Revlon, Inc. Annual Report 2007

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FY2007 Annual Report · Revlon, Inc.

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2007 A N N UA L R E P O R T

David L. Kennedy
President and Chief Executive Ofﬁcer

DEAR SHAREHOLDERS:

We made signiﬁcant progress in 2007, and we are most thankful
to all our employees around the world for their commitment and
for taking the actions necessary to make this progress a reality.
We are also most appreciative of our Board of Directors for their
leadership, counsel and support during 2007.

We continued to implement our business strategy by taking speciﬁc actions that drove our
improved performance, and we achieved our best ﬁnancial results in many years.

Financial Highlights

Our improved ﬁnancial results were driven by increased net sales, continued beneﬁts from our
previous restructuring actions and ongoing control of our costs. In 2007, net sales, operating
proﬁts and margins improved compared to 2006.

Financial highlights for the year 2007 compared to 2006 follow:

• Net sales increased to $1,400.1 million from $1,331.4 million.

• Operating income increased to $121.0 million, compared to an operating loss of

$50.2 million.

• Net loss was $16.1 million, or $0.03 per diluted share, compared to a net loss of

$251.3 million, or $0.60 per diluted share.

• Adjusted EBITDA1 was $224.5 million (which was reduced by $7.3 million of restructuring
expenses), compared to $78.2 million in 2006 (which was reduced by $122.9 million related
to charges for Vital Radiance, executive severance and restructuring expenses).

• Negative free cash ﬂow2 improved to $13.8 million, compared to negative free cash ﬂow of

$161.1 million.

• In the full year 2006, Vital Radiance, executive severance and restructuring expenses
collectively reduced net sales by $19.7 million and unfavorably affected operating income
and net loss by $145.1 million.

These ﬁnancial results are depicted graphically below:

Net Sales
(in millions)

$1,400.1

$1,331.4

Operating Income / (Loss)
(in millions)

8.6%

$121.0

2007

($50.2)

2006

2007

Operating Income % of Net Sales

Adjusted EBITDA
(in millions)

5.9%

$78.2

2006

16.0%

$224.5

2007

Adjusted EBITDA

% of Net Sales

Free Cash Flow
(in millions)

($13.8)

2007

($161.1)

2006

2007 Mass Retail Share3

Throughout 2007, in the U.S., the Revlon brand maintained an approximate 13% dollar share
each quarter and Almay maintained an approximate 6% dollar share each quarter (in terms of
U.S. mass retail share performance, according to ACNielsen). Revlon color cosmetics market
share reﬂects positive performance from new products launched in the second half of 2006
and in 2007, offset by a decrease in market share by products launched in prior years.

Strategy

We have continued to implement our strategy and took the following actions during the year:

Build and leverage our strong brands, particularly the Revlon brand: We are focused
on building and leveraging our strong brands around the world, and we believe that
consistent development and effective marketing of innovative, exciting, high quality new
products is a key driver for building brand equity and proﬁtable growth over time.

In 2007, we implemented an integrated Revlon and Almay brand marketing and product
development organization to accelerate new product development, produce effective brand
communication, develop global marketing plans, as well as establish accountability for both
sales and proﬁt growth. We strengthened the brand marketing organization with new
leadership for the Revlon and Almay brands and for product development. We improved the
new product development process and developed a comprehensive global three-year color
cosmetics and beauty care portfolio strategy. In addition, we strengthened our brand
ambassador family signing Jessica Alba in 2007 and, most recently, signing Elle Macpherson,
both of whom, along with Halle Berry and Beau Garrett, represent the Revlon brand globally.

We are developing and sustaining a pipeline of innovative, exciting, high quality new products
and managing our product portfolio with the objective of achieving proﬁtable net sales and
mass retail channel share growth. Throughout 2007 we launched several new products, and
we supported our existing brands worldwide with increased dollar spending versus 2006.

Throughout 2008, we are introducing an extensive lineup of new products for Revlon and
Almay color cosmetics. These product launches include differentiated and unique offerings for
the mass retail channel with innovations in formulas and packaging, and extensions within the
Revlon and Almay key franchises. We intend to continue our strategy of supporting new
products with advertising and promotions at spending levels that are intended to be
competitive, using our talented, well known, celebrity brand ambassadors. We will also
continue to focus on working with our retail customers to develop mutually beneﬁcial in-store
experiences for our consumers.

Improve the execution of our strategies and plans, and provide for continued
improvement in our organizational capability: During 2006 and 2007, we completed
organizational restructurings in the U.S., which eliminated redundant management structure,
established clear accountabilities and reduced costs. We continued to improve our organiza-
tional capability by strengthening leadership in key functions and bringing in talented,
motivated and highly capable people. In addition, we provided for a broad-based restricted
stock grant to incent and retain key employees.

Continue to strengthen our international business:
In our three international regions,
Asia Paciﬁc (which includes Africa), Europe (which includes Canada), and Latin America, we
continued to implement strategies that have proven successful. We continued our focus on
our strong brands in key countries and leveraged the Revlon and Almay color cosmetics global
brand marketing plans throughout all regions. We continued to adapt our global product
portfolio to local consumer preferences and trends, and we continued to review and
implement changes to our business structure in each country with the objective of ensuring
the most effective business model.

Improve our operating proﬁt margins and cash ﬂow: By the middle of 2007, we
achieved an annualized reduction in our cost base from previous levels of approximately
$55 million through restructuring actions that were completed on-schedule and on-budget in
2006 and 2007. We also established continuous improvement initiatives to achieve efﬁcien-
cies and control costs. We expect to realize continuing, sustainable beneﬁts from our
restructuring actions and ongoing cost controls. In addition, we continue our efforts to reduce
working capital as a percentage of net sales, with a constant focus on improving inventory
turnover.

Improve our capital structure: We have beneﬁted from opportunities to reduce and
reﬁnance our debt. As a result of our 2006 credit agreement reﬁnancing, for 2007 we reduced
our interest expense by over $12 million compared to 2006, on comparable debt levels. In
2007, we completed a $100 million equity rights offering and used the proceeds to reduce
debt. In September, 2007 we entered into a swap agreement that allowed the ﬂoating rate
and ﬁxed rate portions of our total debt to be approximately equal, thereby reducing our
exposure to market volatility. We also reﬁnanced the remaining balance of our 8 5/8% senior
subordinated notes with a $170 million senior subordinated term loan from MacAndrews &
Forbes, on February 1, 2008.

Outlook

Building on our solid performance in 2007, we fully recognize the need to continue to
improve. We entered 2008 with an intense focus on increasing the value of our Company. We
believe that effective marketing, continued strong new product offerings for the coming years
and ﬂawless execution with our retail customers will build the Revlon brand. We continue to
implement our strategy by taking actions with the objective of generating proﬁtable net sales
and Adjusted EBITDA growth, over time, and achieving sustained positive free cash ﬂow.

We remain true to our long-term vision: To provide glamour, excitement and innova-
tion to consumers through high-quality products at affordable prices.

We believe strongly in a successful future for Revlon.

David L. Kennedy
President and Chief Executive Ofﬁcer
April 2008

1 Adjusted EBITDA is a non-GAAP measure that the Company deﬁnes as net earnings before interest, taxes,
depreciation, amortization, gains/losses on foreign currency transactions, gains/losses on the early extin-
guishment of debt and miscellaneous expenses and is reconciled to net income/(loss), the most directly
comparable GAAP measure, below.

Free cash ﬂow is a non-GAAP measure that the Company deﬁnes as net cash provided by (used in) operating
activities, less capital expenditures for property, plant and equipment, plus proceeds from the sale of certain
assets, and is reconciled to net cash provided by (used in) operating activities, the most directly comparable
GAAP measure, below.

3 All mass retail share and consumption data is U.S. mass-retail dollar volume according to ACNielsen (an
independent research entity). ACNielsen data is an aggregate of the drug channel, Kmart, Target and Food
and Combo stores, and excludes Wal-Mart and regional mass volume retailers, as well as prestige,
department stores, door-to-door, internet, television shopping, specialty stores, perfumeries and other
outlets, all of which are channels for cosmetics sales. This data represents approximately two-thirds of the
Company’s U.S. mass-retail dollar volume. Such data represents ACNielsen’s estimates based upon mass
retail sample data gathered by ACNielsen and is therefore subject to some degree of variance and may
contain slight rounding differences.

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

In the table set forth below, Adjusted EBITDA, which is a non-GAAP ﬁnancial measure, is reconciled to net income/(loss), its most directly
comparable GAAP measure. Adjusted EBITDA is deﬁned as net earnings before interest, taxes, depreciation, amortization, gains/losses on
foreign currency transactions, gains/losses on the early extinguishment of debt and miscellaneous expenses.

Reconciliation to net income (loss):
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of debt issuance costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency gains, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Gain) loss on early extinguishment of debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Miscellaneous, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Adjusted EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Year Ended
December 31,

2007

2006

(Unaudited)

$ (16.1)
134.3
3.3
(6.8)
0.1
(1.8)
8.0
103.5

$224.5

$(251.3)
147.7
7.5
(1.5)
23.5
3.8
20.1
128.4

$ 78.2

In calculating Adjusted EBITDA, the Company excludes the effects of gains/losses on foreign currency transactions, gains/losses on the early
extinguishment of debt and miscellaneous expenses 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 and gross margin calculated in accordance with GAAP.

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. Additionally, the Company’s management believes that because it has historically provided Adjusted EBITDA that including
such non-GAAP measure provides consistency in its ﬁnancial reporting and continuity to investors for comparability purposes. 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 that 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 read 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.

REVLON, INC. AND SUBSIDIARIES
UNAUDITED FREE CASH FLOW RECONCILIATION
($ in millions)

In the table set forth below, free cash ﬂow, which is a non-GAAP measure, is reconciled to net cash provided by (used in) operating activities,
its most directly comparable GAAP measure. Free cash ﬂow is deﬁned as net cash provided by (used in) operating activities, less capital
expenditures for property, plant and equipment, plus proceeds from the sale of certain assets. Management uses free cash ﬂow to evaluate
its business and ﬁnancial performance and overall liquidity and in strategic planning. Management believes that free cash ﬂow is useful for
investors because it provides them with an important perspective on the cash available for debt repayment and other strategic measures,
after making necessary capital investments in property and equipment to support the Company’s ongoing business operations, and provides
them with the same results that management uses as the basis for making resource allocation decisions. Free cash ﬂow does not represent
the residual cash ﬂow available for discretionary expenditures, as it excludes certain expenditures such as mandatory debt service
requirements, which for the Company are signiﬁcant. The Company does not intend for free cash ﬂow to be considered in isolation or as a
substitute for the related GAAP measures. Other companies may deﬁne free cash ﬂow or similarly titled measures differently. Free cash ﬂow
should be read in conjunction with the Company’s ﬁnancial statements and footnotes contained in documents that the Company ﬁles with
the U.S. Securities and Exchange Commission.

Reconciliation to net cash provided by (used in) operating activities:
Cash provided by (used in) operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Plus proceeds from the sale of certain assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Free cash ﬂow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Year Ended
December 31,

2007

2006

(Unaudited)

$ 3.8
(20.0)
2.4

$(13.8)

$(138.7)
(22.4)
—

$(161.1)

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, 2007

□ 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
IdentiﬁcationNo.)

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):

Large accelerated ﬁler □

Accelerated ﬁler (cid:1)

Non-accelerated ﬁler □

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

Yes □ No (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, 2007, the last business day of the registrant’s most recently completed second ﬁscal
quarter) was approximately $278,654,667.

As of December 31, 2007, 479,966,868 shares of Class A Common Stock and 31,250,000 shares of Class B Common Stock
were outstanding. At such date 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 276,732,040 shares of Class A Common Stock were beneﬁcially owned by MacAndrews & Forbes Holdings Inc. and
its afﬁliates.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of Revlon, Inc.’s deﬁnitive Proxy Statement to be delivered to shareholders in connection with its Annual
Meeting of Stockholders to be held on or about June 5, 2008 are incorporated by reference into Part III of this Form 10-K.

Revlon, Inc. and Subsidiaries

Form 10-K

For the Year Ended December 31, 2007

Table of Contents

PART I

Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.

Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . . . . . . .

Item 5.

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

PART II

Item 6.
Item 7.

Item 7A.
Item 8.
Item 9.

Item 9A.
Item 9B.

Item 10.
Item 11.
Item 12.

Item 13.
Item 14.

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

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

Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

PART III

Directors, Executive Ofﬁcers and Corporate Governance. . . . . . . . . . . . . . . . . . . . . .
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Security Ownership of Certain Beneﬁcial Owners and Management and Related
Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Certain Relationships and Related Transactions, and Director Independence . . . .
Principal Accountant Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 15.

Exhibits, Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

PART IV

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). . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial Statement Schedule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Signatures
Certiﬁcations
Exhibits

Page

2
12
23
23
23
24

25
26

28
50
52

52
52
53

59
59

59
59
59

F-1

F-2

F-3
F-4
F-58

Item 1. Business

Background

PART I

Revlon, Inc. (and together with its subsidiaries, the ‘‘Company’’) conducts its business exclusively
through its direct wholly-owned operating subsidiary, Revlon Consumer Products Corporation and its
subsidiaries (‘‘Products Corporation’’). Revlon, Inc. is a direct and indirect majority-owned subsidiary of
MacAndrews & Forbes Holdings Inc. (‘‘MacAndrews & Forbes Holdings’’ and together with certain of
its afﬁliates other than the Company, ‘‘MacAndrews & Forbes’’), a corporation wholly-owned by Ronald
O. Perelman.

The Company operates in a single segment and manufactures, markets and sells an extensive array
of cosmetics, women’s hair color, beauty tools, fragrances, skincare, anti-perspirants/deodorants and
personal care products. The Company is one of the world’s leading cosmetics companies in the mass retail
channel (as hereinafter deﬁned). The Company believes that its global brand name recognition, product
quality and marketing experience have enabled it to create one of the strongest consumer brand
franchises in the world.

The Company’s products are sold worldwide and marketed under such brand names as Revlon,
including the Revlon ColorStay, Revlon Super Lustrous and Revlon Age Defying franchises, as well as
the Almay brand, including the Almay Intense i-Color and Almay Smart Shade franchises, in cosmetics;
Revlon Colorsilk in women’s hair color; Revlon in beauty tools; Charlie and Jean Naté in fragrances;
Ultima II and Gatineau in skincare; and Mitchum and Bozzano in personal care products.

The Company’s principal customers include large mass volume retailers, chain drug and food stores
(collectively, the ‘‘mass retail channel’’) in the U.S., as well as certain department stores and other
specialty stores, such as perfumeries, outside the U.S. The Company also sells beauty products to
U.S. military exchanges and commissaries and has a licensing business pursuant to which the Company
licenses certain of its key brand names to third parties for 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 75 years ago. Today, the Company has
leading market positions in a number of its principal product categories in the U.S. mass retail channel,
including color cosmetics (face, lip, eye and nail categories), women’s hair color, beauty tools and
anti-perspirants/deodorants. The Company also has leading market positions in several product categories
in certain foreign countries, including Australia, Canada and South Africa. The Company’s products are
sold throughout the world.

The Company’s Business Strategy

The Company’s business strategy includes:

• Building and leveraging our strong brands. We are building and leveraging our brands,
particularly the Revlon brand, across the categories in which we compete. In addition to
Revlon and Almay brand color cosmetics, we are seeking to drive growth in other beauty
care categories, including women’s hair color, beauty tools and anti-perspirants/deodorants.
We are implementing this strategy by developing and sustaining an innovative pipeline of
new products and managing our product portfolio with the objective of proﬁtable net sales
growth over time. We will: 1) fully utilize our creative, marketing and research and
development capabilities; 2) reinforce clear, consistent brand positioning through effective,
innovative advertising and promotion; and 3) work with our retail customers to continue to
increase the effectiveness of our in-store marketing, promotion and display walls across
categories in which we compete. We took several steps in furtherance of this objective
including:

•

In 2007, we instituted a rigorous process for the continuous development and evaluation
of new product concepts, improved our new product commercialization process and
created a comprehensive, long-term portfolio strategy.

• Within our Revlon and Almay marketing organizations in the U.S., during 2007 we
implemented an integrated organizational structure to accelerate new product
development, produce effective creative and provide clear lines of communication,
responsibility and accountability.

•

In 2007, we launched and supported with advertising and promotions a number of new
including Revlon Limited Edition Collection, Revlon Luxurious Color
products,
eyeliner, Revlon 3D Extreme mascara, Revlon Renewist lipcolor, Revlon Age Defying
makeup primer, Almay Pure Blends mineral makeup, Almay Smart Shade line
extensions (blush and bronzer), Almay Hydracolor lipstick and Mitchum Smart Solid
anti-perspirant/deodorant. We also signed Jessica Alba and Beau Garrett as
spokesmodels for the Revlon brand.

For 2008, we are launching an extensive lineup of Revlon and Almay color cosmetics,
which includes differentiated and unique offerings for the mass retail channel, innovations
in products and packaging, new technologies and extensions within the Revlon and
Almay franchises. We are supporting these new products with advertising and promotions
using our spokesmodels.

– Our ﬁrst half 2008 Revlon color cosmetics introductions include Revlon ColorStay
minerals collection, Revlon Custom Creations foundation, Revlon Limited Edition
Collection, Almay TLC Truly Lasting Color foundation, Almay Intense i-Color
‘‘Bring Out’’ and ‘‘Play Up’’ collections and Almay makeup removers.

–

In the second half of 2008, we will offer additional and signiﬁcant new products and
innovations within the Revlon and Almay portfolios.

•

Improving the execution of our strategies and plans and providing for continued improvement
in our organizational capability through enabling and developing our employees. We are
continuing to build our organizational capability primarily through a focus on recruitment
and retention of skilled people, providing opportunities for professional development, as
well as new and expanded responsibilities and roles for employees who have demonstrated
capability and rewarding our employees for success. We have taken several steps in
furtherance of this objective including:

• During 2006 and 2007, we streamlined our organizational structure and created
expanded roles and responsibilities for key, capable individuals throughout
the
organization, and made key promotions within our marketing, ﬁnance, operations,
customer business development, legal and human resources groups. We have also
recruited a number of highly capable and skilled executives and professionals across
various functions.

• We have strengthened our U.S. marketing and sales organization with the creation of
our U.S. region and by recruiting talented and experienced executives within marketing,
product development and sales.

• We have created new incentive rewards programs, including restricted stock grants for
a broad group of key contributors who will be important in executing our strategies and
in contributing to the achievement of our goal of achieving long-term, proﬁtable growth.

• We have implemented a simple, well-structured approach to global succession planning

for key positions.

• Continuing to strengthen our international business. We are continuing to strengthen our

international business through the following key strategies:

•

Focusing on the Revlon brand and our other strong national and multi-national brands
in key countries;

• Leveraging our Revlon and Almay brand marketing worldwide;

• Adapting our product portfolio to local consumer preferences and trends;

•

Structuring the most effective business model in each country; and

Strategically allocating resources and controlling costs.

•

Improving our operating proﬁt margins and cash ﬂow. We are capitalizing on opportunities
to improve our operating proﬁt margins and cash ﬂow over time, including reducing sales
returns, costs of goods sold and general and administrative expenses and improving working
capital management (in each case as a percentage of net sales), and we continue to focus on
improving net sales growth. We have taken several steps in furtherance of this objective
including:

• We implemented several restructuring actions during 2006 and 2007 intended to reduce
ongoing costs and increase operating proﬁt margins. As a result of these actions, we
reduced our cost base by approximately $55 million from previous levels.

–

In 2006, we implemented a series of organizational realignments and streamlining
actions involving the consolidation of certain functions within our sales, marketing
and creative groups, and certain headquarter functions; reducing layers of
management; eliminating certain executive positions; and consolidating various
facilities. This new structure streamlined internal processes and has enabled more
effective innovation and creativity, while fostering more efﬁcient decision-making
and appropriately aligning this decision-making with accountability and has led to
improvements in our operational effectiveness and enabled us to be more effective
and efﬁcient in meeting the needs of our consumers and retail customers (the ‘‘2006
Programs’’).

In 2007, we implemented several restructuring plans designed to reduce costs and
improve our operating proﬁt margins, including the consolidation of facilities and
certain functions, principally the closure of our facility in Irvington, New Jersey,
which was completed in June 2007, and personnel reductions within our Information
Management function and a reduction of our sales force in Canada (the ‘‘2007
Programs’’).

• We are selectively reducing certain product promotions in the U.S. and Canada leading
to lower rates of product returns and an improvement in our operating proﬁt margins.

• Our cash ﬂow from operations has improved signiﬁcantly in 2007 compared to prior

years.

• Continuing to improve our capital structure. We are beneﬁting from opportunities to
reduce and reﬁnance our debt. We have taken several steps in furtherance of this objective,
including:

• March 2006 $110 Million Rights Offering:

In the ﬁrst quarter of 2006, Revlon, Inc.
completed a $110 million rights offering, including the related private placement to
MacAndrews & Forbes (together the ‘‘$110 Million Rights Offering’’), of Revlon, Inc.’s
Class A Common Stock (as hereinafter deﬁned) and used the proceeds, together with
available cash, to redeem approximately $109.7 million in aggregate principal amount of
Products Corporation’s 85⁄8% Senior Subordinated Notes (as hereinafter deﬁned).

• Reﬁnancing of Bank Credit Agreement:

In December 2006, Products Corporation
reﬁnanced its 2004 Credit Agreement (as hereinafter deﬁned), reducing interest rates
and extending the maturity dates for Products Corporation’s bank credit facilities from
July 2009 to January 2012 in the case of the revolving credit facility and from July 2010
to January 2012 in the case of the term loan facility. As part of this reﬁnancing, Products
Corporation entered into a ﬁve-year, $840 million term loan facility (the ‘‘2006 Term
Loan Facility’’), replacing the $800 million term loan under Products Corporation’s 2004
Credit Agreement. Products Corporation also amended its existing $160 million
multi-currency revolving credit facility under its 2004 Credit Agreement and extended
its maturity through the same ﬁve-year period (the ‘‘2006 Revolving Credit Facility’’

and, together with the 2006 Term Loan Facility, the ‘‘2006 Credit Facilities’’, with the
agreements governing the 2006 Credit Facilities being the ‘‘2006 Term Loan Agreement’’,
the ‘‘2006 Revolving Credit Agreement’’, and together the ‘‘2006 Credit Agreements’’).
In September 2007, we entered into an interest rate swap transaction with Citibank,
N.A. acting as the counterparty, which effectively ﬁxed the LIBOR portion of the
interest rate on $150.0 million notional amount of outstanding indebtedness under the
2006 Term Loan Facility at 4.692% through September 17, 2009. (See ‘‘Financial
Condition, Liquidity and Capital Resources — Credit Agreement Reﬁnancing’’ and
‘‘Financial Condition, Liquidity and Capital Resources — Interest Rate Swap
Transaction’’).

January 2007 $100 Million Rights Offering:
In January 2007, Revlon, Inc. completed
a $100 million rights offering of Revlon, Inc.’s Class A Common Stock (including the
related private placement to MacAndrews & Forbes, the ‘‘$100 Million Rights Offering’’)
and used the proceeds to redeem $50.0 million in aggregate principal amount of the
85⁄8% Senior Subordinated Notes,
the balance of which was repaid in full on
February 1, 2008 (See ‘‘Recent Developments’’), and to repay approximately $43.3 million
of indebtedness outstanding under Products Corporation’s 2006 Revolving Credit
Facility, without any permanent reduction of
that commitment, after paying
approximately $1.1 million of fees and expenses incurred in connection with such rights
offering, with approximately $5.0 million of the remaining net proceeds being available
for general corporate purposes.

In December 2007, Revlon, Inc.
$170 Million Senior Subordinated Term Loan:
announced that MacAndrews & Forbes, Revlon’s majority stockholder, had agreed to
provide Products Corporation with a $170 million Senior Subordinated Term Loan, the
proceeds of which Products Corporation used on February 1, 2008 to repay in full the
$167.4 million remaining aggregate principal amount of Product Corporation’s 85⁄8%
Senior Subordinated Notes, which matured on such date. (See ‘‘Recent Developments’’).

•

Recent Developments

On January 30, 2008, Products Corporation entered into its previously-announced $170 million
Senior Subordinated Term Loan Agreement with MacAndrews & Forbes (the ‘‘MacAndrews & Forbes
Senior Subordinated Term Loan Agreement’’). On February 1, 2008, Products Corporation used the
proceeds of the MacAndrews & Forbes Senior Subordinated Term Loan to repay in full the approximately
$167.4 million remaining aggregate principal amount of Products Corporation’s 85⁄8% Senior Subordinated
Notes, which matured on February 1, 2008 (the ‘‘85⁄8% Senior Subordinated Notes’’), and to pay certain
related fees and expenses,
including the payment to MacAndrews & Forbes of a facility fee of
$2.55 million (or 1.5% of the total aggregate principal amount of such loan) upon MacAndrews & Forbes
funding such loan. In connection with such repayment, Products Corporation also used cash on hand to
pay approximately $7.2 million of accrued and unpaid interest due on the 85⁄8% Senior Subordinated
Notes up to, but not including, the February 1, 2008 maturity date.

The MacAndrews & Forbes Senior Subordinated Term Loan bears interest at an annual rate of 11%,
which is payable in arrears in cash on March 31, June 30, September 30 and December 31 of each year,
commencing on March 31, 2008. The MacAndrews & Forbes Senior Subordinated Term Loan matures on
August 1, 2009, provided that Products Corporation may, at its option, prepay such loan, in whole or in
part (together with accrued and unpaid interest), at any time prior to maturity without premium or
penalty.

The MacAndrews & Forbes Senior Subordinated Term Loan Agreement is an unsecured obligation
of Products Corporation and, pursuant to subordination provisions that are generally incorporated from
the indenture which governed the 85⁄8% Senior Subordinated Notes prior to their repayment,
is
subordinated in right of payment to all existing and future senior debt of Products Corporation, currently
including indebtedness under (i) Products Corporation’s 2006 Credit Agreements, and (ii) Products
Corporation’s 91⁄2% Senior Notes (as hereinafter deﬁned). The MacAndrews & Forbes Senior Subordinated

Term Loan Agreement has the right to payment equal in right of payment with any present and future
senior subordinated indebtedness of Products Corporation.

The MacAndrews & Forbes Senior Subordinated Term Loan Agreement contains covenants (other
than the subordination provisions discussed above) that are generally incorporated from the indenture
governing Products Corporation’s 91⁄2% Senior Notes due April 1, 2011 (the ‘‘91⁄2% Senior Notes’’),
including covenants that 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 certain
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 MacAndrews & Forbes Senior Subordinated Term Loan Agreement includes a cross acceleration
provision, which is substantially the same as that in Products Corporation’s 91⁄2% Senior Notes that
provides that it shall be an event of default under the MacAndrews & Forbes Senior Subordinated Term
Loan Agreement if any debt (as deﬁned in such agreement) of Products Corporation or any of its
signiﬁcant subsidiaries (as deﬁned in such agreement) 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 MacAndrews & Forbes. If any such event of default occurs,
MacAndrews & Forbes may declare the MacAndrews & Forbes Senior Subordinated Term Loan to be
due and payable immediately.

The MacAndrews & Forbes Senior Subordinated Term Loan Agreement also contains other
customary events of default for loan agreements of such type, including, subject to applicable grace
periods, nonpayment of any principal or interest when due under the MacAndrews & Forbes Senior
Subordinated Term Loan Agreement, non-compliance with any of the material covenants in the
MacAndrews & Forbes Senior Subordinated Term Loan Agreement, any representation or warranty
being incorrect, false or misleading in any material respect, or the occurrence of certain bankruptcy,
insolvency or similar proceedings by or against Products Corporation or any of its signiﬁcant subsidiaries.

Upon any change of control (as deﬁned in the MacAndrews & Forbes Senior Subordinated Term
Loan Agreement), Products Corporation is required to repay the MacAndrews & Forbes Senior
Subordinated Term Loan in full, after fulﬁlling an offer to repay Products Corporation’s 91⁄2% Senior
Notes and to the extent permitted by Products Corporation’s 2006 Credit Agreements.

In connection with the closing of the MacAndrews & Forbes Senior Subordinated Term Loan,
Revlon, Inc. and MacAndrews & Forbes entered into a letter agreement in January 2008, pursuant to
which Revlon, Inc. agreed that, if Revlon, Inc. conducts any equity offering before the full payment of the
MacAndrews & Forbes Senior Subordinated Term Loan, and if MacAndrews & Forbes and/or its
afﬁliates elects to participate in any such offering, MacAndrews & Forbes and/or its afﬁliates may pay for
any shares it acquires in such offering either in cash or by tendering debt valued at its face amount under
the MacAndrews & Forbes Senior Subordinated Term Loan Agreement, including any accrued but
unpaid interest, on a dollar for dollar basis, or in any combination of cash and such debt. Revlon, Inc. is
under no obligation to conduct an equity offering and MacAndrews & Forbes and its afﬁliates are under
no obligation to subscribe for shares should Revlon elect to conduct an equity offering.

In accordance with SFAS No. 6,

‘‘Classiﬁcation of Short-Term Obligations Expected to be
Reﬁnanced,’’ the approximately $167.4 million aggregate principal amount of Products Corporation’s
85⁄8% Senior Subordinated Notes that remained outstanding as of December 31, 2007 has been classiﬁed
as long-term due to the entering into of the MacAndrews & Forbes Senior Subordinated Term Loan on
January 30, 2008.

Products

Revlon, Inc. conducts business exclusively through Products Corporation. The Company manufactures
and markets a variety of products worldwide. The following table sets forth the Company’s principal
brands.

COSMETICS

HAIR

BEAUTY TOOLS

FRAGRANCE

ANTI-
PERSPIRANTS/
DEODORANTS

Revlon
Almay

Revlon Colorsilk Revlon
Bozzano

Charlie
Jean Naté

Mitchum
Almay

SKINCARE

Gatineau
Ultima II

Cosmetics — Revlon: The Company sells a broad range of cosmetics under its ﬂagship Revlon
brand designed to fulﬁll consumer needs, principally priced in the upper range of the mass retail channel,
including face, lip, eye and nail products. Certain of the Company’s products incorporate patented,
patent-pending or proprietary technology. (See ‘‘New Product Development and Research and
Development’’).

The Company sells face makeup, including foundation, powder, blush and concealers, under the
Revlon brand name. Revlon Age Defying, which is targeted for women in the over-35 age bracket,
incorporates the Company’s patented Botaﬁrm ingredients to help reduce the appearance of lines and
wrinkles. The Company also markets a complete range of Revlon ColorStay long-wearing liquid and
powder face makeup with patented SoftFlex technology for enhanced comfort. The Revlon ColorStay
mineral collection includes loose powder foundation, as well as baked blush and bronzer. The Revlon
Limited Edition Collection, focusing on unique styles and expressive looks, offers liquid and powder
blush.

