2010
annual report
glamour,
excitement, and innovation through
high-quality
products at affordable prices
Alan T. Ennis
President and Chief Executive Officer
Dear Shareholders,
Our strategic goal is to profitably grow our business. 2010 was a
year of progress as we continued to execute our business strategy – we
grew net sales, improved our financial performance, and strengthened
our organizational capability. From a financial perspective, we increased
profitability, achieved competitive operating margins, delivered our third
consecutive year of free cash flow and improved our capital structure.
From a marketplace perspective, we introduced a number of successful
new consumer-preferred products across our entire brand portfolio and
increased our investment behind our brands.
Net Sales
s
n
o
i
l
l
i
m
n
i
$
1,350
1,300
1,250
1,200
1,150
1,100
1,050
1,000
$1,295.9
$1,321.4
2009
2010
Operating Income
s
n
o
i
l
l
i
m
n
i
$
220
200
180
160
140
120
100
Adjusted EBITDA1
Free Cash Flow2
18.2%
$236.5
19.7%
$260.4
s
n
o
i
l
l
i
m
n
i
$
275
250
225
200
175
150
125
100
s
n
o
i
l
l
i
m
n
i
$
100
80
60
40
20
0
15.1%
$199.8
13.2%
$170.8
2009
2010
% of Net Sales
$97.7
$82.3
2009
2010
% of Net Sales
2009
2010
Guided by our vision of “Glamour, excitement, and innovation through high-quality products
at affordable prices,” we are focused on the five elements of our business strategy, specifically, to
(i) build our strong brands; (ii) develop our organizational capability; (iii) drive our company to act
globally; (iv) increase our operating profit and cash flow; and (v) improve our capital structure.
Building Our Strong Brands
During 2010 we continued our intense focus on building our strong brands, emphasizing the key
drivers of profitable growth:
• Innovative, high-quality, consumer-preferred brand offering;
• Effective brand communication;
• Appropriate levels of advertising and promotion; and
• Superb execution with our retail partners.
Iconic, powerful brand portfolio:
In meeting the needs of consumers, our rolling portfolio planning process delivered successful,
high-quality new products across our entire portfolio, while at the same time keeping our established
franchises relevant and competitive. In addition to a number of existing franchise extensions, new
products in 2010 included:
• Revlon® Grow Luscious™ Mascara – Our best mascara launch in recent years, where 96% of
women instantly saw longer and lusher lashes.
• Revlon® ColorStay Aqua™ Mineral Makeup – A lightweight powder foundation utilizing our
long-wear technology with instant hydration and the benefits of coconut water.
• Revlon® Just Bitten™ Lipstain + Balm – A unique lip product with vitamin enriched formula for
anti-oxidant protection and hours of kiss-proof wear.
• Revlon Top Speed™ Fast Dry Nail Enamel – An advanced line of on-trend nail color that sets
in 60 seconds.
• Revlon® ColorSilk Luminista™ – An extension of our Revlon ColorSilk product line with a
high-shine mango butter formula designed for naturally dark hair.
• Revlon Crazy Shine™ Nail Buffer – A revolutionary nail buffer that gives bare nails 400% more
shine in seconds.
• Almay intense i-color smoky-i™ kit – A recent extension of this successful franchise, which helps
consumers achieve the smoky eye look with ease.
• Almay wake-up™ makeup – A lightweight powder foundation that delivers immediate cooling
hydration to soothe the skin while giving a healthy, well-rested glow.
• Mitchum Advanced Control™ – A stick formula with FreshDefense™ Technology and maximum
active ingredient for 48-hour wetness protection.
Consistent with our strategy to build our strong brands, during 2010 we significantly increased media
pressure, using creative advertising that tested well with consumers, while benefiting from lower
advertising rates. We are improving competitiveness at the point of purchase by implementing exciting
new graphic and layout changes to our retail walls and introducing more impactful, eye-catching
displays to improve the in-store messaging to, and connection with, consumers.
In a review of 2010 product launches, Women’s Wear Daily awarded our Revlon Just Bitten
Lipstain + Balm the “Best Executed Launch Strategy” in the United States. This award, which
recognized “big ideas implemented flawlessly,” is an exceptional award for our brand and is
also a tangible demonstration of our focus on enhancing marketplace effectiveness.
We are most fortunate to be in a position to carry on the over 75-year heritage of the Revlon brand,
which has represented glamour, innovation and relevance for all women around the world. We
continue to build upon this heritage and are proud of our long-standing and continued philanthropic
efforts under the banner of Revlon Cares™. We have championed women’s health by devoting
resources in support of medical research programs, physician training, clinical care and education and
awareness initiatives. We have helped raise millions of dollars and will continue to be an ambassador
of important programs, including REVLON Run Walk for Women, Look Good Feel Better, and the
National Breast Cancer Coalition Fund.
Developing Our Organizational Capability
We strengthened the capabilities of our leadership team in 2010 through key management
appointments, including Alan Meyers as Chief Science Officer and Julia Goldin as Chief Marketing
Officer, and we made several General Manager appointments around the world. Our highly capable
team is focused on achieving our strategic objective of profitably growing our business and it is our
priority to continuously strengthen our capability by promoting from within and by recruiting talented
and experienced professionals across all functions in the organization.
Driving Our Company To Act Globally
Acting globally is a principle that guides how we think, plan and act across all of our brands and
regions. We are leveraging brand positioning, portfolio planning, and brand communications plans
globally, and we are improving our operating efficiency through many activities, including global
supply chain management.
Increasing Our Operating Profit And Cash Flow
We increased profitability, achieving operating income of $199.8 million and sustained competitive
operating income margins of 15%, while meaningfully increasing investment behind our brands. We
achieved our third consecutive year of positive cash flow with free cash flow(2) of $82 million. In 2010,
we realized the planned $30 million of annualized savings from our 2009 restructuring program.
Improving Our Capital Structure
We improved our capital structure by refinancing our term loan and revolving credit facilities, which
extended maturities, reduced debt and continued to improve our leverage profile. Standard & Poor’s
upgraded our credit rating in November 2010. We believe that our current capital structure provides us
with the stability and flexibility to continue to execute our business strategy.
Outlook
In 2011, we remain centered on profitably growing our business and building upon the solid
foundation and competitive margin structure we have established. In closing, I thank our employees
around the world for their continued accountability, collaboration, communication, and execution
throughout 2010. I also thank our Board of Directors for their leadership, counsel and support and our
shareholders for your continued support and interest in Revlon.
Alan T. Ennis
President and Chief Executive Officer
April 2011
1. Adjusted EBITDA is a non-GAAP financial measure that is reconciled to net income, its most directly comparable GAAP measure, below. Adjusted EBITDA is
defined as income from continuing operations before interest, taxes, depreciation, amortization, gains/losses on foreign currency fluctuations, gains/losses on
the early extinguishment of debt and miscellaneous expenses.
2. Free cash flow is a non-GAAP measure that is reconciled to net cash provided by operating activities, its most directly comparable GAAP measure, below.
Free cash flow is defined as net cash provided by operating activities, less capital expenditures for property, plant and equipment, plus proceeds from the sale
of certain assets.
REVLON, INC. AND SUBSIDIARIES
RECONCILIATION OF UNAUDITED ADJUSTED EBITDA TO NET INCOME
($ in millions)
In the table set forth below, Adjusted EBITDA, which is a non-GAAP financial measure, is reconciled to net income, its most directly
comparable GAAP measure. Adjusted EBITDA is defined above in footnote 1 to the President’s letter to shareholders, within this
2010 Annual Report.
Reconciliation to net income:
Year Ended
December 31,
2010
2009
(Unaudited)
Net income ...……………..………………………………………………………………………………….
Income from discontinued operations, net of taxes…………….………….………….………….
Income from continuing operations, net of taxes…...……………..………………………………………………………………………………….
327.3
0.3
327.0
48.8
0.3
48.5
$
$
Interest expense, net……………..………………………………………………………………………………….
Amortization of debt issuance costs……………..………………………………………………………………………………….
Loss on early extinguishment of debt, net…………………….………….
Foreign currency losses, net……………..………………………………………………………………………………….
Miscellaneous, net……………..………………………………………………………………………………….
(Benefit from) provision for income taxes……………..………………………………………………………………………………….
Depreciation and amortization……………..………………………………………………………………………………….
96.4
5.9
9.7
6.3
1.7
(247.2)
60.6
92.5
5.8
5.8
8.9
1.0
8.3
65.7
Adjusted EBITDA……………..………………………………………………………………………………….
260.4
236.5
$
$
In calculating Adjusted EBITDA, the Company excludes the effects of gains/losses on foreign currency fluctuations, gains/losses
on the early extinguishment of debt, results of and gains/losses on discontinued operations 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) monitor and evaluate the performance of the Company’s business operations;
(ii) facilitate management’s internal comparisons of the Company’s historical operating performance of its business operations;
(iii) 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;
(iv) review and assess the operating performance of the Company’s management team and, together with free cash flow and other
operational objectives, as a measure in evaluating employee compensation and bonuses;
(v) analyze and evaluate financial and strategic planning decisions regarding future operating investments; and
(vi) 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 to investors, 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 operating activities,
its most directly comparable GAAP measure. Free cash flow is defined above in footnote 2 to the President’s letter to shareholders,
within this 2010 Annual Report. Free cash flow excludes proceeds from the sale of discontinued operations. Management uses free
cash flow:
(i)
to evaluate its business and financial performance and overall liquidity;
(ii)
in strategic planning; and
(iii) to review and assess the operating performance of the Company’s management team and, together with Adjusted EBITDA
and other operational objectives, as a measure in evaluating employee compensation and bonuses.
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 measures 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.
Reconciliation to net cash provided by operating activities:
Year Ended
December 31,
2010
2009
(Unaudited)
Net cash provided by operating activities…...……………..………………………………………………………………………………….
109.5
97.2
$
$
Less capital expenditures……………..………………………………………………………………………………….
Plus proceeds from the sale of certain assets ……………..………………………………………………………………………………….
(14.3)
2.5
(15.2)
0.3
97.7
Free cash flow……………..………………………………………………………………………………….
82.3
$
$
2010 BEAUTY AWARDS
Self
Healthy Beauty Awards
• Revlon Luxurious Color Perle &
Satin Eye Shadows
• Almay Intense i-Color Mascara with
Light Interplay Technology
Seventeen
Beauty Awards
• Revlon Just Bitten Lipstain + Balm
Shape
Shape of Beauty Awards
• Revlon PhotoReady Makeup
Siempre Mujer
The 50 Best Beauty Products
• Revlon Illuminance Crème Shadow
in Wild Orchids and Not Just Nudes
Working Mother
Beauty Awards
• Almay Pure Blends Makeup
Women’s Wear Daily
Beauty Biz Awards –
Best Executed Launch Strategy
• Revlon Just Bitten Lipstain + Balm
2010 BEAUTY AWARDS –
JAPAN
Cosme
Beauty Awards
• Revlon PhotoReady Makeup
2010 BEAUTY AWARDS –
AUSTRALIA
ACP 2010 Beauty Awards
• Best Budget Foundation (Medium) –
2010 BEAUTY AWARDS –
NEW ZEALAND
New Zealand Woman’s Weekly
Beauty Awards
• Revlon PhotoReady Makeup
• Revlon ColorStay Mineral Makeup
• Revlon ColorStay 12 Hour
Eyeshadow Quad
• Revlon ColorStay Mineral Blush
• Revlon Classic Nail Enamel
• Revlon ColorStay
Under-Eye Concealer
• Revlon Super Lustrous Lipstick
• Revlon ColorStay Eyeliner
2010 BEAUTY AWARDS –
BRAZIL
Nova – Prêmio Nova
The Hundred Best Beauty Products
• Revlon ColorStay Liquid Liner
• Revlon Nail Enamel in Cherry Crush
2010 BEAUTY AWARDS –
CANADA
Fashion Magazine
Readers’ Choice Beauty Awards
• Almay Nearly Naked Cover Up Stick
• Revlon Super Lustrous Lipstick
FLARE
Best of Beauty Categories
• Almay Intense i-Color Powder
Shadow Trio for Hazels
GLOW Magazine
Best in Glow
• Revlon Super Lustrous Lipstick in
Revlon PhotoReady Makeup
Wine with Everything
• Best Lipstick (Matte Finish) – Revlon
Matte Lipstick
• Best Powder – Revlon PhotoReady
Translucent Finisher
• Favourite Brand in Foundation –
Revlon
• Favourite Brand in Eye Shadow –
Revlon
• Revlon ColorStay Overtime Lipcolor
• Revlon Extra Curl Lash Curler
• Almay Pure Blends
Cosmetics Magazine
“I Recommend … Awards”
• Manicure Tools – Revlon
• Blush (mass) – Revlon Matte
• Favourite Brand in Lipstick - Revlon
Powder Blush
InStyle Best Beauty Buys
• Revlon Nail Enamel in Red
Carpet Red
• Corrective Cover-up (mass) –
Revlon ColorStay
• Foundation (mass) –
Revlon PhotoReady
2010 BEAUTY AWARDS – U.S.
Allure
Readers’ Choice Awards
• Revlon Super Lustrous Lipstick in
Softsilver Rose
Allure
Best of Beauty Awards
• Revlon Illuminance Crème Shadow
in Not Just Nudes
• Revlon Just Bitten Lipstain + Balm
• Almay One Coat Dial Up Mascara
Brides
Beauty Awards
• Revlon Luxurious Color Perle &
Satin Eye Shadows
• Revlon Super Lustrous Lipstick
(Readers’ Choice)
Cosmopolitan
Beauty Awards
• Revlon Grow Luscious Mascara
Fitness
Beauty Awards
• Revlon Luxurious Color Perle &
Satin Eye Shadows
Glamour
The Glammies
• Revlon Nail Enamel in Revlon Red
InStyle
Best Beauty Buys
• Revlon ColorStay Mineral Finishing
Powder in Brighten
Marie Claire
Top 25 Products That Changed
Our Lives
• Revlon Colorburst Lipstick
Natural Health
Beauty Awards
• Almay Smart Shade
Anti-Aging Makeup
O, The Oprah Magazine
Spring Makeup O-wards
• Revlon Luxurious Color Perle Eye
Shadow in Lilac Shimmer
People en Espanol
Semi Annual Beauty Awards
• Revlon PhotoReady Makeup
• Revlon Colorburst Lipstick
Redbook
MVP Beauty Awards
• Revlon Luxurious Color Perle &
Satin Eye Shadows
building
our strong
brands
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
≤ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2010
OR
n
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
to
Commission file number 1-11178
REVLON, INC.
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of
incorporation or organization)
13-3662955
(I.R.S. Employer
Identification No.)
237 Park Avenue, New York, New York
(Address of principal executive offices)
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 n
No ≤
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 n
No ≤
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ≤
No n
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during
the preceeding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes n
No n
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.
≤
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in
Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer n
Accelerated filer ≤
Non-accelerated filer n
(Do not check if a smaller reporting company)
Smaller reporting company n
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes n
No ≤
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, 2010, the last business day of the registrant’s most recently completed second fiscal quarter) was
approximately $125,270,475.
As of December 31, 2010, 48,776,970 shares of Class A Common Stock and 3,125,000 shares of Class B Common Stock and
9,336,905 shares of Preferred Stock were outstanding. At such date, 37,544,640 shares of Class A Common Stock were beneficially owned
by MacAndrews & Forbes Holdings Inc. and certain of its affiliates and all of the shares of Class B Common Stock were owned by REV
Holdings LLC, a Delaware limited liability company and an indirectly wholly-owned subsidiary of MacAndrews & Forbes Holdings Inc.
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 3, 2011 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, 2010
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
[Removed and Reserved by SEC Release Nos. 33-9089A and 34-61175A] . . . .
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.
Item 15.
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
Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART IV
Exhibits and Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Index to Consolidated Financial Statements and Schedules . . . . . . . . . . . . . . . .
