and capitalize
on consumer needs in the marketplace.

In 2006, we are launching what is arguably the boldest new product effort in our Company’s
recent history. Speciﬁcally, we are completely re-launching the Almay brand, and we are
introducing at mass an entirely new brand called Vital Radiance, a ﬁrst-to-market complete
line of color cosmetics for women over the age of ﬁfty. Vital Radiance will serve a large,
afﬂuent and growing consumer demographic that has been underserved in the mass market.

Importantly, in launching these bold initiatives, we have secured the support and commitment
of our key U.S. retail partners, who recognize the potential of these initiatives and have
awarded us signiﬁcantly more shelf space in their stores in 2006.

Our Retail Partners

We recognize that our success in the marketplace depends not only on our own actions but
also on the partnerships we have with our retail customers that sell our products in their
stores. Several years ago, we made strengthening these partnerships a critical area of focus for
our Company, and we are proud of the progress that we have achieved.

In 2006, our U.S. retail partners have awarded us an increase of more than 20% in color
cosmetics shelf space, reﬂecting their support of our re-launch of Almay and our introduction
of Vital Radiance, along with all of the progress we have made to re-energize important
Revlon brand franchises. With this incremental space, coupled with our plan to invest
aggressively behind our business this year, we believe that we will generate excitement in our
categories and accelerate our overall growth. A few examples of the types of print advertising
campaigns you will see as the year unfolds are provided at the end of this Report.

Our Capital Structure

Building on the signiﬁcant capital structure improvements made in 2004, we continued to
make progress in 2005. Speciﬁcally, we issued new senior notes that mature in 2011 and, with
a portion of the proceeds, we retired two shorter-term maturities of debt. We also used a
portion of the notes offering to permanently reduce our borrowings under our credit
agreement. These transactions extended the maturity of our debt that would have otherwise
matured in 2006 and also reduced our exposure to ﬂoating rate debt.

More recently, in the ﬁrst quarter of 2006, we completed a $110 million rights offering and we
used the proceeds to redeem debt. In addition, we are planning to complete a $75 million
equity offering during the second quarter of this year, with the proceeds from the offering to
be used for general corporate purposes. These transactions further strengthen our balance
sheet and represent another building block in our goal to achieve long-term proﬁtable growth
and value creation.

Our Organization

Over the past several years, we have made strengthening the Revlon organization an
important building block to achieving long-term success, and we have made meaningful
progress.

As a result, I am conﬁdent that our Company is stronger and smarter today than it was just a
few years ago. We have added new capabilities across the organization and have developed
critical consumer insights and the important ability to quickly bring innovation to the market
to capitalize on these insights. These new capabilities, harnessed with the passion and
commitment of the Revlon people, provide us with a powerful platform for growth.

In early 2006, we welcomed Debra L. Lee, Chairman and CEO of BET Holdings, Inc., and Kathi
P. Seifert, Chairman of Pinnacle Perspectives, LLC, to our Board of Directors. These two
distinguished women will add great value and insight to our Board and Company as we move
forward.

OUTLOOK FOR THE FUTURE

In closing, let me state that I am more conﬁdent today in our outlook than at any time in the
past four years. There is no doubt that Revlon is now a much stronger Company than it was
only a few years ago. The important building blocks to achieving success are in place and,
while we still have work to do, I believe we are well on our way to achieving our objective of
long-term proﬁtable growth.

All of the progress we have made would not have been possible without the hard work and
dedication of Revlon employees here in the U.S. and around the world. To them, and to all of
our stakeholders who continue to support us, I am thankful.

Sincerely,

Jack L. Stahl
President and Chief Executive Ofﬁcer

April 2006

(1) Adjusted EBITDA is a non-GAAP ﬁnancial measure that the Company deﬁnes as net income/(loss) before
interest, taxes, depreciation, amortization, gains/losses on foreign currency transactions, gains/losses on the
sale of assets, gains/losses on the early extinguishment of debt, and miscellaneous expenses. See reconcili-
ation of Adjusted EBITDA to net loss, the most directly comparable GAAP measure, on the following page.

REVLON, INC. AND SUBSIDIARIES
RECONCILIATION OF ADJUSTED EBITDA TO NET LOSS
($ in millions)

In the table set forth below, Adjusted EBITDA, which is a non-GAAP measure, is reconciled to net loss, its most directly comparable GAAP

measure. Adjusted EBITDA is deﬁned as net loss before interest, taxes, depreciation, amortization, gains/losses on foreign currency

transactions, gains/losses on the sale of assets, gains/losses on the early extinguishment of debt, and miscellaneous expenses.

Net loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Interest expense, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of debt issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency (gains) losses, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on early extinguishment of debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Miscellaneous, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Depreciation and amortization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Year Ended
December 31,

2005

$ (83.7)

124.2
6.9
0.5
9.0
(0.5)
8.5

101.7

2004

$(142.5)

126.0
8.2
(5.2)
90.7
2.0
9.3

104.3

Adjusted EBITDA (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$166.6

$ 192.8

In calculating Adjusted EBITDA, the Company excludes the items outlined above because the Company’s management believes that some
of these items may not occur in certain periods, the amounts recognized can vary signiﬁcantly from period to period and these items do not
facilitate an understanding of the Company’s operating performance. The Company’s management utilizes Adjusted EBITDA as an operating
performance measure in conjunction with GAAP measures, such as net income.

The Company’s management uses Adjusted EBITDA as an integral part of its reporting and planning processes and as one of the primary
measures to, among other things —

(i)

(ii)

(iii)

(iv)

(v)

(vi)

monitor and evaluate the performance of the Company’s business operations;

facilitate management’s internal comparisons of the Company’s historical operating performance of its business operations;

facilitate management’s external comparisons of the results of its overall business to the historical operating performance of other
companies that may have different capital structures and debt levels;

review and assess the operating performance of the Company’s management team and as a measure in evaluating employee
compensation and bonuses;

analyze and evaluate ﬁnancial and strategic planning decisions regarding future operating investments; and

plan for and prepare future annual operating budgets and determine appropriate levels of operating investments.

The Company’s management believes that Adjusted EBITDA is useful to investors to provide them with disclosures of the Company’s

operating results on the same basis as that used by the Company’s management. Additionally, the Company’s management believes that

Adjusted EBITDA provides useful information to investors about the performance of the Company’s overall business because such measure

eliminates the effects of unusual or other infrequent charges that are not directly attributable to the Company’s underlying operating

performance. Accordingly, the Company believes that the presentation of Adjusted EBITDA, when used in conjunction with GAAP ﬁnancial

measures, is a useful ﬁnancial analysis tool, used by the Company’s management as described above, which can assist investors in assessing

the Company’s ﬁnancial condition, operating performance and underlying strength. Adjusted EBITDA should not be considered in isolation

or as a substitute for net income/(loss) prepared in accordance with GAAP. Other companies may deﬁne EBITDA differently. Also, while

EBITDA is deﬁned differently than Adjusted EBITDA for the Company’s credit agreement, certain ﬁnancial covenants in its borrowing

arrangements are tied to similar measures. Adjusted EBITDA should be considered in conjunction with the Company’s ﬁnancial statements

and footnotes contained in the documents that the Company ﬁles with the U.S. Securities and Exchange Commission.

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

FORM 10-K

(Mark One)

(cid:1) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the ﬁscal year ended December 31, 2005

□ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from

Commission ﬁle number 1-11178
REVLON, INC.
(Exact name of registrant as speciﬁed in its charter)

DELAWARE
(State or other jurisdiction of
incorporation or organization)

237 Park Avenue, New York, New York
(Address of principal executive ofﬁces)

13-3662955
(I.R.S. Employer
Identiﬁcation No.)

10017
(Zip Code)

Registrant’s telephone number, including area code: (212) 527-4000
Securities registered pursuant to Section 12(b) or 12(g) of the Act:

Title of each class
Class A Common Stock

Name of each exchange on which registered
New York Stock Exchange

Indicate by check mark if the registrant is a well-known seasoned issuer, as deﬁned in Rule 405 of the Securities Act.
Yes □ No (cid:1)

Indicate by check mark if the registrant is not required to ﬁle reports pursuant to Section 13 or Section 15(d) of the Act.

Yes □ No (cid:1)

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 (cid:1) No □

Indicate by check mark if disclosure of delinquent ﬁlers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter)
is not contained herein, and will not be contained, to the best of registrant’s knowledge, in deﬁnitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. (cid:1)
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):

Non-accelerated ﬁler □
Indicate by check mark whether the registrant is a shell company (as deﬁned in Rule 12b-2 of the Act).

Large accelerated ﬁler □

Accelerated ﬁler (cid:1)

Yes □ No (cid:1)

The aggregate market value of the registrant’s Class A Common Stock held by non-afﬁliates (using the New York Stock
Exchange closing price as of June 30, 2005, the last business day of the registrant’s most recently completed second ﬁscal
quarter) was approximately $460,699,713.

As of December 31, 2005, 340,426,418 shares of Class A Common Stock and 31,250,000 shares of Class B Common Stock
were outstanding. 20,819,333 shares of Class A Common Stock 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., and 169,341,308 shares of Class A Common Stock were beneﬁcially owned by MacAndrews &
Forbes Holdings Inc. and its afﬁliates.

Revlon, Inc. and Subsidiaries

Form 10-K

For the Year Ended December 31, 2005

Table of Contents

PART I

Item 1.
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1A. Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1B. Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 2.
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 3.
Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 4.

PART II

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer

Item 6.
Item 7.

Purchases of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Management’s Discussion and Analysis of Financial Condition and Results of

Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 7A. Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . . .
Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 8.
Changes in and Disagreements with Accountants on Accounting and Financial
Item 9.

Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9A. Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9B. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

PART III

Item 10.
Item 11.
Item 12.

Item 13.
Item 14.

Directors and Executive Ofﬁcers of the Registrant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Security Ownership of Certain Beneﬁcial Owners and Management and Related

Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Principal Accounting Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Page

2
11
22
22
22
23

24
24

26
45
46

46
46
47

53
58

68
70
74

Item 15.

Exhibits and Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

PART IV

Index to Consolidated Financial Statements and Schedules . . . . . . . . . . . . . . . . . . . . . F-1
Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . F-2
Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . F-3
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-4
Financial Statements
Financial Statement Schedule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-48
Signatures
Certiﬁcations
Exhibits

PART I

Item 1. Business

Background

Revlon, Inc. (and together with its subsidiaries, the ‘‘Company’’) conducts its business exclusively
through its wholly-owned operating subsidiary, Revlon Consumer Products Corporation (‘‘Products
Corporation’’), which manufactures, markets and sells an extensive array of cosmetics, skincare,
fragrances and personal care products. Revlon is one of the world’s leading mass-market cosmetics
brands. Revlon 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 newly relaunched Almay
brand, including the Company’s new Almay Intense i-Color collection, and the Company’s latest brand,
Vital Radiance, in cosmetics; a new Almay skincare line, as well as Ultima II and Gatineau in skincare;
Charlie and Jean Naté in fragrances; Revlon and Expert Effects in beauty tools; and Mitchum, Flex,
Colorsilk and Bozzano in personal care products. In addition, the Company has a licensing group
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 over 70 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 retail markets outside of the U.S.,
including Australia, Canada, Mexico and South Africa. The Company’s products are sold in more than
100 countries across six continents. The Company’s net sales in 2005 in the U.S. and Canada accounted
for approximately 64% of its consolidated net sales, most of which were made in the mass-market channel.

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. Additionally, as of August 4, 2001, ACNielsen’s data do not reﬂect sales volume from
Wal-Mart, Inc., which is the Company’s largest customer. Wal-Mart, Inc. represented approximately 24.0%
of the Company’s 2005 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. The category and market share data contained herein
has been updated to reﬂect ACNielsen’s July 2005 adjustments.

The Company’s Plan

The Company’s plan was comprised of three main components: (1) the Cost Rationalization Phase;
(2) the Stabilization and Growth Phase; and (3) the Accelerated Growth Phase. The Company has
completed the ﬁrst two phases of its plan and it is currently in phase three of its plan.

The overall objectives of this three-phase plan are to a) create and develop the most consumer-
preferred brands, b) become the most valuable partner to the Company’s retailers and c) become a top
company where people choose to work.

Accelerated Growth Phase

The Company intends to capitalize on the actions taken during the Cost Rationalization Phase and
Stabilization and Growth Phase of its plan, with the objective of increasing revenues and achieving
proﬁtability over the long term. The Company currently anticipates that this phase of the plan will include
various actions that represent reﬁnements of and additions to the actions taken during the Stabilization

and Growth Phase of its plan, with the objective of balancing top-line growth with an improved operating
proﬁt margin and developing and implementing productivity initiatives. These current ongoing initiatives
include, among other things, actions to:

• Further improve the new product development and introduction process with even deeper
insights into the Company’s consumers and the categories in which it competes. This process has
yielded insights leading to the Company’s launch of a completely new line of cosmetics under the
new Vital Radiance brand, which focuses on women over 50 years of age, as well as the relaunch
of Almay, targeting women who are looking for a simpler approach to the cosmetics category.

• Continue to increase the effectiveness of the Company’s display walls across categories and

brands.

• Drive efﬁciencies across the Company’s overall supply chain. The Company plans to reduce
manufacturing costs by continuing to rationalize components and by sourcing strategically.

• Optimize the effectiveness of the Company’s advertising, marketing and promotions.

• Continue the training and development of its organization. The Company will continue the
training and development of its employees so that the Company may continue to improve its
capability to execute the Company’s strategies while providing enhanced job satisfaction.

• Continue to strengthen the Company’s balance sheet and capital structure. The Company has

continued to strengthen its balance sheet since 2004:

(i)

In March 2004, Revlon, Inc. exchanged approximately $804 million of Products Corpora-
tion’s debt, $54.6 million of Revlon, Inc.’s preferred stock and $9.9 million of accrued
interest for 299,969,493 shares of Revlon, Inc. Class A common stock, with a par value of
$0.01 per share (‘‘Class A Common Stock’’);

(ii) In July 2004, Products Corporation entered into a new 2004 Credit Agreement (as
hereinafter deﬁned), consisting of an $800.0 million term loan facility (which was partially
prepaid in 2005, as further discussed below) and a $160.0 million asset-based multi-currency
revolving credit facility, and used the proceeds to reﬁnance its 2001 Credit Agreement (as
hereinafter deﬁned) and to redeem all $363.0 million aggregate principal amount outstand-
ing of Products Corporation’s 12% Senior Secured Notes due in 2005 (the ‘‘12% Senior
Secured Notes’’);

(iii) In March 2005, Products Corporation issued $310.0 million aggregate principal amount of
91⁄2% Senior Notes (as hereinafter deﬁned) and used such proceeds to redeem all
$116.2 million aggregate principal amount outstanding of its 81⁄8% Senior Notes (as
hereinafter deﬁned) and all $75.5 million aggregate principal amount outstanding of its 9%
Senior Notes (as hereinafter deﬁned) and to prepay $100.0 million of indebtedness
outstanding under the term loan facility of the 2004 Credit Agreement, together with
accrued interest and the associated $5.0 million prepayment fee, and to pay $7.0 million in
certain fees and expenses associated with the issuance of such notes;

(iv) In August 2005, Products Corporation issued $80.0 million aggregate principal amount of
additional 91⁄2% Senior Notes, which priced at 951⁄4% of par, which funds were available to
the Company for general corporate purposes, including to help fund its brand initiatives; and

(v)

In August 2005, Revlon, Inc. also announced its plans to conduct an equity issuance in the
amount of approximately $185 million in 2006 and that it planned to use the proceeds from
approximately $110 million of such equity issuance to reduce Products Corporation’s debt.
(See ‘‘Recent Developments’’).

Continuing to implement and reﬁne the Company’s plan could include taking advantage of additional
opportunities to reposition, repackage or reformulate one or more of the Company’s brands or product
lines, launching new brands or product lines or further reﬁning the Company’s approach to retail
merchandising. Any of these actions, whose intended purpose would be to create value through proﬁtable
growth, could result in the Company making investments or recognizing charges related to executing
against such opportunities.

Recent Developments

In February 2006, Revlon, Inc. announced that it had launched and plans to complete in March 2006,
a $110 million rights offering that would allow stockholders to purchase additional shares of Class A
Common Stock. Pursuant to the rights offering, Revlon, Inc. distributed, at no charge, one transferable
subscription right for each share of Class A Common Stock and Class B Common Stock (as hereinafter
deﬁned) held by each stockholder of record as of 5:00 p.m. Eastern Standard Time on February 13, 2006,
the record date for the rights offering. Each subscription right entitles the holder of such right to purchase
0.1057 shares of Class A Common Stock. As there will be no fractional shares issued, a rights holder will
need to hold at least ten subscription rights to acquire one share of Class A Common Stock in the rights
offering. The subscription price for each share of Class A Common Stock is $2.80 per share, which
subscription price was recommended by a committee of Revlon, Inc.’s Board of Directors composed
solely of independent directors within the meaning of Section 303A.02 of the NYSE Listed Company
Manual and the Board’s Guidelines for Assessing Director Independence and ratiﬁed and conﬁrmed by
the Board of Directors (with Messrs. Perelman, Gittis and Drapkin recusing themselves as they are
ofﬁcers of MacAndrews & Forbes (as hereinafter deﬁned)).

Under an over-subscription privilege, each rights holder that exercises its basic subscription privilege
in full may also subscribe in the rights offering for additional shares of Class A Common Stock at the same
subscription price of $2.80 per share, to the extent that other rights holders do not exercise their
subscription rights in full. If a sufﬁcient number of shares are not available to fully satisfy the
over-subscription privilege requests, the available shares will be sold pro-rata among subscription rights
holders who exercised their over-subscription privilege, based on the number of shares each subscription
rights holder subscribed for under the basic subscription privilege.

MacAndrews & Forbes has agreed not to exercise its basic subscription privilege. Instead, pursuant
to a Stock Purchase Agreement between MacAndrews & Forbes and Revlon, Inc., MacAndrews &
Forbes has agreed to purchase at the same $2.80 subscription price, in a private placement directly from
Revlon, Inc., the shares of Class A Common Stock that it would otherwise have been entitled to subscribe
for pursuant to its basic subscription privilege in the rights offering (equal to approximately 60% of the
shares available for purchase in the rights offering, or approximately $66 million). MacAndrews & Forbes
also agreed not to exercise its over-subscription privilege in the rights offering, which will maximize the
shares available for purchase by other stockholders pursuant to their over-subscription privileges.

If any shares in the rights offering remain following the exercise of the basic subscription privilege
and the over-subscription privilege by rights holders other than MacAndrews & Forbes, MacAndrews &
Forbes will back-stop the rights offering by purchasing at the same $2.80 subscription price, also in a
private placement directly from Revlon, Inc., the remaining shares of Class A Common Stock offered but
not purchased by other rights holders. As a result, Revlon, Inc. is assured of raising $110 million in gross
proceeds through a combination of the rights offering and the sale of shares, in a private placement and,
if necessary, the back-stop, to MacAndrews & Forbes.

Revlon, Inc. expects to transfer the proceeds from the rights offering to Products Corporation which
it would use, together with available cash, to redeem approximately $110 million aggregate principal
amount of Products Corporation’s 85⁄8% Senior Subordinated Notes due 2008, in satisfaction of the
applicable requirements under Products Corporation’s 2004 Credit Agreement (as hereinafter deﬁned).

Revlon, Inc. also announced in February 2006 that it intends to conduct a further $75 million equity
issuance through an underwritten public offering by June 30, 2006. In connection with such further equity
issuance, Revlon, Inc. also announced in February 2006 that it had entered into an amendment to its 2004
Investment Agreement (as hereinafter deﬁned) with MacAndrews & Forbes, which extends MacAndrews
& Forbes’ back-stop of Revlon, Inc.’s planned $75 million equity issuance from March 31, 2006 until
June 30, 2006 to, among other things, provide Revlon, Inc. with sufﬁcient time to complete, following the
rights offering, an underwritten public offering of its Class A Common Stock, the proceeds of which
would be transferred by Revlon, Inc. to Products Corporation to be available for general corporate
purposes. Revlon, Inc. also announced that Products Corporation had entered into an amendment to its
2004 Consolidated MacAndrews & Forbes Line of Credit (as hereinafter deﬁned) extending the term of
such agreement until the consummation of Revlon, Inc.’s planned $75 million equity issuance.

Also in February 2006, Revlon, Inc. separately announced an organizational realignment largely
involving the consolidation of certain functions within its sales, marketing and creative groups, as well as
certain headquarters functions, which changes are designed to streamline internal processes, enabling the
Company to continue to be more effective and efﬁcient in meeting the needs of its consumers and retail
customers. The Company indicated that it expects to take a charge in 2006 of approximately $10 million
to cover severance and other expenses associated with the organizational realignment, with the vast
majority of the charge to impact results in the ﬁrst quarter of 2006. The Company estimated that ongoing
annualized savings associated with the organizational realignment will be approximately $15 million.

Revlon, Inc. also announced in February 2006 that Products Corporation had entered into an
amendment to its 2004 Credit Agreement which enables Products Corporation to exclude, from various
ﬁnancial covenants, certain charges in connection with the aforementioned organizational realignment, as
well as some start-up investment charges incurred by the Company in 2005 related to the launch of its new
Vital Radiance brand and the re-launch of Almay. Speciﬁcally, such amendment provides for the add-back
to the deﬁnition of ‘‘EBITDA’’ the lesser of (i) $50 million; or (ii) the cumulative one-time charges
associated with (a) the aforementioned organizational realignment; and (b) the non-recurring costs in the
third and fourth quarters of 2005 associated with the launch of the Company’s new Vital Radiance brand
and the re-launch of Almay. Under the 2004 Credit Agreement, such deﬁnition is used in the
determination of Products Corporation’s senior secured leverage ratio (the ratio of Products Corpora-
tion’s Senior Secured Debt to EBITDA, as each such term is deﬁned in the 2004 Credit Agreement) and
the consolidated ﬁxed charge coverage ratio (the ratio of Products Corporation’s EBITDA minus Capital
Expenditures to Cash Interest Expense for such period, as each such term is deﬁned in the 2004 Credit
Agreement).

Products

The Company manufactures and markets a variety of products worldwide. The following table sets

forth the Company’s principal brands and certain selected products.

COSMETICS

HAIR

BEAUTY TOOLS

FRAGRANCE

ANTI-
PERSPIRANTS/
DEODORANTS

Revlon
Almay
Vital Radiance*

Colorsilk
High Dimension
Frost & Glow
Flex
Bozzano

Revlon
Expert Effects

Charlie
Jean Naté

Mitchum
Almay

SKINCARE

Gatineau
Almay
Ultima II

New brand for 2006.
Cosmetics — Revlon: The Company sells a broad range of cosmetics and skincare products under
its ﬂagship Revlon brand designed to fulﬁll speciﬁcally-identiﬁed consumer needs, principally priced in
the upper range of the mass-market distribution channel, including lip makeup, nail color and nail care
products, eye and face makeup and skincare products such as lotions, cleansers, creams, toners and
moisturizers. Many of the Company’s products incorporate patented, patent-pending or proprietary
technology. (See ‘‘New Product Development and Research and Development’’).

The Company markets several different lines of Revlon lip makeup (which address different
segments of the lip makeup category). The Company’s ColorStay lipcolor uses patented transfer-resistant
technology that provides long wear; while ColorStay Overtime Lipcolor and Colorstay Overtime Sheers’
patented lip technology offers long-wearing beneﬁts while enhancing comfort and shine. Super Lustrous
lipstick is the Company’s ﬂagship wax-based lipcolor, which was further improved in 2005 with the
addition of LiquiSilk technology designed to boost moisturization using silk dispersed in emollients.

The Company sells face makeup, including foundation, powder, blush and concealers, under several
Revlon brand names. Revlon Age Defying, which is targeted for women in the over-35 age bracket, was
further improved in 2005 with the incorporation of Botaﬁrm, to help reduce the appearance of lines and
wrinkles. The Company also markets a complete range of ColorStay long wearing face makeup with
patented SoftFlex Technology for enhanced comfort.

The Company’s eye makeup products include mascaras, eyeliners and eye shadows. In mascaras, key
franchises include Fabulash, which uses a patented lash perfecting brush for 100% fuller lashes, as well as
the newly launched Luxurious Lengths mascara which makes lashes appear as much as 50% longer. The
eyeshadow franchises include Colorstay 12-Hour Eyeshadow which enables color to look fresh for 12
hours, and Illuminance, an eye shadow that gives sheer luminous color, as well as Eyeglide Shimmer
Shadow, a cream shadow in a twist-up package.

The Company’s nail color and nail care lines include enamels, cuticle preparations and enamel
removers. The Company’s ﬂagship Revlon nail enamel uses a patented formula that provides consumers
with improved wear, application, shine and gloss in a toluene-free, formaldehyde-free and phthalate-free
formula. In 2005, the Company launched Color Beam Sheer nail enamel, which comes in a unique array
of shades and has multiple patents on its longwearing formula. The Company also markets ColorStay nail
enamel, which offers superior color and shine for 10 days with an exclusive ColorLock system. The
Company also markets ColorStay Always On nail enamel, which offers 10-day superior color and wear
in an exclusive 2-step system. In addition, the Company sells Cutex nail polish remover and nail care
products in certain countries outside the U.S.

Cosmetics — Almay: The Company’s Almay brand consists of a line of hypo-allergenic,
dermatologist-tested, fragrance-free cosmetics and skincare products. Almay products include lip
makeup, eye and face makeup, and skincare products. In 2006, the Almay brand has been relaunched to
focus on consumers’ needs for simplicity, personalization and healthy beauty. The relaunched line includes
18 new product launches, 4 product restages and new packaging and formulas affecting over 200 stock
keeping units (‘‘SKUs’’). Many of the products are organized into expertly coordinated collections that
retail customers can easily ﬁnd by answering 3 simple questions about skin type, eye color and favorite
lipshade. The relaunched Almay line is intended to provide today’s increasingly busy women with a simple
solution to healthy beauty.

With Almay’s renewed commitment to skin, the Almay brand now offers a complete 3-step skincare
line with natural ingredients customized by skin type, as well as a line of anti-aging products with Moringa
seed, and a line of body ﬁrming and sunless tanning products for a complete look. Within the face
category, the Almay consumer can also easily ﬁnd products for the consumer’s skin type. In eye makeup,
the Company has further expanded upon the breakthrough Almay Intense i-Color collection with the
‘‘Play Up’’ collection — providing a new look of color-coordinated shades of shadow, liner and mascara
for each eye color. Ideal Lip is a new product collection that provides a complete lip look — lipstick, liner
and gloss — where the consumer can choose by favorite lip shade. The Almay brand ﬂagship One Coat
franchise has been strengthened with the introduction of the patented Triple Effect mascara for a more
dramatic look.

Cosmetics — Vital Radiance: The Company’s Vital Radiance brand focuses on women over 50 years
of age and involves the launch of a complete line of cosmetics that is designed to serve this afﬂuent and
growing consumer demographic currently underserved in the marketplace. The Company believes that
Vital Radiance is the ﬁrst major color cosmetics brand created with women’s changing skin in mind. The
Company introduced Vital Radiance with a unique ‘‘Prepare • Color • Finish’’ beauty system to help
more mature women achieve the look that is right for them. Using the Company’s exclusive hydrating
formulas and carefully-developed age-appropriate color palette, with the launch of Vital Radiance the
Company combined an understanding of the more mature women’s skin’s needs with a desire to make the
most of their beauty experience. The Vital Radiance ‘‘Prepare • Color • Finish’’ system is designed to
fulﬁll the beauty needs of the changing skin of more-mature women. Vital Radiance ‘‘Prepare’’ products
have moisture-rich formulas that help to prepare the skin for makeup application by evening out the
skin’s surface, ﬁlling in the lines and concealing imperfections. Vital Radiance ‘‘Color’’ products feature
selected shade palettes for face, eyes and lips that help bring back color and deﬁnition while revitalizing
overall appearance. Vital Radiance ‘‘Finish’’ products add a ﬁnal, deﬁning touch for a beautiful, polished,
more vibrant look.

Hair: The Company sells both haircare and haircolor products throughout the world. In the U.S.,
the Colorsilk brand was the fastest growing haircolor brand in the mass-market distribution channel in
2005. The Company also markets High Dimension haircolor, the ﬁrst and only permanent haircolor that

works in 10 minutes, as well as its Frost & Glow highlighting brand. In haircare, the Company sells the
Flex and Aquamarine lines in many countries and the Bozzano and Juvena brands in Brazil.

Beauty Tools: The Company sells Revlon Beauty Tools, which include nail and eye grooming tools,
such as clippers, scissors, ﬁles, tweezers and eye lash curlers. Revlon Beauty Tools are sold individually
and in sets under the Revlon brand name and are the number one brand of beauty tools in the U.S.
mass-market distribution channel. In 2005, Revlon introduced 14 new Beauty Tool products, including a
new line called Expert Effects which have been designed ergonomically to enable proper technique for
expert-like results.

Fragrances: The Company sells a selection of moderately-priced and premium-priced fragrances,
including perfumes, eau de toilettes, colognes and body sprays. The Company’s portfolio includes
fragrances such as Charlie and Ciara as well as Jean Naté. In 2006, the Company intends to re-enter the
prestige fragrance market in the U.S.

Anti-perspirants/deodorants:

In the area of anti-perspirants and deodorants, the Company markets
Mitchum, Aquamarine and Hi & Dri antiperspirant brands in many countries. The Company also markets
hypo-allergenic personal care products, including antiperspirants, under the Almay brand.

Skincare: The Company’s skincare products, including moisturizers, are predominantly sold under
the Almay brand name, as mentioned above. Other brand names include Eterna 27, Vitamin C Absolutes
and Ultima II. In addition, the Company sells skincare products in international markets under
internationally-recognized brand names and under various regional brands, including the Company’s
premium-priced Gatineau brand, as well as Ultima II.

Marketing

The Company markets extensive consumer product lines principally priced in the upper range of the

mass-market distribution channels and certain other channels outside of the U.S.

The Company uses print and television advertising and point-of-sale merchandising, including
displays and samples. The Company’s marketing emphasizes a uniform global image and product for its
portfolio of core brands, including Revlon, ColorStay, Revlon Age Defying, Almay, Vital Radiance
(currently available only in U.S. retailers), Charlie and Mitchum. The Company coordinates advertising
campaigns with in-store promotional and other marketing activities. The Company develops jointly with
retailers carefully tailored advertising, point-of-purchase and other focused marketing programs. The
Company uses network and spot television advertising, national cable advertising and print advertising in
major general interest, women’s fashion and women’s service magazines, as well as coupons and other
trial incentives. In 2005, the Company expanded its media reach utilizing ‘‘non-traditional’’ vehicles such
as outdoor advertising, newspapers and movie theaters to supplement its media mix.

The Company also uses cooperative advertising programs, supported by Company-paid or Company-
subsidized demonstrators, and coordinated in-store promotions and displays. Other marketing materials
designed to introduce the Company’s newest products to consumers and encourage trial and purchase
in-store include trial-size products and couponing. Additionally, the Company maintains separate
websites, www.revlon.com, www.almay.com, www.vitalradiance.com and www.mitchumman.com devoted
to the Revlon, Almay, Vital Radiance and Mitchum brands, respectively. Each of these websites feature
current product and promotional information for the brands, respectively, and are updated regularly to
stay current with the Company’s new product launches and other advertising and promotional campaigns.
In addition, the Almay and Vital Radiance websites offer coupons and/or sampling incentives to their
consumers and offer unique, personalized beauty guides.

The Company’s launch of its Vital Radiance brand was accompanied by the introduction of its Vital
Radiance Beauty Center staffed with trained beauty specialists who are available seven days a week, via
an 800 telephone number or through the Vital Radiance website, www.vitalradiance.com, to provide
consumers with customized service by helping them to answer all of their beauty questions and to help
ensure that they achieve their perfect look. The Vital Radiance beauty specialists are trained extensively
in skin assessment, makeup application, color matching, product selection and consultation. Using their
thorough knowledge of the Vital Radiance product line, they are trained to match consumers with the

products that will best satisfy their beauty needs. The Vital Radiance beauty specialists are available live
to answer consumers’ questions by calling 1-800-RADIANT or consumers may send their questions
online at www.vitalradiance.com.

New Product Development and Research and Development

The Company believes that it is an industry leader in the development of innovative and
technologically-advanced consumer products. The Company’s marketing and research and development
groups identify consumer needs and shifts in consumer preferences in order to develop new products,
tailor line extensions and promotions and redesign or reformulate existing products to satisfy such needs
or preferences. The Company’s research and development group comprises departments specialized in
the technologies critical to the Company’s various product categories, as well as an advanced technology
department that promotes inter-departmental, cross-functional research on a wide range of technologies
to develop new and innovative products. In connection with the implementation of the Stabilization and
Growth Phase of the Company’s plan, the Company has developed and implemented a new cross-
functional product development process intended to optimize the Company’s ability to bring to market
its new product offerings and to ensure that the Company has products in key trend categories.

The Company operates an extensive cosmetics research and development facility in Edison, New
Jersey. The scientists at the Edison facility are responsible for all of the Company’s new product research
worldwide, performing research for new products, ideas, concepts and packaging. The research and
development group at the Edison facility also performs extensive safety and quality testing on the
Company’s products, including toxicology, microbiology and package testing. Additionally, quality control
testing is performed at each manufacturing facility.

As of December 31, 2005, the Company employed approximately 180 people in its research and
development activities, including specialists in pharmacology, toxicology, chemistry, microbiology, engi-
neering, biology, dermatology and quality control. In 2005, 2004 and 2003, the Company spent
$26.1 million, $24.0 million and $25.4 million, respectively, on research and development activities.

Manufacturing and Related Operations and Raw Materials

During 2005, the Company’s cosmetics and/or personal care products were produced at the
Company’s facilities in Oxford, North Carolina; Irvington, New Jersey; Venezuela; France; South Africa;
China; and Mexico and at third-party owned facilities around the world. The Company has also
substantially completed its transfer of the production of products for its European markets from Creative
Outsourcing Solutions International Limited in Maesteg, Wales to the Company’s Oxford, North Carolina
facility. In the second half of 2005, the Company undertook signiﬁcant increases in manufacturing and
distribution activities, primarily at its Oxford, North Carolina facility, in connection with the launch of its
two major brand initiatives, the Almay relaunch and the launch of Vital Radiance.

The Company continually reviews its manufacturing needs against its manufacturing capacities to
identify opportunities to reduce costs and operate more efﬁciently. The Company purchases raw materials
and components throughout the world, and continuously pursues reductions in cost of goods through the
global sourcing of raw materials and components from qualiﬁed vendors, utilizing its purchasing capacity
designed to maximize cost savings. The Company’s global sourcing strategy for materials and components
from accredited vendors is also designed to ensure the quality of the raw materials and components and
assists in protecting the Company against shortages of, or difﬁculties in obtaining, such materials. The
Company believes that alternate sources of raw materials and components exist and does not anticipate
any signiﬁcant shortages of, or difﬁculty in obtaining, such materials.

Distribution

The Company’s products are sold in more than 100 countries across six continents. The Company’s
worldwide sales force had approximately 420 people as of December 31, 2005, including a dedicated sales
force for cosmetics, skincare, fragrance and personal care products in the U.S. mass-market distribution
channel. In addition, the Company utilizes sales representatives and independent distributors to serve
certain markets and related distribution channels.

United States and Canada. Net sales in the U.S. and Canada accounted for approximately 64% of
the Company’s 2005 net sales, a majority of which were made in the mass-market distribution channel.
The Company also sells a broad range of consumer products to U.S. Government military exchanges and
commissaries. The Company licenses its trademarks to select manufacturers for complimentary beauty-
related products and accessories that the Company believes have the potential to extend the Company’s
brand names and image. As of December 31, 2005, nine (9) licenses were in effect relating to ﬁfteen (15)
product categories, which are marketed principally in the mass-market distribution channel. Pursuant to
such licenses, the Company retains strict control over product design and development, product quality,
advertising and the use of its trademarks. These licensing arrangements offer opportunities for the
Company to generate revenues and cash ﬂow through royalties and renewal fees, some of which have
been prepaid.

As part of the Company’s strategy to increase the retail consumption of its products, the Company’s
retail merchandisers stock and maintain the Company’s point-of-sale wall displays intended to ensure that
high-selling SKUs are in stock and to ensure the optimal presentation of the Company’s products in retail
outlets.

International. Net sales outside the U.S. and Canada accounted for approximately 36% of the
Company’s 2005 net sales. The ten largest countries in terms of these sales include South Africa,
Australia, U.K., China, Brazil, Japan, France, Mexico, Italy and Venezuela, which together accounted for
approximately 28% of the Company’s 2005 net sales. The Company distributes its products through drug
stores/chemists, hypermarkets/mass volume retailers, variety stores, department stores and specialty
stores such as perfumeries. At December 31, 2005, the Company actively sold its products through
wholly-owned subsidiaries established in 16 countries outside of the U.S. and through a large number of
distributors and licensees elsewhere around the world.

Customers

The Company’s principal customers include large mass volume retailers and chain drug stores,
including such well-known retailers as Wal-Mart, Target, Kmart, Walgreens, Rite Aid, CVS, Eckerd,
Albertsons Drugs and Longs in the U.S., Shoppers DrugMart in Canada, Boots in the United Kingdom,
A.S. Watson & Co. retail chains in Asia Paciﬁc and Europe. Wal-Mart and its afﬁliates worldwide
accounted for approximately 24.0% of the Company’s 2005 net sales. As is customary in the consumer
products industry, none of the Company’s customers is under an obligation to continue purchasing
products from the Company in the future. The Company expects that Wal-Mart and a small number of
other customers will, in the aggregate, continue to account for a large portion of the Company’s net sales.
Although the loss of Wal-Mart or one or more of the Company’s other customers that may account for
a signiﬁcant portion of the Company’s sales, or any signiﬁcant decrease in sales to these customers or any
signiﬁcant decrease in retail display space in any of these customers’ stores, could have a material adverse
effect on the Company’s business, ﬁnancial condition or results of operations, the Company has no reason
to believe that any such loss of customers or decrease in sales will occur.

Competition

The consumer products business is highly competitive. The Company competes primarily on the basis
of: developing quality products with innovative performance features, shades, ﬁnishes and packaging;
educating consumers on the Company’s product beneﬁts; anticipating and responding to changing
consumer demands in a timely manner, including the timing of new product introductions and line
extensions; offering attractively priced products relative to the product beneﬁts provided; maintaining
favorable brand recognition; generating competitive margins and inventory turns for its retail customers
by providing market-right products and executing effective pricing, incentive and promotion programs;
ensuring product availability through effective planning and replenishment collaboration with retailers;
providing strong and effective advertising, marketing, promotion and merchandising support; maintaining
an effective sales force; and obtaining sufﬁcient retail ﬂoor space, optimal in-store positioning and
effective presentation of its products at retail. For 2005, the Revlon and Almay brands combined held
U.S. mass-market share of 21.6%, compared with 21.4% for 2004 and 22.2% for 2003. The Company

competes in selected product categories against a number of multinational manufacturers, some of which
are larger and have substantially greater resources than the Company, and which may therefore have the
ability to spend more aggressively on advertising and marketing and have more ﬂexibility than the
Company to respond to changing business and economic conditions. In addition to products sold in the
mass-market and demonstrator-assisted channels, the Company’s products also compete with similar
products sold in prestige department store channels, door-to-door or through mail-order or telemarketing
by representatives of direct sales companies. The Company’s principal competitors include L’Oréal S.A.,
The Procter & Gamble Company and The Estée Lauder Companies Inc.

Patents, Trademarks and Proprietary Technology

The Company’s major trademarks are registered in the U.S. and in well over 100 other countries, and
considers trademark protection to be very important to its business. Signiﬁcant trademarks include
Revlon, ColorStay, Revlon Age Defying makeup with Botaﬁrm, High Dimension, Frost & Glow,
Illuminance, Cutex (outside the U.S.), Mitchum, Eterna 27, Almay, Almay Intense i-Color, Almay
Kinetin, Vital Radiance, Ultima II, Flex, Charlie, Jean Naté, Moon Drops, Super Lustrous, Colorsilk,
Gatineau and Bozzano. The Company regularly renews its important trademark registrations in the
ordinary course of business if the applicable trademark remains in use.

The Company utilizes certain proprietary, patent pending or patented technologies in the formula-
tion or manufacture of a number of the Company’s products, including ColorStay cosmetics, classic
Revlon nail enamel, Skinlights skin brightener, High Dimension hair color, Super Top Speed nail enamel,
Revlon Age Defying foundation and cosmetics, New Complexion makeup, Time-Off makeup, Amazing
Lasting cosmetics and Almay One Coat cosmetics. The Company also protects certain of its packaging
and component concepts through design patents. The Company considers its proprietary technology and
patent protection to be important to its business.

The Company ﬁles patents on a continuing basis in the ordinary course of business on certain of the
Company’s new technologies. Patents in the U.S. are effective for up to 20 years and international patents
are generally effective for up to 20 years. The patents that the Company currently has in place expire at
various times between 2008 and 2025 and the Company expects to continue to ﬁle patent applications on
certain of its technologies in the ordinary course of business in the future.

Government Regulation

The Company is subject to regulation by the Federal Trade Commission (the ‘‘FTC’’) and the Food
and Drug Administration (the ‘‘FDA’’) in the U.S., as well as various other federal, state, local and foreign
regulatory authorities, including the European Commission in the European Union (‘‘EU’’). The Oxford,
North Carolina manufacturing facility is registered with the FDA as a drug manufacturing establishment,
permitting the manufacture of cosmetics that contain over-the-counter drug ingredients, such as
sunscreens and antiperspirants. Compliance with federal, state, local and foreign laws and regulations
pertaining to discharge of materials into the environment, or otherwise relating to the protection of the
environment, has not had, and is not anticipated to have, a material effect upon the Company’s capital
expenditures, earnings or competitive position. State and local regulations in the U.S. and regulations in
the EU that are designed to protect consumers or the environment have an increasing inﬂuence on the
Company’s product claims, ingredients and packaging.

Industry Segments, Foreign and Domestic Operations

The Company operates in a single segment. Certain geographic, ﬁnancial and other information of
the Company is set forth in the Consolidated Statements of Operations and Note 19 of the Notes to
Consolidated Financial Statements of the Company.

Employees

As of December 31, 2005, the Company employed approximately 6,800 people. As of Decem-
ber 31, 2005, approximately 150 of such employees in the U.S. were covered by collective bargaining
agreements. The Company believes that its employee relations are satisfactory. Although the Company

has experienced minor work stoppages of limited duration in the past in the ordinary course of business,
such work stoppages have not had a material effect on the Company’s results of operations or ﬁnancial
condition.

Item 1A. Risk Factors

In addition to the other information in this report, investors should consider carefully the following

risk factors when evaluating the Company’s business.

Revlon, Inc. is a holding company with no business operations of its own and is dependent on its
subsidiaries to pay certain expenses and dividends. In addition, shares of the capital stock of Products
Corporation, Revlon, Inc.’s wholly-owned subsidiary, are pledged by Revlon, Inc. to secure obligations
under the 2004 Credit Agreement.

Revlon, Inc. is a holding company with no business operations of its own. Revlon, Inc.’s only material
asset is all of the outstanding capital stock of Products Corporation, Revlon, Inc.’s wholly-owned
subsidiary, through which the Company conducts its business operations. As such, Revlon, Inc.’s net (loss)
income has historically consisted predominantly of its equity in the net (loss) income of Products
Corporation, which for 2005, 2004 and 2003 was approximately $(77.8) million, $(142.8) million and
$(154.0) million, respectively, which excluded approximately $7.6 million, $1.2 million and $1.2 million,
respectively, in expenses primarily related to being a public holding company. Revlon, Inc. is dependent
on the earnings and cash ﬂow of, and dividends and distributions from, Products Corporation to pay
Revlon, Inc.’s expenses incidental to being a public holding company. Products Corporation may not
generate sufﬁcient cash ﬂow to pay dividends or distribute funds to Revlon, Inc. because, for example,
Products Corporation may not generate sufﬁcient cash or net income; state laws may restrict or prohibit
Products Corporation from issuing dividends or making distributions unless Products Corporation has
sufﬁcient surplus or net proﬁts, which Products Corporation may not have; or because contractual
restrictions, including negative covenants contained in Products Corporation’s various debt instruments,
may prohibit or limit such dividends or distributions.

The terms of the 2004 Credit Agreement, the 2004 Consolidated MacAndrews & Forbes Line of
Credit (each as hereinafter deﬁned) and the indentures governing Products Corporation’s outstanding
91⁄2% Senior Notes and 85⁄8% Senior Subordinated Notes (each as hereinafter deﬁned) generally restrict
Products Corporation from paying dividends or making distributions, except that Products Corporation
is permitted to pay dividends and make distributions to Revlon, Inc., among other things, to enable
Revlon, Inc. to make certain payments and pay expenses incidental to being a public holding company.

Shares of the capital stock of Products Corporation held by Revlon, Inc. are pledged to secure
Revlon, Inc.’s guarantee of Products Corporation’s obligations under the 2004 Credit Agreement. A
foreclosure upon the shares of Products Corporation’s common stock would result in Revlon, Inc. no
longer holding its only material asset and would have a material adverse effect on the holders of Revlon,
Inc.’s common stock and would be a change of control under other debt instruments of Products
Corporation.

Products Corporation’s substantial indebtedness could adversely affect the Company’s operations and
ﬂexibility and Products Corporation’s ability to service its debt.

Products Corporation has a substantial amount of outstanding indebtedness. As of Decem-
ber 31, 2005, the Company’s total indebtedness was $1,422.4 million, primarily including $327.0 million
aggregate principal amount outstanding of Products Corporation’s 85⁄8% Senior Subordinated Notes,
$386.4 million aggregate principal amount outstanding of Products Corporation’s 91⁄2% Senior Notes and
$700.0 million aggregate principal amount outstanding under the 2004 Credit Agreement. Additionally,
the Company has a history of net losses and if it is unable to achieve sustained proﬁtability in future
periods, it could adversely affect the Company’s operations and Products Corporation’s ability to service
its debt.

In July 2004, Products Corporation entered into the 2004 Credit Agreement with a syndicate of
lenders and Citicorp USA, Inc., as agent. The 2004 Credit Agreement currently consists of a
$700.0 million Term Loan Facility (as hereinafter deﬁned) and a $160.0 million asset-based Multi-
Currency Facility (as hereinafter deﬁned). The Credit Facilities (as hereinafter deﬁned) under the 2004

Credit Agreement are subject to termination on October 30, 2007 if the 85⁄8% Senior Subordinated Notes,
with an aggregate principal amount outstanding of $327.0 million as of December 31, 2005, are not
redeemed, repurchased, defeased or repaid such that not more than $25.0 million of such notes remain
outstanding on or before such date. In addition, it will be an event of default under the 2004 Credit
Agreement and the 2004 Credit Agreement could terminate if Revlon, Inc. does not issue approximately
$110 million of equity and transfer the proceeds of such issuance to Products Corporation by
March 31, 2006 to promptly reduce outstanding indebtedness. (See ‘‘Recent Developments’’, as to
Revlon, Inc.’s plan to, among other things, conduct a rights offering by March 31, 2006 and redeem
approximately $110 million of the 85⁄8% Senior Subordinated Notes).

The Company is subject to the risks normally associated with substantial indebtedness, including the
risk that the Company’s operating revenues and the operating revenues of its subsidiaries will be
insufﬁcient to meet required payments of principal and interest, and the risk that Products Corporation
will be unable to reﬁnance existing indebtedness when it becomes due or that the terms of any such
reﬁnancing will be less favorable than the current terms of such indebtedness. Products Corporation’s
substantial indebtedness could also:

•

limit the Company’s ability to fund (including by obtaining additional ﬁnancing) the costs and
expenses of the continued implementation of, and reﬁnement to, the Company’s business plan,
including in connection with the Company’s previously-announced brand initiatives (consisting of
the complete relaunch of Almay and the introduction of Vital Radiance), future working capital,
capital expenditures, advertising or promotional expenses, new product development costs,
purchases and reconﬁguration of wall displays, acquisitions, investments, restructuring programs
and other general corporate requirements;

require the Company to dedicate a substantial portion of its cash ﬂow from operations to
payments on Products Corporation’s indebtedness, thereby reducing the availability of the
Company’s cash ﬂow for the continued implementation of, and reﬁnement to, the Company’s
business plan, including funding the Company’s brand initiatives, and for other general corporate
purposes;

• place the Company at a competitive disadvantage compared to its competitors that have less debt;

•

limit the Company’s ﬂexibility in responding to changes in its business and the industry in which
it operates; and

• make the Company more vulnerable in the event of adverse economic conditions or a downturn

in its business.

Although agreements governing Products Corporation’s indebtedness, including the indentures
governing Products Corporation’s outstanding 91⁄2% Senior Notes and 85⁄8% Senior Subordinated Notes,
the agreement governing the 2004 Consolidated MacAndrews & Forbes Line of Credit and the 2004
Credit Agreement, limit Products Corporation’s ability to borrow additional money, under certain
circumstances Products Corporation is allowed to borrow a signiﬁcant amount of additional money, some
of which, in certain circumstances and subject to certain limitations, could be secured indebtedness.