The Company markets several different lines of Revlon lip makeup, including lipstick, lip gloss and
lip liner, under several Revlon brand names. Super Lustrous is the Company’s ﬂagship wax-based lipcolor,
offered in a wide variety of shades of lipstick and lipgloss, and has LiquiSilk technology designed to boost
moisturization using silk dispersed in emollients. ColorStay Soft & Smooth, with patent pending lip
technology, offers long-wearing beneﬁts while enhancing comfort with SoftFlex technology, while
ColorStay Overtime lipcolor and ColorStay Overtime Sheer use patented transfer resistant technology.
Revlon Renewist lipcolor uses a patented Procollagen moisture core to boost lip moisture. The Revlon
Limited Edition Collection, focusing on current trends, offers lip color, lip gloss, lip stain and lip topping.

The Company’s eye makeup products include mascaras, eyeliners and eye shadows, under several
Revlon brand names. In mascaras, key franchises include Fabulash, which uses a patented lash perfecting
brush for fuller lashes, as well as Luxurious Lengths mascara which makes lashes appear longer.
3D Extreme mascara uses a unique bold impact brush to make lashes fuller, curvier and visibly longer. In
eyeliners, Revlon Luxurious Color liner uses a smooth formula to provide rich, luxurious color. In eye
shadow, Revlon ColorStay 12-Hour patented longwearing eyeshadow enables color to look fresh for
12 hours. ColorStay mineral eye shadow offers longwearing, baked mineral shadow trios that last up to
16 hours. The Revlon Limited Edition Collection, focusing on creating individual looks, includes eye
shadow trios, liner/shadow duos, loose shadow compacts, liquid shadow, sheer shadow and powder liner.

The Company’s nail color and nail care lines include enamels, treatments and cuticle preparations.
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. The Company’s Color Beam Sheer nail enamel comes in a unique array of shades and has
multiple patents on its long-wearing formula. The Company also markets Revlon ColorStay patented nail
enamel, including nail enamels which offer superior color and shine for 10 days with an exclusive
ColorLock system. In addition, the Company sells Cutex nail enamel remover and nail care products in
certain countries outside the U.S.

Cosmetics — Almay: The Company’s Almay brand consists of hypo-allergenic, dermatologist-
tested, fragrance-free cosmetics and skincare products. Almay products include face, eye and lip makeup
and makeup removers.

Within the face category, with Almay Smart Shade patent-pending formulas for foundation, blush
and bronzer, Almay consumers can ﬁnd products that are designed to match their skin tones. Almay TLC
Truly Lasting Color makeup is a longwearing foundation that nourishes and protects the skin for up to
16 hours of coverage. In eye makeup, Almay Intense i-Color includes the ‘‘Bring Out’’ and ‘‘Play Up’’
collections — providing ways to enhance and intensify eyes through color-coordinated shades of shadow,
liner and mascara for each eye color. The Almay brand ﬂagship Almay One Coat mascara franchise
includes products for lash thickening, lengthening and the patented Triple Effect mascara for a more
dramatic look. In the lip category, the Almay Ideal lip collection provides a complete lip look through
coordinated shades of lipstick, liner and gloss. Almay eye makeup removers are offered in a range of pads
and towlettes.

Hair: The Company sells both haircare and haircolor products throughout the world. In haircolor,
the Company markets brands, including the Revlon Colorsilk brand in women’s haircolor. 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 for 2007 were the number one brand of beauty tools in the
U.S. mass retail channel.

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.

Anti-perspirants/deodorants:

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

Skincare: The Company’s skincare products, including moisturizers, are predominantly sold under
the Eterna 27 brand. The Company also 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 retail channel and certain other channels outside of the U.S.

The Company uses print, television and internet advertising, as well as 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. 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
television advertising, print and internet advertising, as well as coupons and other trial incentives.

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 and www.mitchumman.com devoted to the Revlon, Almay
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 website
offers coupons and/or sampling incentives to its consumers and offers unique, personalized beauty guides.

New Product Development and Research and Development

The Company believes that it is an industry leader in the development of innovative and
technologically-advanced cosmetics and beauty 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 is comprised of departments
specialized in the technologies critical to the Company’s various product categories. The Company has a
cross-functional product development process, including a rigorous process for the continuous development
and evaluation of new product concepts, formed in 2007 and led by senior executives in marketing, sales,
product development, operations and ﬁnance, which has improved the Company’s new product
commercialization process and created a comprehensive, long-term portfolio strategy. This new process
is intended to optimize the Company’s ability to regularly bring to market its innovative new product
offerings and to manage the Company’s product portfolio for proﬁtable growth over time.

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 of the Company’s manufacturing facilities.

As of December 31, 2007, the Company employed approximately 160 people in its research and
toxicology, chemistry, microbiology,
development activities,
engineering, biology, dermatology and quality control. In 2007, 2006 and 2005, the Company spent
$24.4 million, $24.4 million and $26.1 million, respectively, on research and development activities.

including specialists in pharmacology,

Manufacturing and Related Operations and Raw Materials

During 2007, the Company’s cosmetics and/or personal care products were produced at the
Company’s facilities in North Carolina, Venezuela, France, South Africa and Mexico and at third-party
facilities around the world.

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 forces had approximately 340 people as of December 31, 2007. In addition, the Company
utilizes sales representatives and independent distributors to serve certain markets and related distribution
channels.

United States. Net sales in the U.S. accounted for approximately 57% of the Company’s 2007 net
sales, a majority of which were made in the mass retail 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, 2007, 11 licenses were in effect relating to 17 product categories, which are marketed
principally in the mass retail 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. accounted for approximately 43% of the Company’s 2007
net sales. The ﬁve largest countries in terms of these sales were South Africa, Australia, Canada, U.K and
Brazil, which together accounted for approximately 23% of the Company’s 2007 net sales. The Company
distributes its products through drug stores and chemist shops, hypermarkets, mass volume retailers,
general merchandise stores, department stores and specialty stores such as perfumeries outside the U.S.
At December 31, 2007, the Company actively sold its products through wholly-owned subsidiaries
established in 15 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 and Longs in
the U.S., Shoppers DrugMart in Canada, A.S. Watson & Co. retail chains in Asia Paciﬁc and Europe, and
Boots in the United Kingdom. Wal-Mart and its afﬁliates worldwide accounted for approximately 24% of
the Company’s 2007 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. (See Item 1A. Risk Factors — ‘‘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 and have a material adverse affect on the
Company’s business, ﬁnancial condition and/or results of operations’’).

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 relevant
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.

The Company competes in selected product categories against a number of multi-national
manufacturers. In addition to products sold in the mass retail channel and demonstrator-assisted channels,
the Company’s products also compete with similar products sold in prestige and department stores,
television shopping, door-to-door, specialty stores, the internet, perfumeries and other distribution

outlets. The Company’s principal competitors include L’Oréal S.A., The Procter & Gamble Company,
Avon Products, Inc. and The Estée Lauder Companies Inc. (See Item 1A. Risk Factors — ‘‘Competition
in the consumer products business could materially adversely affect the Company’s net sales and its share
of the mass retail channel and could have an adverse affect on the Company’s business, ﬁnancial condition
and/or results of operations’’).

Patents, Trademarks and Proprietary Technology

The Company’s major trademarks are registered in the U.S. and in well over 100 other countries, and
the Company considers trademark protection to be very important to its business. Signiﬁcant trademarks
include Revlon, ColorStay, Revlon Age Defying makeup with Botaﬁrm, Super Lustrous, Almay, Smart
Shade, Mitchum, Charlie, Jean Naté, Revlon Colorsilk, Eterna 27 and, outside the U.S., Bozzano, Cutex,
Gatineau and Ultima II. The Company regularly renews its trademark registrations in the ordinary course
of business.

The Company utilizes certain proprietary, patent-pending or patented technologies in the formulation,
packaging or manufacture of a number of the Company’s products, including, among others, Revlon
ColorStay cosmetics,
including Revlon ColorStay Soft & Smooth and Revlon ColorStay mineral
collection; Revlon Age Defying foundation and cosmetics; Revlon Renewist lipcolor; Fabulash mascara;
3D Extreme mascara; classic Revlon nail enamel; Almay Smart Shade makeup; Almay Ideal lipstick, liner
and lip gloss; Almay One Coat cosmetics; Almay Triple Effect mascara; and Mitchum Cool Dry
anti-perspirant 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 2028 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
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 anti-perspirants. 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 on 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 18 ‘‘Geographic,
Financial and Other Information’’ to the Consolidated Financial Statements of the Company.

Employees

As of December 31, 2007,

the Company employed approximately 5,600 people. As of
December 31, 2007, approximately 20 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.

Available Information

The public may read and copy any materials that the Company ﬁles with the SEC at the SEC’s Public
Reference Room at 100 F Street, NE, Washington, D.C. 20549. Information in the Public Reference
Room may be obtained by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an internet
site that contains reports, proxy and information statements, and other information regarding issuers that
ﬁle with the SEC at http://www.sec.gov. The Company’s Annual Reports on Form 10-K, Quarterly
Reports on Form 10-Q, Current Reports on Form 8-K, proxy statements and amendments to those
reports, are also available free of charge on our internet website at http://www.revloninc.com as soon as
reasonably practicable after such reports are electronically ﬁled with or furnished to the SEC.

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 operating subsidiary, are pledged by Revlon, Inc. to secure its
obligations under the 2006 Credit Agreements.

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
operating subsidiary, through which Revlon, Inc. 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 2007, 2006 and 2005 was approximately $(9.0) million, $(244.5) million and
$(77.8) million, respectively, which excluded approximately $7.0 million, $6.6 million and $7.6 million,
respectively, in expenses primarily related to Revlon, Inc. 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 2006 Credit Agreements, the MacAndrews & Forbes Senior Subordinated Term
Loan Agreement and the indenture governing Products Corporation’s outstanding 91⁄2% Senior 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., among other
things, to enable Revlon, Inc. to make certain payments and pay expenses incidental to being a public
holding company.

All of the 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 2006 Credit Agreements.
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 Products Corporation’s other debt
instruments.

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 December 31, 2007,
the Company’s total indebtedness was $1,441.0 million, primarily including $167.4 million aggregate
principal amount outstanding of Products Corporation’s 85⁄8% Senior Subordinated Notes (the outstanding
balance of which was repaid in full on February 1, 2008 — See ‘‘Recent Developments’’), $387.5 million
aggregate principal amount outstanding of Products Corporation’s 91⁄2% Senior Notes, $840.0 million

aggregate principal amount outstanding under the 2006 Term Loan Facility, and $43.5 million aggregate
principal amount outstanding under the 2006 Revolving Credit Facility. In connection with the reﬁnancing
of the 85⁄8% Senior Subordinated Notes, as of February 1, 2008, Products Corporation had $170 million
of aggregate principal amount outstanding under the MacAndrews & Forbes Senior Subordinated Term
Loan, which amount was used to repay the $167.4 million aggregate principal amount outstanding under
the 85⁄8% Senior Subordinated Notes and to pay certain transaction fees and expenses. The Company has
a history of net losses and, in addition, 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.

The Company is subject to the risks normally associated with substantial indebtedness, including the
risk that the Company’s operating revenues 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 execution of the Company’s business strategy, 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 execution of the Company’s business strategy 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 indenture
governing Products Corporation’s outstanding 91⁄2% Senior Notes, the 2006 Credit Agreements and the
MacAndrews & Forbes Senior Subordinated Term Loan Agreement, limit Products Corporation’s ability
to borrow additional money and 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.

The MacAndrews & Forbes Senior Subordinated Term Loan expires in August 2009, the 91⁄2% Senior
Notes mature in April 2011 and the 2006 Credit Agreements mature in January 2012. 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 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 indebtedness, seek to sell assets or operations, seek to sell additional
Revlon, Inc. equity or debt securities or Products Corporation debt 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
indenture governing Products Corporation’s outstanding 91⁄2% Senior Notes or any of its other debt

instruments (including the 2006 Credit Agreements and the MacAndrews & Forbes Senior Subordinated
Term Loan Agreement) 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 2006 Credit Agreements,
the agreement governing the MacAndrews & Forbes Senior Subordinated Term Loan Agreement and the
indenture governing Products Corporation’s outstanding 91⁄2% Senior 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 2006 Credit Agreements contain ﬁnancial covenants limiting Products Corporation’s
senior secured debt-to-EBITDA ratio (in the case of the 2006 Term Loan Agreement) and, under certain
circumstances, requiring Products Corporation to maintain a minimum consolidated ﬁxed charge
coverage ratio (in the case of the 2006 Revolving Credit Agreement). 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 executing the Company’s business strategy and to
grow the Company’s business, as well as to fund general corporate purposes.

The breach of certain covenants contained in the 2006 Credit Agreements would permit Products
Corporation’s lenders to accelerate amounts outstanding under the 2006 Credit Agreements, which would
in turn constitute an event of default under the MacAndrews & Forbes Senior Subordinated Term Loan
Agreement and the indenture governing Products Corporation’s outstanding 91⁄2% Senior 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 MacAndrews & Forbes Senior Subordinated Term Loan
Agreement or the trustee or holders of the applicable percentage under the 91⁄2% Senior Notes indenture.

In addition, holders of Products Corporation’s outstanding 91⁄2% Senior Notes may require Products
Corporation to repurchase their respective notes in the event of a change of control under the 91⁄2% Senior
Notes 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 2006 Credit Agreements, the
MacAndrews & Forbes Senior Subordinated Term Loan Agreement or to repurchase or redeem its
outstanding 91⁄2% Senior Notes.

Events beyond the Company’s control, such as decreased consumer spending in response to weak
economic conditions or weakness in the cosmetics category in the mass retail channel; adverse changes in
currency; decreased sales of the Company’s products as a result of increased competitive activities by the
Company’s competitors; changes in consumer purchasing habits, including with respect to shopping
channels; retailer inventory management; retailer space reconﬁgurations or reductions in retailer display
space; less than anticipated results from the Company’s existing or new products or from its advertising
and/or marketing plans; or if the Company’s expenses, including, without limitation, for advertising and
promotions or for returns related to any reduction of retail space, product discontinuances or otherwise,
exceed the anticipated level of expenses, 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.

Under such circumstances, 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 2006
Credit Agreements. 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 respective lenders under the 2006 Credit Agreements 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/or Revlon, Inc.

In the event that Products Corporation was unable to obtain any such waiver or amendment and it
was not able to reﬁnance or repay its debt instruments, Products Corporation’s inability to meet the
ﬁnancial covenants or other provisions of the 2006 Credit Agreements would constitute an event of
default under its debt instruments, including the 2006 Credit Agreements, which would permit the bank
lenders to accelerate the 2006 Credit Agreements, which in turn would constitute an event of default
under the MacAndrews & Forbes Senior Subordinated Term Loan Agreement and the indenture
governing Products Corporation’s outstanding 91⁄2% Senior 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 MacAndrews & Forbes Senior Subordinated Term Loan Agreement or the trustee
under the 91⁄2% Senior Notes indenture.

Products Corporation’s assets and/or cash ﬂow and/or that of Products Corporation’s subsidiaries
may not be sufﬁcient to fully repay borrowings under its 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 or repay the MacAndrews & Forbes Senior Subordinated
Term Loan 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 2006 Credit Agreements, the lenders could proceed against the collateral securing
that indebtedness.

Limits on Products Corporation’s borrowing capacity under the 2006 Revolving Credit Facility may affect
the Company’s ability to ﬁnance its operations.

While the 2006 Revolving Credit 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 2006 Revolving Credit 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 within the borrowing
base 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 2006 Revolving Credit Facility is also
conditioned upon its compliance with other covenants in the 2006 Revolving Credit Agreement, including
a ﬁxed charge coverage ratio that applies when the ‘‘excess borrowing base’’ (representing the difference
between (1) the borrowing base under the 2006 Revolving Credit Facility and (2) the amounts outstanding
under such facility) is less than $20.0 million. Because of these limitations, Products Corporation may not
always be able to meet its cash requirements with funds borrowed under the 2006 Revolving Credit
Facility, which could have a material adverse effect on the Company’s business, results of operations or
ﬁnancial condition.

At January 31, 2008, the 2006 Term Loan Facility was fully drawn, and the Company had a liquidity
position (excluding cash in compensating balance accounts) of approximately $185.7 million, consisting of
cash and cash equivalents (net of any outstanding checks) of $50.2 million, as well as $135.5 million in
available borrowings under the 2006 Revloving Credit Facility, based upon the calculated borrowing base
less approximately $14.5 million of outstanding letters of credit and $10.0 million then drawn on the 2006
Revolving Credit Facility.

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

A substantial portion of Products Corporation’s indebtedness 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, 2007,
indebtedness, or approximately 51% of Products
$735.5 million of Products Corporation’s total
Corporation’s total indebtedness, was subject to ﬂoating interest rates, after giving effect to the interest
rate swap transaction that Products Corporation entered into in September 2007, which effectively ﬁxed
through September 17, 2009 the LIBOR portion of the interest rate on $150.0 million of aggregate
principal amount on indebtedness outstanding under the 2006 Term Loan Facility at 4.692%.

Under the 2006 Term Loan Facility, loans bear interest, at Products Corporation’s option, at either
the Eurodollar Rate plus 4.0% per annum, which is based upon LIBOR, or the Alternate Base Rate (as
deﬁned in the 2006 Term Loan Agreement) plus 3.0% per annum, which Alternate Base Rate is based on
the greater of Citibank, N.A.’s announced base rate and the U.S. federal funds rate plus 0.5%; provided
to the interest rate swap transaction that Products Corporation entered into in
that pursuant
September 2007 with Citibank, N.A. acting as the counterparty, the LIBOR portion of the interest rate
on $150.0 million of outstanding indebtedness under the 2006 Term Loan Facility was effectively ﬁxed at
4.692% through September 17, 2009. Under the terms of the interest rate swap transaction, Products
Corporation is required to pay to the counterparty a quarterly ﬁxed interest rate of 4.692% on the
$150.0 million notional amount, which commenced in December 2007, while receiving a variable interest
rate payment from the counterparty equal to three-month U.S. dollar LIBOR. Borrowings under the 2006
Revolving Credit Facility (other than loans in foreign currencies) bear interest at a rate equal to, at
Products Corporation’s option, either (i) the Eurodollar Rate plus 2.0% per annum or (ii) the Alternate
Base Rate (as deﬁned in the 2006 Revolving Credit Agreement) plus 1.0% per annum. 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 (as each such
term is deﬁned in the 2006 Revolving Credit Agreement), in each case plus 2.0%.

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 2006 Credit Agreements 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, 2007, an increase in LIBOR of 1% would increase the Company’s
annual interest expense by approximately $7.5 million. Increased debt service costs would adversely affect
the Company’s cash ﬂow. While Products Corporation may enter into other interest hedging contracts, it
may not be able to do so on a cost-effective basis, any additional 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 business, ﬁnancial condition and/or
results of operations.

The Company produces a substantial portion of its products 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 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, business, ﬁnancial condition and/or results of operations. 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 new product introductions may not be as successful as the Company anticipates, which
could have a material adverse effect on the Company’s business, ﬁnancial condition and/or results of
operations.

The Company has implemented a rigorous process for the continuous development and evaluation
of new product concepts, formed in 2007 and led by senior executives in marketing, sales, product
development, operations and ﬁnance, which has improved the Company’s new product commercialization
process and created a comprehensive, long-term portfolio strategy. This new process is intended to
optimize the Company’s ability to regularly bring to market its innovative new product offerings and to
manage the Company’s product portfolio for proﬁtable growth over time. Each new product launch,
including those resulting from this new product development process, carries risks, as well as the
possibility of unexpected consequences, including:

•

the acceptance of the new product launches by, and sales of such new products to, the Company’s
retail customers may not be as high as the Company anticipates;

the Company’s advertising and marketing strategies for its new products may be less effective
than planned and may fail to effectively reach the targeted consumer base or engender the
desired consumption;

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 out-of-stocks and/or product returns exceeding its expectations as
a result of its new product launches or reductions in retail display space;

the Company may incur costs exceeding its expectations as a result of the continued development
and launch of new products, including, for example, advertising and promotional expenses, sales
return expenses or other costs, including trade support, related to launching new products;

the Company may experience a decrease in sales of certain of the Company’s existing products
as a result of newly-launched products;

the Company’s product pricing strategies for new product launches 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; and

any delays or difﬁculties impacting the Company’s ability, or the ability of the Company’s
suppliers to timely manufacture, distribute and ship products, displays or display walls in
connection with launching new products, such as due to 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 business, ﬁnancial condition and/or results of operations,’’ could affect the
Company’s ability to ship and deliver products to meet its retail customers’ reset deadlines.

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

The Company has implemented the organizational realignment and streamlining programs in 2006 and
2007, which may affect employee morale and retention.

The Company implemented the organizational realignment and streamlining programs in 2006 and
2007 which have resulted in signiﬁcant reductions in administrative expenses, principally by consolidating
responsibilities in certain related functions; reducing layers of management to increase accountability and
effectiveness; streamlining support functions to reﬂect the new organizational structure; eliminating
positions; and consolidating various facilities. While these changes were designed to streamline internal
processes, provide greater empowerment and accountability to employees and to enable the Company to

continue to be more effective and efﬁcient in meeting the needs of its consumers and retail customers,
operating in this leaner environment could affect employee morale and retention.

The Company’s ability to service its debt and meet its cash requirements depends on many factors,
including achieving anticipated levels of revenue and expenses. If such revenue or expense 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 2006 Credit
Agreements, which could have a material adverse effect on the Company’s business, ﬁnancial condition
and/or results of operations.

The Company currently expects that operating revenues, cash on hand, and funds available for
borrowing under the 2006 Revolving Credit Agreement and other permitted lines of credit will be
sufﬁcient to enable the Company to cover its operating expenses for 2008, including cash requirements in
connection with the execution of the Company’s business strategy, purchases of permanent wall displays,
capital expenditure requirements, payments in connection with the Company’s restructuring programs
(including, without limitation, the 2006 Programs, the 2007 Programs and prior programs), executive
severance not otherwise included in the Company’s restructuring programs, debt service payments and
costs and regularly scheduled pension and post-retirement plan contributions.

If the Company’s anticipated level of revenue is not achieved, however, because of, for example,
decreased consumer spending in response to weak economic conditions or weakness in the cosmetics
category in the mass retail channel; adverse changes in currency; decreased sales of the Company’s
products as a result of increased competitive activities by the Company’s competitors; changes in
consumer purchasing habits, including with respect to shopping channels; retailer inventory management;
retailer space reconﬁgurations or reductions in retailer display space; less than anticipated results from the
Company’s existing or new products or from its advertising and/or marketing plans; or if the Company’s
expenses, including, without limitation, for advertising and promotions or for returns related to any
reduction of retail space, product discontinuances or otherwise, 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 2006 Credit
Agreements. If operating revenues, cash on hand 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 2006 Credit Agreements, 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 business strategy;

reduce or delay purchases of wall displays or advertising or promotional expenses;

reduce or delay capital spending;

restructure Products Corporation’s indebtedness;

sell assets or operations;

delay, reduce or revise the Company’s restructuring plans;

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

sell additional Revlon, Inc. equity or debt 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/or 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, such as due to 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 2006 Credit Agreements if the
actions do not result in sufﬁcient savings or generate a sufﬁcient amount of additional capital, as the case
may be. See also, ‘‘— 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’’ which discusses,
among other things, the consequences of noncompliance with Products Corporation’s credit agreement
covenants.

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

For 2007, 2006 and 2005, Wal-Mart, Inc. accounted for approximately 24%, 23% and 24%,
respectively, of the Company’s worldwide net sales. The Company expects that for 2008 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. These customers have demanded, and may continue to
demand, increased service and other accomodations. The Company may be affected by changes in the
policies and demands of its retail customers relating to service levels, inventory de-stocking or limitations
on access to wall display space. 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/or results of operations.

The Company may be unable to increase its sales through the Company’s primary distribution channels,
which could have a material adverse effect on the Company’s business, ﬁnancial condition and/or results
of operations.

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 prestige and
department stores, television shopping, door-to-door, specialty stores, the internet, perfumeries and other
distribution outlets, combined account for a signiﬁcant amount of sales of cosmetics and beauty care
products. A decrease in consumer demand in the U.S. mass retail channel for color cosmetics, retailer
inventory management, a reduction in retailer display space 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 impact the 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/or results of operations.

Competition in the cosmetics and beauty care products business could materially adversely affect the
Company’s net sales and its share of the mass retail channel and could have an adverse effect on the
Company’s business, ﬁnancial condition and/or results of operations.

The cosmetics and beauty care 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 the Company’s retail customers by
providing relevant 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 and retaining sufﬁcient retail display 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 share of the mass retail channel and revenues. The Company experienced signiﬁcant declines
in its share in color cosmetics in the U.S. mass retail channel from approximately 32% in the second
quarter of 1998 to approximately 22% in the second quarter of 2002. In 2007, the Company achieved a
combined U.S. color cosmetics share in the mass retail channel of 19.2% (with the Revlon brand
registering a U.S. mass retail channel share of 13.0% for 2007, compared to 14.0% for 2006, and the Almay
brand registering a U.S. mass retail channel share of 6.0% for 2007, compared to 6.2% for 2006). It is
possible that declines in the Company’s share of the mass retail channel could occur in the future.

In addition, the Company competes against a number of multi-national 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 to
respond to changing business and economic conditions than the Company. In addition to products sold in
the mass retail channel, the Company’s products also compete with similar products sold through other
channels, including prestige and department stores, television shopping, door-to-door, specialty stores, the
internet, perfumeries and other distirbution outlets.

Additionally, the Company’s major retail customers periodically assess the allocation of retail display
space among competitors and in the course of doing so could elect to reduce the display space allocated
to the Company’s products, if, for example, the Company’s marketing strategies for its new and/or existing
products are less effective than planned, fail to effectively reach the targeted consumer base or engender
the desired consumption; and/or the rate of purchases by the Company’s consumers are not as high as the
Company anticipates. Any signiﬁcant loss of display space could have an adverse effect on the Company’s
business, ﬁnancial condition and results of operations.

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
business, ﬁnancial condition and/or results of operations and the value of its foreign assets.

As of December 31, 2007, the Company had operations based in 15 foreign countries and its products
were sold throughout the world. 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,
Latin America and South Africa, which could adversely affect the Company’s business, ﬁnancial condition
and results of operations. 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
net sales and earnings and, accordingly, the comparability of period-to-period results of operations.
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. for the years ended December 31, 2007, 2006 and 2005
were approximately 43%, 43% and 41% 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 foreign currency forward exchange contracts to hedge certain cash
ﬂows denominated in foreign currency. At December 31, 2007, the notional amount of Products
Corporation’s foreign currency forward exchange contracts was $23.6 million. The foreign currency
forward exchange contracts that Products Corporation enters into may not adequately 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 business, ﬁnancial condition and/or results of operations.

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, ﬁnancial condition and results of operations.

The Company’s products are subject to federal, state and international regulations that could adversely
affect the Company’s business, ﬁnancial condition and/or results of operations.

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 anti-perspirants. 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 and therefore could have a material adverse effect
on the Company’s business, ﬁnancial condition and/or results of operations.

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 2006 Credit
Agreements and could have other consequences.

All of Products Corporation’s shares of common stock are pledged to secure Revlon, Inc.’s guarantee
under the 2006 Credit Agreements. MacAndrews & Forbes has advised the Company that it has pledged
shares of Revlon, Inc.’s Class A Common Stock to secure certain obligations of MacAndrews & Forbes.
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 Revlon, Inc.’s 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 Revlon, Inc.’s 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 2006 Credit Agreements, the MacAndrews & Forbes Senior Subordinated Term Loan
Agreement and the indenture governing the 91⁄2% Senior Notes. A change of control constitutes an event
of default under the 2006 Credit Agreements, which would permit Products Corporation’s lenders to

accelerate amounts outstanding under the 2006 Credit Facilities. In addition, holders of the 91⁄2% Senior
Notes may require Products Corporation to repurchase their respective notes under those circumstances.
Upon a change of control, Products Corporation would also be required, after fulﬁling its repayment
obligations under the 91⁄2% Senior Notes indenture, to repay in full the MacAndrews & Forbes Senior
Subordinated Term Loan.

Products Corporation may not have sufﬁcient funds at the time of any such change of control to repay
in full the borrowings under the 2006 Credit Facilities or to repurchase or redeem the 91⁄2% Senior Notes
and/or repay the MacAndrews & Forbes Senior Subordinated Term Loan. (See ‘‘The Company’s ability
to service its debt and meet its cash requirements depends on many factors,
including achieving
anticipated levels of revenue and expenses. If such revenue or expense 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 2006 Credit Agreements, which
could have a material adverse effect on the Company’s business, ﬁnancial condition and/or results of
operations’’).

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 owned, at December 31, 2007, approximately 60% of Revlon, Inc.’s
outstanding Common Stock and controlled approximately 74% of the combined voting power of the
outstanding shares of Revlon, Inc.’s Class A and Class B 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 (as it is a wholly owned subsidiary of Revlon, Inc.) 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.

Delaware law, provisions of the Company’s governing documents and the fact that the Company is a
controlled company could make a third-party acquisition of the Company difﬁcult.

The Company is a Delaware corporation. The Delaware General Corporation Law contains
provisions that could make it more difﬁcult for a third party to acquire control of the Company.
MacAndrews & Forbes controls the vote on all matters submitted to a vote of the Company’s
stockholders, including the election of the Company’s entire Board of Directors and approval of mergers,
consolidations, sales of some, all or substantially all of the Company’s assets, issuances of capital stock and
similar transactions.

The Company’s certiﬁcate of incorporation makes available additional authorized shares of Class A
Common Stock for issuance from time to time at the discretion of the Company’s Board of Directors
without further action by the Company’s stockholders, except where stockholder approval is required by
law or NYSE requirements. The Company’s certiﬁcate of incorporation also authorizes ‘‘blank check’’
preferred stock, whereby the Company’s Board of Directors has the authority to issue shares of preferred
stock from time to time in one or more series and to ﬁx the voting rights, if any, designations, powers,
if any, and the qualiﬁcations,
preferences and the relative participation, optional or other rights,
limitations or restrictions thereof, of any unissued series of preferred stock, to ﬁx the number of shares
constituting such series, and to increase or decrease the number of shares of any such series (but not below
the number of shares of such series then outstanding).

This ﬂexibility to authorize and issue additional shares may be utilized for a variety of corporate
purposes, including future public offerings to raise additional capital and corporate acquisitions. These
provisions, however, or MacAndrews & Forbes’ control of the Company, may be construed as having an
anti-takeover effect to the extent they would discourage or render more difﬁcult an attempt to obtain
control of the Company by means of a proxy contest, tender offer, merger or otherwise, which could affect
the market price for the shares held by the Company’s stockholders.

Future sales or issuances of Class A Common Stock or the Company’s issuance of other equity securities
may depress the Company’s stock price or dilute existing stockholders.

No prediction can be made as to the effect, if any, that future sales of Class A Common Stock, or the
availability of Class A Common Stock for future sales, will have on the market price of the Company’s
Class A Common Stock. Sales in the public market of substantial amounts of Class A Common Stock,
including shares held by MacAndrews & Forbes, or investor perception that such sales could occur, could
adversely affect prevailing market prices for the Company’s Class A Common Stock.