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
1
Page
2
9
24
24
24
26
27
28
30
56
58
58
58
59
64
64
64
64
64
66
F-1
F-2
F-3
F-4
F-70
PART I
Item 1. Business
Background
Revlon, Inc. (and together with its subsidiaries, the “Company”) conducts its business exclusively
through its direct wholly-owned operating subsidiary, Revlon Consumer Products Corporation (“Products
Corporation”) and its subsidiaries. Revlon, Inc. is a direct and indirect majority-owned subsidiary of
MacAndrews & Forbes Holdings Inc. (“MacAndrews & Forbes Holdings” and together with certain of its
affiliates other than the Company, “MacAndrews & Forbes”), a corporation wholly-owned by Ronald O.
Perelman.
The Company’s vision is glamour, excitement and innovation through high-quality products at
affordable prices. The Company operates in a single segment and manufactures, markets and sells an
extensive array of cosmetics, women’s hair color, beauty tools, anti-perspirant deodorants, fragrances,
skincare and other beauty care products. The Company is one of the world’s leading cosmetics companies in
the mass retail channel (as hereinafter defined). The Company believes that its global brand name
recognition, product quality and marketing experience have enabled it to create one of the strongest
consumer brand franchises in the world.
The Company’s products are sold worldwide and marketed under such brand names as Revlon,
including the Revlon ColorStay, Revlon Super Lustrous 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 women’s hair color; Revlon in beauty tools; Mitchum anti-perspirant deodorants; Charlie and
Jean Naté in fragrances; and Ultima II and Gatineau in skincare.
The Company’s principal customers include large mass volume retailers and chain drug and food stores
(collectively, the “mass retail channel”) in the U.S., as well as certain department stores and other specialty
stores, such as perfumeries, outside the U.S. The Company also sells beauty products to U.S. military
exchanges and commissaries and has a licensing business pursuant to which the Company licenses certain of
its key brand names to third parties for complementary beauty-related products and accessories in
exchange for royalties.
The Company was founded by Charles Revson, who revolutionized the cosmetics industry by intro-
ducing 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-
perspirant 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 Business Strategy
The Company’s strategic goal is to profitably grow our business. The business strategies employed by
the Company to achieve this goal are:
1. Building our strong brands. We continue to build our strong brands by focusing on inno-
vative, high-quality, consumer-preferred brand offering; effective consumer brand commu-
nication; appropriate levels of advertising and promotion; and superb execution with our
retail partners.
2. Developing our organizational capability. We continue to develop our organizational
capability through attracting, retaining and rewarding highly capable people and through
performance management, development planning, succession planning and training.
3. Driving our company to act globally. We continue to drive common global processes which
are designed to provide the most efficient and effective allocation of our resources.
2
4.
5.
Increasing our operating profit and cash flow. We continue to focus on increasing our
operating profit and cash flow.
Improving our capital structure. We continue to improve our capital structure by focusing
on strengthening our balance sheet and reducing debt.
Recent Debt Reduction Transactions
Refinancing of the 2006 Term Loan and Revolving Credit Facilities:
In March 2010, Products
Corporation consummated a credit agreement refinancing (the “2010 Refinancing”) consisting of the
following transactions:
The 2010 Refinancing included refinancing Products Corporation’s term loan facility, which was
scheduled to mature on January 15, 2012 and had $815.0 million aggregate principal amount outstanding at
December 31, 2009 (the “2006 Term Loan Facility”), with a 5-year, $800.0 million term loan facility due
March 11, 2015 (the “2010 Term Loan Facility”) under a second amended and restated term loan agreement
dated March 11, 2010 (the “2010 Term Loan Agreement”), among Products Corporation, as borrower, the
lenders party thereto, Citigroup Global Markets Inc. (“CGMI”), J.P. Morgan Securities Inc. (“JPM
Securities”), Banc of America Securities LLC (“BAS”) and Credit Suisse Securities (USA) LLC (“Credit
Suisse”), as joint lead arrangers, CGMI, JPM Securities, BAS, Credit Suisse and Natixis, New York Branch
(“Natixis”), as joint bookrunners, JPMorgan Chase Bank, N.A. and Bank of America, N.A. as co-syndi-
cation agents, Credit Suisse and Natixis as co-documentation agents, and Citicorp USA, Inc. (“CUSA”), as
administrative agent and collateral agent.
The 2010 Refinancing also included refinancing Products Corporation’s 2006 revolving credit facility,
which was scheduled to mature on January 15, 2012 and had nil outstanding borrowings at December 31,
2009 (the “2006 Revolving Credit Facility” and together with the 2006 Term Loan Facility, the “2006 Credit
Facilities” and such agreements, the “2006 Credit Agreements”), with a 4-year, $140.0 million asset-based,
multi-currency revolving credit facility due March 11, 2014 (the “2010 Revolving Credit Facility” and,
together with the 2010 Term Loan Facility, the “2010 Credit Facilities”) under a second amended and
restated revolving credit agreement dated March 11, 2010 (the “2010 Revolving Credit Agreement” and,
together with the 2010 Term Loan Agreement, the “2010 Credit Agreements”), among Products Corpo-
ration, as borrower, the lenders party thereto, CGMI and Wells Fargo Capital Finance, LLC (“WFS”), as
joint lead arrangers, CGMI, WFS, BAS, JPM Securities and Credit Suisse, as joint bookrunners, and CUSA,
as administrative agent and collateral agent.
Products Corporation used the approximately $786 million of proceeds from the 2010 Term Loan
Facility, which was drawn in full on the March 11, 2010 closing date and issued to lenders at 98.25% of par,
plus approximately $31 million of available cash and approximately $20 million then drawn on the 2010
Revolving Credit Facility to refinance in full the $815.0 million of outstanding indebtedness under the 2006
Term Loan Facility and to pay approximately $7 million of accrued interest and approximately $15 million
of fees and expenses incurred in connection with consummating the 2010 Refinancing, of which approx-
imately $9 million was capitalized.
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
Revlon
Almay
Revlon ColorSilk Revlon
Charlie
Jean Naté
3
ANTI-PERSPIRANT
DEODORANTS
Mitchum
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. Revlon Age Defying Spa foundation and concealer instantly revitalize and brighten, while
protecting against the appearance of fine lines. The Company also markets a complete range of Revlon
ColorStay liquid and powder face makeup with patented long-wearing ingredients and SoftFlex technology
for enhanced comfort. The Revlon ColorStay Mineral collection includes Revlon ColorStay Mineral
Mousse makeup, as well as Revlon ColorStay Mineral pressed blush and bronzer. Revlon ColorStay Aqua
Mineral Makeup provides an instant cooling burst of hydrating coconut water for a luminous look that lasts
all day. The Revlon PhotoReady franchise, which includes makeup, powder and finisher, are designed with
innovative photochromatic pigments that bend and reflect light to give a flawless, airbrushed appearance in
any light. Revlon PhotoReady Compact Makeup has an innovative screen that transforms cream to liquid
and dries down to a soft powder finish. Revlon PhotoReady Concealer is an all-over face concealer that
helps erase imperfections and camouflage dark under-eye circles.
The Company markets several different lines of Revlon lip makeup, including lipstick, lip gloss and lip
liner, under several Revlon brand names. Revlon Super Lustrous is the Company’s flagship wax-based
lipcolor, offered in a wide variety of shades of lipstick and lip gloss, and has LiquiSilk technology designed
to boost moisturization using silk dispersed in emollients. Revlon ColorStay Soft & Smooth lip color, with
patented ingredients, offers long-wearing benefits while enhancing comfort with SoftFlex technology, while
Revlon ColorStay Overtime is a two-step long-wear lipcolor that uses patented transfer resistant tech-
nology and gives the consumer up to 24 hours of color. Revlon ColorStay Ultimate liquid lipstick is the first
and only lipcolor that has patented ColorStay long-wearing technology, which is comfortable, food-proof
and wears for up to 24 hours in one simple step. Revlon ColorStay Mineral lipglaze is the Company’s first
long-wearing lip gloss with up to eight hours of wear. Revlon Just Bitten is a dual ended Lip Stain and Lip
Balm that provides kiss-proof color with soft shine. Revlon ColorBurst lipgloss is a high-shine luxurious
lipgloss available in 15 shades that provides a pop of weightless color and mirror-like shine.
The Company’s eye makeup products include mascaras, eyeliners, eye shadows and brow products,
under several Revlon brand names. In mascaras, key franchises include Revlon Grow Luscious, a length-
ening mascara with a conditioning formula that complements lashes’ natural growth cycle so lashes get
stronger; Revlon DoubleTwist, a mascara featuring a unique two-in-one brush for massive volume and
remarkable definition; Revlon Lash Fantasy Total Definition, a two-step primer and mascara with lash-
separating brushes for enhanced definition; and Revlon CustomEyes, a mascara that provides two different
lash looks — either length and drama or length and definition with one revolutionary adjustable bristle
brush. In eyeliners, Revlon ColorStay eyeliners deliver beautiful color that wears up to 16 hours and Revlon
Luxurious Color liners have a smooth formula that provides rich, luxurious color. Revlon Luxurious Color
smoky eye crayon provides a smoky eye effect with creamy, rich color. In eye shadow, Revlon ColorStay
12-hour patented long-wearing eyeshadow has silky, smooth color that does not crease, fade or smudge,
while Revlon Luxurious Color eyeshadows in satin, perle and matte finishes offer rich, smooth and velvety
application. Revlon CustomEyes shadow and liner provides a coordinated eye look with four shadows and a
liner in each palette.
The Company’s nail color and nail care lines include enamels, treatments and cuticle preparations. The
Company’s core 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
offers eight nail care products including the Company’s topselling Revlon Quick Dry Top Coat and Revlon
Quick Dry Basecoat that help extend the wear and quality of a manicure. Revlon Top Speed nail enamel is a
quick dry nail color that sets in 60 seconds and comes in 32 on-trend shades. Revlon Scented nail enamel is
scented when dry and comes in 16 shades.
4
Hair — Revlon: The Company sells both hair color and haircare products throughout the world. In
women’s hair color, the Company markets brands, including Revlon ColorSilk, with patented ingredients
which offer radiant, rich color with conditioning. Revlon Colorsilk Luminista, a line extension to Revlon
Colorsilk, is designed to add vibrant color and high shine to naturally dark hair.
Beauty Tools — Revlon: The Company sells Revlon beauty tools, which include nail, eye and
pedicure grooming tools, such as clippers, scissors, files, tweezers, eye lash curlers and a full line of makeup
brushes under the Revlon brand name. Revlon beauty tools are sold individually and in sets.
Cosmetics — Almay: The Company’s Almay brand consists of hypo-allergenic, dermatologist-tested,
fragrance-free cosmetics and skincare products. Almay products include face and eye makeup and makeup
removers.
Within the face category, Almay Smart Shade offers patented ingredients for foundation and concealer
that are designed to match consumer skin tones. The Almay Smart Shade franchise includes Almay Smart
Shade Smart Balance pressed powder, the first pressed powder launch for the Almay Smart Shade
franchise. Almay TLC Truly Lasting Color makeup and pressed powder have long-wearing formulas that
help nourish and protect the skin for up to 16 hours of coverage. Also, Almay Wake-Up foundation is an
innovative powder formula that delivers a radiant, well-rested look while offering a cooling sensation to the
skin.
In eye makeup, the flagship brand, Almay Intense i-Color, enhances and intensifies eyes through color-
coordinated shades of shadow, liner and mascara for each eye color. The Almay Intense i-Color Smoky-i kit
helps consumers achieve the smoky eye look with ease. The Almay One Coat mascara franchise includes
products for lash thickening and visible lengthening, and the patented Almay Triple Effect mascara offers a
more dramatic look. Almay One Coat Get Up & Grow mascara provides instant lengthening, while
conditioning to promote long-term lash health and growth. Almay eye makeup removers are offered in a
range of pads and towelettes.
Anti-perspirant deodorants:
In the anti-perspirant deodorants product category, the Company mar-
kets Mitchum anti-perspirant products, with patented ingredients, in many countries. The Company plans to
introduce Mitchum Advanced Control, a line of stick/solid antiperspriants offered in five fragrances.
Mitchum Advanced Control delivers a new formula featuring FreshDefense technology which offers the
highest level of active ingredient for maximum protection against wetness and odor.
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 fra-
grances under globally-recognized brand names such as Charlie and Jean Naté.
Skincare: The Company sells skincare products in the U.S. and in global markets under interna-
tionally-recognized brand names, including Revlon and Almay, 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, coupons and other trial incentives. 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 also uses cooperative advertising programs, 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
separate websites,
trial-size products and couponing. Additionally,
the Company maintains
5
www.revlon.com, www.almay.com and www.mitchumman.com devoted to the Revlon, Almay and Mitchum
brands, respectively. Each of these websites feature product and promotional information for the brands
and are updated regularly to stay current with the Company’s new product launches and other advertising
and promotional campaigns.
New Product Development and Research and Development
The Company believes that it is an industry leader in the development of innovative and technolog-
ically-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,
introduce 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
global cross-functional product development process, including a rigorous process for the continuous
development and evaluation of new product concepts, led by executives in marketing, sales, research and
development, operations, law and finance. This process has improved the Company’s new product com-
mercialization process and created a comprehensive, long-term portfolio strategy and is intended to
optimize the Company’s ability to regularly bring to market innovative new product offerings and to
manage the Company’s product portfolio.
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
and development worldwide and 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, efficacy and package testing. Additionally,
quality control testing is performed at each of the Company’s manufacturing facilities.
As of December 31, 2010, the Company employed approximately 140 people in its research and
development activities, including specialists in pharmacology, toxicology, chemistry, microbiology, engi-
neering, biology, dermatology and quality control. In 2010, 2009 and 2008, the Company spent $24.0 million,
$23.9 million and $24.3 million, respectively, on research and development activities.
Manufacturing and Related Operations and Raw Materials
During 2010, the Company’s cosmetics and/or personal care products were produced at the Company’s
facilities in North Carolina, Venezuela, France and South Africa 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 to
maximize cost savings. The Company’s global sourcing strategy for materials and components from
accredited vendors is also designed to ensure the highest quality and the continuity of supply of the
raw materials and components. The Company believes that alternate sources of raw materials and
components exist and does not anticipate any significant shortages of, or difficulty in obtaining, such
materials.
Distribution
The Company’s products are sold in more than 100 countries across six continents. The Company’s
worldwide sales force had approximately 220 people as of December 31, 2010. In addition, the Company
utilizes sales representatives and independent distributors to serve certain markets and related distribution
channels.
6
United States. Net sales in the U.S. accounted for approximately 55% of the Company’s 2010 net
sales, more than a majority of which were made in the mass retail channel. The Company also sells a broad
range of its 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,
2010, twelve (12) of such complimentary licenses were in effect relating to eighteen (18) product categories,
which are marketed principally in the mass-market distribution channel. Pursuant to such licenses, the
Company retains strict control over product design and development, product quality, advertising and the
use of its trademarks. These licensing arrangements offer opportunities for the Company to generate
revenues and cash flow through royalties and renewal fees, some of which have been prepaid from time to
time.
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.
Outside of the United States. Net sales outside the U.S. accounted for approximately 45% of the
Company’s 2010 net sales. The five largest countries in terms of these sales were South Africa, Australia,
Canada, the U.K and Venezuela, which together accounted for approximately 25% of the Company’s 2010
consolidated 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. At December 31, 2010, the Company actively sold its products through wholly-owned
subsidiaries established in 14 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 Walmart, Walgreens, CVS and Target 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. Walmart and its affiliates worldwide accounted for approximately 22% of the Company’s 2010
consolidated 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 Walmart 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 by:
• developing quality products with innovative performance features, shades, finishes, components
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;
7
•
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 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 manufac-
turers. 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 competitors include, among others, 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 have a material 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 over 150 other countries, and the
Company considers trademark protection to be very important to its business. Significant trademarks
include Revlon, Revlon ColorStay, Revlon Age Defying makeup with Botafirm, Revlon Super Lustrous,
Almay, Almay Smart Shade, Mitchum, Charlie, Jean Naté, Revlon ColorSilk and, outside the U.S.,
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 Mineral blush and foundation, Revlon ColorStay Ulti-
mate liquid lipstick and Revlon New Complexion makeup; Revlon Age Defying cosmetics; the Revlon
Beyond Natural collection; Fabulash mascara; Almay Smart Shade makeup; Almay Intense i-Color eye
makeup; Revlon ColorSilk hair color; Mitchum anti-perspirant; and the Revlon Pedi-Expert pedicure tool.