Products Corporation’s ability to pay the principal of its indebtedness depends on many factors.

Products Corporation currently anticipates that,

in order to pay the principal amount of its
outstanding indebtedness upon the occurrence of any event of default, to repurchase its 91⁄2% Senior
Notes and 85⁄8% Senior Subordinated Notes if a change of control occurs or in the event that Products
Corporation’s cash ﬂows from operations are insufﬁcient to allow it to pay the principal amount of its
indebtedness at maturity, the Company may be required to reﬁnance Products Corporation’s indebted-
ness, seek to sell assets or operations, seek to sell additional Revlon, Inc. securities, or seek additional
capital contributions or loans from MacAndrews & Forbes or from the Company’s other afﬁliates or third
parties. Revlon, Inc. is a public holding company and has no business operations of its own, and Revlon,
Inc.’s only material asset is the capital stock of Products Corporation. None of the Company’s afﬁliates are
required to make any capital contributions, loans or other payments to Products Corporation regarding
its obligations on its indebtedness. Products Corporation may not be able to pay the principal amount of

its indebtedness if the Company took any of the above actions because, under certain circumstances, the
indentures governing Products Corporation’s outstanding 91⁄2% Senior Notes and 85⁄8% Senior Subordi-
nated Notes or any of its other debt instruments (including the 2004 Credit Agreement and the 2004
Consolidated MacAndrews & Forbes Line of Credit) or the debt instruments of Products Corporation’s
subsidiaries then in effect may not permit the Company to take such actions. (See ‘‘Restrictions and
covenants in Products Corporation’s debt agreements limit its ability to take certain actions and impose
consequences in the event of failure to comply.’’).

Restrictions and covenants in Products Corporation’s debt agreements limit its ability to take certain
actions and impose consequences in the event of failure to comply.

Agreements governing Products Corporation’s indebtedness, including the 2004 Credit Agreement,
the agreement governing the 2004 Consolidated MacAndrews & Forbes Line of Credit and the indentures
governing Products Corporation’s outstanding 91⁄2% Senior Notes and 85⁄8% Senior Subordinated Notes,
contain a number of signiﬁcant restrictions and covenants that limit Products Corporation’s ability and its
subsidiaries’ ability, among other things (subject in each case to limited exceptions), to:

• borrow money;

• use assets as security in other borrowings or transactions;

• pay dividends on stock or purchase stock;

•

sell assets;

enter into certain transactions with afﬁliates; and

• make certain investments.

In addition, the 2004 Credit Agreement contains ﬁnancial covenants limiting Products Corporation’s
secured debt-to-EBITDA ratio and, under certain circumstances, requiring Products Corporation to
maintain a minimum consolidated ﬁxed charge coverage ratio. (See ‘‘Recent Developments’’ regarding
Products Corporation’s recent amendment to its 2004 Credit Agreement). The 2004 Credit Agreement
also includes provisions that would cause the acceleration of the maturities of the Credit Facilities if the
85⁄8% Senior Subordinated Notes are not reﬁnanced prior to October 30, 2007 such that not more than
$25.0 million of such notes remain outstanding. In addition, it will be an event of default if Revlon, Inc.
fails to issue approximately $110 million of equity and transfer the proceeds of such issuance to Products
Corporation by March 31, 2006 to promptly reduce outstanding indebtedness. (See ‘‘Recent Develop-
ments’’ as to Revlon, Inc.’s intention to, among other things, conduct a $110 million rights offering by
March 31, 2006 and use the proceeds to reduce Products Corporation’s debt). These covenants affect
Products Corporation’s operating ﬂexibility by, among other things, restricting its ability to incur expenses
and indebtedness that could be used to fund the costs of implementing and reﬁning the Company’s
business plan and to grow the Company’s business, including with respect to the Company’s brand
initiatives, as well as to fund general corporate purposes. The breach of certain covenants contained in the
2004 Credit Agreement would permit Products Corporation’s lenders to accelerate amounts outstanding
under the 2004 Credit Agreement, which would in turn constitute an event of default under the 2004
Consolidated MacAndrews & Forbes Line of Credit and the indentures governing Products Corporation’s
outstanding 91⁄2% Senior Notes and 85⁄8% Senior Subordinated Notes, if the amount accelerated exceeds
$25.0 million and such default remains uncured for 10 days following notice from MacAndrews & Forbes
with respect to the 2004 Consolidated MacAndrews & Forbes Line of Credit or the trustee or holders of
the applicable percentage under the applicable indenture. In addition, holders of Products Corporation’s
outstanding 91⁄2% Senior Notes and 85⁄8% Senior Subordinated Notes may require Products Corporation
to repurchase their respective notes in the event of a change of control under the applicable indenture.
(See ‘‘Products Corporation’s ability to pay the principal of its indebtedness depends on many factors.’’).
Products Corporation may not have sufﬁcient funds at the time of any such breach of any such covenant
or change of control to repay in full the borrowings under the 2004 Credit Agreement, or to repurchase
or redeem its outstanding 91⁄2% Senior Notes and/or 85⁄8% Senior Subordinated Notes.

Events beyond the Company’s control, such as decreased consumer spending in response to weak
economic conditions, weakness in the mass-market cosmetics category, retailer inventory management,

adverse changes in currency,
increased competition from the Company’s competitors, changes in
consumer purchasing habits, including with respect to shopping channels, lower than anticipated success
of the Company’s advertising and marketing plans, lower than expected customer or consumer acceptance
of the Company’s brand initiatives, decreased sales of the Company’s existing products as a result of the
Company’s brand initiatives and changes in the competitive environment, could impair the Company’s
operating performance, which could affect Products Corporation’s ability and that of its subsidiaries to
comply with the terms of Products Corporation’s debt instruments. Products Corporation and its
subsidiaries may be unable to comply with the provisions of Products Corporation’s debt instruments,
including the ﬁnancial covenants in the 2004 Credit Agreement. If Products Corporation is unable to
satisfy such covenants or other provisions at any future time, Products Corporation would need to seek
an amendment or waiver of such ﬁnancial covenants or other provisions. The lenders under the 2004
Credit Agreement may not consent to any amendment or waiver requests that Products Corporation may
make in the future, and, if they do consent, they may not do so on terms which are favorable to it and
Revlon, Inc. In the event that Products Corporation was unable to obtain such a waiver or amendment
and it was not able to reﬁnance or repay its debt instruments, including the 2004 Credit Agreement,
Products Corporation’s inability to meet the ﬁnancial covenants or other provisions would constitute an
event of default under its debt instruments, including the 2004 Credit Agreement, which would permit the
bank lenders to accelerate the 2004 Credit Agreement, which in turn would constitute an event of default
under the 2004 Consolidated MacAndrews & Forbes Line of Credit and the indentures governing
Products Corporation’s outstanding 91⁄2% Senior Notes and 85⁄8% Senior Subordinated Notes, if the
amount accelerated exceeds $25.0 million and such default remains uncured for 10 days following notice
from MacAndrews & Forbes with respect to the 2004 Consolidated MacAndrews & Forbes Line of Credit
or the trustee under the applicable indenture.

Products Corporation’s assets and/or cash ﬂow and/or that of Products Corporation’s subsidiaries
may not be sufﬁcient to repay fully borrowings under the outstanding debt instruments, either upon
maturity or if accelerated upon an event of default, and if Products Corporation was required to
repurchase its outstanding 91⁄2% Senior Notes and/or 85⁄8% Senior Subordinated Notes upon a change of
control, Products Corporation may be unable to reﬁnance or restructure the payments on such debt.
Further, if Products Corporation was unable to repay, reﬁnance or restructure its indebtedness under the
2004 Credit Agreement, the lenders could proceed against the collateral securing that indebtedness.

Limits on Products Corporation’s borrowing capacity under the Multi-Currency Facility may affect the
Company’s ability to ﬁnance its operations.

While the Multi-Currency Facility currently provides for up to $160.0 million of commitments,
Products Corporation’s ability to borrow funds under this facility is limited by a borrowing base
determined relative to the value, from time to time, of eligible accounts receivable and eligible inventory
in the U.S. and the U.K. and eligible real property and equipment in the U.S. If the value of these eligible
assets is not sufﬁcient to support the full $160.0 million borrowing base, Products Corporation will not
have full access to the Multi-Currency Facility but rather could have access to a lesser amount determined
by the borrowing base. Further, if Products Corporation borrows funds under this facility, subsequent
changes in the value or eligibility of the assets could cause Products Corporation to be required to pay
down the amounts outstanding so that there is no amount outstanding in excess of the then-existing
borrowing base. Products Corporation’s ability to make borrowings under the Multi-Currency Facility is
also conditioned upon its compliance with other covenants in the 2004 Credit Agreement, including a
ﬁxed charge coverage ratio that applies when the excess borrowing base is less than $30.0 million. Because
of these limitations, Products Corporation may not always be able to meet its cash requirements with
funds borrowed under the Multi-Currency Facility, which could have a material adverse effect on the
Company’s business, results of operations or ﬁnancial condition. On February 1, 2006, the Term Loan
Facility was fully drawn, and availability under the Multi-Currency Facility, based upon the calculated
borrowing base less approximately $16 million of outstanding letters of credit, was approximately
$144 million, as the Multi-Currency Facility was undrawn at such date.

A substantial portion of Products Corporation’s indebtedness is subject to ﬂoating interest rates.

A substantial portion of Products Corporation’s indebtedness, principally under the 2004 Credit
Agreement, is subject to ﬂoating interest rates, which makes the Company more vulnerable in the event
of adverse economic conditions, increases in prevailing interest rates or a downturn in the Company’s
business. As of December 31, 2005, $709.0 million of Products Corporation’s total indebtedness was
subject to ﬂoating interest rates. The Term Loan Facility and the Multi-Currency Facility under the 2004
Credit Agreement bear interest, at Products Corporation’s option, at either the Eurodollar Rate (as
deﬁned in the 2004 Credit Agreement), which is based on LIBOR, or the Alternate Base Rate (as deﬁned
in the 2004 Credit Agreement), which is based on the greater of Citibank, N.A.’s announced base rate and
the U.S. federal fund rate plus 0.5%, or the equivalent for loans denominated in currencies other than U.S.
dollars. If any of LIBOR, the base rate, the U.S. federal funds rate or such equivalent local currency rate
increases, the Company’s debt service costs will increase to the extent that Products Corporation has
elected such rates for its outstanding loans. Based on the amounts outstanding under the 2004 Credit
Agreement and other short-term borrowings (which, in the aggregate, is Products Corporation’s only debt
currently subject to ﬂoating interest rates) as of December 31, 2005, an increase in LIBOR of 1% would
increase the Company’s annual interest expense by $7.1 million. Increased debt service costs would
adversely affect the Company’s cash ﬂow. While Products Corporation may enter into various interest
hedging contracts, it may not be able to do so on a cost-effective basis, any hedging transactions it might
enter into may not achieve their intended purpose and shifts in interest rates may have a material adverse
effect on the Company.

The Company depends on its Oxford, North Carolina facility for production of a substantial portion of
its products. Disruptions to this facility could affect the Company’s sales and ﬁnancial condition.

A substantial portion of the Company’s products are produced at its Oxford, North Carolina facility.
Signiﬁcant unscheduled downtime at this facility due to equipment breakdowns, power failures, natural
disasters, weather conditions hampering delivery schedules or other disruptions, including those caused
by transitioning manufacturing from other facilities primarily to the Company’s Oxford, North Carolina
facility, or any other cause could adversely affect the Company’s ability to provide products to its
customers, which would affect the Company’s sales and ﬁnancial condition. Additionally, if product sales
exceed forecasts, the Company could, from time to time, not have an adequate supply of products to meet
customer demands, which could cause the Company to lose sales.

The Company’s brand initiatives may not be as successful as the Company anticipates in furthering its
growth objectives.

As described under ‘‘Management’s Discussion and Analysis of Financial Condition and Results of
Operations — Overview — Overview of Brand Initiatives,’’ the Company recently announced two brand
initiatives, one of which involves a complete relaunch of the Almay brand and builds on Almay’s healthy
beauty heritage and the desire among consumers for simplicity and personalization and the other of which
is focused on the more mature consumer and involves the launch of a complete line of cosmetics under
a new brand name, Vital Radiance, that is designed to serve this afﬂuent and growing consumer
demographic currently underserved in the marketplace.

The Company may not be successful in achieving its growth objectives. Each of the elements of the
brand initiatives carries signiﬁcant risks, as well as the possibility of unexpected consequences, including:

•

the acceptance of the brand initiatives by the Company’s retail customers may not be as high as
the Company anticipates;

sales of the new products to the Company’s retail customers may not be as high as the Company
anticipates;

the Company’s marketing strategies for the brand initiatives may be less effective than planned
and may fail to effectively reach the targeted consumer base or engender the desired consump-
tion and the rate of purchases by the Company’s consumers may not be as high as the Company
anticipates;

the Company’s wall displays to showcase the new products may fail to achieve their intended
effects;

•

the Company may experience product returns exceeding its expectations as a result of the brand
initiatives;

the Company may incur costs exceeding its expectations as a result of the continued development
and launch of the brand initiatives, including, for example, costs in connection with the purchase
and installation of new wall displays and advertising and promotional expenses or other costs,
including trade support, related to launching the brand initiatives;

the Company may experience a decrease in sales of certain of the Company’s existing products
as a result of the products related to the brand initiatives;

the Company’s product pricing strategies for the brand initiatives may not be accepted by its retail
customers and/or its consumers, which may result in the Company’s sales being less than it
anticipates;

any delays or other difﬁculties impacting the Company’s ability, or the ability of the Company’s
third party manufacturers and suppliers, to timely manufacture, distribute and ship products in
connection with launching the brand initiatives, such as inclement weather conditions or those
delays or difﬁculties discussed under ‘‘— The Company depends on its Oxford, North Carolina
facility for production of a substantial portion of its products. Disruptions to this facility could
affect the Company’s sales and ﬁnancial condition,’’ could affect the Company’s ability to ship and
deliver products to meet its retail customers’ reset deadlines;

the brand initiatives will require that the Company cause to be manufactured, shipped and
installed new display walls at the Company’s retail customers’ stores in time for such customers’
reset schedules. Any delays or other difﬁculties impacting the manufacture, distribution and
installation of these display walls could affect the Company’s ability to meet its retail customers’
reset deadlines; and

attempting to accomplish all of the elements of the brand initiatives simultaneously may prove to
be a ﬁnancial and operational burden on the Company and the Company may be unable to
successfully accomplish all of the elements of the initiatives simultaneously.

Each of the risks referred to above could delay or impede the Company’s ability to achieve its growth
objectives, which could have a material adverse effect on the Company’s business, results of operations
and ﬁnancial condition.

The Company’s ability to service its debt and meet its cash requirements depends on many factors,
including achieving anticipated levels of revenue growth and expenses. If such levels prove to be other
than as anticipated, the Company may be unable to meet its cash requirements or Products Corporation
may be unable to meet the requirements of the ﬁnancial covenants under the 2004 Credit Agreement,
which could have a material adverse effect on the Company’s business.

The Company currently expects that operating revenues, cash on hand, net cash proceeds from the
planned $75 million equity issuance described in ‘‘Recent Developments’’ and funds available for
borrowing under the 2004 Credit Agreement, the 2004 Consolidated MacAndrews & Forbes Line of
Credit and other permitted lines of credit will be sufﬁcient to enable the Company to cover its operating
expenses for 2006, including cash requirements in connection with the Company’s operations, the
continued implementation of, and reﬁnement to, the Company’s plan, including with respect to the
Company’s brand initiatives, the Company’s debt service requirements for 2006, the organizational
realignment described in ‘‘Recent Developments’’ and regularly scheduled pension and post-retirement
beneﬁt plan contributions.

If the Company’s anticipated level of revenue growth is not achieved, however, because of, for
example, decreased consumer spending in response to weak economic conditions or weakness in the
mass-market cosmetics category, retailer inventory management, adverse changes in currency, increased
competition from the Company’s competitors, changes in consumer purchasing habits, including with
respect to shopping channels, or because the Company’s advertising and marketing plans or the brand
initiatives are not as successful as anticipated, or if the Company’s expenses associated with continued
implementation of, and reﬁnement to, the Company’s plan, including expenses related to the Company’s

brand initiatives, exceed the anticipated level of expenses, the Company’s current sources of funds may
be insufﬁcient to meet its cash requirements. In addition, such developments, if signiﬁcant, could reduce
the Company’s revenues and could adversely affect Products Corporation’s ability to comply with certain
ﬁnancial covenants under the 2004 Credit Agreement. If operating revenues, cash on hand, net cash
proceeds from the planned $75 million equity issuance described in ‘‘Recent Developments’’ and funds
available for borrowing are insufﬁcient to cover the Company’s expenses or are insufﬁcient to enable
Products Corporation to comply with the ﬁnancial covenants under the 2004 Credit Agreement, the
Company could be required to adopt one or more alternatives listed below. For example, the Company
could be required to:

• delay the implementation of or revise certain aspects of the Company’s plan, including potentially

delaying, suspending or revising certain aspects of the Company’s brand initiatives;

•

reduce or delay purchases of wall displays or advertising or promotional expenses, including
spending on new wall displays anticipated to be undertaken in connection with the Company’s
brand initiatives;

reduce or delay capital spending, including in connection with the Company’s brand initiatives;

restructure Products Corporation’s indebtedness;

sell assets or operations;

• delay, reduce or revise the Company’s restructuring plans (including as described in ‘‘Recent

Developments’’);

•

seek additional capital contributions or loans from MacAndrews & Forbes, Revlon, Inc., the
Company’s other afﬁliates and/or third parties;

sell additional Revlon, Inc. securities or debt securities of Products Corporation; or

reduce other discretionary spending.

If the Company is required to take any of these actions, it could have a material adverse effect on its
business, ﬁnancial condition and results of operations. In addition, the Company may be unable to take
any of these actions, because of a variety of commercial or market factors or constraints in Products
Corporation’s debt instruments, including, for example, market conditions being unfavorable for an
equity or debt issuance, additional capital contributions or loans not being available from afﬁliates and/or
third parties, or that the transactions may not be permitted under the terms of the various debt
instruments then in effect, because of restrictions on the incurrence of debt, incurrence of liens, asset
dispositions and/or related party transactions. Such actions, if ever taken, may not enable the Company
to satisfy its cash requirements or enable Products Corporation to comply with the ﬁnancial covenants
under the 2004 Credit Agreement if the actions do not result in savings or generate a sufﬁcient amount
of additional capital, as the case may be.

The Company depends on a limited number of customers for a large portion of its net sales and the
loss of one or more of these customers could reduce the Company’s net sales.

For 2005, 2004 and 2003, Wal-Mart, Inc. and its afﬁliates accounted for approximately 24.0%, 21.0%,
and 20.6%, respectively, of the Company’s worldwide net sales. The Company expects that for 2006 and
future periods, Wal-Mart and a small number of other customers will, in the aggregate, continue to
account for a large portion of the Company’s net sales. As is customary in the consumer products industry,
none of the Company’s customers is under an obligation to continue purchasing products from the
Company in the future. The loss of Wal-Mart or one or more of the Company’s other customers that may
account for a signiﬁcant portion of the Company’s net sales, or any signiﬁcant decrease in sales to these
customers or any signiﬁcant decrease in the Company’s retail display space in any of these customers’
stores, could reduce the Company’s net sales and therefore could have a material adverse effect on the
Company’s business, ﬁnancial condition and results of operations.

The Company may be unable to increase its sales through the Company’s primary distribution
channels.

Although the U.S. mass-market for color cosmetics advanced 3.2% for the year ended Decem-
ber 31, 2005, as compared with 2004, the U.S. mass-market color cosmetics category declined by

approximately 0.6% in 2004 from 2003 and declined by approximately 1.1% in 2003 from 2002. In the U.S.,
mass volume retailers and chain drug and food stores currently are the primary distribution channels for
the Company’s products. Additionally, other channels, including department stores, door-to-door and the
internet, combined account for a signiﬁcant amount of sales of cosmetics and beauty care products. A
decrease in consumer demand in the U.S. mass-market for color cosmetics, retailer inventory manage-
ment and/or a change in consumers’ purchasing habits, such as by buying more cosmetics and beauty care
products in channels in which the Company does not currently compete, could cause the Company to be
unable to increase sales of its products through these distribution channels, which could reduce the
Company’s net sales and therefore have a material adverse effect on the Company’s business, ﬁnancial
condition and results of operations.

The Company has a limited operating history under its business plan, and it may not be successful or
enable the Company to achieve or maintain proﬁtable operations.

The Company has a limited operating history under its three-phase business plan. If the Company
fails to successfully execute its plan, including if the Company fails to successfully execute its brand
initiatives, the Company may not achieve the expected increases in its net sales or improvements in its
operating proﬁt margin, which could adversely affect the Company’s proﬁtability and liquidity. Addition-
ally, it is possible that implementation of the plan may have unanticipated consequences that could be
adverse to the Company’s business.

Each of the components of the Company’s plan carries signiﬁcant risks, as well as the possibility of

unexpected consequences. Potential risks include:

•

the Company’s attempts to make its advertising and media more effective may fail to achieve
their intended effects;

changes to the Company’s wall displays may fail to achieve their intended effects;

the Company may experience product returns and/or other costs exceeding the Company’s
expectations as a result of new product introductions or brand launches, including as a result of
the brand initiatives, or additional repositioning, repackaging and reformulating one or more of
the Company’s product lines or brands, or further reﬁning the Company’s approach to retail
merchandising;

the Company may incur costs exceeding its expectations as a result of the roll out of wall displays,
including costs in connection with rolling out new wall displays in connection with the Company’s
brand initiatives, or making further reﬁnements to the Company’s wall displays, or the wall
displays or reﬁnements to such displays may fail to achieve their intended effects;

the Company’s new product development process may not be as successful as contemplated, or
consumers may not accept the Company’s new product offerings to the degree envisioned,
including products to be sold in connection with the Company’s brand initiatives;

the Company’s competitors, some of which have greater resources than the Company, could
increase their spending on advertising and media, increase their new product development
spending or take other steps in response to the Company’s plan, including in response to its brand
initiatives, which could impact the effectiveness of the Company’s plan, including the effective-
ness of its brand initiatives, and the Company’s ability to achieve its objective of increased
revenues and proﬁtability over the long term;

the Company may experience difﬁculties, delays or higher than expected costs in implementing
its comprehensive program to develop and train the Company’s employees with the objective of
improving its organizational capabilities or in attracting and retaining talented and experienced
personnel;

the Company may be unable to achieve its growth objectives in connection with its brand
initiatives or the Company may experience difﬁculties, delays or higher than expected costs in
implementing its brand initiatives, including as discussed in ‘‘— The Company’s brand initiatives
may not be as successful as the Company anticipates in furthering its growth objectives;’’ and

•

attempts to accomplish all of the elements of the Company’s plan simultaneously may prove to
be ﬁnancially or operationally burdensome and may cause disruption or difﬁculties in the
Company’s business.

(See ‘‘— The Company’s ability to service its debt and meet its cash requirements depends on many
factors, including achieving anticipated levels of revenue growth and expenses. If such levels prove to be
other than as anticipated, the Company may be unable to meet its cash requirements or Products
Corporation may be unable to meet the requirements of the ﬁnancial covenants under the 2004 Credit
Agreement, which could have a material adverse effect on the Company’s business’’ and ‘‘— The
Company’s brand initiatives may not be as successful as the Company anticipates in furthering its growth
objectives.’’).

Unanticipated circumstances may adversely affect the Company’s assumptions and expectations regarding
the Company’s ‘‘Destination Model’’.

The Company’s ‘‘Destination Model’’ is based upon its expectation that the Company will achieve an
improvement in its operating proﬁt margin as a result of improvements in various aspects of the
Company’s business, including, without limitation, in its international supply chain, in its promotion
redesign, in its cost of goods (due to various initiatives including value analyses, packaging initiatives,
strategic sourcing and make versus buy analyses), in its product life cycle management, in its in-store
merchandising and by leveraging the Company’s ﬁxed cost structure and other initiatives, for an aggregate
targeted operating proﬁt margin of approximately 12% (measured as a percentage of gross sales) by the
end of 2008. Although the Company believes that these expectations are reasonable and achievable, the
Company may achieve less than expected savings from one or more of these initiatives, the Company’s
progress may not be spread ratably and the margin transformation initiatives may not be implemented
successfully and/or other events and circumstances, such as difﬁculties, delays or unexpected costs in
achieving those results, may occur which could result in the Company’s not achieving its ‘‘Destination
Model’’, achieving only a portion of it, or achieving it later than the Company expects. Additionally, if
product sales exceed forecasts, the Company’s focus on closely managing inventory levels could result,
from time to time, in the Company’s not having an adequate supply of products to meet consumer
demand, which would cause the Company to lose sales. In addition, if the Company experiences lower
than expected sales, the Company may experience difﬁculties or delays in achieving its targeted operating
proﬁt margin.

Competition in the consumer products business could materially adversely affect the Company’s net
sales and its market share.

The consumer products business is highly competitive.The Company competes primarily on the basis

of:

• developing quality products with innovative performance features, shades, ﬁnishes and packag-

ing;

educating consumers on the Company’s product beneﬁts;

anticipating and responding to changing consumer demands in a timely manner, including the
timing of new product introductions and line extensions;

•

• offering attractively priced products, relative to the product beneﬁts provided;

• maintaining favorable brand recognition;

•

generating competitive margins and inventory turns for the Company’s retail customers by
incentive and promotion
providing market-right products and executing effective pricing,
programs;

ensuring product availability through effective planning and replenishment collaboration with
retailers;

• providing strong and effective advertising, marketing, promotion and merchandising support;

• maintaining an effective sales force; and

• obtaining sufﬁcient retail ﬂoor space, optimal in-store positioning and effective presentation of

the Company’s products at retail.

An increase in the amount of competition that the Company faces could have a material adverse
effect on its market share and revenues. The Company experienced declines in its market share in the U.S.
mass-market in color cosmetics from the end of the ﬁrst half of 1998 through the ﬁrst half of 2002,
including a decline in the Company’s combined color cosmetics market share from approximately 32% in
the second quarter of 1998 to approximately 22% in the second quarter of 2002. From the second half of
2002 through 2005, the Company’s U.S. mass-market share in color cosmetics stabilized, and the Company
achieved a combined U.S. mass-market share of 21.6% for 2005. The Revlon brand registered a U.S.
mass-market share of 15.4% for 2005, while the Almay brand advanced to 6.2% for 2005. It is possible that
declines in the Company’s market share could occur in the future.

In addition, the Company competes in selected product categories against a number of multinational
manufacturers, some of which are larger and have substantially greater resources than the Company, and
which may therefore have the ability to spend more aggressively on advertising and marketing and more
ﬂexibility to respond to changing business and economic conditions than the Company. In addition to
products sold in the mass-market, the Company’s products also compete with similar products sold in
prestige department store channels, door-to-door, on the internet and through mail-order or telemarket-
ing by representatives of direct sales companies.

The Company’s foreign operations are subject to a variety of social, political and economic risks and may
be affected by foreign currency ﬂuctuation, which could adversely affect the results of the Company’s
operations and the value of its foreign assets.

As of December 31, 2005, the Company had operations based in 16 foreign countries and its products
were sold in over 100 countries. The Company is exposed to the risk of changes in social, political and
economic conditions inherent in operating in foreign countries, including those in Asia, Eastern Europe
and Latin America, which could adversely affect the Company’s business, results of operations and
ﬁnancial condition. Such changes include changes in the laws and policies that govern foreign investment
in countries where the Company has operations, changes in consumer purchasing habits including as to
shopping channels, as well as, to a lesser extent, changes in U.S. laws and regulations relating to foreign
trade and investment. In addition, ﬂuctuations in foreign currency exchange rates may affect the results
of the Company’s operations and the value of its foreign assets, which in turn may adversely affect the
Company’s reported earnings and, accordingly, the comparability of period-to-period results of opera-
tions. Changes in currency exchange rates may affect the relative prices at which the Company and its
foreign competitors sell products in the same markets. The Company’s net sales outside of the U.S. and
Canada for the years ended December 31, 2005, 2004, and 2003 were approximately 36%, 34% and 31%
of the Company’s total consolidated net sales, respectively. In addition, changes in the value of relevant
currencies may affect the cost of certain items and materials required in the Company’s operations.
Products Corporation enters into forward foreign exchange contracts to hedge certain cash ﬂows
denominated in foreign currency. At December 31, 2005, the notional amount of Products Corporation’s
foreign currency forward exchange contracts was $31.9 million. The hedges Products Corporation enters
into may not protect against currency ﬂuctuations.

Terrorist attacks, acts of war or military actions may adversely affect the markets in which the Company
operates and the Company’s operations and proﬁtability.

On September 11, 2001, the U.S. was the target of terrorist attacks of unprecedented scope. These
attacks contributed to major instability in the U.S. and other ﬁnancial markets and reduced consumer
conﬁdence. These terrorist attacks, as well as terrorist attacks such as those that have occurred in Madrid,
Spain and London, England, military responses to terrorist attacks and future developments, or other
military actions, such as the military actions in Iraq, may adversely affect prevailing economic conditions,
resulting in reduced consumer spending and reduced demand for the Company’s products. These
developments subject the Company’s worldwide operations to increased risks and, depending on their
magnitude, could reduce net sales and therefore could have a material adverse effect on the Company’s
business, results of operations and ﬁnancial condition.

The Company’s products are subject to federal, state and international regulations that could adversely
affect the Company’s ﬁnancial results.

The Company is subject to regulation by the FTC and the FDA, in the U.S., as well as various other
federal, state, local and foreign regulatory authorities, including the EU in Europe. The Company’s
Oxford, North Carolina manufacturing facility is registered with the FDA as a drug manufacturing
establishment, permitting the manufacture of cosmetics that contain over-the-counter drug ingredients,
such as sunscreens and antiperspirants. State and local regulations in the U.S. and regulations in the EU
that are designed to protect consumers or the environment have an increasing inﬂuence on the Company’s
product claims, ingredients and packaging. To the extent regulatory changes occur in the future, they
could require the Company to reformulate or discontinue certain of its products or revise its product
packaging or labeling, either of which could result in, among other things, increased costs to the Company,
delays in product launches or result in product returns.

Shares of Revlon, Inc. Class A Common Stock and Products Corporation’s capital stock are pledged to
secure various of Revlon, Inc.’s and/or other of the Company’s afﬁliates’ obligations and foreclosure upon
these shares or dispositions of shares could result in the acceleration of debt under the 2004 Credit
Agreement and could have other consequences.

Products Corporation’s shares of common stock are pledged to secure Revlon, Inc.’s guarantee under
the 2004 Credit Agreement. As of December 31, 2005, there were 2,325,291 shares of Class A Common
Stock pledged by REV Holdings to secure $18.5 million principal amount of REV Holdings’ 13% Senior
Secured Notes due 2007. MacAndrews & Forbes has advised the Company that it has pledged additional
shares of Class A Common Stock to secure other obligations. Additional shares of Revlon, Inc. and shares
of common stock of intermediate holding companies between Revlon, Inc. and MacAndrews & Forbes
may from time to time be pledged to secure obligations of MacAndrews & Forbes. A default under any
of these obligations that are secured by the pledged shares could cause a foreclosure with respect to such
shares of Class A Common Stock, Products Corporation’s common stock or stock of intermediate holding
companies. A foreclosure upon any such shares of common stock or dispositions of shares of Class A
Common Stock, Products Corporation’s common stock or stock of intermediate holding companies
beneﬁcially owned by MacAndrews & Forbes could, in a sufﬁcient amount, constitute a ‘‘change of
control’’ under the 2004 Credit Agreement, the 2004 Consolidated MacAndrews & Forbes Line of Credit
and the indentures governing the 91⁄2% Senior Notes and the 85⁄8% Senior Subordinated Notes. A change
of control constitutes an event of default under the 2004 Credit Agreement, which would permit Products
Corporation’s lenders to accelerate amounts outstanding under the 2004 Credit Agreement. In addition,
holders of the 91⁄2% Senior Notes and the 85⁄8% Senior Subordinated Notes may require Products
Corporation to repurchase their respective notes under those circumstances. Products Corporation may
not have sufﬁcient funds at the time of any such change of control to repay in full the borrowings under
the 2004 Credit Agreement or to repurchase or redeem the 91⁄2% Senior Notes and/or the 85⁄8% Senior
Subordinated Notes. (See ‘‘The Company’s ability to service its debt and meet its cash requirements
depends on many factors, including achieving anticipated levels of revenue growth and expenses. If such
levels prove to be other than as anticipated, the Company may be unable to meet its cash requirements
or Products Corporation may be unable to meet the requirements of the ﬁnancial covenants under the
2004 Credit Agreement, which could have a material adverse effect on the Company’s business.’’).

MacAndrews & Forbes has the power to direct and control the Company’s business.

MacAndrews & Forbes is wholly owned by Ronald O. Perelman. Mr. Perelman, directly and through
MacAndrews & Forbes, beneﬁcially owns approximately 60% of Revlon, Inc.’s outstanding common
stock. Mr. Perelman, directly and through MacAndrews & Forbes, controls approximately 77% of the
combined voting power of Revlon, Inc.’s common stock. As a result, MacAndrews & Forbes is able to
control the election of the entire Board of Directors of Revlon, Inc. and Products Corporation and
controls the vote on all matters submitted to a vote of Revlon, Inc.’s and Products Corporation’s
stockholders, including the approval of mergers, consolidations, sales of some, all or substantially all of
Revlon, Inc.’s or Products Corporation’s assets, issuances of capital stock and similar transactions.

New accounting requirements will cause the Company to record compensation expense for employee
stock option grants, which will affect the Company’s reported earnings.

In December 2004, the FASB issued SFAS No. 123 (revised 2004), ‘‘Share-Based Payment,’’ an
amendment to FASB Statements Nos. 123 and 95 (‘‘SFAS No. 123(R)’’), which replaces SFAS No. 123,
and supercedes APB Opinion No. 25, ‘‘Accounting for Stock Issued to Employees.’’ SFAS No. 123(R)
requires all share-based payments to employees, including grants of employee stock options, to be
recognized in the ﬁnancial statements based on their fair values. In April 2005, the U.S. Securities and
Exchange Commission (the ‘‘SEC’’ or the ‘‘Commission’’) adopted a rule allowing companies to
implement SFAS No. 123(R) at the beginning of their next ﬁscal year that begins after June 15, 2005,
which for the Company will be effective beginning January 1, 2006. The Company will use the modiﬁed
prospective transition method, utilizing the Black-Scholes option pricing model for the calculation of the
fair value of its employee stock options. Under the modiﬁed prospective method, stock option awards that
are granted, modiﬁed or settled after January 1, 2006 will be measured and accounted for in accordance
with SFAS No. 123(R). Compensation cost for stock option awards granted prior to, but not vested, as of
January 1, 2006 would be based on the grant date attributes originally used to value those awards for pro
forma purposes under SFAS No. 123. The Company expects the adoption of SFAS No. 123(R) will result
in approximately $10 million in additional expenses for ﬁscal year 2006. This estimate is based on the
number of unvested options outstanding as of January 1, 2006 and the estimated number of options to be
granted in 2006. This estimate could change based on a number of factors, including differences in the
estimate of the number of options granted before 2006 which are forfeited during 2006 and the number
of options actually granted in 2006 and the fair value of these options at their grant date.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

The following table sets forth as of December 31, 2005 the Company’s major manufacturing, research

and warehouse/distribution facilities, all of which are owned except where otherwise noted.

Location

Use

Research and ofﬁce (leased)

. . . . . . Manufacturing, warehousing and ofﬁce (a)

Oxford, North Carolina . . . . . Manufacturing, warehousing, distribution and ofﬁce (a)
Edison, New Jersey . . . . . . . .
Irvington, New Jersey.
Mexico City, Mexico . . . . . . . . Manufacturing, distribution and ofﬁce
Caracas, Venezuela . . . . . . . . . Manufacturing, distribution and ofﬁce
Kempton Park, South Africa
Warehousing, distribution and ofﬁce (leased)
Canberra, Australia . . . . . . . . Warehousing, distribution and ofﬁce (leased)
Rietfontein, South Africa . . . Manufacturing, warehousing, distribution and ofﬁce

Approximate
Floor
Space Sq. Ft.

1,012,000
123,000
96,000
150,000
145,000
120,000
125,000
94,000

(a)

Properties subject to liens under the 2004 Credit Agreement.

In addition to the facilities described above, the Company owns and leases additional facilities in
various areas throughout the world, including the lease for the Company’s executive ofﬁces in New York,
New York (approximately 176,800 square feet). Management considers the Company’s facilities to be
well-maintained and satisfactory for the Company’s operations, and believes that the Company’s facilities
and third party contractual supplier arrangements provide sufﬁcient capacity for its current and expected
production requirements.

Item 3. Legal Proceedings

Company. A purported class action lawsuit was ﬁled on September 27, 2000, in the United States District
Court for the Southern District of New York on behalf of Dan Gavish, Tricia Fontan and Walter Fontan
individually and allegedly on behalf of all others similarly situated who purchased the securities of Revlon,
Inc. and REV Holdings Inc. (a Delaware corporation and the predecessor of REV Holdings LLC, a
Delaware limited liability company (‘‘REV Holdings’’)) between October 2, 1998 and September 30, 1999
(the ‘‘Second Gavish Action’’). The complaint, amended by the plaintiffs in November 2001, alleged,
among other things, that Revlon, Inc., certain of its present and former ofﬁcers and directors and REV
Holdings Inc. violated, among other things, Rule 10b-5 under the Securities Exchange Act of 1934, as
amended (the ‘‘Exchange Act’’). On September 29, 2004, the United States District Court for the
Southern District of New York dismissed the Second Gavish Action, without prejudice. Revlon, Inc.’s
counsel has subsequently received a second amended complaint. If this matter is pursued, Revlon, Inc.
intends to defend it vigorously as the Company believes it is without merit. In light of the settlement of
the defendants’ insurance claim for this matter and the other purported class actions ﬁled in 1999 and
settled in June 2003, which the Company recorded in 2002, the Company does not expect to incur any
further expense in this matter.

Item 4. Submission of Matters to a Vote of Security Holders

No matter was submitted to a vote of security holders during the fourth quarter of the ﬁscal year

covered by this report.

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of

Equity Securities

MacAndrews & Forbes, which is wholly owned by Ronald O. Perelman, beneﬁcially owns (i)
190,160,641 shares of Class A Common Stock (20,819,333 of which are owned by REV Holdings and
169,341,308 of which are beneﬁcially owned by MacAndrews & Forbes) and (ii) all of the outstanding
31,250,000 shares of Class B Common Stock of Revlon, Inc., with a par value of $0.01 per share (the
‘‘Class B Common Stock’’, and together with the Class A Common Stock, the ‘‘Common Stock’’). Based
on the shares referenced in clauses (i) and (ii) above, and including Mr. Perelman’s vested stock options
discussed in Part III, Item 12. of this Form 10-K (‘‘Security Ownership of Certain Beneﬁcial Owners and
Management’’), Mr. Perelman, directly and indirectly, through MacAndrews & Forbes, at Decem-
ber 31, 2005, beneﬁcially owned approximately 60% of Revlon, Inc.’s outstanding shares of Common
Stock and had approximately 77% of the combined voting power of the outstanding shares of Revlon,
Inc.’s Common Stock currently entitled to vote at its 2006 Annual Meeting of Stockholders. The
remaining 150,265,777 shares of Class A Common Stock outstanding at December 31, 2005 were owned
by the public. Revlon, Inc.’s Class A Common Stock is listed and traded on the New York Stock Exchange
(the ‘‘NYSE’’). As of December 31, 2005, there were 920 holders of record of Class A Common Stock.
No dividends were declared or paid during 2005 or 2004 by Revlon, Inc. on its Common Stock. The terms
of the 2004 Credit Agreement, the 2004 Consolidated MacAndrews & Forbes Line of Credit, the 85⁄8%
Senior Subordinated Notes and the 91⁄2% Senior Notes currently restrict the ability of Products
Corporation to pay dividends or make distributions to Revlon, Inc., except in limited circumstances. (See
Part III, Item 12. of this Form 10-K, ‘‘Security Ownership of Certain Beneﬁcial Owners and Manage-
ment’’, and the Company’s Consolidated Financial Statements and the Notes thereto).

The table below shows the high and low quarterly stock prices of Revlon, Inc.’s Class A Common

Stock on the NYSE for the years ended December 31, 2005 and 2004.

Year Ended December 31, 2005(1)

1st Quarter

2nd Quarter

3rd Quarter

4th Quarter

High . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Low . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$3.08
2.20

$3.39
2.70

$4.29
3.00

$3.38
2.33

Year Ended December 31, 2004(1)

1st Quarter

2nd Quarter

3rd Quarter

4th Quarter

High . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Low . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$3.66
2.28

$3.50
2.70

$2.94
2.11

$2.55
2.06

(1) Represents the closing price per share of Revlon, Inc.’s Class A Common Stock on the NYSE. The Company’s stock trading

symbol is ‘‘REV’’.

Item 6. Selected Financial Data

The Consolidated Statements of Operations Data for each of the years in the ﬁve-year period ended
December 31, 2005 and the Balance Sheet Data as of December 31, 2005, 2004, 2003, 2002 and 2001 are
derived from the Company’s Consolidated Financial Statements, which have been audited by KPMG LLP,
an independent registered public accounting ﬁrm. The Selected Consolidated Financial Data should be
read in conjunction with the Company’s Consolidated Financial Statements and the Notes to the
Consolidated Financial Statements and ‘‘Management’s Discussion and Analysis of Financial Condition
and Results of Operations.’’

Statement of Operations Data:
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross proﬁt (d)
. . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative

expenses . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring costs and other, net (e) . .
Operating income (loss) . . . . . . . . . . . . . .
Interest Expense . . . . . . . . . . . . . . . . . . . .
. .
Loss on early extinguishment of debt
Loss from continuing operations . . . . . . .
Basic and diluted loss from continuing

2005 (a)

Year Ended December 31,
(in millions, except per share amounts)
2002 (b)
2003 (b)

2004

2001 (c)

$1,332.3
824.2

$1,297.2
811.9

$1,299.3
798.2

$1,119.4
615.7

$1,277.6
733.4

757.8
1.5
64.9
130.0

9.0(f)

(83.7)

717.6
5.8
88.5
130.8
90.7(g)

(142.5)

770.9
6.0
21.3
174.5
—
(153.8)

717.0
13.6
(114.9)
159.0
—
(286.5)

679.2
38.1
16.1
140.5
3.6
(153.7)

operations per common share . . . . . . .

$ (0.23)

$ (0.47)

$ (2.47)

$ (5.36)

$ (2.87)

Weighted average number of common
shares outstanding (in millions): (h)
Basic and diluted . . . . . . . . . . . . . . . . . .

371.1

301.1

62.3

53.5

2005 (a)

2004

Year Ended December 31,
(in millions)
2003 (b)

2002 (b)

2001

Balance Sheet Data:
Total assets . . . . . . . . . . . . . . . . . . . . . . . . .
Total indebtedness . . . . . . . . . . . . . . . . . . .
Total stockholders’ deﬁciency . . . . . . . . .

$ 1,043.7
1,422.4
(1,095.9)

$ 1,000.5
1,355.3
(1,019.9)

892.2
1,897.5
(1,725.6)

933.7
1,775.1
(1,638.5)

997.6
1,661.1
(1,282.1)

(a) Results for 2005 include expenses of approximately $44 million in incremental returns and allowances and approximately
$7 million in accelerated amortization cost of certain permanent displays related to the launch of the brand initiatives.
(b) Results for 2003 and 2002 include expenses of approximately $31.0 million in 2003 and approximately $104.0 million in 2002

(c)

(d)

(e)

(f)

related to the accelerated implementation of the Stabilization and Growth Phase of the Company’s plan.
In July 2001, the Company completed the disposition of the Colorama brand and facility in Brazil. Accordingly, the selected
ﬁnancial data includes the results of operations of the Colorama brand through the date of disposition.
In connection with the Company’s restructuring activities described in note (e) below, through 2002 the Company incurred
additional costs associated with the consolidation of its Phoenix and Canada facilities and its worldwide operations. The
Company recorded $1.5 million and $38.2 million of such costs for the years ended December 31, 2002 and 2001, respectively,
in cost of sales.
In 2000, the Company initiated a new restructuring program (the ‘‘2000 restructuring program’’), to improve proﬁtability by
reducing personnel and consolidating manufacturing facilities. The 2000 restructuring program focused on closing manufacturing
operations in Phoenix, Arizona and Mississauga, Canada and consolidating production into the Company’s plant in Oxford,
North Carolina. The 2000 restructuring program also included the remaining obligation for excess leased real estate at the
Company’s headquarters, consolidation costs associated with closing the Company’s facility in New Zealand and the
elimination of several domestic and international executive and operational positions, each of which was effected to reduce
and streamline corporate overhead costs. Restructuring expenses incurred through 2005 were with respect to the 2000
restructuring program, the continued consolidation of the Company’s worldwide operations or one-time restructuring events
including employee severance costs.
The loss on early extinguishment of debt for 2005 includes: (i) a $5.0 million prepayment fee related to the prepayment in
March 2005 of $100.0 million of indebtedness outstanding under the Term Loan Facility of the 2004 Credit Agreement with
a portion of the proceeds from the issuance of Products Corporation’s Original 91⁄2% Senior Notes and (ii) the aggregate
$1.5 million loss on the redemption of Products Corporation’s 81⁄8% Senior Notes and 9% Senior Notes in April 2005, as well
as the write-off of the portion of deferred ﬁnancing costs related to such prepaid amount.

(g) Represents the loss on the exchange of equity for certain indebtedness in the Revlon Exchange Transactions (as hereinafter
deﬁned) and fees, expenses, premiums and the write-off of deferred ﬁnancing costs related to the Revlon Exchange
Transactions, the tender for and redemption of the 12% Senior Secured Notes (including the applicable premium) and the
repayment of the 2001 Credit Agreement. (See Note 9 to the Consolidated Financial Statements).

(h) Represents the weighted average number of common shares outstanding for the period. Upon consummation of Revlon, Inc.’s
rights offering in 2003, the fair value, based on NYSE closing price of Revlon, Inc.’s Class A Common Stock was more than
the subscription price. Accordingly, basic and diluted loss per common share have been restated for all periods prior to the
rights offering in 2003 to reﬂect the stock dividend of 1,262,328 shares of Class A Common Stock. (See Note 1 to the
Consolidated Financial Statements). On March 25, 2004, in connection with the Revlon Exchange Transactions, Revlon, Inc.
issued 299,969,493 shares of Class A Common Stock. (See Note 9 to the Consolidated Financial Statements). The shares issued
in the Revlon Exchange Transactions are included in the weighted average number of shares outstanding since the date of the
respective transactions. In addition, if upon consummation of Revlon, Inc.’s rights offering in 2006 as referred to in ‘‘Recent
Developments’’, the fair value, based on NYSE closing price of Revlon, Inc.’s Class A Common Stock on the consummation
date is more than the subscription price, the basic and diluted loss per common share will be restated for all prior periods
presented to such 2006 rights offering to reﬂect the implied stock dividend.

Item 7. 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 wholly-owned operating subsidiary, Revlon Consumer Products Corporation (‘‘Products
Corporation’’), which operates in a single segment and manufactures, markets and sells an extensive array
of cosmetics, skincare, fragrances and personal care products. Revlon is one of the world’s leading
mass-market cosmetics brands. Revlon 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 newly
relaunched Almay brand, including the Company’s new Almay Intense i-Color collection, and the
Company’s latest brand, Vital Radiance, in cosmetics; a new Almay skincare line, as well as Ultima II and
Gatineau in skincare; Charlie and Jean Naté in fragrances; Revlon and Expert Effects in beauty tools; and
Mitchum, Flex, Colorsilk and Bozzano in personal care products. In addition, the Company has a licensing
group pursuant to which the Company licenses certain of its key brand names to third parties for
complimentary beauty-related products and accessories.

The Company is an indirectly majority-owned subsidiary of MacAndrews & Forbes Holdings Inc.
(‘‘MacAndrews & Forbes Holdings’’ and, together with its afﬁliates, ‘‘MacAndrews & Forbes’’), a
corporation wholly-owned by Ronald O. Perelman.

Overview of the Company’s Plan

The Company is in the third phase of its plan, the Accelerated Growth Phase.

The Company intends to capitalize on the actions taken during the earlier phases of the plan, with
the objective of increasing revenues and achieving proﬁtability over the long term. The Accelerated
Growth Phase of the plan includes various actions that represent reﬁnements of and additions to the
actions taken during the earlier phases of the plan, with the objective of balancing top-line growth with
an improved operating proﬁt margin. These ongoing initiatives include, among other things, actions to: (i)
further improve the new product development and introduction process with even deeper insights into the
Company’s consumers and the categories in which it competes; (ii) continue to increase the effectiveness
and reduce the cost of the Company’s display walls across categories and brands; (iii) drive efﬁciencies
across the Company’s overall supply chain, including reducing manufacturing costs by continuing to
rationalize components and by sourcing strategically; (iv) optimize the effectiveness of the Company’s
advertising, marketing and promotions; (v) continue the training and development of the organization so
that the Company may continue to improve its capabilities to execute its strategies while providing
enhanced job satisfaction for the Company’s employees; and (vi) continue to strengthen the Company’s
balance sheet and capital structure, much of which has been accomplished during 2004, with additional
ﬁnancing transactions completed during 2005 and planned for 2006. (See ‘‘Recent Developments’’
regarding Revlon, Inc.’s planned $110 million rights offering and planned $75 million equity issuance).