In addition, as stated above, the Company’s certiﬁcate of incorporation makes available additional
authorized shares of Class A Common Stock for issuance from time to time at the discretion of the
Company’s Board of Directors without further action by the Company’s stockholders, except where
stockholder approval is required by law or NYSE requirements. The Company may also issue shares of
‘‘blank check’’ preferred stock or securities convertible into either common stock or preferred stock. Any
future issuance of additional authorized shares of the Company’s Class A Common Stock, preferred stock
or securities convertible into shares of the Company’s Class A Common Stock or preferred stock may
dilute the Company’s existing stockholders’ equity interest in the Company. With respect to the
Company’s Class A Common Stock, such future issuances could, among other things, dilute the earnings
per share of the Company’s Class A Common Stock and the equity and voting rights of those stockholders
holding the Company’s Class A Common Stock at the time of such future issuances.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

The following table sets forth, as of December 31, 2007, the Company’s major manufacturing,
research and warehouse/distribution facilities, all of which are owned except where otherwise noted.

Use

Location
Oxford, North Carolina . . . . . Manufacturing, warehousing, distribution and ofﬁce(a)
Edison, New Jersey . . . . . . . . Research and ofﬁce (leased)
Mexico City, Mexico . . . . . . . . Manufacturing, distribution and ofﬁce
Caracas, Venezuela . . . . . . . . . Manufacturing, distribution and ofﬁce
Mississauga, Canada . . . . . . . . Warehousing, distribution and ofﬁce (leased)
Rietfontein, South Africa . . . . Warehousing, distribution and ofﬁce (leased)
Canberra, Australia . . . . . . . . . Warehousing, distribution and ofﬁce (leased)
Isando, South Africa . . . . . . . . Manufacturing, warehousing, distribution and ofﬁce
Stone, United Kingdom . . . . . Warehousing and distribution (leased)

(a) Property subject to liens under the 2006 Credit Agreements.

Approximate
Floor Space Sq. Ft.

1,012,000
123,000
150,000
145,000
195,000
120,000
125,000
94,000
92,000

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 76,500 square feet as of December 31, 2007). 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

The Company is involved in various routine legal proceedings incident to the ordinary course of its
business. The Company believes that the outcome of all pending legal proceedings in the aggregate is
unlikely to have a material adverse effect on the Company’s business or its consolidated ﬁnancial
condition.

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

On November 2, 2007, MacAndrews & Forbes delivered to Revlon, Inc. an executed written
stockholder consent approving the amendment and restatement of Revlon, Inc.’s Stock Plan (as
hereinafter deﬁned). Reference is made to the deﬁnitive Information Statement on Schedule 14C ﬁled by
the Company with the SEC on November 19, 2007 describing such changes. As of November 2, 2007,
MacAndrews & Forbes beneﬁcially owned approximately 60% of Revlon, Inc.’s Common Stock,
representing approximately 74% of the then combined voting power of such Common Stock.

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, at December 31, 2007
beneﬁcially owned (i) 276,732,040 shares of Class A Common Stock (20,819,333 of which were owned by
REV Holdings, 252,877,707 of which were beneﬁcially owned by MacAndrews & Forbes and 3,035,000 of
which were owned directly by Mr. Perelman) and (ii) all of the outstanding 31,250,000 shares of Revlon,
Inc.’s Class B Common Stock.

Based on the shares referenced in clauses (i) and (ii) above, and including Mr. Perelman’s vested
stock options, Mr. Perelman, directly and indirectly, through MacAndrews & Forbes, at December 31, 2007,
beneﬁcially owned approximately 58% of Revlon, Inc.’s Class A Common Stock, 100% of Revlon, Inc.’s
Class B Common Stock, together representing approximately 60% of Revlon, Inc.’s outstanding shares of
Common Stock and approximately 74% of the combined voting power of the outstanding shares of
Revlon, Inc.’s Common Stock. The remaining 203,234,828 shares of Class A Common Stock outstanding
at December 31, 2007 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, 2007, there were 932 holders of record of Class A Common Stock. No cash
dividends were declared or paid during 2007 by Revlon, Inc. on its Common Stock. The terms of the 2006
Credit Agreements, the MacAndrews & Forbes Senior Subordinated Term Loan Agreement and the
91⁄2% Senior Notes indenture currently restrict Products Corporation’s ability to pay dividends or make
distributions to Revlon, Inc., except in limited circumstances.

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

Stock on the NYSE consolidated tape for the years ended December 31, 2007 and 2006.

Year Ended December 31, 2007(a)

1st Quarter

2nd Quarter

3rd Quarter

4th Quarter

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

$1.49
1.05

$1.46
1.04

$1.38
1.03

$1.26
1.00

Year Ended December 31, 2006(a)

1st Quarter

2nd Quarter

3rd Quarter

4th Quarter

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

$3.74
3.00

$3.61
1.24

$1.45
0.87

$1.71
1.11

(a) Represents the closing price per share of Revlon, Inc.’s Class A Common Stock on the NYSE consolidated tape. The

Company’s stock trading symbol is ‘‘REV’’.

For information on securities authorized for issuance under the Company’s equity compensation
plans, see ‘‘Item 12 — Security Ownership of Certain Beneﬁcial Owners and Related Stockholder
Matters’’.

Item 6. Selected Financial Data

The Consolidated Statements of Operations Data for each of the years in the ﬁve-year period ended
December 31, 2007 and the Balance Sheet Data as of December 31, 2007, 2006, 2005, 2004 and 2003 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 . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative

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

2007(a)

Year Ended December 31,
(in millions, except per share amounts)
2005(c)
2006(b)

2004

2003(d)

$1,400.1
877.2

$1,331.4
785.9

$1,332.3
824.2

$1,297.2
811.9

$1,299.3
798.2

748.9
7.3
121.0
136.3
0.1
(16.1)

808.7
27.4
(50.2)
148.8
23.5
(251.3)

757.8
1.5
64.9
130.0

9.0(e)
(83.7)

717.6
5.8
88.5
130.8
90.7(f)
(142.5)

770.9
6.0
21.3
174.5
—
(153.8)

operations per common share. . . . . . . .

$ (0.03)

$ (0.60)

$ (0.22)

$ (0.46)

$ (2.37)

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

504.4

417.1

385.6

312.8

64.8

2007(a)

Year Ended December 31,
(in millions)
2005(c)

2006(b)

2004

2003(d)

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

889.3
1,441.0
(1,082.0)

931.9
1,511.4
(1,229.8)

$ 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)

(a) Results for 2007 include restructuring charges of approximately $4.4 million and $2.9 million in connection with the 2006

Programs and the 2007 Programs, respectively.

(b) Results for 2006 include charges of $9.4 million in connection with the departure of Mr. Jack Stahl, the Company’s former
President and Chief Executive Ofﬁcer, in September 2006 (including $6.2 million for severance and related costs and
$3.2 million for the accelerated amortization of Mr. Stahl’s unvested options and unvested restricted stock), $60.4 million in
connection with the discontinuance of the Vital Radiance brand and restructuring charges of approximately $27.6 million in
connection with the 2006 Programs.

(c) 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 Vital Radiance and the
re-stage of the Almay brand.

(d) Results for 2003 include expenses of approximately $31.0 million related to the accelerated implementation of the stabilization

and growth phase of the Company’s prior plan.

(e) 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 2004 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 (as deﬁned
in Note 8 ‘‘Long Term Debt’’ to the Consolidated Financial Statements) and (ii) the aggregate $1.5 million loss on the
redemption of all of Products Corporation’s 81⁄8% Senior Notes and 9% Senior Notes (each as hereinafter deﬁned) in
April 2005, as well as the write-off of the portion of deferred ﬁnancing costs related to such prepaid amount.

(f) Represents the loss on the exchange of equity for certain indebtedness in the Revlon Exchange Transactions (as deﬁned in
Note 8 ‘‘Long Term Debt’’ to the Consolidated Financial Statements) and fees, expenses, premiums and the write-off of
deferred ﬁnancing costs related to the Revlon Exchange Transactions, the tender for and redemption of all of Products
Corporation’s 12% Senior Secured Notes due 2005 (including the applicable premium) and the repayment of the 2001 Credit
Agreement.

(g) 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. 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 8 ‘‘Long-Term Debt’’ 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,
upon consummation of Revlon, Inc.’s $110 Million Rights Offering in March 2006, 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 $110 Million Rights Offering in March 2006 to reﬂect the stock
dividend of 2,968,636 shares of Class A Common Stock. In addition, upon consummation of Revlon, Inc.’s $100 Million Rights
Offering in January 2007, the fair value, based on NYSE closing price of Revlon, Inc.’s Class A Common Stock on the
consummation date was more than the subscription price. Accordingly, the basic and diluted loss per common share have been
restated for all prior periods prior to the $100 Million Rights Offering to reﬂect the implied stock dividend of 11,715,499 shares.

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 direct wholly-owned operating subsidiary, Revlon Consumer Products Corporation and its
subsidiaries (‘‘Products Corporation’’). Revlon, Inc. is a direct and indirect majority-owned subsidiary of
MacAndrews & Forbes Holdings Inc. (‘‘MacAndrews & Forbes Holdings’’ and together with certain of
its afﬁliates other than the Company, ‘‘MacAndrews & Forbes’’), a corporation wholly-owned by Ronald
O. Perelman.

The Company operates in a single segment and manufactures, markets and sells an extensive array
of cosmetics, women’s hair color, beauty tools, fragrances, skincare, anti-perspirants/deodorants and
personal care products. The Company is one of the world’s leading cosmetics companies in the mass retail
channel. The Company believes that its global brand name recognition, product quality and marketing
experience have enabled it to create one of the strongest consumer brand franchises in the world.

For additional information regarding our business, see ‘‘Part 1 — Business’’ of this Annual Report on
Form 10-K.

Restructuring Programs

During 2007, the Company implemented several restructuring plans designed to reduce costs and
improve the Company’s operating proﬁt margins, including the consolidation of facilities and certain
functions, principally the closure of its facility in Irvington, New Jersey, which was implemented in
March 2007 and completed in June 2007, personnel reductions within the Company’s Information
Management function and a reduction of its sales force in Canada (together with the restructuring plan
implemented in March 2007, the ‘‘2007 Programs’’).

During 2007, the Company recorded restructuring charges of $7.3 million, consisting of commissions
of $2.8 million related to vacating a portion of leased space in the Company’s New York City
headquarters, as well as employee severance and other personnel beneﬁts of $1.6 million related to the
2006 Programs and $2.9 million of employee severance and other personnel beneﬁts related to the 2007
Programs.

Overview of Sales and Earnings Results

Consolidated net sales in 2007 increased $68.7 million, or 5.2%, to $1,400.1 million, as compared with
$1,331.4 million in 2006. Excluding the favorable impact of foreign currency ﬂuctuations, consolidated net
sales increased by $42.8 million, or 3.2%, in 2007. Net sales for 2006 were reduced by approximately
$20 million due to Vital Radiance, which was discontinued in September 2006.

In the United States, net sales for 2007 increased $39.3 million, or 5.1%, to $804.2 million, from
$764.9 million in 2006. Net sales in the U.S. for 2006 were reduced by approximately $20 million due to
Vital Radiance. Excluding the impact of Vital Radiance, the increase in net sales in 2007 compared to 2006
was due to higher shipments of beauty care products, primarily women’s hair color, and Almay color
cosmetics, partially offset by lower shipments of Revlon color cosmetics in 2007.

In the Company’s international operations, net sales for 2007 increased $29.4 million, or 5.2%, to
$595.9 million, from $566.5 million in 2006. Foreign currency ﬂuctuations favorably impacted net sales in
2007 by $25.9 million. Excluding the favorable impact of foreign currency ﬂuctuations, international net
sales increased by $3.5 million, or 0.6%, in 2007. The increase in net sales in 2007 was driven primarily by

higher shipments in the Asia Paciﬁc region, partially offset by lower shipments in the Europe region,
particularly in Canada. Net sales in Canada in 2006 were positively impacted by certain promotional
programs in color cosmetics and the restage of Almay color cosmetics. Shipments in the Latin America
region were essentially ﬂat in 2007 compared to 2006.

Consolidated net loss in 2007 decreased by $235.2 million to $16.1 million, as compared with a
consolidated net loss of $251.3 million in 2006. The decrease in net loss in 2007 was primarily due to:

•

higher net sales, including the impact of signiﬁcantly lower returns expense (as the 2006 period
included charges for estimated returns of Vital Radiance due to its discontinuance in
September 2006) and higher shipments of beauty care products in 2007;

lower selling, general and administrative expenses (‘‘SG&A’’), primarily due to the Company’s
2006 and 2007 organizational realignment and streamlining activities, which resulted in lower
personnel-related expenses and lower occupancy expenses (primarily the Company’s exit of a
portion of its New York City headquarters leased space, including a beneﬁt of $4.4 million related
to the reversal of a deferred rental liability upon exit of the space in the ﬁrst quarter of 2007);

lower cost of sales (primarily due to lower estimated excess inventory charges, as the 2006 period
included estimated excess inventory charges related to Vital Radiance and Almay);

lower restructuring costs; and

lower interest expense due to the impact of lower average borrowing rates on comparable debt
levels.

In addition, the net loss in 2006 was negatively impacted by a charge of $23.5 million related to the
early extinguishment of debt in connection with the repayment of a portion of the 85⁄8% Senior
Subordinated Notes.

Overview of AC Nielsen-measured Retail Channel U.S. Share Data

In terms of the U.S. share performance, the U.S. color cosmetics category for the full year 2007
increased approximately 0.3% versus 2006. Combined U.S. share for the Revlon, Almay and Vital
Radiance (which was discontinued in September 2006) brands are summarized in the table below:

Total Company Color Cosmetics* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Revlon Brand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Almay Brand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vital Radiance Brand (Discontinued). . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Company Women’s Hair Color . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Company Anti-perspirants/deodorants . . . . . . . . . . . . . . . . . . . . . . . . . .
Revlon Beauty Tools . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ Share %

2007

2006

19.2% 21.5%
13.0
6.0
0.2
11.2
5.9
23.6

14.0
6.2
1.2
9.2
6.2
26.1

Point
Change

(2.3)
(1.0)
(0.2)
(1.0)
2.0
(0.3)
(2.5)

Compared to the year ago period, the Revlon brand experienced a share decline, which reﬂects a decrease in share by products
launched in prior years, partially offset by performance in 2007 from new products launched in the second half of 2006 and
during 2007. Since September 2006, following the Company’s decision to discontinue Vital Radiance, the Company’s strategy
has been to fully focus its efforts on building and leveraging its established brands, particularly the Revlon brand.
All U.S. share and related 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 retail channel. Such data represent ACNielsen’s estimates based upon samples of retail share
data gathered by ACNielsen and are therefore subject to some degree of variance and may contain slight
rounding differences. ACNielsen’s data does not reﬂect sales volume from Wal-Mart, Inc., which is the
Company’s largest customer, representing approximately 24% of the Company’s 2007 worldwide net sales,
or sales volume from regional mass volume retailers, prestige, department stores, television shopping,
door-to-door, specialty stores, internet, perfumeries or other distribution outlets, all of which are channels
for cosmetics sales. From time to time, ACNielsen adjusts its methodology for data collection and
reporting, which may result in adjustments to the categories and share data tracked by ACNielsen for
both current and prior periods.

Overview of Financing Activities

During 2007 and in early 2008, the Company successfully completed the following ﬁnancing

transactions:

•

$100 Million Rights Offering:
In January 2007 Revlon, Inc. completed the $100 Million Rights
Offering, which it launched in December 2006 and used the proceeds from such offering to
further reduce Products Corporation’s debt. Revlon, Inc. promptly transferred the proceeds from
the $100 Million Rights Offering to Products Corporation, which it used to redeem $50.0 million
in aggregate principal amount of its 85⁄8% Senior Subordinated Notes (the balance of which was
repaid in full
in February 2008), and repay approximately $43.3 million of indebtedness
outstanding under Products Corporation’s 2006 Revolving Credit Facility, without any permanent
reduction of that commitment, after incurring approximately $1.1 million of fees and expenses
incurred in connection with such rights offering, with approximately $5 million of the remaining
net proceeds being available for general corporate purposes. (See ‘‘Financial Condition,
Liquidity and Capital Resources — 2006 and 2007 Reﬁnancing Transactions’’).

• MacAndrews & Forbes Senior Subordinated Term Loan:

In January 2008, Products Corporation
entered into its previously-announced $170 million MacAndrews & Forbes Senior Subordinated
Term Loan Agreement. On February 1, 2008, Products Corporation used the proceeds of the
MacAndrews & Forbes Senior Subordinated Term Loan to repay in full the approximately
$167.4 million remaining aggregate principal amount of Products Corporation’s 85⁄8% Senior
Subordinated Notes, which matured on February 1, 2008, and to pay certain related fees and
expenses, including the payment to MacAndrews & Forbes of a facility fee of $2.55 million (or
1.5% of the total aggregate principal amount of such loan) upon MacAndrews & Forbes’ funding
of such loan. In connection with such repayment, Products Corporation also used cash on hand
to pay approximately $7.2 million of accrued and unpaid interest due on the 85⁄8% Senior
Subordinated Notes up to, but not including, the February 1, 2008 maturity date. (See ‘‘Recent
Developments’’).

Results of Operations

Year ended December 31, 2007 compared with the year ended December 31, 2006

In the tables, numbers in parenthesis (

) denote unfavorable variances.

Net sales:

Consolidated net sales in 2007 increased $68.7 million, or 5.2%, to $1,400.1, as compared with
$1,331.4 million in 2006. Excluding the favorable impact of foreign currency ﬂuctuations, consolidated net
sales increased by $42.8 million, or 3.2%, in 2007. Net sales for 2006 were reduced by approximately
$20 million due to Vital Radiance, which was discontinued in September 2006.

United States . . . . . . . . . . . . . . . . . . . . . . . .
Asia Paciﬁc . . . . . . . . . . . . . . . . . . . . . . .
Europe . . . . . . . . . . . . . . . . . . . . . . . . . . .
Latin America . . . . . . . . . . . . . . . . . . . . .

Total International . . . . . . . . . . . . . . . . . . .

Year Ended December 31,

2007

$ 804.2
255.6
211.1
129.2

$ 595.9

$1,400.1

2006

$ 764.9
237.7
204.2
124.6

$ 566.5

$1,331.4

Change
$

XFX Change(1)
%

$39.3
17.9
6.9
4.6

$29.4

$68.7

5.1% $39.3
11.7
7.5
(9.0)
3.4
3.7
0.8
5.2% $ 3.5
5.2% $42.8

5.1%
4.9
(4.4)
0.7
0.6%
3.2%

(1) XFX excludes the impact of foreign currency ﬂuctuations.

United States

In the United States, net sales for 2007 increased by $39.3 million, or 5.1%, to $804.2 million, from
$764.9 million in 2006. Net sales in the U.S. for 2006 were reduced by approximately $20 million due to
Vital Radiance. Excluding the impact of Vital Radiance, the increase in net sales in 2007 compared to 2006
was due to higher shipments of beauty care products, primarily women’s hair color, and Almay color
cosmetics, partially offset by lower shipments of Revlon color cosmetics in 2007.

International

In the Company’s international operations, foreign currency ﬂuctuations favorably impacted net sales
in 2007 by $25.9 million. Excluding the impact of foreign currency ﬂuctuations, the $3.5 million increase
in net sales in 2007 in the Company’s international operations, as compared with 2006, was driven
primarily by higher shipments in the Asia Paciﬁc region, partially offset by lower shipments in the Europe
region, particularly in Canada. Net sales in Canada in 2006 were positively impacted by certain
promotional programs in color cosmetics and the restage of Almay color cosmetics. Shipments in the
Latin America region were essentially ﬂat in 2007 compared to 2006.

In Asia Paciﬁc, which is comprised of Asia Paciﬁc and Africa, the increase in net sales, excluding the
favorable impact of foreign currency ﬂuctuations, was due primarily to higher shipments in South Africa,
and to a lesser extent, Australia and certain distributor markets and lower returns expense in Japan
(which together contributed approximately 6.4 percentage points to the increase in net sales for the region
in 2007, as compared with 2006). This increase was partially offset by lower shipments in Hong Kong and
Taiwan (which together offset by approximately 1.4 percentage points the increase in net sales for the
region for 2007, as compared with 2006). The higher shipments in South Africa were driven primarily by
growth in color cosmetics and beauty care products. The higher shipments in Australia were driven
primarily by growth in color cosmetics. The lower shipments in Hong Kong and Taiwan were driven
primarily by a decline in color cosmetics.

In Europe, which is comprised of Europe, Canada and the Middle East, the decrease in net sales,
excluding the favorable impact of foreign currency ﬂuctuations, was due primarily to lower shipments of
color cosmetics and beauty care products in Canada, partially offset by higher shipments of beauty tools.
The decline in color cosmetics in Canada was due primarily to the favorable impact on 2006 net sales of
promotions in color cosmetics, partially offset by lower returns and allowances of color cosmetics resulting
from lower promotional sales in 2007. The net sales decline in Canada contributed approximately
4.0 percentage points to the decrease in net sales for the region for 2007, as compared with 2006.

In Latin America, which is comprised of Mexico, Central America and South America, the increase
in net sales, excluding the favorable impact of foreign currency ﬂuctuations, was driven primarily by
higher shipments in Venezuela and, to a lesser extent, Argentina (which together contributed approximately
9.3 percentage points to the increase in net sales for the region in 2007, as compared with 2006). This
increase was substantially offset by lower shipments in Brazil and a net sales decline in Chile resulting
from the move of the Chile subsidiary business to a distributor model during 2007 (which together offset
approximately 8.0 percentage points of the increase in net sales for the region in 2007, as compared with
2006). The higher shipments in Venezuela and Argentina were driven primarily by growth in color
cosmetics and beauty care products. The lower shipments in Brazil were driven primarily by declines in
beauty care products.

Gross proﬁt:

Year Ended December 31,

2007

2006

Change

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

$877.2

$785.9

$91.3

The increase in gross proﬁt for 2007 compared to 2006 was primarily due to:

•

higher net sales including the impact of approximately $64.4 million of charges for estimated
returns and allowances recorded in 2006 related to the Vital Radiance brand, which was
discontinued in September 2006;

lower cost of sales percentage in 2007 compared to 2006, primarily as a result of lower estimated
excess inventory charges of $31.0 million in 2007 compared to 2006 resulting from estimated
excess inventory charges in 2006 related to the Vital Radiance, Almay and Revlon brands, which
were partially offset by unfavorable changes in sales mix and lower production volume in 2007;
and

•

approximately $3.5 million of higher licensing revenues in 2007 compared to 2006.

SG&A expenses:

Year Ended December 31,

2007

2006

Change

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

$748.9

$808.7

$59.8

The decrease in SG&A expenses for 2007 compared to 2006 was driven primarily by:

•

approximately $25.2 million of lower general and administrative expenses, primarily related to
the impact of the Company’s 2006 and 2007 organizational realignment and streamlining
activities, which resulted in lower personnel-related expenses and occupancy expenses. Occupancy
expenses were lower by $8.1 million, primarily related to the Company’s exit of a portion of its
New York City headquarters leased space, including a beneﬁt of $4.4 million related to the
reversal of a deferred rental liability upon exit of the space in the ﬁrst quarter of 2007;

approximately $15.2 million of lower display amortization expenses in 2007 compared to 2006,
which included $8.9 million of charges related to the accelerated amortization and write-off of
certain displays in connection with the discontinuance of the Vital Radiance brand, as well as
additional display amortization costs in 2006 of $8.3 million related to the Vital Radiance brand
prior to its discontinuance in September 2006;

approximately $12.0 million of lower brand support in 2007 compared to 2006, including brand
support of $36.4 million for the Vital Radiance brand in 2006, partially offset by higher
advertising spending in 2007 on the Company’s core brands; and

$9.4 million of severance and accelerated charges recorded in 2006 related to unvested options
and unvested restricted stock in connection with the termination of the former CEO’s
employment in September 2006.

Restructuring costs:

Restructuring costs and other, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Year Ended December 31,

2007

$7.3

2006

$27.4

Change

$20.1

In 2007, the Company recorded $7.3 million in restructuring expenses for vacating leased space,
employee severance and other employee-related termination costs. (See Note 2 ‘‘Restructuring Costs and
Other, Net’’ to the Consolidated Financial Statements regarding the 2007 Programs). In 2006, the
Company recorded $27.4 million in restructuring expenses for employee severance and employee-related
termination costs related to the 2006 Programs.

During 2007, the Company implemented the 2007 Programs, which consisted of the closure of the
Company’s Irvington facility and personnel reductions within the Company’s Information Management
(IM) function and the sales force in Canada, which actions were designed, for the IM function resources,
to better align the Company’s information management plan, and in Canada, to improve the allocation of
resources. Both actions resulted in reduced costs and an improvement in the Company’s operating proﬁt
margins. In connection with the 2007 Programs, the Company incurred a total of approximately
$2.9 million of restructuring charges and other costs to implement these programs, consisting of
approximately $2.5 million of charges related to employee severance and other employee-related
termination costs for the 2007 Programs and approximately $0.4 million of various other charges related
to the closure of the Irvington facility. The Company recorded all $2.9 million of the restructuring charges
for the 2007 Programs in 2007, all of which were cash charges. Of such charges, $2.3 million was paid out
in 2007 and approximately $0.6 million is expected to be paid out through 2009.

In connection with the 2006 Programs, the Company recorded charges of approximately $32.9 million
in 2006 and $5.0 million in 2007, respectively. Of the total $37.9 million of charges related to the 2006
Programs, approximately $30.6 million are expected to be paid in cash, of which approximately
$10.4 million was paid out in 2006, $16.2 million was paid out in 2007 and approximately $4.0 million is
expected to be paid out through 2009. As part of the 2006 Programs, the Company agreed in
December 2006 to cancel its lease and modify the sublease of its New York City headquarters space,
including vacating 23,000 square feet in December 2006 and vacating an additional 77,300 square feet in

February 2007. These space reductions are resulting in savings in rental and related expense, while
allowing the Company to maintain its corporate ofﬁces in a smaller, more efﬁcient space, reﬂecting its
streamlined organization.

The Company’s 2006 Programs and 2007 Programs collectively reduced the Company’s annualized
cost base by approximately $55 million from previous levels, which primarily beneﬁted SG&A and cost
of sales.

Other expenses (income):

Year Ended December 31,

2007

2006

Change

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

$136.3

$148.8

$12.5

The decrease in interest expenses for 2007 compared to 2006 was primarily due to lower average
borrowing rates on comparable debt levels (See Note 8 ‘‘Long-Term Debt’’ to the Consolidated Financial
Statements).

Loss on early extinguishment of debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Year Ended December 31,

2007

$0.1

2006

$23.5

Change

$23.4

For 2007, the loss on early extinguishment of debt represents the loss on the redemption in
February 2007 of approximately $50 million in aggregate principal amount of Products Corporation’s
85⁄8% Senior Subordinated Notes (See ‘‘Recent Developments’’ describing Products Corporation’s full
repayment of the balance of the 85⁄8% Senior Subordinated Notes in February 2008). In 2006, the loss on
early extinguishment of debt represents the loss on the redemption in April 2006 of approximately
$110 million in aggregate principal amount of Products Corporation’s 85⁄8% Senior Subordinated Notes
using the net proceeds of the $110 Million Rights Offering completed in March 2006.

Miscellaneous (income) expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Year Ended December 31,

2007

$(1.8)

2006

$3.8

Change

$5.6

During 2007, the Company recognized $1.3 million of income in connection with a resolution of a
non-income tax matter in Brazil. In 2006, the Company incurred fees and expenses associated with the
various amendments to Products Corporation’s 2004 Credit Agreement. See Note 8 ‘‘Long-Term Debt
— Other Transactions under the 2004 Credit Agreement Prior to Its Complete Reﬁnancing in
December 2006’’ to the Consolidated Financial Statements.

Provision for income taxes:

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

Year Ended December 31,

2007

$8.0

2006

$20.1

Change

$12.1

The decrease in the provision for income taxes in 2007, as compared with 2006, was primarily
attributable to the reduction of $5.9 million of reserves for certain contingent tax liabilities to reﬂect the
favorable resolution of various international tax matters and the reduction of $4.2 million of valuation
allowances, which together offset the effect of higher taxable income in certain foreign jurisdictions.

Year Ended December 31, 2006 compared with the year ended December 31, 2005

In the tables, numbers in parenthesis ( ) denote unfavorable variances. Certain prior year amounts
were reclassiﬁed to conform to the current period’s presentation, including the transfer, during the second
quarter of 2006, of management responsibility for the Company’s Canadian operations from the
Company’s North American operations to the European region of its international operations.

Net sales:

Consolidated net sales in 2006 were essentially even at $1,331.4 million, as compared to $1,332.3 million

in 2005.

Total International . . . . . . . . . . . . . . . . . . .

Year Ended December 31,

2006

$ 764.9
237.7
204.2
124.6

$ 566.5

$1,331.4

2005

$ 788.3
242.6
193.8
107.6

$ 544.0

$1,332.3

Change

XFX Change(1)
%

$(23.4)
(4.9)
10.4
16.9

$ 22.5

$ (0.9)

(3.0)% $(23.4)
2.3
(2.0)
3.9
5.4
15.7
13.6
4.1% $ 19.8
(0.1)% $ (3.6)

(3.0)%
1.0
2.0
12.6
3.6%
(0.3)%

(1) XFX excludes the impact of foreign currency ﬂuctuations.

United States

In the U.S., the decrease in net sales for 2006 compared to 2005 was primarily due to the
discountinance in September 2006 of the Vital Radiance brand, which launched in 2005, partially offset
by higher net sales of Revlon and Almay color cosmetics and beauty care products.

International

Excluding the impact of foreign currency ﬂuctuations, international net sales increased by $19.8 million,
or 3.6%, in 2006, as compared with 2005. The increase in net sales in 2006 in the Company’s international
operations, as compared with 2005, was driven primarily by higher shipments in the Europe and Latin
America regions.

In Asia Paciﬁc, which is comprised of Asia Paciﬁc and Africa, the increase in net sales, excluding the
impact of foreign currency ﬂuctuations, was driven by South Africa, Australia and China (which together
contributed to an approximate 2.9 percentage points to the increase in net sales for the region in 2006, as
compared with 2005), partially offset by the lower net sales in Hong Kong, Taiwan and in certain
distributor markets (which together contributed approximately 1.6 percentage points to the decrease in
net sales for the region for 2006, as compared with 2005).

In Europe, which is comprised of Europe, Canada and the Middle East, the increase in net sales,
excluding the impact of foreign currency ﬂuctuations, was due to the U.K. and Canada (which together
contributed to an approximate 3.5 percentage points to the increase in net sales for the region for 2006,
as compared with 2005), partially offset by the lower net sales in certain distributor markets (which
together contributed approximately 1.5 percentage points to the decrease in net sales for the region for
2006, as compared with 2005).