The Company also protects certain of its packaging and component concepts through patents. The
Company considers its proprietary technology and patent protection to be important to its business.
The Company files patents 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 2011 and 2031 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 those in the European Union (the “EU”), Canada and other countries in
which the Company operates. 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 the 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. Regulations in the
U.S., the EU, Canada and in other countries in which the Company operates that are designed to protect
consumers or the environment have an increasing influence on the Company’s product claims, ingredients
and packaging. (See “Risk Factors — The Company’s products are subject to federal, state and
8
international regulations that could adversely affect the Company’s business, financial condition and/or
results of operations”).
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 21, “Geographic, Financial
and Other Information”, to the Company’s Consolidated Financial Statements.
Employees
As of December 31, 2010, the Company employed approximately 4,900 people. As of December 31,
2010, approximately 20 of such employees in the U.S. were covered by collective bargaining agreements.
The Company believes that its employee relations are satisfactory.
Available Information
The public may read and copy any materials that the Company files with the SEC, including, without
limitation, its Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on
Form 8-K, 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 2010 Credit Agreements and the 93⁄4% Senior Secured Notes.
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 income
has historically consisted predominantly of its equity in the net income of Products Corporation, which for
2010, 2009 and 2008 was approximately $324.3 million, $58.8 million and $65.8 million, respectively (which
excluded approximately $7.3 million, $9.5 million and $7.7 million, respectively, in expenses primarily
related to Revlon, Inc. being a public holding company). Products Corporation’s $324.3 million of net
income for 2010 included a one-time non-cash benefit of $260.6 million related to a reduction of the
Company’s deferred tax valuation allowance on its net U.S. deferred tax assets at December 31, 2010 as a
result of the Company achieving three cumulative years, as well as its third consecutive year, of positive
U.S. GAAP pre-tax income and taxable income in the U.S., and based upon the Company’s current
expectations for the realization of such deferred tax benefits in the U.S. 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 and to pay any cash dividend or distribution on its
Class A Common Stock in each case that may be authorized by Revlon, Inc.’s Board of Directors.
Revlon, Inc. expects that quarterly dividends on shares of Revlon, Inc.’s Series A preferred stock, par
value $0.01 per share (the “Preferred Stock”), will be funded by cash interest payments to be received by
9
Revlon, Inc. from Products Corporation on the Contributed Loan (the $48.6 million portion of the Senior
Subordinated Term Loan that was contributed to Revlon, Inc. by MacAndrews & Forbes). Additionally,
Revlon, Inc. expects to pay the liquidation preference of the Preferred Stock on October 8, 2013 with the
cash payment to be received by Revlon, Inc. from Products Corporation in respect of the maturity of the
Contributed Loan. The payment of such interest and principal under the Contributed Loan to Revlon, Inc.
by Products Corporation is permissible under the 2010 Credit Agreements, the Senior Subordinated Term
Loan Agreement and the 93⁄4% Senior Secured Notes Indenture. Under the Delaware General Corporation
Law, Revlon, Inc. is permitted to pay dividends only from its “surplus,” which is the excess of its total assets
over the sum of its liabilities plus the aggregate par value of its outstanding capital stock, or if Revlon, Inc.
has no surplus, out of its net profits for the year in which a dividend is declared and for the immediately
preceding fiscal year. Additionally, Revlon, Inc. is permitted to redeem the Preferred Stock only from its
surplus. In the event that Revlon, Inc. fails to pay any required dividends on the Preferred Stock, the
amount of such unpaid dividends will be added to the amount payable to holders of the Preferred Stock
upon redemption. (See “The Preferred Stock ranks senior to Revlon, Inc.’s Common Stock and is
subordinate to the Company’s indebtedness. However, pursuant to the Senior Subordinated Term Loan
Agreement, the Preferred Stock is senior in right of payment to the payment of principal under such loan
prior to its respective maturity dates.”)
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 2010 Credit Agreements, the indenture governing Products Corporation’s outstand-
ing 93⁄4% Senior Secured Notes (the “93⁄4% Senior Secured Notes Indenture”) and the Senior Subordinated
Term Loan Agreement generally restrict Products Corporation from paying dividends, advancing or
making distributions to Revlon, Inc. except in limited circumstances (including, without limitation, that
Products Corporation is permitted to pay dividends, advance 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, NYSE listing fees and other expenses related to being a public holding
company and, subject to certain limitations, to pay dividends, if any, on Revlon, Inc.’s outstanding securities
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). This limitation therefore restricts Revlon, Inc.’s ability to
pay dividends on its Class A Common Stock.
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 2010 Credit Agreements and the
93⁄4% Senior Secured Notes. 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 Preferred Stock and would be a change of control under
Products Corporation’s other debt instruments. See also,“— 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 2010 Credit Agreements and the 93⁄4% Senior Secured Notes Indenture
and could have other consequences.”
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, 2010,
the Company’s total indebtedness was $1,219.1 million, primarily including $794.0 million aggregate
10
principal amount outstanding under the 2010 Term Loan Facility, $330.0 million in aggregate principal face
amount outstanding of Products Corporation’s 93⁄4% Senior Secured Notes and $58.4 million under the
Non-Contributed Loan (as hereinafter defined). Also, Revlon, Inc. has $48.6 million in liquidation
preference of Preferred Stock to be paid by Revlon, Inc. at maturity. While Revlon, Inc. achieved net
income of $327.3 million (with $327.0 million of income from continuing operations (which included a one-
time non-cash benefit of $260.6 million related to a reduction of the Company’s deferred tax valuation
allowance on its net U.S. deferred tax assets at December 31, 2010 as a result of the Company achieving
three cumulative years, as well as its third consecutive year, of positive U.S. GAAP pre-tax income and
taxable income in the U.S., and based upon the Company’s current expectations for the realization of such
deferred tax benefits in the U.S.)) and $48.8 million (with $48.5 million of income from continuing
operations) for the years ended December 31, 2010 and 2009, respectively, the Company has a history
of net losses prior to 2008 and, in addition, if it is unable to achieve sustained profitability and free cash flow
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 have the effect of:
•
•
limiting 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, promotional or marketing expenses, new product development costs,
purchases and reconfigurations of wall displays, acquisitions, investments, restructuring programs
and other general corporate requirements;
requiring 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;
• placing the Company at a competitive disadvantage compared to its competitors that have less
debt;
•
limiting the Company’s flexibility in responding to changes in its business and the industry in which
it operates; and
• making 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 2010 Credit
Agreements, the indenture governing Products Corporation’s outstanding 93⁄4% Senior Secured Notes
and the Senior Subordinated Term Loan Agreement, limit Products Corporation’s ability to borrow
additional money, under certain circumstances Products Corporation is allowed to borrow a significant
amount of additional money, some of which, in certain circumstances and subject to certain limitations,
could be secured indebtedness. To the extent that more debt is added to the Company’s current debt levels,
the risks described above may increase.
Products Corporation’s ability to pay the principal of its indebtedness depends on many factors.
The 2010 Term Loan Facility matures in March 2015, the 2010 Revolving Credit Facility matures in
March 2014, the Contributed Loan under the Senior Subordinated Term Loan matures in October 2013, the
Non-Contributed Loan under the Senior Subordinated Term Loan matures in October 2014, and the
93⁄4% Senior Secured Notes mature in November 2015. 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 93⁄4% Senior Secured Notes if a change of control occurs or in the event that
11
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 indebt-
edness, seek to sell assets or operations, seek to sell additional Revlon, Inc. equity, seek to sell Revlon, Inc.
debt securities or Products Corporation debt securities or seek additional capital contributions or loans
from MacAndrews & Forbes or from the Company’s other affiliates and/or third parties. 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 the Company to comply with the financial covenants under the 2010
Credit Agreements if the actions do not result in sufficient savings or generate a sufficient amount of
additional capital, as the case may be.
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 using any of the above actions because, under
certain circumstances, the indenture governing Products Corporation’s outstanding 93⁄4% Senior Secured
Notes or any of its other debt instruments (including the 2010 Credit Agreements and the 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”).
The future state of the credit markets, including any volatility and/or tightening of the credit markets
and reduction in credit availability, could adversely impact the Company’s ability to refinance or replace
Products Corporation’s outstanding indebtedness at or prior to their respective maturity dates, which would
have a material adverse effect on the Company’s business, financial condition and/or results of operations.
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 outstanding indebtedness, including the 2010 Credit
Agreements, the 93⁄4% Senior Secured Notes Indenture and the Senior Subordinated Term Loan Agree-
ment, contain a number of significant restrictions and covenants that limit Products Corporation’s ability
(subject in each case to limited exceptions) to, among other things:
• borrow money;
• use assets as security in other borrowings or transactions;
• pay dividends on stock or purchase stock;
•
•
sell assets and use the proceeds from such sales;
enter into certain transactions with affiliates;
• make certain investments;
• prepay, redeem or repurchase specified indebtedness; and
• permit restrictions on the payment of dividends by Products Corporation’s subsidiaries.
In addition, the 2010 Credit Agreements contain financial covenants limiting Products Corporation’s
senior secured debt-to-EBITDA ratio (in the case of the 2010 Term Loan Agreement) and, under certain
circumstances, requiring Products Corporation to maintain a minimum consolidated fixed charge coverage
ratio (in the case of the 2010 Revolving Credit Agreement). These covenants affect Products Corporation’s
operating flexibility by, among other things, restricting its ability to incur expenses and indebtedness that
12
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 the 2010 Credit Agreements would permit Products Corporation’s lenders to accelerate
amounts outstanding under the 2010 Credit Agreements, which would in turn constitute an event of default
under the Senior Subordinated Term Loan Agreement and the 93⁄4% Senior Secured Notes Indenture, 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 Non-Contributed Loan or the trustee or the holders of at
least 30% of the outstanding principal amount of the notes under the 93⁄4% Senior Secured Notes Indenture.
In addition, holders of Products Corporation’s outstanding 93⁄4% Senior Secured Notes may require
Products Corporation to repurchase their respective notes in the event of a change of control under
the 93⁄4% Senior Secured Notes Indenture. Upon a change of control, Products Corporation would be
required, after fulfilling its repayment obligations under the 93⁄4% Senior Secured Notes Indenture, to repay
in full the Senior Subordinated Term Loan, provided that Revlon, Inc. at such time has redeemed or is then
concurrently redeeming all of the Preferred Stock. (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
2010 Credit Agreements or the Senior Subordinated Term Loan Agreement or to repurchase or redeem its
outstanding 93⁄4% Senior Secured Notes.
Events beyond the Company’s control could impair the Company’s operating performance, which
could affect Products Corporation’s ability to comply with the terms of Products Corporation’s debt
instruments. Such events may include decreased consumer spending in response to weak economic
conditions or weakness in the cosmetics category in the mass retail channel; adverse changes in currency
exchange rates; 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; changes in retailer pricing or promotional strategies; 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, promotional and/or marketing plans; or if
the Company’s expenses, including, without limitation, for pension expense under its benefit plans,
advertising, promotions and/or marketing activities or for sales returns related to any reduction of retail
space, product discontinuances or otherwise, exceed the anticipated level of expenses.
Under such circumstances, Products Corporation may be unable to comply with the provisions of
Products Corporation’s debt instruments, including the financial covenants in the 2010 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 2010 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, Products
Corporation’s inability to meet the financial covenants or other provisions of the 2010 Credit Agreements
would constitute an event of default under the 2010 Credit Agreements, which would permit the bank
lenders to accelerate the 2010 Credit Agreements, which in turn would constitute an event of default under
the Senior Subordinated Term Loan Agreement and the 93⁄4% Senior Secured Notes Indenture, 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 Non-Contributed Loan or the trustee or the holders of at
least 30% of the outstanding principal amount of the outstanding notes under the 93⁄4% Senior Secured
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 93⁄4% Senior Secured Notes or repay the Senior Subordinated Term Loan or repay the
13
2010 Credit Agreements 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 2010 Credit Agreements and/or the 93⁄4% Senior Secured Notes, the
lenders and the noteholders, as applicable, subject to certain conditions and limitations as set forth in the
third amended and restated intercreditor agreement, could proceed against the collateral securing that
indebtedness.
Limits on Products Corporation’s borrowing capacity under the 2010 Revolving Credit Facility may affect
the Company’s ability to finance its operations.
While the 2010 Revolving Credit Facility currently provides for up to $140.0 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 $140.0 million borrowing base,
Products Corporation will not have full access to the 2010 Revolving Credit Facility, but rather could have
access to a lesser amount determined by the borrowing base. As Products Corporation continues to manage
its working capital, this could reduce the borrowing base under the 2010 Revolving Credit Facility. 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 2010 Revolving Credit Facility is also
conditioned upon its compliance with other covenants in the 2010 Revolving Credit Agreement, including a
fixed charge coverage ratio that applies when the difference between (1) the borrowing base under the 2010
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 2010 Revolving Credit Facility, which could have a material adverse effect
on the Company’s business, financial condition and/or results of operations.
At December 31, 2010, the 2010 Term Loan Facility was fully drawn, and the Company had a liquidity
position of approximately $185.0 million, consisting of cash and cash equivalents (net of any outstanding
checks) of approximately $73.3 million, as well as approximately $111.7 million in available borrowings
under the 2010 Revolving Credit Facility, based upon the calculated borrowing base less $21.2 million
outstanding letters of credit and nil then drawn under the 2010 Revolving Credit Facility at such date.
The 2010 Revolving Credit Facility is syndicated to a group of banks and financial institutions. Each
bank is responsible to lend its portion of the $140.0 million commitment if and when Products Corporation
seeks to draw under the 2010 Revolving Credit Facility. The lenders may assign their commitments to other
banks and financial institutions in certain cases without prior notice to Products Corporation. If a lender is
unable to meet its lending commitment, then the other lenders under the 2010 Revolving Credit Facility
have the right, but not the obligation, to lend additional funds to make up for the defaulting lender’s
commitment, if any. While Products Corporation has never had any of its lenders under the 2010 Revolving
Credit Facility fail to fulfill their lending commitment, economic conditions in late 2008 and 2009 and the
volatility in the financial markets during that time period have impacted the liquidity and financial
condition of certain banks and financial institutions. Based on information available to the Company,
the Company has no reason to believe that any of the lenders under Products Corporation’s 2010 Revolving
Credit Facility would be unable to fulfill their commitments to lend as of December 31, 2010. However, if
one or more lenders under the 2010 Revolving Credit Facility were unable to fulfill their commitment to
lend, such inability would impact the Company’s liquidity and, depending upon the amount involved and
the Company’s liquidity requirements, could have an adverse affect on the Company’s ability to fund its
operations, which could have a material adverse effect on the Company’s business, financial condition
and/or results of operations.
A substantial portion of Products Corporation’s indebtedness is subject to floating interest rates.
14
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, 2010, $785.7 million of
Products Corporation’s total indebtedness, or approximately 65% of Products Corporation’s total indebt-
edness, was subject to floating interest rates.
Under the 2010 Term Loan Facility, loans bear interest, at Products Corporation’s option, at either the
Eurodollar Rate (as defined in the 2010 Term Loan Agreement) plus 4.0% per annum (provided that in no
event shall the Eurodollar Rate be less than 2.0% per annum), which is based upon LIBOR, or the
Alternate Base Rate (as defined in the 2010 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 that in no event shall the Alternative Base Rate be less than 3.0% per annum). At
December 31, 2010, the Eurodollar Rate, LIBOR and the Alternate Base Rate were 2.0% (as a result of the
Eurodollar Rate floor referred to above), 0.3% and 3.25%, respectively. Borrowings under the 2010
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 3.0% per annum or (ii) the Alternate Base Rate
(as defined in the 2010 Revolving Credit Agreement) plus 2.0% per annum. Local Loans (as defined in the
2010 Revolving Credit Agreement) bear interest, if mutually acceptable to Products Corporation and the
relevant foreign lenders, at the Local Rate, and otherwise (i) if in foreign currencies or in U.S. dollars at the
Eurodollar Rate or the Eurocurrency Rate plus 3.0% per annum or (ii) if in U.S. dollars at the Alternate
Base Rate plus 2.0% per annum.