The Company believes that it has strengthened its organizational capabilities and it intends to
continue doing so. The Company also believes that it has strengthened its relationships with its key
retailers in the U.S.

Overview of Brand Initiatives

In August 2005, the Company announced two major brand initiatives. One initiative involves a
complete relaunch of the Almay brand and builds on Almay’s healthy beauty heritage and the desire

among consumers for simplicity and personalization. The second initiative is focused on the more mature
consumer and involves the launch of a complete line of cosmetics under a new brand name, Vital
Radiance, that is designed to serve this afﬂuent and growing consumer demographic currently under-
served in the marketplace.

The brand initiatives had a positive effect on net sales of approximately $33 million in 2005, after
giving effect to approximately $44 million of provisions for incremental returns and allowances associated
with the launch of these initiatives. As a result of these brand initiatives, the Company had accelerated
amortization associated with certain existing retail display ﬁxtures of approximately $7 million that
impacted selling, general and administrative expenses (‘‘SG&A’’) in 2005. The total upfront launch and
related costs of the brand initiatives in 2005 was approximately $62 million, principally including
provisions for the aforementioned incremental returns and allowances of approximately $44 million and
the aforementioned $7 million of accelerated amortization. The Company also currently expects that the
ﬁrst quarter of 2006 would beneﬁt from the incremental initial shipments associated with the launch of
these brand initiatives.

The Company continues to make certain investments in connection with these brand initiatives, most
notably in the area of permanent displays and inventory. In terms of the cash ﬂow impact of these brand
initiatives, the Company’s investment in permanent displays, including displays for its existing businesses
and these brand initiatives, was approximately $70 million for 2005 and the Company expects that its
continued investment in permanent displays will be in the range of $85 million to $95 million for 2006,
returning to more normalized levels thereafter. The net increase in 2005 inventory levels of approximately
$66 million and the increase in 2005 net trade receivables of approximately $82 million, as compared with
that of 2004, is primarily due to the brand initiatives. The Company’s working capital is expected to return
to more normalized levels in relation to sales during the second half of 2006.

Overview of Sales and Earnings Results

Net sales in 2005 increased $35.1 million to $1,332.3 million, as compared with $1,297.2 million in
2004, driven by higher shipments and favorable foreign currency translation, partially offset by higher
total returns, allowances and discounts and lower licensing revenue primarily as a result of the
prepayment of certain minimum royalties and renewal fees by licensees in 2004.

In the United States and Canada, 2005 net sales increased $1.4 million to $857.1 million from
$855.7 million in 2004. Excluding the impact of Canadian currency ﬂuctuations, net sales were down
$3.2 million. This decrease was primarily due to a decline in net sales of certain of the Company’s base
business products and a decrease in licensing revenue from 2004 levels which included the prepayments
of certain minimum royalties and renewal fees by licensees, partially offset by an increase in new product
net sales due in part to the brand initiatives. In International, 2005 net sales increased $33.7 million to
$475.2 million from $441.5 million in 2004. The increase in 2005 was due primarily to higher shipments and
favorable foreign currency translation.

Net loss in 2005 decreased $58.8 million to $83.7 million, as compared with $142.5 million in 2004. The
improvement in net loss for 2005, as compared with 2004, reﬂected a decrease of approximately
$82 million in expenses relating to the early extinguishment of debt, higher product shipments, due
principally to the brand initiatives, and favorable foreign currency impact. These improvements were
partially offset by the decrease in the aforementioned licensing revenues and the additional costs incurred
relating to the launch of the brand initiatives, including a charge for incremental returns and allowances,
plus additional costs incurred for advertising, which includes expenses incurred for promotional displays
and accelerated depreciation on certain existing permanent displays.

Overview of Market Share Data

In terms of U.S. marketplace performance, the U.S. color cosmetics category for 2005 increased
approximately 3.2% versus 2004. Combined U.S. mass-market share for the Revlon and Almay brands
totaled 21.6% for 2005, compared with 21.4% for 2004, with the Revlon brand registering a share of 15.4%
for 2005, compared with 15.7% for 2004, and the Almay brand registering a share of 6.2% for 2005,

compared with 5.7% for 2004. The share increase for the Almay brand was driven primarily by the
successful launch of new products, including the Almay Intense i-Color collection. In women’s hair color
and beauty tools, the Company gained market share in 2005, compared with 2004, increasing, respectively,
from a 8.0% market share for 2004 to 8.5% for 2005, and 24.1% market share for 2004 to 25.0% for 2005.
Market share performance was essentially even at 6.2% for anti-perspirants/deodorants in 2004 and 2005.

Overview of Financing Activities

The Accelerated Growth Phase of the Company’s plan include actions intended to, among other
things, strengthen the Company’s balance sheet and capital structure, much of which actions were
accomplished during 2005 and 2004. (See ‘‘Financial Condition, Liquidity and Capital Resources – 2004
Reﬁnancing Transactions’’ for a discussion of the 2004 ﬁnancing transactions).

In March 2005, Products Corporation issued in a private placement $310.0 million aggregate principal
amount of 91⁄2% Senior Notes due 2011 (the ‘‘Original 91⁄2% Senior Notes’’) and used the proceeds to
prepay and permanently reduce $100.0 million of indebtedness under the Term Loan Facility of Products
Corporation’s 2004 Credit Agreement, to redeem its 81⁄8% Senior Notes and 9% Senior Notes and to pay
the applicable redemption premiums, fees, expenses and accrued interest related to these transactions.
This issuance and the related transactions extended the maturities of Products Corporation’s debt that
would have otherwise been due in 2006. In June 2005, all of the Original 91⁄2% Senior Notes were
exchanged for new 91⁄2% Senior Notes (the ‘‘March 2005 91⁄2% Senior Notes’’), which have substantially
identical terms to the Original 91⁄2% Senior Notes, except that they are registered with the SEC under the
Securities Act of 1933, as amended (the ‘‘Securities Act’’), and the transfer restrictions and registration
rights applicable to the Original 91⁄2% Senior Notes do not apply to the March 2005 91⁄2% Senior Notes.
(See further discussion in ‘‘2005 Reﬁnancing Transactions’’ within this section and in Note 9, ‘‘Long-Term
Debt’’, to the Consolidated Financial Statements).

In August 2005, Products Corporation issued in a private placement $80.0 million aggregate principal
amount of additional 91⁄2% Senior Notes due 2011 (the ‘‘Additional 91⁄2% Senior Notes’’). The Company
used the proceeds of such issuance to help fund investments in its brand initiatives and for general
corporate purposes, as well as to pay fees and expenses in connection with the issuance of the Additional
91⁄2% Senior Notes. In December 2005, all of the Additional 91⁄2% Senior Notes were exchanged for new
91⁄2% Senior Notes (the ‘‘August 2005 91⁄2% Senior Notes’’ and together with the March 2005 91⁄2% Senior
Notes, the ‘‘91⁄2% Senior Notes’’), which have substantially identical terms to the Additional 91⁄2% Senior
Notes, except that they are registered with the SEC under the Securities Act, and the transfer restrictions
and registration rights applicable to the Additional 91⁄2% Senior Notes do not apply to the Au-
gust 2005 91⁄2% Senior Notes. (See further discussion in ‘‘2005 Reﬁnancing Transactions’’ within this
section and in Note 9 ‘‘Long-Term Debt’’ to the Consolidated Financial Statements).

Also in August 2005, Revlon, Inc. announced its plan to issue $185.0 million of equity with the
proceeds from approximately $110 million of this issuance to be contributed to Products Corporation to
reduce its debt and the balance of the proceeds to be available to Products Corporation for general
corporate purposes. (See ‘‘Recent Developments’’ and ‘‘2005 Reﬁnancing Transactions’’ within this
section for further discussion).

In December 2005, the SEC declared effective Revlon, Inc.’s ‘‘shelf’’ registration statement on Form
S-3 registering up to $250.0 million of a variety of equity securities, including (a) Class A Common Stock,
(b) preferred stock, (c) warrants to purchase Class A Common Stock or preferred stock, (d) stock
purchase contracts (representing contracts obligating holders to purchase from Revlon, Inc. and Revlon,
Inc. to sell to the holders, certain shares of Class A Common Stock or preferred stock at future dates),
(e) stock purchase units (which consist of a stock purchase contract and/or warrants that would secure the
holder’s obligation to purchase or sell Class A Common Stock or preferred stock), and (f) subscription
rights to purchase Class A Common Stock or preferred stock. (See ‘‘Recent Developments’’).

Discussion of Critical Accounting Policies

In the ordinary course of its business, the Company has made a number of estimates and assumptions
relating to the reporting of results of operations and ﬁnancial condition in the preparation of its ﬁnancial

statements in conformity with accounting principles generally accepted in the U.S. Actual results could
differ signiﬁcantly from those estimates and assumptions. The Company believes that the following
discussion addresses the Company’s most critical accounting policies, which are those that are most
important to the portrayal of the Company’s ﬁnancial condition and results and require management’s
most difﬁcult, subjective and complex judgments, often as a result of the need to make estimates about
the effect of matters that are inherently uncertain.

Sales Returns:

The Company allows customers to return their unsold products when they meet certain company-
established criteria as outlined in the Company’s trade terms. The Company regularly reviews and revises,
when deemed necessary, the Company’s estimates of sales returns based primarily upon actual returns,
planned product discontinuances, and promotional sales, which would permit customers to return items
based upon the Company’s trade terms. The Company records estimated sales returns as a reduction to
sales and cost of sales, and an increase in accrued liabilities and inventories. Returned products which are
recorded as inventories are valued based upon the amount that the Company expects to realize upon their
subsequent disposition. The physical condition and marketability of the returned products are the major
factors the Company considers in estimating realizable value. Cost of sales includes the cost of
refurbishment of returned products. Actual returns, as well as realized values on returned products, may
differ signiﬁcantly, either favorably or unfavorably, from the Company’s estimates if factors such as
product discontinuances, customer inventory levels or competitive conditions differ from the Company’s
estimates and expectations and, in the case of actual returns, if economic conditions differ signiﬁcantly
from the Company’s estimates and expectations.

Trade Support Costs:

In order to support the retail trade, the Company has various performance-based arrangements with
retailers to reimburse them for all or a portion of their promotional activities related to the Company’s
products. The Company regularly reviews and revises, when deemed necessary, estimates of costs to the
Company for these promotions based on estimates of what has been incurred by the retailers. Actual costs
incurred by the Company may differ signiﬁcantly if factors such as the level and success of the retailers’
programs, as well as retailer participation levels, differ from the Company’s estimates and expectations.

Inventories:

Inventories are stated at the lower of cost or market value. Cost is principally determined by the
ﬁrst-in, ﬁrst-out method. The Company records adjustments to the value of inventory based upon its
forecasted plans to sell its inventories, as well as planned discontinuances. The physical condition (e.g.,
age and quality) of the inventories is also considered in establishing its valuation. These adjustments are
estimates, which could vary signiﬁcantly, either favorably or unfavorably, from the amounts that the
Company may ultimately realize upon the disposition of inventories if future economic conditions,
customer inventory levels, product discontinuances, return levels or competitive conditions differ from
the Company’s estimates and expectations.

Property, Plant and Equipment and Other Assets:

Property, plant and equipment is recorded at cost and is depreciated on a straight-line basis over the
estimated useful lives of such assets. Changes in circumstances such as technological advances, changes to
the Company’s business model, changes in the planned use of ﬁxtures or software or closing of facilities
or changes in the Company’s capital strategy can result in the actual useful lives differing from the
Company’s estimates.

Included in other assets are permanent wall displays, which are recorded at cost and amortized on a
straight-line basis over the estimated useful lives of such assets. Intangibles other than goodwill are
recorded at cost and amortized on a straight-line basis over the estimated useful lives of such assets.

Long-lived assets, including ﬁxed assets, permanent wall displays and intangibles other than goodwill,
are reviewed by the Company for impairment whenever events or changes in circumstances indicate that

the carrying amount of any such asset may not be recoverable. If the undiscounted cash ﬂows (excluding
interest) from the use and eventual disposition of the asset is less than the carrying value, the Company
recognizes an impairment loss, measured as the amount by which the carrying value exceeds the fair value
of the asset. The estimate of undiscounted cash ﬂow is based upon, among other things, certain
assumptions about expected future operating performance. The Company’s estimates of undiscounted
cash ﬂow may differ from actual cash ﬂow due to, among other things, technological changes, economic
conditions, changes to its business model or changes in its operating performance. In those cases where
the Company determines that the useful life of other long-lived assets should be shortened, the Company
would depreciate the net book value in excess of the salvage value (after testing for impairment as
described above), over the revised remaining useful life of such asset thereby increasing amortization
expense. Additionally, goodwill is reviewed for impairment at least annually. The Company recognizes an
impairment loss to the extent that carrying value exceeds the fair value of the asset.

Pension Beneﬁts:

The Company sponsors both funded and unfunded pension and other retirement plans in various
forms covering employees who meet the applicable eligibility requirements. The Company uses several
statistical and other factors in an attempt to estimate future events in calculating the liability and expense
related to the plans. These factors include assumptions about the discount rate, expected return on plan
assets and rate of future compensation increases as determined annually by the Company, within certain
guidelines, which assumptions would be subject to revisions if signiﬁcant events occur during the year. The
Company uses September 30 as its measurement date for plan obligations and assets.

The Company selected a discount rate of 5.5% in 2005, a decline from the 5.75% rate selected in 2004
for the Company’s U.S. pension plans. The average discount rate selected for the Company’s international
plans also declined from 5.5% for 2004 to 5% for 2005. The discount rates are used to measure the beneﬁt
obligations at the measurement date and the net periodic beneﬁt cost for the subsequent calendar year
and are reset annually using data available at the measurement date. The changes in the discount rates
used for 2005 were primarily due to declining long-term interest rates. At September 30, 2005, the
decrease in the discount rates had the effect of increasing the Company’s projected pension beneﬁt
obligation by approximately $19 million. For ﬁscal 2006, the Company expects that decreases in the
discount rates will have the effect of increasing the net periodic beneﬁt cost for its U.S. and international
plans by approximately $1.5 million.

The expected rate of return on the pension plan assets used in 2005 and 2004 remained unchanged
at 8.5% for the Company’s U.S. pension plans. The average expected rate of return used for the
Company’s international plans declined from 7% in 2004 to 6.7% in 2005, primarily due to a change in the
portfolios’ asset allocations.

The table below reﬂects the Company’s estimates of the possible effects of changes in the discount
rates and expected rates of return on its 2006 net periodic beneﬁt costs and its projected beneﬁt obligation
at September 30, 2005 for the Company’s principal plans:

Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected rate of return . . . . . . . . . . . . . . . . .

25 basis points increase

25 basis points decrease

Net periodic
beneﬁt costs

$(1.5)
(1.0)

Projected
pension beneﬁt
obligation

Net periodic
beneﬁt costs

Projected
pension beneﬁt
obligation

$(19.4)
—

$1.7
1.0

$20.2
—

The rate of future compensation increases is another assumption used by the Company’s third party
actuarial consultants for pension accounting. The rate of future compensation increases used in 2005 and
in 2004 remained unchanged at 4% for the U.S. pension plans In addition, the Company’s actuarial
consultants also use other factors such as withdrawal and mortality rates. The actuarial assumptions used
by the Company may differ materially from actual results due to changing market and economic
conditions, higher or lower withdrawal rates or longer or shorter life spans of participants, among other
things. Differences from these assumptions could signiﬁcantly impact the actual amount of net periodic
beneﬁt cost and liability recorded by the Company.

Results of Operations

Year ended December 31, 2005 compared with the year ended December 31, 2004

In the tables, numbers are in millions and amounts in parenthesis (

) denote unfavorable variances.

Net sales:

Net sales in 2005 increased $35.1 million, or 2.7%, to $1,332.3 million, as compared with $1,297.2 mil-
lion in 2004, driven by higher shipments and favorable foreign currency translation, partially offset by
higher total returns, allowances and discounts. Excluding the impact of foreign currency ﬂuctuations,
consolidated 2005 net sales increased 1.8%. The 2004 year beneﬁted from the prepayment of certain
minimum royalties and renewal fees by licensees.

United States and Canada . . . . . . . . . . . . . . . . .
International . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Year Ended December 31,

Change

2005

$ 857.1
475.2

$1,332.3

2004

$ 855.7
441.5

$1,297.2

$ 1.4
33.7

$35.1

%
0.2%(1)
7.6 (2)
2.7% (3)

(1) Excluding the impact of foreign currency ﬂuctuations, U.S. and Canada net sales decreased 0.4%.

(2) Excluding the impact of foreign currency ﬂuctuations, International net sales increased 6.0%.

(3) Excluding the impact of foreign currency ﬂuctuations, consolidated net sales increased 1.8%.

United States and Canada.

In the United States and Canada, net sales increased $1.4 million, or 0.2%, to $857.1 million in 2005
from $855.7 million in 2004. Excluding the impact of Canadian currency ﬂuctuations, 2005 net sales were
down $3.2 million, or 0.4%, compared with 2004. This decrease was primarily due to a decline in shipments
of certain base business products and a decrease of approximately $12 million in licensing revenue from
2004 levels, which included the prepayments of certain minimum royalties and renewal fees by licensees,
partially offset by an increase in shipments of new products and the brand initiatives, net of a provision
for incremental returns and allowances of approximately $44 million associated with the launch of the
brand initiatives.

International.

Net sales in the Company’s international operations increased $33.7 million, or 7.6%, to $475.2 mil-
lion in 2005 from $441.5 million in 2004. Excluding the impact of foreign currency ﬂuctuations,
international net sales increased by $26.4 million, or 6.0%, in 2005, as compared with 2004.

In Asia Paciﬁc and Africa, net sales increased by $16.4 million, or 7.3%, to $242.6 million in 2005, as
compared with $226.2 million in 2004. Excluding the impact of foreign currency ﬂuctuations, net sales in
Asia Paciﬁc and Africa increased $13.5 million, or 6.0%, in 2005, as compared with 2004. This increase in
2005 net sales, excluding the impact of foreign currency ﬂuctuations, was driven by higher net sales in each
of the Company’s major markets in the region. Excluding the impact of foreign currency ﬂuctuations, the
Company estimates that South Africa, Australia, Japan and certain distributor markets contributed
approximately 4.8% of the increase in net sales for the region in 2005, as compared with 2004.

In Europe, which is comprised of Europe and the Middle East, net sales increased by $4.4 million,
or 3.6%, to $125.0 million in 2005, as compared with $120.6 million in 2004. Excluding the impact of
foreign currency ﬂuctuations, net sales in Europe increased by $5.2 million, or 4.3%, in 2005, as compared
with 2004. The increase in net sales, excluding the impact of foreign currency ﬂuctuations, was due to
higher net sales in the U.K. and certain distributor markets (which the Company estimates contributed to
an approximate 5.0% increase in net sales for the region in 2005, as compared with 2004), and was partially
offset by a decrease in net sales primarily in Italy (which the Company estimates contributed to an
approximate 0.6% reduction in net sales for the region in 2005, as compared with 2004).

In Latin America, which is comprised of Mexico, Central America and South America, net sales
increased by $12.9 million, or 13.6%, to $107.6 million in 2005, as compared with $94.7 million in 2004.
Excluding the impact of foreign currency ﬂuctuations, net sales in Latin America increased by
$8.9 million, or 9.5%, in 2005, as compared with 2004. The increase in net sales, excluding the impact of
foreign currency ﬂuctuations, was driven primarily by increased shipments in Brazil, Mexico and certain
distributor markets (which the Company estimates contributed to an approximate 9.1% increase in net
sales for the region in 2005, as compared with 2004), which was partially offset by lower net sales in
Argentina and Chile (which the Company estimates contributed to an approximate 0.5% reduction in net
sales for the region in 2005, as compared with 2004).

Gross proﬁt:

Year Ended December 31,

2005

2004

Change

Gross proﬁt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$824.2

$811.9

$12.3

Gross proﬁt increased by $12.3 million in 2005 from 2004 primarily due favorable foreign currency
translation of $6.4 million and to higher shipments of products, which were partially offset by the
aforementioned lower licensing revenues, higher cost of goods due to increased shipments and higher
consolidated returns, allowances and discounts, which included approximately $44 million of provision for
incremental returns and allowances associated with the launch of the brand initiatives. Gross proﬁt as a
percentage of net sales decreased to 61.9% in 2005 from 62.6% in 2004 primarily due to the
aforementioned increase in consolidated returns, allowances and discounts and the aforementioned lower
licensing revenue.

SG&A expenses:

Year Ended December 31,

2005

2004

Change

SG&A expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$757.8

$717.6

$(40.2)

Excluding unfavorable foreign currency ﬂuctuations of $5.6 million, SG&A increased $34.6 million,
or 4.8%, to $757.8 million for the year ended December 31, 2005, primarily due to $17.5 million in
expenditures related to the launch of the Company’s two brand initiatives, inclusive of the aforemen-
tioned accelerated amortization of permanent displays. The increase in SG&A expenses was also due to
$4.2 million in higher distribution costs, higher brand support of $4.0 million and higher display
amortization expenses related to the base business of $2.7 million, in each case in 2005, as compared with
2004.

Restructuring costs:

Restructuring costs and other, net

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Year Ended December 31,

2005

$1.5

2004

$5.8

Change

$4.3

The Company recorded $1.5 million and $5.8 million in restructuring for employee severance and

other related personnel beneﬁts in 2005 and 2004, respectively.

Other expenses:

Year Ended December 31,

2005

2004

Change

Interest expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$130.0

$130.8

$0.8

The decrease in interest expense of $0.8 million for 2005, as compared with 2004, is primarily due to
a slightly lower weighted average interest rate during the ﬁrst three quarters of 2005, offset in part by
higher debt balances during the fourth quarter of 2005 attributable primarily to working capital build to
help fund the Company’s brand initiatives, as well as higher weighted average interest rates during the
fourth quarter of 2005.

Loss on early extinguishment of debt

. . . . . . . . . . . . . . . . . . . . . . . . . . .

Year Ended December 31,

2005

$9.0

2004

$90.7

Change

$81.7

The $9.0 million loss on early extinguishment of debt for 2005 includes the $5.0 million prepayment
fee related to the prepayment in March 2005 of $100.0 million of indebtedness outstanding under the
Term Loan Facility of the 2004 Credit Agreement with a portion of the proceeds from the issuance of the
Original 91⁄2% Senior Notes, the aggregate $1.5 million loss on the redemption of Products Corporation’s
81⁄8% Senior Notes and 9% Senior Notes in April 2005, as well as the write-off of the portion of deferred
ﬁnancing costs related to such prepaid amount. The loss on early extinguishment of debt for 2004
represents the loss on the exchange of equity for certain indebtedness in the Revlon Exchange
Transactions and fees, expenses and the write-off of deferred ﬁnancing costs related to the Revlon
Exchange Transactions, the tender for and redemption of Products Corporation’s 12% Senior Secured
Notes (including the applicable premium) and the repayment of Products Corporation’s credit agreement
dated November 30, 2001, which was scheduled to mature on May 30, 2005 (as amended, the ‘‘2001 Credit
Agreement’’). (See Note 9 to the Consolidated Financial Statements).

Miscellaneous, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Year Ended December 31,

2005

$(0.5)

2004

$2.0

Change

$2.5

The decrease in miscellaneous, net for 2005, as compared with 2004, is primarily due to fees and
expenses associated with the reﬁnancing that Products Corporation launched in May 2004 but did not
consummate.

Provision for income taxes:

Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Year Ended December 31,

2005

$8.5

2004

$9.3

Change

$0.8

The decrease in the provision for income taxes in 2005, as compared with 2004, was primarily
attributable to the favorable resolution of various tax matters resulting in a tax beneﬁt of approximately
$3.8 million in 2005, compared to that of approximately $2.9 million in 2004. The decrease in the provision
for income taxes was partially offset by the tax on cash repatriation dividends from a foreign subsidiary.

Year Ended December 31, 2004 compared with the year ended December 31, 2003

In the tables, numbers are in millions and amounts in parenthesis (

) denote unfavorable variances.

Net sales:

Net sales in 2004 declined $2.1 million, or 0.2%, to $1,297.2 million, as compared with $1,299.3 million
in 2003, driven by higher consolidated returns, allowances and discounts, due in part to higher returns
provision for product discontinuances identiﬁed in 2004 and higher returns from promotions, partially
offset by higher shipments and favorable foreign currency translation.

United States and Canada . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
International

Year Ended December 31,
2004

2003

Change

$ 855.7
441.5

$1,297.2

$ 890.6
408.7

$1,299.3

$(34.9)
32.8

$ (2.1)

(3.9)%
8.0
(0.2)%(2)

(1)

(1) Excluding the impact of foreign currency ﬂuctuations, International net sales increased 1.0%.

(2) Excluding the impact of foreign currency ﬂuctuations, consolidated net sales decreased 2.7%.

United States and Canada.

Net sales in the U.S. and Canada decreased $34.9 million, or 4%, in 2004, as compared with 2003, due
to higher total returns, allowances and discounts of approximately $51.0 million, partially offset by higher
shipments of approximately $3.3 million, the favorable impact of foreign currency translation of
$5.9 million and increased licensing revenue of $6.9 million, primarily from the prepayments of minimum
royalties and renewal fees by licensees of $11.8 million in 2004 versus $5.3 million in 2003. The increase
in returns, allowances and discounts in 2004 versus 2003 is due in part to higher returns provision for
product discontinuances identiﬁed in 2004, higher returns from promotions, and the fact that the 2003
provision for returns beneﬁted from a revision of previous estimates for returns associated with the
Company’s Stabilization and Growth Phase of its plan recorded in 2002.

In terms of U.S. marketplace performance, the U.S. color cosmetics category for 2004 declined by
approximately 0.6% versus 2003. For 2004, the Revlon and Almay brands combined held U.S.
mass-market share of 21.4%, compared with 22.2% for 2003. Market share performance of existing
products under the Revlon and Almay brands increased from 2003 to 2004, offset in part by decreased
share performance of new products under such brands. In women’s hair color and beauty tools, the
Company gained market share in 2004, compared with 2003, increasing, respectively, from a 7.3% market
share for 2003 to 8.0% for 2004 and a 22.2% market share for 2003 to 24.1% for 2004, while market share
was down for anti-perspirants/deodorants, decreasing from 6.4% in 2003 to 6.2% in 2004.

International.

Net sales in the Company’s international operations increased $32.8 million, or 8.0%, in 2004, as
compared with 2003. Excluding the impact of foreign currency ﬂuctuations, international net sales
increased by 1.0% in 2004, as compared with 2003.

In Europe, which is comprised of Europe and the Middle East, net sales decreased by $3.7 million,
or 3.0%, to $120.6 million for 2004, as compared with 2003. Excluding the impact of foreign currency
ﬂuctuations, net sales decreased by $15.1 million, or 12.2%, in 2004, as compared with 2003. The decline
in net sales, excluding the impact of foreign currency ﬂuctuations, was due to lower sales in the U.K., in
part due to reduced customer inventory levels and higher allowances granted to customers (which the
Company estimates contributed to an approximate 9.4% reduction in net sales in 2004 for the region, as
compared with 2003) and lower sales to distributors in Russia and Germany (which the Company
estimates contributed to an approximate 4.3% reduction in net sales in 2004 for the region, as compared
with 2003), partially offset by increased sales in Israel (which the Company estimates contributed to an
approximate 1.3% increase in net sales in 2004 for the region, as compared with 2003).

In September 2004, the Company exercised its contractual rights to terminate its 2002 supply
agreement with COSi that became effective on January 31, 2006. The Company has transitioned such
manufacturing primarily to its Oxford, North Carolina facility and distribution and warehousing to a local
U.K.-based third party. During 2004, COSi earned approximately $1.9 million in performance-based
payments. In December 2004, the Company and COSi entered into a transitional agreement covering the
period through termination pursuant to which, among other things, COSi received $1.9 million in
additional performance-based payments by maintaining speciﬁc production service level objectives.
However, such payments were fully set off against payments due to the Company from COSi in
connection with the cessation of such arrangement.

In Latin America, which is comprised of Mexico, Central America and South America, net sales
increased by $2.5 million, or 2.8%, to $94.7 million for 2004, as compared with 2003. Excluding the impact
of foreign currency ﬂuctuations, net sales increased by $4.8 million, or 5.2%, in 2004, as compared with
2003. The increase in net sales, excluding the impact of foreign currency ﬂuctuations, was primarily due
to increased net sales in Brazil, Venezuela and certain distributor markets due to improved local economic
and business conditions (which the Company estimates contributed to an approximate 11.5% increase in
net sales for the region in 2004, as compared with 2003), partially offset by lower sales in Mexico (which
the Company estimates contributed to an approximate 5.2% reduction in net sales in 2004 for the region,
as compared with 2003).

In the Asia Paciﬁc and Africa, net sales increased by $34.0 million, or 17.7%, to $226.2 million for
2004, as compared with 2003. Excluding the impact of foreign currency ﬂuctuations, net sales increased
$14.4 million, or 7.5%, for 2004, as compared with 2003. This increase was driven by higher sales in South
Africa and Japan related to favorable economic conditions (which the Company estimates contributed to
an approximate 6.0% increase in net sales in 2004 for the region, as compared with 2003).

Gross proﬁt:

Year Ended December 31,

2004

2003

Change

Gross proﬁt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$811.9

$798.2

$13.7

Excluding foreign exchange ﬂuctuations, gross proﬁt for 2004 decreased $6.3 million, as compared
with 2003, reﬂecting higher total returns, allowances and discounts, partially offset by higher shipments of
products, the aforementioned increase in licensing revenue and lower cost of goods sold. Gross proﬁt as
a percent of sales, excluding the impact of foreign currency ﬂuctuations, increased to 62.6% in 2004 from
61.4% in 2003, primarily due to cost savings and the aforementioned higher licensing revenues, partially
offset by higher total returns, allowances and discounts.

SG&A expenses:

Year Ended December 31,

2004

2003

Change

SG&A expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$717.6

$770.9

$53.3

SG&A expenses decreased $53.3 million, or 6.9%, to $717.6 million for 2004, as compared with 2003,
due primarily to $36.7 million of lower marketing spending and the absence of fees and expenses related
to the Stabilization and Growth Phase of the Company’s plan in 2004 versus $26.1 million of plan-related
expenses in 2003, partially offset by $14.9 million of unfavorable foreign currency ﬂuctuations.

Restructuring costs:

Restructuring costs and other, net

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Year Ended December 31,

2004

$5.8

2003

$6.0

Change

$0.2

The Company recorded $5.8 million and $6.0 million for employee severance and other personnel

beneﬁts in 2004 and 2003, respectively.

Other expenses:

Year Ended December 31,

2004

2003

Change

Interest expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$130.8

$174.5

$43.7

The decrease in interest expense of $43.7 million for 2004, as compared with 2003, is primarily due
to lower consolidated debt during 2004, resulting from the Revlon Exchange Transactions, partially offset
by higher borrowings under the 2004 Credit Agreement to repay the 2001 Credit Agreement, the tender
for and redemption of the 12% Senior Secured Notes (including the applicable premium and accrued
interest) and to pay related fees and expenses. (See Note 9 to the Consolidated Financial Statements).

Loss on early extinguishment of debt

. . . . . . . . . . . . . . . . . . . . . . . . . . .

Year Ended December 31,

2004

$90.7

2003

$ —

Change

$(90.7)

The loss on early extinguishment of debt in 2004 represents the loss on the exchange of equity for
certain indebtedness in the Revlon Exchange Transactions (such loss was equal to the difference between
the fair value of the equity securities issued in the Revlon Exchange Transactions and the book value of
the related indebtedness exchanged by third parties other than MacAndrews & Forbes or related parties)
and fees, expenses and the write-off of deferred ﬁnancing costs related to the Revlon Exchange
Transactions, the tender for and redemption of the 12% Senior Secured Notes (including the applicable
premium) and the repayment of the 2001 Credit Agreement. (See Note 9 to the Consolidated Financial
Statements).

Miscellaneous, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Year Ended December 31,

2004

$2.0

2003

$0.5

Change

$(1.5)

The increase in miscellaneous, net for 2004, as compared with 2003, is primarily due to fees and
expenses associated with the reﬁnancing that Products Corporation launched in May 2004, but did not
consummate.

Provision for income taxes:

Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Year Ended December 31,

2004

$9.3

2003

$0.5

Change

$(8.8)

The increase in the provision for income taxes in 2004, as compared with 2003, is due to higher
taxable income in certain markets outside the U.S. in 2004. Additionally, 2004 and 2003 beneﬁted by
approximately $2.9 million and $7.0 million, respectively, from the favorable resolution of various tax
audits.

Financial Condition, Liquidity and Capital Resources

Net cash used for operating activities was $139.7 million, $94.2 million and $166.4 million for 2005,
2004 and 2003, respectively. This increase in cash used in 2005 versus 2004 resulted primarily from
increased purchases of permanent displays and an increase in inventory and accounts receivables,
partially offset by an increase in accounts payable and accrued expenses, in each case due principally to
the brand initiatives. The improvement in net cash used for operating activities for 2004 versus 2003
resulted primarily from higher operating income, lower purchases of permanent displays, lower accrued
expenses and lower cash spending in connection with the Stabilization and Growth Phase of the
Company’s plan and lower interest payments. The Company received nil, $11.8 million and $5.3 million
in 2005, 2004 and 2003, respectively, related to prepaid minimum royalties and renewal fees under
licensing agreements.

Net cash used for investing activities was $15.8 million, $18.9 million and $23.3 million for 2005, 2004
and 2003, respectively. Net cash used for investing activities for 2005, 2004 and 2003 primarily consisted
of capital expenditures, partially offset in 2003 by the proceeds from the sale of the Company’s warehouse
in Canada.

Net cash provided by ﬁnancing activities was $67.6 million, $174.5 million and $151.1 million for 2005,
2004 and 2003, respectively. Net cash provided by ﬁnancing activities for 2005 included proceeds of
$386.2 million from the issuance of the 91⁄2% Senior Notes, which was used to (i) prepay $100.0 million
of indebtedness under the Term Loan Facility of Products Corporation’s 2004 Credit Agreement, along
with the $5.0 million prepayment fee plus accrued interest, (ii) redeem $116.2 million aggregate principal
amount outstanding of Products Corporation’s 81⁄8% Senior Notes, plus the payment of accrued interest,
(iii) redeem $75.5 million aggregate principal amount outstanding of Products Corporation’s 9% Senior
Notes, plus accrued interest and the applicable premium, and (iv) pay ﬁnancing costs related to such
transactions, with the balance being used to help fund the Company’s brand initiatives. Net cash provided
by ﬁnancing activities for 2004 included cash drawn under each of the 2001 Credit Agreement, a
$125 million term loan from MacAndrews & Forbes (the ‘‘2004 $125 million MacAndrews & Forbes
Loan’’) and the Term Loan Facility under the 2004 Credit Agreement, partially offset by a) the repayment
of borrowings under the 2001 Credit Agreement (in connection with the reﬁnancing thereof), b) the
repayment of borrowings under the 2004 $125 million MacAndrews & Forbes Loan, c) the payment of the
redemption price, the applicable premium and interest in connection with the tender for and redemption
of Products Corporation’s 12% Senior Secured Notes and d) the payment of ﬁnancing costs in connection
with certain amendments to the 2001 Credit Agreement during 2004, the Revlon Exchange Transactions,
the 2004 Credit Agreement and the tender for and redemption of the 12% Senior Secured Notes. Net cash
provided by ﬁnancing activities for 2003 included cash drawn under the 2001 Credit Agreement and under
a $65 million line of credit and a $100.0 million term loan from MacAndrews & Forbes and net proceeds
from a $50.0 million rights offering conducted by Revlon, Inc. in 2003, partially offset by the repayment
of borrowings under the 2001 Credit Agreement and payment of ﬁnancing costs.

At February 1, 2006, Products Corporation had a liquidity position, of approximately $255 million,
consisting of (i) cash, cash equivalents and marketable securities (net of any outstanding checks), (ii)
approximately $144 million of available borrowings from the Multi-Currency Facility under the 2004
Credit Agreement and (iii) approximately $87 million of available borrowings under the 2004 Consoli-
dated MacAndrews & Forbes Line of Credit. (See ‘‘Recent Developments’’).

2004 Credit Agreement

In July 2004, Products Corporation entered into a new credit agreement (the ‘‘2004 Credit
Agreement’’) with 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 2004 Credit Agreement originally provided up to $960.0 million and, before giving effect to the
$100.0 million prepayment in March 2005, consisted of a term loan facility of $800.0 million (prior to being
reduced to $700.0 million following the Company’s March 2005 prepayment of $100.0 million) (the ‘‘Term
Loan Facility’’) and a $160.0 million multi-currency facility, the availability under which varies based upon
the borrowing base that is determined based upon the value of eligible accounts receivable, eligible
inventory and eligible real property and equipment in the U.S. and the U.K. from time to time (the
‘‘Multi-Currency Facility’’). Products Corporation may request the Multi-Currency Facility to be
increased from time to time in an aggregate principal amount not to exceed $50.0 million subject to certain
exceptions and subject to the lenders’ agreement. The Multi-Currency Facility is available to: (i) Products
Corporation in revolving credit loans denominated in U.S. dollars, (ii) Products Corporation in swing line
loans denominated in U.S. dollars up to $25.0 million, (iii) Products Corporation in standby and
commercial letters of credit denominated in U.S. dollars and other currencies up to $50.0 million and (iv)
Products Corporation and certain of its international subsidiaries designated from time to time in
revolving credit loans and bankers’ acceptances denominated in U.S. dollars and other currencies, in each
case subject to borrowing base availability. If the value of the eligible assets is not sufﬁcient to support the
$160.0 million borrowing base under the Multi-Currency Facility, Products Corporation will not have full
access to the Multi-Currency Facility. Products Corporation’s ability to make borrowings under the
Multi-Currency Facility is also conditioned upon the satisfaction of certain conditions precedent and
Products Corporation’s compliance with other covenants in the 2004 Credit Agreement, including a ﬁxed
charge coverage ratio that applies when the excess borrowing base is less than $30.0 million. In

March 2005 Products Corporation prepaid $100.0 million of indebtedness outstanding under the Term
Loan Facility, together with accrued interest and the $5.0 million prepayment fee associated with such
prepayment, using a portion of the proceeds from the issuance of the Original 2005 91⁄2% Senior Notes.

The Multi-Currency Facility will terminate on July 9, 2009 and the loans under the Term Loan
Facility will mature on July 9, 2010; provided that the 2004 Credit Agreement will terminate on
October 30, 2007 if the 85⁄8% Senior Subordinated Notes are not redeemed, repurchased, defeased or
repaid on or before such date such that not more than $25.0 million in aggregate principal amount of
Products Corporation’s 85⁄8% Senior Subordinated Notes remain outstanding. In addition to customary
events of default, it would be an event of default under the 2004 Credit Agreement if Revlon, Inc. fails
to complete an approximately $110.0 million equity issuance and transfer the proceeds of such equity
issuance to Products Corporation by March 31, 2006, which Products Corporation must promptly use to
reduce its outstanding indebtedness. (See ‘‘Recent Developments’’).

Borrowings under the Multi-Currency Facility (other than loans in foreign currencies) bear interest
at a rate equal to, at Products Corporation’s option, either (A) the Alternate Base Rate plus 1.50%; or
(B) the Eurodollar Rate plus 2.50%. Loans in foreign currencies bear interest in certain limited
circumstances or if mutually acceptable to Products Corporation and the relevant foreign lenders at the
Local Rate, and otherwise at the Eurocurrency Rate, in each case plus 2.50%. The loans under the Term
Loan Facility bear interest at a rate equal to, at Products Corporation’s option, either (A) the Alternate
Base Rate plus 5.00%; or (B) the Eurodollar Rate plus 6.00%. At December 31, 2005, the weighted
average rate for borrowings under the Term Loan Facility was 10.1%.

The 2004 Credit Agreement requires Products Corporation to comply with various ﬁnancial
covenants and restrictions, including covenants and restrictions relating to indebtedness, liens, invest-
ments, sales of assets, mergers and acquisitions, dividends and transactions with Products Corporation’s
afﬁliates, each of which is subject to limited exceptions. Additionally, the 2004 Credit Agreement contains
ﬁnancial covenants limiting Products Corporation’s senior secured leverage ratio (the ratio of Products
Corporation’s Senior Secured Debt to EBITDA, as each such term is deﬁned in the 2004 Credit
Agreement) to 5.50 to 1.00 for the four consecutive quarters ending during the period from Decem-
ber 31, 2004 to September 30, 2005; 5.00 to 1.00 for the four consecutive quarters ending during the period
from December 31, 2005 to December 31, 2006; and 4.50 to 1.00 for the four consecutive quarters ending
March 31, 2007 and each subsequent quarter until the maturity date of the 2004 Credit Agreement.
Additionally, under any circumstances when the excess borrowing base under the Multi-Currency Facility
is less than $30.0 million for a period of 30 consecutive days or more, Products Corporation would be
required to maintain a consolidated ﬁxed charge coverage ratio (the ratio of EBITDA minus Capital
Expenditures to Cash Interest Expense for such period, as each such term is deﬁned in the 2004 Credit
Agreement) of 1.00 to 1.00. Products Corporation was in compliance with all applicable covenants under
the 2004 Credit Agreement as of December 31, 2005.

At February 1, 2006, the Term Loan Facility was fully drawn and availability under the Multi-
Currency Facility, based upon the calculated borrowing base less approximately $16 million of
outstanding letters of credit, was approximately $144 million, as the Multi-Currency Facility was undrawn.
(See ‘‘Recent Developments’’ regarding recent amendments to the ﬁnancial covenants under the 2004
Credit Agreement).

2004 Consolidated MacAndrews & Forbes Line of Credit

In July 2004, Products Corporation and MacAndrews & Forbes Inc. entered into a line of credit, with
an initial commitment of $152.0 million, which reduced to $87.0 million in July 2005 (as amended, the
‘‘2004 Consolidated MacAndrews & Forbes Line of Credit’’). (See ‘‘Recent Developments’’ regarding an
extension of the term of such line of credit). As of February 1, 2006, the 2004 Consolidated MacAndrews
& Forbes Line of Credit was undrawn.

Facility to remain greater than $30.0 million, (iii) additional revolving loans are not available under the
Multi-Currency Facility, (iv) such borrowing is reasonably necessary to prevent or to cure a default or
event of default under the 2004 Credit Agreement or (v) Products Corporation requests such loan to assist
it in funding investments in the Company’s brand initiatives.

Loans under the 2004 Consolidated MacAndrews & Forbes Line of Credit bear interest (which is not
payable in cash but is capitalized quarterly in arrears) at a rate per annum equal to the lesser of (a) 12.0%
and (b) 0.25% less than the rate payable from time to time on Eurodollar loans under the Term Loan
Facility under the 2004 Credit Agreement, which effective interest rate was 9.35% as of Decem-
ber 31, 2005, provided that at any time that the Eurodollar Base Rate under the 2004 Credit Agreement
is equal to or greater than 3.0%, the applicable rate on loans under the 2004 Consolidated MacAndrews
& Forbes Line of Credit will be equal to the lesser of (x) 12.0% and (y) 5.25% over the Eurodollar Base
Rate then in effect.

2005 Reﬁnancing Transactions

In March 2005, Products Corporation issued $310.0 million aggregate principal amount of its Original
91⁄2% Senior Notes. This issuance and the related transactions extended the maturities of Products
Corporation’s debt that would have otherwise been due in 2006.

The proceeds from the Original 91⁄2% Senior Notes were used to prepay $100.0 million of
indebtedness outstanding under the Term Loan Facility of Products Corporation’s 2004 Credit Agree-
ment, together with accrued interest and the associated $5.0 million prepayment fee, and to pay
$7.0 million in certain fees and expenses associated with the issuance of the Original 91⁄2% Senior Notes.
The remaining $197.9 million in proceeds was used to redeem all of the $116.2 million aggregate principal
amount outstanding of Products Corporation’s 81⁄8% Senior Notes, plus accrued interest, and all of the
$75.5 million aggregate principal amount outstanding of Products Corporation’s 9% Senior Notes, plus
accrued interest and applicable premium. The aggregate redemption amounts for the 81⁄8% Senior Notes
and 9% Senior Notes were $118.1 million and $79.8 million, respectively, which constituted the principal
amount and interest payable on the 81⁄8% Senior Notes and the 9% Senior Notes up to, but not including,
the redemption date, and, with respect to the 9% Senior Notes, the applicable premium. In June 2005, all
of the Original 91⁄2% Senior Notes which were issued by Products Corporation in March 2005 were
exchanged for the March 2005 91⁄2% Senior Notes, which have substantially identical terms to the Original
91⁄2% Senior Notes, except that the March 2005 91⁄2% Senior Notes are registered with the SEC under the
Securities Act, and the transfer restrictions and registration rights applicable to the Original 91⁄2% Senior
Notes do not apply to the March 2005 91⁄2% Senior Notes.

In August 2005, Products Corporation issued $80.0 million aggregate principal amount of the
Additional 91⁄2% Senior Notes, which priced at 951⁄4% of par. Products Corporation issued the Additional
91⁄2% Senior Notes as additional notes pursuant to the same indenture, dated as of March 16, 2005,
governing the March 2005 91⁄2% Senior Notes (the ‘‘91⁄2% Senior Notes Indenture’’). The Additional 91⁄2%
Senior Notes constitute a further issuance of, are the same series as, and will vote on any matters
submitted to note holders with, the March 2005 91⁄2% Senior Notes. In December 2005, all of the
Additional 91⁄2% Senior Notes issued by Products Corporation were exchanged for new August 91⁄2%
Senior Notes, which have substantially identical terms to the Additional 91⁄2% Senior Notes, except that
the August 2005 91⁄2% Senior Notes are registered with the SEC under the Securities Act, and the transfer
restrictions and registration rights applicable to the Additional 91⁄2% Senior Notes do not apply to the
August 2005 91⁄2% Senior Notes.

Pursuant to the terms of the 91⁄2% Senior Notes Indenture, the 91⁄2% Senior Notes are senior
unsecured debt of Products Corporation with right to payment under the 91⁄2% Senior Notes equal in right
of payment with any present and future senior indebtedness of Products Corporation. The 91⁄2% Senior
Notes bear interest at an annual rate of 91⁄2%, which is payable on April 1 and October 1 of each year,
which commenced on October 1, 2005.

As mentioned in ‘‘Overview – Overview of Financing Activities’’, in August 2005, Revlon, Inc.
announced its plan to issue $185.0 million of equity, with the proceeds from approximately $110 million
of this issuance to be contributed to Products Corporation to reduce its debt and the balance of the

proceeds to be available to Products Corporation for general corporate purposes. Additionally, in
connection with Revlon, Inc.’s plan to issue $185.0 million of equity, MacAndrews & Forbes and Revlon,
Inc. amended the 2004 Investment Agreement to increase MacAndrews & Forbes’ commitment to
purchase such equity as is necessary to ensure that Revlon, Inc. issues $185.0 million in equity. (See
‘‘Recent Developments’’).

2004 Reﬁnancing Transactions

In February 2004, Revlon, Inc.’s Board of Directors approved agreements with Fidelity Management
& Research Company (‘‘Fidelity’’) and MacAndrews & Forbes intended to dramatically strengthen the
Company’s balance sheet, as well as an Investment Agreement (the ‘‘2004 Investment Agreement’’) with
MacAndrews & Forbes covering a series of transactions designed to reduce Products Corporation’s levels
of indebtedness.

In March 2004, Revlon, Inc. exchanged approximately $804 million of Products Corporation’s debt,
$54.6 million of Revlon, Inc. preferred stock and $9.9 million of accrued interest for 299,969,493 shares
of Class A Common Stock (the ‘‘Revlon Exchange Transactions’’). As a result of the Revlon Exchange
Transactions, Revlon, Inc. reduced Products Corporation’s debt by approximately $804 million on
March 25, 2004. In addition to the Revlon Exchange Transactions, pursuant to the 2004 Investment
Agreement, Revlon, Inc. is committed to conduct further rights and equity offerings (such equity
offerings, together with the Revlon Exchange Transactions, are referred to as the ‘‘Debt Reduction
Transactions’’). Under the 2004 Credit Agreement, MacAndrews & Forbes agreed to take, or cause to be
taken, all commercially reasonable actions to facilitate the Debt Reduction Transactions. (See ‘‘Recent
Developments’’ and ‘‘— Overview — Overview of Financing Activities’’ for further discussion of such
proposed equity issuances).