In Latin America, the increase in net sales, excluding the impact of foreign currency ﬂuctuations, was
driven primarily by Venezuela, Mexico and certain distributor markets (which together contributed
approximately 10.8 percentage points to the increase in net sales for the region in 2006, as compared with
2005).

Gross proﬁt:

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

$785.9

$824.2

$(38.3)

The decrease in gross proﬁt for 2006 compared to 2005 was primarily due to:

•

approximately $30.9 million of higher allowances in 2006, primarily to support the launch of Vital
Radiance (which was discontinued in September 2006); and

Year Ended December 31,

2006

2005

Change

•

approximately $15.8 million of higher estimated excess inventory charges related to Vital
Radiance, $5.5 million of estimated excess inventory charges related to certain Almay products,
and additional estimated excess inventory charges of $2.7 million related to a promotional
program.

The decrease in gross proﬁt in 2006 compared to 2005 was partially offset by lower returns of

non-Vital Radiance products and the higher dollar value of shipments in 2006 compared to 2005.

SG&A expenses:

Year Ended December 31,

2006

2005

Change

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

$808.7

$757.8

$(50.9)

The increase in SG&A expenses for 2006 compared to 2005 was due in large part to:

•

approximately $41.0 million of higher brand support in 2006 compared to 2005, primarily due to
higher advertising and consumer promotion in connection with the complete re-stage of the
Almay brand and the Vital Radiance brand before its discontinuance in September 2006;

approximately $12.7 million of higher display amortization costs related to Almay and Vital
Radiance in 2006 compared to 2005;

the $8.9 million write-off in 2006 of certain displays, in each case in connection with the
discontinuance of the Vital Radiance brand and $2.9 million of charges related to the write-off
of certain advertising, marketing and promotional materials and software and the accelerated
display amortization;

$6.2 million and $3.2 million, respectively, of severance-related and accelerated amortization
charges related to unvested options and unvested restricted stock, in each case in connection with
the termination of the former CEO’s employment in September 2006; and

approximately $5.6 million of amortization expenses for stock options, resulting from the
Company’s adoption of SFAS No. 123(R) effective as of January 1, 2006.

These increases were partially offset by approximately $26.7 million of reductions principally in

personnel, travel, professional services and other general and administrative expenses.

Restructuring costs:

Restructuring costs and other, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Year Ended December 31,

2006

$27.4

2005

$1.5

Change

$(25.9)

In 2006, the Company recorded $27.4 million in restructuring expenses for employee severance and
employee-related termination costs (See Note 2 ‘‘Restructuring Costs and Other, Net’’ to the Consolidated
Financial Statements regarding the 2006 Programs). In 2005, the Company recorded $1.5 million in
restructuring expenses for employee severance and employee-related termination costs related to the
2004 program.

Other expenses (income):

Year Ended December 31,

2006

2005

Change

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

$148.8

$130.0

$(18.8)

The increase in interest expenses for 2006 compared to 2005 was primarily due to higher average
interest rates and higher outstanding borrowings (See Note 8 ‘‘Long-Term Debt’’ to the Consolidated
Financial Statements).

Loss on early extinguishment of debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Year Ended December 31,

2006

$23.5

2005

$9.0

Change

$(14.5)

For 2006, the loss on early extinguishment of debt represents the write-off of the portion of deferred
ﬁnancing costs and the pre-payment fee associated with the reﬁnancing of Products Corporation’s 2004
Credit Agreement with the 2006 Credit Agreements, as well as the loss on the redemption in April 2006
of approximately $110 million in aggregate principal amount of Products Corporation’s 85⁄8% Senior
Subordinated Notes (the balance of which was repaid in full
in February 2008 — See ‘‘Recent
Developments’’). The $9.0 million loss on early extinguishment of debt for 2005 includes the $5.0 million
pre-payment fee related to the pre-payment 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 (as deﬁned in Note 8 ‘‘Long-Term Debt’’ to the Consolidated
Financial Statements), the aggregate $1.5 million loss on the redemption of all of Products Corporation’s
81⁄8% Senior Notes due 2006 (the ‘‘81⁄8% Senior Notes’’) and 9% Senior Notes due 2006 (the ‘‘9% Senior
Notes’’) in April 2005, as well as the write-off of the portion of deferred ﬁnancing costs related to such
prepaid amounts.

Miscellaneous expense (income), net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Year Ended December 31,

2006

$3.8

2005

$(0.5)

Change

$(4.3)

The increase in miscellaneous, net for 2006, as compared with 2005, is primarily due to fees and expenses
associated with the various amendments to Products Corporation’s 2004 Credit Agreement. See Note 8
‘‘Long-Term Debt — Other Transactions under the 2004 Credit Agreement Prior to Its Complete
Reﬁnancing in December 2006’’ to the Consolidated Financial Statements.

Provision for income taxes:

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

Year Ended December 31,

2006

$20.1

2005

$8.5

Change

$(11.6)

The increase in the provision for income taxes in 2006, as compared with 2005, was primarily
attributable to higher taxable income in certain markets outside the U.S., a tax on the cash repatriation
of dividends from a foreign subsidiary and an increase to tax reserves related to international activities.
In 2005, the favorable resolution of various tax matters resulted in a tax beneﬁt of $3.8 million.

Financial Condition, Liquidity and Capital Resources

Net cash provided by (used in) operating activities was $3.8 million, $(138.7) million and
$(139.7) million for 2007, 2006 and 2005, respectively. This improvement in 2007 compared to 2006 was
primarily due to lower net loss and decreased purchases of permanent displays, partially offset by changes
in net working capital, including cash used for product return settlements in 2007 related to the
September 2006 discontinuance of Vital Radiance and lower trade receivables. Cash usage in 2006 and
2005 was primarily attributable to the larger net loss and increased purchases of permanent displays, due
in large part to the launch in late 2005 and the September 2006 discontinuance of Vital Radiance and the
complete re-stage of Almay, partially offset by improvements in net working capital.

Net cash used in investing activities was $(17.6) million, $(22.4) million and $(15.8) million for 2007,

2006 and 2005, respectively, in each case for capital expenditures.

Net cash provided by ﬁnancing activities was $24.6 million, $163.2 million and $67.6 million for 2007,
2006 and 2005, respectively. Net cash provided by ﬁnancing activities for 2007 included net proceeds of
$98.9 million from Revlon, Inc.’s issuance of Class A Common Stock as a result of the closing of the
$100 Million Rights Offering in January 2007. Revlon, Inc.’s proceeds from the $100 Million Rights
Offering were promptly transferred to Products Corporation, which it used in February 2007 to redeem
$50.0 million aggregate principal amount of its 85⁄8% Senior Subordinated Notes (the balance of which was

repaid in full in February 2008 — See ‘‘Recent Developments’’), including $0.3 million of accrued and
unpaid interest up to, but not including, the redemption date. The remainder of such proceeds was used
in January 2007 to repay approximately $43.3 million of indebtedness outstanding under Products
Corporation’s 2006 Revolving Credit Facility, without any permanent reduction of that commitment, after
incurring fees and expenses of approximately $1.1 million incurred in connection with the $100 Million
Rights Offering, with approximately $5 million of the remaining proceeds being available for general
corporate purposes.

Net cash provided by ﬁnancing activities for 2006 included net proceeds of $107.2 million from
Revlon, Inc.’s issuance in March 2006 of Class A Common Stock in the $110 Million Rights Offering,
borrowings during the second and third quarter of 2006 under the 2004 Multi-Currency Facility (as
hereinafter deﬁned) under the 2004 Credit Agreement, $100.0 million from borrowings under the Term
Loan Add-on (as hereinafter deﬁned) under the 2004 Credit Agreement and $840.0 million from
borrowings under the 2006 Term Loan Facility.

The net proceeds from the $110 Million Rights Offering were promptly transferred to Products
Corporation, which it used in April 2006, together with available cash, to redeem $109.7 million aggregate
principal amount of its 85⁄8% Senior Subordinated Notes (the balance of which was repaid in full in
February 2008 — See ‘‘Recent Developments’’) at an aggregate redemption price of $111.8 million,
including $2.1 million of accrued and unpaid interest up to, but not including, the redemption date and
to pay related ﬁnancing costs of $9.4 million. Products Corporation used the proceeds from the
$100.0 million Term Loan Add-on to repay in July 2006 $78.6 million of outstanding indebtedness under
the 2004 Multi-Currency Facility under Products Corporation’s 2004 Credit Agreement, without any
permanent reduction in the commitment under that facility, and the balance of $11.7 million, after the
payment of fees and expenses incurred in connection with consummating such transaction, was used for
general corporate purposes. Products Corporation used the proceeds from the $840.0 million 2006 Term
Loan Facility to repay in December 2006 approximately $798.0 million of outstanding indebtedness under
the 2004 Term Loan Facility, repay approximately $13.3 million of indebtedness outstanding under the
2006 Revolving Credit Facility and pay approximately $15.3 million of accrued interest and a $8.0 million
prepayment fee. (See ‘‘Financial Condition, Liquidity and Capital Resources — 2006 and 2007
Reﬁnancing Transactions’’).

Net cash provided by ﬁnancing activities for 2005 included proceeds of $386.2 million from Products
Corporation’s issuance of its 91⁄2% Senior Notes, which was used to (i) prepay $100.0 million of
indebtedness under the 2004 Term Loan Facility under the 2004 Credit Agreement, along with a
$5.0 million prepayment fee plus accrued interest, (ii) redeem all $116.2 million aggregate principal
amount outstanding of Products Corporation’s 81⁄8% Senior Notes, plus the payment of $1.9 million of
accrued interest, (iii) redeem all $75.5 million aggregate principal amount outstanding of Products
Corporation’s 9% Senior Notes, plus $3.1 million of accrued interest and the applicable premium of
$1.1 million, and (iv) pay ﬁnancing costs related to such transactions, with the balance of $77.7 million
being used to help fund the Company’s brand initiatives.

At January 31, 2008, Products Corporation had a liquidity position (excluding cash in compensating
balance accounts) of approximately $185.7 million, consisting of cash and cash equivalents (net of any
outstanding checks) of approximately $50.2 million, as well as approximately $135.5 million in available
borrowings under the 2006 Revolving Credit Facility.

Credit Agreement Reﬁnancing

In July 2004, Products Corporation entered into a credit agreement (the ‘‘2004 Credit Agreement’’)
with certain of its subsidiaries as local borrowing subsidiaries, a syndicate of lenders, Citicorp USA, Inc.,
as multi-currency administrative agent, term loan administrative agent and collateral agent, UBS
Securities LLC as syndication agent and Citigroup Global Markets Inc. as sole lead arranger and sole
bookrunner.

based upon the value 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. from time to time (the ‘‘2004 Multi-Currency Facility’’).

On December 20, 2006, Products Corporation replaced the $800 million 2004 Term Loan Facility
under its 2004 Credit Agreement with a 5-year, $840 million 2006 Term Loan Facility pursuant to the 2006
Term Loan Agreement, dated as of December 20, 2006, among Products Corporation, as borrower, the
lenders party thereto, Citicorp USA, Inc., as administrative agent and collateral agent, Citigroup Global
Markets Inc., as sole lead arranger and sole bookrunner, and JPMorgan Chase Bank, N.A., as syndication
agent. As part of this bank reﬁnancing, Products Corporation also amended and restated the 2004
Multi-Currency Facility by entering into the $160.0 million 2006 Revolving Credit Agreement that
amended and restated the 2004 Credit Agreement.

Among other things, the 2006 Credit Facilities extended the maturity dates for Products Corporation’s
bank credit facilities from July 9, 2009 to January 15, 2012 in the case of the 2006 Revolving Credit
Agreement and from July 9, 2010 to January 15, 2012 in the case of the 2006 Term Loan Agreement.

Availability under the 2006 Revolving Credit Facility varies based on a borrowing base that is
determined by the value 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. from time to time.

In each case subject to borrowing base availability, the 2006 Revolving Credit 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 $30 million;

(iii) Products Corporation in standby and commercial letters of credit denominated in U.S. dollars

and other currencies up to $60 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.

If the value of the eligible assets is not sufﬁcient to support a $160 million borrowing base under the
2006 Revolving Credit Facility, Products Corporation will not have full access to the 2006 Revolving
Credit Facility. Products Corporation’s ability to make borrowings under the 2006 Revolving Credit
Facility is also conditioned upon the satisfaction of certain conditions precedent and Products Corporation’s
compliance with other covenants in the 2006 Revolving Credit Facility, including a ﬁxed charge coverage
ratio that applies if and when the excess borrowing base (representing the difference between (1) the
borrowing base under the 2006 Revolving Credit Facility and (2) the amounts outstanding under the 2006
Revolving Credit Facility) is less than $20.0 million.

Borrowings under the 2006 Revolving Credit Facility (other than loans in foreign currencies) bear
interest at a rate equal to, at Products Corporation’s option, either (i) the Eurodollar Rate plus 2.00% per
annum or (ii) the Alternate Base Rate plus 1.00% per annum (reducing the applicable margins from 2.50%
and 1.50% per annum, respectively, that were applicable under the previous 2004 Credit Agreement).
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 2.00%. At December 31, 2007, the effective weighted average
interest rate for borrowings under the 2006 Revolving Credit Facility was 7.5%.

The 2006 Term Loan Facility consists of a $840 million term loan, which was drawn in full on the
December 20, 2006 closing date, with the proceeds used to repay in full the approximately $798 million
of outstanding term loans under the 2004 Credit Agreement (plus accrued interest of approximately
$15.3 million and a pre-payment fee of approximately $8.0 million) and the remainder used to repay
approximately $13.3 million of indebtedness outstanding under the 2006 Revolving Credit Facility, after
paying fees and expenses related to the credit agreement reﬁnancing.

applicable under the previous 2004 Credit Agreement). At December 31, 2007, the effective weighted
average interest rate for borrowings under the 2006 Term Loan Facility was 9.2%. (See ‘‘Financial
Condition, Liquidity and Capital Resouces — Interest Rate Swap Transaction’’).

The 2006 Credit Facilities are supported by, among other things, guarantees from Revlon, Inc. and,
subject to certain limited exceptions, the domestic subsidiaries of Products Corporation. The obligations
of Products Corporation under the 2006 Credit Facilities and the obligations under the guarantees are
secured by, subject to certain limited exceptions, substantially all of the assets of Products Corporation
and the subsidiary guarantors, including:

(i) mortgages on owned real property, including Products Corporation’s facility in Oxford, North

Carolina and property in Irvington, New Jersey;

(ii)

(iii)

(iv)

the capital stock of Products Corporation and the subsidiary guarantors and 66% of the capital
stock of Products Corporation’s and the subsidiary guarantors’ ﬁrst-tier foreign subsidiaries;

intellectual property and other intangible property of Products Corporation and the subsidiary
guarantors; and

inventory, accounts receivable, equipment,
Products Corporation and the subsidiary guarantors.

investment property and deposit accounts of

The liens on, among other things, inventory, accounts receivable, deposit accounts, investment
property (other than the capital stock of Products Corporation and its subsidiaries), real property,
equipment, ﬁxtures and certain intangible property related thereto secure the 2006 Revolving Credit
Facility on a ﬁrst priority basis and the 2006 Term Loan Facility on a second priority basis. The liens on
the capital stock of Products Corporation and its subsidiaries and intellectual property and certain other
intangible property secure the 2006 Term Loan Facility on a ﬁrst priority basis and the 2006 Revolving
Credit Facility on a second priority basis. Such arrangements are set forth in the Amended and Restated
Intercreditor and Collateral Agency Agreement, dated as of December 20, 2006, by and among Products
Corporation and the lenders (the ‘‘2006 Intercreditor Agreement’’). The 2006 Intercreditor Agreement
also provides that the liens referred to above may be shared from time to time, subject to certain
limitations, with speciﬁed types of other obligations incurred or guaranteed by Products Corporation,
such as foreign exchange and interest rate hedging obligations (including the ﬂoating-to-ﬁxed rate interest
swap transaction which Products Corporation entered into in September 2007 — See ‘‘Financial
Condition, Liquidity and Capital Resources — Interest Rate Swap Transaction’’) and foreign working
capital lines.

Each of the 2006 Credit Facilities contains various restrictive covenants prohibiting Products

Corporation and its subsidiaries from:

(i)

incurring additional indebtedness or guarantees, with certain exceptions;

(ii) making dividend and other payments or loans to Revlon, Inc. or other afﬁliates, with certain

exceptions, including among others,

(a)

(b)

(c)

exceptions permitting Products Corporation to pay dividends or make other payments to
Revlon, Inc. to enable it to, among other things, pay expenses incidental to being a public
holding company, including, among other things, professional fees such as legal, accounting
and insurance fees, regulatory fees, such as SEC ﬁling fees, and other expenses related to
being a public holding company,

subject to 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 Stock Plan (as hereinafter deﬁned) and/or the payment of withholding taxes in
connection with the vesting of restricted stock awards under such plan, and

subject to certain limitations, to pay dividends or make other payments to ﬁnance the
purchase, redemption or other retirement for value by Revlon, Inc. of stock or other equity
interests or equivalents in Revlon, Inc. held by any current or former director, employee
or consultant in his or her capacity as such;

(iii)

creating liens or other encumbrances on Products Corporation’s or its subsidiaries’ assets or
revenues, granting negative pledges or selling or transferring any of Products Corporation’s or
its subsidiaries’ assets, all subject to certain limited exceptions;

(iv) with certain exceptions, engaging in merger or acquisition transactions;

(v)

prepaying indebtedness and modifying the terms of certain indebtedness and speciﬁed material
contractual obligations, subject to certain exceptions;

(vi) making investments, subject to certain exceptions; and

(vii) entering into transactions with afﬁliates of Products Corporation other than upon terms no less
favorable to Products Corporation or its subsidiaries than it would obtain in an arms’ length
transaction.

In addition to the foregoing, the 2006 Term Loan Facility contains a ﬁnancial covenant limiting
Products Corporation’s senior secured leverage ratio (the ratio of Products Corporation’s Senior Secured
Debt (excluding debt outstanding under the 2006 Revolving Credit Facility) to EBITDA, as each such
term is deﬁned in the 2006 Term Loan Facility) to 5.5 to 1.0 for each period of four consecutive ﬁscal
quarters ending during the period from December 31, 2006 to September 30, 2008, stepping down to 5.0 to
1.0 for each period of four consecutive ﬁscal quarters ending during the period from December 31, 2008
to the January 2012 maturity date of the 2006 Term Loan Facility.

Under certain circumstances if and when the difference between (i) the borrowing base under the
2006 Revolving Credit Facility and (ii) the amounts outstanding under the 2006 Revolving Credit Facility
is less than $20.0 million for a period of 30 consecutive days or more, the 2006 Revolving Credit Facility
requires Products Corporation 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 2006 Revolving Credit Facility) of 1.0 to 1.0.

The events of default under each 2006 Credit Facility include customary events of default for such

types of agreements, including:

(i)

nonpayment of any principal, interest or other fees when due, subject in the case of interest and
fees to a grace period;

(ii) non-compliance with the covenants in such 2006 Credit Facility or the ancillary security

documents, subject in certain instances to grace periods;

(iii)

the institution of any bankruptcy, insolvency or similar proceedings by or against Products
Corporation, any of Products Corporation’s subsidiaries or Revlon, Inc., subject in certain
instances to grace periods;

(iv) default by Revlon, Inc. or any of its subsidiaries (A) in the payment of certain indebtedness
when due (whether at maturity or by acceleration) in excess of $5.0 million in aggregate
principal amount or (B) in the observance or performance of any other agreement or condition
relating to such debt, provided that the amount of debt involved is in excess of $5.0 million in
aggregate principal amount, or the occurrence of any other event, the effect of which default
referred to in this subclause (iv) is to cause or permit the holders of such debt to cause the
acceleration of payment of such debt;

(v)

in the case of the 2006 Term Loan Facility, a cross default under the 2006 Revolving Credit
Facility, and in the case of the 2006 Revolving Credit Facility, a cross default under the 2006
Term Loan Facility;

(vi)

the failure by Products Corporation, certain of Products Corporation’s subsidiaries or Revlon,
Inc., to pay certain material judgments;

(vii) a change of control such that (A) Revlon, Inc. shall cease to be the beneﬁcial and record owner
of 100% of Products Corporation’s capital stock, (B) Ronald O. Perelman (or his estate, heirs,
executors, administrator or other personal representative) and his or their controlled afﬁliates
shall cease to ‘‘control’’ Products Corporation, and any other person or group or persons owns,

directly or indirectly, more than 35% of the total voting power of Products Corporation, (C) any
person or group of persons other than Ronald O. Perelman (or his estate, heirs, executors,
administrator or other personal representative) and his or their controlled afﬁliates shall
‘‘control’’ Products Corporation or (D) during any period of two consecutive years, the
directors serving on Products Corporation’s Board of Directors at the beginning of such period
(or other directors nominated by at least 662⁄3% of such continuing directors) shall cease to be
a majority of the directors;

(viii) the failure by Revlon, Inc. to contribute to Products Corporation all of the net proceeds it
receives from any other sale of its equity securities or Products Corporation’s capital stock,
subject to certain limited exceptions;

(ix)

(x)

the failure of any of Products Corporation’s, its subsidiaries’ or Revlon, Inc.’s representations
or warranties in any of the documents entered into in connection with the 2006 Credit Facility
to be correct, true and not misleading in all material respects when made or conﬁrmed;

the conduct by Revlon, Inc. of any meaningful business activities other than those that are
customary for a publicly traded holding company which is not itself an operating company,
including the ownership of meaningful assets (other than Products Corporation’s capital stock)
or the incurrence of debt, in each case subject to limited exceptions;

(xi) any M&F Lenders’ failure to fund any binding commitments by such M&F Lender under any
agreement governing certain loans from the M&F Lenders (excluding the MacAndrews &
Forbes Senior Subordinated Term Loan which was fully funded by MacAndrews & Forbes in
February 2008); and

(xii) the failure of certain of Products Corporation’s afﬁliates which hold Products Corporation’s or
its subsidiaries’ indebtedness to be party to a valid and enforceable agreement prohibiting such
afﬁliate from demanding or retaining payments in respect of such indebtedness.

If Products Corporation is in default under the senior secured leverage ratio under the 2006 Term
Loan Facility or the consolidated ﬁxed charge coverage ratio under the 2006 Revolving Credit Facility,
Products Corporation may cure such default by issuing certain equity securities to, or receiving capital
contributions from, Revlon, Inc. and applying the cash therefrom which is deemed to increase EBITDA
for the purpose of calculating the applicable ratio. This cure right may be exercised by Products
Corporation two times in any four quarter period.

Products Corporation was in compliance with all applicable covenants under the 2006 Credit
Agreements as of December 31, 2007. At January 31, 2008, the 2006 Term Loan Facility was fully drawn
and availability under the $160.0 million 2006 Revolving Credit Facility, based upon the calculated
borrowing base less approximately $14.5 million of outstanding letters of credit and $10.0 million then
drawn on the 2006 Revolving Credit Facility, was approximately $135.5 million.

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 was reduced to $87.0 million in July 2005 and reduced from
$87.0 million to $50.0 million in January 2007 upon Revlon, Inc.’s consummation of the $100 Million
Rights Offering (as amended, the ‘‘2004 Consolidated MacAndrews & Forbes Line of Credit’’).
No amounts were borrowed under the 2004 Consolidated MacAndrews & Forbes Line of Credit during
2007.

Pursuant to a December 2006 amendment, upon consummation of the $100 Million Rights Offering,
which was completed in January 2007, $50.0 million of the line of credit remained available to Products
Corporation through January 31, 2008 on substantially the same terms (which line of credit would
otherwise have terminated pursuant to its terms upon the consummation of the $100 Million Rights
Offering). The 2004 Consolidated MacAndrews & Forbes Line of Credit expired in accordance with its
terms on January 31, 2008. It was undrawn during its entire term.

(See ‘‘Recent Developments’’ describing Products Corporation’s full repayment of the balance of the
85⁄8% Senior Subordinated Notes in February 2008 using the proceeds of the new $170 million

MacAndrews & Forbes Senior Subordinated Term Loan, as well as cash on hand to pay accrued and
unpaid interest of approximately $7.2 million due on the 85⁄8% Senior Subordinated Notes).

2006 and 2007 Rights Offerings

$110 Million Rights Offering

In March 2006, Revlon, Inc. completed the $110 Million Rights Offering which allowed each
stockholder of record of Revlon, Inc.’s Class A and Class B Common Stock as of the close of business on
February 13, 2006, the record date set by Revlon, Inc.’s Board of Directors, to purchase additional shares
of Class A Common Stock. The subscription price for each share of Class A Common Stock purchased
in the $110 Million Rights Offering, including shares purchased in the private placement by MacAndrews
& Forbes, was $2.80 per share. Upon completing the $110 Million Rights Offering, Revlon, Inc. promptly
transferred the net proceeds to Products Corporation, which it used to redeem $109.7 million aggregate
principal amount of its 85⁄8% Senior Subordinated Notes in satisfaction of the applicable requirements
under the 2004 Credit Agreement, at an aggregate redemption price of $111.8 million,
including
$2.1 million of accrued and unpaid interest up to, but not including, the redemption date. (See ‘‘Recent
Developments’’ regarding Products Corporation’s full repayment of the balance of the 85⁄8% Senior
Subordinated Notes upon maturity on February 1, 2008).

In completing the $110 Million Rights Offering, Revlon, Inc. issued an additional 39,285,714 shares
of its Class A Common Stock, including 15,885,662 shares subscribed for by public shareholders (other
than MacAndrews & Forbes) and 23,400,052 shares issued to MacAndrews & Forbes in a private
placement directly from Revlon, Inc. pursuant to a Stock Purchase Agreement between Revlon, Inc. and
MacAndrews & Forbes, dated as of February 17, 2006. The shares issued to MacAndrews & Forbes
represented the number of shares of Revlon, Inc.’s Class A Common Stock that MacAndrews & Forbes
would otherwise have been entitled to purchase pursuant to its basic subscription privilege in the
$110 Million Rights Offering (which was approximately 60% of the shares of Revlon, Inc.’s Class A
Common Stock offered in the $110 Million Rights Offering).

$100 Million Rights Offering

In December 2006, Revlon, Inc. launched the $100 Million Rights Offering, which it completed in
January 2007. The $100 Million Rights Offering allowed each stockholder of record of Revlon, Inc.’s Class
A and Class B Common Stock as of the close of business on December 11, 2006, the record date set by
Revlon, Inc.’s Board of Directors, to purchase additional shares of Class A Common Stock. The
subscription price for each share of Class A Common Stock purchased in the $100 Million Rights
Offering, including shares purchased in the private placement by MacAndrews & Forbes, was $1.05 per
share.

In completing the $100 Million Rights Offering, Revlon, Inc. issued an additional 95,238,095 shares
of its Class A Common Stock, including 37,847,472 shares subscribed for by public shareholders (other
than MacAndrews & Forbes) and 57,390,623 shares issued to MacAndrews & Forbes in a private
placement directly from Revlon, Inc. pursuant to a Stock Purchase Agreement between Revlon, Inc. and
MacAndrews & Forbes, dated as of December 18, 2006. The shares issued to MacAndrews & Forbes
represented the number of shares of Revlon, Inc.’s Class A Common Stock that MacAndrews & Forbes
would otherwise have been entitled to purchase pursuant to its basic subscription privilege in the
$100 Million Rights Offering (which was approximately 60% of the shares of Revlon, Inc.’s Class A
Common Stock offered in the $100 Million Rights Offering).

2007 Reﬁnancing Transactions

Upon completing, in January 2007, the $100 Million Rights Offering launched in December 2006,
Revlon, Inc. promptly transferred the net proceeds to Products Corporation, which it used in February 2007
to redeem $50.0 million aggregate principal amount of its 85⁄8% Senior Subordinated Notes at an
aggregate redemption price of $50.3 million, including $0.3 million of accrued and unpaid interest up to,

but not including, the redemption date. Products Corporation used the remainder of such proceeds in
January 2007 to repay approximately $43.3 million of indebtedness outstanding under Products
Corporation’s 2006 Revolving Credit Facility, without any permanent reduction of that commitment, after
incurring fees and expenses of approximately $1.1 million incurred in connection with the $100 Million
Rights Offering, with approximately $5 million of the remaining net proceeds being available for general
corporate purposes.

(See ‘‘Recent Developments’’ regarding Products Corporation’s full repayment of the balance of the

85⁄8% Senior Subordinated Notes upon maturity on February 1, 2008).

Interest Rate Swap Transaction

In September 2007, Products Corporation executed a ﬂoating-to-ﬁxed interest rate swap transaction
with a notional amount of $150.0 million over a period of two years relating to indebtedness under
Products Corporation’s 2006 Term Loan Facility. The Company designated this interest rate swap
transaction as a cash ﬂow hedge of the variable interest rate payments on Products Corporation’s 2006
Term Loan Facility. Under the terms of the interest rate swap transaction, Products Corporation is
required to pay to the counterparty a quarterly ﬁxed interest rate of 4.692% on the $150.0 million notional
amount commencing in December 2007, while receiving a variable interest rate payment from the
counterparty equal to three-month U.S. dollar LIBOR. While the Company is exposed to credit loss in
the event of the counterparty’s non-performance, if any, the Company’s exposure is limited to the net
amount that Products Corporation would have received over the remaining balance of the transaction’s
two-year term. Given that the counterparty to the interest rate swap transaction is a major ﬁnancial
institution, the Company does not anticipate any non-performance and, furthermore, even in the case of
any non-performance by the counterparty, the Company expects that any such loss would not be material.
The fair value of Products Corporation’s interest rate swap transaction was $(2.2) million at
December 31, 2007.

Sources and Uses

The Company’s principal sources of funds are expected to be operating revenues, cash on hand and
funds available for borrowing under the 2006 Revolving Credit Agreement and other permitted lines of
credit. The 2006 Credit Agreements, the MacAndrews & Forbes Senior Subordinated Term Loan
Agreement and the indenture governing Products Corporation’s 91⁄2% Senior 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 execution of the Company’s business strategy,
purchases of permanent wall displays, capital expenditure requirements, payments in connection with the
Company’s restructuring programs (including, without limitation, the Company’s 2006 Programs, the 2007
Programs and prior programs), executive severance not otherwise included in the Company’s restructuring
programs, debt service payments and costs and regularly scheduled pension and post-retirement beneﬁt
plan contributions. The Company’s cash contributions to its pension and post-retirement beneﬁt plans
were approximately $38 million in 2007 and the Company expects them to be approximately $13 million
in 2008. The Company’s purchases of permanent wall displays and capital expenditures in 2007 were
approximately $50 million and $20 million, respectively. The Company expects purchases of permanent
wall displays and capital expenditures in 2008 to be approximately $55 million and $25 million,
respectively. See ‘‘Restructuring Costs, Net’’ above in this Form 10-K for discussion of the Company’s
expected uses of funds in connection with its various restructuring programs.

The Company has undertaken, and continues to assess, reﬁne and implement, 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 and targeted controls on general and administrative spending.