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 2010 Credit Agreements and other short-term borrow-
ings (which, in the aggregate, are Products Corporation’s only debt currently subject to floating interest
rates) as of December 31, 2010, an increase in LIBOR of 1% would increase the Company’s annual interest
expense by approximately $8.1 million (assuming that the Eurodollar Rate is at least 2.0% per annum).
Increased debt service costs would adversely affect the Company’s cash flow. While Products Corporation
may enter into other interest hedging contracts, Products Corporation 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’s business, financial
condition and/or results of operations.
The Company depends on its Oxford, North Carolina facility for production of a substantial portion of its
products. Disruptions to this facility, or at other third party facilities at which the Company’s products are
manufactured, 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, or at other third party facilities at which the Company’s
products are manufactured, whether due to equipment breakdowns, power failures, natural disasters,
weather conditions hampering delivery schedules or other disruptions, including those caused by tran-
sitioning 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 could affect
the Company’s sales, business, financial condition and/or results of operations. Additionally, if product sales
exceed forecasts or production, 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 a rigorous process for the continuous development and evaluation of new product
led by executives in marketing, sales, research and development, product development,
concepts,
15
operations, law and finance. 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, promotional 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 retailer space reconfigurations or reductions in retail display
space or the Company’s net sales may be impacted by retailer inventory management or changes in
retailer pricing or promotional strategies;
the Company may incur costs exceeding its expectations as a result of the continued development
and launch of new products, including, for example, advertising, promotional and marketing
expenses, sales return expenses or other costs 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, or at other third party facilities at
which the Company’s products are manufactured, 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/or results of operations.
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 2010 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 2010 Revolving Credit Agreement and other permitted lines of credit will be sufficient
to enable the Company to cover its operating expenses for 2011, including cash requirements in connection
with the payment of 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, severance not otherwise included in the Company’s restruc-
turing programs, debt service payments, debt repurchases and costs and regularly scheduled pension and
post-retirement plan contributions and benefit payments.
16
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 exchange rates; 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 manage-
ment; retailer space reconfigurations or reductions in retailer display space; changes in retailer pricing or
promotional strategies; less than anticipated results from the Company’s existing or new products or from
its advertising, promotional and/or marketing plans; or if the Company’s expenses, including, without
limitation, for pension expense under its benefit plans, advertising, promotions or marketing activities or for
sales 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
2010 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 2010 Credit Agreements, the Company could be required to adopt one or more of the
alternatives listed below:
• delaying the implementation of or revising certain aspects of the Company’s business strategy;
•
•
•
•
•
•
•
•
reducing or delaying purchases of wall displays or advertising, promotional or marketing expenses;
reducing or delaying capital spending;
implementing new or revising existing restructuring programs;
refinancing 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 or debt securities or Products Corporation debt securities; or
reducing 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 2010 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.
Economic conditions could have a material adverse effect on the Company’s business, financial condition
and/or results of operations or on the financial condition of its customers and suppliers.
The economic conditions in late 2008, 2009 and 2010, both in the U.S. and in many other countries
where the Company operates, have contributed and may continue to contribute to high unemployment
17
levels, lower consumer spending and reduced credit availability, and have impacted business and consumer
confidence. Such conditions could have an impact on consumer purchases and/or retail customer purchases
of the Company’s products, which could result in a reduction of net sales, operating income and/or cash
flows. Additionally, disruptions in the credit and other financial markets and economic conditions could,
among other things, impair the financial condition of one or more of the Company’s customers or suppliers,
thereby increasing the risk of customer bad debts or non-performance by suppliers. These conditions could
have a material adverse effect on the Company’s business, financial condition and/or results of operations.
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 2010, 2009 and 2008, Walmart, Inc. accounted for approximately 22%, 23% and 23%, respectively,
of the Company’s worldwide net sales. The Company expects that for future periods, Walmart 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
accommodations. The Company may be affected by changes in the policies and demands of its retail
customers relating to service levels, inventory de-stocking, pricing and promotional strategies 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 Walmart 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,
including as a result of retailer consolidation, retailer inventory management, changes in retailer pricing or
promotional strategies or retailer space configurations 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/or operating
income and therefore could have a material adverse effect on the Company’s business, financial condition
and/or results of operations.
Declines in the financial markets may result in increased pension expense and increased cash contributions
to the Company’s pension plans.
Declines in the U.S. and global financial markets in late 2008 resulted in significant declines on pension
plan assets for 2008, which resulted in increased pension expense for 2009 and increased cash contributions
to the Company’s pension plans for 2010 and beyond. Future volatility in the financial markets may further
affect the Company’s return on pension plan assets for 2011 and in subsequent years. Interest rate levels will
affect the discount rate used to value the Company’s year-end pension benefit obligations. One or more of
these factors, individually or taken together, could further impact required cash contributions to the
Company’s pension plans and pension expense in 2011 and beyond. Any one or more of these conditions
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, combine to 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, changes in retailer pricing or promotional strategies, 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.
18
Competition in the cosmetics and beauty care products business could have a material 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 by:
• 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, promotion, marketing 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 or change in the current level of competition that the Company faces could have a
material adverse effect on our business, financial condition and results of operations.
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, promotions 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 distribution 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/or results of operations.
The Company’s foreign operations are subject to a variety of social, political and economic risks and have
been, and are expected to continue to be, affected by foreign currency fluctuations, 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, 2010, the Company had operations based in 14 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, including inflation, inherent in operating in foreign countries, including those in Asia,
Eastern Europe, Latin America (including Venezuela) and South Africa, which could adversely affect the
Company’s business, financial condition and/or results of operations. Such changes include changes in the
laws and policies that govern foreign investment in countries where the Company has operations, hyper-
inflation, currency devaluation, currency controls, changes in consumer purchasing habits including as to
19
shopping channels, as well as, to a lesser extent, changes in U.S. laws and regulations relating to foreign trade
and investment.
The Company’s subsidiary in Venezuela accounted for approximately 3% and 2% of the Company’s
consolidated net sales and operating income, respectively, as of December 31, 2010. Effective January 1,
2010 Venezuela has been designated as a highly inflationary economy under U.S. GAAP and on January 8,
2010 the Venezuelan government announced the devaluation of its local currency. As a result of the
hyperinflationary designation and devaluation of the local currency in Venezuela, the Company’s results of
operations in 2010 were adversely impacted. (See “Financial Condition, Liquidity and Capital Resources —
Impact of Foreign Currency Translation — Venezuela” for details regarding the designation of Venezuela
as a highly inflationary economy in 2010 and the Venezuelan government’s announcement of the deval-
uation of its local currency on January 8, 2010).
The Company’s net sales outside of the U.S. for the years ended December 31, 2010, 2009 and 2008
were approximately 45%, 42% and 42% of the Company’s total consolidated net sales, respectively.
Fluctuations in foreign currency exchange rates have affected and may continue to affect the Company’s
results of operations and the value of its foreign assets in 2010, which in turn may adversely affect the
Company’s reported net sales and earnings and the comparability of period-to-period results of operations.
Products Corporation enters into foreign currency forward exchange contracts to hedge certain net
cash flows denominated in foreign currencies. The foreign currency forward exchange contracts are entered
into primarily for the purpose of hedging anticipated inventory purchases and certain intercompany
payments denominated in foreign currencies and generally have maturities of less than one year. At
December 31, 2010, the notional amount of Products Corporation’s foreign currency forward exchange
contracts was $46.0 million. The foreign currency forward exchange contracts that Products Corporation
enters into may not adequately protect against foreign 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, attempted attacks, military responses to terrorist attacks and future devel-
opments, or other military actions, such as the military actions in Iraq and Afghanistan, 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/or 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 those in the EU, Canada and other
countries in which the Company operates. 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. Regulations in the
U.S., the EU, Canada and other countries in which the Company operates 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 federal, state, local and/or foreign 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, any of which could result in, among other things, increased costs to the Company,
delays in product launches, product returns or recalls and lower net sales, and therefore could have a
material adverse effect on the Company’s business, financial condition and/or results of operations.
20
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 2010 Credit
Agreements and the 93⁄4% Senior Secured Notes Indenture and could have other consequences.
All of Products Corporation’s shares of common stock are pledged to secure Revlon, Inc.’s guarantee
under the 2010 Credit Agreements and the 93⁄4% Senior Secured Notes. 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
between Revlon, Inc. and MacAndrews & Forbes.
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
between Revlon, Inc. and MacAndrews & Forbes which are beneficially owned by MacAndrews & Forbes
could, in a sufficient amount, constitute a “change of control” under the 2010 Credit Agreements, the
Senior Subordinated Term Loan Agreement and the 93⁄4% Senior Secured Notes Indenture. A change of
control constitutes an event of default under the 2010 Credit Agreements, which would permit Products
Corporation’s lenders to accelerate amounts outstanding under the 2010 Credit Facilities. In addition,
holders of the 93⁄4% Senior Secured 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 fulfilling its repayment obligations under the 93⁄4% Senior Secured Notes Indenture, to repay in full the
Senior Subordinated Term Loan, provided that Revlon, Inc. at such time has redeemed or is then
concurrently redeeming the Preferred Stock.
Products Corporation may not have sufficient funds at the time of any such change of control to repay
in full the borrowings under the 2010 Credit Facilities or to repurchase or redeem the 93⁄4% Senior Secured
Notes and/or to repay the Contributed Loan that Revlon, Inc. expects to use to redeem the Preferred Stock
and/or repay the Non-Contributed 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 2010 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, through MacAn-
drews & Forbes, beneficially owned, at December 31, 2010, approximately 78% of Revlon, Inc.’s out-
standing Class A and Class B Common Stock (representing approximately 77% of the combined voting
power of Revlon, Inc.’s Class A Common Stock, Class B Common Stock and Preferred 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 the Company’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 General Corporation Law of the State of Delaware 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
21
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 any applicable 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, preferences and the relative participation, optional or other rights, if any, and the qualifications,
limitations or restrictions, 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 and 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 Company’s equity securities.
Future sales or issuances of 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 Common Stock, or the availability
of 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 Common Stock, including shares held by MacAn-
drews & Forbes, or investor perception that such sales could occur, could adversely affect 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 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 Common Stock, preferred stock or securities convertible
into shares of the Company’s Common Stock or preferred stock may dilute the Company’s existing
stockholders’ equity interest in the Company. 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 or Preferred Stock at the time of any such
future issuances and could dilute the consideration per share payable to holders of Class A Common Stock
and Preferred Stock upon the occurrence of certain change of control transactions.
There can be no assurance that any trading market for Revlon, Inc.’s Preferred Stock will develop or be
maintained.
There can be no assurance that any market for the Preferred Stock will develop or, if one does develop,
that it will be maintained. If an active market for the Preferred Stock fails to develop or be sustained, the
trading price of the Preferred Stock could be materially adversely affected. Revlon, Inc. has not, nor does it
intend to, apply for listing of the Preferred Stock on any securities exchange. The liquidity of the trading
market in the Preferred Stock, and the market price quoted for the Preferred Stock, may be materially
adversely affected by:
•
•
•
changes in the overall market for preferred equity securities;
changes in the Company’s financial performance or prospects;
the prospects of other companies in the Company’s industry generally;
22
•
•
the number of holders of Preferred Stock;
the interest of securities dealers in making a market for Preferred Stock; and
• prevailing interest rates.
Revlon, Inc. may be restricted by the terms of the applicable provisions of Delaware law from paying
dividends on the Preferred Stock and/or redeeming the Series A Preferred Stock.
Under Delaware law, Revlon, Inc. is permitted to pay dividends only from its “surplus,” which is the
excess of Revlon, Inc.’s total assets over the sum of its liabilities plus the aggregate par value of Revlon,
Inc.’s outstanding capital stock, or if Revlon, Inc. has no surplus, out of its net profits for the year in which
the dividend is declared and/or for the immediately preceding fiscal year. Revlon, Inc. cannot assure holders
of the Preferred Stock that Revlon, Inc. will have any surplus or net profits so that it will be able to pay
quarterly dividends on the Preferred Stock. Additionally, Revlon, Inc. is permitted to redeem its capital
stock, including the Preferred Stock, only from its surplus. Revlon, Inc. cannot assure holders of the
Preferred Stock that Revlon, Inc. will have any surplus at such time as it may be required to redeem the
Preferred Stock. In the event that Revlon, Inc. fails to pay any required dividends on the Preferred Stock,
the amount of such unpaid dividends will be added to the amount payable to holders of the Preferred Stock
upon redemption.
Holders of Preferred Stock will only participate on a limited basis in any future earnings or growth of the
Company’s business or the proceeds from one of certain specified change of control transactions.
While holders of the Preferred Stock will be entitled to quarterly dividends at an annual rate of 12.75%
over the four-year term of the Preferred Stock, such holders will not benefit from increases, if any, in the
value of the Company, including, without limitation, any increases due to a general economic recovery,
unless there is a change of control of the Company prior to October 8, 2012. If such an event occurs during
such period, participation by holders of Preferred Stock will be limited to the receipt of payments up to an
aggregate of $12 per share (including the liquidation preference, dividends and payments upon certain
specified change of control transactions).
The Preferred Stock ranks senior to Revlon, Inc.’s Common Stock and is subordinate to the Company’s
indebtedness. However, pursuant to the Senior Subordinated Term Loan Agreement, the Preferred Stock is
senior in right of payment to the payment of principal under such loan prior to its maturity dates.
The Preferred Stock ranks senior to Revlon, Inc.’s Common Stock and subordinate to all of the
Company’s present and future indebtedness, including, without limitation, in the event of any liquidation,
dissolution or winding up of the Company. However, pursuant to the Senior Subordinated Term Loan
Agreement, such loan may not be repaid prior to its respective maturity dates (which is October 8, 2013 in
the case of the Contributed Loan and which is October 8, 2014 in the case of the Non-Contributed Loan)
unless all shares of Preferred Stock have been, or are being, redeemed and all payments due thereon have
been, or are being, paid in full. Accordingly, upon any such liquidation, dissolution or winding up of the
Company prior to the respective maturity dates of the Senior Subordinated Term Loan, all payments then
due to:
• debt holders (other than holders of the Senior Subordinated Term Loan) will be made first;
• holders of the Preferred Stock will be made next; and
• holders of the Senior Subordinated Term Loan will be made last.
Dividends on the Preferred Stock are payable in cash quarterly on January 8, April 8, July 8 and
October 8 of each year during the term of the Preferred Stock. Revlon, Inc. expects that it will pay such
dividends using the interest payments received by Revlon, Inc. from Products Corporation on the Con-
tributed Loan. On October 8, 2013, Revlon, Inc. is required to redeem the Preferred Stock. Revlon, Inc.
expects to pay the liquidation preference of the Preferred Stock on that date with the cash payment to be
received by Revlon, Inc. from Products Corporation in respect of the maturity of the Contributed Loan.
There can be no assurances that Products Contribution will have sufficient cash to pay the interest or repay
23
the principal amount of the Contributed Loan when due or that Revlon, Inc. will have sufficient cash to pay
dividends on the Preferred Stock or to redeem the Preferred Stock at the end of its four-year term.
Holders of Revlon, Inc.’s capital stock are subject to future economic dilution in the event that Revlon, Inc.
issues equity to third-parties who are not affiliated with MacAndrews & Forbes or to MacAndrews &
Forbes on arms’ length terms.
Revlon, Inc.
is not prohibited from issuing equity to third parties or from issuing equity to
MacAndrews & Forbes or its affiliates on arms’ length terms. In the event of any such issuance, holders
of Revlon, Inc.’s capital stock, including the Preferred Stock and Revlon, Inc.’s Common Stock, will be
economically diluted, and their participation in increases, if any, in the value of the Company will be
proportionally diluted.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
The following table sets forth, as of December 31, 2010, the Company’s major manufacturing, research
and warehouse/distribution facilities, all of which are owned except where otherwise noted.