In another contemporaneous transaction to the Revlon Exchange Transactions, Revlon, Inc. and
Fidelity entered into a stockholders agreement (the ‘‘Stockholders Agreement’’) pursuant to which,
among other things, (i) Revlon, Inc. agreed to continue to maintain a majority of independent directors
(as deﬁned by NYSE listing standards) on its Board of Directors, as it currently does (as of
February 1, 2006, eight of Revlon, Inc.’s twelve directors are independent); (ii) Revlon, Inc. would
establish and maintain a Nominating and Corporate Governance Committee of the Board of Directors,
which it formed in March 2004; and (iii) Revlon, Inc. agreed to certain restrictions with respect to Revlon,
Inc.’s conducting any business or entering into any transactions or series of related transactions with any
of its afﬁliates, any holders of 10% or more of the outstanding voting stock or any afﬁliates of such holders
(in each case, other than its subsidiaries). The Stockholders Agreement will terminate at such time as
Fidelity ceases to be the beneﬁcial holder of at least 5% of Revlon, Inc.’s outstanding voting stock.

Sources and Uses

The Company’s principal sources of funds are expected to be operating revenues, cash on hand, net
cash proceeds from the planned $75 million equity issuance described in ‘‘Recent Developments’’, and
funds available for borrowing under the 2004 Credit Agreement, the 2004 Consolidated MacAndrews &
Forbes Line of Credit and other permitted lines of credit. (See ‘‘Recent Developments’’ regarding the
extension of the term of the 2004 Consolidated MacAndrews & Forbes Line of Credit ). The 2004 Credit
Agreement, the 2004 Consolidated MacAndrews & Forbes Line of Credit and the indentures governing
the 91⁄2% Senior Notes and the 85⁄8% Senior Subordinated Notes contain certain provisions that by their
terms limit Products Corporation and its subsidiaries’ ability to, among other things, incur additional debt.

The Company’s principal uses of funds are expected to be the payment of operating expenses,
including expenses in connection with the continued implementation of, and reﬁnement to, the
Company’s plan (including the Company’s brand initiatives referred to in ‘‘— Overview — Overview
of Brand Initiatives’’), purchases of permanent wall displays, capital expenditure requirements, payments
in connection with the Company’s restructuring programs referred to herein and under ‘‘Recent
Developments’’, debt service payments and costs and regularly scheduled pension and post-retirement
beneﬁt plan contributions. Cash contributions to the Company’s pension and post-retirement beneﬁt
plans were approximately $27 million in 2005 and the Company expects them to be approximately

$33 million in 2006. In 2005, the Company’s purchases of wall displays were approximately $70 million and
capital expenditures were approximately $26 million.

The Company continues to make certain investments in connection with its brand initiatives, most
notably in the area of permanent displays and inventory. In terms of the cash ﬂow impact of these brand
initiatives, the Company expects that its investment in permanent displays, including displays for its
existing businesses and these brand initiatives, will be in the range of $85 million to $95 million for 2006,
returning to more normalized levels thereafter. The Company’s working capital increased signiﬁcantly
during the second half of 2005, due principally to the brand initiatives, and is expected to return to more
normalized levels in relation to sales during the second half of 2006. The Company estimates that capital
expenditures for 2006 will be approximately $35 million.

The Company has undertaken a number of programs to efﬁciently manage its cash and working
capital
including, among other things, programs to carefully manage inventory levels, centralized
purchasing to secure discounts and efﬁciencies in procurement, and providing additional discounts to U.S.
customers for more timely payment of receivables and careful management of accounts payable.

In 2002, the Company estimated that charges related to the implementation of the Stabilization and
Growth Phase of its plan would not exceed $160 million. The Company recorded charges of approxi-
mately $104 million in 2002, $31 million in 2003 and nil after 2003 related to the implementation of the
Stabilization and Growth Phase of its plan. Cash payments related to the foregoing charges were
approximately nil, $20 million and $80 million during 2005, 2004 and 2003, respectively.

Continuing to implement and reﬁne the Company’s plan could include taking advantage of additional
opportunities to reposition, repackage or reformulate one or more brands or product lines, launching
additional new brands or products and/or further reﬁning the Company’s approach to retail merchandis-
ing. Any of these actions, whose intended purpose would be to create value through proﬁtable growth,
could result in the Company making investments or recognizing charges related to executing against such
opportunities.

The Company expects that operating revenues, cash on hand, net cash proceeds from the planned
$75 million equity issuance described in ‘‘Recent Developments’’ and funds available for borrowing under
the 2004 Credit Agreement, the 2004 Consolidated MacAndrews & Forbes Line of Credit and other
permitted lines of credit will be sufﬁcient to enable the Company to cover its operating expenses for 2006,
including cash requirements in connection with the Company’s operations, the continued implementation
of, and reﬁnement to, the Company’s plan (including the Company’s brand initiatives referred to in
‘‘— Overview — Overview of Brand Initiatives’’), cash requirements in connection with the Company’s
restructuring programs referred to above, the Company’s debt service requirements and regularly
scheduled pension and post-retirement plan contributions. However, there can be no assurance that such
funds will be sufﬁcient to meet the Company’s cash requirements on a consolidated basis. If the
Company’s anticipated level of revenue growth is not achieved because, for example, of decreased
consumer spending in response to weak economic conditions or weakness in the mass-market cosmetics
category, adverse changes in currency, increased competition from the Company’s competitors, changes in
consumer purchasing habits, including with respect to shopping channels, retailer inventory management
or the Company’s advertising and marketing plans or brand initiatives are not as successful as anticipated,
or if the Company’s expenses associated with the continued implementation of, and reﬁnement to, the
Company’s plan exceed the anticipated level of expenses, the Company’s current sources of funds may be
insufﬁcient to meet the Company’s cash requirements.

Although the U.S. mass-market for color cosmetics advanced 3.2% for the year ended Decem-
ber 31, 2005, as compared with 2004, the U.S. mass-market color cosmetics category declined by
approximately 0.6% in 2004 from 2003 and declined by approximately 1.1% in 2003 from 2002. In the
event of a decrease in demand for the Company’s products, reduced sales, lack of increases in demand and
sales, changes in consumer purchasing habits, including with respect to shopping channels, retailer
inventory management and/or increased returns or expenses associated with the continued implementa-
tion of, and reﬁnement to, the Company’s plan exceeding its expectations, any such development, if

signiﬁcant, could reduce Products Corporation’s revenues and could adversely affect Products Corpora-
tion’s ability to comply with certain ﬁnancial covenants under the 2004 Credit Agreement and in such
event the Company could be required to take measures, including reducing discretionary spending.

(See Item 1A, ‘‘Risk Factors — The Company’s ability to service its debt and meet its cash
requirements depends on many factors, including achieving anticipated levels of revenue growth and
expenses. If such levels prove to be other than as anticipated, the Company may be unable to meet its cash
requirements or Products Corporation may be unable to meet the requirements of the ﬁnancial covenants
under the 2004 Credit Agreement, which could have a material adverse effect on the Company’s
business’’; ‘‘— The Company may be unable to increase its sales through the Company’s primary
distribution channels’’; and ‘‘— Restrictions and covenants in Products Corporation’s debt agreements
limit its ability to take certain actions and impose consequences in the event of failure to comply’’).

As noted in ‘‘— 2005 Reﬁnancing Transactions’’, in April 2005, using the proceeds from the issuance
of the Original 91⁄2% Senior Notes in March 2005, Products Corporation prepaid $100.0 million of
principal amount outstanding under the Term Loan Facility of the 2004 Credit Agreement and redeemed
all of Products Corporation’s 81⁄8% Senior Notes and 9% Senior Notes in April 2005. Products Corporation
likewise plans to reﬁnance its 85⁄8% Senior Subordinated Notes, with an aggregate principal amount
outstanding of $327.0 million, prior to their maturity in 2008. Under the 2004 Credit Agreement, Products
Corporation must reﬁnance its 85⁄8% Senior Subordinated Notes by October 30, 2007 (such that not more
than $25.0 million aggregate principal amount of such notes remains outstanding). In addition, it would
be an event of default under the 2004 Credit Agreement if Revlon, Inc. failed to issue approximately
$110.0 million of equity and transfer the proceeds of such equity issuance to Products Corporation by
March 31, 2006 to promptly reduce its outstanding indebtedness. (See ‘‘Recent Developments’’ and ‘‘—
Overview — Overview of Financing Activities’’ regarding the Company’s planned equity issuances). As
of February 1, 2006, the Company had $700.0 million of outstanding indebtedness under the Term Loan
Facility of the 2004 Credit Agreement and availability of approximately $144 million under the
Multi-Currency Facility, based upon the calculated borrowing base less approximately $16 million of
outstanding letters of credit, while the 2004 Consolidated MacAndrews & Forbes Line of Credit, with
availability of $87 million, was undrawn. In addition, in August 2005, Products Corporation issued
$80.0 million aggregate principal amount of the Additional 91⁄2% Senior Notes. (See ‘‘2005 Reﬁnancing
Transactions’’).

Revlon, Inc., as a holding company, will be dependent on the earnings and cash ﬂow of, and dividends
and distributions from, Products Corporation to pay its expenses and to pay any cash dividend or
distribution on Revlon, Inc.’s Class A Common Stock that may be authorized by the Board of Directors
of Revlon, Inc. The terms of the 2004 Credit Agreement, the 2004 Consolidated MacAndrews & Forbes
Line of Credit and the indentures governing the 91⁄2% Senior Notes and the 85⁄8% Senior Subordinated
Notes generally restrict Products Corporation from paying dividends or making distributions, except that
Products Corporation is permitted to pay dividends and make distributions to Revlon, Inc. to enable
Revlon, Inc., among other things, to pay expenses incidental to being a public holding company, including,
among other things, professional fees such as legal and accounting fees, regulatory fees such as SEC ﬁling
fees and other miscellaneous expenses related to being a public holding company and, subject to certain
limitations, to pay dividends or make distributions in certain circumstances to ﬁnance the purchase by
Revlon, Inc. of its Class A Common Stock in connection with the delivery of such Class A Common Stock
to grantees under the Amended and Restated Revlon, Inc. Stock Plan (the ‘‘Stock Plan’’).

As a result of the closing of the Revlon Exchange Transactions, as of the end of March 25, 2004,
Revlon, Inc., Products Corporation and their U.S. subsidiaries were no longer included in the
MacAndrews & Forbes Holdings consolidated group (the ‘‘MacAndrews & Forbes Group’’) for federal
income tax purposes. The MacAndrews & Forbes Tax Sharing Agreement (as hereinafter deﬁned) will
remain in effect solely for taxable periods beginning on or after January 1, 1992, through and including
March 25, 2004. In these taxable periods, Revlon, Inc. and Products Corporation were included in the
MacAndrews & Forbes Group, and Revlon, Inc.’s and Products Corporation’s federal taxable income and
loss were included in such group’s consolidated tax return ﬁled by MacAndrews & Forbes Holdings.
Revlon, Inc. and Products Corporation were also included in certain state and local tax returns of
MacAndrews & Forbes Holdings or its subsidiaries. In June 1992, Revlon Holdings (as hereinafter

deﬁned), Revlon, Inc., Products Corporation and certain of its subsidiaries, and MacAndrews & Forbes
Holdings entered into a tax sharing agreement (as subsequently amended and restated, the ‘‘MacAndrews
& Forbes Tax Sharing Agreement’’), pursuant to which MacAndrews & Forbes Holdings agreed to
indemnify Revlon, Inc. and Products Corporation against federal, state or local income tax liabilities of
the MacAndrews & Forbes Group (other than in respect of Revlon, Inc. and Products Corporation) for
taxable periods beginning on or after January 1, 1992 during which Revlon, Inc. and Products Corporation
or a subsidiary of Products Corporation was a member of such group. Pursuant to the MacAndrews &
Forbes Tax Sharing Agreement, for all such taxable periods, Products Corporation was required to pay
to Revlon, Inc., which in turn was required to pay to Revlon Holdings, amounts equal to the taxes that
Products Corporation would otherwise have had to pay if it were to ﬁle separate federal, state or local
income tax returns (including any amounts determined to be due as a result of a redetermination arising
from an audit or otherwise of the consolidated or combined tax liability relating to any such period which
was attributable to Products Corporation), except that Products Corporation was not entitled to carry
back any losses to taxable periods ending prior to January 1, 1992. No payments were required by
Products Corporation or Revlon, Inc. if and to the extent Products Corporation was prohibited under the
terms of its 2004 Credit Agreement from making tax sharing payments to Revlon, Inc. The 2004 Credit
Agreement prohibits Products Corporation from making such tax sharing payments under the MacAn-
drews & Forbes Tax Sharing Agreement other than in respect of state, local and federal taxes. The
MacAndrews & Forbes Tax Sharing Agreement was amended, effective as of January 1, 2001, to eliminate
a contingent payment to Revlon, Inc. under certain circumstances in return for a $10 million note by
MacAndrews & Forbes Holdings, with interest at 12% and with interest and principal payable in
December 2005, which was paid in full. As a result of tax net operating losses, there were no federal tax
payments or payments in lieu of taxes by Revlon, Inc. or Products Corporation pursuant to the
MacAndrews & Forbes Tax Sharing Agreement in respect of 2004.

Following the closing of the Revlon Exchange Transactions, Revlon, Inc. became the parent of a new
consolidated group for federal income tax purposes and Products Corporation’s federal taxable income
and loss will be included in such group’s consolidated tax returns. Accordingly, Revlon, Inc. and Products
Corporation entered into a tax sharing agreement (the ‘‘Revlon Tax Sharing Agreement’’) pursuant to
which Products Corporation will be required to pay to Revlon, Inc. amounts equal to the taxes that
Products Corporation would otherwise have had to pay if Products Corporation were to ﬁle separate
federal, state or local income tax returns, limited to the amount, and payable only at such times, as
Revlon, Inc. will be required to make payments to the applicable taxing authorities. The 2004 Credit
Agreement does not prohibit payments from Products Corporation to Revlon, Inc. to the extent required
under the Revlon Tax Sharing Agreement. As a result of tax net operating losses, there were no federal
tax payments or payments in lieu of taxes from Products Corporation to Revlon, Inc. pursuant to the
Revlon Tax Sharing Agreement in respect of 2004. The Company expects that there will be federal
alternative minimum tax payments of $0.1 million from Products Corporation to Revlon, Inc. pursuant to
the Revlon Tax Sharing Agreement in respect of 2005.

As a result of dealing with suppliers and vendors in a number of foreign countries, Products
Corporation enters into foreign currency forward exchange contracts and option contracts from time to
time to hedge certain cash ﬂows denominated in foreign currencies. There were foreign currency forward
exchange contracts with a notional amount of $31.9 million outstanding at December 31, 2005. The fair
value of foreign currency forward exchange contracts outstanding at December 31, 2005 was $(0.2)
million.

Disclosures about Contractual Obligations and Commercial Commitments

The following table aggregates all contractual commitments and commercial obligations that affect

the Company’s ﬁnancial condition and liquidity position as of December 31, 2005:

Contractual Obligations

Payments Due by Period
(dollars in millions)

Total

Less than
1 year

1-3 years

3-5 years

Long-term Debt, including Current Portion . . . . . . . . . . . .

$1,417.0

Interest on Long-term Debt (a)

. . . . . . . . . . . . . . . . . . . .

Capital Lease Obligations

. . . . . . . . . . . . . . . . . . . . . . . .

Operating Leases

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Purchase Obligations (b) . . . . . . . . . . . . . . . . . . . . . . . . .

Other Long-term Obligations (c)

. . . . . . . . . . . . . . . . . . .

571.6

5.2

131.2

46.1

32.7

$ —

136.0

2.2

15.7

46.1

16.8

$327.0

246.1

2.7

31.9

—

15.4

$700.0

180.2

0.3

29.4

—

0.5

After 5
years

$390.0

9.3

—

54.2

—

Total Contractual Cash Obligations . . . . . . . . . . . . . . . . . .

$2,203.8

$216.8

$623.1

$910.4

$453.5

(a) Consists of interest primarily on the 91⁄2% Senior Notes and the 85⁄8% Senior Subordinated Notes and the $700 million Term
Loan Facility under the 2004 Credit Agreement through the respective maturity dates based upon assumptions regarding the
amount of debt outstanding under the 2004 Credit Agreement and assumed interest rates.

(b) Consists of purchase commitments for ﬁnished goods, raw materials, components and services pursuant to enforceable and
legally binding obligations which include all signiﬁcant terms, including ﬁxed or minimum quantities to be purchased; ﬁxed,
minimum or variable price provisions; and the approximate timing of the transactions.

(c) Consists primarily of obligations related to advertising, insurance, employment contracts and other personnel service contracts.
Such amounts exclude severance and other contractual commitments related to restructuring, which are discussed under
‘‘Restructuring Costs’’.

Off-Balance Sheet Transactions

The Company does not maintain any off-balance sheet transactions, arrangements, obligations or
other relationships with unconsolidated entities or others that are reasonably likely to have a material
current or future effect on the Company’s ﬁnancial condition, changes in ﬁnancial condition, revenues or
expenses, results of operations, liquidity, capital expenditures or capital resources.

Recent Accounting Pronouncements

In May 2005, the FASB issued SFAS No. 154, ‘‘Accounting Changes and Error Corrections.’’ SFAS
No. 154 requires retroactive application of a voluntary change in accounting principle to prior period
ﬁnancial statements unless it is impracticable. SFAS No. 154 also requires that a change in method of
depreciation, amortization or depletion for long-lived, non-ﬁnancial assets be accounted for as a change
in accounting estimate that is affected by a change in accounting principle. SFAS No. 154 replaces APB
Opinion No. 20, ‘‘Accounting Changes’’ and SFAS No. 3, ‘‘Reporting Accounting Changes in Interim
Financial Statements’’. SFAS No. 154 is effective for ﬁscal years beginning after December 15, 2005. The
Company will adopt the provisions of SFAS No. 154 as of January 1, 2006 and does not expect that its
adoption will have a material impact on its results of operations or ﬁnancial condition.

not vested, as of January 1, 2006 would be based on the grant date attributes originally used to value those
awards for pro forma purposes under SFAS No. 123. The Company expects the adoption of SFAS No.
123(R) will result in approximately $10 million in additional expenses for ﬁscal year 2006. This estimate
is based on the number of unvested options outstanding as of January 1, 2006 and the estimated number
of options to be granted in 2006. This estimate could change based on a number of factors, including
differences in the estimate of the number of options granted before 2006 which are forfeited during 2006
and the number of options actually granted in 2006 and the fair value of these options at their grant date.

In November 2004, the FASB issued SFAS No. 151, ‘‘Inventory Costs — An Amendment of ARB
No. 43, Chapter 4.’’ SFAS No. 151 amends the guidance in ARB No. 43, Chapter 4, ‘‘Inventory Pricing,’’
to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs and wasted
materials (spoilage). Among other provisions, the new rule requires that the aforementioned items be
recognized as current-period charges. Additionally, SFAS No. 151 requires that the allocation of ﬁxed
production overheads to the costs of conversion be based on the normal capacity of the production
facilities. SFAS No. 151 is effective for ﬁscal years beginning after June 15, 2005 and is required to be
adopted by the Company beginning on January 1, 2006. During the third quarter of 2005, the Company
early adopted the provisions of SFAS No. 151, which adoption did not have a material impact on the
Company’s consolidated results of operations and ﬁnancial position.

Inﬂation

In general, the Company’s costs are affected by inﬂation and the effects of inﬂation may be
experienced by the Company in future periods. Management believes, however, that such effects have not
been material to the Company during the past three years in the U.S. and in foreign non-hyperinﬂationary
countries. The Company operates in certain countries around the world, such as Argentina, Brazil,
Venezuela and Mexico, which have in the past experienced hyperinﬂation. In hyperinﬂationary foreign
countries, the Company attempts to mitigate the effects of inﬂation by increasing prices in line with
inﬂation, where possible, and efﬁciently managing its working capital levels.

Subsequent Events

See ‘‘Part I, Item 1 — Recent Developments.’’

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Sensitivity

The Company has exposure to changing interest rates primarily under the Term Loan Facility and
Multi-Currency Facility of the 2004 Credit Agreement. The Company manages interest rate risk through
the use of a combination of ﬁxed and ﬂoating rate debt. The Company from time to time makes use of
derivative ﬁnancial instruments to adjust its ﬁxed and ﬂoating rate ratio. There were no such derivative
ﬁnancial instruments outstanding at December 31, 2005. The table below provides information about the
Company’s indebtedness that is sensitive to changes in interest rates. The table presents cash ﬂows with
respect to principal on indebtedness and related weighted average interest rates by expected maturity
dates. Weighted average variable rates are based on implied forward rates in the yield curve at
December 31, 2005. The information is presented in U.S. dollar equivalents, which is the Company’s
reporting currency.

Exchange Rate Sensitivity

The Company manufactures and sells its products in a number of countries throughout the world and,
as a result, is exposed to movements in foreign currency exchange rates. In addition, a portion of the
Company’s borrowings are denominated in foreign currencies, which are also subject to market risk
associated with exchange rate movement. The Company from time to time hedges major foreign currency
cash exposures generally through foreign exchange forward and option contracts. Products Corporation
enters into these contracts with major ﬁnancial institutions to minimize counterparty risk. These contracts

generally have a duration of less than twelve months and are primarily against the U.S. dollar. In addition,
Products Corporation enters into foreign currency swaps to hedge intercompany ﬁnancing transactions.
The Company does not hold or issue ﬁnancial instruments for trading purposes.

Expected maturity date for the year ended December 31,
(dollars in millions, except for rate information)

Debt

Short-term variable rate

(various currencies) . . . .
Average interest rate (a)

Long-term ﬁxed rate —

third party ($US) . . . . . .
Average interest rate . . .
Long-term variable rate —
third party ($US) . . . . . .
Average interest rate (a)

2006

2007

2008

2009

2010

Thereafter

Total

Fair Value
December
31, 2005

$— $ — $— $ — $ — $

$ 9.0
14.2% —

— —

— — 327.0* —
8.6% —
— —

—

—
—

—

390.0

9.5%

— —
— —

— — 700.0
— —

11.3%

—
—

9.0
—

717.0
—

700.0
—

673.4
—

700.0
—

Total debt

. . . . . . . . . . . . . .

$ 9.0

$— $327.0

$— $700.0

$390.0

$1,426.0

$1,382.4

Forward Contracts

Buy Euros/Sell USD . . . . . . . . . . . . . . . .
Buy Mexican Pesos/Sell USD . . . . . . . .
Sell British Pounds/Buy USD . . . . . . . .
Sell Australian Dollars/Buy USD . . . . .
Sell Canadian Dollars/Buy USD . . . . . .
Sell South African Rand/Buy USD . . .
Sell Japanese Yen/Buy USD . . . . . . . . .
Sell Hong Kong Dollars/Buy USD . . . .
Buy Australian Dollars/Sell New

Zealand Dollars . . . . . . . . . . . . . . . . . .
Buy New Zealand Dollars/Sell USD . .

Total forward contracts . . . . . . . . . . . . . .

Average
Contractual
Rate
$/FC

Original
US Dollar
Notional
Amount

Contract
Value
December 31,
2005

Fair Value
December 31,
2005

1.2484
0.0927
1.7835
0.7470
0.8374
0.1484
0.0085
0.1290

1.0959
0.7050

$ 0.4
0.3
4.9
7.2
9.1
3.8
1.0
0.3

4.0
0.9

$ 0.4
0.3
5.0
7.4
8.8
3.6
1.0
0.3

4.0
0.9

$ —
—
0.1
0.2
(0.3)
(0.2)
—
—

—
—

$31.9

$31.7

$(0.2)

(a) Weighted average variable rates are based upon implied forward rates from the yield curves at December 31, 2005.

While the 85⁄8% Senior Subordinated Notes are due in March 2008, under the 2004 Credit Agreement, Products Corporation
must reﬁnance these notes by October 30, 2007, such that not more than $25.0 million of such notes remain outstanding.

Item 8. Financial Statements and Supplementary Data

Reference is made to the Index on page F-1 of the Company’s Consolidated Financial Statements and

the Notes thereto contained herein.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures

None.

Item 9A. Controls and Procedures

(a) Disclosure Controls and Procedures. The Company maintains disclosure controls and proce-
dures that are designed to ensure that information required to be disclosed in the Company’s reports
under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported

within the time periods speciﬁed in the SEC’s rules and forms, and that such information is accumulated
and communicated to management, including the Company’s Chief Executive Ofﬁcer and Chief Financial
Ofﬁcer, as appropriate, to allow timely decisions regarding required disclosure. The Company’s
management, with the participation of the Company’s Chief Executive Ofﬁcer and Chief Financial
Ofﬁcer, has evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end
of the ﬁscal year covered by this Annual Report on Form 10-K. The Company’s Chief Executive Ofﬁcer
and Chief Financial Ofﬁcer have concluded that, as of the end of the period covered by this Annual
Report on Form 10-K, the Company’s disclosure controls and procedures were effective.

(b) Management’s Annual Report on Internal Control over Financial Reporting. The Company’s
management is responsible for establishing and maintaining adequate internal control over ﬁnancial
reporting. The Company’s internal control system was designed to provide reasonable assurance
regarding the reliability of ﬁnancial reporting and the preparation and fair presentation of published
ﬁnancial statements in accordance with generally accepted accounting principles and includes those
policies and procedures that:

• pertain to the maintenance of records that in reasonable detail accurately and fairly reﬂect the

transactions and dispositions of its assets;

• provide reasonable assurance that transactions are recorded as necessary to permit preparation
of its ﬁnancial statements in accordance with generally accepted accounting principles, and that
its receipts and expenditures are being made only in accordance with authorizations of its
management and directors; and

• provide reasonable assurance regarding prevention or timely detection of unauthorized acquisi-
tion, use or disposition of the Company’s assets that could have a material effect on its ﬁnancial
statements.

Because of its inherent limitations, internal control over ﬁnancial reporting may not prevent or detect
misstatements. Management’s projections of any evaluation of the effectiveness of internal control over
ﬁnancial reporting as to future periods are subject to the risks that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.

The Company’s management assessed the effectiveness of the Company’s internal control over
ﬁnancial reporting as of December 31, 2005 and in making this assessment used the criteria set forth by
the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated
Framework in accordance with the standards of the Public Company Accounting Oversight Board
(United States).

Revlon, Inc.’s management determined that as of December 31, 2005, the Company’s internal control

over ﬁnancial reporting was effective.

KPMG LLP, the Company’s independent registered public accounting ﬁrm that audited the
Company’s ﬁnancial statements included in this Annual Report on Form 10-K for the period ended
December 31, 2005, has issued an audit report on management’s assessment of the Company’s internal
control over ﬁnancial reporting. This report appears on page F-3.

(c) Changes in Internal Control Over Financial Reporting. There have not been any changes in
the Company’s internal control over ﬁnancial reporting during the ﬁscal quarter ended December 31, 2005
that have materially affected, or are reasonably likely to materially affect, the Company’s internal control
over ﬁnancial reporting.

Item 9B. Other Information

As previously announced by the Company on January 18, 2006, Thomas E. McGuire, the Company’s
Executive Vice President and Chief Financial Ofﬁcer, and David L. Kennedy, the Company’s Executive
Vice President and President of the Company’s international operations, will rotate their positions and

responsibilities, effective in early March 2006, after the Company ﬁles this Annual Report on Form 10-K
for the year ended December 31, 2005. In connection with these changes, effective March 2, 2006,
Products Corporation entered into amendments to the employment agreements of each of Messrs.
McGuire and Kennedy to reﬂect their new responsibilities and to provide for a term that would expire
effective two years after written notice of non-extension of the agreement. A copy of such employment
agreement amendments are attached to this Form 10-K as Exhibits 10.7 and 10.9 and the terms of such
amendments are incorporated herein by reference.

Forward Looking Statements

This Annual Report on Form 10-K for the year ended December 31, 2005, as well as other public
documents and statements of the Company, contain forward-looking statements that involve risks and
uncertainties, which are based on the beliefs, expectations, estimates, projections, forecasts, plans,
anticipations, targets, outlooks, initiatives, destinations, visions, objectives, strategies, opportunities,
drivers and intents of the Company’s management. The Company’s actual results may differ materially
from those discussed in such forward-looking statements. Such statements include, without limitation, the
Company’s expectations and estimates (whether qualitative or quantitative) as to:

(i)

(ii)

(iii)

(iv)

(v)

(vi)

(vii)

(viii)

(ix)

(x)

(xi)

the Company’s future ﬁnancial performance, including the Company’s belief that it has
strengthened its organizational capabilities (and its expectation to continue to do so) and that
it has strengthened its relationships with its key retailers in the U.S.;

the effect on sales of weak economic conditions, political uncertainties, military actions,
terrorist activities, adverse currency ﬂuctuations, category weakness, competitive activities,
retailer inventory management and changes in consumer purchasing habits, including with
respect to shopping channels;

the Company’s belief that the continued implementation and reﬁnement to its plan could
include taking advantage of additional opportunities to reposition, repackage and/or refor-
mulate one or more of its brands or product lines and/or launching new brands or product
lines and/or further reﬁning its approach to retail merchandising, including, without limitation,
the Company’s plans to re-enter the U.S. prestige fragrance market in 2006, any of which,
whose intended purpose would be to create value through proﬁtable growth, could result in
the Company making investments and/or recognizing charges related to executing against
such opportunities;

the Company’s plans regarding the Accelerated Growth Phase of its plan, including the
Company’s plans to capitalize on the actions taken during the previous phases of its plan, and
the Company’s expectation that such actions would help it achieve the objective of balancing
top-line growth with an improved operating proﬁt margin (including a targeted operating
proﬁt margin of approximately 12% by the end of 2008);

the Company’s plans to further improve its new product development and introduction
process;

the Company’s plans to continue to increase the effectiveness of its display walls across
categories and brands;

the Company’s plans to drive efﬁciencies across its overall supply chain, including reducing
manufacturing costs by continuing to rationalize components and by sourcing strategically;

the Company’s plans to optimize the effectiveness of its advertising, marketing and promo-
tions;

the Company’s plans to continue training and development of its organization so that it may
continue to improve its capabilities to execute the Company’s strategies, while providing
enhanced job satisfaction for its employees;

the Company’s current expectation and beliefs regarding its two brand initiatives;

the Company’s belief that the Almay initiative will build on its healthy beauty heritage and
desire among consumers for simplicity and personalization;

(xii)

the Company’s belief that its Vital Radiance initiative, focused on the more mature cosmetics
consumer, will serve an afﬂuent and growing consumer demographic currently underserved in
the marketplace;

(xiii)

the Company’s expectation that the ﬁrst quarter of 2006 will beneﬁt from incremental initial
shipments associated with the launch of these two brand initiatives;

(xiv)

(xv)

(xvi)

the Company’s expectation that the cash ﬂow impact of the brand initiatives from its
investment in permanent displays, including displays for its existing businesses and the brand
initiatives, will be in the range of $85 million to $95 million during 2006, returning to more
normalized levels thereafter;

the Company’s expectation that due to the brand initiatives, working capital will return to
more normalized levels in relation to sales during the second half of 2006;

the Company’s plans to continue to strengthen its balance sheet and capital structure,
including Revlon, Inc.’s plans to conduct a $110 million rights offering and contribute the
proceeds from such equity issuance to Products Corporation by March 31, 2006 to promptly
reduce its debt by redeeming approximately $110 million of its 85⁄8% Senior Subordinated
Notes (as well as the possible accounting impact of such transaction on the Company’s basic
and diluted loss per common share), as well as its plans to reﬁnance the balance of Products
Corporation’s 85⁄8% Senior Subordinated Notes by October 30, 2007 prior to their maturity
and Revlon, Inc.’s plans to conduct an additional equity issuance of $75 million by
June 30, 2006;

(xvii) restructuring activities, restructuring costs, the timing of restructuring payments and annual
savings and other beneﬁts from such activities (including as described in ‘‘Recent Develop-
ments’’);

(xviii) operating revenues, cash on hand, net cash proceeds of the planned $75 million equity
issuance, and availability of borrowings under Products Corporation’s 2004 Credit Agree-
ment, the 2004 Consolidated MacAndrews & Forbes Line of Credit and other permitted lines
of credit being sufﬁcient to satisfy the Company’s operating expenses in 2006, including cash
requirements referred to in item (xx) below;

(xix)

(xx)

the availability of funds from Products Corporation’s 2004 Credit Agreement, the 2004
Consolidated MacAndrews & Forbes Line of Credit and other permitted lines of credit,
restructuring indebtedness, selling assets or operations, capital contributions and/or loans
from MacAndrews & Forbes, the Company’s other afﬁliates and/or third parties and/or the
sale of additional equity securities of Revlon, Inc. or additional debt securities of Products
Corporation and the net cash proceeds of the planned $75 million equity issuance described
in ‘‘Recent Developments’’;

the Company’s uses of funds, including amounts required for the payment of operating
expenses,
including expenses in connection with the continued implementation of, and
reﬁnement to, the Company’s plan (including in connection with its brand initiatives),
payments in connection with the Company’s purchases of permanent wall displays, capital
expenditure requirements, restructuring programs (including as described in ‘‘Recent Devel-
opments’’), debt service payments and costs and regularly scheduled pension and post-
retirement plan contributions, and its estimates of operating expenses, working capital
expenses, wall display costs, capital expenditures, cash contributions to the Company’s
pension plans and post-retirement beneﬁt plans, debt service payments (including payments
required under Products Corporation’s debt instruments) and charges in connection with the
Company’s growth plan;

(xxi) matters concerning the Company’s market-risk sensitive instruments;

(xxii) the effects of the Company’s adoption of certain accounting principles; and

(xxiii) the Company’s plan to efﬁciently manage its cash and working capital, including, among other
things, by carefully managing inventory levels, centralizing purchasing to secure discounts and
efﬁciencies in procurement, and providing additional discounts to U.S. customers for more
timely payment of receivables and carefully managing accounts payable.

Statements that are not historical facts, including statements about the Company’s beliefs and
expectations, are forward-looking statements. Forward-looking statements can be identiﬁed by, among
other things, the use of forward-looking language such as ‘‘estimates,’’ ‘‘objectives,’’ ‘‘visions,’’ ‘‘projects,’’
‘‘forecasts,’’ ‘‘plans,’’ ‘‘targets,’’ ‘‘strategies,’’ ‘‘opportunities,’’ ‘‘drivers,’’ ‘‘believes,’’ ‘‘intends,’’ ‘‘destina-
tions,’’ ‘‘outlooks,’’ ‘‘initiatives,’’ ‘‘expects,’’ ‘‘scheduled to,’’ ‘‘anticipates,’’ ‘‘seeks,’’ ‘‘may,’’ ‘‘will,’’ or
‘‘should’’ or the negative of those terms, or other variations of those terms or comparable language, or by
discussions of strategy, targets, models or intentions. Forward-looking statements speak only as of the
date they are made, and except for the Company’s ongoing obligations under the U.S. federal securities
laws, the Company undertakes no obligation to publicly update any forward-looking statements, whether
as a result of new information, future events or otherwise. Investors are advised, however, to consult any
additional disclosures the Company made in its Quarterly Reports on Form 10-Q and Current Reports
on Form 8-K, in each case ﬁled with the SEC in 2005 and 2006 (which, among other places, can be found
on the SEC’s website at http://www.sec.gov, as well as on the Company’s website at www.revloninc.com).
The information available from time to time on such websites shall not be deemed incorporated by
reference into this Annual Report on Form 10-K. Additionally, the business and ﬁnancial materials and
any other statement or disclosure on, or made available through, the Company’s websites shall not be
considered a ‘‘free writing prospectus’’ under the SEC’s Rule 405 of the Securities Act of 1933, as
amended, unless speciﬁcally identiﬁed as such. A number of important factors could cause actual results
to differ materially from those contained in any forward-looking statement. In addition to factors that may
be described in the Company’s ﬁlings with the SEC, including this ﬁling, the following factors, among
others, could cause the Company’s actual results to differ materially from those expressed in any
forward-looking statements made by the Company:

(i)

(ii)

(iii)

unanticipated circumstances or results affecting the Company’s ﬁnancial performance,
including decreased consumer spending in response to weak economic conditions or weakness
in the category, changes in consumer preferences, such as reduced consumer demand for the
Company’s color cosmetics and other current products, changes in consumer purchasing
habits, including with respect to shopping channels, lower than expected retail customer
acceptance or consumer acceptance of the Company’s brand initiatives, decreased sales of the
Company’s existing products as a result of the Company’s brand initiatives and changes in the
competitive environment, actions by the Company’s customers, such as retailer inventory
management, and actions by the Company’s competitors, including business combinations,
technological breakthroughs, new products offerings, promotional spending and marketing
and promotional successes, including increases in market share;

the effects of and changes in economic conditions (such as inﬂation, monetary conditions and
foreign currency ﬂuctuations, as well as in trade, monetary, ﬁscal and tax policies in
international markets); political conditions (such as military actions and terrorist activities); as
well as the effects of and changes in category weakness, in competitive activities, in retailer
inventory management and in consumer purchasing habits, including with respect to shopping
channels;

unanticipated costs or difﬁculties or delays in completing projects associated with the
continued implementation of, and reﬁnement to, the Company’s plan or lower than expected
revenues or inability to achieve proﬁtability over the long term as a result of such plan,
including lower than expected sales, or higher than expected costs, including as may arise from
any additional repositioning, repackaging and/or reformulating of one or more of the
Company’s brands or product lines and/or launching of new brands or product lines and/or
further reﬁning its approach to retail merchandising, including, without limitation, difﬁculties,
delays or increased costs in connection with the Company’s plans to re-enter the prestige
fragrance market in 2006;

(iv)

(v)

(vi)

(vii)

difﬁculties, delays or unanticipated costs in implementing the Company’s plans regarding the
Accelerated Growth Phase of its plan, including difﬁculties, delays or unanticipated costs in
taking actions to capitalize on the actions taken during the previous phases of its plan, which
could affect the Company’s ability to achieve its objective of balancing top-line growth with
an improved operating proﬁt margin;

difﬁculties, delays or unanticipated costs in connection with the Company’s plans to further
improve its new product development and introduction process, which could affect the
Company’s ability to effectively launch new and restaged products and/or reposition,
repackage and/or reformulate one or more of the Company’s brands or product lines and
generate revenues from such sources;

difﬁculties, delays or unanticipated costs in implementing the Company’s plans to continue to
increase the effectiveness of its display walls;

difﬁculties, delays or unanticipated costs in implementing the Company’s plans to drive
including reducing manufacturing costs by
efﬁciencies across its overall supply chain,
rationalizing components and by sourcing strategically;

(viii) difﬁculties, delays or unanticipated costs in implementing the Company’s plans to optimize the

effectiveness of its advertising, marketing and promotions;

(ix)

(x)

(xi)

(xii)

(xiii)

difﬁculties, delays or unanticipated costs in the Company continuing to train and develop its
organization so that it may continue to improve its capabilities to execute the Company’s
strategies, while providing enhanced job satisfaction for its employees;

difﬁculties, delays or unanticipated circumstances or costs associated with the Company’s
brand initiatives, including the Company’s inability to timely implement its brand initiatives,
higher than expected returns in connection with the brand initiatives, weaker than expected
retail customer acceptance and/or consumer demand for the products launched pursuant to
the brand initiatives, the possibility that the Company’s product pricing strategies for the
brand initiatives will not be accepted by the Company’s retail customers and/or consumers or
that the Company may experience decreased sales of its existing products as a result of the
products launched and sold under these initiatives and the possibility that the Company’s
current expectations and beliefs regarding the brand initiatives may turn out to be incorrect,
or as applicable, overestimates or underestimates;

the Almay initiative does not achieve its anticipated marketing effects and less than
anticipated consumer or retail customer acceptance thereof;

the Vital Radiance brand initiative targeted to the more mature consumer does not achieve its
anticipated marketing effects and less than anticipated consumer or retail customer accep-
tance thereof;

the Company’s inability to achieve the anticipated beneﬁts from these brand initiatives in the
ﬁrst quarter of 2006, such as due to less than expected shipments during the ﬁrst quarter of
2006 as a result of less than anticipated acceptance of these initiatives from the Company’s
retail customers and/or consumers or other difﬁculties, delays or unexpected costs related
thereto;

(xiv) higher than anticipated costs for permanent displays or unforeseen circumstances affecting the

timing or levels thereof;

(xv)

higher than anticipated working capital or unforeseen circumstances affecting the timing or
levels thereof;

(xvi) difﬁculties, delays or unanticipated costs in, or the Company’s inability to consummate,
transactions to strengthen its balance sheet and capital structure, including difﬁculties, delays
or increased costs associated with, or Revlon, Inc.’s inability to consummate, in whole or in
part, the $110 million rights offering by March 31, 2006 (or unanticipated changes in the
accounting treatment of such transaction on the Company’s basic and diluted loss per common

share), to use the proceeds from such rights offering to promptly reduce Products Corpora-
tion’s debt, including to redeem approximately $110 million of its 85⁄8% Senior Subordinated
Notes, or other difﬁculties, delays or unexpected costs related thereto, or difﬁculties, delays or
increased costs associated with, or the inability to consummate, in whole or in part, the
reﬁnancing of the balance of Products Corporation’s 85⁄8% Senior Subordinated Notes by
October 30, 2007 prior to their maturity, or difﬁculties, delays or increased costs associated
with conducting, or Revlon, Inc.’s inability to consummate, in whole or in part, the additional
planned $75 million equity issuance by June 30, 2006;

(xvii) difﬁculties, delays or unanticipated costs or less than expected savings and other beneﬁts
resulting from the Company’s restructuring activities (including as described in ‘‘Recent
Developments’’);

(xviii) lower than expected operating revenues, the inability to secure capital contributions or loans

from MacAndrews & Forbes, the Company’s other afﬁliates and/or third parties;

(xix)

the unavailability of funds under Products Corporation’s 2004 Credit Agreement, the 2004
Consolidated MacAndrews & Forbes Line of Credit or other permitted lines of credit,
restructuring indebtedness, selling assets or operations, the sale of additional equity or debt
securities or from Revlon, Inc.’s planned $75 million equity issuance described in ‘‘Recent
Developments’’;

(xx)

higher than expected operating expenses (including in connection with the brand initiatives),
sales returns, working capital expenses, wall display costs, capital expenditures, restructuring
costs, regularly scheduled cash pension plan contributions, post-retirement beneﬁt plan
contributions or debt service payments;

(xxi)

interest rate or foreign exchange rate changes affecting the Company and its market-risk
sensitive ﬁnancial instruments;

(xxii) unanticipated effects of the Company’s adoption of certain new accounting standards; and

(xxiii) difﬁculties, delays or the inability of the Company to efﬁciently manage its cash and working

capital.

Factors other than those listed above could also cause the Company’s results to differ materially from
expected results. This discussion is provided as permitted by the Private Securities Litigation Reform Act
of 1995.

Part III

(Dollars in Part III are actual dollars, not millions)

Item 10. Directors and Executive Ofﬁcers of the Registrant

The following table sets forth certain information concerning the Directors of Revlon, Inc. as of
December 31, 2005, except for Mses. Lee and Seifert, who became Directors of Revlon, Inc. effective
January 1, 2006. Each Director holds ofﬁce until his or her successor is duly elected and qualiﬁed or until
his or her resignation or removal, if earlier.

Name

Position

Ronald O. Perelman
Jack L. Stahl
Alan S. Bernikow
Paul J. Bohan
Donald G. Drapkin
Professor Meyer Feldberg
Howard Gittis
Edward J. Landau
Debra L. Lee
Linda Gosden Robinson
Kathi P. Seifert
Kenneth L. Wolfe

Chairman of the Board and Director
President, Chief Executive Ofﬁcer and Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director

The name, age (as of December 31, 2005), principal occupation for the last ﬁve years, selected
biographical information and period of service as a Director of Revlon, Inc. for each of the Directors are
set forth below:

Mr. Perelman (62) has been Chairman of the Board of Directors of Revlon, Inc. and of Products
Corporation since June 1998 and a Director of Revlon, Inc. and of Products Corporation since their
respective formations in 1992. Mr. Perelman has been Chairman of the Board of Managers, Manager and
Chief Executive Ofﬁcer of REV Holdings, which ﬁles reports pursuant to the Exchange Act, since
December 2002. He was Chief Executive Ofﬁcer of REV Holdings Inc. (the predecessor of REV
Holdings) from 1997 through December 2002 and Chairman of its Board of Directors from 1993 through
December 2002. Mr. Perelman has been Chairman of the Board and Chief Executive Ofﬁcer of
MacAndrews & Forbes Holdings and various of its afﬁliates since 1980. Mr. Perelman served as Chairman
of the Board of Directors of Panavision Inc. (‘‘Panavision’’) until September 2003 and thereafter began
service as Co-Chairman. Mr. Perelman is also a Director (or member of the Board of Managers, as
applicable) of the following companies which are required to ﬁle reports pursuant to the Exchange Act:
Allied Security Holdings LLC (‘‘Allied Security’’), M&F Worldwide Corp. (‘‘M&F Worldwide’’),
Panavision and Scientiﬁc Games Corporation (‘‘Scientiﬁc Games’’).

Mr. Stahl (52) has been President and Chief Executive Ofﬁcer of Revlon, Inc. and of Products
Corporation since February 2002 and a Director of Revlon, Inc. and of Products Corporation since
March 2002. Mr. Stahl served as President and Chief Operating Ofﬁcer of The Coca-Cola Company
(‘‘Coca-Cola’’) from February 2000 to March 2001. Prior to that, Mr. Stahl held various senior executive
positions at Coca-Cola, where he began his career in 1979. Mr. Stahl is also a Director of the Cosmetic,
Toiletry, and Fragrance Association, Vice Chairman of the Board of the United Negro College Fund and
is a member of the Board of Governors of the Boys & Girls Clubs of America.

Mr. Bernikow (65) has been a Director of Revlon, Inc. and of Products Corporation since
September 2003. From 1998 until his retirement in May 2003, Mr. Bernikow served as the Deputy Chief
Executive Ofﬁcer of Deloitte & Touche LLP (‘‘D&T’’). Prior to that, Mr. Bernikow held various senior
executive positions at D&T and various of its predecessor companies, which he joined in 1966.
Mr. Bernikow also serves as a Director and as a member of the Audit Committee of Casual Male Retail

Group, Inc. and as a Director and Chairman of the Audit Committee of Mack-Cali Realty Corporation,
each of which are required to ﬁle reports pursuant to the Exchange Act. Mr. Bernikow is also a director
or trustee and serves as Chairman of the audit committees of certain funds for which UBS Global Asset
Management (US) Inc., a wholly-owned subsidiary of UBS AG, or one of its afﬁliates (‘‘UBS’’) serves as
investment advisor, sub-advisor or manager.

Mr. Bohan (60) has been a Director of Revlon, Inc. since March 2004. Prior to his retirement in
February 2001, Mr. Bohan was a Managing Director of the high-yield bond sales group of Salomon Smith
Barney, a unit of Citigroup Inc., a global ﬁnancial services holding company, having joined Salomon Smith
Barney in 1980. Mr. Bohan is a director of Haynes International, Inc., which ﬁles reports pursuant to the
Exchange Act. Mr. Bohan also serves as a member of the Board of Directors of Arena Brands, Inc., which
is a privately-held company, and of the Board of Directors of The New York Police & Fire Widows’ &
Children’s Beneﬁt Fund. In addition, Mr. Bohan serves on the audit committee of The New York Police
& Fire Widows’ & Children’s Beneﬁt Fund.

Mr. Drapkin (57) has been a Director of Revlon, Inc. and of Products Corporation since their
respective formations in 1992. He has been Vice Chairman of the Board of MacAndrews & Forbes
Holdings and various of its afﬁliates since 1987. Mr. Drapkin was a partner in the law ﬁrm of Skadden,
Arps, Slate, Meagher & Flom LLP for more than ﬁve years prior to 1987. Mr. Drapkin is also a Director
(or member of the Board of Managers, as applicable) of the following companies which are required to
ﬁle reports pursuant to the Exchange Act: Allied Security, Anthracite Capital, Inc., Nephros Inc., Playboy
Enterprises, Inc. and SIGA Technologies, Inc.

Professor Feldberg (63) has been a Director of Revlon, Inc. since February 1997. Professor Feldberg
has been a Senior Advisor with Morgan Stanley since March 2005 and has been the Dean Emeritus and
Sanford Bernstein Professor of Leadership and Ethics at Columbia Business School, New York City, since
July 1, 2004. He was the Dean of Columbia Business School from July 1989 to June 2004. Professor
Feldberg is also a Director of the following companies which are required to ﬁle reports pursuant to the
Exchange Act: Federated Department Stores, Inc., PRIMEDIA Inc. and Sappi Limited. In addition,
Professor Feldberg is also a director or trustee of certain funds for which UBS serves as investment
advisor, sub-advisor or manager, and a director of certain funds for which UBS Financial Services Inc. or
one of its afﬁliates serves as investment advisor, administrator or manager. In addition to being a member
of the Company’s Audit Committee, Professor Feldberg is also an audit committee member of
PRIMEDIA Inc.

Mr. Gittis (71) has been a Director of Revlon, Inc. since its formation in 1992. Mr. Gittis was a
Director of, and served as the Vice Chairman of, Products Corporation from June 2002 through
March 2004. Mr. Gittis was Vice Chairman of the Board of Managers and Manager of REV Holdings,
which ﬁles reports pursuant to the Exchange Act, from December 2002 until March 2004. He was a
Director of REV Holdings Inc. (the predecessor of REV Holdings) from its formation in 1993 through
December 2002 and Vice Chairman of its Board of Directors from March 1997 through December 2002.
He has been Vice Chairman of the Board of MacAndrews & Forbes Holdings and various of its afﬁliates
since 1985. Mr. Gittis is Chairman of the Board, President and Chief Executive Ofﬁcer of M&F
Worldwide. Mr. Gittis is also a Director of the following companies which are required to ﬁle reports
pursuant to the Exchange Act: Jones Apparel Group, Inc., Panavision and Scientiﬁc Games.