Continuing to execute the Company’s business strategy could include taking advantage of additional
opportunities to reposition, repackage or reformulate one or more brands or product lines, launching

additional new products, acquiring businesses or brands, further reﬁning the Company’s approach to retail
merchandising and/or taking further actions to optimize its manufacturing, sourcing and organizational
size and structure. Any of these actions, 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 expects that operating revenues, cash on hand and funds available for borrowing
under the 2006 Revolving Credit Agreement and other permitted lines of credit will be sufﬁcient to enable
the Company to cover its operating expenses for 2008, including cash requirements in connection with the
payment of operating expenses, including expenses in connection with the execution of the Company’s
business strategy, purchases of permanent wall displays, capital expenditure requirements, payments in
connection with the Company’s restructuring programs (including, without limitation, the Company’s
2006 Programs, the 2007 Program and prior programs), executive severance not otherwise included in the
Company’s restructuring programs, debt service payments and costs 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 of, for example, decreased consumer spending in response to weak economic conditions
or weakness in the cosmetics category in the mass retail channel, adverse changes in currency, decreased
sales of the Company’s products as a result of increased competitive activities from the Company’s
competitors, changes in consumer purchasing habits, including with respect to shopping channels, retailer
inventory management, retailer space reconﬁguration or reductions in retailer display space, less than
anticipated results from the Company’s existing or new products or from its advertising and/or marketing
plans, or if the Company’s expenses, including, without limitation, for advertising and promotions or for
returns related to any reduction of retail space, product discontinuances or otherwise, 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, retailer space reconﬁgurations or reductions in retailer display space,
product discontinuances and/or advertising and promotion expenses or returns expenses exceeding its
expectations or less than anticipated results from the Company’s existing or new products or from its
advertising and/or marketing plans, 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 2006 Credit Agreements and in such event the Company could be required
to take measures, including, among other things, 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 and expenses.
If such revenue or expense 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 2006 Credit Agreements, which could have a material adverse effect on the
Company’s business, ﬁnancial condition and/or results of operations’’; ‘‘— The Company may be unable
to increase its sales through the Company’s primary distribution channels, which could reduce the
Company’s net sales and have a material adverse effect on the Company’s business, ﬁnancial condition
and/or results of operations’’; 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’’).

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 of the following
alternatives:

•

delaying the implementation of or revising certain aspects of the Company’s business strategy;

reducing or delaying purchases of wall displays or advertising or promotional expenses;

•

reducing or delaying capital spending;

delaying, reducing or revising the Company’s restructuring programs;

restructuring Products Corporation’s indebtedness;

selling assets or operations;

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

selling additional Revlon, Inc. equity securities or debt securities of Revlon, Inc. or 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, without limitation, market conditions being unfavorable for an equity or debt
issuance, additional capital contributions and/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, such as due to 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
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. (See Item 1A, ‘‘Risk
Factors’’ for further discussion of risks associated with the Company’s business).

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 2006 Credit Agreements, the MacAndrews & Forbes Senior Subordinated
Term Loan Agreement and the indenture governing Products Corporation’s 91⁄2% Senior 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, accounting and insurance fees, regulatory fees, such as SEC ﬁling
fees, and other 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 Third Amended and Restated Revlon, Inc. Stock Plan (the ‘‘Stock Plan’’).

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 $23.6 million outstanding at December 31, 2007. The fair
value of foreign currency forward exchange contracts outstanding at December 31, 2007 was $(0.3) 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, 2007:

Contractual Obligations
Long-term Debt, including Current Portion(a). . . . . .
Interest on Long-term Debt(b) . . . . . . . . . . . . . . . . . . .
Capital Lease Obligations . . . . . . . . . . . . . . . . . . . . . . .
Operating Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase Obligations(c) . . . . . . . . . . . . . . . . . . . . . . . . .
Other Long-term Obligations(d) . . . . . . . . . . . . . . . . . .
Total Contractual Cash Obligations . . . . . . . . . . . . . .

Total

$1,441.4
455.2
3.4
89.8
51.2
15.8

$2,056.8

Payments Due by Period
(dollars in millions)

Less than
1 year

$173.9
124.2
1.4
15.2
51.2
15.2

$381.1

1-3 years

3-5 years

$ 17.1
231.4
1.8
26.0
—
0.6

$276.9

$1,250.4
99.6
0.2
22.8
—
—

$1,373.0

After
5 years

$ —
—
—
25.8
—
—

$25.8

(a)

Includes approximately $167.4 million of aggregate principal amount of Products Corporation’s 85⁄8% Senior Subordinated
Notes which was repaid upon maturity on February 1, 2008 with the proceeds of the MacAndrews & Forbes Senior
Subordinated Term Loan. Does not include the $170 million aggregate principal amount outstanding under the MacAndrews
& Forbes Senior Subordinated Term Loan Agreement which Products Corporation entered into in January 2008, which is due
in August 2009, and which was drawn in full on the February 1, 2008 repayment of the 85⁄8% Senior Subordinated Notes since
it was not outstanding at December 31, 2007. (See ‘‘Recent Developments’’ regarding Products Corporation’s full repayment
of the balance of the 85⁄8% Senior Subordinated Notes upon maturity on February 1, 2008 using the proceeds of the
MacAndrews & Forbes Senior Subordinated Term Loan, as well as cash on hand to pay accrued and unpaid interest of
approximately $7.2 million due on the 85⁄8% Senior Subordinated Notes).

(b) Consists of interest primarily on the 91⁄2% Senior Notes and on the $840 million term loan under the 2006 Term Loan Facility
through the respective maturity dates based upon assumptions regarding the amount of debt outstanding under the 2006 Credit
Agreements and assumed interest rates. In addition, this amount reﬂects the impact of the September 2007 interest rate swap
transaction covering $150 million notional amount under the 2006 Term Loan Facility, which resulted in an effective weighted
average interest rate of 9.2% on the 2006 Term Loan Facility as of December 31, 2007. (See ‘‘Financial Condition, Liquidity
and Capital Resources — Interest Rate Swap Transaction’’). Does not include interest on the $170 million aggregate principal
amount outstanding under the MacAndrews & Forbes Senior Subordinated Term Loan Agreement which Products
Corporation entered into in January 2008 and which was drawn in full on the February 1, 2008 repayment of the balance of
the 85⁄8% Senior Subordinated Notes. The MacAndrews & Forbes Senior Subordinated Term Loan matures on August 1, 2009
and bears interest at an annual rate of 11%, which is payable in arrears in cash on March 31, June 30, September 30 and
December 31 of each year, commencing on March 31, 2008. (See ‘‘Recent Developments’’ regarding Products Corporation’s
full repayment of the balance of the 85⁄8% Senior Subordinated Notes upon maturity on February 1, 2008).

(c) 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.

(d) Consists primarily of obligations related to advertising contracts. Such amounts exclude employment agreements, severance
and other contractual commitments, which severance and other contractual commitments related to restructuring 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.

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. In the event of product discontinuances,
from time to time the Company may accelerate the amortization of related permanent wall displays based
on the estimated remaining useful life of the asset. 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 December 31st as its measurement date for plan obligations and assets.

The Company selected a weighted-average discount rate of 6.24% in 2007, representing an increase
from the 5.75% rate selected in 2006 for the Company’s U.S. pension plans. The Company selected an
average discount rate for the Company’s international plans of 5.7% in 2007, representing an increase
from the 5.0% average discount rate selected in 2006. 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 2007 were primarily due to increasing long-term interest rates during 2007. At December 31, 2007,
the increase in the discount rates had the effect of decreasing the Company’s projected pension beneﬁt
obligation by approximately $37 million. For ﬁscal 2008, the Company expects that increases in the
discount rates will have the effect of decreasing the net periodic beneﬁt cost for its U.S. and international
plans by approximately $4 million.

For the Company’s U.S. pension plans, the expected rate of return on the pension plan assets used
in 2007 and in 2006 was 8.5%. The average expected rate of return used for the Company’s international
plans in 2007 and in 2006 was 6.7%.

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 2008 net periodic beneﬁt costs and its projected beneﬁt obligation
at December 31, 2007 for the Company’s principal plans:

Effect of
25 basis points increase

Effect of
25 basis points decrease

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

$(1.9)
(1.8)

Net periodic
beneﬁt costs

Projected
pension
beneﬁt
obligation

$(17.6)
(0.6)

Net periodic
beneﬁt costs

$2.3
1.0

Projected
pension
beneﬁt
obligation

$15.5
—

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 2007 and
in 2006 remained unchanged at 4.0% 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.

Stock-Based Compensation:

and related interpretations in accounting for stock options granted under the Company’s Stock Plan,
which provides for the issuance of awards of stock options, stock appreciation rights, restricted or
unrestricted stock and restricted stock units to eligible employees and directors of Revlon, Inc. and its
afﬁliates, including Products Corporation.

Under the intrinsic value method, no compensation expense was recognized in ﬁscal periods ended
prior to January 1, 2006 if the exercise price of the Company’s employee stock options equaled the market
price of Revlon, Inc.’s Class A Common Stock on the date of the grant. Since all options granted under
Revlon, Inc.’s Stock Plan had an exercise price equal to the market value of the underlying Revlon, Inc.
Class A Common Stock on the date of grant, no compensation expense was recognized in the
accompanying consolidated statements of operations for the ﬁscal periods ended on or before
December 31, 2005 on stock options granted to employees.

Effective January 1, 2006, the Company adopted Statement of Financial Accounting Standards
(‘‘SFAS’’) No. 123(R), ‘‘Share-Based Payment’’ (‘‘SFAS No. 123(R)’’). This statement replaces SFAS
No. 123, ‘‘Accounting for Stock-Based Compensation’’ (‘‘SFAS No. 123’’) and supersedes APB No. 25.
SFAS No. 123(R) requires that effective for ﬁscal periods ending after December 31, 2005, all stock-based
compensation be recognized as an expense, net of the effect of expected forfeitures, in the ﬁnancial
statements and that such expense be measured at the fair value of the Company’s stock-based awards and
generally recognized over the grantee’s required service period.

The Company uses the modiﬁed prospective method of application, which requires recognition of
compensation expense on a prospective basis. Therefore, the Company’s ﬁnancial statements for ﬁscal
periods ended on or before December 31, 2005 have not been restated to reﬂect compensation expense
in respect of awards of stock options under the Stock Plan. Under this method, in addition to reﬂecting
compensation expense for new share-based awards granted on or after January 1, 2006, expense is also
recognized to reﬂect the remaining service period (generally, the vesting period of the award) of awards
that had been included in the Company’s pro forma disclosures in ﬁscal periods ended on or before
December 31, 2005.

SFAS No. 123(R) also requires that excess tax beneﬁts related to stock option exercises be reﬂected
as ﬁnancing cash inﬂows instead of operating cash inﬂows. For 2007, no adjustments have been made to
the Company’s cash ﬂow statement, as any excess tax beneﬁts that would have been realized have been
fully provided for, given the Company’s historical losses and deferred tax valuation allowance.

The fair value of each option grant is estimated on the date of grant using the Black-Scholes
option-pricing model based on the weighted-average assumptions listed in Note 13 to the Consolidated
Financial Statements. Expected volatilities are based on the daily historical volatility of the NYSE closing
stock price of Revlon, Inc.’s Class A Common Stock, over the expected life of the option. The expected
life of the option represents the period of time that options granted are expected to be outstanding, which
the Company calculates using a formula based on the vesting term and the contractual life of the
respective option. The risk-free interest rate for periods during the expected life of the option is based
upon the rate in effect at the time of the grant on a zero coupon U.S. Treasury bill for periods
approximating the expected life of the option.

If factors change and the Company employs different assumptions in the application of SFAS
No. 123(R) in future periods, the compensation expense that the Company records under SFAS No.
123(R) may differ signiﬁcantly from what has been recorded in the current period. In addition, judgment
is also required in estimating the amount of share-based awards that are expected to be forfeited. If actual
results differ signiﬁcantly from these estimates, stock-based compensation expense and the Company’s
results of operations could be materially impacted.

Recent Accounting Pronouncements

In September 2006, the FASB issued SFAS No. 157, ‘‘Fair Value Measurements.’’ This statement
clariﬁes the deﬁnition of fair value of assets and liabilities, establishes a framework for measuring fair
value of assets and liabilities, and expands the disclosures on fair value measurements. SFAS No. 157 is
effective for ﬁscal years beginning after November 15, 2007. The Company will adopt the provisions of

SFAS No. 157 effective as of January 1, 2008 and expects that its adoption will not have a material impact
on its results of operations or ﬁnancial condition.

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

Recognize the funded status of a beneﬁt plan — measured as the difference between plan assets
at fair value (with limited exceptions) and the beneﬁt obligation — in its statement of ﬁnancial
position. For a pension plan, the beneﬁt obligation is the projected beneﬁt obligation; for any
other post-retirement beneﬁt plan, such as a retiree health care plan, the beneﬁt obligation is
the accumulated post-retirement beneﬁt obligation;

Recognize as a component of other comprehensive income (loss), net of tax, the gains or losses
recognized and prior service costs or credits that arise during the year but are not recognized
in net income (loss) as components of net periodic beneﬁt cost pursuant to FASB Statement
No. 87, ‘‘Employers’ Accounting for Pensions’’, or No. 106, ‘‘Employers’ Accounting for
Postretirement Beneﬁts Other Than Pensions’’. Amounts recognized in accumulated other
comprehensive income (loss), including the gains or losses, prior service costs or credits, and the
transition assets or obligations remaining from the initial application of Statements Nos. 87 and
106, are adjusted as they are subsequently recognized as components of net periodic beneﬁt
cost pursuant to the recognition and amortization provisions of Statements Nos. 87 and 106;
and

Disclose in the notes to ﬁnancial statements additional information about certain effects on net
periodic beneﬁt cost for the next ﬁscal year that arise from the delayed recognition of the gains
or losses, prior service costs or credits, and transition assets or obligations.

As of January 1, 2007, the Company adopted the requirement to measure deﬁned beneﬁt plan assets
and obligations as of the date of the Company’s ﬁscal year ending December 31, 2007, rather than using
a September 30th measurement date. (See Note 11 ‘‘Savings Plan, Pension and Post-Retirement Beneﬁts’’
to the Consolidated Financial Statements for further discussion of the impact of adopting the measurement
date provision of SFAS No. 158 on the Company’s results of operations or ﬁnancial condition.)

Inﬂation

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 costs and 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 2006 Term Loan Facility
and 2006 Revolving Credit Facility under the 2006 Credit Agreements. 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. In September 2007,
Products Corporation executed a ﬂoating-to-ﬁxed interest rate swap transaction with a notional amount
of $150.0 million over a period of two years relating to indebtedness under Products Corporation’s 2006
Term Loan Facility. The Company designated this interest rate swap transaction as a cash ﬂow hedge of
the variable interest rate payments on Products Corporation’s 2006 Term Loan Facility. (See ‘‘Financial
Condition, Liquidity and Capital Resources — Interest Rate Swap Transaction’’).

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, 2007. 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

2008

2009

2010

2011

2012

Thereafter

Total

Fair Value
December 31,
2007

Short-term variable rate

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

$ 2.0

8.1%

Long-term ﬁxed rate

— third party (various
currencies) . . . . . . . . . . . .
Average interest rate . . . . .
Long-term ﬁxed rate

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

— third party ($US) . . . .
Average interest rate(a) . .
Total debt . . . . . . . . . . . . . . .

2.0

0.5

557.4

528.5

883.5

$390.0

9.5%

8.4
8.2%

$852.0

8.1%

$ 0.2

$0.3

6.0% 6.0%

$167.4(b)
8.6%

$8.4

6.3
8.5% 7.6% 7.9%

$8.4

$175.9

$8.7

$8.4

$398.4

$852.0

$ — $1,443.4

$1,414.5

(a) Weighted average variable rates are based upon implied forward rates from the U.S. Dollar LIBOR yield curves at

December 31, 2007.

(b) On January 30, 2008, Products Corporation entered into its previously-announced $170 million MacAndrews & Forbes Senior
Subordinated Term Loan Agreement and on February 1, 2008 used the proceeds of such loan to repay in full the balance of
the approximately $167.4 million aggregate remaining principal amount of Products Corporation’s 85⁄8% Senior Subordinated
Notes, which matured on February 1, 2008. The MacAndrews & Forbes Senior Subordinated Term Loan bears an annual
interest rate of 11%, which is payable in arrears in cash on March 31, June 30, September 30 and December 31 of each year
commencing on March 31, 2008 and matures on August 1, 2009. (See ‘‘Recent Developments’’).

Forward Contracts

Sell Canadian Dollars/Buy USD . . . . . .
Sell Australian Dollars/Buy USD . . . . .
Sell South African Rand/Buy USD . . . .
Sell British Pounds/Buy USD. . . . . . . . .
Buy Australian Dollars/Sell New

Zealand Dollars . . . . . . . . . . . . . . . . . .
Sell Euros/Buy USD . . . . . . . . . . . . . . . .
Sell New Zealand Dollars/Buy USD. . .
Sell Hong Kong Dollars/Buy USD . . . .

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

Average
Contractual
Rate
$/FC

Original
US Dollar
Notional
Amount

Contract
Value
December 31,
2007

Fair Value
December 31,
2007

0.9894
0.8593
0.1400
2.0265

1.1696
1.4008
0.7531
0.1285

$ 7.9
4.6
3.3
2.4

3.4
1.2
0.5
0.3

$ 7.8
4.5
3.2
2.5

3.3
1.2
0.5
0.3

$23.6

$23.3

$(0.1)
(0.1)
(0.1)
0.1

(0.1)
—
—
—

$(0.3)

Interest Rate Swap Transaction

Expected Maturity date for the year ended December 31,

Notional Amount . . . . . . . . . . . . . . . . . . .
Average Pay Rate. . . . . . . . . . . . . . . . . . .
Average Receive Rate . . . . . . . . . . . . . . .

2008

2009

$—
4.692%
3-month USD
LIBOR

$150.0
4.692%
3-month USD
LIBOR

Fair Value
December 31,
2007

$(2.2)

Total

$150.0

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
procedures 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
acquisition, use or disposition of the Company’s assets that could have a material effect on its
ﬁnancial statements.

Internal control over ﬁnancial reporting may not prevent or detect misstatements due to its inherent
limitations. 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, 2007 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, 2007, 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, 2007, has issued an attestation report on 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, 2007
that have materially affected, or are reasonably likely to materially affect, the Company’s internal control
over ﬁnancial reporting.

Item 9B. Other Information

None.

Forward Looking Statements

This Annual Report on Form 10-K for the year ended December 31, 2007, 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, visions, objectives, strategies, opportunities, drivers and intents
of the Company’s management. While the Company believes that its estimates and assumptions are
reasonable, the Company cautions that it is very difﬁcult to predict the impact of known factors, and, of
course, it is impossible for the Company to anticipate all factors that could affect its results. 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)

the Company’s future ﬁnancial performance;

(ii)

the effect on sales of decreased consumer spending in response to weak economic conditions or
weakness in the cosmetics category in the mass retail channel; adverse changes in currency;
decreased sales of the Company’s products as a result of increased competitive activities by the
Company’s competitors, changes in consumer purchasing habits, including, with respect to
shopping channels; retailer inventory management; retailer space reconﬁguration or reductions

(iii)

(iv)

in retailer display space; less than anticipated results from the Company’s existing or new
products or from its advertising and/or marketing plans; or if the Company’s expenses,
including, without limitation, for advertising and promotions or for returns related to any
reduction of retail space, product discontinuances or otherwise, exceed anticipated level of
expenses;

the Company’s belief that the continued execution of its business strategy could include taking
advantage of additional opportunities to reposition, repackage or reformulate one or more of
its brands or product lines, launching additional new products, acquiring businesses or brands,
further reﬁning its approach to retail merchandising and/or taking further actions to optimize
its manufacturing, sourcing and organizational size and structure, 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 expectations regarding the continued execution of its business strategy,
including (a) building and leveraging its brands, particularly the Revlon brand, across the
categories in which it competes, including, in addition to Revlon and Almay brand color
cosmetics, seeking to drive growth in other beauty care categories, including women’s hair color,
beauty tools and anti-perspirants/deodorants by developing and sustaining an innovative
pipeline of new products and managing the Company’s product portfolio with the objective of
proﬁtable net sales growth over time, including: 1) fully utilizing the Company’s creative,
marketing and research and development capabilities; 2) reinforcing clear, consistent brand
positioning through effective, innovative advertising and promotion; and 3) working with the
Company’s retail customers to continue to increase the effectiveness of its in-store marketing,
including the
promotion and display walls across the categories in which it competes,
Company’s belief that it has created a comprehensive, long-term portfolio strategy, that the
Company will accelerate new product development, produce effective creative and provide
clear lines of communication, responsibility and accountability with its new integrated
organizational structure in the U.S., and that for 2008 the Company’s extensive lineup of Revlon
and Almay color cosmetics will offer additional and signiﬁcant new products and innovations
within the Revlon and Almay portfolios; (b) improving the execution of its strategies and plans
and continuing to build its organizational capability primarily through a focus on recruitment
and retention of skilled people, providing opportunities for professional development, as well
as new and expanded responsibilities and roles for employees who have demonstrated
capability and rewarding the Company’s employees for success, including the Company’s belief
that it has strengthened its U.S. marketing and sales organization with the creation of its U.S.
region and by recruiting talented and experienced executives within marketing, product
development and sales; (c) continuing to strengthen its international business further by (i)
focusing the Revlon brand and the Company’s other strong national and multi-national brands
in key countries; (ii) leveraging the Company’s Revlon and Almay brand marketing worldwide;
(iii) adapting the Company’s product portfolio to local consumer preferences and trends; (iv)
structuring the most effective business model in each country; and (v) strategically allocating
resources and controlling costs; (d) capitalizing on opportunities to improve operating proﬁt
margins and cash ﬂow over time, including by reducing sales returns, costs of goods sold and
general and administrative expenses and improving working capital management (in each case
as a percentage of net sales), and continuing to focus on improving net sales growth; and (e)
continuing to improve its capital structure;

(v)

the Company’s belief that its rigorous process for the continuous development and evaluation
of new product concepts, formed in 2007 and led by senior executives in marketing, sales,
product development, operations and ﬁnance, has improved the Company’s new product
commercialization process, created a comprehensive, long-term portfolio strategy and will
optimize the Company’s ability to regularly bring to market its innovative new product offerings
and manage the Company’s product portfolio for proﬁtable growth over time;

(vi)

the Company’s plans to fully focus its efforts on building and leveraging its established brands
particularly its Revlon brand;

(vii) restructuring activities, restructuring costs, the timing of restructuring payments and the cost

base reductions and other beneﬁts from such activities;

(viii) the Company’s expectation that operating revenues, cash on hand and funds available for
borrowing under Products Corporation’s 2006 Revolving Credit Agreement and other permitted
lines of credit will be sufﬁcient to enable the Company to cover its operating expenses for 2008,
including cash requirements referred to in item (ix) below;

(ix)

(x)

the Company’s expected sources of funds, including operating revenues, cash on hand and funds
available for borrowing under Products Corporation’s 2006 Revolving Credit Agreement and
other permitted lines of credit, as well as the availability of funds from restructuring
indebtedness, selling assets or operations, capital contributions and/or loans from MacAndrews &
Forbes or 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 Revlon, Inc. or Products Corporation;

the Company’s expected uses of funds,
including amounts required for the payment of
operating expenses, including expenses in connection with the continued execution of the
Company’s business strategy, payments in connection with the Company’s purchases of
permanent wall displays, capital expenditure requirements, restructuring programs (including,
without limitation, the 2006 Programs, the 2007 Programs and prior programs), executive
severance not otherwise included in the Company’s restructuring programs, debt service
payments and costs and regularly scheduled pension and post-retirement beneﬁt plan
contributions, and its estimates of operating expenses, the amount and timing of restructuring
costs, executive severance, debt service payments (including payments required under Products
Corporation’s debt instruments), cash contributions to the Company’s pension plans and
post-retirement beneﬁt plans, purchases of permanent wall displays and capital expenditures;

(xi) matters concerning the Company’s market-risk sensitive instruments,

including the
ﬂoating-to-ﬁxed interest rate swap transaction that Products Corporation entered into in
September 2007 and the Company’s expectation that such transaction will offset the effects of
ﬂoating interest rates by hedging against ﬂuctuations in variable interest rate payments on
$150 million notional amount of Products Corporation’s long-term debt under its 2006
Term Loan Facility, as well as the Company’s expectations as to the counterparty’s performance,
including that any loss arising from the non-performance by the counterparty would not be
material;

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

(xiii) the Company’s plan to efﬁciently manage its cash and working capital, including, among other
things, by carefully managing 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 carefully managing accounts payable and targeted controls
on general and administrative spending.

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,’’ ‘‘focus,’’ ‘‘drive towards,’’ ‘‘plans,’’ ‘‘targets,’’ ‘‘strategies,’’ ‘‘opportunities,’’ ‘‘drivers,’’ ‘‘believes,’’
‘‘intends,’’ ‘‘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 strategies, 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 or may
make in its Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, in each case ﬁled with
the SEC in 2008 and 2007 (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. 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)

unanticipated circumstances or results affecting the Company’s ﬁnancial performance, including
decreased consumer spending in response to weak economic conditions or weakness in the
cosmetics category in the mass retail channel; changes in consumer preferences, such as reduced
consumer demand for the Company’s color cosmetics and other current products, including new
product launches; changes in consumer purchasing habits, including with respect to shopping
channels; lower than expected retail customer acceptance or consumer acceptance of, or less
than anticipated results from, the Company’s existing or new products; higher than expected
advertising and promotion expenses or lower than expected results from the Company’s
advertising and/or marketing plans; higher than expected returns or decreased sales of the
Company’s existing or new products; actions by the Company’s customers, such as retailer
inventory management and greater than anticipated retailer space reconﬁgurations or reductions
in retailer display space and/or product discontinuances; and changes in the competitive
environment and actions by the Company’s competitors, including business combinations,
technological breakthroughs, new products offerings, increased advertising, marketing and
promotional spending and marketing and promotional successes by competitors, including
increases in share in the mass retail channel;

(ii)

in addition to the items discussed in (i) above, 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) and political conditions (such as
military actions and terrorist activities);

(iii) unanticipated costs or difﬁculties or delays in completing projects associated with the continued
execution of the Company’s business strategy or lower than expected revenues or the inability
to achieve proﬁtability as a result of such strategy, including lower than expected sales, or higher
than expected costs, including as may arise from any additional repositioning, repackaging or
reformulating of one or more of the Company’s brands or product lines, launching of new
product lines, including difﬁculties or delays, or higher than expected expenses, including for
returns, in launching its new products, acquiring businesses or brands, further reﬁning its
approach to retail merchandising, and/or difﬁculties, delays or increased costs in connection
with taking further actions to optimize the Company’s manufacturing, sourcing, supply chain or
organizational size and structure;

(iv) difﬁculties, delays or unanticipated costs in executing the Company’s business strategy, which
could affect the Company’s ability to achieve its objectives as set forth in clause (iv) above, such
as (a) less than effective new product development (including less than anticipated beneﬁts
from the Company’s process for the continuous development and evaluation of new product
concepts), less than anticipated proﬁtable net sales growth over time, less than expected growth
of the Revlon or Almay brands and/or in women’s hair color, beauty tools and/or anti-perspirants/
deodorants, such as due to less than expected acceptance of the Company’s new or existing
products under these brands and lines by consumers and/or retail customers, less than expected
acceptance of the Company’s advertising, promotion and/or marketing plans by the Company’s
consumers and/or retail customers, disruptions, delays or difﬁculties in executing the Company’s
business strategy, less than expected investment in brand support, greater than expected
competitive investment or less than anticipated beneﬁts from the Company’s new integrated
organizational structure in the U.S., such as less than anticipated growth or proﬁtability in the
Company’s U.S. business; (b) difﬁculties, delays or the inability to improve the execution of its
strategies and plans and/or build organizational capability, recruit and retain skilled people,
provide employees with opportunities to develop professionally, provide employees who have
demonstrated capability with new and expanded responsibilities or roles and/or reward the

Company’s employees for success, including less than expected beneﬁts from the Company’s
U.S. region organizational changes, such as less than anticipated growth or proﬁtability in the
Company’s U.S. business; (c) difﬁculties, delays or unanticipated costs in connection with the
Company’s plans to strengthen its international business further, such as due to higher than
anticipated levels of investment required to support and build the Company’s brands globally
or less than anticipated results from the Company’s national and multi-national brands; (d)
difﬁculties, delays or unanticipated costs in connection with improving operating proﬁt margins
and cash ﬂow over time and realizing continuing sustainable beneﬁts from restructuring actions,
such as difﬁculties, delays or the inability to take actions intended to improve sales returns, cost
of goods sold, general and administrative expenses, in working capital management and/or
growth in net sales; and/or (e) difﬁculties, delays or unanticipated costs in, or the Company’s
inability to improve its capital structure, including higher than expected costs such as due to
higher interest rates;

(v)

difﬁculties, delays or the Company’s inability to bring to market its innovative new product
offerings and manage the Company’s product portfolio for proﬁtable growth over time with its
process for the continuous development and evaluation of new product concepts, formed in
2007 and led by senior executives in marketing, sales, product development, operations and
ﬁnance, such as due to less than effective new product development and/or less than expected
acceptance of the Company’s new products under the Company’s Revlon and Almay brands
and lines by consumers and/or retail customers;

(vi) difﬁculties, delays or the Company’s inability to build and leverage its established brands,
particularly its Revlon brand, including by less than expected growth of the Revlon brand, less
than expected acceptance of the Company’s creative and brand marketing plans by the
Company’s consumers and/or retail consumer, less than effective research and development
and/or new product development, including with respect to the Company’s process for the
continuous development and evaluation of new product concepts, and/or less than expected
acceptance of the Company’s new or exising products under the Revlon brand by consumers
and/or retail customers;

(vii) difﬁculties, delays or unanticipated costs or less than expected savings and other beneﬁts
resulting from the Company’s restructuring activities, such as less than anticipated sustained
annualized cost base reductions or other beneﬁts from the 2007 Programs and/or 2006 Programs
and the risk that the 2007 Programs and/or the 2006 Programs may not satisfy the Company’s
objectives as set forth in clause (vii) above;

(viii) lower than expected operating revenues, cash on hand and/or funds available under the 2006
Revolving Credit Agreement and/or other permitted lines of credit or higher than anticipated
operating expenses, such as referred to in clause (x) below;

(ix)

(x)

(xi)

the unavailability of funds under Products Corporation’s 2006 Revolving Credit Agreement or
other permitted lines of credit, or from restructuring indebtedness, or capital contributions or
loans from MacAndrews & Forbes, the Company’s other afﬁliates and/or third parties and/or
the sale of additional equity of Revlon, Inc. or debt securities of Revlon, Inc. or Products
Corporation;

higher than expected operating expenses, sales returns, working capital expenses, permanent
wall display costs, capital expenditures, restructuring costs, executive severance not otherwise
included in the Company’s restructuring programs, debt service payments, regularly scheduled
cash pension plan contributions and/or post-retirement beneﬁt plan contributions, purchases of
permanent wall displays and/or capital expenditures;

interest rate or foreign exchange rate changes affecting the Company and its market-risk
sensitive ﬁnancial instruments, including less than anticipated beneﬁts or other unanticipated
effects of the ﬂoating-to-ﬁxed interest rate swap transaction which Products Corporation
entered into in September 2007 or difﬁculties, delays or the inability of the counterparty to
perform the transaction;

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

(xiii) 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

Item 10. Directors, Executive Ofﬁcers and Corporate Governance

A list of Revlon, Inc.’s executive ofﬁcers and directors and biographical information and other
information about them may be found under the caption ‘‘Election of Directors’’ and ‘‘Executive
Ofﬁcers’’ of Revlon, Inc.’s Proxy Statement for the Annual Stockholders Meeting to be held on or about
June 5, 2008 (the ‘‘2008 Proxy Statement’’), anticipated to be ﬁled with the SEC no later than
April 30, 2008 (120 days after the Company’s ﬁscal year ended December 31, 2007), which sections are
incorporated by reference herein.