Location
Use
Oxford, North Carolina . . . . . Manufacturing, warehousing, distribution and
office(a)
Mississauga, Canada. . . . . . . . Warehousing, distribution and office (leased)
Caracas, Venezuela. . . . . . . . . Manufacturing, distribution and office
Canberra, Australia . . . . . . . . Warehousing, distribution and office (leased)
Edison, New Jersey . . . . . . . . Research and office (leased)
Rietfontein, South Africa. . . . 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 2010 Credit Agreements.
Approximate
Floor Space Sq. Ft.
1,012,000
195,000
145,000
125,000
123,000
120,000
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, 2010). 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, financial condition and/or its results
of operations.
As previously announced, on October 8, 2009 the Company consummated its voluntary exchange offer
in which, among other things, Revlon, Inc. issued to stockholders who elected to exchange shares (other
than MacAndrews & Forbes) 9,336,905 shares of its Preferred Stock in exchange for the same number of
shares of Revlon, Inc. Class A Common Stock tendered in the Exchange Offer (the “Exchange Offer”). On
24
April 24, 2009, May 1, 2009, May 5, 2009 and May 12, 2009, respectively, four purported class actions were
filed by each of Vern Mercier, Arthur Jurkowitz, Suri Lefkowitz and T. Walter Heiser in the Court of
Chancery of the State of Delaware (the “Chancery Court”). On May 4, 2009, a purported class action was
filed by Stanley E. Sullivan in the Supreme Court of New York, New York County. Each such lawsuit was
brought against Revlon, Inc., Revlon, Inc.’s then directors and MacAndrews & Forbes, and challenged a
merger proposal made by MacAndrews & Forbes on April 13, 2009, which would have resulted in
MacAndrews & Forbes and certain of its affiliates owning 100% of Revlon, Inc.’s outstanding Common
Stock (in lieu of consummating such merger proposal, the Company consummated the aforementioned
Exchange Offer). Each action sought, among other things, to enjoin the proposed merger transaction. On
June 24, 2009, the Chancery Court consolidated the four Delaware actions (the “Initial Consolidated
Action”), and appointed lead counsel for plaintiffs. As announced on August 10, 2009, an agreement in
principle was reached to settle the Initial Consolidated Action, as set forth in a Memorandum of Under-
standing (as amended in September 2009, the “Settlement Agreement”).
On December 24, 2009, an amended complaint was filed in the Sullivan action alleging, among other
things, that defendants should have disclosed in the Company’s Offer to Exchange for the Exchange Offer
information regarding the Company’s financial results for the fiscal quarter ended September 30, 2009. On
January 6, 2010, an amended complaint was filed by plaintiffs in the Initial Consolidated Action making
allegations similar to those in the amended Sullivan complaint. Revlon initially believed that by filing the
amended complaint, plaintiffs in the Initial Consolidated Action had formally repudiated the Settlement
Agreement, and on January 8, 2010, defendants filed a motion to enforce the Settlement Agreement.
In addition to the amended complaints in the Initial Consolidated Action and the Sullivan action, on
December 21, 2009, Revlon, Inc.’s current directors, a former director and MacAndrews & Forbes were
named as defendants in a purported class action filed in the Chancery Court by Edward Gutman. Also on
December 21, 2009, a second purported class action was filed in the Chancery Court against Revlon, Inc.’s
current directors and a former director by Lawrence Corneck. The Gutman and Corneck actions make
allegations similar to those in the amended complaints in the Sullivan action and the Initial Consolidated
Action. On January 15, 2010, the Chancery Court consolidated the Gutman and Corneck actions with the
Initial Consolidated Action (the Initial Consolidated Action, as consolidated with the Gutman and
Corneck actions, is hereafter referred to as the “Consolidated Action”). A briefing schedule was then
set to determine the leadership structure for plaintiffs in the Consolidated Action.
On March 16, 2010, after hearing oral argument on the leadership issue, the Chancery Court changed
the leadership structure for plaintiffs in the Consolidated Action. Thereafter, newly appointed counsel for
the plaintiffs in the Consolidated Action and the defendants agreed that the defendants would withdraw
their motion to enforce the Settlement Agreement and that merits discovery would proceed. Defendants
agreed not to withdraw any of the concessions that had been provided to the plaintiffs as part of the
Settlement Agreement.
On May 25, 2010, plaintiffs’ counsel in the Consolidated Action filed an amended complaint alleging
breaches of fiduciary duties arising out of the Exchange Offer and that defendants should have disclosed in
the Company’s Offer to Exchange information regarding the Company’s financial results for the fiscal
quarter ended September 30, 2009. Merits discovery is now proceeding in the Consolidated Action.
On December 31, 2009, a purported class action was filed in the U.S. District Court for the District of
Delaware by John Garofalo against Revlon, Inc., Revlon, Inc.’s current directors, a former director and
MacAndrews & Forbes alleging federal and state law claims stemming from the alleged failure to disclose in
the Offer to Exchange certain information relating to the Company’s financial results for the fiscal quarter
ended September 30, 2009. Defendants and plaintiff have agreed to stay proceedings in this action until
April 15, 2011 to permit plaintiff to participate in the merits discovery in the Consolidated Action. A similar
agreement has been reached with the plaintiff in the Sullivan action with the same stay period.
On May 11, 2010, a purported derivative action was filed in the U.S. District Court for the District of
Delaware by Richard Smutek, derivatively and on behalf of Revlon, Inc. against Revlon, Inc.’s current
directors and MacAndrews & Forbes alleging breach of fiduciary duty in allowing the Exchange Offer to
25
proceed and failing to disclose in the Offer to Exchange certain information related to the Company’s
financial results for the fiscal quarter ended September 30, 2009. On August 16, 2010, defendants moved to
dismiss the complaint. Briefing on defendants’ motions to dismiss was completed on December 10, 2010.
Thereafter, the parties requested oral argument on the motions to dismiss. The motions to dismiss are
currently pending along with two discovery motions. On September 27, 2010, plaintiff filed a motion to
compel discovery. In response, defendants moved to strike plaintiff’s motion to compel discovery or, in the
alternative, for an extension of time for defendants to respond to plaintiff’s motion.
Plaintiffs in each of these actions are seeking, among other things, an award of damages and the costs
and disbursements of such actions, including a reasonable allowance for the fees and expenses of each such
plaintiff’s attorneys and experts. Because the Smutek action is styled as a derivative action on behalf of the
Company, any award of damages, costs and disbursements would be made to and for the benefit of the
Company. The Company believes the allegations contained in the amended Sullivan complaint, the
amended complaint in the Consolidated Action, the Garofalo complaint and the Smutek complaint are
without merit and intends to vigorously defend against them.
Item 4.
[Removed and Reserved by SEC Release Nos. 33-9089A and 34-61175A]
26
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, 2010
beneficially owned (i) 37,544,640 shares of Revlon, Inc.’s Class A Common Stock, with a par value of
$0.01 per share (the “Class A Common Stock”) (25,264,938 shares of which were beneficially owned by
MacAndrews & Forbes, 7,718,092 shares of which were owned by a holding company, RCH Holdings One,
Inc. (of which each of Mr. Perelman and The Ronald O. Perelman 2008 Trust owns 50% of the shares) and
4,561,610 shares of which were beneficially owned by a family member of Mr. Perelman with respect to
which shares MacAndrews & Forbes holds a voting proxy), and (ii) all of the outstanding 3,125,000 shares of
Revlon, Inc.’s Class B Common Stock, with a par value of $0.01 per share (the “Class B Common Stock”
and together with the Class A Common Stock, the “Common Stock”).
Based on the shares referenced in clauses (i) and (ii) above, and including Mr. Perelman’s vested stock
options, Mr. Perelman, directly and indirectly, through MacAndrews & Forbes, at December 31, 2010,
beneficially owned approximately 77% of Revlon, Inc.’s Class A Common Stock, 100% of Revlon, Inc.’s
Class B Common Stock, together representing approximately 78% of the combined Revlon, Inc. Class A
and Class B Common Stock (representing approximately 77% of the combined voting power of Revlon,
Inc.’s Class A and Class B Common Stock and Preferred Stock), and beneficially owned approximately
66% of the combined Revlon, Inc. Class A and Class B Common Stock and Preferred Stock. The remaining
11,232,330 shares of Class A Common Stock and 9,336,905 shares of Preferred Stock, in each case as
outstanding at December 31, 2010, 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, 2010, there were 533 holders of record of Class A Common Stock (which
does not include the number of beneficial owners holding indirectly through a broker, bank or other
nominee). No cash dividends were declared or paid during 2010 by Revlon, Inc. on its Common Stock. The
terms of the 2010 Credit Agreements, the 93⁄4% Senior Secured Notes indenture and the Senior Subor-
dinated Term Loan Agreement 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 closing stock prices of Revlon, Inc.’s Class A
Common Stock on the NYSE consolidated tape for the years ended December 31, 2010 and 2009.
Year Ended December 31, 2010
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
High . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Low. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$18.13
14.18
$18.04
11.01
$13.69
10.67
$14.50
9.36
Year Ended December 31, 2009
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
High . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Low. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$7.23
2.30
$5.95
2.48
$6.27
4.34
$19.75
4.65
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”.
27
Item 6. Selected Financial Data
The Consolidated Statements of Operations Data for each of the years in the five-year period ended
December 31, 2010 and the Balance Sheet Data as of December 31, 2010, 2009, 2008, 2007 and 2006 are
derived from the Company’s Consolidated Financial Statements, which have been audited by an inde-
pendent 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 . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense — preferred stock dividend . .
Amortization of debt issuance costs. . . . . . . . .
Loss on early extinguishment of debt, net . . . .
Foreign currency losses (gains), net . . . . . . . . .
(Benefit from) provision for income taxes . . . .
Income (loss) from continuing operations, net
of taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from discontinued operations, net of
taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . .
Basic income (loss) per common share:
Continuing operations . . . . . . . . . . . . . . . . .
Discontinued operations . . . . . . . . . . . . . . . .
Net income (loss) . . . . . . . . . . . . . . . . . . . $
Diluted income (loss) per common share:
Continuing operations . . . . . . . . . . . . . . . . .
Discontinued operations . . . . . . . . . . . . . . . .
Net income (loss) . . . . . . . . . . . . . . . . . . . $
Weighted average number of common shares
outstanding (in millions)(f):
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended December 31,
(in millions, except per share amounts)
2009(b)
2008(c)
2007(d)
$ 1,295.9
821.2
629.1
21.3
170.8
91.5
1.5
5.8
5.8
8.9
8.3
$ 1,346.8
855.9
709.3
(8.4)
155.0
119.7
—
5.6
0.7
0.1
16.1
$ 1,367.1
861.4
735.7
7.3
118.4
135.6
—
3.3
0.1
(6.8)
7.5
2010(a)
$1,321.4
866.1
666.6
(0.3)
199.8
90.5
6.4
5.9
9.7
6.3
(247.2)
2006(e)
$ 1,298.7
771.0
795.6
27.4
(52.0)
147.7
—
7.5
23.5
(1.5)
20.1
(19.0)
(252.1)
327.0
0.3
327.3
6.30
0.01
6.31
6.25
0.01
6.26
51.9
52.3
2010(a)
48.5
0.3
48.8
0.94
0.01
0.95
0.94
0.01
0.94
51.6
51.7
$
$
13.1
44.8
57.9
0.26
0.87
1.13
0.26
0.87
1.13
51.2
51.3
$
$
$
$
2.9
(16.1)
(0.38)
0.06
(0.32)
(0.38)
0.06
(0.32)
50.4
50.4
Year Ended December 31,
(in millions)
2008(c)
2007(d)
2009(b)
$
$
0.8
(251.3)
(6.04)
0.02
(6.03)
(6.04)
0.02
(6.03)
41.7
41.7
2006(e)
Balance Sheet Data:
Total current assets . . . . . . . . . . . . . . . . . . . . . $ 476.1
610.6
Total non-current assets . . . . . . . . . . . . . . . . . .
$1,086.7
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
403.6
390.6
794.2
$
$
428.5
384.9
813.4
$
$
476.0
413.3
889.3
$
$
488.0
443.9
931.9
28
Year Ended December 31,
(in millions)
2008(c)
2007(d)
2009(b)
2010(a)
Total current liabilities . . . . . . . . . . . . . . . . . . . $ 318.5
48.1
Redeemable preferred stock . . . . . . . . . . . . . .
1,416.5
Total other non-current liabilities. . . . . . . . . . .
$1,783.1
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . .
$
309.3
48.0
1,470.5
$ 1,827.8
$
323.4
—
1,602.8
$ 1,926.2
$
348.7
—
1,622.6
$ 1,971.3
2006(e)
$
377.2
—
1,784.5
$ 2,161.7
Total indebtedness . . . . . . . . . . . . . . . . . . . . . .
Total stockholders’ deficiency . . . . . . . . . . . . .
$1,219.1
(696.4)
$ 1,248.1
(1,033.6)
$ 1,329.6
(1,112.8)
$ 1,440.6
(1,082.0)
$ 1,506.9
(1,229.8)
(a) Results for 2010 include: (1) an increase in net income driven by a one-time non-cash benefit of $260.6 million related to the
reduction of the Company’s deferred tax valuation allowance on its net U.S. deferred tax assets at December 31, 2010 as a result of
the Company achieving three cumulative years, as well as its third consecutive year, of positive U.S. GAAP pre-tax income and
taxable income in the U.S., and based upon the Company’s current expectations for the realization of such deferred tax benefits in
the U.S. The Company reflected this benefit in the provision for income taxes; (2) a $9.7 million loss on the early extinguishment of
debt in connection with the 2010 Refinancing; and (3) a $2.8 million one-time foreign currency loss related to the required re-
measurement of the balance sheet of the Company’s subsidiary in Venezuela to reflect the impact of the devaluation of
Venezuela’s local currency relative to the U.S. dollar, as Venezuela was designated as a highly inflationary economy effective
January 1, 2010.
(b) Results for 2009 include: (1) a $20.8 million charge related to the worldwide organizational restructuring announced in May 2009
(the “May 2009 Program”), which involved consolidating certain functions; reducing layers of management, where appropriate, to
increase accountability and effectiveness; streamlining support functions to reflect the new organizational structure; and further
consolidating the Company’s office facilities in New Jersey; and (2) a $5.8 million net loss on early extinguishment of debt in 2009
primarily due to a $13.5 million loss resulting from applicable redemption and tender premiums and the net write-off of
unamortized debt discounts and deferred financing fees in connection with the refinancing of the 91⁄2% Senior Notes in November
2009, partially offset by a $7.7 million gain on repurchases of an aggregate principal amount of $49.5 million of the 91⁄2% Senior
Notes prior to their complete refinancing in November 2009 at an aggregate purchase price of $41.0 million, which is net of the
write-off of the ratable portion of unamortized debt discounts and deferred financing fees resulting from such repurchases.
(c) Results for 2008 include a $5.9 million gain from the sale of a non-core trademark during the first quarter of 2008, and a net
$4.3 million gain related to the sale of the Mexico facility (which is comprised of a $7.0 million gain on the sale, partially offset by
related restructuring charges of $1.1 million, $1.2 million of SG&A and cost of sales and $0.4 million of taxes). In addition, results
for 2008 also include various other restructuring charges of approximately $3.8 million. The results of discontinued operations for
2008 included a one-time gain from the disposition of the non-core Bozzano business and certain other non-core brands, including
Juvena and Aquamarine, which were sold in the Brazilian market, of $45.2 million.
(d) Results for 2007 include restructuring charges of approximately $4.4 million and $2.9 million in connection with restructurings
announced in 2006 (the “2006 Programs”) and in 2007 (the “2007 Programs”), respectively. The $4.4 million of restructuring
charges associated with the 2006 Programs were primarily for employee severance and other employee-related termination costs
principally relating to a broad organizational streamlining. The $2.9 million of restructuring charges associated with the 2007
Programs were 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.
(e) 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.
(f) Represents the weighted average number of common shares outstanding for each of the respective periods.