Mr. Landau (75) has been a Director of Revlon, Inc. since June 1996 and of Products Corporation
since June 1992. From February 1998 until his retirement in February 2003, Mr. Landau was Of Counsel
at the law ﬁrm of Wolf, Block, Schorr and Solis-Cohen LLP, and was a Senior Partner of Lowenthal,
Landau, Fischer & Bring, P.C., a predecessor to such ﬁrm, for more than ﬁve years prior to February 1998.

Ms. Lee (51) has been a Director of Revlon, Inc. since January 2006. Ms. Lee is Chairman and Chief
Executive Ofﬁcer of BET Holdings, Inc. (‘‘BET’’), a global media and entertainment company that owns
and operates Black Entertainment Television. Ms. Lee’s career at BET began in 1986 as Vice President
and General Counsel. In 1992, she was named Executive Vice President of Legal Affairs and Publisher
of BET’s magazine division, while continuing to serve as BET’s General Counsel. In 1995, Ms. Lee
assumed responsibility for BET’s strategic business development and was named President and Chief
Operating Ofﬁcer in 1996. Prior to joining BET, Ms. Lee was an attorney with the Washington,

D.C.-based law ﬁrm of Steptoe & Johnson. Ms. Lee serves on the Board of Directors of the following
companies which are required to ﬁle reports under the Exchange Act: Eastman Kodak Company,
Marriott International, Inc. and WGL Holdings, Inc.

Ms. Robinson (52) has been a Director of Revlon, Inc. since June 1996. Ms. Robinson has been
Chairman of Robinson, Lerer & Montgomery, LLC, a New York City strategic communications
consulting ﬁrm (‘‘RLM’’), since May 1996. Ms. Robinson was Chief Executive Ofﬁcer of RLM from
May 1996 until January 2002. In March 2000, RLM was acquired by Young & Rubicam Inc. (‘‘Y&R’’), and
in October 2000, Y&R was acquired by the WPP Group plc (‘‘WPP’’). Ms. Robinson served as Vice
Chairman of Y&R from March 2000 until December 31, 2004. For more than ﬁve years prior to May 1996,
Ms. Robinson was Chairman of the Board and Chief Executive Ofﬁcer of Robinson Lerer Sawyer Miller
Group or its predecessors. Ms. Robinson also serves as a Director of BlackRock, Inc., which is required
to ﬁle reports pursuant to the Exchange Act.

Ms. Seifert (56) has been a Director of Revlon, Inc. since January 2006. Ms. Seifert has been
Chairman of Pinnacle Perspectives, LLC, a business consulting company, since July 2004. Ms. Seifert
served as Corporate Executive Vice President – Personal Care of Kimberly-Clark Corporation (‘‘Kimberly-
Clark’’) from 1999 until her retirement in June 2004. Ms. Seifert joined Kimberly-Clark, a global health
and hygiene company, in 1978 and, prior to her retirement, served in several marketing and management
positions in connection with Kimberly-Clark’s domestic and international consumer products businesses.
Prior to joining Kimberly-Clark, Ms. Seifert held management positions at The Procter & Gamble
Company, Beatrice Foods, Inc. and Fort Howard Paper Company. She also serves on the Boards of
Directors of the following companies which are required to ﬁle reports pursuant to the Exchange Act:
Albertson’s, Inc., Eli Lilly & Company, Appleton Papers Inc. and Paperweight Development Corp.

Mr. Wolfe (66) has been a Director of Revlon, Inc. since March 2004. Mr. Wolfe served as Chairman
and Chief Executive Ofﬁcer of Hershey Foods Corporation (‘‘Hershey’’) from 1994 until his retirement
in December 2001. Mr. Wolfe joined Hershey in 1967 and held various executive positions, including
President and Chief Operating Ofﬁcer, before being appointed its Chairman and Chief Executive Ofﬁcer.
Mr. Wolfe is also a Director and Chairman of the audit committees of the following companies which are
required to ﬁle reports pursuant to the Exchange Act: Adelphia Communications Corporation and
Bausch & Lomb Incorporated. Since 2005, Mr. Wolfe has served as a member of the Board of Trustees
of various mutual funds managed by Fidelity Management & Research Company.

Executive Ofﬁcers

The following table sets forth each of the executive ofﬁcers of Revlon, Inc. as of December 31, 2005,

except for Mr. Kennedy who became an executive ofﬁcer effective in early March 2006:

Name

Jack L. Stahl
Thomas E. McGuire
David L. Kennedy
Robert K. Kretzman

Position

President and Chief Executive Ofﬁcer
Executive Vice President and Chief Financial Ofﬁcer
Executive Vice President
Executive Vice President, General Counsel and Secretary

The following sets forth the ages, positions held with Revlon, Inc. and selected biographical
information for the executive ofﬁcers of Revlon, Inc., in each case as of December 31, 2005, except for
Mr. Stahl, whose biographical information is included above with the other Directors of Revlon, Inc.:

Mr. McGuire (51) served as Executive Vice President and Chief Financial Ofﬁcer of Revlon, Inc. and
of Products Corporation from August 2003 through early March 2006. In early March 2006, Mr. McGuire
rotated positions with Mr. Kennedy and became Executive Vice President and President of Revlon, Inc.’s
and Products Corporation’s international operations. Mr. McGuire was the Founder and Chief Executive
Ofﬁcer of Human Capital Formation, LLC from August 2001 until August 2003. Mr. McGuire was the
Chief Operating Ofﬁcer of Zyman Marketing Group from July 2000 until May 2001. From March 1982
until June 2000, Mr. McGuire held various professional staff and senior ﬁnancial executive positions at
Coca-Cola, including positions in its international businesses.

Mr. Kennedy (59) served as Executive Vice President and President of Revlon, Inc.’s and Products
Corporation’s international operations from June 2002 until early March 2006. In early March 2006,
Mr. Kennedy rotated positions with Mr. McGuire and became Executive Vice President and Chief
Financial Ofﬁcer of Revlon, Inc. and of Products Corporation. From November 2001 until January 2002,
Mr. Kennedy served as a ﬁnancial consultant. From 1998 until 2001, Mr. Kennedy was Managing Director
of Coca-Cola Amatil Limited, a publicly-traded company headquartered in Sydney, Australia and listed
on the Sydney Stock Exchange. Prior to 1998, Mr. Kennedy held several senior management and senior
ﬁnancial positions with Coca-Cola and its divisions and afﬁliated companies, which he joined in 1980,
including various senior ﬁnancial positions responsible for ﬁnancial reporting, internal audit, budgeting
and forecasting, as well as serving as General Manager of the Coca-Cola USA Fountain Division from
1992 to 1997.

Mr. Kretzman (54) has been Executive Vice President, Chief Legal Ofﬁcer, General Counsel and
Secretary of Revlon, Inc. and of Products Corporation since December 2003. Mr. Kretzman served as
Senior Vice President, General Counsel and Secretary of Revlon, Inc. and of Products Corporation from
January 2000 until December 2003. Prior to becoming General Counsel, Mr. Kretzman served as Senior
Vice President, Deputy General Counsel and Secretary from March 1998 to January 2000, as Vice
President, Deputy General Counsel and Secretary from January 1997 to March 1998, and as Vice
President and Secretary from September 1992 to January 1997. Mr. Kretzman joined the Company in 1988
as Senior Counsel responsible for mergers and acquisitions. Mr. Kretzman has also served as the
Company’s Chief Compliance Ofﬁcer since January 2000.

Compensation of Directors

Directors who currently are not receiving compensation as ofﬁcers or employees of Revlon, Inc. or
any of its afﬁliates (‘‘Non-Employee Directors’’) are paid an annual retainer fee of $35,000, payable in
quarterly installments, a fee of $1,000 for each meeting of the Board of Directors or any committee (other
than the Audit Committee) thereof that they attend and annual equity awards (‘‘Awards’’) under the
Stock Plan pursuant to a formula. The Compensation Committee determines a maximum face value of the
annual option grant each year for each Non-Employee Director (which face value amount cannot exceed
$100,000 in any given year and was set at $75,000 for each of 2004 and 2005), and the face value amount
is divided by the closing price on the NYSE of Revlon, Inc.’s Class A Common Stock on the date of the
grant to determine the number of options to be granted to the Non-Employee Director. On March 7, 2005,
the Compensation Committee granted each of the Non-Employee Directors options to purchase 29,412
shares of Class A Common Stock ($75,000 divided by $2.55, the per share closing market price on the
NYSE of Revlon, Inc.’s Class A Common Stock on the grant date), which options consist of non-qualiﬁed
options having a term of seven years, will become exercisable as to 25% of the Award under the Stock
Plan on March 7, 2006, and thereafter become cumulatively exercisable in additional 25% increments on
each subsequent March 7th, and have an exercise price equal to $2.55, the per share closing market price
on the NYSE of Revlon, Inc.’s Class A Common Stock on the grant date (the ‘‘2005 Non-Employee
Director Awards’’).

In recognition of their increased responsibilities that have arisen as a result of the passage of the
Sarbanes-Oxley Act of 2002 and revised SEC and NYSE rules, and based upon the advice of independent
compensation consultants, members of the Audit Committee are paid an annual Audit Committee
retainer fee of $10,000, in addition to the aforementioned annual retainer fee for Board membership, and
a per meeting fee of $1,500 for each meeting of the Audit Committee that they attend and Non-Employee
Directors who serve as chairman of the Audit Committee, Nominating and Corporate Governance
Committee and Compensation and Stock Plan Committee each receive an annual retainer fee of $10,000
per annum, in addition to any other retainer or meeting fees they receive.

Messrs. Bernikow and Landau are also non-employee members of the Board of Directors of Products
Corporation, for which they are paid an annual retainer fee of $25,000 per annum and a meeting fee of
$1,000 for each meeting of the Board of Directors of Products Corporation that they attend.

Consistent with the summaries set forth above, the following chart shows all compensation paid by
Revlon, Inc. to the Non-Employee Directors during 2005, including Board of Directors and applicable

Board committee retainer and meeting fees. The chart does not show any compensation for Mses. Lee or
Seifert, as each became a member of Revlon, Inc.’s Board of Directors effective January 1, 2006.

Non-Employee Director

Alan Bernikow . . . . . . . . . . . . . . . . . . . . . .
Paul J. Bohan . . . . . . . . . . . . . . . . . . . . . . .
Meyer Feldberg . . . . . . . . . . . . . . . . . . . . .
Edward J. Landau . . . . . . . . . . . . . . . . . . .
Linda Gosden Robinson . . . . . . . . . . . . . .
Kenneth L. Wolfe . . . . . . . . . . . . . . . . . . .

Total Board Retainer and
Committee Meeting Fees

Grant Date Present Value of
2005 Non-Employee Director
Awards (a)

$70,500
$64,500
$80,500
$77,000
$56,000
$53,000

$40,127
$40,127
$40,127
$40,127
$40,127
$40,127

Total

$110,627
$104,627
$120,627
$117,127
$ 96,127
$ 93,127

(a) Grant Date Present Values for the 2005 Non-Employee Director Awards were calculated using the Black-Scholes option
pricing model, using the March 7, 2005 grant date with respect to such Awards. Stock option models require a prediction about
the future movement of stock price. The following assumptions were made for purposes of calculating such Grant Date
Present Values: (i) a risk-free interest rate of return of 3.96%; (ii) expected stock price volatility of approximately 61%, based
upon the volatility of the stock price of Class A Common Stock; (iii) a constant dividend rate of zero percent; and (iv) an
estimated life of 4.75 years from the grant date. No adjustments to the theoretical value were made to reﬂect the waiting
period, if any, prior to vesting of the stock options or the transferability (or restrictions related thereto) of the stock options.
The real value of the options in the table depends upon the actual performance of Revlon, Inc.’s Class A Common Stock on
the NYSE during the applicable period and upon exercise.

Audit Committee and Audit Committee Financial Expert

The Board of Directors of Revlon, Inc. maintains an Audit Committee in accordance with the
applicable SEC rules and the NYSE’s listing standards. Revlon, Inc.’s Board of Directors has determined
that Revlon, Inc.’s Audit Committee, consisting of Alan S. Bernikow, Paul J. Bohan, Meyer Feldberg and
Edward J. Landau, has at least one ‘‘audit committee ﬁnancial expert.’’ The Board determined that Alan
S. Bernikow, based upon his experience, training and education, qualiﬁes as an audit committee ﬁnancial
expert in that he has (a) an understanding of generally accepted accounting principles (‘‘GAAP’’) and
ﬁnancial statements; (b) the ability to assess the general application of GAAP in connection with
accounting for estimates, accruals and reserves; (c) experience preparing, auditing, analyzing or
evaluating ﬁnancial statements that present a breadth and level of complexity of accounting issues that are
generally comparable to the breadth and complexity of issues that can reasonably be expected to be raised
by the Company’s ﬁnancial statements, as well as experience actively supervising one or more persons
engaged in such activities; (d) an understanding of internal controls and procedures for ﬁnancial
reporting; and (e) an understanding of audit committee functions. For certain biographical data
concerning Mr. Bernikow, see ‘‘— Directors and Executive Ofﬁcers of the Registrant.’’ The Board further
determined that Mr. Bernikow and the other members of the Audit Committee are independent of
management pursuant to applicable SEC rules and NYSE listing standards regarding the independence
of board and audit committee members, including the independence principles set forth in the Revlon,
Inc. Board Guidelines for Assessing Director Independence, which are posted on Revlon, Inc.’s website
at www.revloninc.com.

Senior Financial Ofﬁcer Code of Ethics

The Company has a written Code of Business Conduct (the ‘‘Code of Business Conduct’’) that
includes a code of ethics (the ‘‘Senior Financial Ofﬁcer Code of Ethics’’) that applies to the Company’s
Chief Executive Ofﬁcer and senior ﬁnancial ofﬁcers (including the Company’s Chief Financial Ofﬁcer,
Controller and persons performing similar functions) (collectively, the ‘‘Senior Financial Ofﬁcers’’). In
addition to printable copies of the Code of Business Conduct and the Senior Financial Ofﬁcer Code of
Ethics being available on Revlon, Inc.’s website, www.revloninc.com, the Company will provide a copy of
the Senior Financial Ofﬁcer Code of Ethics, without charge, upon written request to Robert K. Kretzman,
Executive Vice President and Chief Legal Ofﬁcer, Revlon, Inc., 237 Park Avenue, New York NY, 10017.
If the Company changes the Senior Financial Ofﬁcer Code of Ethics in any material respect or waives any
provision of the Senior Financial Ofﬁcer Code of Ethics for any of its Senior Financial Ofﬁcers, the
Company expects to provide the public with notice of any such change or waiver by publishing an

appropriate description of such event on Revlon, Inc.’s website, www.revloninc.com, or by other
appropriate means as required or permitted under applicable rules of the Commission. The Company
does not currently expect to make any such waivers.

Item 11. Executive Compensation

The following table sets forth information for the years indicated concerning the compensation
awarded to, earned by or paid to the persons who served as Chief Executive Ofﬁcer of the Company
during 2005 and the four most highly paid executive ofﬁcers (see footnote (a) below), other than the Chief
Executive Ofﬁcer, who served as executive ofﬁcers of the Company during 2005 (collectively, the ‘‘Named
Executive Ofﬁcers’’), for services rendered in all capacities to the Company and its subsidiaries during
such periods.

Summary Compensation Table

Annual Compensation (a)

Name And Principal Position

Year

Salary ($) Bonus ($)

Other
Annual
Compensation ($)

Jack L. Stahl

. . . . . . . . .

President and Chief
Executive Ofﬁcer (c)
Thomas E. McGuire . . .

Executive Vice
President and
Chief Financial
Ofﬁcer (d)

—
2005 1,300,000
2004 1,300,000 455,000
—
2003 1,300,000
524,231
2005
41,635
500,000 735,000
2004
—
182,692
2003

80,634
95,677
103,244
57,722
88,973
18,678

Long-Term
Compensation Awards
Restricted
Stock
Awards
($) (b)

Securities
Underlying
Options

All Other
Compensation
($)

—

8,181,000 5,520,000
— 100,000
— 130,000
995,000
100,000

590,850
150,500

— 158,505
173,631
173,277
97,116
128,631
25,224

Robert K. Kretzman . . .

2005

521,880 113,985

12,573

— 120,000

11,902

Executive Vice
President, Chief
Legal Ofﬁcer,
General Counsel and
Secretary (e)

(a) The amounts shown in Annual Compensation for 2005, 2004 and 2003 reﬂect salary, bonus and other annual compensation
(including, as required to be disclosed in accordance with Item 402 of Regulation S-K promulgated under the Exchange Act,
perquisites and other personal beneﬁts valued in excess of $50,000) and amounts reimbursed for payment of taxes awarded
to, earned by or paid to the persons listed for services rendered to the Company and its subsidiaries. For the periods reported,
the Company had an executive bonus plan in which executives participated (including Messrs. Stahl, McGuire and Kretzman)
(see ‘‘— Employment Agreements’’). The executive bonus plan provided for payment of cash compensation upon the
achievement of predetermined business and personal performance objectives during the calendar year that are established by
the Compensation Committee, except that in respect of 2003, as a result of the non-attainment of bonus objectives for that
year, the Compensation Committee determined that no bonuses would be payable under the executive bonus plan or any
other incentive compensation plan of the Company for that year. In addition, no salary increases were provided in 2004 and
the Company’s bonus plan targets for 2004 and 2005 were set at 50% and 75%, respectively, of the regular bonus targets. For
2005, the Company is reporting the compensation of Messrs. Stahl, McGuire and Kretzman, its only executive ofﬁcers during
2005.

(b)

See footnotes (c), (d) and (e) below for information concerning the number, value and vesting schedules on restricted stock
awards to the Named Executive Ofﬁcers under the Stock Plan. The options granted to Named Executive Ofﬁcers during 2005
pursuant to the Stock Plan are discussed below under ‘‘Option Grants in the Last Fiscal Year.’’

(c) Mr. Stahl became President and Chief Executive Ofﬁcer of the Company during February 2002. In March 2006, Mr. Stahl was
entitled to receive a bonus of $373,190, which he had earned in respect of 2005 pursuant to the terms of the executive bonus
plan, and based upon the achievement of certain predetermined, objective performance-based bonus criteria that had been
established in early 2005 by the Compensation Committee. Mr. Stahl waived receipt of such bonus to help fund, in part,
discretionary bonuses to participants in the executive bonus plan in recognition of the Company’s signiﬁcant achievements
during 2005, including the launch of the Company’s new Vital Radiance brand and the restage of Almay; securing an
approximately 23% increase in shelf space commitments at U.S. retail customers; growth in the U.S. market share for color
cosmetics, hair color and beauty tools; the successful reﬁnancing of the Company’s debt which was scheduled to mature in 2006
and extending its term through 2011; and the development of a new fragrance for the Company’s re-entry into the prestige

distribution channel. The amount shown for Mr. Stahl under Other Annual Compensation for 2005 includes $80,634 in respect
of gross ups for taxes on imputed income arising out of (x) personal use of a Company-provided automobile, (y) premiums
paid or reimbursed by the Company in respect of life insurance and (z) reimbursements for mortgage principal and interest
payments pursuant to Mr. Stahl’s employment agreement, as amended. In addition, although not required to be disclosed in
the Summary Compensation Table above pursuant to Item 402 of Regulation S-K, Mr. Stahl’s compensation for 2005 also
included (i) $5,652 in respect of use of a Company-provided automobile, (ii) $12,782 in reimbursements under the Company’s
Executive Medical Plan, (iii) $39,014 in premiums paid by the Company in respect of supplemental long-term disability
insurance and (iv) $8,500 for tax preparation expenses in 2005. The amount shown under All Other Compensation for 2005
reﬂects (i) $16,237 in respect of life insurance premiums, (ii) $135,968 of additional compensation in respect of interest and
principal payments on a mortgage loan which Products Corporation made to Mr. Stahl on May 20, 2002 (prior to the passage
of the Sarbanes-Oxley Act of 2002 and its prohibitions on loans to executive ofﬁcers) to purchase a principal residence in the
New York metropolitan area pursuant to his employment agreement (see ‘‘— Employment Agreements ‘‘) and (iii) $6,300 in
respect of matching contributions under the 401(k) Plan.

In March 2005, Mr. Stahl received a bonus of $455,000 in respect of 2004 pursuant to the terms of the executive bonus plan,
and based upon the achievement of certain predetermined, objective performance-based bonus criteria that had been
established in early 2004 by the Compensation Committee. The amount shown for Mr. Stahl under Other Annual
Compensation for 2004 includes $95,677 in respect of gross ups for taxes on imputed income arising out of (x) personal use
of a Company-provided automobile, (y) premiums paid or reimbursed by the Company in respect of life insurance and (z)
reimbursements for mortgage principal and interest payments pursuant to Mr. Stahl’s employment agreement, as amended.
In addition, although not required to be disclosed in the Summary Compensation Table above pursuant to Item 402 of
Regulation S-K, Mr. Stahl’s compensation for 2004 also included (i) $21,188 in respect of use of a Company-provided
automobile, (ii) $11,886 in reimbursements under the Company’s Executive Medical Plan, (iii) $28,028 in premiums paid by
the Company in respect of supplemental long-term disability insurance and (iv) $8,500 for tax preparation expenses in 2004.
The amount shown under All Other Compensation for 2004 reﬂects (i) $16,513 in respect of life insurance premiums, (ii)
$135,968 of additional compensation in respect of interest and principal payments on a mortgage loan which Products
Corporation made to Mr. Stahl on May 20, 2002 (prior to the passage of the Sarbanes-Oxley Act of 2002 and its prohibitions
on loans to executive ofﬁcers) to purchase a principal residence in the New York metropolitan area pursuant to his
employment agreement (see ‘‘— Employment Agreements ‘‘), (iii) $6,150 in respect of matching contributions under the
401(k) Plan and (iv) $15,000 in respect of matching contributions under the Revlon Excess Savings Plan for Key Employees.
On April 14, 2004, Mr. Stahl was awarded a grant of 2,700,000 shares of restricted stock under the Stock Plan. One third of
Mr. Stahl’s 2004 restricted stock Award vested on April 14, 2005 and, provided Mr. Stahl remains continuously employed by
the Company, or if he is terminated by the Company without ‘‘cause’’ or if he terminates his employment for ‘‘good reason’’
(as each such term is described in Mr. Stahl’s employment agreement, as amended), his 2004 restricted stock Award will vest
as to an additional one-third on each subsequent anniversary of the grant date. No dividends will be paid on unvested
restricted stock granted to Mr. Stahl in 2004. The value of the restricted stock Awards granted to Mr. Stahl on April 14, 2004
as reﬂected in the table is based on the $3.03 per share closing market price of Revlon, Inc.’s Class A Common Stock on the
NYSE on the grant date, provided, however, only one-third of Mr. Stahl’s restricted stock Award had vested as of
December 31, 2005 and those vested shares were valued at $2,727,000 on the same basis. The value of these restricted stock
Awards as of December 31, 2005 was $8,370,000, based on a per share price of $3.10, the per share closing market price of
Revlon, Inc.’s Class A Common Stock on the NYSE on December 31, 2005, provided, however, because only one-third of
Mr. Stahl’s restricted stock Award had vested as of December 31, 2005 those vested shares were valued at $2,790,000 on the
same basis.

The amount shown for Mr. Stahl under Other Annual Compensation for 2003 includes $103,244 in respect of gross ups for
taxes on imputed income arising out of (i) personal use of a Company-provided automobile, (ii) premiums paid or reimbursed
by the Company in respect of life insurance and (iii) reimbursements for mortgage principal and interest payments pursuant
to Mr. Stahl’s employment agreement, as amended. The amount shown under All Other Compensation for 2003 reﬂects (i)
$16,309 in respect of life insurance premiums, (ii) $135,968 of additional compensation in respect of interest and principal
payments on a mortgage loan which Products Corporation made to Mr. Stahl on May 20, 2002 to purchase a principal
residence in the New York metropolitan area pursuant to his employment agreement (see ‘‘— Employment Agreements’’),
(iii) $6,000 in respect of matching contributions under the 401(k) Plan and (iv) $15,000 in respect of matching contributions
under the Revlon Excess Savings Plan for Key Employees.

Mr. Stahl’s employment agreement was amended on December 17, 2004 to extend the term for three years and to provide that
in the event that Mr. Stahl is terminated without ‘‘cause’’ or if he terminates his employment for ‘‘good reason,’’ the stock
option awards granted to Mr. Stahl on February 17, 2002, May 19, 2003 and April 14, 2004, and the restricted stock awards
granted to Mr. Stahl on February 17, 2002 and April 14, 2004, shall continue to vest in accordance with their terms as if
Mr. Stahl’s employment had not been terminated and he had remained employed by the Company, and those stock option
awards shall remain exercisable until the later of (i) one year after such existing option award becomes 100% fully vested and
exercisable or (ii) 18 months following Mr. Stahl’s termination of employment, but in no event beyond the original option term
of each such award.

(d) Mr. McGuire served as Executive Vice President and Chief Financial Ofﬁcer of the Company from August 2003 until early
March 2006. In early March 2006, Mr. McGuire became Executive Vice President and President of the Company’s
international operations. In March 2006, Mr. McGuire will receive a bonus of $41,635 in respect of 2005 pursuant to the terms
of the executive bonus plan, and based upon the achievement of certain predetermined, objective performance-based bonus
criteria that had been established in early 2005 by the Compensation Committee. The amount shown for Mr. McGuire under
Other Annual Compensation for 2005 includes $57,722 in respect of gross ups for taxes on imputed income arising out of
relocation expenses paid or reimbursed by the Company in 2005. In addition, although not required to be disclosed in the
Summary Compensation Table above pursuant to Item 402 of Regulation S-K, Mr. McGuire’s compensation for 2005 also
included $15,000 in respect of a cash car allowance. The amount shown under All Other Compensation for 2005 reﬂects

(i) $88,078 in Company-paid expenses for temporary corporate housing and travel to and from Atlanta pending his relocation
to the New York metropolitan area, (ii) $6,300 in respect of matching contributions under the 401(k) Plan and (iii) $2,739 in
respect of life insurance premiums.

In March 2005, Mr. McGuire received a bonus of $135,000 in respect of 2004 pursuant to the terms of the executive bonus plan,
$70,875 of which was based upon the achievement of certain predetermined, objective performance-based bonus criteria that
had been established in early 2004 by the Compensation Committee and $64,125 of which was a discretionary bonus approved
by the Compensation Committee in recognition of, among other things, Mr. McGuire’s signiﬁcant contributions to the
Company’s reﬁnancing activities during 2004. In addition, pursuant to the terms of his employment agreement, in January 2005
Mr. McGuire received a $600,000 retention incentive in respect of 2004, intended to assist him towards funding the purchase
of a home in the New York metropolitan area (see ‘‘— Employment Agreements’’). The amount shown for Mr. McGuire
under Other Annual Compensation for 2004 includes $88,973 in respect of gross ups for taxes on imputed income arising out
of relocation expenses paid or reimbursed by the Company in 2004. In addition, although not required to be disclosed in the
Summary Compensation Table above pursuant to Item 402 of Regulation S-K, Mr. McGuire’s compensation for 2004 also
included $15,000 in respect of a cash car allowance. The amount shown under All Other Compensation for 2004 reﬂects (i)
$119,835 in Company-paid expenses for temporary corporate housing and travel to and from Atlanta pending his relocation
to the New York metropolitan area and (ii) $2,546 in respect of life insurance premiums. On April 14, 2004, Mr. McGuire was
awarded a grant of 195,000 shares of restricted stock under the Stock Plan. One-third of Mr. McGuire’s restricted stock Award
vested on April 14, 2005 and, provided Mr. McGuire remains continuously employed by the Company, his 2004 restricted
stock Award will vest as to an additional one-third on each subsequent anniversary of the grant date. No dividends will be paid
on the unvested restricted stock granted to Mr. McGuire in 2004. The value of the restricted stock Awards granted to
Mr. McGuire on April 14, 2004 as reﬂected in the table is based on the $3.03 per share closing market price of Revlon, Inc.’s
Class A Common Stock on the NYSE on that date, provided, however, only one-third of Mr. McGuire’s restricted stock
Award had vested as of December 31, 2005 and those vested shares were valued at $196,950 on the same basis. The value of
these restricted stock Awards as of December 31, 2005 was $604,500, based on a per share price of $3.10, the per share closing
market price of Revlon, Inc.’s Class A Common Stock on the NYSE on December 31, 2005, provided, however, only one-third
of Mr. McGuire’s restricted stock Award had vested as of December 31, 2005 and those vested shares were valued at $201,500
on the same basis.

The amount shown for Mr. McGuire under Other Annual Compensation for 2003 includes $18,678 in respect of gross ups for
taxes on imputed income arising out of relocation expenses paid or reimbursed by the Company in 2003. The amount shown
under All Other Compensation for 2003 reﬂects (i) $24,732 in Company-paid relocation expenses and (ii) $492 in respect of
premiums under the Company’s basic life insurance program. On August 18, 2003 (the ‘‘2003 McGuire Grant Date’’),
Mr. McGuire was awarded 50,000 shares of restricted stock under the Stock Plan. Provided Mr. McGuire remains continuously
employed by the Company, his 2003 restricted stock Award will vest as to one-third of the restricted shares on the day after
which the 20-day average of the closing price of Class A Common Stock on the NYSE equals or exceeds $20.00 per share, an
additional one-third of such restricted shares will vest on the day after which such 20-day average closing price equals or
exceeds $25.00 per share and the balance will vest on the day after which such 20-day average closing price equals or exceeds
$30.00 per share, provided (i) subject to clause (ii) below, no portion of Mr. McGuire’s 2003 restricted stock Award was to vest
until the second anniversary of the 2003 McGuire Grant Date, (ii) all of the shares of restricted stock awarded to Mr. McGuire
in 2003 will vest immediately in the event of a ‘‘change in control’’ (as deﬁned in Mr. McGuire’s restricted stock agreement)
and (iii) all of the shares of restricted stock granted to Mr. McGuire in 2003 that have not previously vested will fully vest on
the third anniversary of the 2003 McGuire Grant Date. No dividends will be paid on the unvested restricted stock granted to
Mr. McGuire in 2003. The value of the restricted stock Awards granted to Mr. McGuire on the 2003 McGuire Grant Date
(none of the Award had vested as of December 31, 2005) as reﬂected in the table is based on the $3.01 per share closing market
price of Revlon, Inc.’s Class A Common Stock on the NYSE on the 2003 McGuire Grant Date. The value of these restricted
stock Awards as of December 31, 2005 was $155,000, based on a per share price of $3.10, the per share closing market price
of Revlon, Inc.’s Class A Common Stock on the NYSE on December 31, 2005.

(e) Mr. Kretzman, Executive Vice President, Chief Legal Ofﬁcer, General Counsel and Secretary of Revlon, Inc. and of Products
Corporation, became an executive ofﬁcer effective in March 2005. In March 2006, Mr. Kretzman will receive a bonus of
$113,985 in respect of 2005 pursuant to the terms of the executive bonus plan, and based upon the achievement of certain
predetermined, objective performance-based bonus criteria that had been established in early 2005 by the Compensation
Committee. The amount shown for Mr. Kretzman under Other Annual Compensation for 2005 includes $12,573 in respect of
gross ups for taxes on imputed income arising out of personal use of a Company-provided automobile. In addition, although
not required to be disclosed in the Summary Compensation Table above pursuant to Item 402 of Regulation S-K,
Mr. Kretzman’s compensation for 2005 also included (i) $17,007 in respect of use of a Company-provided automobile, (ii)
$12,782 in reimbursements under the Company’s Executive Medical Plan and (iii) $1,000 for tax preparation expenses in 2005.
The amount shown under All Other Compensation for 2005 reﬂects (i) $5,602 in respect of life insurance premiums and (ii)
$6,300 in respect of matching contributions under the 401(k) Plan.

OPTION GRANTS IN THE LAST FISCAL YEAR

During 2005, the following grants of stock options were made pursuant to the Stock Plan to the

Named Executive Ofﬁcers:

Name

Number of
Securities
Underlying
Options Granted
(#)

Jack L. Stahl . . . . . . . . . . . .
Thomas E. McGuire . . . . .
Robert K. Kretzman . . . . .

—
130,000
120,000

Individual Grants

Percent of
Total Options
Granted to
Employees In
Fiscal
Year

—
2.50%
2.31%

Exercise or
Base Price
($/Sh)

—
$2.55
$2.55

Expiration
Date

—
3/7/2012
3/7/2012

Grant
Date
Value (a)

Grant
Date
Present
Value
($)

—
177,359
163,716

(a) Grant Date Present Values were calculated using the Black-Scholes option pricing model. The model used March 7, 2005 as
a grant date with respect to options granted to Messrs. McGuire and Kretzman on such date. Stock option models require a
prediction about the future movement of stock price. The following assumptions were made for purposes of calculating Grant
Date Present Values: (i) a risk-free interest rate of return of 3.96%; (ii) expected stock price volatility of approximately 61%,
based upon the volatility of the stock price of Class A Common Stock; (iii) a constant dividend rate of zero percent; and (iv)
an estimated life of 4.75 years from the grant date. No adjustments to the theoretical value were made to reﬂect the waiting
period, if any, prior to vesting of the stock options or the transferability (or restrictions related thereto) of the stock options.
The real value of the options in the table depends upon the actual performance of Revlon, Inc.’s Class A Common Stock on
the NYSE during the applicable period and upon exercise.

The options granted to Messrs. McGuire and Kretzman in 2005 under the Stock Plan were awarded
on March 7, 2005 and consist of non-qualiﬁed options having a term of seven years, vesting 25% on
March 7, 2006 and continuing to vest in additional 25% increments on each March 7th thereafter,
becoming 100% vested on March 7, 2009. These options have an exercise price equal to $2.55, the per
share closing market price on the NYSE of Revlon, Inc.’s Class A Common Stock on such grant date, as
indicated in the table above.

AGGREGATED OPTION EXERCISES IN LAST
FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES

The following chart shows the number of stock options exercised during 2005 and the 2005 year-end

value of the stock options held by the Named Executive Ofﬁcers:

Name

Shares
Acquired on
Exercise
During 2005

Value
Realized
During
2005

Number of Securities
Underlying Unexercised
Options at Fiscal
Year-End
Exercisable/
Unexercisable
at December 31, 2005 (#)

Value of In-The-Money
Options at Fiscal
Year-End
Exercisable/Unexercisable
at December 31, 2005 (a) ($)

. . . . . . . . . . . . . . . . . . . . .
Jack L. Stahl
Thomas E. McGuire . . . . . . . . . . . . . . .
Robert K. Kretzman . . . . . . . . . . . . . . .

—
—
—

— 2,810,000/3,210,000
—
—

547,500/677,500
595,000/597,500

193,700/193,700
39,325/110,825
33,425/99,425

(a) Amounts shown as value of in-the-money options represent the difference between the exercise price of the options
(exercisable or unexercisable, as the case may be) and the market value of the underlying shares of Class A Common Stock
at year end, calculated using $3.10, the December 31, 2005 closing market price on the NYSE of Revlon, Inc.’s Class A
Common Stock. The actual value, if any, an executive may realize upon exercise of a stock option depends upon the amount
by which the market price of shares of Class A Common Stock exceeds the exercise price per share when the stock options
are exercised.

Employment Agreements

Each of Messrs. Stahl, McGuire and Kretzman has an executive employment agreement with

Products Corporation.

Mr. Stahl’s employment agreement, as amended and extended (his ‘‘employment agreement’’),
provides that he will serve as President and Chief Executive Ofﬁcer at a base salary of not less than
$1,300,000 per annum, and that he receive a bonus of not less than $1,300,000 in respect of 2002 (which
bonus was paid in February 2003) and grants of 1,000,000 shares of restricted stock and 400,000 options
upon joining the Company in 2002 (which grants were made on February 17, 2002 (the ‘‘2002 Stahl Grant
Date’’)). The term of Mr. Stahl’s employment agreement ends on February 16, 2008, provided, however,
that at any time on or after February 17, 2005, Products Corporation may terminate Mr. Stahl’s
employment by 36 months’ prior written notice of non-renewal of the agreement.

Mr. Stahl’s employment agreement provides for participation in the executive bonus plan and other
executive beneﬁt plans on a basis equivalent to other senior executives of the Company generally.
Mr. Stahl’s employment agreement provides for Company-paid supplemental disability insurance and
supplemental term life insurance coverage with a death beneﬁt of $10,000,000 during employment. The
employment agreement for Mr. Stahl also provides for protection of Company conﬁdential information
and includes a non-compete obligation.

Mr. Stahl’s employment agreement provides that in the event of termination of the term by Mr. Stahl
for ‘‘good reason’’ (as deﬁned in Mr. Stahl’s employment agreement), or by the Company (otherwise than
for ‘‘cause’’ or ‘‘disability’’ as each such term is deﬁned or described in Mr. Stahl’s employment
agreement), Mr. Stahl would be entitled, at his election, to severance pursuant to Products Corporation’s
Executive Severance Policy (see ‘‘— Executive Severance Policy’’) (other than the six-month limit on
lump sum payments provided for in such policy, which six-month limit provision would not apply to
Mr. Stahl); or continued payments of base salary, continued participation in the Company’s life insurance
plan (which life insurance coverage is subject to a limit of two years) and medical plans subject to the
terms of such plans, and continued Company-paid supplemental term life insurance, in each case through
the date occurring 36 months after the date of notice of non-renewal, or in the case of medical plan
participation only, until such earlier date on which Mr. Stahl were to become covered by like plans of
another company. In addition, Mr. Stahl’s employment agreement provides that if he remains employed
by Products Corporation or its afﬁliates until age 60, then upon any subsequent retirement he will be
entitled to a supplemental pension beneﬁt in a sufﬁcient amount so that his annual pension beneﬁt from
all qualiﬁed and non-qualiﬁed pension plans of Products Corporation and its afﬁliates, as well as any such
plans of Mr. Stahl’s past employers or their afﬁliates (expressed as a straight life annuity), equals $500,000.

If Mr. Stahl’s employment were to terminate on or after February 28, 2006 and prior to February 28, 2007,
then he would have received 33.32% of the supplemental pension beneﬁt otherwise payable pursuant to
his employment agreement and thereafter an additional 8.33% will accrue as of each February 28th on
which Mr. Stahl is still employed (but in no event more than would have been payable to Mr. Stahl under
the foregoing provision had he retired at age 60). Mr. Stahl would not receive any supplemental pension
beneﬁt and any amounts then being paid for supplemental pension beneﬁts would immediately cease if
he were to materially breach his employment agreement or be terminated by the Company for ‘‘cause’’
(as deﬁned in Mr. Stahl’s employment agreement). Mr. Stahl’s employment agreement provides for
continuation of group life insurance and executive medical insurance coverage in the event of permanent
disability.

Mr. Stahl’s employment agreement provides that he was entitled to a loan in March 2002 from
Products Corporation to satisfy state, local and federal income taxes (including any withholding taxes)
incurred by him as a result of his having made an election under Section 83(b) of the Internal Revenue
Code of 1986 (as amended, the ‘‘Code’’) in connection with the 1,000,000 shares of restricted stock that
were granted to him by the Company on the 2002 Stahl Grant Date. Mr. Stahl received such loan from
Products Corporation in the amount of $1,800,000 in March 2002, prior to the passage of the
Sarbanes-Oxley Act of 2002 and its prohibition on loans to executive ofﬁcers. Interest on such loan is
payable at the applicable federal rate. The full principal amount of such loan and all accrued interest is
due and payable on February 17, 2007 (the ﬁfth anniversary of the 2002 Stahl Grant Date), provided that
if Mr. Stahl terminates his employment for ‘‘good reason’’ or the Company terminates him other than for
‘‘disability’’ or ‘‘cause’’ (as each such term is deﬁned or described in Mr. Stahl’s employment agreement),
the outstanding balance of such loan and all accrued interest would be forgiven. Such loan is secured by
a pledge of the 1,000,000 shares of restricted stock which were granted to Mr. Stahl on the 2002 Stahl
Grant Date and such loan and pledge are evidenced by a Promissory Note and a Pledge Agreement, each
dated March 13, 2002. Mr. Stahl’s employment agreement also provides that he was entitled to a mortgage
loan to cover the purchase of a principal residence in the New York metropolitan area and/or a Manhattan
apartment, in the principal amount of $2,000,000, which loan was advanced by Products Corporation to
Mr. Stahl on May 20, 2002, prior to the passage of the Sarbanes-Oxley Act of 2002. The principal of the
mortgage loan is repayable on a monthly basis during the period from June 1, 2002 through and including
May 1, 2032, with interest at the applicable federal rate, with the unpaid principal and accrued and unpaid
interest due in full 90 days after Mr. Stahl’s employment with the Company terminates, whichever occurs
earlier. Pursuant to his employment agreement, Mr. Stahl is entitled to receive additional compensation
payable on a monthly basis equal to the amount repaid by him in respect of interest and principal on the
mortgage loan, plus a gross up for any taxes resulting from such additional compensation. If during the
term of his employment agreement Mr. Stahl terminates his employment for ‘‘good reason,’’ or the
Company terminates his employment other than for ‘‘disability’’ or ‘‘cause’’ (as each such term is deﬁned
or described in Mr. Stahl’s employment agreement), the mortgage loan from the Company would be
forgiven in its entirety.

Mr. Stahl’s employment agreement was amended on December 17, 2004 to extend the term of his
agreement to February 16, 2008 and to provide for continued vesting of equity awards previously granted
to Mr. Stahl in the event that he is terminated by the Company without ‘‘cause’’ or if Mr. Stahl terminates
his employment for ‘‘good reason’’ (as each such term is deﬁned or described in Mr. Stahl’s employment
agreement). Speciﬁcally, in the event that Mr. Stahl is terminated without ‘‘cause’’ or if he terminated his
employment for ‘‘good reason,’’ the stock option awards granted to Mr. Stahl on February 17, 2002,
May 19, 2003 and April 14, 2004, and the restricted stock awards granted to Mr. Stahl on February 17, 2002
and April 14, 2004, would continue to vest in accordance with their terms as if Mr. Stahl’s employment
had not been terminated and he had remained employed by the Company, and those stock option awards
shall remain exercisable until the later of (i) one year after such existing option award becomes 100% fully
vested and exercisable or (ii) 18 months following Mr. Stahl’s termination of employment, but in no event
beyond the original option term of each such award; provided, however, that as consideration for
continued vesting of any option awards or restricted stock awards, as described above, the non-solicitation
and non-competition covenants in Mr. Stahl’s employment agreement shall remain in effect at least until
the date that all existing equity awards are fully vested.

Mr. McGuire’s employment agreement with Products Corporation, as amended (as so amended, his
‘‘employment agreement’’), provides that he will serve as Executive Vice President and Chief Financial
Ofﬁcer through early March 2006 and then as Executive Vice President and President of the Company’s
international operations, or such other duties and responsibilities as may be assigned to him from time to
time, at a base salary of not less than $500,000 per annum and that he receive a (i) retention incentive of
$600,000 (which was paid on January 13, 2005) to assist him in purchasing a home in the New York
metropolitan area, and (ii) grant of (A) 50,000 shares of restricted stock in 2003 (which grant was made
on the 2003 McGuire Grant Date), (B) 100,000 options in 2003 (which grant was made on the 2003
McGuire Grant Date), (C) 25,000 options in 2004 (which grant was made on April 14, 2004) and (D)
25,000 options in 2005 (which grant was made on March 7, 2005). Products Corporation may terminate
Mr. McGuire’s employment agreement effective two years after written notice of non-extension of the
agreement. During any period that his employment continues after termination or expiration of the term
of his employment agreement, Mr. McGuire would be deemed an employee at will and would be eligible
for severance under Products Corporation’s Executive Severance Policy (see ‘‘— Executive Severance
Policy’’), provided that the Severance Period for Mr. McGuire shall not be less than 24 months.

Mr. McGuire’s employment agreement provides for participation in the executive bonus plan with
speciﬁc bonus targets. The employment agreement for Mr. McGuire also provides for protection of
Company conﬁdential information and includes a non-compete obligation.

Mr. McGuire’s employment agreement provides that in the event of termination of the term by
Mr. McGuire for material breach by the Company of a material provision of such agreement or failure of
the Compensation Committee to adopt and implement the recommendations of management with respect
to stock option or restricted stock grants to be provided under his employment agreement, or by the
Company (otherwise than for ‘‘cause’’ as deﬁned in Mr. McGuire’s employment agreement or disability),
Mr. McGuire would be entitled, at his election, to severance, including participation in the Company’s
medical plans, pursuant to the Executive Severance Policy (see ‘‘— Executive Severance Policy’’)
(provided that the Severance Period for Mr. McGuire shall not be less than 24 months) or continued
payments of base salary throughout the term and continued participation in the Company’s life insurance
plan, which life insurance coverage is subject to a limit of two years, and medical plans, subject to the
terms of such plans throughout the term or until Mr. McGuire were covered by like plans of another
company.

Mr. McGuire’s original employment agreement provided that Mr. McGuire was eligible for certain
relocation and retention beneﬁts with the expectation that he would sell his home in Atlanta by
August 18, 2004 and complete his relocation to New York by October 18, 2004. Due to the signiﬁcant time
that Mr. McGuire spent on the Company’s reﬁnancing and debt reduction activities during 2004, which
did not permit Mr. McGuire to pursue his relocation, the employment agreement was amended in
December 2004 to allow Mr. McGuire until August 18, 2005 to sell his home in Atlanta, until
October 18, 2005 to complete his relocation to the New York metropolitan area and to extend the period
that Products Corporation’s would provide him with reasonable corporate housing until Decem-
ber 31, 2004.

Mr. Kretzman’s employment agreement (his ‘‘employment agreement’’) provides that he will serve
as Executive Vice President, Chief Legal Ofﬁcer and General Counsel at a base salary of not less than his
current base salary, which for 2005 was $529,000. Products Corporation may terminate Mr. Kretzman’s
employment agreement effective two years after written notice of non-extension of the agreement.
During any period that his employment continues after the termination or expiration of the term of his
employment agreement, Mr. Kretzman would be deemed an employee at will and would be eligible for
severance under Products Corporation’s Executive Severance Policy (see ‘‘— Executive Severance
Policy’’), provided that the severance period for Mr. Kretzman shall not be less than 24 months.

Mr. Kretzman’s employment agreement provides for participation in the executive bonus plan and
other executive beneﬁt plans on a basis equivalent to other senior executives of the Company generally.
Mr. Kretzman’s employment agreement provides for Company-paid supplemental term life insurance
coverage of two times Mr. Kretzman’s base salary. In addition, Mr. Kretzman’s employment agreement
provides that he is entitled to receive a retirement beneﬁt at age 62, calculated under the Retirement Plan

and Pension Equalization Plan (each as deﬁned below), as if Mr. Kretzman had elected retirement at age
65. The employment agreement for Mr. Kretzman also provides for protection of Company conﬁdential
information and includes a non-compete obligation.

Mr. Kretzman’s agreement provides that in the event of termination of the term of the employment
agreement by Mr. Kretzman for breach by the Company of a material provision of his employment
agreement, failure of the Compensation Committee to adopt and implement the recommendations of
management with respect to stock option or restricted stock grants to be provided under his employment
agreement or for ‘‘good reason’’ (as deﬁned in Mr. Kretzman’s employment agreement), or by the
Company (otherwise than for ‘‘cause’’ as deﬁned in the employment agreement or for disability),
Mr. Kretzman would be entitled, at his election, to severance and beneﬁts continuation pursuant to the
Executive Severance Policy (see ‘‘— Executive Severance Policy’’) (provided that the Severance Period
for Mr. Kretzman shall not be less than 24 months) or continued payments of base salary throughout the
term and continued participation in the Company’s life insurance plan, subject to a limit of two years, and
medical plans, subject to the terms of such plans, throughout the term or until Mr. Kretzman were covered
by like plans of another company. Mr. Kretzman’s agreement provides for continued vesting of each of
the stock option and restricted stock awards granted to Mr. Kretzman prior to November 1, 2002 in the
event that he is terminated by the Company without ‘‘cause’’ or if Mr. Kretzman terminates his
employment agreement in accordance with its terms. Such awards would continue to vest in accordance
with their terms and remain exercisable until one year following the later of: (i) Mr. Kretzman’s
termination of employment or (ii) the date all such awards became 100% fully vested and exercisable.