The information set forth under the caption ‘‘Section 16(a) Beneﬁcial Ownership Reporting

Compliance’’ in the 2008 Proxy Statement is also incorporated herein by reference.

The information set forth under the captions ‘‘Compensation Discussion and Analysis’’, ‘‘Executive
Compensation’’, ‘‘Summary Compensation Table’’, ‘‘Grants of Plan-Based Awards, ‘‘Outstanding Equity
Awards at Fiscal Year-End’’, ‘‘Option Exercises and Stock Vested’’, ‘‘Pension Beneﬁts’’, ‘‘Non-Qualiﬁed
Deferred Compensation’’ and ‘‘Director Compensation’’ in the 2008 Proxy Statement is also incorporated
herein by reference.

Information regarding the Company’s director nomination process, audit committee and audit
committee ﬁnancial expert matters as required by the SEC’s Regulation S-K 407(c)(3), 407(d)(4) and
407(d)(5), may be found in the 2008 Proxy Statement under the captions ‘‘Corporate Governance-
Nominating and Corporate Governance Committee-Director Nominating Processes’’ and ‘‘Corporate
Governance-Audit Committee-Composition of the Audit Committee’’, respectively. That information is
incorporated herein by reference.

Item 11. Executive Compensation

The information set forth under the caption ‘‘Compensation of Executive Ofﬁcers and Directors’’ in
the 2008 Proxy Statement is incorporated herein by reference. The information set forth under the caption
‘‘Compensation and Stock Plan Committee — Composition of the Compensation Committee’’ and
‘‘Compensation Committee Report’’
in the 2008 Proxy Statement is also incorporated herein by
reference.

Item 12.

Security Ownership of Certain Beneﬁcial Owners and Management and Related Stockholder
Matters

The information set forth under the captions ‘‘Ownership of Common Stock’’ and ‘‘Equity
Compensation Plan Information’’ in the 2008 Proxy Statement is incorporated herein by reference.

Item 13. Certain Relationships and Related Transactions, and Director Independence

The information set forth under the captions ‘‘Certain Relationships and Related Transactions’’ and
‘‘Corporate Governance — Controlled Company Exemption’’ in the 2008 Proxy Statement is incorporated
herein by reference.

Item 14. Principal Accountant Fees and Services

Information concerning principal accountant fees and services set forth under the caption ‘‘Audit Fees’’

in the 2008 Proxy Statement is incorporated herein by reference.

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 ofﬁcers, and certain other
documents ﬁled with the SEC), 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 websites referenced herein shall not
be deemed incorporated by reference into this report.

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 Company’s Consolidated Financial Statements 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 Revlon, Inc.’s Quarterly Report on Form 10-Q for the quarter
ended March 31, 2004 ﬁled with the SEC on May 17, 2004).

Amended and Restated By-Laws of Revlon, Inc. dated as of December 10, 2007
(incorporated by reference to Exhibit 3.2 of Revlon, Inc.’s Current Report on Form 8-K
ﬁled with the SEC on December 10, 2007).

Instruments Deﬁning the Rights of Security Holders, Including Indentures.

Credit Agreement, dated as of July 9, 2004, among Revlon Consumer Products Corporation
(‘‘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 Products Corporation’s Current Report on Form 8-K ﬁled
with the SEC on July 13, 2004).

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

Second Amendment dated as of July 28, 2006 to the 2004 Credit Agreement (incorporated
by reference to Exhibit 4.1 to Products Corporation’s Current Report on Form 8-K ﬁled
with the SEC on July 28, 2006).

Third Amendment dated as of September 29, 2006 to the 2004 Credit Agreement,
(incorporated by reference to Exhibit 4.1 of Products Corporation’s Current Report on
Form 8-K ﬁled with the SEC on September 29, 2006).

Fourth Amendment, dated as of December 20, 2006, to the 2004 Credit Agreement,
(incorporated by reference to Exhibit 4.2 to Products Corporation’s Current Report on
Form 8-K ﬁled with the SEC on December 21, 2006 (the ‘‘Products Corporation
December 21, 2006 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

4.10

4.11

4.12

10.

10.1

10.2

Amended and Restated Pledge and Security Agreement, dated as of December 20, 2006
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 4.3 to the Products Corporation December 21, 2006 Form 8-K).

Amended and Restated Intercreditor and Collateral Agency Agreement, dated as of
December 20, 2006 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 4.4 to the Products Corporation December 21, 2006 Form 8-K).

Term Loan Agreement, dated as of December 20, 2006 among Products Corporation, as
borrower, the lenders party thereto, Citicorp USA, Inc., as administrative agent and
collateral agent, JPMorgan Chase Bank, N.A., as syndication agent, and Citigroup Global
Capital Markets Inc., as sole lead arranger and sole bookrunner (incorporated by reference
to Exhibit 4.1 to the Products Corporation December 21, 2006 Form 8-K).

Indenture, dated as of February 1, 1998, between Products Corporation (as successor to
Revlon Escrow Corp,) 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 Products Corporation’s Form S-1 ﬁled with the SEC 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 Corp. 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 Revlon, Inc.’s Current Report on Form 8-K ﬁled with the SEC on February 12, 2004).

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 Products Corporation’s Annual Report
on Form 10-K/A for the year ended December 31, 2004 ﬁled with the SEC on April 12, 2005).

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
Products Corporation’s Annual Report on Form 10-K for the year ended December 31, 2001
ﬁled with the SEC on February 25, 2002).

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 Products Corporation’s Quarterly Report on Form 10-Q for the quarter
ended March 31, 2004 ﬁled with the SEC on May 17, 2004).

10.3

10.4

10.5

10.6

*10.7

*10.8

10.9

10.10

10.11

10.12

10.13

10.14

10.15

10.16

Employment Agreement, dated as of April 27, 2007 between Products Corporation and
David L. Kennedy (incorporated by reference to Exhibit 10.1 to Revlon, Inc.’s Quarterly
Report on Form 10-Q for the quarter ended March 31, 2007 ﬁled with the SEC on
May 8, 2007 (the ‘‘Revlon, Inc. 2007 First Quarter Form 10-Q’’)).

Employment Agreement, dated as of April 27, 2007, between Products Corporation and
Alan T. Ennis (incorporated by reference to Exhibit 10.2 to the Revlon, Inc. 2007 First
Quarter Form 10-Q).

Employment Agreement, dated as of April 27, 2007, between Products Corporation and
Robert K. Kretzman (incorporated by reference to Exhibit 10.3 to the Revlon, Inc.
2007 First Quarter Form 10-Q).

Third Amended and Restated Revlon, Inc. Stock Plan (as amended, the ‘‘Stock Plan’’)
(incorporated by reference to Exhibit 4.1 to Revlon, Inc.’s Registration Statement on
Form S-8 ﬁled with the SEC on December 10, 2007).

Form of Nonqualiﬁed Stock Option Agreement under the Stock Plan.

Form of Restricted Stock Agreement under the Stock Plan.

Revlon Executive Bonus Plan (incorporated by reference to Exhibit 10.15 to Products
Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2005 ﬁled
with the SEC on August 9, 2005).
Amended and Restated Revlon Pension Equalization Plan, amended and restated as of
December 14, 1998 (incorporated by reference to Exhibit 10.15 to Revlon, Inc.’s Annual
Report on Form 10-K for the year ended December 31, 1998 ﬁled with the SEC on
March 3, 1999).

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

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 Products Corporation’s Annual Report on Form 10-K for
the year ended
December 31, 1992 ﬁled with the SEC on March 12, 1993).

Revlon Executive Severance Pay Plan (incorporated by reference to Exhibit 10.4 to Revlon,
Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2006 ﬁled with
the SEC on November 7, 2006).

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

MacAndrews & Forbes Senior Subordinated Term Loan Agreement, dated as of
January 30, 2008, between Products Corporation and MacAndrews & Forbes Holdings Inc.
(incorporated by reference to Exhibit 10.1 to Products Corporation’s Current Report on
Form 8-K ﬁled with the SEC on February 1, 2008).

Letter Agreement between Revlon, Inc. and MacAndrews & Forbes Holdings Inc., dated
as of January 30, 2008 (incorporated by reference to Exhibit 10.2 to Products Corporation’s
Current Report on Form 8-K ﬁled with the SEC on February 1, 2008).

21.

Subsidiaries.

*21.1

Subsidiaries of Revlon, Inc.

23.

Consents of Experts and Counsel.

*23.1

Consent of KPMG LLP.

24.

Powers of Attorney.

*24.1

*24.2

*24.3

*24.4

*24.5

*24.6

*24.7

*24.8

*24.9

Power of Attorney executed by Ronald O. Perelman.

Power of Attorney executed by Barry F. Schwartz.

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.

Power of Attorney executed by Linda Gosden Robinson.

Power of Attorney executed by Kathi P. Seifert.

*24.10

Power of Attorney executed by Kenneth L. Wolfe.

*31.1

*31.2

Certiﬁcation of David L. Kennedy, Chief Executive Ofﬁcer, dated March 5, 2008, pursuant
to Rule 13a-14(a)/15d-14(a) of the Exchange Act.

Certiﬁcation of Alan T. Ennis, Chief Financial Ofﬁcer, dated March 5, 2008, pursuant to
Rule 13a-14(a)/15d-14(a) of the Exchange Act.

32.1
(furnished
herewith)

Certiﬁcation of David L. Kennedy, Chief Executive Ofﬁcer, dated March 5, 2008, pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.

32.2
(furnished
herewith)

Certiﬁcation of Alan T. Ennis, Chief Financial Ofﬁcer, dated March 5, 2008, 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, 2007 and 2006 . . . . . . . . . . . . . . . . . . . . . . .

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

ended December 31, 2007. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Consolidated Statements of Stockholders’ Deﬁciency and Comprehensive Loss for each

of the years in the three-year period ended December 31, 2007 . . . . . . . . . . . . . . . . . . . . . .

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

ended December 31, 2007. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

Financial Statement Schedule:

Page

F-2

F-3

F-4

F-5

F-6

F-8

F-9

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

F-58

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, 2007 and 2006, 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, 2007. 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, 2007 and 2006, and the
results of their operations and their cash ﬂows for each of the years in the three-year period ended
December 31, 2007, 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.

As discussed in Note 1 to the Consolidated Financial Statements, the Company adopted FASB
Interpretation No. 48, ‘‘Accounting for Uncertainty in Income Taxes’’ as of January 1, 2007, Statement of
Financial Accounting Standards (‘‘SFAS’’) No. 123(R), ‘‘Share-Based Payment’’, as of January 1, 2006,
and SFAS No. 158, ‘‘Employers’ Accounting for Deﬁned Beneﬁt Pension and Other Postretirement Plans
— An Amendment of FASB Statement No. 87, 88, 106 and 132(R)’’, as of December 31, 2006 for the
recognition and disclosure provisions and as of January 1, 2007 for the measurement date provisions.

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, 2007, 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 5, 2008, expressed an unqualiﬁed opinion on the effectiveness of the
Company’s internal control over ﬁnancial reporting.

/s/ KPMG LLP

New York, New York
March 5, 2008

F-2

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders
Revlon, Inc.:

We have audited Revlon, Inc. and subsidiaries’
internal control over ﬁnancial reporting as of
December 31, 2007, based on criteria established in Internal Control — Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Revlon, Inc. and
subsidiaries’ management is responsible for maintaining effective internal control over ﬁnancial reporting
and for its assessment of the effectiveness of internal control over ﬁnancial reporting, included in the
accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our
responsibility is to express an opinion on 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,
assessing the risk that a material weakness exists, and testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk. Our audit also included 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 the
prevention and timely detection of any 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 the effectiveness of internal control over ﬁnancial
reporting as 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, Revlon, Inc. and subsidiaries maintained, in all material respects, effective internal control
over ﬁnancial reporting as of December 31, 2007, 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
December 31, 2007 and 2006, 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, 2007, and our report dated March 5, 2008 expressed an unqualiﬁed opinion on those
consolidated ﬁnancial statements and ﬁnancial statement schedule.

/s/ KPMG LLP

New York, New York
March 5, 2008

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 allowance for doubtful accounts of $4.3

and $4.0 as of December 31, 2007 and 2006, respectively. . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

December 31,
2007

December 31,
2006

46.8

35.4

202.7
169.1
52.6

471.2
113.7
118.2
186.2

207.8
186.5
58.3

488.0
115.3
142.4
186.2

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

889.3

931.9

LIABILITIES AND STOCKHOLDERS’ DEFICIENCY

Current liabilities:

Short-term borrowings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current portion of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total current liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term pension and other post-retirement plan liabilities . . . . . . . . . .
Other long-term liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stockholders’ deﬁciency:

Class B Common Stock, par value $0.01 per share; 200,000,000
shares authorized, 31,250,000 issued and outstanding as of
December 31, 2007 and 2006, respectively. . . . . . . . . . . . . . . . . . . . . . .

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

shares authorized and 492,923,401 and 390,001,154 shares issued as
of December 31, 2007 and 2006, respectively . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Treasury stock, at cost; 1,305,799 and 429,666 shares of Class A

Common Stock as of December 31, 2007 and 2006, respectively . . .
Accumulated deﬁcit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

2.1
6.5
89.7
250.4

348.7
1,432.4
112.4
77.8

9.6
—
95.1
272.5

377.2
1,501.8
175.7
107.0

0.3

4.9
989.4

(2.5)
(1,985.4)
(88.7)

(1,082.0)

3.8
884.9

(1.4)
(1,993.2)
(124.2)

(1,229.8)

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

889.3

931.9

See Accompanying Notes to Consolidated Financial Statements

F-4

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

Year Ended December 31,
2006

2005

2007

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

1,400.1 $
522.9

1,331.4 $
545.5

1,332.3
508.1

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

Operating income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

Weighted average number of common shares outstanding:

877.2
748.9
7.3

121.0

136.3
(2.0)
3.3
(6.8)
0.1
(1.8)

129.1

(8.1)
8.0

785.9
808.7
27.4

(50.2)

148.8
(1.1)
7.5
(1.5)
23.5
3.8

181.0

(231.2)
20.1

(16.1) $

(251.3) $

(0.03) $

(0.60) $

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

(83.7)

(0.22)

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

504,372,640

417,054,291

385,629,789

See Accompanying Notes to Consolidated Financial Statements

F-5

REVLON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’
DEFICIENCY AND COMPREHENSIVE LOSS

(dollars in millions)

Balance, January 1, 2005 . . . . . . . . . . . . .
Treasury stock acquired, at cost(a) . . . . . .
Exercise of stock options for common

stock . . . . . . . . . . . . . . . . . . . . . . . .

Amortization of deferred compensation

for restricted stock . . . . . . . . . . . . . . .

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 . . . . . . . . . . .
Net proceeds from $110 Million Rights

Offering . . . . . . . . . . . . . . . . . . . . . .
Treasury stock acquired, at cost(a) . . . . . .
Stock option compensation. . . . . . . . . . .
Exercise of stock options for common

stock . . . . . . . . . . . . . . . . . . . . . . . .

Amortization of deferred compensation

for restricted stock . . . . . . . . . . . . . . .

Comprehensive loss:

Net loss . . . . . . . . . . . . . . . . . . . . . .
Revaluation of foreign currency

forward exchange contracts . . . . . . .
Currency translation adjustment . . . . .
Adjustment for minimum pension

liability(b) . . . . . . . . . . . . . . . . . . . .
Total comprehensive loss(c) . . . . . . . . . . .
Net adjustment to initially apply SFAS
No. 158, net of tax(c) . . . . . . . . . . . .
Balance, December 31, 2006 . . . . . . . . . . .
SFAS No. 158 adjustment(d) . . . . . . . . . .
Adjustment for adoption of FIN 48(e)
. . .
Adjusted balance, January 1, 2007. . . . . .
Net proceeds from $100 Million Rights

Offering (See Note 12) . . . . . . . . . . . .
Treasury stock acquired, at cost(a) . . . . . .
Issuance of restricted stock. . . . . . . . . . .
Stock option compensation. . . . . . . . . . .
Amortization of deferred compensation

for restricted stock . . . . . . . . . . . . . . .

Comprehensive loss:

Net loss . . . . . . . . . . . . . . . . . . . . . .
Revaluation of ﬁnancial derivative

instruments(f) . . . . . . . . . . . . . . . . .
Currency translation adjustment . . . . .
Amortization under SFAS No. 158(g) . .
Total comprehensive loss . . . . . . . . . . . .
Balance, December 31, 2007 . . . . . . . . . . .

Additional
Paid-In-
Capital
(Capital
Deﬁciency)
$758.9

Common
Stock
$3.7

Treasury
Stock
$ —
(0.8)

Accumulated
Deﬁcit
$(1,658.2)

Accumulated
Other
Comprehensive
Loss(c)
$(124.3)

Total
Stockholders’
Deﬁciency
$(1,019.9)
(0.8)

0.1

5.8

764.8

106.8

7.1

0.2

6.0

(83.7)

6.7

2.4
(6.5)

(0.8)

(1,741.9)

(121.7)

(0.6)

(251.3)

884.9

(1.4)

884.9

(1.4)

(1,993.2)
(2.9)
26.8
(1,969.3)

(1.1)

97.9

(0.1)
1.5

5.2

(16.1)

(0.1)
3.2

19.0

(24.6)
(124.2)
10.3

(113.9)

(1.7)
(2.0)
28.9

3.7

0.4

4.1

1.0

0.1

$5.2

$989.4

$(2.5)

$(1,985.4)

$ (88.7)

0.1

5.8

(83.7)

6.7

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

107.2
(0.6)
7.1

0.2

6.0

(251.3)

(0.1)
3.2

19.0
(229.2)

(24.6)
(1,229.8)
7.4
26.8
(1,195.6)

98.9
(1.1)
—
1.5

5.2

(16.1)

(1.7)
(2.0)
28.9
9.1
$(1,082.0)

(a) Amount relates to 876,133; 193,351 and 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 during 2007,
2006 and 2005, respectively. (See Note 13, ‘‘Stockholders’ Equity — Treasury Stock’’).

(b) Amount relates to the 2006 adjustment for minimum pension liability in accordance with SFAS No. 87, ‘‘Employers’

Accounting for Pensions’’. (See Note 11, ‘‘Savings Plan, Pension and Post-retirement Beneﬁts’’).

F-6

(c)

In December 2006, the Company adopted SFAS No. 158, ‘‘Employers’ Accounting for Deﬁned Beneﬁt Pension and Other
Postretirement Plans’’ (‘‘SFAS No. 158’’). As a result, a net adjustment of $(24.6) million was recorded to the ending balance
of Accumulated Other Comprehensive Loss. The Company has adjusted the presentation of 2006 Total Comprehensive Loss
to separately report the $19.0 million adjustment for minimum pension liability and the $(24.6) million adjustment for the initial
adoption of SFAS No. 158. (See Note 11, ‘‘Savings Plan, Pension and Post-retirement Beneﬁts’’).

(d) Due to the Company’s early adoption of the provisions under SFAS No. 158, effective as of January 1, 2007 requiring a
measurement date for determining deﬁned beneﬁt plan assets and obligations using the Company’s ﬁscal year end of
December 31st, rather than using a September 30th measurement date, the Company recognized a net reduction to the
beginning balance of Accumulated Other Comprehensive Loss of $10.3 million, as set forth in the table above, which is
comprised of (1) a $9.4 million reduction to Accumulated Other Comprehensive Loss due to the revaluation of the pension
liability as a result of the change in the measurement date and (2) a $0.9 million reduction to Accumulated Other
Comprehensive Loss of amortization of prior service costs, actuarial gains/losses and return on assets over the period from
October 1, 2006 to December 31, 2006. In addition, the Company recognized a $2.9 million increase to the beginning balance
of Accumulated Deﬁcit, as set forth in the table above, which represents the total net periodic beneﬁt costs incurred from
October 1, 2006 to December 31, 2006. (See Note 11, ‘‘Savings Plan, Pension and Post-retirement Beneﬁts’’).

(e) Due to the Company’s adoption of FIN 48,

‘‘Accounting for Uncertainty in Income Taxes — an interpretation of
SFAS No. 109’’ effective for the ﬁscal year beginning January 1, 2007, the Company reduced its total tax reserves by
$26.8 million, which resulted in a corresponding reduction to the accumulated deﬁcit component of Accumulated Other
Comprehensive Loss, as set forth in the table above. (See Note 10, ‘‘Income Taxes’’).

(f) Due to the Company’s use of derivative ﬁnancial instruments, the net amount of hedge accounting derivative losses recognized
by the Company, as set forth in the table above, pertains to (1) the reversal of $0.4 million of net losses accumulated in
Accumulated Other Comprehensive Loss at January 1, 2007 upon the Company’s election during the ﬁscal quarter ended
March 31, 2007 to discontinue the application of hedge accounting under SFAS No. 133, ‘‘Accounting for Derivative
Instruments and Hedging Activities’’ for certain derivative ﬁnancial instruments, as the Company no longer designates its
foreign currency forward exchange contracts as hedging instruments; the reversal of a $0.4 million gain pertaining a net receipt
settlement in December 2007 under the terms of Products Corporation’s ﬂoating-to-ﬁxed interest rate swap transaction,
executed in September 2007, with a notional amount of $150 million relating to indebtedness under Products Corporation’s
2006 Term Loan Facility and (2) $1.7 million of net losses accumulated in Accumulated Other Comprehensive Loss pertaining
to the change in fair value of the above-mentioned ﬂoating-to ﬁxed interest rate swap. The Company has designated the
ﬂoating-to-ﬁxed interest rate swap as a hedging instrument and accordingly applies hedge accounting under SFAS No. 133 to
such swap transaction. (See Note 9, ‘‘Financial Instruments’’ to the Consolidated Financial Statements and the discussion of
Critical Accounting Policies in this Form 10-K).

(g) Amount represents a reduction in Accumulated Other Comprehensive Loss as a result of the amortization of unrecognized
prior service costs and actuarial gains/losses arising during 2007 related to the Company’s pension and other post-retirement
plans. (See Note 14, ‘‘Accumulated Other Comprehensive Loss’’).

See Accompanying Notes to Consolidated Financial Statements

F-7

REVLON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(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:

Decrease (increase) in trade receivables . . . . . . . . . . . . . . . . . .
Decrease (increase) in inventories . . . . . . . . . . . . . . . . . . . . . . .
Decrease in prepaid expenses and other current assets. . . . . .
(Decrease) increase in accounts payable . . . . . . . . . . . . . . . . . .
(Decrease) increase in accrued expenses and other current

liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase of permanent displays. . . . . . . . . . . . . . . . . . . . . . . . . .
Other, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by (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 certain assets. . . . . . . . . . . . . . . . . . . . . . .
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . .
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in short-term borrowings and overdraft . . . . . . . . . . .
(Repayment) borrowings under the 2006 Revolving Credit

Facility, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Borrowings under the 2004 Term Loan Facility . . . . . . . . . . . . . . . .
Borrowings under the 2006 Term Loan Facility . . . . . . . . . . . . . . . .
Proceeds from the issuance of long-term debt . . . . . . . . . . . . . . . . .
Repayment of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net Proceeds from the $110 Million Rights Offering . . . . . . . . . . .
Net Proceeds from the $100 Million Rights Offering . . . . . . . . . . .
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 increase (decrease) 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:

2007

December 31,
2006

2005

$ (16.1)

$(251.3)

$ (83.7)

100.1
0.6
6.7
0.1

10.8
22.1
7.8
(5.6)

(77.5)
(50.0)
4.8
3.8

(20.0)
—
—
—
2.4
(17.6)

122.8
0.6
13.1
23.5

77.9
36.5
0.2
(29.9)

(69.0)
(98.7)
35.6
(138.7)

(22.4)
—
—
—
—
(22.4)

(9.9)

(9.1)

(14.0)
—
—
0.7
(50.2)
—
98.9
—
(0.9)
24.6
0.6
11.4
35.4
$ 46.8

57.5
100.0
840.0
—
(917.8)
107.2
—
0.2
(14.8)
163.2
0.8
2.9
32.5
$ 35.4

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)

(8.8)

—

—
386.2
(297.9)
—
—
0.1
(12.0)
67.6
(0.4)
(88.3)
120.8
$ 32.5

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

$137.6
$ 14.6

$ 155.6
$ 12.5

$ 123.5
$ 17.9

Supplemental schedule of non-cash investing and ﬁnancing

activities:
Treasury stock received to satisfy minimum tax withholding

liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1.1

0.6

0.8

See Accompanying Notes to Consolidated Financial Statements

F-8

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 wholly-owned operating subsidiary, Revlon Consumer Products Corporation and its
subsidiaries (‘‘Products Corporation’’). The Company operates in a single segment and manufactures and
sells an extensive array of cosmetics, women’s hair color, beauty tools, fragrances, skincare, anti-perspirants/
deodorants and other personal care products. The Company’s principal customers include large mass
volume retailers and chain drug stores in the U.S., as well as certain department stores and other specialty
stores, such as perfumeries, outside the U.S. The Company also sells beauty products to U.S. military
exchanges and commissaries and has a licensing business, pursuant to which the Company licenses certain
of its key brand names to third parties for complementary 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 has, as
its only material asset, 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
2007, 2006 and 2005 included approximately $7.0 million, $6.6 million and $7.6 million, respectively, in
expenses incidental to being a public holding company.

Revlon, Inc. is a direct and indirect majority-owned subsidiary of MacAndrews & Forbes Holdings
Inc. (‘‘MacAndrews & Forbes Holdings’’ and, together with certain of its afﬁliates other than the
Company, ‘‘MacAndrews & Forbes’’), a corporation wholly-owned by Ronald O. Perelman.

The accompanying Consolidated Financial Statements 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, restructuring costs, certain estimates and assumptions used in the calculation
of the fair value of stock options issued to employees and non-employee directors and the derived
compensation expense and certain estimates regarding the calculation of the net periodic beneﬁt costs and
the projected beneﬁt obligation for the Company’s pension and other post-retirement plans.

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 $9.1 million and $5.1 million as of December 31, 2007 and 2006, respectively.
Accounts payable includes $7.4 million and $9.1 million of outstanding checks not yet presented for
payment at December 31, 2007 and 2006, 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, 2007 and

F-9

2006, the Company had nil and $2.7 million, respectively, of cash supporting such short-term borrowings.
(See Note 7, ‘‘Short-Term Borrowings’’).

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, 2007 and 2006, respectively. 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 December 31, 2007 and 2006,
the Company’s three largest customers accounted for an aggregate of approximately 34% and 32%,
respectively, 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. The Company records adjustments to the value of inventory based upon its
forecasted plans to sell its inventories, as well as planned product discontinuances. The physical condition
(e.g., age and quality) of the inventories is also considered in establishing the 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 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 $78.5 million
and $103.9 million as of December 31, 2007 and 2006, respectively, which are amortized over a period of
1 to 3 years in the U.S. and generally over 3 to 5 years outside of the U.S. In the event of product
discontinuances, from time to time the Company may accelerate the amortization of related permanent
wall displays based on the estimated remaining useful life of the asset. Amortization expense for
permanent wall displays for 2007, 2006 and 2005 was $74.0 million, $85.8 million and $70.4 million,
respectively. The Company has included, in other assets, net costs related to the issuance of Products
Corporation’s debt instruments amounting to approximately $19.1 million and $22.2 million as of
December 31, 2007 and 2006, respectively, which are amortized over the terms of the related debt
instruments. In addition, the Company has included, in other assets, trademarks, net, of $7.8 million and
$8.2 million as of December 31, 2007 and 2006, respectively, and patents, net, of $0.8 million and

F-10

$1.4 million as of December 31, 2007 and 2006, respectively. Patents and trademarks are recorded at cost
and amortized ratably over approximately 10 to 17 years. Amortization expense for patents and
trademarks for 2007, 2006 and 2005 was $1.9 million, $2.2 million and $2.0 million, respectively.

Intangible Assets Related to Businesses Acquired:

Intangible assets related to businesses acquired principally consist of 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 in accordance with SFAS No. 142.
The Company performs its annual impairment test of goodwill as of September 30 and performed the
annual test as of each of September 30, 2007 and 2006 and concluded that no impairment existed at either
date. 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 of goodwill as
measured by, among other factors, its market capitalization to its net assets and since the fair value of
goodwill was substantially greater than the Company’s net assets, the Company concluded that as of
December 31, 2007 there was no impairment of goodwill. The amount outstanding for goodwill, net, was
$186.2 million and $186.2 million at December 31, 2007 and 2006, respectively. Accumulated amortization
of goodwill aggregated $117.3 million and $117.3 million at December 31, 2007 and 2006, respectively.
Amortization of goodwill ceased as of January 1, 2002 upon the Company’s 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 FASB Statement No. 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 the historical rate of actual
product 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 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 expectations 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 pre-payments, 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

F-11

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 any 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
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’’ (‘‘SFAS No. 109’’).

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

Research and Development:

Research and development expenditures are expensed as incurred. The amounts charged against
earnings in 2007, 2006 and 2005 for research and development expenditures were $24.4 million,
$24.4 million and $26.1 million, respectively.

Foreign Currency Translation:

Assets and liabilities of foreign operations are translated into U.S. dollars at the rates of exchange in
effect at the balance sheet date. Income and expense items are 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. To the extent
that foreign subsidiaries and branches operate in hyperinﬂationary economies, non-monetary assets and
liabilities are translated at historical rates and translation adjustments are included in the results 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 under the Stock Plan (as hereinafter deﬁned)
using the treasury stock method. Options to purchase 21,680,968; 24,993,016 and 33,033,097 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 $4.19, $4.54 and $4.25, respectively, were outstanding at
December 31, 2007, 2006 and 2005, respectively. Additionally, 11,648,067; 8,120,643 and 3,810,002 shares

F-12

of unvested restricted stock were outstanding as of December 31, 2007, 2006 and 2005, respectively.
Because the Company incurred losses in 2007, 2006 and 2005, these options and restricted 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:

Prior to January 1, 2006, the Company applied the intrinsic value method as outlined in Accounting
Principles Board (‘‘APB’’) Opinion No. 25, ‘‘Accounting for Stock Issued to Employees’’ (‘‘APB No. 25’’)
and related interpretations in accounting for stock options granted. Under the intrinsic value method, no
compensation expense was recognized in ﬁscal periods ended prior to January 1, 2006 if the exercise price
of the Company’s employee stock options was greater than or equal to the market price of Revlon, Inc.’s
Class A Common Stock on the date of the grant. As all options granted under the Stock Plan (as
hereinafter deﬁned) had an exercise price equal to the market value of the underlying Class A Common
Stock on the date of grant, no compensation expense was recognized in the accompanying consolidated
statements of operations for the ﬁscal periods ended on or before December 31, 2005 in respect of stock
options granted to employees under the Stock Plan.