29
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”)
is intended to provide a reader of our financial statements with a narrative from the perspective of our
management on our financial condition, results of operations, liquidity and certain other factors that may
affect our future results. Our MD&A is presented as follows:
• Overview;
• Results of Operations;
• Financial Condition, Liquidity and Capital Resources;
• Disclosures about Contractual Obligations and Commercial Commitments;
• Off-Balance Sheet Transactions (there are none);
• Discussion of Critical Accounting Policies;
• Recent Accounting Pronouncements; and
•
Inflation.
The Company is providing this overview in accordance with the SEC’s December 2003 interpretive
guidance regarding MD&A.
Overview
Overview of the Business
Revlon, Inc. (and together with its subsidiaries, the “Company”) conducts its business exclusively
through its direct wholly-owned operating subsidiary, Revlon Consumer Products Corporation (“Products
Corporation”) and its subsidiaries. Revlon, Inc. is a direct and indirect majority-owned subsidiary of
MacAndrews & Forbes Holdings Inc. (“MacAndrews & Forbes Holdings” and together with certain of its
affiliates other than the Company, “MacAndrews & Forbes”), a corporation wholly-owned by Ronald O.
Perelman.
The Company’s vision is glamour, excitement and innovation through high-quality products at
affordable prices. The Company operates in a single segment and manufactures, markets and sells an
extensive array of cosmetics, women’s hair color, beauty tools, anti-perspirant deodorants, fragrances,
skincare and other beauty care products. The Company is one of the world’s leading cosmetics companies in
the mass retail channel. 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.
Effective for periods beginning January 1, 2010, the Company is reporting Canada separately (pre-
viously Canada was included in the Europe region) and is reporting South Africa as part of the Europe,
Middle East and Africa region (previously South Africa was included in the Asia Pacific region). As a
result, prior year amounts have been reclassified to conform to this presentation.
For additional information regarding our business, see “Part 1 — Business” of this Annual Report on
Form 10-K.
Overview of Net Sales and Earnings Results
Consolidated net sales in 2010 were $1,321.4 million, an increase of $25.5 million, or 2.0%, compared to
$1,295.9 million in 2009. Excluding the unfavorable impact of foreign currency fluctuations of $3.8 million,
consolidated net sales increased by 2.3% in 2010, as compared to 2009, as higher net sales in the Company’s
Latin America, Europe, Middle East and Africa, Asia Pacific and Canada regions were partially offset by
lower net sales in the U.S. region.
30
Consolidated net income in 2010 was $327.3 million, as compared to $48.8 million in 2009. The increase
in consolidated net income in 2010, compared to 2009, was primarily due to:
•
•
a $247.2 million benefit for income taxes in 2010 was primarily attributable to the one-time non-
cash benefit of $260.6 million related to a reduction of the Company’s deferred tax valuation
allowance on its net U.S. deferred tax assets at December 31, 2010 (see Note 12,“Income Taxes,” to
the Consolidated Financial Statements);
$44.9 million of higher gross profit due to $25.5 million of higher net sales and a $19.4 million
improvement in cost of sales; and
•
$21.6 million of lower restructuring costs and other, net;
with the foregoing partially offset by:
•
$37.5 million of higher SG&A expenses, driven primarily by $33.8 million of higher advertising
expenses to support the Company’s brands.
Overview of Financing Activities
Refinancing of the 2006 Term Loan and Revolving Credit Facilities:
In March 2010, Products
Corporation consummated a credit agreement refinancing (the “2010 Refinancing”) consisting of the
following transactions:
The 2010 Refinancing included refinancing Products Corporation’s term loan facility, which was
scheduled to mature on January 15, 2012 and had $815.0 million aggregate principal amount outstanding at
December 31, 2009 (the “2006 Term Loan Facility”), with a 5-year, $800.0 million term loan facility due
March 11, 2015 (the “2010 Term Loan Facility”) under a second amended and restated term loan agreement
dated March 11, 2010 (the “2010 Term Loan Agreement”), among Products Corporation, as borrower, the
lenders party thereto, Citigroup Global Markets Inc. (“CGMI”), J.P. Morgan Securities Inc. (“JPM
Securities”), Banc of America Securities LLC (“BAS”) and Credit Suisse Securities (USA) LLC (“Credit
Suisse”), as joint lead arrangers, CGMI, JPM Securities, BAS, Credit Suisse and Natixis, New York Branch
(“Natixis”), as joint bookrunners, JPMorgan Chase Bank, N.A. and Bank of America, N.A. as co-syndi-
cation agents, Credit Suisse and Natixis as co-documentation agents, and Citicorp USA, Inc. (“CUSA”), as
administrative agent and collateral agent.
The 2010 Refinancing also included refinancing Products Corporation’s 2006 revolving credit facility,
which was scheduled to mature on January 15, 2012 and had nil outstanding borrowings at December 31,
2009 (the “2006 Revolving Credit Facility” and together with the 2006 Term Loan Facility, the “2006 Credit
Facilities” and such agreements, the “2006 Credit Agreements”), with a 4-year, $140.0 million asset-based,
multi-currency revolving credit facility due March 11, 2014 (the “2010 Revolving Credit Facility” and,
together with the 2010 Term Loan Facility, the “2010 Credit Facilities”) under a second amended and
restated revolving credit agreement dated March 11, 2010 (the “2010 Revolving Credit Agreement” and,
together with the 2010 Term Loan Agreement, the “2010 Credit Agreements”), among Products Corpo-
ration, as borrower, the lenders party thereto, CGMI and Wells Fargo Capital Finance, LLC (“WFS”), as
joint lead arrangers, CGMI, WFS, BAS, JPM Securities and Credit Suisse, as joint bookrunners, and CUSA,
as administrative agent and collateral agent.
Products Corporation used the approximately $786 million of proceeds from the 2010 Term Loan
Facility, which was drawn in full on the March 11, 2010 closing date and issued to lenders at 98.25% of par,
plus approximately $31 million of available cash and approximately $20 million then drawn on the 2010
Revolving Credit Facility to refinance in full the $815.0 million of outstanding indebtedness under the 2006
Term Loan Facility and to pay approximately $7 million of accrued interest and approximately $15 million
of fees and expenses incurred in connection with consummating the 2010 Refinancing, of which approx-
imately $9 million was capitalized.
31
(See further discussion in “2010 Refinancing Transactions” within “Financial Condition, Liquidity and
Capital Resources — 2010 Refinancing Transactions” and in Note 9, “Long-Term Debt and Redeemable
Preferred Stock,” to the Consolidated Financial Statements).
Results of Operations
Year ended December 31, 2010 compared with the year ended December 31, 2009
In the tables, all dollar amounts are in millions and numbers in parenthesis ( ) denote unfavorable
variances.
Net sales:
Consolidated net sales in 2010 were $1,321.4 million, an increase of $25.5 million, or 2.0%, compared to
$1,295.9 million in 2009. Excluding the unfavorable impact of foreign currency fluctuations of $3.8 million,
consolidated net sales increased by 2.3% in 2010, primarily driven by higher net sales of Revlon color
cosmetics and Revlon ColorSilk hair color, partially offset by lower net sales of Almay color cosmetics and
Mitchum anti-perspirant deodorant.
Year Ended
December 31,
2010
2009
Change
$
%
XFX Change(a)
%
$
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asia Pacific . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Europe, Middle East and Africa . . . . . . . . . . . . .
Latin America . . . . . . . . . . . . . . . . . . . . . . . . . . .
Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 729.1
209.9
200.4
107.9
74.1
$ 747.9
189.1
183.8
108.9
66.2
$(18.8)
20.8
16.6
(1.0)
7.9
(2.5)% $(18.8)
6.0
11.0
8.6
9.0
32.1
(0.9)
1.4
11.9
(2.5)%
3.2
4.7
29.5
2.1
Consolidated Net Sales . . . . . . . . . . . . . . . .
$1,321.4
$1,295.9
$ 25.5
2.0% $ 29.3
2.3%
(a)
XFX excludes the impact of foreign currency fluctuations.
United States
In the U.S., net sales in 2010 were $729.1 million, a decrease of $18.8 million, or 2.5%, compared to
$747.9 million in 2009, primarily driven by lower net sales of Almay color cosmetics, Revlon ColorSilk hair
color and Mitchum anti-perspirant deodorant, partially offset by higher net sales of Revlon color cosmetics.
Net sales of color cosmetics benefitted from lower promotional allowances as the Company continued to
optimize its brand support mix, and also benefitted from lower returns.
Asia Pacific
In Asia Pacific, net sales in 2010 increased 11.0% to $209.9 million, compared to $189.1 million in the
2009. Excluding the favorable impact of foreign currency fluctuations, net sales increased $6.0 million, or
3.2%, in 2010, primarily driven by higher net sales of Revlon color cosmetics, certain beauty care products
and Revlon ColorSilk hair color. From a country perspective, higher net sales in the Company’s travel retail
businesses, certain distributor markets, China and Hong Kong (which together contributed approximately
4.6 percentage points to the increase in the region’s net sales in 2010, as compared to 2009) were partially
offset by lower net sales in Australia and Japan (which offset by approximately 2.0 percentage points the
increase in the region’s net sales in 2010, as compared to 2009).
Europe, Middle East and Africa
In Europe, the Middle East and Africa, net sales in 2010 increased 9.0% to $200.4 million, compared to
$183.8 million in 2009. Excluding the favorable impact of foreign currency fluctuations, net sales increased
$8.6 million, or 4.7%, in 2010, primarily driven by higher net sales of fragrances. From a country perspective,
32
net sales increased in South Africa, Italy, the U.K. and France (which together contributed approximately
5.0 percentage points to the increase in the region’s net sales in 2010, as compared to 2009).
Latin America
In Latin America, net sales in 2010 decreased 0.9% to $107.9 million, compared to $108.9 million in the
2009. Excluding the unfavorable impact of foreign currency fluctuations (which includes the unfavorable
impact of the January 2010 devaluation of Venezuela’s local currency relative to the U.S. dollar), net sales
increased $32.1 million, or 29.5%, in 2010, primarily driven by higher net sales of Revlon ColorSilk hair
color, Revlon color cosmetics and other beauty care products. From a country perspective, higher net sales
in Venezuela and certain distributor markets contributed approximately 23.8 percentage points to the
increase in the region’s net sales in 2010, as compared to 2009. Higher selling prices in Venezuela, reflecting
market conditions and inflation, accounted for approximately half of the $32.1 million increase in net sales
in the region.
Canada
In Canada, net sales in 2010 were $74.1 million, an increase of $7.9 million, or 11.9%, compared to
$66.2 million in 2009. Excluding the favorable impact of foreign currency fluctuations, net sales increased
$1.4 million, or 2.1%, in 2010, primarily driven by higher net sales of Revlon color cosmetics, partially offset
by lower net sales of Revlon beauty tools.
Gross profit:
Year Ended December 31,
2010
2009
Change
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Percentage of net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$866.1
$821.2
$44.9
65.5%
63.4%
2.1%
The 2.1 percentage point increase in gross profit as a percentage of net sales for 2010, compared to
2009, was primarily due to:
•
•
•
•
lower costs related to inventory obsolescence and sales returns, which increased gross profit as a
percentage of net sales by 1.1 percentage points;
lower material costs as a result of purchasing initiatives and savings as a result of the May 2009
Program, which increased gross profit as a percentage of net sales by 1.0 percentage points;
lower allowances, which increased gross profit as a percentage of net sales by 0.5 percentage
points; and
favorable foreign currency fluctuations which resulted in lower cost of goods in most international
markets on goods purchased from the Company’s facility in Oxford, North Carolina, which
increased gross profit as a percentage of net sales by 0.4 percentage points;
with the foregoing partially offset by:
•
the impact of product mix, which reduced gross profit as a percentage of net sales by 0.9 percentage
points.
SG&A expenses:
SG&A expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$666.6
$629.1
$(37.5)
Year Ended December 31,
2010
2009
Change
33
The $37.5 million increase in SG&A expenses for 2010, as compared to 2009, was driven primarily by:
•
•
$33.8 million of higher advertising expenses to support the Company’s brands as the Company
continued to optimize its brand support mix. The Company increased media pressure while
benefitting from lower advertising rates in 2010, as compared to 2009; and
$19.4 million of higher general and administrative expenses primarily due to higher compensation
expenses including an increase in the accrual for incentive compensation, partially offset by savings
as a result of the May 2009 Program;
with the foregoing partially offset by:
•
$9.1 million of lower pension expenses, primarily due to the May 2009 Plan Amendments which
ceased future benefit accruals under the Revlon Employees’ Retirement Plan and the Revlon
Pension Equalization Plan after December 31, 2009 and which resulted in a change in the
amortization period of actuarial gains (losses) from the remaining service period to the remaining
life expectancy of plan participants; and
•
$6.3 million of lower permanent display amortization.
Consistent with the Company’s strategy to build its strong brands, in the first quarter of 2011, the
Company currently intends to support its brands with increased advertising spending (as defined in Note 1,
“Summary of Significant Accounting Policies — Advertising,” to the Consolidated Financial Statements),
as compared to the first quarter of 2010, due to increased media pressure and higher advertising rates.
Restructuring costs and other, net:
Restructuring costs and other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(0.3)
2010
2009
$21.3
Change
$21.6
Year Ended December 31,
In May 2009, the Company announced a worldwide restructuring (the “May 2009 Program”), which
involved consolidating certain functions; reducing layers of management, where appropriate, to increase
accountability and effectiveness; streamlining support functions to reflect the new organizational structure;
and further consolidating the Company’s office facilities in New Jersey.
During 2009, the Company recorded charges of $21.3 million in restructuring costs and other, net,
which were comprised of:
•
•
a $20.8 million charge related to the May 2009 Program;
$1.3 million of charges related to employee severance and other employee-related termination
costs related to restructuring actions in the U.K., Mexico and Argentina announced in the first
quarter of 2009; and
•
a $0.8 million charge related to restructuring programs initiated in 2008 (the “2008 Programs”);
with the foregoing partially offset by:
•
income of $1.6 million related to the sale of a facility in Argentina in the first quarter of 2009.
During 2010 a $0.3 million adjustment was recorded to restructuring costs and other, net to reflect
lower than originally anticipated expenses associated with the May 2009 Program.
The $20.5 million of net charges related to the May 2009 Program have been or will be paid out as
follows: $11.0 million paid in 2009, $6.9 million paid in 2010 and the balance of $2.6 million is expected to be
paid thereafter. The May 2009 Program generated the previously-disclosed expected savings of approx-
imately $15 million in 2009 and annualized savings of approximately $30 million in 2010.
34
Interest expense:
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense — preferred stock dividend. . . . . . . . . . . . . . . . . . . . .
Year Ended December 31,
2010
$90.5
$ 6.4
2009
$91.5
$ 1.5
Change
$ 1.0
$(4.9)
The $1.0 million decrease in interest expense (excluding interest expense related to the regular
dividends on the Preferred Stock) for 2010, as compared to 2009, was primarily due to lower debt levels,
largely offset by higher weighted average borrowing rates. (See Note 9,“Long-Term Debt and Redeemable
Preferred Stock,” to the Consolidated Financial Statements).
In accordance with the terms of the certificate of designation of the Preferred Stock, during 2010,
Revlon, Inc. recognized $6.4 million of interest expense related to regular dividends on the Preferred Stock,
as compared to $1.5 million during 2009, which reflected the interest expense related to the regular dividend
on the Preferred Stock from October 8, 2009 (the date that Preferred Stock was issued) through Decem-
ber 31, 2009.
Loss on early extinguishment of debt, net:
Loss on early extinguishment of debt, net. . . . . . . . . . . . . . . . . . . . . . .
Year Ended December 31,
2010
$9.7
2009
$5.8
Change
$(3.9)
As a result of the 2010 Refinancing, the Company recognized a loss on the extinguishment of debt of
$9.7 million during the first half of 2010, primarily due to $5.9 million of fees and expenses which were
expensed as incurred in connection with the 2010 Refinancing, as well as the write-off of $3.8 million of
unamortized deferred financing fees in connection with such refinancing.