Executive Severance Policy

Products Corporation’s Executive Severance Policy as in effect on December 31, 2005 provides that
upon termination of employment of eligible executive employees, including Messrs. Stahl, McGuire and
Kretzman, other than voluntary resignation by the executive or termination by Products Corporation for
‘‘good reason,’’ in consideration for the executive’s execution of a release and conﬁdentiality agreement
and the Company’s standard employee non-competition agreement, the eligible executive may be eligible
to receive, in lieu of severance under any employment agreement then in effect or under Products
Corporation’s basic severance plan, a number of months of severance pay in bi-weekly installments based
upon such executive’s grade level and years of service, reduced by the amount of any compensation from
subsequent employment, unemployment compensation or statutory termination payments received by
such executive during the severance period and, in certain circumstances, by the actuarial value of
enhanced pension beneﬁts received by the executive, as well as continued participation in medical and
certain other beneﬁt plans for the severance period (or in lieu thereof, upon commencement of
subsequent employment, a lump sum payment equal to the then present value of 50% of the amount of
base salary then remaining payable through the balance of the severance period, generally capped at six
months pay and subject to any restrictions under the Code). Pursuant to the Executive Severance Policy,
upon meeting the conditions set forth in such policy, as of December 31, 2005, Messrs. Stahl, McGuire and
Kretzman could be entitled to severance pay of up to 22, 20 and 24 months of base salary, respectively,
at the base salary rate in effect on the date of employment termination, plus continued participation in
the medical and dental plans for the same respective periods on the same terms as active employees,
provided that under each of Messrs. McGuire’s and Kretzman’s employment agreements the severance
period is at least 24 months and under Mr. Stahl’s agreement he is entitled to 36 months’ severance. Any
compensation and beneﬁts to which Messrs. Stahl, McGuire or Kretzman would be eligible to receive
upon termination pursuant to the terms of their employment agreements or the Executive Severance
Policy would be subject to applicable restrictions of the Code, if any, including, without limitation,
Internal Revenue Code Section 409A and related regulations.

Deﬁned Beneﬁt Plans

In accordance with the terms of the Revlon Employees’ Retirement Plan (the ‘‘Retirement Plan’’),
the following table shows the estimated annual retirement beneﬁts payable (as of December 31, 2005)
under the non-cash balance program of the Retirement Plan (the ‘‘Non-Cash Balance Program’’) at
normal retirement age (65) to a person retiring with the indicated average compensation and years of

credited service, on a straight life annuity basis, after Social Security offset, including amounts attributable
to the Revlon Pension Equalization Plan, as amended (the ‘‘Pension Equalization Plan’’), as described
below.

Highest Consecutive
Five-Year Average
Compensation During
Final 10 Years ($)

600,000
700,000
800,000
900,000
1,000,000
1,100,000
1,200,000
1,300,000
1,400,000
1,500,000
2,000,000
2,500,000

Estimated Annual Straight Life Annuity Beneﬁts At Retirement
With Indicated Years Of Credited Service ($) (a)

150,183
176,183
202,183
228,183
254,183
280,183
306,183
332,183
358,183
384,183
500,000
500,000

200,244
234,911
269,577
304,244
338,911
373,577
408,244
442,911
477,577
500,000
500,000
500,000

250,305
293,638
336,972
380,305
423,638
466,972
500,000
500,000
500,000
500,000
500,000
500,000

300,366
352,366
404,366
456,366
500,000
500,000
500,000
500,000
500,000
500,000
500,000
500,000

(a) The normal form of beneﬁt for the Retirement Plan and the Pension Equalization Plan is a straight life annuity.

The Retirement Plan is intended to be a tax qualiﬁed deﬁned beneﬁt plan. Non-Cash Balance
Program beneﬁts are a function of service and ﬁnal average compensation. The Non-Cash Balance
Program is designed to provide an employee having 30 years of credited service with an annuity generally
equal to 52% of ﬁnal average compensation, less 50% of estimated individual Social Security beneﬁts.
Final average compensation is deﬁned as average annual base salary and bonus (but not any part of
bonuses in excess of 50% of base salary) during the ﬁve consecutive calendar years in which base salary
and bonus (but not any part of bonuses in excess of 50% of base salary) were highest out of the last 10
years prior to retirement or earlier termination. Except as otherwise indicated, credited service includes
all periods of employment with the Company or a subsidiary prior to retirement or earlier termination.
Messrs. Stahl and McGuire do not participate in the Non-Cash Balance Program. The estimated annual
beneﬁt payable under the Non-Cash Balance Program as a single life annuity (assuming such plan
participant remains employed by the Company until age 65 at his current level of compensation) is
$303,700 for Mr. Kretzman.

Effective January 1, 2001, Products Corporation amended the Retirement Plan to provide for a cash
balance program under the Retirement Plan (the ‘‘Cash Balance Program’’). Under the Cash Balance
Program, eligible employees will receive quarterly credits to an individual cash balance bookkeeping
account equal to 5% of their compensation for the previous quarter. Interest credits, which commenced
June 30, 2001, are allocated quarterly (based on the yield of the 30-year Treasury bond for November of
the preceding calendar year). Employees who as of January 1, 2001 were at least age 45, had 10 or more
years of service with the Company and whose age and years of service totaled at least 60, including
Mr. Kretzman, were ‘‘grandfathered’’ and continue to participate in the Non-Cash Balance Program
under the same retirement formula described in the preceding paragraph. All other eligible employees
had their beneﬁts earned (if any) under the Non-Cash Balance Program ‘‘frozen’’ on December 31, 2000
and began to participate in the Cash Balance Program on January 1, 2001. The ‘‘frozen’’ beneﬁts will be
payable at normal retirement age and will be reduced if the employee elects early retirement. Any
employee who, as of January 1, 2001 was at least age 40 but not part of the ‘‘grandfathered’’ group will,
in addition to the ‘‘basic’’ 5% quarterly pay credits, receive quarterly ‘‘transition’’ pay credits of 3% of
compensation each year for up to 10 years or until he/she leaves employment with the Company,
whichever is earlier. Messrs. Stahl and McGuire participate in the Cash Balance Program. As they were
not employed by the Company on January 1, 2001 (the date on which a ‘‘transition’’ employee was
determined), Messrs. Stahl and McGuire are eligible to receive only basic pay credits. The estimated
annual beneﬁts payable under the Cash Balance Program as a single life annuity (assuming Messrs. Stahl

and McGuire remain employed by the Company until age 65 at their current level of compensation) is
$137,800 for Mr. Stahl and $57,500 for Mr. McGuire. Mr. Stahl’s total retirement beneﬁts will be
determined in accordance with his employment agreement, which provides for a guaranteed retirement
beneﬁt provided that certain conditions are met.

The Employee Retirement Income Security Act of 1974, as amended, places certain maximum
limitations upon the annual beneﬁt payable under all qualiﬁed plans of an employer to any one individual.
In addition, the Code limits the annual amount of compensation that can be considered in determining
the level of beneﬁts under qualiﬁed plans. The Pension Equalization Plan, as amended, is a non-qualiﬁed
beneﬁt arrangement designed to provide for the payment by the Company of the difference, if any,
between the amount of such maximum limitations and the annual beneﬁt that would be payable under the
Retirement Plan (including the Non-Cash Balance Program and the Cash Balance Program) but for such
limitations, up to a combined maximum annual straight life annuity beneﬁt at age 65 under the
Retirement Plan and the Pension Equalization Plan of $500,000. Beneﬁts provided under the Pension
Equalization Plan are conditioned on the participant’s compliance with his or her non-competition
agreement and on the participant not competing with Products Corporation for one year after termination
of employment.

The number of full years of service under the Retirement Plan and the Pension Equalization Plan as
of January 1, 2006 for Mr. Stahl was three years, for Mr. McGuire was two years and for Mr. Kretzman
was 17 years.

Item 12. Security Ownership of Certain Beneﬁcial Owners and Management and Related

Stockholder Matters

The following table sets forth, as of January 1, 2006, the number of shares of Revlon, Inc.’s Common
Stock beneﬁcially owned, and the percent so owned, by (i) each person known to the Company to be the
beneﬁcial owner of more than 5% of the outstanding shares of Revlon, Inc.’s Common Stock, (ii) each
director of Revlon, Inc., (iii) the Chief Executive Ofﬁcer during 2005 and each of the other Named
Executive Ofﬁcers during 2005 and (iv) all directors and Named Executive Ofﬁcers of Revlon, Inc. as a
group. The number of shares owned are those beneﬁcially owned, as determined under the applicable
rules of the SEC for the purposes of this Annual Report on Form 10-K, and such information is not
necessarily indicative of beneﬁcial ownership for any other purpose. Under such rules, beneﬁcial
ownership includes any shares of Common Stock as to which a person has sole or shared voting power
or investment power and any shares of Common Stock which the person has the right to acquire within
60 days through the exercise of any option, warrant or right, through conversion of any security or
pursuant to the automatic termination of a power of attorney or revocation of a trust, discretionary
account or similar arrangement. Certain of the shares listed as beneﬁcially owned are pursuant to stock
options, which may be out of the money.

Name and Address of
Beneﬁcial Owner

Ronald O. Perelman . . . . . . . . . . . . . . . . .

35 E. 62nd St.
New York, NY 10021

Amount and Nature of
Beneﬁcial Ownership

191,685,641 (Class A)
31,250,000 (Class B)(1)

FMR Corp.

. . . . . . . . . . . . . . . . . . . . . . . .

57,900,499 (Class A)(2)

82 Devonshire Street
Boston MA 02109

Alan S. Bernikow . . . . . . . . . . . . . . . . . . .
Paul J. Bohan . . . . . . . . . . . . . . . . . . . . . .
Donald G. Drapkin . . . . . . . . . . . . . . . . .
Meyer Feldberg . . . . . . . . . . . . . . . . . . . .
Howard Gittis . . . . . . . . . . . . . . . . . . . . . .
Robert K. Kretzman . . . . . . . . . . . . . . . . .
Edward J. Landau . . . . . . . . . . . . . . . . . .
Debra L. Lee . . . . . . . . . . . . . . . . . . . . . .
Thomas E. McGuire . . . . . . . . . . . . . . . . .
Linda Gosden Robinson . . . . . . . . . . . . . .
Kathi P. Seifert . . . . . . . . . . . . . . . . . . . . .
Jack L. Stahl . . . . . . . . . . . . . . . . . . . . . . .

Kenneth L. Wolfe . . . . . . . . . . . . . . . . . . .
All Directors and Named Executive

Ofﬁcers as a Group (14 Persons). . . . . .

14,780 (Class A)(3)
11,030 (Class A)(4)
—
31,655 (Class A)(5)
150,000 (Class A)
708,420 (Class A)(6)
31,789 (Class A)(7)
—
586,857 (Class A)(8)
31,655 (Class A)(9)
34,000 (Class A)
4,424,416 (Class A)(10)

26,030 (Class A)(11)

197,736,273 (Class A)
31,250,000 (Class B)

Percentage of Class

59.74% (Class A and Class B
combined)
56.06% (Class A)
100.00% (Class B)
15.58% (Class A and Class B
combined)
17.01% (Class A)
*
*
*
*
*
*
*
*
*
*
*
1.18% (Class A and Class B
combined)
1.29% (Class A)
*

60.69% (Class A and Class B
combined)
57.14% (Class A)
100.00% (Class B)

Less than one percent.

(1) Mr. Perelman beneﬁcially owns, directly and indirectly, through MacAndrews & Forbes, 191,685,641 shares of Class A
Common Stock (including 32,599,374 shares of Class A Common Stock beneﬁcially owned by a family member, with respect
to which shares MacAndrews & Forbes holds a voting proxy, 170,000 shares that represent restricted shares which have vested
and 1,525,000 shares that Mr. Perelman may acquire under vested options). Mr. Perelman, through MacAndrews & Forbes,
also beneﬁcially owns all of the outstanding 31,250,000 shares of Revlon, Inc. Class B Common Stock, each of which is
convertible into one share of Class A Common Stock, which, together with the Class A Common Stock referenced above,
represent approximately 60% of the outstanding shares of Revlon, Inc. Common Stock and approximately 77% of the
combined voting power of such shares. Shares of Class A Common Stock and shares of intermediate holding companies
between Revlon, Inc. and MacAndrews & Forbes are, and may from time to time be, pledged to secure obligations of
MacAndrews & Forbes.

(2)

Information based solely on a Schedule 13G/A, dated and ﬁled with the SEC on February 14, 2006 and reporting, as of

December 31, 2005, beneﬁcial ownership by FMR Corp. and Edward C. Johnson 3d of 57,900,499 shares of Class A Common
Stock as of December 31, 2005 (collectively, the ‘‘Fidelity Owned Shares’’). According to the Schedule 13G/A, Fidelity
Management & Research Company (‘‘FMRC’’), a wholly-owned subsidiary of FMR Corp. and an investment advisor
registered under Section 203 of the Investment Advisers Act of 1940, was the beneﬁcial owner of 40,632,108 shares of Class
A Common Stock (which are included in the Fidelity Owned Shares) as a result of acting as investment advisor to various
investment companies registered under Section 8 of the Investment Company Act of 1940. The ownership of one investment
company, Fidelity Advisors High Yield Fund, amounted to 35,212,984 shares of Class A Common Stock (which are included
in the 40,632,108 shares referred to above). Edward C. Johnson 3d and FMR Corp., through its control of FMRC, and the
funds each has sole power to dispose of the 40,632,108 shares owned by the funds. Members of the family of Edward C.
Johnson 3d, Chairman of FMR Corp., are the predominant owners, directly or through trusts, of Series B shares of common
stock of FMR Corp., representing 49% of the voting power of FMR Corp. The Johnson family group and all other Series B
shareholders of FMR Corp. have entered into a shareholders’ voting agreement under which all Series B shares of FMR Corp.
will be voted in accordance with the majority vote of Series B shares of FMR Corp. As a result of facts described in the
Schedule 13G/A, through their ownership of voting common stock and the execution of the shareholders’ voting agreement,
members of the Johnson family may be deemed, under the Investment Company Act of 1940, to form a controlling group with
respect to FMR Corp. Neither FMR Corp. nor Edward C. Johnson 3d has the sole power to vote or direct the voting of the
shares owned directly by the Fidelity funds, which power resides with the funds’ Boards of Trustees. FMRC carries out the
voting of the shares under written guidelines established by the funds’ Boards of Trustees. Fidelity Management Trust
Company (‘‘FMTC’’), a wholly-owned subsidiary of FMR Corp. and a bank as deﬁned in Section 3(a)(6) of the Exchange Act,
was the beneﬁcial owner of 17,268,391 shares of Class A Common Stock (which are included in the Fidelity Owned Shares)
as a result of its serving as investment manager of the institutional account(s). Edward C. Johnson 3d and FMR Corp., through
its control of FMTC, each has sole dispositive power over 17,268,391 shares of Class A Common Stock and sole power to vote
or to direct the voting of 13,552,038 shares of Class A Common Stock (which are included in the Fidelity Owned Shares), and
no power to vote or to direct the voting of 3,716,353 shares of Class A Common Stock owned by the institutional account(s)
discussed above. FMRC, Fidelity Advisors High Yield Fund and FMTC share the same principal business address as FMR
Corp.

(3)

Includes 14,780 shares that Mr. Bernikow may acquire under vested options.

(4)

Includes 11,030 shares that Mr. Bohan may acquire under vested options.

(5)

Includes 31,655 shares that Mr. Feldberg may acquire under vested options.

(6)

Includes 35,000 shares that represent restricted shares that vested during 2004, 78,420 shares that represent restricted shares
that vested during 2005 and 595,000 shares that Mr. Kretzman may acquire under vested options (as set forth above in Item.
11, ‘‘Executive Compensation – Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values,’’ the
value of Mr. Kretzman’s exercisable in-the-money options at December 31, 2005 was $33,425).

(7)

Includes 134 shares held directly by Mr. Landau and 31,655 shares that Mr. Landau may acquire under vested options.

(8)

Includes 39,357 shares that represent restricted shares that vested during 2005 and 547,500 shares that Mr. McGuire may
acquire under vested options (as set forth above in Item. 11, ‘‘Executive Compensation – Aggregated Option Exercises in Last
Fiscal Year and Fiscal Year-End Option Values,’’ the value of Mr. McGuire’s exercisable in-the-money options at
December 31, 2005 was $39,325).

(9)

Includes 31,655 shares that Ms. Robinson may acquire under vested options.

(10) Includes 1,601,015 shares held directly by Mr. Stahl (including 250,000 shares that represent restricted shares that vested
during 2004, 900,000 shares that represent restricted shares that vested during 2005 and 250,000 restricted shares that vested
on February 17, 2006), 13,401 shares held by Mr. Stahl’s wife, as to which he disclaims beneﬁcial ownership, and 2,810,000
shares that Mr. Stahl may acquire under vested options (as set forth above in Item. 11, ‘‘Executive Compensation —
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values,’’ the value of Mr. Stahl’s exercisable
in-the-money options at December 31, 2005 was $193,700).

(11) Includes 15,000 shares held directly by Mr. Wolfe and 11,030 shares that Mr. Wolfe may acquire under vested options.

EQUITY COMPENSATION PLAN INFORMATION

The following table sets forth as of December 31, 2005, with respect to all equity compensation plans
of the Company previously approved and not previously approved by its stockholders: (i) the number of
securities to be issued upon the exercise of outstanding options, warrants and rights and the vesting of
restricted stock, (ii) the weighted-average exercise price of such outstanding options, warrants and rights
(which excludes restricted stock) and (iii) the number of securities remaining available for future issuance
under such equity compensation plans, excluding securities reﬂected in item (i). A description of the
Supplemental Stock Plan follows the table.

Equity Compensation Plan Information

(a)
Number of
securities to be
issued upon
exercise of
outstanding
options, warrants
and rights

(b)

Weighted-average
exercise price of
outstanding options,
warrants and rights

(c)
Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reﬂected in
column (a))

36,445,599(1)

$ 4.25(4)

1,927,811

Plan Category

Previously Approved by

Stockholders:

Stock Plan . . . . . . . . . . . . . . . . . . . . . .
Not Previously Approved by

Stockholders:(2)

Supplemental Stock Plan . . . . . . . . . .

397,500(3)

N/A(3)(4)

—

(1)

Includes 3,412,502 shares of restricted stock and 33,033,097 options issued under the Stock Plan.

(2) The Supplemental Stock Plan was not required to be approved by Revlon, Inc.’s stockholders under NYSE rules in effect in

February 2002 when the Supplemental Stock Plan was adopted.

(3)

Includes 530,000 shares of restricted stock issued under the Supplemental Stock Plan, the entire amount of securities issuable
under such plan, less 132,500 of such shares as to which the restrictions lapsed on June 18, 2004.

(4) Weighted-average exercise price excludes restricted stock.

On February 17, 2002, Revlon, Inc. adopted the Revlon, Inc. 2002 Supplemental Stock Plan (the
‘‘Supplemental Stock Plan’’), the purpose of which was to provide Mr. Stahl, the sole eligible participant,
with inducement awards to induce him to join the Company and to enhance the Company’s long-term
performance and proﬁtability. The Supplemental Stock Plan covers 530,000 shares of the Company’s Class
A Common Stock. Awards may be made under the Supplemental Stock Plan in the form of stock options,
stock appreciation rights and restricted or unrestricted stock. On February 17, 2002, the Compensation
Committee granted Mr. Stahl an Award of 530,000 restricted shares of Class A Common Stock, the full
amount of the shares of Class A Common Stock issuable under the Supplemental Stock Plan. The terms
of the Supplemental Stock Plan and the foregoing grant of restricted shares to Mr. Stahl are substantially
the same as the Stock Plan and the grant of restricted shares to Mr. Stahl under the Stock Plan. Pursuant
to the terms of the Supplemental Stock Plan, such grant was made conditioned upon Mr. Stahl’s execution
of the Company’s standard employee conﬁdentiality and non-competition agreement, which condition
Mr. Stahl fulﬁlled. See ‘‘— Employment Agreements’’ for information regarding vesting and forfeiture.

Item 13. Certain Relationships And Related Transactions

As of December 31, 2005, MacAndrews & Forbes beneﬁcially owned shares of Revlon, Inc.’s
Common Stock having approximately 77% of the combined voting power of such outstanding shares. As
a result, MacAndrews & Forbes is able to control the election of the entire Board of Directors of Revlon,
Inc. and control the vote on all matters submitted to a vote of Revlon, Inc.’s stockholders. MacAndrews
& Forbes is wholly owned by Ronald O. Perelman, who is Chairman of the Board of Directors of Revlon,
Inc.

Transfer Agreements

In June 1992, Revlon, Inc. and Products Corporation entered into an asset transfer agreement with
Revlon Holdings LLC (a Delaware limited liability company and formerly a Delaware corporation known
as Revlon Holdings Inc. (‘‘Revlon Holdings’’) and which is an afﬁliate and an indirect wholly-owned
subsidiary of MacAndrews & Forbes Holdings) and certain of Revlon Holdings’ wholly-owned
subsidiaries. Revlon, Inc. and Products Corporation also entered into a real property asset transfer
agreement with Revlon Holdings. Pursuant to such agreements, on June 24, 1992 Revlon Holdings
transferred assets to Products Corporation and Products Corporation assumed all of the liabilities of
Revlon Holdings, other than certain speciﬁcally excluded assets and liabilities (the liabilities excluded are
referred to as the ‘‘Excluded Liabilities’’). Certain consumer products lines sold in demonstrator-assisted
distribution channels considered not integral to Revlon, Inc.’s business, and that historically had not been
proﬁtable, and certain other assets and liabilities were retained by Revlon Holdings. Revlon Holdings
agreed to indemnify Revlon, Inc. and Products Corporation against losses arising from the Excluded
Liabilities, and Revlon, Inc. and Products Corporation agreed to indemnify Revlon Holdings against
losses arising from the liabilities assumed by Products Corporation. The amount reimbursed by Revlon
Holdings to Products Corporation for the Excluded Liabilities for 2005 was $0.2 million.

Reimbursement Agreements

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 afﬁliates) certain professional and administrative services, including employees, to Revlon, Inc.
and its subsidiaries, including Products Corporation, and purchase services from third party providers,
such as insurance, legal and accounting services 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 employees, to MacAndrews & Forbes and purchase services from third party providers, such as
insurance and legal and accounting services, on behalf of MacAndrews & Forbes to the extent requested
by MacAndrews & Forbes Inc., 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.
Products Corporation reimburses MacAndrews & Forbes for the allocable costs of the services purchased
for or provided to Products Corporation and its subsidiaries and for reasonable out-of-pocket expenses
incurred in connection with the provision of such services. MacAndrews & Forbes Inc. (or such afﬁliates)
reimburses Products Corporation for the allocable costs of the services purchased for or provided to
MacAndrews & Forbes and for the reasonable out-of-pocket expenses incurred in connection with the
purchase or provision of such services. Each of Revlon, Inc. and Products Corporation, on the one hand,
and MacAndrews & Forbes Inc., on the other, has agreed to indemnify the other party for losses arising
out of the provision of services 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. Products Corporation does not intend to request services under the
Reimbursement Agreements unless their costs would be at least as favorable to Products Corporation as
could be obtained from unafﬁliated third parties. Revlon, Inc. and Products Corporation participate in
MacAndrews & Forbes’ directors and ofﬁcers liability insurance program, which covers Revlon, Inc. and
Products Corporation as well as MacAndrews & Forbes. The limits of coverage are available on an
aggregate basis for losses to any or all of the participating companies and their respective directors and
ofﬁcers. Revlon, Inc. and Products Corporation reimburse MacAndrews & Forbes from time to time for
their allocable portion of the premiums for such coverage, which the Company believes is more favorable
than the premiums the Company would pay were it to secure stand-alone coverage. The amounts paid by
Revlon, Inc. and Products Corporation to MacAndrews & Forbes for premiums is included in the
amounts paid under the Reimbursement Agreements. The net amount payable to MacAndrews & Forbes
Inc. for the services provided under the Reimbursement Agreements for 2005 was $3.7 million.

Tax Sharing Agreements

As a result of the closing of the Revlon Exchange Transactions, as of the end of March 25, 2004,
Revlon, Inc., Products Corporation and their U.S. subsidiaries were no longer included in the
MacAndrews & Forbes Group for federal income tax purposes. See Item 7., ‘‘Management’s Discussion
and Analysis of Financial Condition and Results of Operations — Financial Condition, Liquidity and
Capital Resources — Sources and Uses’’ for further discussion on these agreements and related
transactions in 2005.

Registration Rights Agreement

Prior to the consummation of Revlon, Inc.’s initial public equity offering in February 1996, Revlon,
Inc. and Revlon Worldwide Corporation (subsequently merged into REV Holdings), the then direct
parent of Revlon, Inc., entered into a registration rights agreement (the ‘‘Registration Rights Agree-
ment’’), and in February 2003, MacAndrews & Forbes Inc. executed a joinder agreement to the
Registration Rights Agreement, pursuant to which REV Holdings, MacAndrews & Forbes Inc. and
certain transferees of Revlon, Inc.’s Common Stock held by REV Holdings (the ‘‘Holders’’) had the right
to require Revlon, Inc. to register under the Securities Act all or part of the Class A Common Stock
owned by such Holders, including shares of Class A Common Stock purchased in connection with the
$50.0 million equity rights offering consummated by Revlon, Inc. in 2003, and shares of Class A Common
Stock issuable upon conversion of Revlon, Inc.’s Class B Common Stock owned by such Holders (a
‘‘Demand Registration’’); provided that Revlon, Inc. may postpone giving effect to a Demand Registra-
tion for a period of up to 30 days if Revlon, Inc. believes such registration might have a material adverse
effect on any plan or proposal by Revlon, Inc. with respect to any ﬁnancing, acquisition, recapitalization,
reorganization or other material transaction, or if Revlon, Inc. is in possession of material non-public
information that,
if publicly disclosed, could result in a material disruption of a major corporate
development or transaction then pending or in progress or in other material adverse consequences to
Revlon, Inc. In addition, the Holders have the right to participate in registrations by Revlon, Inc. of its
Class A Common Stock (a ‘‘Piggyback Registration’’). The Holders will pay all out-of-pocket expenses
incurred in connection with any Demand Registration. Revlon, Inc. will pay any expenses incurred in
connection with a Piggyback Registration, except for underwriting discounts, commissions and expenses
attributable to the shares of Class A Common Stock sold by such Holders. In connection with the closing
of the Revlon Exchange Transactions and pursuant to the 2004 Investment Agreement, MacAndrews &
Forbes Inc. executed a joinder agreement that provided that MacAndrews & Forbes Inc. would also be
a Holder under the Registration Rights Agreement and that all shares acquired by MacAndrews &
Forbes Inc., pursuant to the Debt Reduction Transactions or the 2004 Investment Agreement, are deemed
to be registrable securities under the Registration Rights Agreement. This would include any Class A
Common Stock acquired by MacAndrews & Forbes in connection with Revlon, Inc.’s previously-
announced $110 million rights offering, which it intends to conduct by the end of March 2006, and that
would allow stockholders as of the February 13, 2006 record date to purchase additional shares of Class
A Common Stock. See Item 1., ‘‘Business – Recent Developments’’.

2004 Consolidated MacAndrews & Forbes Line of Credit

For a description of transactions in 2005 with MacAndrews & Forbes in connection with the 2004
loan agreements, see Item 7., ‘‘Management’s Discussion and Analysis of Financial Condition and Results
of Operations — Financial Condition, Liquidity and Capital Resources — 2004 Consolidated MacAn-
drews & Forbes Line of Credit.’’

2005 Reﬁnancing Transactions

For a description of transactions in 2005 with MacAndrews & Forbes in connection with the Debt
Reduction Transactions, the Revlon Exchange Transactions and the 2004 Investment Agreement, see
Item 7., ‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations —
Financial Condition, Liquidity and Capital Resources — 2005 Reﬁnancing Transactions, and — 2004
Reﬁnancing Transactions.’’

Other

Pursuant to a lease dated April 2, 1993 (the ‘‘Edison Lease’’), Revlon Holdings leased to Products
Corporation the Edison research and development facility for a term of up to 10 years with an annual rent
of $1.4 million and certain shared operating expenses payable by Products Corporation which, together
with the annual rent, were not to exceed $2.0 million per year. In August 1998, Revlon Holdings sold the
Edison facility to an unrelated third party, which assumed substantially all liability for environmental
claims and compliance costs relating to the Edison facility, and in connection with the sale Products
Corporation terminated the Edison Lease and entered into a new lease with the new owner. Revlon
Holdings agreed to indemnify Products Corporation through September 1, 2013 (the term of the new
lease) to the extent that rent under the new lease exceeds rent that would have been payable under the
terminated Edison Lease had it not been terminated. The net amount reimbursed by Revlon Holdings to
Products Corporation with respect to the Edison facility for 2005 was $0.3 million.

During 2005, Products Corporation leased a small amount of space at certain facilities to
MacAndrews & Forbes or its afﬁliates pursuant to occupancy agreements and leases, including space at
Products Corporation’s New York headquarters. The rent paid by MacAndrews & Forbes or its afﬁliates
to Products Corporation for 2005 was $0.2 million.

The 2004 Credit Agreement is supported by, among other things, guaranties from Revlon, Inc. and,
subject to certain limited exceptions, all of the domestic subsidiaries of Products Corporation. The
obligations under such guaranties are secured by, among other things, the capital stock of Products
Corporation and, subject to certain limited exceptions, the capital stock of all of Products Corporation’s
domestic subsidiaries and 66% of the capital stock of Products Corporation’s and its domestic subsidiaries’
ﬁrst-tier foreign subsidiaries. In connection with the Revlon Exchange Transactions, on February 11, 2004,
Revlon, Inc. entered into supplemental
indentures pursuant to which it agreed to guarantee the
obligations of Products Corporation under the indentures governing Products Corporation’s 85⁄8% Senior
Subordinated Notes and, prior to their redemption in April 2005, Products Corporation’s 81⁄8% Senior
Notes and 9% Senior Notes.

In March 2002, prior to the passage of the Sarbanes-Oxley Act of 2002, Products Corporation made
an advance of $1.8 million to Mr. Stahl pursuant to his employment agreement, which was entered into
in February 2002, for tax assistance related to a grant of restricted stock provided to Mr. Stahl pursuant
to such agreement, which loan bears interest at the applicable federal rate. In May 2002, prior to the
passage of the Sarbanes-Oxley Act of 2002, Products Corporation made an advance of $2.0 million to
Mr. Stahl pursuant to his employment agreement in connection with the purchase of his principal
residence in the New York City metropolitan area, which loan bears interest at the applicable federal rate.
Mr. Stahl repaid $147,299 of such loan during 2005. Pursuant to his employment agreement, Mr. Stahl
receives from Products Corporation additional compensation payable on a monthly basis equal to the
amount actually paid by him in respect of interest and principal on such $2.0 million advance, which for
2005 was $135,968. Products Corporation also pays Mr. Stahl a gross up for any taxes payable by Mr. Stahl
as a result of such additional compensation, which tax gross up amount was $68,999 in 2005.

During 2005, Products Corporation made payments of $0.6 million to Ms. Ellen Barkin under a
written agreement pursuant to which she provides voiceover services for certain of the Company’s
advertisements, which payments were competitive with industry rates for similarly situated talent.

During 2005, Products Corporation paid $1.0 million to a nationally-recognized security services
company, in which MacAndrews & Forbes has a controlling interest, for security ofﬁcer services. Products
Corporation’s decision to engage such ﬁrm was based upon its expertise in the ﬁeld of security services,
and the rates were competitive with industry rates for similarly situated security ﬁrms.

Although not required to be disclosed in this Item 13. ‘‘Certain Relationships and Related Party
Transactions’’ pursuant to Item 404 of Regulation S-K, during 2005, Products Corporation obtained
advertising, media and direct marketing services from various subsidiaries of WPP in the ordinary course
of business. Ms. Robinson, a member of Revlon, Inc.’s Board of Directors, is employed by one of WPP’s
subsidiaries, however, she is not an executive ofﬁcer of WPP and has no direct or indirect material interest
in the business that the Company conducts with WPP.

Item 14. Principal Accounting Fees and Services

AUDIT FEES

The Board of Directors of Revlon, Inc. maintains an Audit Committee in accordance with applicable
SEC rules and the NYSE’s listing standards. In accordance with the charter of Revlon, Inc.’s Audit
Committee, which is available at www.revloninc.com, Revlon, Inc.’s Audit Committee is directly
responsible for the appointment, compensation, retention and oversight of the work of Revlon, Inc.’s
independent auditors for the purpose of preparing and issuing its audit report or performing other audit,
review or attest services for Revlon, Inc. The independent auditors report directly to Revlon, Inc.’s Audit
Committee and Revlon, Inc.’s Audit Committee is directly responsible for, among other things, reviewing
in advance, and granting any appropriate pre-approvals of, (a) all auditing services to be provided by the
independent auditor and (b) all non-audit services to be provided by the independent auditor (as
permitted by the Exchange Act), and in connection therewith to approve all fees and other terms of
engagement, as required by the applicable rules of the Exchange Act and subject to the exemptions
provided for in such rules. The Audit Committee has an Audit Committee Pre-Approval Policy for
pre-approving all permissible audit and non-audit services performed by KPMG. In 2004, the Audit
Committee approved the Audit Committee Pre-Approval Policy for 2005, and in October 2005, the Audit
Committee approved the Audit Committee Pre-Approval Policy for 2006.

The aggregate fees billed for professional services by KPMG in 2005 and 2004 for these various

services were (in millions):

Types of Fees

Audit Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Audit-Related Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
All Other Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2005

$4.6
0.5
0.3
—

$5.4

2004

$5.6
0.3
0.5
—

$6.4

In the above table, in accordance with the SEC deﬁnitions and rules, ‘‘audit fees’’ are fees the
Company paid KPMG for professional services rendered for the audits of (i) Revlon, Inc.’s and Products
Corporation’s annual ﬁnancial statements, (ii) management’s assessment of the effectiveness of the
Company’s internal control over ﬁnancial reporting, (iii) the effectiveness of the Company’s internal
control over ﬁnancial reporting and (iv) the review of ﬁnancial statements included in Revlon, Inc.’s and
Products Corporation’s Quarterly Reports on Form 10-Q, and for services that are normally provided by
the auditor in connection with statutory and regulatory ﬁlings or engagements; ‘‘audit-related fees’’ are
fees billed by KPMG for assurance and related services that are traditionally performed by the auditor,
including services performed by KPMG related to employee beneﬁt plan audits, the issuance by Products
Corporation of its 91⁄2% Senior Notes in March and August 2005, the universal shelf registration statement
ﬁled by Revlon, Inc. with the SEC in 2005 and certain equity issuances undertaken pursuant to such shelf
registration, the Revlon Exchange Transactions consummated in 2004 and attest services not required by
statute or regulation; ‘‘tax fees’’ are fees for permissible tax compliance, tax advice and tax planning; and
‘‘all other fees’’ are fees billed by KPMG to the Company for any permissible services not included in the
ﬁrst three categories.

During 2005, the Audit Committee speciﬁcally pre-approved the services performed by KPMG in
connection with (i) Revlon, Inc.’s and Products Corporation’s 2005 audits, (ii) the issuance by Products
Corporation of its 91⁄2% Senior Notes in March and August 2005 and (iii) the universal shelf registration
statement ﬁled by Revlon, Inc. with the SEC in 2005 and Revlon, Inc.’s planned $110 million rights
offering being undertaken pursuant to such shelf registration. During 2004, the Audit Committee
speciﬁcally pre-approved the services performed by KPMG in connection with (i) Revlon, Inc.’s and
Products Corporation’s 2004 audit and (ii) the Debt Reduction Transactions consummated in 2004. All of
the other services performed by KPMG for the Company during 2005 and 2004 were either expressly
pre-approved by the Audit Committee or were pre-approved in accordance with the Audit Committee’s
Pre-Approval Policy and the Audit Committee was provided with regular updates as to the nature of such
services and fees paid for such services.

Website Availability of Reports and Other Corporate Governance Information

The Company maintains a comprehensive corporate governance program, including Corporate
Governance Guidelines for Revlon, Inc.’s Board of Directors, Revlon, Inc.’s Board Guidelines for
Assessing Director Independence and charters for Revlon, Inc.’s Audit Committee, Nominating and
Corporate Governance Committee and Compensation and Stock Plan Committee. Revlon, Inc. maintains
a corporate investor relations website, www.revloninc.com, where stockholders and other interested
persons may review, without charge, among other things, Revlon, Inc.’s corporate governance materials
and certain SEC ﬁlings (such as Revlon, Inc.’s annual reports on Form 10-K, quarterly reports on Form
10-Q, current reports on Form 8-K, proxy statements, annual reports, Section 16 reports reﬂecting certain
changes in the stock ownership of Revlon, Inc.’s directors and Section 16 executive ofﬁcers, and certain
other documents ﬁled with the Commission), each of which are generally available on the same business
day as the ﬁling date with the SEC on the SEC’s website http://www.sec.gov, as well as on the Company’s
website http://www.revloninc.com. In addition, under the section of the website entitled, ‘‘Corporate
Governance,’’ Revlon, Inc. posts printable copies of the latest versions of its Corporate Governance
Guidelines, Board Guidelines for Assessing Director Independence, charters for Revlon, Inc.’s Audit
Committee, Nominating and Corporate Governance Committee and Compensation and Stock Plan
Committee, as well as Revlon, Inc.’s Code of Business Conduct, which includes Revlon, Inc.’s Code of
Ethics for Senior Financial Ofﬁcers and the Audit Committee Pre-approval Policy, each of which the
Company will provide in print, without charge, upon written request to Robert K. Kretzman, Executive
Vice President and Chief Legal Ofﬁcer, Revlon, Inc., 237 Park Avenue, New York, NY 10017. The
business and ﬁnancial materials and any other statement or disclosure on, or made available through, the
Company’s websites shall not be considered a ‘‘free writing prospectus’’ under the SEC’s Rule 405 of the
Securities Act of 1933, as amended, unless speciﬁcally identiﬁed as such.

PART IV

Item 15. Exhibits, Financial Statement Schedules

(a)

List of documents ﬁled as part of this Report:

(1) Consolidated Financial Statements and Independent Auditors’ Report included herein:

See Index on page F-1.

(2) Financial Statement Schedule: See Index on page F-1.

All other schedules are omitted as they are inapplicable or the required information is
furnished in the Consolidated Financial Statements of the Company or the Notes
thereto.

(3) List of Exhibits:

Certiﬁcate of Incorporation and By-laws.

Restated Certiﬁcate of Incorporation of Revlon, Inc., dated April 30, 2004 (incorporated by
reference to Exhibit 3.1 to the Quarterly Report on Form 10-Q of Revlon, Inc. for the
quarter ended March 31, 2004 ﬁled with the Commission on May 17, 2004 (the ‘‘Revlon, Inc.
2004 First Quarter 10-Q’’)).

Amended and Restated By-Laws of Revlon, Inc. dated as of March 22, 2004 (incorporated
by reference to Exhibit 3.2 to the Revlon, Inc. 2004 First Quarter 10-Q).

Instruments Deﬁning the Rights of Security Holders, Including Indentures.

Credit Agreement, dated as of July 9, 2004, among Products Corporation and certain local
borrowing subsidiaries, as borrowers, the lenders and issuing lenders party thereto, Citicorp
USA, Inc., as term loan administrative agent, Citicorp USA, Inc. as multi-currency
administrative agent, Citicorp USA, Inc., as collateral agent, UBS Securities LLC, as
syndication agent, and Citigroup Global Markets Inc., as sole lead arranger and sole
bookrunner (the ‘‘2004 Credit Agreement’’) (incorporated by reference to Exhibit 4.34 to
the Current Report on Form 8-K of Products Corporation ﬁled with the Commission on
July 13, 2004 (the ‘‘Products Corporation July 13, 2004 Form 8-K’’)).

First Amendment dated February 15, 2006 to the 2004 Credit Agreement (incorporated by
reference to Exhibit 10.2 to the Current Report on Form 8-K of Products Corporation ﬁled
with the Commission on February 17, 2006 (the ‘‘Products Corporation February 2006 Form
8-K’’)).

Pledge and Security Agreement, dated as of July 9, 2004, among Revlon, Inc., Products
Corporation and the additional grantors party thereto, in favor of Citicorp USA, Inc., as
collateral agent for the secured parties (incorporated by reference to Exhibit 4.35 to the
Products Corporation July 13, 2004 Form 8-K).

Intercreditor and Collateral Agency Agreement, dated as of July 9, 2004, among Citicorp
USA, Inc., as administrative agent for the multi-currency lenders and issuing lenders,
Citicorp USA, Inc., as administrative agent for the term loan lenders, Citicorp USA, Inc.,
as collateral agent for the secured parties, Revlon, Inc., Products Corporation and each
other loan party (incorporated by reference to Exhibit 4.36 to the Products Corporation
July 13, 2004 Form 8-K).

3.1

3.2

4.1

4.2

4.3

4.4

4.5

4.6

4.7

4.8

4.9

10.

10.1

10.2

10.3

10.4

10.5

Indenture, dated as of February 1, 1998, between Revlon Escrow and U.S. Bank Trust
National Association, as trustee, relating to the 85⁄8% Senior Subordinated Notes due 2008
(as amended, the ‘‘85⁄8% Senior Subordinated Notes Indenture’’) (incorporated by reference
to Exhibit 4.3 to the Registration Statement on Form S-1 of Products Corporation ﬁled with
the Commission on March 12, 1998, File No. 333-47875 (the ‘‘Products Corporation
March 1998 Form S-1’’)).

First Supplemental Indenture, dated March 4, 1998, among Products Corporation, Revlon
Escrow, and U.S. Bank Trust National Association, as trustee, amending the 85⁄8% Senior
Subordinated Notes Indenture (incorporated by reference to Exhibit 4.4 to the Products
Corporation March 1998 Form S-1).

Second Supplemental Indenture, dated as of February 11, 2004, among Products Corporation,
U.S. Bank Trust National Association, as trustee, and Revlon, Inc. as guarantor, amending
the 85⁄8% Senior Subordinated Notes Indenture (incorporated by reference to Exhibit 4.31
of the Current Report on Form 8-K of Revlon, Inc. ﬁled with the Commission on
February 12, 2004 (the ‘‘Revlon, Inc. February 12, 2004 Form 8-K’’)).

Indenture, dated as of March 16, 2005, between Products Corporation and U.S. Bank
National Association, as trustee, relating to Products Corporation’s 91⁄2% Senior Notes due
2011 (incorporated by reference to Exhibit 4.12 to the Annual Report on Form 10-K/A for
the year ended December 31, 2004 of Products Corporation (the ‘‘2004 Products Corporation
10-K/A’’)).

Stock Purchase Agreement, dated February 17, 2006, between Revlon, Inc. and MacAndrews
& Forbes Holdings (incorporated by reference to Exhibit 10.1 to the Current Report on
Form 8-K of Revlon, Inc. ﬁled with the Commission on February 17, 2006 (the ‘‘Revlon, Inc.
February 2006 Form 8-K’’)).

Material Contracts.

Tax Sharing Agreement, dated as of June 24, 1992, among MacAndrews & Forbes Holdings,
Revlon, Inc., Products Corporation and certain subsidiaries of Products Corporation, as
amended and restated as of January 1, 2001 (incorporated by reference to Exhibit 10.2 to
the Annual Report on Form 10-K of Products Corporation for the ﬁscal year ended
December 31, 2001 ﬁled with the Commission on February 25, 2002 (the ‘‘Products
Corporation 2001 Form 10-K’’)).

Tax Sharing Agreement, dated as of March 26, 2004, by and among Revlon, Inc., Products
Corporation and certain subsidiaries of Products Corporation (incorporated by reference to
Exhibit 10.25 to the Quarterly Report on Form 10-Q of Products Corporation for the
quarter ended March 31, 2004 ﬁled with the Commission on May 17, 2004).

Employment Agreement, dated as of February 17, 2002, between Products Corporation and
Jack L. Stahl (the ‘‘Stahl Employment Agreement’’) (incorporated by reference to Exhibit
10.17 to the Quarterly Report on Form 10-Q of Revlon, Inc. for the quarter ended
March 31, 2002 ﬁled with the Commission on May 15, 2002).

First Amendment to the Stahl Employment Agreement, effective as of December 17, 2004
(incorporated by reference to Exhibit 10.35 to the Current Report on Form 8-K of Revlon,
Inc. ﬁled with the Commission on December 22, 2004 (the ‘‘Revlon, Inc. December 22, 2004
Form 8-K’’)).

Employment Agreement, dated as of August 18, 2003, between Products Corporation and
Thomas E. McGuire (the ‘‘McGuire Employment Agreement’’) (incorporated by reference
to Exhibit 10.5 to the Quarterly Report on Form 10-Q of Revlon, Inc. for the quarter ended
September 30, 2003 ﬁled with the Commission on November 14, 2003).

10.6

*10.7

10.8

Amendment to McGuire Employment Agreement, dated as of December 17, 2004
(incorporated by reference to Exhibit 10.36 to the Revlon, Inc. December 22, 2004 Form
8-K).

Second Amendment to McGuire Employment Agreement, effective as of March 2, 2006.

Employment Agreement, dated as of June 10, 2002, between Products Corporation and
David L. Kennedy (the ‘‘Kennedy Employment Agreement’’) (incorporated by reference to
Exhibit 99.1 to the Current Report on Form 8-K of Revlon, Inc. ﬁled with the Commission
on January 18, 2006).

*10.9

First Amendment to Kennedy Employment Agreement, effective March 2, 2006.

10.10

10.11

10.12

10.13

10.14

10.15

10.16

10.17

10.18

10.19

10.20

Employment Agreement, dated as of November 1, 2002, between Products Corporation
and Robert K. Kretzman (incorporated by reference to Exhibit 10.10 to the Annual Report
on Form 10-K of Revlon, Inc. for the ﬁscal year ended December 31, 2004 ﬁled with the
Commission on March 10, 2005 (the ‘‘Revlon, Inc. 2004 Form 10-K’’)).

Amended and Restated Revlon, Inc. Stock Plan (as amended the ‘‘Stock Plan’’) (incorporated
by reference to Exhibit 4.1 to the Registration Statement on Form S-8 of Revlon, Inc. ﬁled
with the Commission on June 4, 2004, File No. 333-116160).

Current form of Nonqualiﬁed Stock Option Agreement under the Stock Plan (incorporated
by reference to Exhibit 10.12 to the Revlon, Inc. 2004 Form 10-K).

Current form of Restricted Stock Agreement under the Stock Plan (incorporated by
reference to Exhibit 10.13 to the Revlon, Inc. 2004 Form 10-K).

Revlon, Inc. 2002 Supplemental Stock Plan (incorporated by reference to Exhibit 4.1 to the
Registration Statement on Form S-8 of Revlon, Inc. ﬁled with the Commission on
June 24, 2002, File No. 333-91040).

Revlon Executive Bonus Plan (incorporated by reference to Exhibit 10.15 to the Quarterly
Report on Form 10-Q of Products Corporation for the quarter ended June 30, 2005 ﬁled
with the Commission on August 9, 2005 (the ‘‘Products Corporation 2005 Second Quarter
Form 10-Q’’)).

Amended and Restated Revlon Pension Equalization Plan, amended and restated as of
December 14, 1998 (incorporated by reference to Exhibit 10.15 to the Annual Report on
Form 10-K of Revlon, Inc. for year ended December 31, 1998 ﬁled with the Commission on
March 3, 1999).

Executive Supplemental Medical Expense Plan Summary, dated July 2000 (incorporated by
reference to Exhibit 10.10 to the Annual Report on Form 10-K of Revlon, Inc. for the year
ended December 31, 2002 ﬁled with the Commission on March 21, 2003 (the ‘‘Revlon, Inc.
2002 Form 10-K’’)).

Beneﬁt Plans Assumption Agreement, dated as of July 1, 1992, by and among Revlon
Holdings, Revlon, Inc. and Products Corporation (incorporated by reference to Exhibit
10.25 to the Annual Report on Form 10-K for the year ended December 31, 1992 of
Products Corporation ﬁled with the Commission on March 12, 1993).

Revlon Executive Severance Policy, as amended July 1, 2002 (incorporated by reference to
Exhibit 10.13 to the Revlon, Inc. 2002 Form 10-K).

2004 Senior Unsecured Line of Credit Agreement, dated as of July 9, 2004, between
Products Corporation and MacAndrews & Forbes (the ‘‘2004 Consolidated MacAndrews &
Forbes Line of Credit’’) (incorporated by reference to Exhibit 10.34 to the Quarterly
Report on Form 10-Q of Revlon, Inc. for the quarter ended June 30, 2004 ﬁled with the
Commission on August 16, 2004).

10.21

10.22

10.23

10.24

10.25

10.26

10.27

10.28

First Amendment, dated as of August 4, 2005, to the 2004 Consolidated MacAndrews &
Forbes Line of Credit (incorporated by reference to Exhibit 10.33 to the Products
Corporation 2005 Second Quarter Form 10-Q).

Second Amendment, dated as of February 17, 2006, to the 2004 Consolidated MacAndrews
& Forbes Line of Credit (incorporated by reference to Exhibit 10.4 to the Products
Corporation February 2006 Form 8-K).

Stockholders Agreement, dated as of February 20, 2004, by and between Revlon, Inc. and
Fidelity (incorporated by reference to Exhibit 10.29 to the Current Report on Form 8-K of
Revlon, Inc. ﬁled with the Commission on February 23, 2004 (the ‘‘Revlon, Inc.
February 23, 2004 Form 8-K’’)).