Effective as of January 1, 2006, the Company adopted Statement of Financial Accounting Standards
(‘‘SFAS’’) No. 123(R), ‘‘Share-Based Payment’’ (‘‘SFAS No. 123(R)’’). This statement replaces SFAS No.
123, ‘‘Accounting for Stock-Based Compensation’’ (‘‘SFAS No. 123’’) and supersedes APB No. 25. SFAS
No. 123(R) requires that effective for ﬁscal periods ending after December 31, 2005 all stock-based
compensation be recognized as an expense, net of the effect of expected forfeitures, in the ﬁnancial
statements and that such expense be measured at the fair value of the Company’s stock-based awards and
generally recognized over the grantee’s required service period. The Company uses the modiﬁed
prospective method of application, which requires recognition of compensation expense on a prospective
basis. Therefore,
the Company’s ﬁnancial statements for ﬁscal periods ended on or before
December 31, 2005 have not been restated to reﬂect compensation expense in respect of awards of stock
options under the Stock Plan. Under this method, in addition to reﬂecting compensation expense for new
share-based awards granted on or after January 1, 2006, expense is also recognized to reﬂect the
remaining service period (generally, the vesting period of the award) of awards that had been included in
the Company’s pro forma disclosures in ﬁscal periods ended on or before December 31, 2005. For stock
option awards, the Company has continued to recognize stock option compensation expense using the
accelerated attribution method under FASB Financial Interpretation Number (‘‘FIN’’) 28, ‘‘Accounting
for Stock Appreciation Rights and Other Variable Stock Option or Award Plans’’. For stock option
awards granted after January 1, 2006, the Company recognizes stock option compensation expense based
on the estimated grant date fair value using the Black-Scholes option valuation model using a straight-line
amortization method. SFAS No. 123(R) also requires that excess tax beneﬁts related to stock option
exercises be reﬂected as ﬁnancing cash inﬂows instead of operating cash inﬂows. For the year ended
December 31, 2007, no adjustments have been made to the cash ﬂow statement, as any excess tax beneﬁts
that would have been realized have been fully provided for, given the Company’s historical losses and
deferred tax valuation allowance.

Derivative Financial Instruments:

The Company uses derivative ﬁnancial instruments, primarily foreign currency forward exchange
contracts, to reduce the effects of ﬂuctuations in foreign currency exchange rates and interest rate swap
transactions to offset the effects of ﬂoating interest rates. The foreign currency forward exchange
contracts are entered into primarily to hedge anticipated inventory purchases and certain intercompany
payments denomiated in foreign currencies and have maturities of less than one year. In September 2007,
Products Corporation executed a ﬂoating-to-ﬁxed interest rate swap transaction to hedge against
ﬂuctuations in variable interest rate payments on $150 million notional amount in Products Corporation’s
long-term debt under its 2006 Term Loan Facility (as hereinafter deﬁned).

F-13

Foreign Currency Forward Exchange Contracts

While the Company continues to utilize derivative ﬁnancial instruments, in the case of foreign
currency forward exchange contracts, to reduce the effects of ﬂuctuations in foreign currency exchange
rates in connection with its inventory purchases and intercompany payments, during the ﬁscal quarter
ended March 31, 2007 the Company elected to discontinue the application of hedge accounting under
Statement of Financial Accounting Standards (‘‘SFAS’’) No. 133, ‘‘Accounting for Derivative Instruments
and Hedging Activities’’ (‘‘SFAS No. 133’’) effective as of January 1, 2007, in respect of such foreign
currency contracts. Accordingly, effective as of January 1, 2007, the Company no longer designates its
foreign currency forward exchange contracts as hedging instruments. By removing such designation, any
changes in the fair value of Products Corporation’s foreign currency forward exchange contracts
subsequent to the Company’s discontinuance of hedge accounting are recognized in earnings. Also, upon
the removal of the hedging designation, any unrecognized gains (losses) accumulated in Accumulated
Other Comprehensive Loss related to the Company’s prior application of hedge accounting in respect of
such foreign currency contracts was ﬁxed and was recognized in earnings as the underlying transactions
pertaining to the derivative instrument occur. If the underlying transaction is not forecasted to occur, the
related gain (loss) accumulated in Accumulated Other Comprehensive Loss is recognized in earnings
immediately.

The original U.S. dollar notional amount of the foreign currency forward exchange contracts
outstanding at December 31, 2007 and 2006 was $23.6 million and $42.5 million, respectively. At
December 31, 2007, the change in the fair value of Products Corporation’s unexpired foreign forward
exchange contracts subsequent to the Company’s discontinuance of hedge accounting effective as of
January 1, 2007 was $0.1 million, which was recognized in earnings. During 2007, net losses of $2.2 million
from expired derivative instruments were recognized into earnings and net derivative losses of $0.4 were
reclassiﬁed from Accumulated Other Comprehensive Loss into earnings as a result of discontinuing the
application of hedge accounting.

During 2006 and 2005, net derivative losses of $0.3 million and $2.2 million, respectively, were
reclassiﬁed to the Statement of Operations. The fair value of the foreign currency foreign exchange
contracts outstanding at December 31, 2007 and 2006 was $(0.3) million and $(0.4) million, respectively
and is recorded in ‘‘Prepaid expenses and other’’ in the amount of $0.1 million and $0.6 million,
respectively, and in ‘‘Accrued expenses and other’’ in the amount of $0.4 and $1.0 million, respectively in
the accompanying Consolidated Balance Sheets. The amount of unrecognized losses accumulated in other
comprehensive loss was nil and $0.4 at December 31, 2007 and 2006, respectively.

Interest Rate Swap Transaction

In September 2007, Products Corporation executed a ﬂoating-to-ﬁxed interest rate swap transaction
with a notional amount of $150.0 million over a period of two years relating to indebtedness under
Products Corporation’s 2006 Term Loan Facility. The Company designated this interest rate swap
transaction as a cash ﬂow hedge of the variable interest rate payments on $150.0 million notional amount
of indebtedness under Products Corporation’s 2006 Term Loan Facility. Under the terms of the interest
rate swap transaction, Products Corporation is required to pay to the counterparty a quarterly ﬁxed
interest rate of 4.692% on the $150.0 million notional amount commencing in December 2007, while
receiving a variable interest rate payment from the counterparty equal to three-month U.S. dollar
LIBOR. While the Company is exposed to credit loss in the event of the counterparty’s non-performance,
if any, the Company’s exposure is limited to the net amount that Products Corporation would have
received from the counterparty over the remaining balance of the transaction’s two-year term. Given that
the counterparty to the interest rate swap transaction is a major ﬁnancial institution, the Company does
not anticipate any non-performance and, furthermore, even in the case of any non-performance by the
counterparty, the Company expects that any such loss would not be material.

Products Corporation’s interest rate swap transaction qualiﬁes for hedge accounting treatment under
SFAS No. 133 and has been designated as a cash ﬂow hedge. Accordingly, the effective portion of the
changes in fair value of the interest rate swap transaction is reported within the equity component of other
comprehensive loss. The ineffective portion of the changes in the fair value of the interest rate swap

F-14

transaction, if any, is recognized in interest expense. Any unrecognized income (loss) accumulated in
other comprehensive loss related to this interest rate swap transaction is recorded in the Statement of
Operations, primarily in interest expense, when the underlying transactions hedged are realized.

At December 31, 2007, the fair value of Products Corporation’s interest rate swap transaction was
$(2.2) million and the accumulated losses recorded in other comprehensive loss were $2.1 million. During
2007, a derivative gain of $0.4 million related to this interest rate swap transaction was reclassiﬁed from
other comprehensive loss into the Statement of Operations in interest expense. The amount of the hedges
ineffectiveness in 2007, which was recorded in interest expense, was $(0.1) million.

Advertising and Promotion:

The costs of promotional displays are expensed in the period in which they are shipped to customers.
Television, print and other advertising production costs are expensed the ﬁrst time the advertising takes
place. Advertising and promotion expenses were $252.9 million, $269.0 million and $230.5 million for
2007, 2006 and 2005, 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, if any,
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 product distribution are expensed within
SG&A when incurred. Distribution costs were $68.5 million, $67.6 million and $68.3 million for 2007, 2006
and 2005, respectively.

Recent Accounting Pronouncements:

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

a. Recognize the funded status of a beneﬁt plan — measured as the difference between plan assets
at fair value (with limited exceptions) and the beneﬁt obligation — in its statement of ﬁnancial
position. For a pension plan, the beneﬁt obligation is the projected beneﬁt obligation; for any
other post-retirement beneﬁt plan, such as a retiree health care plan, the beneﬁt obligation is the
accumulated post-retirement beneﬁt obligation;

F-15

b. Recognize as a component of other comprehensive income (loss), net of tax, the gains or losses
recognized and prior service costs or credits that arise during the year but are not recognized in
net income (loss) as components of net periodic beneﬁt cost pursuant to FASB Statement No. 87,
‘‘Employers’ Accounting for Pensions’’, or No. 106, ‘‘Employers’ Accounting for Postretirement
Beneﬁts Other Than Pensions’’. Amounts recognized in accumulated other comprehensive
income, including the gains or losses, prior service costs or credits, and the transition assets or
obligations remaining from the initial application of Statements Nos. 87 and 106, are adjusted as
they are subsequently recognized as components of net periodic beneﬁt cost pursuant to the
recognition and amortization provisions of Statements Nos. 87 and 106; and

c. Disclose in the notes to ﬁnancial statements additional information about certain effects on net
periodic beneﬁt cost for the next ﬁscal year that arise from delayed recognition of the gains or
losses, prior service costs or credits, and transition assets or obligations.

2. RESTRUCTURING COSTS AND OTHER, NET

During 2007, the Company recorded total restructuring charges of approximately $7.3 million, of
which $4.4 million was associated with the restructurings announced in 2006 (the ‘‘2006 Programs’’),
primarily for employee severance and other employee-related termination costs, as to which approximately
300 employees had been terminated as of December 31, 2007. In addition, approximately $2.9 million was
associated with restructuring programs implemented in 2007, primarily for employee severance and other
employee-related termination costs relating principally to the closure of the Company’s facility in
Irvington, New Jersey and other employee-related termination costs relating to personnel reductions in
the Company’s Information Management function and its sales force in Canada (the ‘‘2007 Programs’’),
as to which approximately 140 employees had been terminated as of December 31, 2007. During 2006 and
2005, the Company recorded net charges of $27.4 million and $1.5 million, respectively, primarily for
employee severance and other related personnel beneﬁts.

The 2006 Programs were designed to reduce ongoing costs and improve the Company’s operating
proﬁt margins, and to streamline internal processes to enable the Company to continue to be more
effective and efﬁcient in meeting the needs of its consumers and retail customers. The 2006 Programs
consisted largely of a broad organizational streamlining that involved consolidating responsibilities in
certain related functions and reducing layers of management to increase accountability and effectiveness;
streamlining support functions to reﬂect the new organization structure; eliminating certain senior
executive positions; and consolidating various facilities, as well as the consolidation of certain functions
within the Company’s sales, marketing and creative groups, and certain headquarters functions.

F-16

Details of the activity described above during 2007, 2006 and 2005 are as follows:

Balance
Beginning of
Year

Expenses,
Net

Cash

Noncash

Balance
End of Year

Utilized, Net

2007

Employee severance and other personnel

beneﬁts:
2003 programs . . . . . . . . . . . . . . . . . . . . . . . . .
2004 programs . . . . . . . . . . . . . . . . . . . . . . . . .
2006 Programs. . . . . . . . . . . . . . . . . . . . . . . . .
Other 2006 programs(a) . . . . . . . . . . . . . . . . .
2007 Programs. . . . . . . . . . . . . . . . . . . . . . . . .

Leases and equipment write-offs . . . . . . . . . . .

2006

Employee severance and other personnel

beneﬁts:
2003 programs . . . . . . . . . . . . . . . . . . . . . . . . . .
2004 programs . . . . . . . . . . . . . . . . . . . . . . . . . .
2006 Programs . . . . . . . . . . . . . . . . . . . . . . . . . .
Other 2006 programs(a) . . . . . . . . . . . . . . . . . .

Leases and equipment write-offs . . . . . . . . . . . .

2005

Employee severance and other personnel

beneﬁts:
2003 programs . . . . . . . . . . . . . . . . . . . . . . . . . .
2004 programs . . . . . . . . . . . . . . . . . . . . . . . . . .

Leases and equipment write-offs . . . . . . . . . . . .

$ 0.1
0.1
17.2
0.1
—

17.5
0.4

$17.9

$1.2
2.4
—

—

3.6
0.6

$4.2

$ —
—
4.4
—
2.9

7.3
—

$7.3

$ (0.1)
(0.1)
(16.2)
(0.1)
(2.3)

(18.8)
—

$ —
—
(1.3)
—
—

(1.3)
(0.2)

$(18.8)

$(1.5)

$ —
—
4.1
—
0.6

4.7
0.2

$4.9

$ (0.3)
—
27.6

0.3

27.6
(0.2)

$ (0.8)
(2.3)
(10.4)

(0.2)

(13.7)
0.2

$ —
—
—

—

—
(0.2)

$ 0.1
0.1
17.2

0.1

17.5
0.4

$27.4

$(13.5)

$(0.2)

$17.9

$ 3.1
5.1
8.2

2.9

$11.1

$ —
1.5
1.5

—

$1.5

$(1.7)
(3.9)
(5.6)

(2.0)

$(7.6)

$(0.2)
(0.3)
(0.5)

(0.3)

$(0.8)

$1.2
2.4
3.6

0.6

$4.2

(a) Other 2006 programs refer to various immaterial international restructurings in respect of Chile, Brazil and Israel.

As of December 31, 2007, 2006 and 2005, the unpaid balance of the restructuring costs and other, net
for reserves is included in ‘‘Accrued expenses and other’’ and ‘‘Other long-term liabilities’’ in the
Company’s Consolidated Balance Sheets. The remaining balance at December 31, 2007 for employee
severance and other personnel beneﬁts is $4.7 million, of which $4.5 million is expected to be paid by the
end of 2008 and the remaining obligations of $0.2 million are expected to be paid by the end of 2009.

F-17

INVENTORIES

Raw materials and supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Work-in-process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4. PREPAID EXPENSES AND OTHER

Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5. 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,

2007

$ 59.1
17.4
92.6

$169.1

2006

$ 50.5
15.9
120.1

$186.5

December 31,

2007

$30.2
22.4

$52.6

2006

$38.6
19.7

$58.3

December 31,

2007

2.0
59.0
134.5
91.6
12.1
13.5

312.7
(199.0)

2006

2.3
59.5
133.3
115.9
17.3
15.9

344.2
(228.9)

$ 113.7

$ 115.3

Depreciation expense for the years ended December 31, 2007, 2006 and 2005 was $20.1 million,

$26.5 million and $22.7 million, respectively.

6. ACCRUED EXPENSES AND OTHER

Sales returns and allowances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Advertising and promotional costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Compensation and related beneﬁts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Taxes, other than federal income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

December 31,

2007

$100.8
39.7
42.0
18.9
15.9
4.6
28.5

$250.4

2006

$124.9
43.0
28.5
21.0
13.7
14.7
26.7

$272.5

7. SHORT-TERM BORROWINGS

Products Corporation had outstanding short-term bank borrowings (excluding borrowings under the
2006 Credit Agreements, which are reﬂected in Note 8, ‘‘Long-Term Debt’’), aggregating $2.1 million and
$9.6 million at December 31, 2007 and 2006, respectively. The weighted average interest rate on

F-18

short-term borrowings outstanding at December 31, 2007 and 2006 was 7.6% and 11.5%, respectively.
Under certain of these short-term borrowing arrangements, the Company is 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, 2007, the Company had no such borrowing
arrangements against its cash balances. As of December 31, 2006, the Company had $2.7 million of cash
supporting such short-term borrowings and the interest rate on these cash balances was 1.2%.

8. LONG-TERM DEBT

2006 Term Loan Facility due 2012 (See (a) below) . . . . . . . . . . . . . . . .
2006 Revolving Credit Facility due 2012 (See (a) below) . . . . . . . . . . .
91⁄2% Senior Notes due 2011, net of discounts (See (b) below) . . . . . .
85⁄8% Senior Subordinated Notes due 2008 (See (c) below)(1). . . . . . . .
2004 Consolidated MacAndrews & Forbes Line of Credit

(See (d) below) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Less current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

December 31,

2007

$ 840.0
43.5
387.5
167.4

—
0.5

1,438.9
(6.5)

$1,432.4

2006

$ 840.0
57.5
386.9
217.4

—
—

1,501.8
—

$1,501.8

(1)

In January 2008, Products Corporation entered into its previously-announced $170 million Senior Subordinated Term Loan
Agreement with MacAndrews & Forbes (the ‘‘MacAndrews & Forbes Senior Subordinated Term Loan Agreement’’) and on
February 1, 2008, Products Corporation used the proceeds of such loan to repay in full the approximately $167.4 million
remaining aggregate principal amount of Products Corporation’s 85⁄8% Senior Subordinated Notes due February 1, 2008 (the
‘‘85⁄8% Senior Subordinated Notes’’), which matured on February 1, 2008, and to pay certain related fees and expenses,
including the payment to MacAndrews & Forbes of a facility fee of $2.55 million (or 1.5% of the total aggregate principal
amount of such loan) upon MacAndrews & Forbes’ funding of such loan. In connection with such repayment, Products
Corporation also paid from cash on hand approximately $7.2 million of accrued and unpaid interest due on the 85⁄8% Senior
Subordinated Notes up to, but not including, the February 1, 2008 maturity date. In accordance with SFAS No. 6,
‘‘Classiﬁcation of Short-Term Obligations Expected to be Reﬁnanced,’’ the approximately $167.4 million remaining aggregate
principal amount of Products Corporation’s 85⁄8% Senior Subordinated Notes has been classiﬁed as long-term due to the
MacAndrews & Forbes Senior Subordinated Term Loan. (See Note 19, ‘‘Subsequent Events’’ describing the full repayment
of the balance of the 85⁄8% Senior Subordinated Notes on their February 1, 2008 maturity date).

2007 Transactions

The Company completed several signiﬁcant ﬁnancing transactions during 2007.

$100 Million Rights Offering-2007

In January 2007, Revlon, Inc. completed a $100 million rights offering of Class A Common Stock
(including the related private placement to MacAndrews & Forbes, together the ‘‘$100 Million Rights
Offering’’), which it launched in December 2006. The $100 Million Rights Offering allowed each
stockholder of record of Revlon, Inc.’s Class A and Class B Common Stock, as of the close of business
on December 11, 2006, the record date set by Revlon, Inc.’s Board of Directors, to purchase additional
shares of Class A Common Stock. The subscription price for each share of Class A Common Stock
purchased in the $100 Million Rights Offering, including shares purchased in the private placement by
MacAndrews & Forbes, was $1.05 per share. Upon completing the $100 Million Rights Offering, Revlon,
Inc. promptly transferred the proceeds to Products Corporation, which it used to redeem $50.0 million in
aggregate principal amount of its 85⁄8% Senior Subordinated Notes, and repay approximately $43.3 million
of indebtedness outstanding under Products Corporation’s 2006 Revolving Credit Facility (as hereinafter
deﬁned), without any permanent reduction of that commitment, after incurring approximately $1.1 million
of fees and expenses incurred in connection with such rights offering, with approximately $5 million of the
remaining proceeds being available for general corporate purposes. Following such partial redemption of
the 85⁄8% Senior Subordinated Notes, there remained outstanding $167.4 million in aggregate principal
amount of such notes. (See Note 19, ‘‘Subsequent Events’’ describing the full repayment of the balance
of the 85⁄8% Senior Subordinated Notes on their February 1, 2008 maturity date).

F-19

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

2006 Transactions

Credit Agreement Reﬁnancing — December 2006

In December 2006, Products Corporation completed a reﬁnancing of its 2004 Credit Agreement (as
hereinafter deﬁned) by entering into the 5-year $840.0 million 2006 Term Loan Facility (as hereinafter
deﬁned), and entering into the 2006 Revolving Credit Facility, amending and restating its existing
$160.0 million multi-currency revolving credit facility under the 2004 Credit Agreement and extending its
maturity through the same 5-year period maturing on January 15, 2012.

$110 Million Rights Offering — March 2006

In March 2006, Revlon, Inc. completed the $110 Million Rights Offering (as hereinafter deﬁned),
which allowed stockholders of record to purchase additional shares of Class A Common Stock. The
subscription price for each share of Class A Common Stock purchased in the $110 Million Rights
Offering, including shares purchased in the private placement by MacAndrews & Forbes, was $2.80 per
share. Upon completing the $110 Million Rights Offering, Revlon, Inc. promptly transferred the net
proceeds to Products Corporation, which it used to redeem approximately $109.7 million aggregate
principal amount of its 85⁄8% Senior Subordinated Notes in satisfaction of the applicable requirements
under the 2004 Credit Agreement, at an aggregate redemption price of $111.8 million,
including
$2.1 million of accrued and unpaid interest up to, but not including, the redemption date. (See Note 19,
‘‘Subsequent Events’’ describing the full repayment of the balance of the 85⁄8% Senior Subordinated Notes
on their February 1, 2008 maturity date).

2005 Transactions

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, plus $1.9 million of accrued interest, of its 81⁄8% Senior Notes due
2006 (the ‘‘81⁄8% Senior Notes’’) and all $75.5 million aggregate principal amount outstanding, plus
$3.1 million of accrued interest and the applicable premium of $1.1 million, of its 9% Senior Notes due
2006 (the ‘‘9% Senior Notes’’) and prepaid $100.0 million of the 2004 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 its Additional 91⁄2% Senior
Notes (as hereinafter deﬁned), which priced at 951⁄4% of par, and used the proceeds to fund general
corporate purposes, principally to fund certain brand initiatives, namely the complete re-stage of the
Almay brand and the Vital Radiance brand before Vital Radiance’s discontinuance in September 2006.

(a) Credit Agreements:

Complete Reﬁnancing of the 2004 Credit Agreement in December 2006

In July 2004, Products Corporation entered into a credit agreement (the ‘‘2004 Credit Agreement’’)
with certain of its subsidiaries as local borrowing subsidiaries, a syndicate of lenders, Citicorp USA, Inc.,
as multi-currency administrative agent, term loan administrative agent and collateral agent, UBS Securities
LLC as syndication agent and Citigroup Global Markets Inc., as sole lead arranger and sole bookrunner.

F-20

The 2004 Credit Agreement originally provided up to $960.0 million and consisted of a term loan
facility of $800.0 million (the ‘‘2004 Term Loan Facility’’) and a $160.0 million multi-currency revolving
credit facility, the availability under which varied based upon the borrowing base that was determined
based upon the value 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. from time to time (the ‘‘2004 Multi-Currency Facility’’).
In March 2005, Products Corporation pre-paid $100.0 million of the 2004 Term Loan Facility, and in
July 2006, the 2004 Term Loan Facility was increased back to $800.0 million as a result of the
$100.0 million Term Loan Add-on (as hereinafter deﬁned).

On December 20, 2006, Products Corporation replaced the $800 million 2004 Term Loan Facility
under its 2004 Credit Agreement with a 5-year, $840 million term loan facility (the ‘‘2006 Term Loan
Facility’’) by entering into a term loan agreement (the ‘‘2006 Term Loan Agreement’’), dated as of
December 20, 2006, among Products Corporation, as borrower, the lenders party thereto, Citicorp USA,
Inc., as administrative agent and collateral agent, Citigroup Global Markets Inc., as sole lead arranger and
sole bookrunner, and JPMorgan Chase Bank, N.A., as syndication agent. As part of this bank reﬁnancing,
Products Corporation also amended and restated the 2004 Multi-Currency Facility (the ‘‘2006 Revolving
Credit Facility’’ and together with the 2006 Term Loan Facility the ‘‘2006 Credit Facilities’’) by entering
into a $160.0 million asset-based, multi-currency revolving credit agreement that amended and restated
the 2004 Credit Agreement (the ‘‘2006 Revolving Credit Agreement’’ and together with the 2006 Term
Loan Agreement, the ‘‘2006 Credit Agreements’’).

Among other things, the 2006 Credit Facilities extended the maturity dates for Products Corporation’s
bank credit facilities from July 9, 2009 to January 15, 2012 in the case of the 2006 Revolving Credit Facility
and from July 9, 2010 to January 15, 2012 in the case of the 2006 Term Loan Facility.

In each case subject to borrowing base availability, the 2006 Revolving Credit Facility is available to:

(i)

(ii)

(iii)

(iv)

Products Corporation in revolving credit loans denominated in U.S. dollars;

Products Corporation in swing line loans denominated in U.S. dollars up to $30 million;

Products Corporation in standby and commercial letters of credit denominated in U.S. dollars
and other currencies up to $60 million; and

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.

If the value of the eligible assets is not sufﬁcient to support a $160 million borrowing base under the
2006 Revolving Credit Facility, Products Corporation will not have full access to the 2006 Revolving
Credit Facility. Products Corporation’s ability to make borrowings under the 2006 Revolving Credit
Facility is also conditioned upon the satisfaction of certain conditions precedent and Products Corporation’s
compliance with other covenants in the 2006 Revolving Credit Facility, including a ﬁxed charge coverage
ratio that applies if and when the ‘‘excess borrowing base’’ (representing the difference between (1) the
borrowing base under the 2006 Revolving Credit Facility and (2) the amounts outstanding under such
facility) is less than $20.0 million.

F-21

Products Corporation pays to the lenders under the 2006 Revolving Credit Facility a commitment fee
of 0.30% (reduced from 0.50% applicable under the previous 2004 Credit Agreement) of the average daily
unused portion of the 2006 Revolving Credit Facility, which fee is payable quarterly in arrears. Under the
2006 Revolving Credit Facility, Products Corporation pays:

(i)

(ii)

(iii)

to foreign lenders a fronting fee of 0.25% per annum on the aggregate principal amount of
speciﬁed Local Loans (which fee is retained by foreign lenders out of the portion of the
Applicable Margin payable to such foreign lender);

to foreign lenders an administrative fee of 0.25% per annum on the aggregate principal
amount of speciﬁed Local Loans;

to the multi-currency lenders a letter of credit commission equal to the product of (a) the
Applicable Margin for revolving credit loans that are Eurodollar Rate loans (adjusted for the
term that the letter of credit is outstanding) and (b) the aggregate undrawn face amount of
letters of credit; and

(iv)

to the issuing lender, a letter of credit fronting fee of 0.25% per annum of the aggregate
undrawn face amount of letters of credit, which fee is a portion of the Applicable Margin.

The 2006 Term Loan Facility consists of a $840 million term loan, which was drawn in full on the
December 20, 2006 closing date and used to repay in full the approximately $798 million of outstanding
term loans under the 2004 Credit Agreement (plus accrued interest of approximately $15.3 million and a
pre-payment fee of approximately $8.0 million), and the remainder was used to repay approximately
$13.3 million of indebtedness outstanding under the 2006 Revolving Credit Facility, after paying fees and
expenses related to the credit agreement reﬁnancing.

Under the 2006 Term Loan Facility, Eurodollar Loans bear interest at the Eurodollar Rate plus
4.00% per annum and Alternate Base Rate loans bear interest at the Alternate Base Rate plus 3.00% per
annum (reducing the applicable margins from 6.00% and 5.00% per annum, respectively, that were
applicable under the previous 2004 Credit Agreement). At December 31, 2007, the effective weighted
average interest rate for borrowings under the 2006 Term Loan Facility was 9.2%.

Prior to the termination date of the 2006 Term Loan Facility, on April 15, July 15, October 15 and
January 15 of each year (commencing April 15, 2008), Products Corporation is required to repay
$2.1 million of the principal amount of the term loans outstanding under the 2006 Term Loan Facility on
each respective date. In addition, the term loans under the 2006 Term Loan Facility are required to be
prepaid with:

(i)

the net proceeds in excess of $10.0 million for each twelve-month period ending on each
July 9 (or $25.0 million for the twelve-month period ending on July 9, 2007) received during
such period from sales of Term Loan First Lien Collateral (as deﬁned below) by Products
Corporation or any of its subsidiary guarantors (subject to carryover of unused annual basket
amounts up to a maximum of $25.0 million and subject to certain speciﬁed dispositions up to
an additional $25.0 million in the aggregate);

(ii)

the net proceeds from the issuance by Products Corporation or any of its subsidiaries of
certain additional debt; and

(iii)

50% of Products Corporation’s Excess Cash Flow.

Under the 2006 Term Loan Facility, certain pre-payments require the payment of fees of 2% if such
pre-payment is on or prior December 20, 2008 and 1% if on or prior to December 20, 2009, in each case
of the amount prepaid.

Under certain circumstances, Products Corporation will have the right to request the 2006 Revolving
Credit Facility to be increased by up to $50.0 million and the 2006 Term Loan Facility to be increased by
up to $200.0 million, provided that the lenders are not committed to provide any such increase.

F-22

of Products Corporation under the 2006 Credit Facilities and the obligations under the guarantees are
secured by, subject to certain limited exceptions, substantially all of the assets of Products Corporation
and the subsidiary guarantors, including:

(i)

(ii)

(iii)

(iv)

mortgages on owned real property, including Products Corporation’s facility in Oxford, North
Carolina and property in Irvington, New Jersey;

the capital stock of Products Corporation and the subsidiary guarantors and 66% of the capital
stock of Products Corporation’s and the subsidiary guarantors’ ﬁrst-tier foreign subsidiaries;

intellectual property and other intangible property of Products Corporation and the subsidiary
guarantors; and

inventory, accounts receivable, equipment, investment property and deposit accounts of
Products Corporation and the subsidiary guarantors.

The liens on, among other things, inventory, accounts receivable, deposit accounts, investment
property (other than the capital stock of Products Corporation and its subsidiaries), real property,
equipment, ﬁxtures and certain intangible property related thereto secure the 2006 Revolving Credit
Facility on a ﬁrst priority basis and the 2006 Term Loan Facility on a second priority basis. The liens on
the capital stock of Products Corporation and its subsidiaries and intellectual property and certain other
intangible property (the ‘‘Term Loan First Lien Collateral’’) secure the 2006 Term Loan Facility on a ﬁrst
priority basis and the 2006 Revolving Credit Facility on a second priority basis. Such arrangements are set
forth in the Amended and Restated Intercreditor and Collateral Agency Agreement, dated as of
December 20, 2006, by and among Products Corporation and the lenders (the ‘‘2006 Intercreditor
Agreement’’). The 2006 Intercreditor Agreement also provides that the liens referred to above may be
shared from time to time, subject to certain limitations, with speciﬁed types of other obligations incurred
or guaranteed by Products Corporation, such as foreign exchange and interest rate hedging obligations
(including the ﬁxed to ﬂoating interest rate swap transaction that Products Corporation entered into in
September 2007) and foreign working capital lines.