In 2009, the Company recognized a loss on the early extinguishment of debt of $13.5 million resulting
from the applicable redemption and tender premiums and the net write-off of unamortized debt discounts
and deferred financing fees in connection with the refinancing of the 91⁄2% Senior Notes, which was partially
offset by a $7.7 million gain on the repurchases of an aggregate principal amount of $49.5 million of the
91⁄2% Senior Notes prior to their complete refinancing in November 2009 at an aggregate purchase price of
$41.0 million, which is net of the write-off of the ratable portion of unamortized debt discounts and deferred
financing fees resulting from such repurchases. (See Note 9,“Long-Term Debt and Redeemable Preferred
Stock,” to the Consolidated Financial Statements).
Foreign currency losses:
Foreign currency losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended December 31,
2010
$6.3
2009
$8.9
Change
$2.6
The $6.3 million of foreign currency losses during 2010 included a $2.8 million one-time foreign
currency loss related to the required re-measurement of the balance sheet of the Company’s subsidiary in
Venezuela (“Revlon Venezuela”) during the first quarter of 2010 to reflect the impact of the devaluation of
Venezuela’s local currency relative to the U.S. dollar, as Venezuela has been designated as a highly
inflationary economy effective January 1, 2010 (see “Financial Condition, Liquidity and Capital Resour-
ces — Impact of Foreign Currency Translation — Venezuela”). In addition, foreign currency losses during
2010 were driven by $3.1 million of foreign currency losses related to the Company’s outstanding foreign
currency forward exchange contracts (“FX Contracts”).
The $8.9 million of foreign currency losses during 2009 were primarily driven by $5.9 million of foreign
currency losses related to the Company’s outstanding FX Contracts and an exchange loss of $2.8 million
related to Revlon Venezuela. Due to currency restrictions in Venezuela, Revlon Venezuela exchanged local
35
currency for U.S. dollars through a parallel market exchange transaction in order to pay for certain
U.S. dollar-denominated liabilities, which resulted in the $2.8 million exchange loss in 2009.
(Benefit from) provision for income taxes:
(Benefit from) provision for income taxes . . . . . . . . . . . . . . . . . . . . . .
$(247.2)
2010
2009
$8.3
Change
$255.5
Year Ended December 31,
The $247.2 million benefit from income taxes in 2010, as compared to the $8.3 million provision for
income taxes in 2009, was primarily attributable to the one-time non-cash benefit of $260.6 million related
to a reduction of the Company’s deferred tax valuation allowance on its net U.S. deferred tax assets at
December 31, 2010.
As previously disclosed, in assessing the recoverability of its deferred tax assets, management regularly
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 the Income Taxes Topic of the FASB
Accounting Standards Codification (the “Income Taxes Topic”). 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 reduction of deferred tax
liabilities, projected future taxable income and tax planning strategies in making this assessment.
In accordance with the Income Taxes Topic, based upon the level of historical taxable losses for the
U.S., the Company had maintained a deferred tax valuation allowance against its deferred tax assets in the
U.S. As of December 31, 2010, the Company achieved three cumulative years, as well as its third
consecutive year, of positive U.S. GAAP pre-tax income and taxable income in the U.S. As a result of
such earnings trends and the Company’s tax position, and based upon the Company’s projections for future
taxable income over the periods in which the deferred tax assets are recoverable, management believes that
it is more likely than not that the Company will realize the benefits of the net deferred tax assets existing at
December 31, 2010 based on the recognition threshold and measurement of a tax position in accordance
with the Income Taxes Topic. Therefore, at December 31, 2010, the Company realized a one-time non-cash
benefit of $260.6 million related to a reduction of the Company’s deferred tax valuation allowance on its net
U.S. deferred tax assets at December 31, 2010. The Company has reflected this benefit in the tax provision
and this one-time non-cash benefit has increased net income at December 31, 2010. (See Note 12,“Income
Taxes,” to the Consolidated Financial Statements).
As a result of such reduction during 2010, the Company expects that, beginning with the first quarter of
2011, the tax provision will reflect a higher effective tax rate. However, any such increase in the effective tax
rate will not affect the Company’s cash taxes paid until the domestic tax loss carryforwards are fully utilized.
Year ended December 31, 2009 compared with the year ended December 31, 2008
In the tables, all dollar amounts are in millions and numbers in parenthesis ( ) denote unfavorable
variances.
Net sales:
Consolidated net sales in 2009 were $1,295.9 million, a decrease of $50.9 million, or 3.8%, compared to
$1,346.8 million in 2008. Excluding the unfavorable impact of foreign currency fluctuations of $26.0 million,
consolidated net sales decreased by 1.8% in 2009. The decline in consolidated net sales was driven by lower
net sales of Revlon and Almay color cosmetics and certain beauty care products, partially offset by higher
net sales of Revlon ColorSilk hair color.
36
United States . . . . . . . . . . . . . . .
Asia Pacific . . . . . . . . . . . . . . . . .
Europe, Middle East and
Africa . . . . . . . . . . . . . . . . . . .
Latin America. . . . . . . . . . . . . . .
Canada . . . . . . . . . . . . . . . . . . . .
Year Ended December 31,
Change
2009
2008
$
%
XFX Change(a)
$
%
$ 747.9
189.1
$ 782.6
190.1
$(34.7)
(1.0)
(4.4)% $(34.7)
3.0
(0.5)
(4.4)%
1.6
183.8
108.9
66.2
200.2
98.4
75.5
(16.4)
10.5
(9.3)
(8.2)
10.7
(12.3)
(3.7)
15.7
(5.2)
(1.8)
16.0
(6.9)
Consolidated Net Sales . . . . . .
$1,295.9
$1,346.8
$(50.9)
(3.8)% $(24.9)
(1.8)%
(a) XFX excludes the impact of foreign currency fluctuations.
United States
In the United States, net sales in 2009 were $747.9 million, a decrease of $34.7 million, or 4.4%,
compared to $782.6 million in 2008, primarily driven by lower net sales of Revlon and Almay color
cosmetics and Mitchum anti-perspirant deodorant, partially offset by higher net sales of Revlon ColorSilk
hair color.
Asia Pacific
In Asia Pacific, net sales in 2009 decreased by $1.0 million, or 0.5%, to $189.1 million, compared to
$190.1 million in 2008 (while net sales increased 1.6% excluding the unfavorable impact of foreign currency
fluctuations). The growth in net sales, excluding the unfavorable impact of foreign currency fluctuations,
was due primarily to higher shipments of Revlon color cosmetics in Australia and China (which together
contributed approximately 3.6 percentage points to the increase in the region’s net sales in 2009, compared
with 2008), partially offset by lower shipments of Revlon color cosmetics in Japan (which offset by
approximately 2.1 percentage points the region’s net sales in 2009, compared to 2008).
Europe, Middle East and Africa
In Europe, the Middle East and Africa, net sales in 2009 decreased 8.2%, or 1.8% excluding the
unfavorable impact of foreign currency fluctuations, to $183.8 million, compared to $200.2 million in 2008.
This decline in net sales, excluding the unfavorable impact of foreign currency fluctuations, was due to
higher allowances for Revlon color cosmetics in the U.K., as well as lower shipments of certain beauty care
products in France (which together contributed approximately 3.3 percentage points to the decrease in the
region’s net sales in 2009, compared with 2008), partially offset by higher shipments of Revlon skincare in
certain distributor markets and higher shipments of certain beauty care products in South Africa (which
offset by approximately 3.1 percentage points the decrease in the region’s net sales in 2009, compared to
2008).
Latin America
In Latin America, net sales in 2009 increased 10.7%, or 16.0% excluding the unfavorable impact of
foreign currency fluctuations, to $108.9 million, compared to $98.4 million in 2008. The growth in net sales,
excluding the unfavorable impact of foreign currency fluctuations, was driven primarily by the impact of
inflation on selling prices in Venezuela, as well as higher shipments of Revlon ColorSilk hair color in
Venezuela, Argentina and certain distributor markets (which contributed approximately 19.4 percentage
points to the increase in the region’s net sales in 2009, compared to 2008), partially offset by lower
shipments of fragrances and beauty care products in Mexico (which offset by approximately 2.0 percentage
points the region’s net sales in 2009, compared to 2008). (See “Financial Condition, Liquidity and Capital
Resources — Impact of Foreign Currency Translation — Venezuela” for details regarding the designation
of Venezuela as a highly inflationary economy effective January 1, 2010 and the Venezuelan government’s
announcement of the devaluaton of its local currency on January 8, 2010).
37
Canada
In Canada, net sales in 2009 decreased 12.3%, or 6.9% excluding the unfavorable impact of foreign
currency fluctuations, to $66.2 million, compared to $75.5 million in 2008. This decline in net sales,
excluding the unfavorable impact of foreign currency fluctuations, was due to lower shipments of Revlon
and Almay color cosmetics.
Gross profit:
Year Ended December 31,
2009
2008
Change
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Percentage of net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$821.2
$855.9
$(34.7)
63.4%
63.5%
(0.1)%
The 0.1 percentage point decrease in gross profit as a percentage of net sales for 2009, compared to
2008, was primarily due to:
• unfavorable foreign currency fluctuations (primarily due to the strengthening of the U.S. dollar
against currencies in certain markets in which the Company operates) which resulted in higher cost
of goods in most international markets on goods purchased from the Company’s facility in Oxford,
North Carolina, which reduced gross profit as a percentage of net sales by 0.6 percentage points;
• higher pension expenses within cost of goods of $8.1 million, which reduced gross profit as a
percentage of net sales by 0.6 percentage points; and
• higher returns and allowances, which reduced gross profit as a percentage of net sales by 0.3 per-
centage points;
with the foregoing partially offset by:
•
•
favorable manufacturing efficiencies and lower material and freight costs, which increased gross
profit as a percentage of net sales by 0.8 percentage points;
favorable changes in sales mix, which increased gross profit as a percentage of net sales by
0.4 percentage points; and
• decreased inventory obsolescence charges on lower disposal of discontinued products, which
increased gross profit as a percentage of net sales by 0.1 percentage points.
SG&A expenses:
Year Ended December 31,
2009
2008
Change
SG&A expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$629.1
$709.3
$80.2
The $80.2 million decrease in SG&A expenses for 2009, as compared to 2008, was driven primarily by:
•
•
•
$24.8 million of lower advertising expenses as a result of achieving lower advertising rates, while
increasing the level of media support;
$22.9 million of lower permanent display amortization expenses;
$22.7 million of lower general and administrative expenses primarily due to lower compensation
expenses as a result of the May 2009 Program and a decrease in the accrual for incentive
compensation; and
•
$13.2 million of favorable impact of foreign currency fluctuations;
with the foregoing partially offset by:
•
$9.3 million of higher pension expenses.
38
Restructuring costs and other, net:
Year Ended December 31,
2009
2008
Change
Restructuring costs and other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$21.3
$(8.4)
$(29.7)
During 2009, the Company recorded charges of $21.3 million in restructuring costs and other, net,
which were comprised of:
•
•
a $20.8 million charge related to the May 2009 Program, which involved consolidating certain
functions; reducing layers of management, where appropriate, to increase accountability and
effectiveness; streamlining support functions to reflect the new organizational structure; and
further consolidating the Company’s office facilities in New Jersey;
$1.3 million of charges related to employee severance and other employee-related termination
costs related to restructuring actions in the U.K., Mexico and Argentina announced in the first
quarter of 2009; and
•
a $0.8 million charge related to restructuring programs initiated in 2008 (the “2008 Programs”);
with the foregoing partially offset by:
•
income of $1.6 million related to the sale of a facility in Argentina in the first quarter of 2009.
Of the $20.8 million of charges related to the May 2009 Program, $11.0 million was paid in 2009 and
$6.9 million was paid in 2010. In addition, the May 2009 Program generated savings of approximately
$15 million in 2009.
During 2008, the Company recorded income of $8.4 million included in restructuring costs and other,
net, primarily due to a gain of $7.0 million related to the sale of its facility in Mexico and a net gain of
$5.9 million related to the sale of a non-core trademark. In addition, during 2008 a $0.4 million favorable
adjustment was recorded to restructuring costs associated with restructuring programs initiated in 2006 (the
“2006 Programs”), primarily due to the charges for severance and other employee-related termination costs
being slightly lower than originally estimated. These were partially offset by a restructuring charge of
$4.9 million for the 2008 Programs, of which $0.8 million related to a restructuring in Canada, $1.1 million
related to the Company’s decision to close and sell its facility in Mexico, $2.9 million related to the
Company’s realignment of certain functions within customer business development, information manage-
ment and administrative services in the U.S. and $0.1 million related to other various restructurings.
In addition to the $3.0 million of remaining net charges related to the 2008 Programs as of
December 31, 2008, the Company incurred an additional $0.8 million in expenses related to the 2008
Programs during 2009 for a total of $3.8 million. $3.5 million of such $3.8 million of remaining charges were
paid in 2009 and the remaining $0.3 million was paid in 2010.
Interest expense:
Year Ended December 31,
2009
2008
Change
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$93.0
$119.7
$26.7
The decrease in interest expense was due to lower debt levels and lower weighted average borrowing
rates during 2009, compared to 2008. (See Note 9,“Long-Term Debt and Redeemable Preferred Stock,” to
the Consolidated Financial Statements).
As of December 31, 2009, the Company accrued $1.4 million in interest expense related to the first
quarterly Regular Dividend on the Preferred Stock, which was paid in January 2010.
39
Loss on extinguishment of debt, net
Loss on extinguishment of debt, net . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended December 31,
2009
$5.8
2008
$0.7
Change
$(5.1)
In 2009, the Company recognized a loss on the early extinguishment of debt of $13.5 million resulting
from the applicable redemption and tender premiums and the net write-off of unamortized debt discounts
and deferred financing fees in connection with the refinancing of the 91⁄2% Senior Notes, which was partially
offset by a $7.7 million gain on the repurchases of an aggregate principal amount of $49.5 million of the
91⁄2% Senior Notes prior to their complete refinancing in November 2009 at an aggregate purchase price of
$41.0 million, which is net of the write-off of the ratable portion of unamortized debt discounts and deferred
financing fees resulting from such repurchases. (See Note 9,“Long-Term Debt and Redeemable Preferred
Stock,” to the Consolidated Financial Statements).
Foreign currency losses:
Foreign currency losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended December 31,
2009
$8.9
2008
$0.1
Change
$(8.8)
The increase in foreign currency losses for 2009, as compared to 2008, was primarily driven by higher
foreign currency losses related to the Company’s outstanding FX Contracts and the revaluation of certain
U.S. dollar-denominated intercompany payables from the Company’s foreign subsidiaries during 2009. In
addition, during 2009 the Company recognized an exchange loss of $2.8 million related to the Company’s
operations in Venezuela. Due to currency restrictions in Venezuela, the Company’s Venezuelan entity
exchanged local currency for U.S. dollars through a parallel market exchange transaction in order to pay for
certain U.S. dollar-denominated liabilities, which resulted in the $2.8 million exchange loss.
Provision for income taxes:
Provision for income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended December 31,
2009
$8.3
2008
$16.1
Change
$7.8
The decrease in the tax provision in 2009, as compared to 2008, was primarily attributable to the
favorable resolution of tax contingencies and matters in the U.S. and certain foreign jurisdictions during
2009, as well as lower pre-tax income for taxable subsidiaries in certain foreign jurisdictions.
Financial Condition, Liquidity and Capital Resources
At December 31, 2010, the Company had a liquidity position of $185.0 million, consisting of cash and
cash equivalents (net of any outstanding checks) of $73.3 million, as well as approximately $111.7 million in
available borrowings under the 2010 Revolving Credit Facility, based upon the calculated borrowing base
less $21.2 million of undrawn outstanding letters of credit and nil then drawn under the 2010 Revolving
Credit Facility at such date.
Cash Flows
At December 31, 2010, the Company had cash and cash equivalents of $76.7 million, compared with
$54.5 million at December 31, 2009. The following table summarizes the Company’s cash flows from
40
operating, investing and financing activities for 2010, 2009 and 2008, respectively (all amounts are in
millions):
Year Ended December 31,
2010
2008
2009
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 97.2
(14.9)
Net cash (used in) provided by investing activities . . . . . . . . . . . . . . . . . . . . .