Investment Agreement, dated as of February 5, 2003, among Revlon, Inc., Products
Corporation and MacAndrews & Forbes Holdings (incorporated by reference to Exhibit 2.1
to the Current Report on Form 8-K of Products Corporation ﬁled with the Commission on
February 5, 2003).

Investment Agreement, dated as of February 20, 2004, by and between Revlon, Inc. and
MacAndrews & Forbes Holdings (as amended, the ‘‘2004 Investment Agreement’’)
(incorporated by reference to Exhibit 10.30 of the Revlon, Inc. February 23, 2004 Form
8-K).

Amendment, dated as of March 24, 2004, to the 2004 Investment Agreement (incorporated
by reference to Exhibit 10.33 to the Current Report on Form 8-K of Revlon, Inc. ﬁled with
the Commission on March 26, 2004).

Second Amendment, dated as of March 7, 2005, to the 2004 Investment Agreement
(incorporated by reference to Exhibit 10.31 to the Revlon, Inc. 2004 Form 10-K).

Third Amendment, dated as of August 4, 2005, to the 2004 Investment Agreement
(incorporated by reference to Exhibit 10.34 to the Quarterly Report on Form 10-Q of
Revlon, Inc. for the quarter ended June 30, 2005 ﬁled with the Commission on August 9,
2005).

10.29

Fourth Amendment, dated as of February 17, 2006, to the 2004 Investment Agreement
(incorporated by reference to Exhibit 10.3 to the Revlon, Inc. February 2006 Form 8-K).

21.

*21.1

23.

*23.1

24.

*24.1

*24.2

*24.3

*24.4

*24.5

*24.6

*24.7

*24.8

Subsidiaries.

Subsidiaries of Revlon, Inc.

Consents of Experts and Counsel.

Consent of KPMG LLP.

Powers of Attorney.

Power of Attorney executed by Ronald O. Perelman.

Power of Attorney executed by Howard Gittis.

Power of Attorney executed by Donald G. Drapkin.

Power of Attorney executed by Alan S. Bernikow.

Power of Attorney executed by Paul J. Bohan.

Power of Attorney executed by Meyer Feldberg.

Power of Attorney executed by Edward J. Landau.

Power of Attorney executed by Debra L. Lee.

*24.9

*24.10

*24.11

*31.1

*31.2

32.1
(furnished
herewith)

32.2
(furnished
herewith)

Power of Attorney executed by Linda Gosden Robinson.

Power of Attorney executed by Kathi P. Seifert.

Power of Attorney executed by Kenneth L. Wolfe.

Certiﬁcation of Jack L. Stahl, Chief Executive Ofﬁcer, dated March 2, 2006, pursuant to
Rule 13a-14(a)/15d-14(a) of the Exchange Act.

Certiﬁcation of Thomas E. McGuire, Chief Financial Ofﬁcer, dated March 2, 2006, pursuant
to Rule 13a-14(a)/15d-14(a) of the Exchange Act.

Certiﬁcation of Jack L. Stahl, Chief Executive Ofﬁcer, dated March 2, 2006, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Certiﬁcation of Thomas E. McGuire, Chief Financial Ofﬁcer, dated March 2, 2006, pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.

*99.1

Revlon, Inc. Audit Committee Pre-Approval Policy.

Filed herewith

REVLON, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE

Report of Independent Registered Public Accounting Firm (Consolidated Financial

Statements)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Report of Independent Registered Public Accounting Firm (Internal Control Over

Financial Reporting) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Audited Financial Statements:

Consolidated Balance Sheets as of December 31, 2005 and 2004 . . . . . . . . . . . . . . . . . . . . . .

Consolidated Statements of Operations for each of the years in the three-year period

ended December 31, 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Consolidated Statements of Stockholders’ Deﬁciency and Comprehensive Loss for each

of the years in the three-year period ended December 31, 2005 . . . . . . . . . . . . . . . . . . . . .

Consolidated Statements of Cash Flows for each of the years in the three-year period

ended December 31, 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Financial Statement Schedule:

Page

F-2

F-3

F-4

F-5

F-6

F-7

F-8

Schedule II — Valuation and Qualifying Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F-48

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders
Revlon, Inc.:

We have audited the accompanying consolidated balance sheets of Revlon, Inc. and subsidiaries as of
December 31, 2005 and 2004, and the related consolidated statements of operations, stockholders’
deﬁciency and comprehensive loss, and cash ﬂows for each of the years in the three-year period ended
December 31, 2005. In connection with our audits of the consolidated ﬁnancial statements, we also have
audited the ﬁnancial statement schedule as listed on the index on page F-1. These consolidated ﬁnancial
statements and the ﬁnancial statement schedule are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these consolidated ﬁnancial statements and the ﬁnancial
statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the ﬁnancial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the ﬁnancial statements.
An audit also includes assessing the accounting principles used and signiﬁcant estimates made by
management, as well as evaluating the overall ﬁnancial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, the consolidated ﬁnancial statements referred to above present fairly, in all material
respects, the ﬁnancial position of Revlon, Inc. and subsidiaries as of December 31, 2005 and 2004, and the
results of their operations and their cash ﬂows for each of the years in the three-year period ended
December 31, 2005, in conformity with U.S. generally accepted accounting principles. Also in our opinion,
the related ﬁnancial statement schedule, when considered in relation to the basic consolidated ﬁnancial
statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the effectiveness of Revlon, Inc. and subsidiaries’ internal control over ﬁnancial
reporting as of December 31, 2005, based on criteria established in Internal Control — Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO),
and our report dated March 1, 2006, expressed an unqualiﬁed opinion on management’s assessment of,
and the effective operation of, internal control over ﬁnancial reporting.

/s/ KPMG LLP

New York, New York
March 1, 2006

F-2

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders
Revlon, Inc.:

We have audited management’s assessment, included in the accompanying Management’s Annual Report
on Internal Control over Financial Reporting in item 9A(b), that Revlon, Inc. maintained effective
internal control over ﬁnancial reporting as of December 31, 2005, based on criteria established in Internal
Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). Revlon, Inc.’s management is responsible for maintaining effective internal control
over ﬁnancial reporting and for its assessment of the effectiveness of internal control over ﬁnancial
reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the
effectiveness of the Company’s internal control over ﬁnancial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether effective internal control over ﬁnancial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over ﬁnancial reporting,
evaluating management’s assessment, testing and evaluating the design and operating effectiveness of
internal control, and performing such other procedures as we considered necessary in the circumstances.
We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over ﬁnancial reporting is a process designed to provide reasonable
assurance regarding the reliability of ﬁnancial reporting and the preparation of ﬁnancial statements for
external purposes in accordance with generally accepted accounting principles. A company’s internal
control over ﬁnancial reporting includes those policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly reﬂect the transactions and dispositions of the
assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of ﬁnancial statements in accordance with generally accepted accounting principles,
and that receipts and expenditures of the company are being made only in accordance with authorizations
of management and directors of the company; and (3) provide reasonable assurance regarding prevention
or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have
a material effect on the ﬁnancial statements.

Because of its inherent limitations, internal control over ﬁnancial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.

In our opinion, management’s assessment that Revlon, Inc. maintained effective internal control over
ﬁnancial reporting as of December 31, 2005, is fairly stated, in all material respects, based on criteria
established in Internal Control — Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Also, in our opinion, Revlon, Inc. maintained, in all
material respects, effective internal control over ﬁnancial reporting as of December 31, 2005, based on
criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO).

We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated balance sheets of Revlon, Inc. and subsidiaries as of Decem-
ber 31, 2005 and 2004, and the related consolidated statements of operations, stockholders’ deﬁciency and
comprehensive loss, and cash ﬂows for each of the years in the three-year period ended Decem-
ber 31, 2005, and our report dated March 1, 2006 expressed an unqualiﬁed opinion on those consolidated
ﬁnancial statements.

/s/ KPMG LLP

New York, New York
March 1, 2006

F-3

REVLON, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(dollars in millions, except per share amounts)

Current assets:

ASSETS

Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trade receivables, less allowances of $18.9 and $19.0 as of

December 31, 2005 and 2004, respectively . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, plant and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

December 31,
2005

December 31,
2004

32.5

120.8

282.2
220.6
56.7

592.0
119.7
146.0
186.0

200.6
154.7
69.7

545.8
118.7
149.9
186.1

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 1,043.7

$ 1,000.5

LIABILITIES AND STOCKHOLDERS’ DEFICIENCY

Current liabilities:

Short-term borrowings — third parties . . . . . . . . . . . . . . . . . . . . . . . . . .
Current portion of long-term debt — third parties
. . . . . . . . . . . . . . .
Accounts payable and outstanding checks . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt — third parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stockholders’ deﬁciency:

Class B Convertible Common Stock, par value $0.01 per share;

200,000,000 shares authorized, 31,250,000 issued and outstanding
as of December 31, 2005 and 2004, respectively . . . . . . . . . . . . . . . .

Class A Common Stock, par value $0.01 per share; 900,000,000

shares authorized and 344,472,735 and 344,592,944 shares issued
as of December 31, 2005 and 2004, respectively . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Additional paid-in capital
Treasury stock, at cost; 236,315 and 0 shares of Class A Common

Stock as of December 31, 2005 and 2004, respectively . . . . . . . . . .
Accumulated deﬁcit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . .

Total stockholders’ deﬁciency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

9.0
—
133.1
328.4

470.5
1,413.4
255.7

36.6
10.5
95.2
283.2

425.5
1,308.2
286.7

0.3

3.4
771.3

(0.8)
(1,741.9)
(6.5)
(121.7)

(1,095.9)

3.4
771.4

—
(1,658.2)
(12.5)
(124.3)

(1,019.9)

Total liabilities and stockholders’ deﬁciency . . . . . . . . . . . . . . . . . . .

$ 1,043.7

$ 1,000.5

See Accompanying Notes to Consolidated Financial Statements

F-4

REVLON, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(dollars in millions, except per share amounts)

Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1,332.3 $
508.1

1,297.2 $
485.3

1,299.3
501.1

Year Ended December 31,
2004

2005

2003

Gross proﬁt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative expenses . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . .
Restructuring costs and other, net

Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Other expenses (income):

Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of debt issuance costs . . . . . . . . . . . . . . . . . . .
Foreign currency (gains) losses, net . . . . . . . . . . . . . . . . . . .
Loss on early extinguishment of debt
. . . . . . . . . . . . . . . . .
Miscellaneous, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Other expenses, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Loss before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Basic and diluted loss per common share:

Net loss per common share . . . . . . . . . . . . . . . . . . . . . . . . . .

Weighted average number of common shares outstanding:

824.2
757.8
1.5

64.9

130.0
(5.8)
6.9
0.5
9.0
(0.5)

140.1

(75.2)
8.5

811.9
717.6
5.8

88.5

130.8
(4.8)
8.2
(5.2)
90.7
2.0

221.7

(133.2)
9.3

(83.7) $

(142.5) $

798.2
770.9
6.0

21.3

174.5
(4.3)
8.9
(5.0)
—
0.5

174.6

(153.3)
0.5

(153.8)

(0.23) $

(0.47) $

(2.47)

Basic and diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

371,132,302

301,053,334

62,327,726

See Accompanying Notes to Consolidated Financial Statements

F-5

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIENCY AND COMPREHENSIVE LOSS

REVLON, INC. AND SUBSIDIARIES

(dollars in millions)

Preferred
Stock
$ 54.6

Common
Stock
$0.5

Additional
Paid-In-
Capital
(Capital
Deﬁciency)
$(192.6)

Treasury
Stock
$ —

Accumulated
Deﬁcit
$(1,361.9)

Deferred
Compensation
$ (6.4)

Accumulated
Other
Comprehensive
Loss
$(132.7)

Total
Stockholders’
Deﬁciency
$(1,638.5)

0.2

46.7

6.9(a)

2.2

(153.8)

1.5

(1.4)
10.6

54.6

(54.6)

0.7

3.0

(139.0)

—

(1,515.7)

(4.2)

(122.0)

879.3

16.4(a)
14.7

(14.7)

6.4

(142.5)

(1.6)

(1.3)
0.6

—

3.7

771.4

—
(0.8)

(1,658.2)

(12.5)

(124.3)

(0.2)

0.1

0.2

5.8

(83.7)

6.7

2.4
(6.5)

$ —

$3.7

$ 771.3

$(0.8)

$(1,741.9)

$ (6.5)

$(121.7)

46.9

6.9

2.2

(153.8)

1.5

(1.4)
10.6
(143.1)
(1,725.6)

827.7

16.4
—

6.4

(142.5)

(1.6)

(1.3)
0.6
(144.8)
(1,019.9)
(0.8)
—

0.1

5.8

(83.7)

6.7

2.4
(6.5)
(81.1)
$(1,095.9)

Balance, January 1, 2003 . . . . . . . . . . .

Net proceeds from 2003 Rights

Offering (See Note 9) . . . . . . . . . .
Reduction of liabilities assumed from
indirect parent . . . . . . . . . . . . . . .

Amortization of deferred

compensation . . . . . . . . . . . . . . .

Comprehensive loss:

Net loss
Adjustment for minimum pension

. . . . . . . . . . . . . . . . . . .

liability . . . . . . . . . . . . . . . . . .

Revaluation of foreign currency

forward exchange contracts . . . .
Currency translation adjustment . . .
Total comprehensive loss . . . . . . . . .
Balance, December 31, 2003 . . . . . . . .
Common stock issued in exchange for
debt, accrued interest and preferred
stock (b) . . . . . . . . . . . . . . . . . . .
Reduction of liabilities assumed from
indirect parent . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . .
Amortization of deferred

compensation . . . . . . . . . . . . . . .

Comprehensive loss:

Net loss
Adjustment for minimum pension

. . . . . . . . . . . . . . . . . . .

liability . . . . . . . . . . . . . . . . . .

Revaluation of foreign currency

forward exchange contracts . . . .
Currency translation adjustment . . .
Total comprehensive loss . . . . . . . . .
Balance, December 31, 2004 . . . . . . . .
Treasury stock acquired, at cost (c) . .
Stock-based compensation . . . . . . . .
Exercise of stock options for common
stock . . . . . . . . . . . . . . . . . . . . . .

Amortization of deferred

compensation . . . . . . . . . . . . . . .

Comprehensive loss:

Net loss
Adjustment for minimum pension

. . . . . . . . . . . . . . . . . . .

liability . . . . . . . . . . . . . . . . . .

Revaluation of foreign currency

forward exchange contracts . . . .
. .
Currency translation adjustment
Total comprehensive loss . . . . . . . . .
Balance, December 31, 2005 . . . . . . . .

(a) During 2003, the Company resolved various tax audits, which resulted in a tax beneﬁt of $13.9 of which $6.9 was recorded directly to capital deﬁciency
since it relates to liabilities assumed by Revlon Consumer Products Corporation in connection with the transfer agreements related to Revlon
Consumer Products Corporation’s formation in 1992. During 2004, the Company resolved various state and federal tax audits and determined that
certain tax liabilities assumed by Revlon Consumer Products Corporation in connection with transfer agreements related to Revlon Consumer Products
Corporation’s formation in 1992 were no longer probable. As a result, $16.4 was recorded directly to capital deﬁciency. (See Note 16, ‘‘Related Party
Transactions’’).

(b) The changes in Preferred Stock, Common Stock, Additional Paid-in-Capital (Capital Deﬁciency) and a portion of Accumulated Deﬁcit are a result of

the consummation of the Revlon Exchange Transactions. (See Note 9, ‘‘Long-Term Debt’’).

(c) Amount relates to 236,315 shares of Revlon, Inc. Class A common stock received from certain executives to satisfy the minimum statutory tax

withholding requirements related to the vesting of shares of restricted stock. (See Note 13, ‘‘Treasury Stock’’).
See Accompanying Notes to Consolidated Financial Statements

F-6

REVLON, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in millions)

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of debt discount
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock compensation amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on early extinguishment of debt
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in assets and liabilities:

(Increase) decrease in trade receivables . . . . . . . . . . . . . . . . . . . . . . . . .
Increase in inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Increase) decrease in prepaid expenses and other current assets . . .
Increase (decrease) in accounts payable . . . . . . . . . . . . . . . . . . . . . . . . .
Increase (decrease) in accrued expenses and other current liabilities
Purchase of permanent displays . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used in operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment in debt defeasance trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . .
Liquidation of investment in debt defeasance trust
Payment received on note from parent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from the sale of brand and certain assets
. . . . . . . . . . . . . . . . . . .
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in short-term borrowings and overdraft — third

parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from the issuance of long-term debt — third parties . . . . . . . . . .
Repayment of long-term debt — third parties, including prepayment fee
and premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from the issuance of long-term debt — afﬁliates . . . . . . . . . . . . .
Repayment of long-term debt — afﬁliates . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net Proceeds from the 2003 Rights Offering . . . . . . . . . . . . . . . . . . . . . . . . .
Issuance of Series C preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Redemption of Series C preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from the exercise of stock options for common stock . . . . . . . . .
Payment of ﬁnancing costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by ﬁnancing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of exchange rate changes on cash and cash equivalents . . . . . . . . . .
Net (decrease) increase in cash and cash equivalents . . . . . . . . . . . . . . . .
Cash and cash equivalents at beginning of period . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at end of period . . . . . . . . . . . . . . . . . . . . . . . .

Supplemental schedule of cash ﬂow information:

Cash paid during the period for:

Interest
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes, net of refunds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Supplemental schedule of non-cash investing and ﬁnancing activities:
Conversion of long-term debt and accrued interest into Class A

2005

December 31,
2004

2003

$ (83.7) $ (142.5) $(153.8)

102.9
0.2
5.8
9.0

(86.5)
(69.8)
2.6
22.0
12.9
(69.6)
14.5
(139.7)

(25.8)
(197.9)
197.9
10.0
—
(15.8)

106.1
1.8
6.4
77.3

(12.1)
(7.8)
(22.3)
(4.4)
(60.3)
(56.0)
19.6
(94.2)

(18.9)
—
—
—
—
(18.9)

107.6
3.1
2.2
—

40.2
(5.7)
2.9
0.5
(109.8)
(72.9)
19.3
(166.4)

(28.6)
—
—
—
5.3
(23.3)

(8.8)
386.2

6.0
1,136.2

(1.6)
233.1

(297.9)
—
—
—
—
—
0.1
(12.0)
67.6
(0.4)
(88.3)
120.8
$ 32.5

(960.2)
42.4
(19.5)
—
—
—
—
(30.4)
174.5
2.9
64.3
56.5
$ 120.8

(239.3)
178.1
(62.6)
46.9
50.0
(50.0)
—
(3.5)
151.1
9.3
(29.3)
85.8
$ 56.5

$ 123.5
$ 17.9

$ 133.9
11.1
$

$ 160.8
6.7
$

Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Exchange and conversion of Series A and Series B Preferred Stock

$ — $ 813.8

$ —

into Class A Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Treasury stock received to satisfy tax withholding liabilities . . . . . . . . . .
. . . . . . . . . . . . . . .
Reduction of liabilities assumed from indirect parent

$ — $
$
$
0.8
$ — $

See Accompanying Notes to Consolidated Financial Statements

F-7

54.6

$ —
— $ —
6.9
$

16.4

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

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation and Basis of Presentation:

Revlon, Inc. (and together with its subsidiaries, the ‘‘Company’’) conducts its business exclusively
through its direct subsidiary, Revlon Consumer Products Corporation and its subsidiaries (‘‘Products
Corporation’’). The Company manufactures and sells an extensive array of cosmetics, skincare,
fragrances, beauty tools and personal care products. The Company’s principal customers include large
mass volume retailers and chain drug stores, as well as certain department stores and other specialty
stores, such as perfumeries. The Company also sells consumer products to U.S. military exchanges and
commissaries and has a licensing group, pursuant to which the Company licenses certain of its key brand
names to third parties for complimentary beauty-related products and accessories.

Unless the context otherwise requires, all references to the Company mean Revlon, Inc. and its
subsidiaries. Revlon, Inc., as a public holding company, has no business operations of its own and its only
material asset has been all of the outstanding capital stock of Products Corporation. As such, its net (loss)
income has historically consisted predominantly of the net (loss) income of Products Corporation, and in
2005, 2004 and 2003 included approximately $7.6 million, $1.2 million and $1.2 million, respectively, in
expenses incidental to being a public holding company.

The accompanying 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 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, 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.

Cash and Cash Equivalents:

Cash equivalents are primarily investments in high-quality, short-term money market instruments
with original maturities of three months or less and are carried at cost, which approximates fair value.
Cash equivalents were $9.7 million and $79.0 million as of December 31, 2005 and 2004, respectively.
Accounts payable includes $18.2 million and $4.4 million of outstanding checks not yet presented for
payment at December 31, 2005 and 2004, respectively.

In accordance with borrowing arrangements with certain ﬁnancial institutions, Products Corporation
is permitted to borrow against its cash balances. The cash available to Products Corporation is the net of
the cash position less amounts supporting these short-term borrowings. The cash balances and related
borrowings are shown gross in the Company’s Consolidated Balance Sheets. As of December 31, 2005 and
2004, the Company had $3.2 million and $36.2 million, respectively, of cash supporting such short-term
borrowings. (See Note 8, ‘‘Short-Term Borrowings’’).

F-8

Accounts Receivable:

Accounts receivable represent payments due to the Company for previously recognized net sales,
reduced by an allowance for doubtful accounts for balances, which are estimated to be uncollectible at
December 31, 2005 and 2004. The Company grants credit terms in the normal course of business to its
customers. Trade credit is extended based upon periodically updated evaluations of each customer’s
ability to perform its obligations. The Company does not normally require collateral or other security to
support credit sales. The allowance for doubtful accounts is determined based on historical experience
and ongoing evaluations of the Company’s receivables and evaluations of the risks of payment. Accounts
receivable balances are recorded against the allowance for doubtful accounts when they are deemed
uncollectible. Recoveries of accounts receivable previously recorded against the allowance are recorded
in the Consolidated Statements of Operations when received. At both December 31, 2005 and 2004, the
Company’s three largest customers accounted for an aggregate of approximately 43% of outstanding
accounts receivable.

Inventories:

Inventories are stated at the lower of cost or market value. Cost is principally determined by the

ﬁrst-in, ﬁrst-out method.

Property, Plant and Equipment and Other Assets:

Property, plant and equipment is recorded at cost and is depreciated on a straight-line basis over the
estimated useful lives of such assets as follows: land improvements, 20 to 40 years; buildings and
improvements, 5 to 45 years; machinery and equipment, 3 to 17 years; and ofﬁce furniture and ﬁxtures and
capitalized software, 2 to 12 years. Leasehold improvements are amortized over their estimated useful
lives or the terms of the leases, whichever is shorter. Repairs and maintenance are charged to operations
as incurred, and expenditures for additions and improvements are capitalized.

Long-lived assets, including ﬁxed assets and intangibles other than goodwill, are reviewed for
impairment whenever events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. If events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable, the Company estimates the undiscounted future cash ﬂows (excluding
interest) resulting from the use of the asset and its ultimate disposition. If the sum of the undiscounted
cash ﬂows (excluding interest) is less than the carrying value, the Company recognizes an impairment loss,
measured as the amount by which the carrying value exceeds the fair value of the asset.

Included in other assets are net permanent wall displays amounting to approximately $91.4 million
and $94.2 million as of December 31, 2005 and 2004, respectively, which are generally amortized over 3
years in the U.S. and generally over 3 to 5 years outside of the U.S. Amortization expense for permanent
wall displays for 2005, 2004 and 2003 was $70.4 million, $60.9 million and $62.1 million, respectively. The
Company has included in other assets net costs related to the issuance of Products Corporation’s debt
instruments amounting to approximately $33.9 million and $31.6 million as of December 31, 2005 and
2004, respectively, which are amortized over the terms of the related debt instruments. In addition, the
Company has included in other assets trademarks, net, of $8.1 million and $7.8 million as of
December 31, 2005 and 2004, respectively, and patents, net, of $2.3 million and $3.2 million as of
December 31, 2005 and 2004, respectively. Patents and trademarks are recorded at cost and amortized
ratably over approximately 10 to 17 years. Amortization expense for patents and trademarks for 2005,
2004 and 2003 was $2.0 million, $1.8 million and $1.8 million, respectively.

Intangible Assets Related to Businesses Acquired:

Intangible assets related to businesses acquired principally represent goodwill, which represents the
excess purchase price over the fair value of assets acquired. The Company accounts for its goodwill and
intangible assets in accordance with SFAS No. 142, ‘‘Goodwill and Other Intangible Assets’’, and does not
amortize its goodwill. The Company reviews its goodwill for impairment at least annually, or whenever
events or changes in circumstances would indicate possible impairment. The Company performs its

F-9

annual impairment test of goodwill as of September 30 and performed the annual test as of Septem-
ber 30, 2005 and 2004 and concluded that no impairment existed. The Company operates in one
reportable segment, which is also the only reporting unit for purposes of SFAS No. 142. Since the
Company currently only has one reporting unit, all of the goodwill has been assigned to the enterprise as
a whole. The Company compared its estimated fair value as measured by, among other factors, its market
capitalization to its net assets and since the fair value was substantially greater than the net assets, the
Company concluded that as of December 31, 2005 there was no impairment of goodwill. The amount
outstanding for goodwill, net, was $186.0 million and $186.1 million at December 31, 2005 and 2004,
respectively. Accumulated amortization aggregated $117.2 million and $117.3 million at Decem-
ber 31, 2005 and 2004, respectively. Amortization of goodwill ceased on January 1, 2002 upon adoption
of SFAS No. 142.

In accordance with SFAS No. 142, the Company’s intangible assets with ﬁnite useful lives are
amortized over their respective estimated useful lives to their estimated residual values, and reviewed for
impairment whenever events or changes in circumstances would indicate possible impairment in
accordance with Statement 144, ‘‘Accounting for the Impairment or Disposal of Long-Lived Assets’’.

Revenue Recognition:

Sales are recognized when revenue is realized or realizable and has been earned. The Company’s
policy is to recognize revenue when risk of loss and title to the product transfers to the customer. Net sales
is comprised of gross revenues less expected returns, trade discounts and customer allowances, which
include costs associated with off-invoice mark-downs and other price reductions, as well as trade
promotions and coupons. These incentive costs are recognized at the later of the date on which the
Company recognizes the related revenue or the date on which the Company offers the incentive. The
Company allows customers to return their unsold products if and when they meet certain Company-
established criteria as outlined in the Company’s trade terms. The Company regularly reviews and revises,
when deemed necessary, its estimates of sales returns based primarily upon actual returns, planned
product discontinuances, new product launches, estimates of customer inventory and promotional sales,
which would permit customers to return items based upon the Company’s trade terms. The Company
records sales returns as a reduction to sales and cost of sales, and an increase to accrued liabilities and to
inventories. Returned products which are recorded as inventories are valued based upon the amount that
the Company expects to realize upon their subsequent disposition. The physical condition and
marketability of the returned products are the major factors considered by the Company in estimating
realizable value. Actual returns, as well as realized values on returned products, may differ signiﬁcantly,
either favorably or unfavorably, from the Company’s estimates if factors such as product discontinuances,
customer inventory levels or competitive conditions differ from the Company’s estimates and expecta-
tions and, in the case of actual returns, if economic conditions differ signiﬁcantly from the Company’s
estimates and expectations. Revenues derived from licensing arrangements, including any prepayments,
are recognized in the period in which they become due and payable but not before the initial license term
commences.

Cost of sales includes all of the costs to manufacture the Company’s products. For products
manufactured in the Company’s own facilities, such costs include raw materials and supplies, direct labor
and factory overhead. For products manufactured for the Company by third-party contractors, such costs
represent the amounts invoiced by the contractors. Cost of sales also includes the cost of refurbishing
products returned by customers that will be offered for resale and the cost of inventory write-downs
associated with adjustments of held inventories to net realizable value. These costs are reﬂected in the
statement of operations when the product is sold and net sales revenues are recognized or, in the case of
inventory write-downs, when circumstances indicate that the carrying value of inventories is in excess of
its recoverable value. Additionally, cost of sales reﬂects the costs associated with free products. These
incentive costs are recognized on the later of the date that the Company recognizes the related revenue
or the date on which the Company offers the incentive.

Selling, general and administrative expenses (‘‘SG&A’’) include expenses to advertise the Company’s
products, such as television advertising production costs and air-time costs, print advertising costs,
promotional displays and consumer promotions. SG&A also includes the amortization of permanent wall

F-10

displays and intangible assets, distribution costs (such as freight and handling), non-manufacturing
overhead, principally personnel and related expenses, insurance and professional fees.

Income Taxes:

Income taxes are calculated using the asset and liability method in accordance with the provisions of

SFAS No. 109, ‘‘Accounting for Income Taxes.’’

Revlon, Inc. and its U.S. subsidiaries, including Products Corporation, for federal income tax
purposes, were included through the period ended March 25, 2004 in the afﬁliated group of which
MacAndrews & Forbes Holdings was the common parent (the ‘‘MacAndrews & Forbes Group’’), and
Revlon, Inc.’s and its U.S. subsidiaries, including Products Corporation, federal taxable income and loss
was through the period ended March 25, 2004 included in such group’s consolidated tax return ﬁled by
MacAndrews & Forbes Holdings. As a result of the Revlon Exchange Transactions (as hereinafter
deﬁned) (see Note 9, ‘‘Long-Term Debt’’), as of the end of the day on March 25, 2004, Revlon, Inc. and
its U.S. subsidiaries, including Products Corporation, were no longer included in the MacAndrews &
Forbes Group for federal income tax purposes.

Research and Development:

Research and development expenditures are expensed as incurred. The amounts charged against
earnings in 2005, 2004 and 2003 for research and development expenditures were $26.1 million,
$24.0 million and $25.4 million, respectively.

Foreign Currency Translation:

Assets and liabilities of foreign operations are generally translated into U.S. dollars at the rates of
exchange in effect at the balance sheet date. Income and expense items are generally translated at the
weighted average exchange rates prevailing during each period presented. Gains and losses resulting from
foreign currency transactions are included in the results of operations. Gains and losses resulting from
translation of ﬁnancial statements of foreign subsidiaries and branches operating in non-hyperinﬂationary
economies are recorded as a component of accumulated other comprehensive loss until either sale or
upon complete or substantially complete liquidation by the Company of its investment in a foreign entity.
Foreign subsidiaries and branches operating in hyperinﬂationary economies translate non-monetary
assets and liabilities at historical rates and include translation adjustments in the results of operations.

Sale of Subsidiary Stock:

The Company recognizes gains and losses on sales of subsidiary stock in its Consolidated Statements

of Operations.

Basic and Diluted Loss per Common Share and Classes of Stock:

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 using the treasury stock method. Options to
purchase 33,033,097, 30,781,700 and 7,707,600 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 $4.25, $4.66 and
$10.66, respectively, were outstanding at December 31, 2005, 2004 and 2003, respectively. Additionally,
3,810,002, 5,725,000 and 1,970,000 shares of unvested restricted stock were outstanding as of Decem-
ber 31, 2005, 2004 and 2003, respectively. Because the Company incurred losses in 2005, 2004 and 2003,
these shares are excluded from the calculation of diluted loss per common 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.

Stock-Based Compensation:

SFAS No. 123, ‘‘Accounting for Stock-Based Compensation,‘‘ encourages, but does not require,
companies to record compensation cost for stock-based employee compensation plans at fair value for

F-11

ﬁscal periods ended on or before December 31, 2005. For such periods, the Company has chosen to
account for stock-based compensation plans using the intrinsic value method as prescribed in Accounting
Principles Board (‘‘APB’’) Opinion No. 25, ‘‘Accounting for Stock Issued to Employees,‘‘ and related
interpretations. Accordingly, compensation cost for stock options granted to employees is measured as the
excess, if any, of the quoted market price of Class A Common Stock at the date of the grant over the
amount an employee must pay to acquire such common stock.

The following table illustrates the effect on net loss and net loss per basic and diluted common share
as if the Company had applied the fair value method to its stock-based compensation under the disclosure
provisions of SFAS No. 123 and amended disclosure provisions of SFAS No. 148, ‘‘Accounting for
Stock-Based Compensation - Transition and Disclosure, an amendment of FASB Statements No. 123’’,
which is more fully described in Note 14, ‘‘Stock Compensation Plan’’:

Net loss as reported . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Add-back: Stock-based employee compensation

expense included in reported net loss . . . . . . . . . . . .
Deduct: Stock-based employee compensation expense
determined under fair value based method for all
awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Pro forma net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Basic and diluted loss per common share:

As reported . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Pro forma . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2005

$ (83.7)

Year Ended December 31,
2004

$(142.5)

2003

$(153.8)

5.8

5.2

2.2

(22.1)

$(100.0)

$ (0.23)

$ (0.27)

(30.3)

$(167.6)

$ (0.47)

$ (0.56)

(7.7)

$(159.3)

$ (2.47)

$ (2.56)

The Company uses the Black-Scholes option valuation model (‘‘Black-Scholes’’), which is the
measure of fair value most often utilized under SFAS No. 123. The Company estimated the fair value of
stock-based compensation issued to employees during each respective period using Black-Scholes with
the following weighted average assumptions:

Expected life of option.
. . . . . . . . . . . . . . . . . . . . . . . . . .
Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected volatility.
Expected dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . .

Derivative Financial Instruments:

2005

4.75 years
3.95%
61%
N/A

Year Ended December 31,
2004

7.00 years
3.95%
69%
N/A

2003

7.00 years
3.72%
70%
N/A

The Company accounts for derivative ﬁnancial instruments in accordance with SFAS No. 133, as
amended by SFAS No. 149. The standard requires the recognition of all derivative instruments on the
balance sheet as either assets or liabilities measured at fair value. Changes in fair value are recognized
immediately in earnings unless the derivatives qualify as hedges of future cash ﬂows. For derivatives
qualifying as hedges of future cash ﬂows, the effective portion of changes in fair value is recorded as a
component of other comprehensive income (loss) and recognized in earnings when the hedged
transaction is recognized in earnings. Any ineffective portion (representing the extent that the change in
fair value of the hedges does not completely offset the change in the anticipated net payments being
hedged) is recognized in earnings as it occurs. If a derivative instrument designated as a hedge is
terminated, the unrecognized fair value of the hedge previously recorded in accumulated other
comprehensive income (loss) is recognized in earnings when the hedged transaction is recognized in
earnings. If the transaction being hedged is terminated, the unrecognized fair value of the Company’s
related hedge instrument is recognized in earnings at that time.

The Company formally designates and documents each ﬁnancial instrument as a hedge of a speciﬁc
underlying exposure, as well as the risk management objectives and strategies for entering into the hedge

F-12

transaction upon inception. The Company also formally assesses upon inception and quarterly thereafter
whether the ﬁnancial instruments used in hedging transactions are effective in offsetting changes in the
fair value or cash ﬂows of the hedged items.

The Company uses derivative ﬁnancial instruments, primarily foreign currency forward exchange
contracts, to reduce the effects of ﬂuctuations in foreign currency exchange rates. These contracts, which
have been designated as cash ﬂow hedges, were entered into primarily to hedge anticipated inventory
purchases and certain intercompany payments denominated in foreign currencies, which have maturities
of less than one year. Any unrecognized income (loss) related to these contracts are recorded in the
Statement of Operations primarily in cost of goods sold when the underlying transactions hedged are
realized (e.g., when inventory is sold or intercompany transactions are settled). Products Corporation
enters into these contracts with counterparties that are major ﬁnancial institutions, and accordingly the
Company believes that the risk of counterparty nonperformance is remote. During 2005, 2004 and 2003,
net derivative losses of $2.2 million, $1.5 million and $1.5 million, respectively, were reclassiﬁed to the
Statement of Operations. The notional amount of the foreign currency forward exchange contracts
outstanding at December 31, 2005 and 2004 was $31.9 million and $31.5 million, respectively. The fair
value of the foreign currency forward exchange contracts outstanding at December 31, 2005 and 2004 was
$(0.2) million and $(2.3) million, respectively, and is recorded in ‘‘Accrued expenses and other’’ in the
accompanying Consolidated Balance Sheets. The Company had accumulated net derivative losses of
$(0.3) million in other comprehensive loss as of December 31, 2005 related to cash ﬂow hedges, all of
which will be reclassiﬁed into earnings within 12 months. The amount of the hedges’ ineffectiveness for
the years ended December 31, 2005 and 2004 recorded in the Consolidated Statements of Operations was
not signiﬁcant.

Advertising and Promotion:

Costs associated with advertising and promotion are expensed when incurred. The costs of
promotional displays are expensed in the period in which they are shipped to customers. Television
advertising production costs are expensed the ﬁrst time the advertising takes place. Advertising and
promotion expenses were $230.5 million, $225.2 million and $251.4 million for 2005, 2004 and 2003,
respectively, and were included in SG&A in the Company’s Consolidated Statements of Operations. The
Company also has various arrangements with customers pursuant to its trade terms to reimburse them for
a portion of their advertising or promotional costs, which provide advertising and promotional beneﬁts to
the Company. Additionally, from time to time the Company may pay fees to customers in order to expand
or maintain shelf space for its products. The costs that the Company incurs for ‘‘cooperative’’ advertising
programs, end cap placement, shelf placement costs and slotting fees are expensed as incurred and are
netted against revenues on the Company’s Consolidated Statements of Operations.

Distribution Costs:

Costs, such as freight and handling costs, associated with distribution are expensed within SG&A
when incurred. Distribution costs were $68.3 million, $62.0 million and $60.4 million for 2005, 2004 and
2003, respectively.

Recent Accounting Pronouncements:

In December 2004, the FASB issued SFAS No. 123 (revised 2004), ‘‘Share-Based Payment’’, an
amendment to FASB Statements Nos. 123 and 95 (‘‘SFAS No. 123(R)’’), which replaces SFAS No. 123,

F-13

and supercedes APB Opinion No. 25, ‘‘Accounting for Stock Issued to Employees’’. SFAS No. 123(R)
requires all share-based payments to employees, including grants of employee stock options, to be
recognized in the ﬁnancial statements based on their fair values. In April 2005, the U.S. Securities and
Exchange Commission (the ‘‘SEC’’ or the ‘‘Commission’’) adopted a rule allowing companies to
implement SFAS No. 123(R) at the beginning of their next ﬁscal year that begins after June 15, 2005,
which for the Company will be effective beginning January 1, 2006. The Company will use the modiﬁed
prospective transition method, utilizing the Black-Scholes option pricing model for the calculation of the
fair value of its employee stock options. Under the modiﬁed prospective method, stock option awards that
are granted, modiﬁed or settled after January 1, 2006 will be measured and accounted for in accordance
with SFAS No. 123(R). Compensation cost for awards granted prior to, but not vested, as of
January 1, 2006 would be based on the grant date attributes originally used to value those awards for pro
forma purposes under SFAS No. 123. The Company expects the adoption of SFAS No. 123(R) will have
a material impact for 2006.

In November 2004, the FASB issued SFAS No. 151, ‘‘Inventory Costs — An Amendment of ARB
No. 43, Chapter 4’’. SFAS No. 151 amends the guidance in ARB No. 43, Chapter 4, ‘‘Inventory Pricing’’,
to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs and wasted
materials (spoilage). Among other provisions, the new rule requires that the aforementioned items be
recognized as current-period charges. Additionally, SFAS No. 151 requires that the allocation of ﬁxed
production overheads to the costs of conversion be based on the normal capacity of the production
facilities. SFAS No. 151 is effective for ﬁscal years beginning after June 15, 2005 and is required to be
adopted by the Company beginning on January 1, 2006. The Company had early adopted the provisions
of SFAS No. 151 during the third quarter of 2005, which adoption did not have a material impact on the
Company’s consolidated results of operations and ﬁnancial position.

2. RESTRUCTURING COSTS AND OTHER, NET

During 2005, the Company recorded net charges of $1.5 million for employee severance and other
related personnel beneﬁts. During 2004, the Company recorded net charges of $5.8 million primarily for
employee severance and other related personnel beneﬁts for 42 employees in connection with realign-
ments within several departmental functions and international operations, as to which 40 employees had
been terminated as of December 31, 2005. In 2003, the Company recorded separate charges of $5.9 million
for employee severance and other personnel beneﬁts for 421 employees in certain International
operations, as to which 397 employees had been terminated as of December 31, 2005.

Designed to improve proﬁtability by reducing personnel and consolidating certain facilities, the 2000
restructuring program accounted for the obligation of excess leased real estate in the Company’s old New
York City headquarters, consolidation costs associated with the Company closing certain facilities and the
elimination of several domestic and international executive and operational positions. The 2000
restructuring program was fully paid-out in 2004.

F-14

Details of the activity described above during 2005, 2004 and 2003 are as follows:

Balance
Beginning
of Year

Expenses, Net

Cash

Noncash

Utilized, Net

Balance
End
of Year

2005

Employee severance and other

personnel beneﬁts:
2003 programs . . . . . . . . . . . . . . . . .
2004 programs . . . . . . . . . . . . . . . . .

Leases and equipment write-offs . . .

2004

Employee severance and other

personnel beneﬁts:
2000 program . . . . . . . . . . . . . . . . . .
2003 program . . . . . . . . . . . . . . . . . .
2004 program . . . . . . . . . . . . . . . . . .

Leases and equipment write-offs . . .

2003

Employee severance and other

personnel beneﬁts:
2000 program.
2003 program.

. . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . .

Relocation . . . . . . . . . . . . . . . . . . . . . .
Leases and equipment write-offs . . .
Other obligations . . . . . . . . . . . . . . . .

$ 3.1
5.1

8.2
2.9

$11.1

$ 1.8
5.0
—

6.8
2.2

$ 9.0

$ 7.0
—

7.0
—
3.9
0.9

$ —
1.5

1.5
—

$ 1.5

$ —
0.1
5.9

6.0
(0.2)

$ 5.8

$ —
5.9

5.9
0.1
—
—

$(1.7)
(3.9)

(5.6)
(2.0)

$(7.6)

$(1.8)
(2.4)
(0.8)

(5.0)
0.6

$(4.4)

$(5.2)
(0.9)

(6.1)
(0.1)
(1.7)
—

$(0.2)
(0.3)

(0.5)
(0.3)

$(0.8)

$ —
0.4
—

0.4
0.3

$ 0.7

$ —
—

—
—
—
(0.9)

$ 1.2
2.4

3.6
0.6

$ 4.2

$ —
3.1
5.1

8.2
2.9

$11.1

$ 1.8
5.0

6.8
—
2.2
—

$11.8

$ 6.0

$(7.9)

$(0.9)

$ 9.0

As of December 31, 2005, 2004 and 2003, the unpaid balance of the restructuring costs and other, net
for reserves are included in ‘‘Accrued expenses and other’’ and ‘‘Other long-term liabilities’’ in the
Company’s Consolidated Balance Sheets. The remaining balance at December 31, 2005 for employee
severance and other personnel beneﬁts is $4.2 million, of which $3.8 million is expected to be paid by the
end of 2006 and the remaining obligations of $0.4 million are expected to be paid by the end of 2008.

3. DISPOSITIONS

In December 2003, the Company sold a facility located in Canada for approximately $5.2 million and
leased it back through the end of 2006. In connection with such disposition, the Company would recognize
a pre-tax and after-tax net gain of approximately $1.7 million ratably over the remaining 3-year lease term,
of which approximately $0.6 million was recognized in each of 2005 and 2004, with the remaining amount
to be recognized in 2006. For 2005 and 2004, the Company had no additional dispositions.

F-15

INVENTORIES

Raw materials and supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Work-in-process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5. PREPAID EXPENSES AND OTHER

Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note receivable (See Note 11) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other.

6. PROPERTY, PLANT AND EQUIPMENT, NET

Land and improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Building and improvements
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Machinery, equipment and capital leases . . . . . . . . . . . . . . . . . . . . .
Ofﬁce furniture, ﬁxtures and capitalized software . . . . . . . . . . . . . .
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Construction-in-progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

December 31,

2004

$ 48.1
12.2
94.4

$154.7

2004

$35.4
15.9
18.4

$69.7

2005

$ 60.7
17.6
142.3

$220.6

2005

$37.8
—
18.9

$56.7

December 31,

2005

2.2
57.6
125.7
110.3
18.9
14.9

329.6
(209.9)

$ 119.7

2004

2.3
57.3
125.1
110.6
17.4
7.8

320.5
(201.8)

$ 118.7

Depreciation expense for the years ended December 31, 2005, 2004 and 2003 was $22.7 million,
$34.0 million and $33.7 million, respectively. In 2002, the Company evaluated its management information
systems and determined, among other things, to upgrade its systems. As a result of this decision, certain
existing information systems were amortized on an accelerated basis. The additional amortization
recorded in 2004 and 2003 was $4.3 million and $4.6 million, respectively, and these information systems
were then fully amortized in 2004.

7. ACCRUED EXPENSES AND OTHER

December 31,

Sales returns and allowances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Advertising and promotional costs
. . . . . . . . . . . . . . . . . . . . . . . . . .
Compensation and related beneﬁts . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Taxes, other than federal income taxes . . . . . . . . . . . . . . . . . . . . . . .
Restructuring costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2005

$141.2
48.0
61.5
28.5
13.8
3.8
31.6

$328.4

2004

$103.3
45.5
56.9
20.9
13.0
7.6
36.0

$283.2

F-16

8. SHORT-TERM BORROWINGS

Products Corporation had outstanding short-term bank borrowings (excluding borrowings under the
2004 Credit Agreement (as deﬁned in Note 9)) aggregating $9.0 million and $36.6 million at Decem-
ber 31, 2005 and 2004, respectively. The weighted average interest rate on short-term borrowings
outstanding at December 31, 2005 and 2004 was 13.7% and 4.2%, respectively. The higher weighted
average interest rate for short-term borrowings in 2005 reﬂects higher-rate borrowings in certain Latin
American countries and the cessation of one of the Company’s cash-collateralized borrowing arrange-
ments with a ﬁnancial institution. Under these cash-collateralized borrowing arrangements, the Company
was permitted to borrow against its cash balances. The cash balances and related borrowings are shown
gross in the Company’s Consolidated Balance Sheets. As of December 31, 2005 and 2004, the Company
had $3.2 million and $36.2 million, respectively, of cash supporting such short-term borrowings. Interest
rates on these cash balances at December 31, 2005 and 2004 ranged from 0.3% to 0.5% and 0.5% to 4.5%,
respectively.

9. LONG-TERM DEBT

2004 Credit Agreement (a):

Term Loan Facility due 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Multi-Currency Facility due 2009 . . . . . . . . . . . . . . . . . . . . . . . . . .
81⁄8% Senior Notes due 2006 (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9% Senior Notes due 2006 (c)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
91⁄2% Senior Notes due 2011, net of discounts (d) . . . . . . . . . . . . .
85⁄8% Senior Subordinated Notes due 2008 (e) . . . . . . . . . . . . . . . .
2004 Consolidated MacAndrews & Forbes Line of Credit . . . . . .

Less current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

December 31,

2005

2004

$ 700.0
—
—
—
386.4
327.0
—

1,413.4
—

$1,413.4

$ 800.0
—
116.2
75.5
—
327.0
—

1,318.7
(10.5)

$1,308.2

The Company completed two signiﬁcant ﬁnancing transactions during 2005: (i) Products Corporation
issued $310.0 million aggregate principal amount of its 91⁄2% Senior Notes (as hereinafter deﬁned), and
using the proceeds of such notes, Products Corporation completed the redemption of all $116.2 million
aggregate principal amount outstanding of its 81⁄8% Senior Notes (as hereinafter deﬁned) and all
$75.5 million aggregate principal amount outstanding of its 9% Senior Notes (as hereinafter deﬁned) and
prepaid $100.0 million of the Term Loan Facility (as hereinafter deﬁned) and paid related fees and
expenses incurred in connection with such transactions and (ii) Products Corporation issued $80.0 million
aggregate principal amount of additional 91⁄2% Senior Notes, which priced at 951⁄4% of par, and used the
proceeds to fund general corporate purposes, principally to fund its brand initiatives, namely the relaunch
of the Almay brand and the launch of its new Vital Radiance brand.

The Company completed two signiﬁcant ﬁnancing transactions during 2004: (i) Revlon, Inc.
exchanged approximately $804 million of Products Corporation’s debt, $54.6 million of Revlon, Inc.
preferred stock and $9.9 million of accrued interest for 299,969,493 shares of Class A Common Stock (the
‘‘Revlon Exchange Transactions’’) and (ii) Products Corporation entered into the 2004 Credit Agreement,
consisting of an $800.0 million term loan facility (before giving effect to the $100.0 million prepayment
discussed above) and a $160.0 million asset-based multi-currency revolving credit facility, and used the
proceeds to reﬁnance its 2001 Credit Agreement (as hereinafter deﬁned) and to complete a tender offer
and subsequent redemption of all of its 12% Senior Secured Notes due 2005. See discussion below.