Each of the 2006 Credit Facilities contains various restrictive covenants prohibiting Products

Corporation and its subsidiaries from:

(i)

incurring additional indebtedness or guarantees, with certain exceptions;

(ii) making dividend and other payments or loans to Revlon, Inc. or other afﬁliates, with certain

exceptions, including among others,

(a) exceptions permitting Products Corporation to pay dividends or make other payments to
Revlon, Inc. to enable it to, among other things, pay expenses incidental to being a public
holding company, including, among other things, professional fees such as legal, accounting
and insurance fees, regulatory fees, such as SEC ﬁling fees, and other expenses related to
being a public holding company,

(b) subject to 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 Stock Plan and/or the payment of withholding taxes in connection
with the vesting of restricted stock awards under such plan, and

(c)

subject to certain limitations, to pay dividends or make other payments to ﬁnance the
purchase, redemption or other retirement for value by Revlon, Inc. of stock or other
equity interests or equivalents in Revlon, Inc. held by any current or former director,
employee or consultant in his or her capacity as such;

with certain exceptions, engaging in merger or acquisition transactions;

prepaying indebtedness and modifying the terms of certain indebtedness and speciﬁed
material contractual obligations, subject to certain exceptions;

(iii)

(iv)

(v)

F-23

(vi) making investments, subject to certain exceptions; and

(vii)

entering into transactions with afﬁliates of Products Corporation other than upon terms no
less favorable to Products Corporation or its subsidiaries than it would obtain in an arms’
length transaction.

The events of default under each 2006 Credit Facility include customary events of default for such

types of agreements, including:

(i)

(ii)

(iii)

(iv)

(v)

(vi)

(vii)

nonpayment of any principal, interest or other fees when due, subject in the case of interest
and fees to a grace period;

non-compliance with the covenants in such 2006 Credit Facility or the ancillary security
documents, subject in certain instances to grace periods;

default by Revlon, Inc. or any of its subsidiaries (A) in the payment of certain indebtedness
when due (whether at maturity or by acceleration) in excess of $5.0 million in aggregate
principal amount or (B) in the observance or performance of any other agreement or
condition relating to such debt, provided that the amount of debt involved is in excess of
$5.0 million in aggregate principal amount, or the occurrence of any other event, the effect of
which default referred to in this subclause (iv) is to cause or permit the holders of such debt
to cause the acceleration of payment of such debt;

the failure by Products Corporation, certain of Products Corporation’s subsidiaries or Revlon,
Inc. to pay certain material judgments;

a change of control such that (A) Revlon, Inc. shall cease to be the beneﬁcial and record
owner of 100% of Products Corporation’s capital stock, (B) Ronald O. Perelman (or his estate,
heirs, executors, administrator or other personal representative) and his or their controlled
afﬁliates shall cease to ‘‘control’’ Products Corporation, and any other person or group or
persons owns, directly or indirectly, more than 35% of the total voting power of Products
Corporation, (C) any person or group of persons other than Ronald O. Perelman (or his
estate, heirs, executors, administrator or other personal representative) and his or their
controlled afﬁliates shall ‘‘control’’ Products Corporation or (D) during any period of two
consecutive years, the directors serving on Products Corporation’s Board of Directors at the
beginning of such period (or other directors nominated by at least 662⁄3% of such continuing
directors) shall cease to be a majority of the directors;

F-24

(viii)

the failure by Revlon, Inc. to contribute to Products Corporation all of the net proceeds it
receives from any other sale of its equity securities or Products Corporation’s capital stock,
subject to certain limited exceptions;

(ix)

(x)

(xi)

the conduct by Revlon, Inc., of any meaningful business activities other than those that are
customary for a publicly traded holding company which is not itself an operating company,
including the ownership of meaningful assets (other than Products Corporation’s capital stock)
or the incurrence of debt, in each case subject to limited exceptions;

any M&F Lenders’ failure to fund any binding commitments by such M&F Lender under any
agreement governing certain loans from the M&F Lenders (excluding the MacAndrews &
Forbes Senior Subordinated Term Loan which was fully funded by MacAndrews & Forbes in
February 2008); and

(xii)

the failure of certain of Products Corporation’s afﬁliates which hold Products Corporation’s or
its subsidiaries’ indebtedness to be party to a valid and enforceable agreement prohibiting
such afﬁliate from demanding or retaining payments in respect of such indebtedness.

Products Corporation was in compliance with all applicable covenants under the 2006 Credit
Agreements as of December 31, 2007. At December 31, 2007, the 2006 Term Loan Facility was fully
drawn and availability under the $160.0 million 2006 Revolving Credit Facility, based upon the calculated
borrowing base less approximately $14.6 million of outstanding letters of credit and approximately
$43.5 million then drawn on the 2006 Revolving Credit Facility, was approximately $101.1 million.

Other Transactions under the 2004 Credit Agreement Prior to Its Complete Reﬁnancing in December
2006

In March 2005, the 2004 Term Loan Facility was reduced to $700.0 million following Products
Corporation’s March 2005 pre-payment of $100.0 million with a portion of the proceeds from its issuance
of the 91⁄2% Senior Notes and in July 2006, the Term Loan Facility was increased back to $800.0 million
as a result of the $100.0 million Term Loan Add-on.

In February 2006, Products Corporation secured an amendment to the 2004 Credit Agreement (the
‘‘ﬁrst amendment’’), which excluded from various ﬁnancial covenants certain charges in connection with
the 2006 Programs described in Note 2 above, as well as some start-up costs incurred by the Company in
2005 related to the Vital Radiance brand before its discontinuance in September 2006 and the complete
re-stage of the Almay brand. Speciﬁcally, the ﬁrst amendment provided for the add-back to the 2004
Credit Agreement’s deﬁnition of ‘‘EBITDA’’ the lesser of (i) $50 million; or (ii) the cumulative one-time
charges associated with (a) certain aspects of the 2006 Programs described in Note 2 and (b) the
non-recurring costs in the third and fourth quarters of 2005 associated with the Vital Radiance brand
before its discontinuance in September 2006 and the complete re-stage of the Almay brand. Under the
2004 Credit Agreement, ‘‘EBITDA’’ was used in the determination of Products Corporation’s senior
secured leverage ratio and the consolidated ﬁxed charge coverage ratio.

In July 2006, Products Corporation secured a further amendment (the ‘‘second amendment’’) to its
2004 Credit Agreement to, among other things, add an additional $100.0 million to the 2004 Credit
Agreement’s 2004 Term Loan Facility (the ‘‘Term Loan Add-on’’). The second amendment also reset the
2004 Credit Agreement’s senior secured leverage ratio covenant to 5.5 to 1.0 through June 30, 2007,

F-25

stepping down to 5.0 to 1.0 for the remainder of the term of the 2004 Credit Agreement. The second
amendment also enabled Products Corporation to add back to the 2004 Credit Agreement’s deﬁnition of
‘‘EBITDA’’ up to $25 million related to restructuring charges (in addition to the restructuring charges
permitted to be added back pursuant to the ﬁrst amendment to the 2004 Credit Agreement) and charges
for certain product returns and/or product discontinuances. The proceeds from the $100.0 million Term
Loan Add-on were used to repay in July 2006 $78.6 million of outstanding indebtedness under the 2004
Multi-Currency Facility under the 2004 Credit Agreement, without any permanent reduction in the
commitment under that facility, and the balance of $11.7 million, after the payment of fees and expenses
incurred in connection with consummating such transaction, was used for general corporate purposes.

In September 2006, Products Corporation secured an additional amendment (the ‘‘third amendment’’)
to its 2004 Credit Agreement, which enabled Products Corporation to add back to the 2004 Credit
Agreement’s deﬁnition of ‘‘EBITDA’’ up to $75 million of restructuring charges (in addition to the
restructuring charges permitted to be added back pursuant to the ﬁrst and second amendments to the 2004
Credit Agreement), asset impairment charges, inventory write-offs, inventory returns costs and in each
case related charges in connection with the September 2006 discontinuance of the Vital Radiance brand,
the Company’s CEO change in September 2006 and certain other aspects of the 2006 Programs described
in Note 2.

(b) 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 in March 2005 to prepay $100.0 million
of indebtedness outstanding under the 2004 Term Loan Facility of Products Corporation’s 2004 Credit
Agreement, together with accrued interest and the associated $5.0 million pre-payment 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 all of the $116.2 million aggregate principal amount
outstanding of Products Corporation’s 81⁄8% Senior Notes, plus $1.9 million of accrued interest, and all of
the $75.5 million aggregate principal amount outstanding of Products Corporation’s 9% Senior Notes, plus
$3.1 million of accrued interest and the applicable premium of $1.1 million. 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.

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 certain 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.

F-26

In December 2005, all of the Additional 91⁄2% Senior Notes issued by Products Corporation in
August 2005 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 2006 Credit Agreements, and are senior to the MacAndrews & Forbes Senior
Subordinated Term Loan and, prior to their full repayment on February 1, 2008, the 85⁄8% Senior
Subordinated Notes. The 91⁄2% Senior Notes are also senior to all of Products Corporation’s future
subordinated indebtedness. 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.

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 amount of the 91⁄2% Senior Notes
at a redemption price of 109.5% of the aggregate 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 such
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
aggregate 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 for debt instruments of such
type and includes a cross acceleration provision which provides that it shall be an event of default if any
debt (as deﬁned in such indenture) of Products Corporation or any of its signiﬁcant subsidiaries (as
deﬁned in 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 aggregate principal amount of the outstanding notes under
such indenture may declare all such notes to be due and payable immediately, provided that the holders

F-27

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.

(See Note 19, ‘‘Subsequent Events’’ describing the full repayment of the balance of the 85⁄8% Senior
Subordinated Notes on their February 1, 2008 maturity date). Prior to their full repayment in
February 2008, the 85⁄8% Senior Subordinated Notes were unsecured obligations of Products Corporation
and (i) subordinate in right of payment to all existing and future senior debt of Products Corporation,
including the 91⁄2% Senior Notes and the indebtedness under the 2006 Credit Agreements, (ii) ranked
equally in right of payment with all future senior subordinated debt, if any, of Products Corporation and
(iii) senior in right of payment to all future junior subordinated debt, if any, of Products Corporation. The
85⁄8% Senior Subordinated Notes were effectively subordinated to the outstanding indebtedness and other
liabilities of Products Corporation’s subsidiaries. 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.
Interest was payable on February 1 and August 1.

In March 2006, Revlon, Inc. completed the $110 Million Rights Offering and promptly transferred
the proceeds to Products Corporation, which it used in April 2006, together with available cash, to
complete the redemption of $109.7 million aggregate principal amount of the 85⁄8% Senior Subordinated
Notes in satisfaction of the applicable requirements under the 2004 Credit Agreement, at an aggregate
redemption price of $111.8 million, including $2.1 million of accrued and unpaid interest up to, but not
including, the redemption date. Following such redemption, there remained outstanding $217.4 million in
aggregate principal amount of the 85⁄8% Senior Subordinated Notes.

In January 2007, Revlon, Inc. completed the $100 Million Rights Offering and promptly transferred
the proceeds to Products Corporation, which it used to redeem approximately $50.0 million in aggregate
principal amount of the 85⁄8% Senior Subordinated Notes, and repay approximately $43.3 million of
indebtedness outstanding under Products Corporation’s 2006 Revolving Credit Facility, without any
permanent reduction in that commitment, after incurring approximately $1.1 million of fees and expenses
incurred in connection with such rights offering.

(d) 2004 Consolidated MacAndrews & Forbes Line of Credit:

In July 2004, Products Corporation and MacAndrews & Forbes entered into an agreement (as
amended, the ‘‘2004 Consolidated MacAndrews & Forbes Line of Credit’’), which effective as of
August 10, 2004 provided Products Corporation with a single consolidated $152.0 million line of credit.
The commitment under the 2004 Consolidated MacAndrews & Forbes Line of Credit reduced to
$87.0 million from $152.0 million in July 2005 and reduced from $87.0 million to $50.0 million in
January 2007 upon Revlon, Inc.’s consummation of
the $100 Million Rights Offering. As of
December 31, 2007 and through its expiration on January 31, 2008, the 2004 Consolidated MacAndrews
& Forbes Line of Credit had availability of $50.0 million and remained undrawn.

F-28

Long-Term Debt Maturities

The aggregate amounts of contractual long-term debt maturities at December 31, 2007 in the years

2008 through 2012 and thereafter are as follows:

Years ended December 31,

2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Long-term
debt
maturities
$ 173.9(a)
8.7(b)
8.4
398.4(c)
852.0
—

$1,441.4

(a) On February 1, 2008, Products Corporation used the $170 million proceeds of the MacAndrews & Forbes Senior Subordinated
Term Loan to repay in full the approximately $167.4 million remaining aggregate principal amount of Products Corporation’s
85⁄8% Senior Subordinated Notes, which matured on February 1, 2008, and to pay certain related fees and expenses, including
the payment to MacAndrews & Forbes of a facility fee of $2.55 million (or 1.5% of the total aggregate principal amount of such
loan) upon MacAndrews & Forbes’ funding of such loan. In connection with such repayment, Products Corporation also paid
from cash on hand approximately $7.2 million of accrued and unpaid interest due on the 85⁄8% Senior Subordinated Notes up
to, but not including, the February 1, 2008 maturity date. The MacAndrews & Forbes Senior Subordinated Term Loan matures
in August 2009. (See Note 19, ‘‘Subsequent Events’’).

(b) See footnote (a) above regarding the MacAndrews & Forbes Senior Subordinated Term Loan which matures in August 2009.

(c) 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 in aggregate principal amount of the Additional 91⁄2% Senior Notes at a
discount, priced at 951⁄4% of par.

2004 Investment Agreement

In February 2004, Revlon, Inc.’s Board of Directors approved agreements with Fidelity Management
& Research Company (‘‘Fidelity’’) and MacAndrews & Forbes intended to strengthen the Company’s
balance sheet, as well as an Investment Agreement (as amended, 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 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 pursuant to the 2004
Investment Agreement are deemed to be registrable securities. Also, in connection with the Revlon
Exchange Transactions,
in February 2004, 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 New York Stock
Exchange listing standards) on its Board of Directors, as it currently does; (ii) Revlon, Inc. established and
maintains a Nominating and Corporate Governance Committee of the Board of Directors; 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.

Pursuant to the 2004 Investment Agreement, in addition to the Revlon Exchange Transactions,
Revlon, Inc. 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

F-29

2004 Investment Agreement, MacAndrews & Forbes agreed to take, or cause to be taken, all
commercially reasonable actions to facilitate the Debt Reduction Transactions, including back-stopping
certain rights offerings.

In August 2005, Revlon, Inc. announced its plan to issue $185.0 million of equity. In connection with
such plans, MacAndrews & Forbes and Revlon, Inc. amended the 2004 Investment Agreement in
August 2005 to increase MacAndrews & Forbes’ commitment to purchase such equity as was necessary
to ensure that Revlon, Inc. issued $185.0 million in equity. In March 2006 Revlon, Inc. successfully
completed a $110 million rights offering of Class A Common Stock and a related private placement to
MacAndrews & Forbes (together, the ‘‘$110 Million Rights Offering’’). Having completed the $110 Million
Rights Offering, to facilitate Revlon, Inc.’s plans to issue the full $185 million of equity, during 2006
Revlon, Inc. and MacAndrews & Forbes entered into various amendments to the 2004 Investment
Agreement to extend the time for the completion of $75 million of such issuance from March 31, 2006
until March 31, 2007, in each case by extending MacAndrews & Forbes’ $75 million back-stop to such
later date.

In December 2006 Revlon, Inc. launched a $100 million rights offering of Class A Common Stock and
a related private placement to MacAndrews & Forbes, which it completed in January 2007 (together, the
‘‘$100 Million Rights Offering’’). In each case proceeds were used by the Company to reduce
in each case
indebtedness, as described below, and, as each rights offering was fully subscribed,
MacAndrews & Forbes was not required to purchase any additional shares beyond its pro rata
subscription in connection with its back-stop obligations under the 2004 Investment Agreement.

$110 Million Rights Offering

In March 2006, Revlon, Inc. completed the $110 Million Rights Offering which allowed each
stockholder of record of Revlon, Inc.’s Class A and Class B Common Stock as of the close of business on
February 13, 2006, the record date set by Revlon, Inc.’s Board of Directors, to purchase additional shares
of Class A Common Stock. The subscription price for each share of Class A Common Stock purchased
in the $110 Million Rights Offering, including shares purchased in the private placement by MacAndrews
& Forbes, was $2.80 per share. Upon completing the $110 Million Rights Offering, Revlon, Inc. promptly
transferred the net proceeds to Products Corporation, which it used to redeem $109.7 million aggregate
principal amount of its 85⁄8% Senior Subordinated Notes in satisfaction of the applicable requirements
under the 2004 Credit Agreement, at an aggregate redemption price of $111.8 million,
including
$2.1 million of accrued and unpaid interest up to, but not including, the redemption date. (See Note 19,
‘‘Subsequent Events’’ regarding Products Corporation’s full repayment of the balance of the 85⁄8% Senior
Subordinated Notes upon maturity on February 1, 2008).

$100 Million Rights Offering

In December 2006, Revlon, Inc. launched the $100 Million Rights Offering, which allowed each
stockholder of record of Revlon, Inc.’s Class A and Class B Common Stock as of the close of business on
December 11, 2006, the record date set by Revlon, Inc.’s Board of Directors, to purchase additional shares
of Class A Common Stock. The subscription price for each share of Class A Common Stock purchased
in the $100 Million Rights Offering, including shares purchased in the private placement by MacAndrews &
Forbes, was $1.05 per share. Upon completing the $100 Million Rights Offering, Revlon, Inc. promptly
transferred the net proceeds to Products Corporation, which it used in February 2007 to redeem

F-30

$50.0 million aggregate principal amount of its 85⁄8% Senior Subordinated Notes, at an aggregate
redemption price of $50.3 million, including $0.3 million of accrued and unpaid interest up to, but not
including, the redemption date. (See Note 19, ‘‘Subsequent Events’’ regarding Products Corporation’s full
repayment of the balance of the 85⁄8% Senior Subordinated Notes upon maturity on February 1, 2008). In
January 2007, Products Corporation used the remainder of such proceeds to repay approximately
$43.3 million of indebtedness outstanding under Products Corporation’s 2006 Revolving Credit Facility,
without any permanent reduction in that commitment, after paying approximately $2.0 million of fees and
expenses incurred in connection with such offering, with approximately $5 million of the remaining net
proceeds being available for general corporate purposes.

In completing the $100 Million Rights Offering, in January 2007, Revlon, Inc. issued an additional
95,238,095 shares of its Class A Common Stock, including 37,847,472 shares subscribed for by public
shareholders (other than MacAndrews & Forbes) and 57,390,623 shares issued to MacAndrews & Forbes
in a private placement directly from Revlon, Inc. pursuant to a Stock Purchase Agreement between
Revlon, Inc. and MacAndrews & Forbes, dated as of December 18, 2006. The shares issued to
MacAndrews & Forbes represented the number of shares of Revlon, Inc.’s Class A Common Stock that
MacAndrews & Forbes would otherwise have been entitled to purchase pursuant to its basic subscription
privilege in the $100 Million Rights Offering (which was approximately 60% of the shares of Revlon, Inc.’s
Class A Common Stock offered in the $100 Million Rights Offering).

As a result of completing the $100 Million Rights Offering in January 2007, Revlon, Inc.’s total
number of outstanding shares of Class A Common Stock increased to 476,688,940 shares at such date and
the total number of shares of Common Stock outstanding, including Revlon, Inc.’s existing 31,250,000
shares of Class B Common Stock, increased to 507,938,940 shares at such date. Following the completion
of these transactions in January 2007, MacAndrews & Forbes beneﬁcially owned approximately 58% of
Revlon, Inc.’s outstanding Class A Common Stock and approximately 60% of Revlon, Inc.’s total
outstanding Common Stock, which shares together represented approximately 74% of the combined
voting power of such shares at such date.

Liquidity Considerations

The Company expects that operating revenues, cash on hand and funds available for borrowing
under the 2006 Revolving Credit Agreement and other permitted lines of credit will be sufﬁcient to enable
the Company to cover its operating expenses for 2008, including cash requirements in connection with the
payment of operating expenses, including expenses in connection with the execution of the Company’s
business strategy, purchases of permanent wall displays, capital expenditure requirements, payments in
connection with the Company’s restructuring programs (including, without limitation, the Company’s
2006 Programs, the 2007 Programs and prior programs), executive severance not otherwise included in the
Company’s restructuring programs, debt service payments and costs 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 of, for example, decreased consumer spending in response to weak economic conditions
or weakness in the cosmetics category in the mass distribution channel; adverse changes in currency;
decreased sales of the Company’s products as a result of increased competitive activities by the Company’s
competitors; changes in consumer purchasing habits, including with respect to shopping channels; retailer
inventory management; retailer space reconﬁgurations or reductions in retailer display space; less than
anticipated results from the Company’s existing or new products or from its advertising and/or marketing
plans; or if the Company’s expenses, including, without limitation, for advertising and promotions or for
returns related to any reduction of retail space, product discontinuances or otherwise, exceed the
anticipated level of expenses, the Company’s current sources of funds may be insufﬁcient to meet the
Company’s cash requirements.

F-31

product discontinuances and/or advertising and promotion expenses or returns expenses exceeding its
expectations or less than anticipated results from the Company’s existing or new products or from its
advertising and/or marketing plans, any such development,
if signiﬁcant, could reduce Product
Corporation’s revenues and could adversely affect Products Corporation’s ability to comply with certain
ﬁnancial covenants under the 2006 Credit Agreements and in such event the Company could be required
to take measures, including, among other things, reducing discretionary spending.

•

delaying the implementation of or revising certain aspects of the Company’s business strategy;

reducing or delaying purchases of wall displays or advertising or promotional expenses;

reducing or delaying capital spending;

delaying, reducing or revising the Company’s restructuring programs;

restructuring Products Corporation’s 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 Revlon, Inc. equity securities or debt securities of Revlon, Inc. or 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, without limitation, 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, such as due to 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
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 2006 Credit Agreements, the MacAndrews & Forbes Senior Subordinated
Term Loan Agreement and the indenture governing the 91⁄2% Senior Notes generally restricts 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, accounting and insurance fees, regulatory fees, such as SEC ﬁling fees and
other 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 Stock Plan.

9. 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, 2007 and 2006, respectively, was approximately
$26.4 million and $16.0 million less than the carrying values of $1,438.9 million and $1,501.8 million,
respectively.

F-32

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 $14.6 million
and $15.1 million (including amounts available under credit agreements in effect at that time) were
maintained at December 31, 2007 and 2006, respectively. Included in these amounts is approximately
$9.9 million and $9.8 million, at December 31, 2007 and 2006, 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-33

10.

INCOME TAXES

The Company’s income (loss) before income taxes and the applicable provision (beneﬁt) for income

taxes are as follows:

Income (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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Year Ended December 31,
2006

2005

2007

$(54.0)
45.9
$ (8.1)

$ 0.2
(0.2)
8.0
$ 8.0

$ 21.6
(4.2)
(3.5)
(5.9)
$ 8.0

$(244.4)
13.2
$(231.2)

0.2
1.2
18.7
$ 20.1

$ 22.5
0.2
(2.6)
—
$ 20.1

$(97.2)
22.0
$(75.2)

$ 0.1
0.4
8.0
$ 8.5

$ 15.2
0.1
(3.0)
(3.8)
$ 8.5

The actual tax on loss before income taxes is reconciled to the applicable statutory federal income tax

rate as follows:

Year Ended December 31,
2006
$(80.9)
0.8

2007
$ (2.8)
(0.1)

2005
$(26.3)
0.3

5.5
(2.4)
12.0
(5.9)
1.7
$ 8.0

2.7
90.9
4.8
—
1.8
$ 20.1

(7.7)
27.7
18.5
(3.8)
(0.2)
$ 8.5

Computed expected tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State and local taxes, net of federal income tax beneﬁt . . . . . . . . .
Foreign and U.S. tax effects attributable to operations outside

the U.S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign dividends subject to tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Resolution of tax matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F-34

The tax effects of temporary differences that give rise to signiﬁcant portions of the deferred tax assets

and deferred tax liabilities at December 31, 2007 and 2006 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 discount, 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,

2007

2006

1.1
10.5
281.8
119.5
1.8
53.3
6.6
38.5
27.4

540.5
(512.8)

27.7

(15.5)
(3.6)

(19.1)

1.2
22.2
286.6
122.2
6.8
68.1
7.9
47.9
38.7

601.6
(570.7)

30.9

(26.8)
(0.3)

(27.1)

Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

8.6

3.8

As a result of the Company’s adoption of FIN 48 effective as of January 1, 2007, the Company
reduced its total tax reserves by approximately $26.8 million, which resulted in a corresponding reduction
of accumulated deﬁcit. As of the date of adoption and after the impact of recognizing the decrease in tax
reserves noted above, the Company had tax reserves of $59.2 million, all of which, to the extent reduced
and unutilized in future periods, would affect the Company’s effective tax rate. The Company remains
subject to examination of its income tax returns in various jurisdictions including, without limitation, the
U.S. (federal), Australia and South Africa,
for tax years ended December 31, 2004 through
December 31, 2007. The Company classiﬁes interest and penalties recognized under FIN 48 as a
component of the provision for income taxes in the consolidated statement of operations. After the
implementation of FIN 48 effective as of January 1, 2007, the Company had $23.1 million of accrued
interest and $1.1 million of accrued tax penalties included in tax reserves. During the year ended
December 31, 2007, the Company recognized through the consolidated statement of operations a
reduction of $2.2 million in accrued interest and penalties.

At December 31, 2007, the Company had tax reserves of $55.8 million, including $22.1 million of
accrued interest included in tax reserves. A reconciliation of the beginning and ending amount of the tax
reserves is as follows:

Balance at January 1, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase based on tax positions taken in a prior year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase based on tax positions taken in the current year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Decrease related to settlements with taxing authorities and changes in law . . . . . . . . . . . . . .
Decrease resulting from the lapse of statutes of limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Balance at December 31, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$59.2
5.9
5.8
(7.4)
(7.7)

$55.8

In addition, the Company believes that it is reasonably possible that its tax reserves during 2008 will
increase by approximately $5.9 million as a result of changes in various tax positions, each of which is
individually insigniﬁcant.

F-35

In assessing the recoverability of its deferred tax assets, management considers whether some portion
or all of the deferred tax assets will not be realized based on the recognition threshold and measurement
of a tax position in accordance with FIN 48. 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 that the Company will
realize the beneﬁts of certain deductible differences existing at December 31, 2007 based on the
recognition threshold and measurement of a tax position in accordance with FIN 48. The valuation
allowance decreased by $57.9 million during 2007 and increased by $92.5 million during 2006.

During 2007, 2006 and 2005, certain of the Company’s foreign subsidiaries used operating loss
carryforwards to credit the current provision for income taxes by $3.5 million, $2.6 million and
$1.1 million, respectively. Certain other foreign operations generated losses during 2007, 2006 and 2005 for
which the potential tax beneﬁt was reduced by a valuation allowance. As a result of the expiration of
$24.8 million in U.S. federal net operating losses at the end of 2006 and $101.5 million at the end of 2007,
at December 31, 2007, the Company had tax loss carryforwards of approximately $1,128.0 million, of
which $401.7 million are foreign and $726.3 million are domestic (including $289.6 million of consolidated
federal net operating losses (‘‘CNOLs’’) available from the MacAndrews & Forbes Group, as discussed
in the paragraph below). The losses expire in future years as follows: 2008 – $183.1 million; 2009 –
$89.0 million; 2010 – $16.9 million; 2011 – $2.7 million; 2012 and beyond − $559.4 million; and unlimited
– $276.9 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 March 25, 2004, Revlon, Inc.,
Products Corporation and their U.S. subsidiaries were no longer included in the the afﬁliated group of
which MacAndrews & Forbes was the common parent (the ‘‘MacAndrews & Forbes Group’’) for federal
income tax purposes (see further discussion immediately below). The Internal Revenue Code of 1986 (as
amended, the ‘‘Code’’) and the Treasury regulations issued thereunder govern both the calculation of the
amount and allocation to the members of the MacAndrews & Forbes Group of any 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 in tax years ended on
or before December 31, 2004 will be available to be allocated to Revlon, Inc. and its U.S. subsidiaries,
including Products Corporation, for their taxable years beginning on March 26, 2004. After March 25, 2004,
the Company had available from the MacAndrews & Forbes Group, $415.9 million in U.S. federal net
operating losses and $15.2 million of alternative minimum tax losses. As a result of the expiration of
$24.8 million in U.S. federal net operating losses at the end of 2006 and $101.5 million at the end of 2007,
after December 31, 2007 the Company has available from the MacAndrews & Forbes Group $289.6 million
of CNOLs and $15.2 million of alternative minimum losses. The amounts set forth in this paragraph 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, in each case for tax years ended on or before
December 31, 2004.

The Company has not provided for U.S. Federal and foreign withholding taxes on $56.0 million of
foreign subsidiaries’ undistributed earnings as of December 31, 2007, 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.

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

F-36

member of such group. 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. 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. The MacAndrews & Forbes Tax Sharing Agreement
remains in effect solely for taxable periods beginning on or after January 1, 1992, through and including
March 25, 2004.

Following the closing of the Revlon Exchange Transactions in March 2004, 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.

There were no federal tax payments or payments in lieu of taxes from Revlon, Inc. to Revlon
Holdings pursuant to the MacAndrews & Forbes Tax Sharing Agreement or from Products Corporation
to Revlon, Inc. pursuant to the Revlon Tax Sharing Agreement in respect of 2007. The Company does not
expect that there will be federal tax payments or payments in lieu of taxes from Revlon, Inc. to Revlon
Holdings pursuant to the MacAndrews & Forbes Tax Sharing Agreement or from Products Corporation
to Revlon, Inc. pursuant to the Revlon Tax Sharing Agreement in respect of 2008.

Pursuant to the asset transfer agreement referred to in Note 15, Products Corporation assumed all
tax liabilities of Revlon Holdings other than (i) certain income tax liabilities arising prior to January 1, 1992
to the extent such liabilities exceeded reserves on Revlon Holdings’ books as of January 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.

11. 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
2007, 2006 and 2005, the Company made cash matching contributions to the Savings Plan of approximately
$2.6 million, $2.8 million and $2.9 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. The Company also has nonqualiﬁed pension plans which
provide beneﬁts for certain U.S. and non-U.S. employees, and for U.S. employees 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-37