F-17

(a) 2004 Credit Agreement:

The 2004 Credit Agreement originally provided up to $960.0 million and, before giving effect to the
$100.0 million prepayment in March 2005, consisted of an $800.0 million term loan facility (the ‘‘Term
Loan Facility’’) and a $160.0 million asset-based multi-currency facility (the ‘‘Multi-Currency Facility’’),
the availability under which varies based upon the borrowing base that is based upon the value of eligible
accounts receivable, eligible inventory and eligible real property and equipment in the U.S. and the U.K.
from time to time. Products Corporation may request the Multi-Currency Facility to be increased from
time to time in an aggregate principal amount not to exceed $50.0 million subject to certain exceptions and
subject to the lenders’ agreement. The Multi-Currency Facility is available to: (i) Products Corporation
in revolving credit loans denominated in U.S. dollars, (ii) Products Corporation in swing line loans
denominated in U.S. dollars up to $25.0 million, (iii) Products Corporation in standby and commercial
letters of credit denominated in U.S. dollars and other currencies up to $50.0 million and (iv) Products
Corporation and certain of its international subsidiaries designated from time to time in revolving credit
loans and bankers’ acceptances denominated in U.S. dollars and other currencies, in each case subject to
borrowing base availability. If the value of the eligible assets is not sufﬁcient to support the $160.0 million
borrowing base, Products Corporation will not have full access to the Multi-Currency Facility. Products
Corporation’s ability to make borrowings under the Multi-Currency Facility is also conditioned upon the
satisfaction of certain conditions precedent and Products Corporation’s compliance with other covenants
in the 2004 Credit Agreement, including a ﬁxed charge coverage ratio that applies if and when the excess
borrowing base is less than $30.0 million. In March 2005, Products Corporation prepaid $100.0 million of
indebtedness outstanding under the Term Loan Facility, together with accrued interest and the
$5.0 million prepayment fee associated with such prepayment, using proceeds from the issuance of the
Original 91⁄2% Senior Notes (as hereinafter deﬁned).

During July and August 2004, Products Corporation used the proceeds from borrowings under the
Term Loan Facility to repay in full the $290.5 million of outstanding indebtedness (including accrued
interest) under Products Corporation’s credit agreement dated November 30, 2001 and which was
scheduled to mature on May 30, 2005 (as amended, the ‘‘2001 Credit Agreement’’), to purchase and
redeem in July and August 2004 (the ‘‘Tender Offer’’) all of the $363.0 million aggregate principal amount
of Products Corporation’s 12% Senior Secured Notes for a purchase price of approximately $412.3 million
(including the applicable premium and accrued interest), and to pay fees and expenses incurred in
connection with the 2004 Credit Agreement, the Tender Offer for the 12% Senior Secured Notes and the
Revlon Exchange Transactions, including the payment of expenses related to a reﬁnancing that Products
Corporation launched in May 2004 but did not consummate. The balance of such proceeds was available
to Products Corporation for general corporate purposes.

The Multi-Currency Facility will terminate on July 9, 2009 and the loans under the Term Loan
Facility will mature on July 9, 2010; provided that the 2004 Credit Agreement will terminate on
October 30, 2007 if the 85⁄8% Senior Subordinated Notes (as hereinafter deﬁned) are not redeemed,
repurchased, defeased or repaid on or before such date such that not more than $25.0 million in aggregate
principal amount of such notes remain outstanding. In addition to customary events of default, it would
be an event of default under the 2004 Credit Agreement if Revlon, Inc. fails to undertake an
approximately $110.0 million equity issuance and transfer the proceeds of such equity issuance to
Products Corporation by March 31, 2006 to promptly reduce its outstanding indebtedness. See Note 20,
‘‘Subsequent Events’’.

F-18

Loan Facility bear interest at a rate equal to, at Products Corporation’s option, either (A) the Alternate
Base Rate plus 5.00%; or (B) the Eurodollar Rate plus 6.00%. At December 31, 2005, the weighted
average rate for borrowings under the Term Loan Facility was 10.1%.

At December 31, 2005, the Term Loan Facility was fully drawn and availability under the
Multi-Currency Facility, based upon the calculated borrowing base less approximately $16 million of
outstanding letters of credit, was approximately $144 million, as the Multi-Currency Facility was undrawn.

(b) Redemption of the 81⁄8% Senior Notes due 2006 (the ‘‘81⁄8% Senior Notes’’):

The 81⁄8% Senior Notes, prior to their redemption in April 2005, were senior unsecured obligations
of Products Corporation and ranked equally in right of payment with all existing and future senior debt
of Products Corporation, including the 91⁄2% Senior Notes, the indebtedness under the 2004 Credit
Agreement and the indebtedness under the 2004 Consolidated MacAndrews & Forbes Line of Credit (as
hereinafter deﬁned) and were senior to the 85⁄8% Senior Subordinated Notes and to all future
subordinated indebtedness of Products Corporation. The 81⁄8% Senior Notes were effectively subordi-
nated to the outstanding indebtedness and other liabilities of Products Corporation’s subsidiaries. Interest
was payable on February 1 and August 1.

The principal amount of $116.2 million outstanding of the 81⁄8% Senior Notes was redeemed in
April 2005. The aggregate redemption price of the 81⁄8% Senior Notes was $118.1 million, which
constituted the principal amount and interest payable on the 81⁄8% Senior Notes. In connection with the
redemption, the Company recognized a loss on extinguishment of debt (see ‘‘(c)’’ below).

The 9% Senior Notes, prior to their redemption in April 2005, were senior unsecured obligations of
Products Corporation and ranked equally in right of payment with all existing and future senior debt of
including the 91⁄2% Senior Notes, the indebtedness under the 2004 Credit
Products Corporation,
Agreement and the indebtedness under the 2004 Consolidated MacAndrews & Forbes Line of Credit and
were senior to the 85⁄8% Senior Subordinated Notes and to all future subordinated indebtedness of
Products Corporation. The 9% Senior Notes were effectively subordinated to outstanding indebtedness
and other liabilities of Products Corporation’s subsidiaries. Interest was payable on May 1 and
November 1.

The principal amount of $75.5 million outstanding of the 9% Senior Notes was redeemed in
April 2005. The aggregate redemption price of the 9% Senior Notes was $79.8 million, which constituted
the principal amount, interest payable on the 9% Senior Notes and the applicable premium.

In connection with the redemption of the 9% Senior Notes and the redemption of the 81⁄8% Senior

Notes, the Company recognized a loss on extinguishment of debt of $1.5 million.

F-19

(d) 91⁄2% Senior Notes due 2011:

Products Corporation issued $310.0 million aggregate principal amount of 91⁄2% Senior Notes due
2011 (the ‘‘Original 91⁄2% Senior Notes’’) pursuant to an indenture, dated as of March 16, 2005, by and
between Products Corporation and U.S. Bank National Association, as trustee. This issuance and the
related transactions extended the maturities of Products Corporation’s debt that would have otherwise
been due in 2006.

The proceeds from the Original 91⁄2% Senior Notes were used to prepay $100.0 million of
indebtedness outstanding under the Term Loan Facility of Products Corporation’s 2004 Credit Agree-
ment, together with accrued interest and the associated $5.0 million prepayment fee and to pay
$7.0 million in certain fees and expenses associated with the issuance of the Original 91⁄2% Senior Notes.
The remaining $197.9 million of proceeds from the Original 91⁄2% Senior Notes was placed in a debt
defeasance trust and,
in April 2005, used to redeem $116.2 million aggregate principal amount
outstanding of Products Corporation’s 81⁄8% Senior Notes, plus accrued interest, and $75.5 million
aggregate principal amount outstanding of Products Corporation’s 9% Senior Notes, plus accrued interest
and the applicable premium. The aggregate redemption amounts for the 81⁄8% Senior Notes and 9%
Senior Notes were $118.1 million and $79.8 million, respectively, which constituted the principal amount
and interest payable on the 81⁄8% Senior Notes and the 9% Senior Notes up to, but not including, the
redemption date, and, with respect to the 9% Senior Notes, the applicable premium. In connection with
the redemption, the Company recognized a loss on extinguishment of debt of $1.5 million. Amounts
prepaid under the Term Loan Facility permanently reduced the commitment and are not available for
future borrowings. In June 2005, all of the Original 91⁄2% Senior Notes were exchanged for new 91⁄2%
Senior Notes (the ‘‘March 2005 91⁄2% Senior Notes’’), which have substantially identical terms to the
Original 91⁄2% Senior Notes, except that the March 2005 91⁄2% Senior Notes are registered with the SEC
under the Securities Act of 1933, as amended (the ‘‘Securities Act’’), and the transfer restrictions and
registration rights applicable to the Original 91⁄2% Senior Notes do not apply to the March 2005 91⁄2%
Senior Notes.

In August 2005, Products Corporation issued $80.0 million aggregate principal amount of additional
91⁄2% Senior Notes due 2011, which priced at 951⁄4% of par (the ‘‘Additional 91⁄2% Senior Notes’’) in a
private placement to institutional buyers, as additional notes pursuant to the same indenture governing
the Original 91⁄2% Senior Notes. The issuance of the Additional 91⁄2% Senior Notes constituted a further
issuance of, are the same series as, and will vote on any matters submitted to note holders with, the
Original 91⁄2% Senior Notes. The Company used the proceeds of this issuance to help fund investments
in the Company’s brand initiatives and for general corporate purposes, as well as to pay fees and expenses
in connection with the issuance of the Additional 91⁄2% Senior Notes and any outstanding fees and
expenses in connection with the issuance of and exchange offer for the Original 91⁄2% Senior Notes.

On December 27, 2005, all of the Additional 91⁄2% Senior Notes issued by Products Corporation were
exchanged for new 91⁄2% Senior Notes (the ‘‘August 2005 91⁄2% Senior Notes’’), which have substantially
identical terms to the Additional 91⁄2% Senior Notes, except that the August 2005 91⁄2% Senior Notes are
registered with the SEC under the Securities Act, and the transfer restrictions and registration rights
applicable to the Additional 91⁄2% Senior Notes do not apply to the August 2005 91⁄2% Senior Notes
(which are collectively referred to with the March 2005 91⁄2% Senior Notes as the ‘‘91⁄2% Senior Notes’’).

The 91⁄2% Senior Notes are senior unsecured obligations of Products Corporation ranking equally in
right of payment with any of Products Corporation’s present and future senior indebtedness, including the
indebtedness under the 2004 Credit Agreement and the indebtedness under the 2004 MacAndrews &
Forbes Line of Credit, and are senior to the 85⁄8% Senior Subordinated Notes and to all future
subordinated indebtedness of Products Corporation. The 91⁄2% Senior Notes are effectively subordinated
to the outstanding indebtedness and other liabilities of Products Corporation’s subsidiaries. The 91⁄2%
Senior Notes bear interest at an annual rate of 91⁄2%, which is payable on April 1 and October 1 of each
year, commencing with October 1, 2005. The 91⁄2% Senior Notes indenture provides that Products
Corporation may redeem the 91⁄2% Senior Notes at its option, in whole or in part, at any time on or after
April 1, 2008, at the redemption prices set forth in the 91⁄2% Senior Notes indenture. In addition, at any
time prior to April 1, 2008 Products Corporation is entitled to redeem up to 35% of the aggregate principal

F-20

amount of the 91⁄2% Senior Notes at a redemption price of 109.5% of the principal amount thereof, plus
accrued and unpaid interest, if any, to the date of redemption, with, to the extent actually received, the
net cash proceeds of one or more public equity offerings, provided that at least 65% of the aggregate
principal amount of the 91⁄2% Senior Notes issued remains outstanding immediately after giving effect to
such redemption. In addition, the 91⁄2% Senior Notes indenture provides that Products Corporation is
entitled to redeem the 91⁄2% Senior Notes at any time or from time to time prior to April 1, 2008 at a
redemption price per note equal to the sum of (1) the then outstanding principal amount thereof, plus (2)
accrued and unpaid interest, if any, to the date of redemption, plus (3) the greater of (i) 1.0% of the then
outstanding principal amount of such note and (ii) the excess of (A) the present value at such redemption
date of (1) the redemption price of such note on April 1, 2008 (exclusive of any accrued interest) plus (2)
all required remaining scheduled interest payments due on such note through April 1, 2008, computed
using a discount rate equal to the applicable treasury rate plus 75 basis points, over (B) the then
outstanding principal amount of such note. Pursuant to the 91⁄2% Senior Notes indenture, upon a Change
of Control (as deﬁned in the 91⁄2% Senior Notes indenture), each holder of the 91⁄2% Senior Notes has the
right to require Products Corporation to make an offer to repurchase all or a portion of such holder’s
91⁄2% Senior Notes at a price equal to 101% of the principal amount of such holder’s 91⁄2% Senior Notes,
plus accrued and unpaid interest, if any, thereon to the date of repurchase.

The 91⁄2% Senior Notes indenture contains covenants which, subject to certain exceptions, limit the
ability of Products Corporation and its subsidiaries to, among other things, incur additional indebtedness,
pay dividends on or redeem or repurchase stock, engage in certain asset sales, make certain types of
investments and other restricted payments, engage in transactions with afﬁliates, restrict dividends or
payments from subsidiaries and create liens on their assets. All of these limitations and prohibitions,
however, are subject to a number of important qualiﬁcations and exceptions. The 91⁄2% Senior Notes
indenture contains customary events of default (see below item (e) for details).

(e) The 85⁄8% Senior Subordinated Notes due 2008 (the ‘‘85⁄8% Senior Subordinated Notes’’):

The 85⁄8% Senior Subordinated Notes are general unsecured obligations of Products Corporation and
(i) are subordinate in right of payment to all existing and future senior debt of Products Corporation,
including the 91⁄2% Senior Notes, the indebtedness under the 2004 Credit Agreement and the
indebtedness under the 2004 Consolidated MacAndrews & Forbes Line of Credit, (ii) rank equally in
right of payment with all future senior subordinated debt, if any, of Products Corporation and (iii) are
senior in right of payment to all future junior subordinated debt, if any, of Products Corporation. The
85⁄8% Senior Subordinated Notes are effectively subordinated to the outstanding indebtedness and other
liabilities of Products Corporation’s subsidiaries. Interest is payable on February 1 and August 1.

The 85⁄8% Senior Subordinated Notes are due February 2008 and may be redeemed at the option of
Products Corporation in whole or from time to time in part at any time on or after February 1, 2003 at
the redemption prices set forth in the 85⁄8% Senior Subordinated Notes indenture, plus accrued and
unpaid interest, if any, to the date of redemption. The 2004 Credit Agreement requires that Products
Corporation redeem, repurchase or defease on or before October 30, 2007 the 85⁄8% Senior Subordinated
Notes such that not more than $25.0 million in aggregate principal amount of the 85⁄8% Senior
Subordinated Notes remains outstanding. Otherwise, the 2004 Credit Facilities will terminate and all
amounts outstanding under the 2004 Credit Facilities will become due on such date. In 2004,
approximately $322.9 million principal amount of the 85⁄8% Senior Subordinated Notes were exchanged
for Class A Common Stock in the Revlon Exchange Transactions, as discussed below. See Note 20,
‘‘Subsequent Events’’, regarding the Company’s plans to redeem, repurchase or defease approximately
$110 million of the 85⁄8% Senior Subordinated Notes.

Upon a Change of Control, as deﬁned in the 85⁄8% Senior Subordinated Notes indenture, Products
Corporation will have the option to redeem the 85⁄8% Senior Subordinated Notes in whole at a redemption
price equal to the principal amount thereof, plus accrued and unpaid interest, if any, thereon to the date
of redemption, plus the applicable premium, as deﬁned in the 85⁄8% Senior Subordinated Notes indenture,
and, subject to certain conditions, each holder of the 85⁄8% Senior Subordinated Notes will have the right
to require Products Corporation to repurchase all or a portion of such holder’s 85⁄8% Senior Subordinated
Notes at a price equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any,
thereon to the date of repurchase.

F-21

The 85⁄8% Senior Subordinated Notes indenture contains covenants that, among other things, limit (i)
the issuance of additional debt and redeemable stock by Products Corporation, (ii) the incurrence of liens,
(iii) the issuance of debt and preferred stock by Products Corporation’s subsidiaries, (iv) the payment of
dividends on capital stock of Products Corporation and its subsidiaries and the redemption of capital
stock of Products Corporation, (v) the sale of assets and subsidiary stock, (vi) transactions with afﬁliates,
(vii) consolidations, mergers and transfers of all or substantially all of Products Corporation’s assets and
(viii) the issuance of additional subordinated debt that is senior in right of payment to the 85⁄8% Senior
Subordinated Notes. The 85⁄8% Senior Subordinated Notes indenture also prohibits certain restrictions on
distributions from subsidiaries. All of these limitations and prohibitions, however, are subject to a number
of important qualiﬁcations and exceptions.

The indenture for each of the 91⁄2% Senior Notes and the 85⁄8% Senior Subordinated Notes contain
customary events of default for debt instruments of such type and includes a cross acceleration provision
which provides that it shall be an event of default under each such indenture if any debt (as deﬁned in
each such indenture) of Products Corporation or any of its signiﬁcant subsidiaries (as deﬁned in each such
indenture) is not paid within any applicable grace period after ﬁnal maturity or is accelerated by the
holders of such debt because of a default and the total principal amount of the portion of such debt that
is unpaid or accelerated exceeds $25.0 million and such default continues for 10 days after notice from the
trustee under such indenture. If any such event of default occurs, the trustee under such indenture or the
holders of at least 25% in principal amount of the outstanding notes under such indenture may declare all
such notes to be due and payable immediately, provided that the holders of a majority in aggregate
principal amount of the outstanding notes under such indenture may, by notice to the trustee, waive any
such default or event of default and its consequences under such indenture. In connection with the Revlon
Exchange Transactions, in February 2004, Revlon, Inc. entered into a supplemental indenture pursuant to
which it agreed to guarantee Products Corporation’s obligations under the 85⁄8% Senior Subordinated
Notes indenture.

2004 Consolidated MacAndrews & Forbes Line of Credit

In July 2004, Products Corporation and MacAndrews & Forbes Inc. entered into an agreement,
which effective as of August 10, 2004 amended, restated and consolidated the facilities for the
MacAndrews & Forbes $65 million line of credit (which was undrawn at such time) and the 2004
MacAndrews & Forbes $125 million term loan (as to which after the Revlon Exchange Transactions the
total term loan availability was $87.0 million) into a single consolidated line of credit (as amended, the
‘‘2004 Consolidated MacAndrews & Forbes Line of Credit’’). As of December 31, 2005, the 2004
Consolidated MacAndrews & Forbes Line of Credit had availability of $87.0 million. The commitment
under the 2004 Consolidated MacAndrews & Forbes Line of Credit reduced to $87.0 million from
$152.0 million as of July 1, 2005. In August 2005, the 2004 Consolidated MacAndrews & Forbes Line of
Credit was amended to provide that such line of credit is available to assist the Company in funding its
brand initiatives. See Note 20, ‘‘Subsequent Events’’, regarding an extension of the term of the 2004
Consolidated MacAndrews & Forbes Line of Credit.

Loans are available under the 2004 Consolidated MacAndrews & Forbes Line of Credit if (i) the
Multi-Currency Facility under the 2004 Credit Agreement has been substantially drawn (after taking into
account anticipated needs for Local Loans (as deﬁned in the 2004 Credit Agreement) and letters of
credit), (ii) such borrowing is necessary to cause the excess borrowing base under the Multi-Currency
Facility to remain greater than $30.0 million, (iii) additional revolving loans are not available under the
Multi-Currency Facility, (iv) such borrowing is reasonably necessary to prevent or to cure a default or
event of default under the 2004 Credit Agreement or (v) Products Corporation requests such loan to assist
in funding the Company’s investments in its brand initiatives.

Loans under the 2004 Consolidated MacAndrews & Forbes Line of Credit bear interest (which is not
payable in cash but is capitalized quarterly in arrears) at a rate per annum equal to the lesser of (a) 12.0%
and (b) 0.25% less than the rate payable from time to time on Eurodollar loans under the Term Loan
Facility under the 2004 Credit Agreement, which the effective interest rate was 9.35% as of Decem-
ber 31, 2005, provided that at any time that the Eurodollar Base Rate under the 2004 Credit Agreement
is equal to or greater than 3.0%, the applicable rate on loans under the 2004 Consolidated MacAndrews

F-22

& Forbes Line of Credit will be equal to the lesser of (x) 12.0% and (y) 5.25% over the Eurodollar Base
Rate then in effect. As of December 31, 2005, the 2004 Consolidated MacAndrews & Forbes Line of
Credit was undrawn.

During 1992, Revlon Holdings (as hereinafter deﬁned) made an advance of $25.0 million to Products
Corporation, evidenced by subordinated noninterest-bearing demand notes. The notes were subsequently
adjusted by offsets and additional amounts loaned by Revlon Holdings to Products Corporation. In
March 2004, the balance of $24.1 million was exchanged for Class A Common Stock in the Revlon
Exchange Transactions as discussed below.

The aggregate amounts of contractual long-term debt maturities at December 31, 2005 in the years

2006 through 2010 and thereafter are as follows:

Years ended December 31,

2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Long-term
debt
maturities

—
—
327.0(1)
—
700.0
390.0(2)

Total long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$1,417.0

(1) Amount refers to the aggregate principal balance due on the 85⁄8% Senior Subordinated Notes, which is due 2008. However,
the 2004 Credit Agreement requires that Products Corporation redeem, repurchase or defease on or before October 30, 2007
the 85⁄8% Senior Subordinated Notes such that not more than $25.0 million in aggregate principal amount of such notes remain
outstanding. See Note 20, ‘‘Subsequent Events’’.

(2) Amount refers to the principal balance due on the 91⁄2% Senior Notes. The difference between this amount and the carrying
amount is due to the issuance of the $80.0 million Additional 91⁄2% Senior Notes at a discount, priced at 951⁄4% of par.

F-23

Revlon Exchange Transactions

In February 2004, Revlon, Inc. entered into agreements with Fidelity Management & Research Co.
(‘‘Fidelity’’) and MacAndrews & Forbes conﬁrming that if Revlon, Inc. were to commence an offer to
exchange or convert certain indebtedness of Products Corporation and Revlon, Inc. preferred stock for
Class A Common Stock, Fidelity and MacAndrews & Forbes would tender, or cause to be tendered,
certain indebtedness in the exchange. In February 2004, Revlon, Inc. launched debt-for-equity exchange
offers to exchange any and all of Products Corporation’s outstanding 81⁄8% Senior Notes, 9% Senior Notes,
and 85⁄8% Senior Subordinated Notes (collectively, the ‘‘Revlon Exchange Notes’’) for shares of Revlon,
Inc.’s Class A Common Stock or, under certain conditions, cash.

Fidelity and MacAndrews & Forbes agreed to tender the Revlon Exchange Notes at a ratio of 400
shares of Class A Common Stock for each one thousand dollars principal of 81⁄8% Senior Notes or 9%
Senior Notes and 300 shares of Class A Common Stock for each one thousand dollars principal of 85⁄8%
Senior Subordinated Notes tendered for exchange. The agreements allowed Fidelity the right to elect to
receive cash or additional shares of Class A Common Stock for accrued interest on the notes tendered
while MacAndrews & Forbes received Class A Common Stock for the accrued interest. Other holders
were offered the opportunity to exchange their Revlon Exchange Notes for (i) shares of Class A Common
Stock at the same exchange ratios or, under certain conditions, (ii) cash up to a maximum of $150 million
aggregate principal of tendered Revlon Exchange Notes, subject to proration, at $830 per one thousand
dollars principal for the 81⁄8% Senior Notes, $800 per one thousand dollars principal for the 9% Senior
Notes and $620 per one thousand dollars principal for the 85⁄8% Senior Subordinated Notes. Accrued
interest was paid in cash or additional shares of Class A Common Stock, at the holder’s option.

An aggregate of approximately $631.2 million in outstanding notes, consisting of approximately
$133.8 million of 81⁄8% Senior Notes, approximately $174.5 million of the 9% Senior Notes and
approximately $322.9 million of the 85⁄8% Senior Subordinated Notes were exchanged, along with the
related accrued interest, for an aggregate of approximately 224.1 million shares of Class A Common
Stock. These amounts included approximately $1.0 million of 9% Senior Notes and $286.7 million of 85⁄8%
Senior Subordinated Notes tendered by MacAndrews & Forbes and related entities and approximately
$85.9 million of 9% Senior Notes, approximately $77.8 million of 81⁄8% Senior Notes and approximately
$32.1 million of 85⁄8% Senior Subordinated Notes tendered by funds and accounts managed by Fidelity. No
cash was paid for any principal amount of notes exchanged.

MacAndrews & Forbes also received Class A Common Stock for amounts outstanding as of the
March 25, 2004 closing date under the MacAndrews & Forbes $100 million term loan (approximately
$109.7 million, including accrued interest), the 2004 MacAndrews & Forbes $125 million term loan
(approximately $38.9 million, including accrued interest) and approximately $24.1 million in subordinated
promissory notes. Amounts under the MacAndrews & Forbes $100 million term loan and 2004
MacAndrews & Forbes $125 million term loan, which exchanged at 400 shares per thousand dollars,
exchanged for approximately 43.9 million shares and 15.6 million shares, respectively. Amounts under the
subordinated promissory notes, which exchanged at 300 shares per thousand dollars, exchanged for
approximately 7.2 million shares. Portions of the 2004 MacAndrews & Forbes $125 million term loan and
the MacAndrews & Forbes $65 million line of credit not exchanged remained available to Products
Corporation, subject to a borrowing limitation, which was subsequently eliminated. As mentioned above,
the 2004 MacAndrews & Forbes $125 million term loan and the MacAndrews & Forbes $65 million line
of credit were consolidated into the 2004 Consolidated MacAndrews & Forbes Line of Credit in July 2004.

REV Holdings LLC (‘‘REV Holdings’’), a wholly owned indirect subsidiary of MacAndrews &
Forbes Holdings, owned all 546 shares of Revlon, Inc.’s outstanding Series A preferred stock with a par
value of $0.01 per share and a liquidation preference of $54.6 million (‘‘Revlon, Inc. Series A Preferred
Stock’’) and all 4,333 shares of Revlon, Inc.’s outstanding Series B convertible preferred stock, with a par
value of $0.01 per share (‘‘Revlon, Inc. Series B Preferred Stock’’) and which were convertible into
433,333 shares of Class A Common Stock. As part of the Revlon Exchange Transactions, REV Holdings
exchanged each $1,000 of liquidation preference of Revlon, Inc. Series A Preferred Stock for 160 shares
of Class A Common Stock for an aggregate of approximately 8.7 million shares of Class A Common Stock
and converted its shares of Revlon, Inc. Series B Preferred Stock into an aggregate of 433,333 shares of
Class A Common Stock.

F-24

The consummation of the Revlon Exchange Transactions on March 25, 2004 resulted in (i) the
reduction of debt, preferred stock and accrued interest of approximately $804 million (as of such date),
$54.6 million and $9.9 million, respectively, resulting from the issuance of 299,969,493 shares of Class A
Common Stock and (ii) resulted in a decrease to capital deﬁciency of $879.3 million,
including
$79.9 million as a result of the exchange or conversion of debt and preferred stock by MacAndrews &
Forbes, calculated as the difference between the market value on March 25, 2004 of the Class A Common
Stock issued and the principal amount of debt and preferred stock exchanged or converted, together with
accrued interest. Additionally, the Company recognized a loss on early extinguishment of debt of
$32.0 million for the write-off of unamortized debt issuance costs and debt discount, estimated fees and
expenses and the difference between the market value on March 25, 2004 of the shares of Class A
Common Stock issued and the principal amount of debt exchanged by third parties (other than by
MacAndrews & Forbes), together with accrued interest, of $15.5 million.

In February 2004, Revlon, Inc. and Fidelity also entered into a stockholders agreement (the
‘‘Stockholders Agreement’’) pursuant to which, among other things, (i) Revlon, Inc. agreed to continue
to maintain a majority of independent directors (as deﬁned by New York Stock Exchange listing
standards) on its Board of Directors, as it currently does; (ii) Revlon, Inc. would establish and maintain
a Nominating and Corporate Governance Committee of the Board of Directors, which it formed in
March 2004; and (iii) Revlon, Inc. agreed to certain restrictions with respect to Revlon, Inc.’s conducting
any business or entering into any transactions or series of related transactions with any of its afﬁliates, any
holders of 10% or more of the outstanding voting stock or any afﬁliates of such holders (in each case, other
than its subsidiaries). This Stockholders Agreement will terminate when Fidelity ceases to be the
beneﬁcial holder of at least 5% of Revlon, Inc.’s outstanding voting stock.

Also in February 2004, Revlon, Inc. and MacAndrews & Forbes also entered into an investment
agreement (as amended, the ‘‘2004 Investment Agreement’’) pursuant to which MacAndrews and Forbes
committed to assisting the Company with its goal of reducing Products Corporation’s indebtedness by an
additional $200 million in the aggregate by the end of 2004 and further by an additional $100 million in
the aggregate by March 2006. Pursuant to the 2004 Investment Agreement, MacAndrews & Forbes
agreed, among other things, (i) to the extent that a minimum of $150 million aggregate principal amount
of notes were not tendered in the Revlon Exchange Transaction, to back-stop the exchange offers by
subscribing for additional shares of Revlon, Inc.’s Class A Common Stock at a purchase price of $2.50 per
share, to the extent of any shortfall, the proceeds of which would be used to reduce Products
Corporation’s outstanding indebtedness; (ii) to back-stop a rights offering in an amount necessary to meet
the $200 million aggregate debt reduction target by December 31, 2004, not to exceed $50 million since
at least $150 million of debt reduction in the aggregate was ensured as a result of the MacAndrews &
Forbes back-stop obligations discussed in (i) above; and (iii) to back-stop an equity or rights offering in
an amount necessary to meet the $300 million aggregate debt reduction target by March 31, 2006, not to
exceed $100 million since at least $200 million of debt reduction in the aggregate is ensured as a result of
the back-stop obligations discussed in (i) and (ii) above (such equity offerings together with the Revlon
Exchange Transactions are the ‘‘Debt Reduction Transactions’’). In connection with the closing of the
Revlon Exchange Transactions on March 25, 2004, MacAndrews & Forbes Holdings executed a joinder
agreement to the Revlon, Inc. registration rights agreement pursuant to which all Class A Common Stock
acquired by MacAndrews & Forbes will be deemed to be registrable securities. In August 2005, in
connection with Revlon, Inc.’s plan to issue $185.0 million of equity, MacAndrews & Forbes and Revlon,
Inc. amended the 2004 Investment Agreement to increase MacAndrews & Forbes’ commitment to
purchase such equity as is necessary to ensure that Revlon, Inc. issues $185.0 million of equity. (See Note
20, ‘‘Subsequent Events’’).

In connection with consummating the Revlon Exchange Transactions, Revlon, Inc. announced that
its previously - announced plan to launch a rights offering and use the proceeds to reduce debt by a further
$50 million by year-end 2004 was reduced to $9.7 million, as a result of $190.3 million of Revlon Exchange
Notes having been exchanged in excess of the Revlon Exchange Notes committed to be exchanged by
MacAndrews & Forbes and Fidelity under their respective support agreements. This $190.3 million more
than satisﬁed Revlon, Inc.’s plan to reduce debt through the Revlon Exchange Offers (as hereinafter
deﬁned) by $150 million in addition to the Revlon Exchange Notes that were committed to be exchanged

F-25

in the support agreements with MacAndrews & Forbes and Fidelity. The $40.3 million difference satisﬁed
all but $9.7 million of the Company’s plan to reduce debt (in addition to the Revlon Exchange Notes) by
a further $50 million by year-end 2004. Because the costs and expenses, as well as the use of organizational
resources, associated with a $9.7 million rights offering would have been unduly disproportionate, Revlon,
Inc.’s support agreements with MacAndrews & Forbes and Fidelity and the 2004 Investment Agreement
relating to the Company’s debt reduction plan were amended to enable Revlon, Inc. to satisfy the
remaining $9.7 million of debt reduction as part of the ﬁnal stage of the Company’s debt reduction plan.
Consistent with agreements between MacAndrews & Forbes and Revlon, Inc. entered into contempo-
raneously with the agreements relating to the Revlon Exchange Transactions, MacAndrews & Forbes
agreed to back-stop the proposed equity issuance. See Note 20, ‘‘Subsequent Events’’.

Liquidity Considerations

The Company expects that operating revenues, cash on hand, the net cash proceeds from Revlon,
Inc.’s planned $75 million equity issuance described in Note 20, ‘‘Subsequent Events’’ and funds available
for borrowing under the 2004 Credit Agreement, the 2004 Consolidated MacAndrews & Forbes Line of
Credit and other permitted lines of credit will be sufﬁcient to enable the Company to cover its operating
expenses for 2006, including cash requirements in connection with the Company’s operations, the
continued implementation of, and reﬁnement to, the Company’s plan, cash requirements in connection
with the Company’s restructuring programs referred to above (including as described in Note 20,
‘‘Subsequent Events’’), the Company’s debt service requirements and regularly scheduled pension and
post-retirement plan contributions. However, there can be no assurance that such funds will be sufﬁcient
to meet the Company’s cash requirements on a consolidated basis. If the Company’s anticipated level of
revenue growth is not achieved because, for example, of decreased consumer spending in response to
weak economic conditions or weakness in the mass-market cosmetics category, adverse changes in
currency, increased competition from the Company’s competitors, changes in consumer purchasing habits,
including with respect to shopping channels, retailer inventory management or the Company’s advertising
and marketing plans or brand initiatives are not as successful as anticipated, or if the Company’s expenses
associated with the continued implementation of, and reﬁnement to, the Company’s plan exceed the
anticipated level of expenses, the Company’s current sources of funds may be insufﬁcient to meet the
Company’s cash requirements.

In the event of a decrease in demand for the Company’s products, reduced sales, lack of increases in
demand and sales, changes in consumer purchasing habits, including with respect to shopping channels,
retailer inventory management and/or increased returns or expenses associated with the continued
implementation of, and reﬁnement to, the Company’s plan exceeding its expectations, any such
development, if signiﬁcant, could reduce Products Corporation’s revenues and could adversely affect
Products Corporation’s ability to comply with certain ﬁnancial covenants under the 2004 Credit
Agreement and in such event the Company could be required to take measures, including reducing
discretionary spending.

If the Company is unable to satisfy its cash requirements from the sources identiﬁed above or comply
with its debt covenants, the Company could be required to adopt one or more alternatives, such as
delaying the implementation of or revising aspects of its plan, including reducing or delaying purchases
of wall displays or advertising or promotional expenses, reducing or delaying capital spending, delaying,
reducing or revising restructuring programs (including as described in Note 20, ‘‘Subsequent Events’’),
restructuring indebtedness, selling assets or operations, seeking additional capital contributions or loans
from MacAndrews & Forbes, the Company’s other afﬁliates and/or third parties, selling additional equity
securities of Revlon, Inc. (or debt securities of Products Corporation) or reducing other discretionary
spending. There can be no assurance that the Company would be able to take any of the actions referred
to above because of a variety of commercial or market factors or constraints in Products Corporation’s
debt instruments, including, for example, market conditions being unfavorable for an equity or debt
issuance, additional capital contributions or loans not being available from afﬁliates and/or third parties,
or that the transactions may not be permitted under the terms of Products Corporation’s various debt
instruments then in effect, because of restrictions on the incurrence of debt, incurrence of liens, asset
dispositions and related party transactions. In addition, such actions, if taken, may not enable the

F-26

Company to satisfy its cash requirements or enable Products Corporation to comply with its debt
covenants if the actions do not generate a sufﬁcient amount of additional capital.

Revlon, Inc., as a holding company, will be dependent on the earnings and cash ﬂow of, and dividends
and distributions from, Products Corporation to pay its expenses and to pay any cash dividend or
distribution on Revlon, Inc.’s Class A Common Stock that may be authorized by Revlon, Inc.’s Board of
Directors. The terms of the 2004 Credit Agreement, the 2004 Consolidated MacAndrews & Forbes Line
of Credit and the indentures governing the 91⁄2% Senior Notes and the 85⁄8% Senior Subordinated Notes
generally restrict Products Corporation from paying dividends or making distributions, except that
Products Corporation is permitted to pay dividends and make distributions to Revlon, Inc. to enable
Revlon, Inc., among other things, to pay expenses incidental to being a public holding company, including,
among other things, professional fees such as legal and accounting fees, regulatory fees such as SEC ﬁling
fees and other miscellaneous expenses related to being a public holding company and, subject to certain
limitations, to pay dividends or make distributions in certain circumstances to ﬁnance the purchase by
Revlon, Inc. of its Class A Common Stock in connection with the delivery of such Class A Common Stock
to grantees under the Amended and Restated Revlon, Inc. Stock Plan (the ‘‘Stock Plan’’).

10. FINANCIAL INSTRUMENTS

The fair value of the Company’s long-term debt is based on the quoted market prices for the same
issues or on the current rates offered to the Company for debt of the same remaining maturities. The
estimated fair value of long-term debt at December 31, 2005 and 2004, respectively, was approximately
$40.0 million and $38.3 million less than the carrying values of $1,413.4 million and $1,318.7 million,
respectively.

Products Corporation also maintains standby and trade letters of credit with certain banks for various
corporate purposes under which Products Corporation is obligated, of which approximately $16.0 million
and $17.0 million (including amounts available under credit agreements in effect at that time) were
maintained at December 31, 2005 and 2004, respectively. Included in these amounts is approximately
$11.9 million and $11.0 million, at December 31, 2005 and 2004, 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.

The carrying amounts of cash and cash equivalents, marketable securities, trade receivables, notes

receivable, accounts payable and short-term borrowings approximate their fair values.

F-27

11.

INCOME TAXES

The Company’s loss before income taxes and the applicable provision (beneﬁt) for income taxes are

as follows:

Year Ended December 31,
2004

2003

2005

Loss before income taxes:

Domestic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Provision (beneﬁt) for income taxes:

Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State and local
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current
Deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Beneﬁts of operating loss carryforwards . . . . . . . . . . . . . . . . . . . . . .
Resolution of tax matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$(97.2)
22.0

$(75.2)

$ 0.1
0.4
8.0

$ 8.5

$ 15.2
0.1
(3.0)
(3.8)

$ 8.5

$(165.8)
32.6

$(136.5)
(16.8)

$(133.2)

$(153.3)

(1.7)
(0.8)
11.8

9.3

$ 12.6
1.6
(2.0)
(2.9)

(4.4)
0.4
4.5

0.5

8.3
1.9
(1.9)
(7.8)

9.3

0.5

The effective tax rate on loss before income taxes is reconciled to the applicable statutory federal

income tax rate as follows:

Year Ended December 31,
2004

2003

2005

Statutory federal income tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State and local taxes, net of federal income tax beneﬁt . . . . . . . . . . .
Foreign and U.S. tax effects attributable to operations outside the

U.S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on early extinguishment of debt
Change in valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sale of businesses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Resolution of tax audits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Effective rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(35.0)%
0.4

(35.0)%
0.2

14.4
—
36.8
—
(5.2)
(0.2)
11.2%

(4.5)
(14.9)
61.5
—
(2.2)
1.8
6.9%

2.1
—
38.1
—
(5.1)
—
0.3%

F-28

The tax effects of temporary differences that give rise to signiﬁcant portions of the deferred tax assets

and deferred tax liabilities at December 31, 2005 and 2004 are presented below:

Deferred tax assets:

Accounts receivable, principally due to doubtful accounts . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net operating loss carryforwards - domestic . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net operating loss carryforwards - foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accruals and related reserves
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employee beneﬁts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State and local taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Advertising, sales discounts and returns and coupon redemptions . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total gross deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total deferred tax assets, net of valuation allowance . . . . . . . . . . . . . . . . .

Deferred tax liabilities:

Plant, equipment and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total gross deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

December 31,

2005

2004

1.3
13.6
182.6
122.9
1.4
63.0
7.6
50.3
34.2

476.9
(447.2)

29.7

(24.2)
(1.6)

(25.8)

1.5
13.0
176.8
135.4
4.4
67.1
7.6
36.2
29.7

471.7
(441.7)

30.0

(23.5)
(2.1)

(25.6)

Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3.9

4.4

In assessing the recoverability of its deferred tax assets, management considers whether it is more
likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible. Management considers the scheduled
reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making
this assessment. Based upon the level of historical taxable income for certain international markets and
projections for future taxable income over the periods in which the deferred tax assets are deductible,
management believes it is more likely than not that the Company will realize the beneﬁts of certain
deductible differences existing at December 31, 2005. The valuation allowance increased by $5.5 million
during 2005 and decreased by $186.3 million during 2004.

During 2005, 2004 and 2003, certain of the Company’s foreign subsidiaries used operating loss
carryforwards to credit the current provision for income taxes by $1.1 million, $2.0 million, and
$1.9 million, respectively. Certain other foreign operations generated losses during 2005, 2004 and 2003 for
which the potential tax beneﬁt was reduced by a valuation allowance. During 2005 the Company used
domestic operating loss carryforwards to credit the current provision for income taxes by $1.9 million. At
December 31, 2005, the Company had tax loss carryforwards of approximately $916.4 million of which
$394.6 million are foreign and $521.8 million are domestic. Of the domestic losses, $111.4 million
represent tax losses generated by the Company from March 26, 2004 to December 31, 2004, and
$410.4 million represent losses of the Company not absorbed by the MacAndrews & Forbes Group in
accordance with the Internal Revenue Code of 1986 (as amended, the ‘‘Code’’) and the Treasury
regulations issued thereunder, offset by losses used by the Company in 2005. The losses expire in future
years as follows: 2006-$51.8 million; 2007-$119.1 million; 2008-$182.8 million; 2009-$88.1 million; 2010 and
beyond−$219.9 million; and unlimited−$254.7 million. The Company could receive the beneﬁt of such tax
loss carryforwards only to the extent it has taxable income during the carryforward periods in the
applicable tax jurisdictions. As a result of the closing of the Revlon Exchange Transactions, as of the end
of the day on March 25, 2004, Revlon Inc., Products Corporation and its U.S. subsidiaries were no longer
included in the MacAndrews & Forbes Group for federal income tax purposes (see further discussion
immediately below). The Code and the Treasury regulations issued thereunder govern both the

F-29

including Products Corporation,

calculation of the amount and allocation to the members of the MacAndrews & Forbes Group of any
consolidated federal net operating losses (‘‘CNOLs’’) of the group that will be available to offset Revlon,
Inc.’s taxable income and the taxable income of its U.S. subsidiaries, including Products Corporation, for
the taxable years beginning after March 25, 2004. Only the amount of any CNOLs that the MacAndrews
& Forbes Group did not absorb by December 31, 2004 will be available to be allocated to Revlon, Inc.
and its U.S. subsidiaries,
for their taxable years beginning on
March 26, 2004. MacAndrews & Forbes Holdings has indicated that, after giving effect to the CNOLs that
the MacAndrews & Forbes Group reported as having absorbed on its 2004 consolidated federal income
tax return, $415.9 million in U.S. federal net operating losses and $15.2 million of alternative minimum tax
losses were available to Revlon, Inc. and its U.S. subsidiaries, including Products Corporation, after
March 25, 2004. These amounts are subject to change if the Internal Revenue Service adjusts the results
of the MacAndrews & Forbes Group or if the MacAndrews & Forbes Group amends its returns for the
tax years ended on or before December 31, 2004. Any losses that Revlon, Inc. and its U.S. subsidiaries,
including Products Corporation, generate after March 25, 2004 will be available to Revlon, Inc. for its use
and its U.S. subsidiaries’, including Products Corporation’s, use and will not be available for the use of the
MacAndrews & Forbes Group.

The Company has not provided for U.S. Federal and foreign withholding taxes on $44.9 million of
foreign subsidiaries’ undistributed earnings as of December 31, 2005, because such earnings are intended
to be indeﬁnitely reinvested overseas. The amount of unrecognized deferred tax liabilities for temporary
differences related to investments in undistributed earnings is not practicable to determine at this time.

As a result of the closing of the Revlon Exchange Transactions, as of the end of March 25, 2004,
Revlon, Inc., Products Corporation and their U.S. subsidiaries were no longer included in the
MacAndrews & Forbes Group for federal income tax purposes. The MacAndrews & Forbes Tax Sharing
Agreement (as hereinafter deﬁned) will remain in effect solely for taxable periods beginning on or after
January 1, 1992, through and including March 25, 2004. In these taxable periods, Revlon, Inc. and
Products Corporation were included in the MacAndrews & Forbes Group, and Revlon, Inc.’s and
Products Corporation’s federal taxable income and loss were included in such group’s consolidated tax
return ﬁled by MacAndrews & Forbes Holdings. Revlon, Inc. and Products Corporation were also
included in certain state and local tax returns of MacAndrews & Forbes Holdings or its subsidiaries. In
June 1992, Revlon Holdings, Revlon, Inc., Products Corporation and certain of its subsidiaries, and
MacAndrews & Forbes Holdings entered into a tax sharing agreement (as subsequently amended and
restated, the ‘‘MacAndrews & Forbes Tax Sharing Agreement’’), pursuant to which MacAndrews &
Forbes Holdings agreed to indemnify Revlon, Inc. and Products Corporation against federal, state or local
income tax liabilities of the MacAndrews & Forbes Group (other than in respect of Revlon, Inc. and
Products Corporation) for taxable periods beginning on or after January 1, 1992 during which Revlon, Inc.
and Products Corporation or a subsidiary of Products Corporation was a member of such group. Pursuant
to the MacAndrews & Forbes Tax Sharing Agreement, for all such taxable periods, Products Corporation
was required to pay to Revlon, Inc., which in turn was required to pay to Revlon Holdings, amounts equal
to the taxes that Products Corporation would otherwise have had to pay if it were to ﬁle separate federal,
state or local
income tax returns (including any amounts determined to be due as a result of a
redetermination arising from an audit or otherwise of the consolidated or combined tax liability relating
to any such period which was attributable to Products Corporation), except that Products Corporation
was not entitled to carry back any losses to taxable periods ending prior to January 1, 1992. No payments
were required by Products Corporation or Revlon, Inc. if and to the extent Products Corporation was
prohibited under the terms of its 2004 Credit Agreement from making tax sharing payments to Revlon,
Inc. The 2004 Credit Agreement prohibits Products Corporation from making such tax sharing payments
under the MacAndrews & Forbes Tax Sharing Agreement other than in respect of state, local and federal
taxes. The MacAndrews & Forbes Tax Sharing Agreement was amended, effective as of January 1, 2001,
to eliminate a contingent payment to Revlon, Inc. under certain circumstances in return for a $10 million
note by MacAndrews & Forbes Holdings, with interest at 12% and interest and principal payable in
December 2005, which was paid in full. As a result of tax net operating losses, there were no federal tax
payments or payments in lieu of taxes pursuant to the MacAndrews & Forbes Tax Sharing Agreement in
respect of 2004.

F-30

Pursuant to the asset transfer agreement referred to in Note 16, Products Corporation assumed all
tax liabilities of Revlon Holdings other than (i) certain income tax liabilities arising prior to Janu-
ary 1, 1992 to the extent such liabilities exceeded reserves on Revlon Holdings’ books as of Janu-
ary 1, 1992 or were not of the nature reserved for and (ii) other tax liabilities to the extent such liabilities
are related to the business and assets retained by Revlon Holdings. During the second quarter of 2003,
the Company resolved various tax audits, which resulted in a tax beneﬁt of $13.9 million, of which
$6.9 million was recorded directly to capital deﬁciency since it relates to liabilities assumed by Products
Corporation in connection with the transfer agreements related to Products Corporation’s formation in
1992 (see Note 16, ‘‘Related Party Transactions’’). During 2004, the Company resolved various state and
federal tax audits and determined that certain tax liabilities were no longer probable, which resulted in
a tax beneﬁt of $19.3 million, of which $16.4 million was recorded to capital deﬁciency since it relates to
liabilities assumed by Products Corporation in connection with the transfer agreements related to
Products Corporation’s formation in 1992 (see Note 16, ‘‘Related Party Transactions’’). During 2005, the
Company resolved various tax matters and determined certain tax liabilities were no longer probable,
which resulted in a tax beneﬁt of $3.8 million, none of which was recorded to capital deﬁciency. In the
normal course of business the Company is subject to tax examinations in both domestic and foreign
jurisdictions. The Company believes that adequate provisions have been made for adjustments that may
result from such tax examinations.

12. SAVINGS PLAN, PENSION AND POST-RETIREMENT BENEFITS

Savings Plan:

The Company offers a qualiﬁed deﬁned contribution plan for U.S.-based employees, the Revlon
Employees’ Savings, Investment and Proﬁt Sharing Plan (as amended, the ‘‘Savings Plan’’), which allows
eligible participants to contribute up to 25% and highly compensated employees to contribute up to 6%
of qualiﬁed compensation through payroll deductions. The Company matches employee contributions at
ﬁfty cents for each dollar contributed up to the ﬁrst 6% of eligible compensation. The Company may also
contribute from time to time proﬁt sharing contributions (if any) for non-bonus eligible employees. In
2005, 2004 and 2003, the Company made cash matching contributions to the Savings Plan of approxi-
mately $2.9 million, $2.7 million and $2.8 million, respectively. There were no additional contributions or
proﬁt sharing contributions made during those years.

Pension Beneﬁts:

The Company sponsors a number of qualiﬁed deﬁned beneﬁt pension plans covering a substantial
portion of the Company’s employees in the U.S., as well as certain other non-U.S. employees. The
Company also has nonqualiﬁed pension plans which provide beneﬁts in excess of IRS limitations in the
U.S. and in certain limited cases contractual beneﬁts for designated ofﬁcers of the Company. These plans
are funded from the general assets of the Company.

F-31