62.8
Net cash used in financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$109.5
(11.8)
98.5
$ 33.1
101.6
113.0
Net cash provided by operating activities was $97.2 million, $109.5 million and $33.1 million for 2010,
2009 and 2008, respectively. As compared to 2009, cash provided by operating activities in 2010 was
impacted by unfavorable changes in working capital, primarily inventory, partially offset by higher
operating income and lower interest payments during 2010. The improvement in cash provided by
operating activities in 2009, compared to 2008, was primarily driven by lower interest payments, improved
operating income, working capital efficiency and lower permanent display purchases.
Net cash (used in) provided by investing activities was $(14.9) million, $(11.8) million and $101.6 million
for 2010, 2009 and 2008, respectively. Net cash used in investing activities in 2010 included $15.2 million of
cash used for capital expenditures. Net cash used in investing activities in 2009 included $14.3 million of
capital expenditures, partially offset by $2.5 million from the net proceeds from the sale of certain assets.
Net cash provided by investing activities in 2008 included $107.6 million in gross proceeds from the Bozzano
Sale Transaction (see Note 2, “Discontinued Operations,” to the Consolidated Financial Statements) and
$13.6 million in proceeds from the sale of a non-core trademark and certain other assets (which included net
proceeds from the sale of the Mexico facility), partially offset by $19.6 million of capital expenditures.
Net cash used in financing activities was $62.8 million, $98.5 million and $113.0 million for 2010, 2009
and 2008, respectively. Net cash used in financing activities for 2010 included:
•
•
cash used for repayment of the $815.0 million remaining aggregate principal amount of Products
Corporation’s 2006 Term Loan Facility, partially offset by cash provided by Products Corporation’s
issuance of the $800.0 million aggregate principal amount of the 2010 Term Loan Facility, or
$786.0 million, net of discounts;
an aggregate $6.0 million of scheduled amortization payments on the 2010 Term Loan Facility in
2010; and
• payment of financing costs of $17.5 million, which was primarily comprised of (i) the payment of
$15.3 million of fees incurred in connection with the 2010 Refinancing and (ii) the payment of the
remaining balance of $1.7 million of the $25.1 million of fees incurred in connection with the
refinancing of Product Corporation’s 91⁄2% Senior Notes in November 2009 with the 93⁄4% Senior
Secured Notes due November 2015.
Net cash used in financing activities for 2009 included a net debt reduction of $74.0 million, primarily
comprised of:
•
•
•
the repayment or redemption of all of the $340.5 million aggregate principal amount outstanding of
Products Corporation’s 91⁄2% Senior Notes in connection with Products Corporation’s complete
refinancing of the 91⁄2% Senior Notes in November 2009;
the repurchases of $49.5 million in aggregate principal amount of Products Corporation’s
91⁄2% Senior Notes prior to their complete refinancing in November 2009 at an aggregate purchase
price of $41.0 million; and
the repayment of $18.7 million in principal amount of Products Corporation’s 2006 Term Loan
Facility (prior to its complete refinancing in March 2010);
41
with the foregoing partially offset by:
• Products Corporation’s issuance of the $330.0 million aggregate principal amount of the
93⁄4% Senior Secured Notes, or $326.4 million net of discounts.
Net cash used in financing activities for 2009 also included payment of financing costs of $29.6 million,
which was comprised of (i) the payment of $23.4 million of the $24.9 million of fees incurred in connection
with the refinancing of the 91⁄2% Senior Notes and (ii) the payment of $6.2 million of the $6.7 million of fees
incurred in connection with the consummation of the Exchange Offer.
Net cash used in financing activities for 2008 included the full repayment on February 1, 2008 of the
$167.4 million remaining aggregate principal amount of Products Corporation’s 85⁄8% Senior Subordinated
Notes, which matured on February 1, 2008, and $43.5 million of repayments under the 2006 Revolving
Credit Facility (prior to its complete refinancing in March 2010), offset by proceeds of $170.0 million from
the Senior Subordinated Term Loan Agreement, which Products Corporation used to repay in full such
85⁄8% Senior Subordinated Notes on their February 1, 2008 maturity date, and to pay $2.55 million of related
fees and expenses. In addition, in September 2008, the Company used $63.0 million of the net proceeds from
the Bozzano Sale Transaction to repay $63.0 million in aggregate principal amount of the Senior Subor-
dinated Term Loan.
2010 Bank Credit Agreements
In March 2010, Products Corporation consummated the 2010 Refinancing, which included refinancing:
(1) its 2006 Term Loan Facility with the 2010 Term Loan Facility and (2) Products Corporation’s 2006
Revolving Credit Facility with the 2010 Revolving Credit Facility.
2010 Revolving Credit Facility
Availability under the 2010 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 2010 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 $30.0 million;
(iii) Products Corporation in standby and commercial letters of credit denominated in U.S. dollars
and other currencies up to $60.0 million; and
(iv) Products Corporation and certain of its international subsidiaries designated from time to time in
revolving credit loans and bankers’ acceptances denominated in U.S. dollars and other
currencies.
If the value of the eligible assets is not sufficient to support the $140.0 million borrowing base under the
2010 Revolving Credit Facility, Products Corporation will not have full access to the 2010 Revolving Credit
Facility. Products Corporation’s ability to make borrowings under the 2010 Revolving Credit Facility is also
conditioned upon the satisfaction of certain conditions precedent and Products Corporation’s compliance
with other covenants in the 2010 Revolving Credit Agreement.
Borrowings under the 2010 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 3.00% per
annum or (ii) the Alternate Base Rate plus 2.00% per annum. Local Loans (as defined in the 2010
Revolving Credit Agreement) bear interest, if mutually acceptable to Products Corporation and the
relevant foreign lenders, at the Local Rate, and otherwise (i) if in foreign currencies or in U.S. dollars at the
Eurodollar Rate or the Eurocurrency Rate plus 3.0% per annum or (ii) if in U.S. dollars at the Alternate
Base Rate plus 2.0% per annum.
42
Prior to the termination date of the 2010 Revolving Credit Facility, revolving loans are required to be
prepaid (without any permanent reduction in commitment) with:
(i)
(ii)
the net cash proceeds from sales of Revolving Credit First Lien Collateral (as defined below) by
Products Corporation or any of its subsidiary guarantors (other than dispositions in the ordinary
course of business and certain other exceptions); and
the net proceeds from the issuance by Products Corporation or any of its subsidiaries of certain
additional debt, to the extent there remains any such proceeds after satisfying Products
Corporation’s repayment obligations under the 2010 Term Loan Facility.
Products Corporation pays to the lenders under the 2010 Revolving Credit Facility a commitment fee
of 0.75% of the average daily unused portion of the 2010 Revolving Credit Facility, which fee is payable
quarterly in arrears. Under the 2010 Revolving Credit Facility, Products Corporation also 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 (as defined in the 2010 Revolving Credit Agreement) for revolving credit
loans that are Eurodollar Rate (as defined in the 2010 Revolving Credit Agreement) 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.
Under certain circumstances, Products Corporation will have the right to request that the 2010
Revolving Credit Facility be increased by up to $60.0 million, provided that the lenders are not committed
to provide any such increase.
Under certain circumstances if and when the difference between (i) the borrowing base under the 2010
Revolving Credit Facility and (ii) the amounts outstanding under the 2010 Revolving Credit Facility is less
than $20.0 million for a period of two consecutive days or more, and until such difference is equal to or
greater than $20.0 million for a period of 30 consecutive business days, the 2010 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 2010 Revolving Credit Facility) of 1.0 to 1.0.
The 2010 Revolving Credit Facility matures on March 11, 2014.
2010 Term Loan Facility
Under the 2010 Term Loan Facility, Eurodollar Loans (as defined in the 2010 Term Loan Agreement)
bear interest at the Eurodollar Rate (as defined in the 2010 Term Loan Agreement) plus 4.00% per annum
(provided that in no event shall the Eurodollar Rate be less than 2.00% per annum) and Alternate Base
Rate (as defined in the 2010 Term Loan Agreement) loans bear interest at the Alternate Base Rate plus
3.00% per annum (provided that in no event shall the Alternate Base Rate be less than 3.00% per annum).
Prior to the termination date of the 2010 Term Loan Facility, on June 30, September 30, December 31
and March 31 of each year (commencing June 30, 2010), Products Corporation is required to repay
$2.0 million of the principal amount of the term loans outstanding under the 2010 Term Loan Facility on
43
each respective date. In addition, the term loans under the 2010 Term Loan Facility are required to be
prepaid with:
(i)
the net cash proceeds in excess of $10.0 million for each 12-month period ending on March 31
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 a reinvestment right for
365 days and carryover of unused annual basket amounts up to a maximum of $25.0 million and
subject to certain specified dispositions of 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” (as defined under the 2010 Term Loan
Agreement), commencing with excess cash flow for the 2011 fiscal year payable in the first
quarter of 2012.
Any such prepayments are applied to reduce Products Corporation’s future regularly scheduled term
loan amortization payments, to be applied in the direct order of maturity to the remaining installments
thereof or as otherwise directed by Products Corporation.
The 2010 Term Loan Facility contains a financial covenant limiting Products Corporation’s first lien
senior secured leverage ratio (the ratio of Products Corporation’s Senior Secured Debt that has a lien on the
collateral which secures the 2010 Term Loan Facility that is not junior or subordinated to the liens securing
the 2010 Term Loan Facility (excluding debt outstanding under the 2010 Revolving Credit Facility) to
EBITDA, as each such term is defined in the 2010 Term Loan Facility), to 4.0 to 1.0 for each period of four
consecutive fiscal quarters ending during the period from March 31, 2010 to the March 2015 maturity date
of the 2010 Term Loan Facility.
Under certain circumstances, Products Corporation will have the right to request the 2010 Term Loan
Facility to be increased by up to $300.0 million, provided that the lenders are not committed to provide any
such increase.
The 2010 Term Loan Facility matures on March 11, 2015.
Provisions Applicable to the 2010 Revolving Credit Facility and the 2010 Term Loan Facility
The 2010 Credit Facilities are supported by, among other things, guarantees from Revlon, Inc. and,
subject to certain limited exceptions, Products Corporation’s domestic subsidiaries. The obligations of
Products Corporation under the 2010 Credit Facilities and the obligations under such guarantees are
secured by, subject to certain limited exceptions, substantially all of the assets of Products Corporation and
the guarantors. (See Note 9, “Long-Term Debt and Redeemable Preferred Stock,” to the Consolidated
Financial Statements).
Each of the 2010 Credit Facilities contains various restrictive covenants prohibiting Products Corpo-
ration 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 NYSE listing 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
44
under the Third Amended and Restated Revlon, Inc. Stock Plan and/or the payment of
withholding taxes in connection with the vesting of restricted stock awards under such plan;
(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; and
(d) subject to certain limitations, to make other restricted payments to affiliates of Products
Corporation in amounts up to $5.0 million per year ($10.0 million in 2010), other restricted
payments in an aggregate amount not to exceed $20.0 million and other restricted payments
based upon certain financial tests;
(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 involving aggregate payments
or consideration in excess of $10.0 million other than upon terms that are not materially less
favorable when taken as a whole to Products Corporation or its subsidiaries as terms that would
be obtainable at the time for a comparable transaction or series of similar transactions in arm’s
length dealings with an unrelated third person and where such payments or consideration exceed
$20.0 million, unless such transaction has been approved by all of the independent directors of
Products Corporation, subject to certain exceptions.
The events of default under each of the 2010 Credit Facilities include customary events of default for
such types of agreements, including, among others:
(i)
(ii)
(iii)
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 2010 Credit Facilities or the ancillary security
documents, subject in certain instances to grace periods;
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 $25.0 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 $25.0 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 2010 Term Loan Facility, a cross default under the 2010 Revolving Credit
Facility, and in the case of the 2010 Revolving Credit Facility, a cross default under the 2010 Term
Loan Facility;
(vi)
the failure by Products Corporation, certain of Products Corporation’s subsidiaries or Revlon,
Inc. to pay certain material judgments;
45
(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 of 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 a majority of such continuing directors) shall cease to be a
majority of the directors;
(viii) Revlon, Inc. shall have any meaningful assets or indebtedness or shall conduct any meaningful
business other than its ownership of Products Corporation and such activities as are customary
for a publicly traded holding company which is not itself an operating company, in each case
subject to limited exceptions; and
(ix)
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, subject to certain
exceptions, including exceptions as to Products Corporation’s Senior Subordinated Term Loan.
If Products Corporation is in default under the senior secured leverage ratio under the 2010 Term Loan
Facility or the consolidated fixed charge coverage ratio under the 2010 Revolving Credit Facility, Products
Corporation may cure such default by issuing certain equity securities to, or receiving capital contributions
from, Revlon, Inc. and applying such cash 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 2010 Credit Agree-
ments upon closing the 2010 Refinancing and as of December 31, 2010. At December 31, 2010, the
aggregate principal amount outstanding under the 2010 Term Loan Facility was $794.0 million and
availability under the $140.0 million 2010 Revolving Credit Facility, based upon the calculated borrowing
base less $21.2 million of outstanding undrawn letters of credit and nil then drawn on the 2010 Revolving
Credit Facility, was $111.7 million.
93⁄4% Senior Secured Notes due 2015
In November 2009, Products Corporation issued and sold $330.0 million in aggregate principal amount
of 93⁄4% Senior Secured Notes due November 15, 2015 (the “93⁄4% Senior Secured Notes”) in a private
placement, which was priced at 98.9% of par, receiving net proceeds (net of the original issue discount and
underwriters fees) of $319.8 million. Including the amortization of the original issue discount, the effective
interest rate on the 93⁄4% Senior Secured Notes is 10%. In connection with and prior to the issuance of the
93⁄4% Senior Secured Notes, Products Corporation entered into amendments to the 2006 Credit Agree-
ments (prior to their complete refinancing in March 2010) to permit the issuance of the 93⁄4% Senior
Secured Notes on a secured basis and incurred $4.7 million of related fees and expenses. The Company
capitalized $4.5 million of such fees and expenses which was expensed upon the refinancing of the 2006
Credit Agreements in March 2010. In addition, the Company incurred $10.5 million of fees and expenses
related to the issuance of the 93⁄4% Senior Secured Notes, all of which the Company capitalized and which
will be amortized over the remaining life of the 93⁄4% Senior Secured Notes.
The $319.8 million of net proceeds, together with $42.6 million of other cash and borrowings under the
2006 Revolving Credit Facility (prior to its complete refinancing in March 2010), were used to repay or
redeem all of the $340.5 million aggregate principal amount outstanding of Products Corporation’s
91⁄2% Senior Notes due April 1, 2011, plus an aggregate of $21.9 million for accrued interest, applicable
redemption and tender premiums and fees and expenses related to refinancing the 91⁄2% Senior Notes, as
46
well as the amendments to the 2006 Credit Agreements (prior to their complete refinancing in March
2010) required to permit such refinancing to be conducted on a secured basis. Pursuant to a registration
rights agreement, on June 1, 2010, Products Corporation commenced an offer to exchange the original
93⁄4% Senior Secured Notes for up to $330 million in aggregate principal amount of its 93⁄4% Senior Secured
Notes due 2015 that have been registered under the Securities Act of 1933, as amended (the “Securities
Act”). On July 16, 2010, all of the old notes were exchanged for new notes which have substantially identical
terms as the old notes, except that the new notes are registered with the SEC under the Securities Act and
the transfer restrictions and registration rights applicable to the old notes do not apply to the new notes.
(See Note 9, “Long-Term Debt and Redeemable Preferred Stock,” to the Consolidated Financial
Statements).
Pursuant to the terms of the 93⁄4% Senior Secured Notes indenture, the 93⁄4% Senior Secured Notes are
senior secured obligations of Products Corporation ranking equally in right of payment with any present
and future senior indebtedness of Products Corporation. The 93⁄4% Senior Secured Notes bear interest at an
annual rate of 93⁄4%, which is payable on May 15 and November 15 of each year, commencing on May 15,
2010, requiring bi-annual interest payments of approximately $15.4 million on May 15, 2010, and thereafter
approximately $16.1 million on each interest payment date, based on the $330.0 million aggregate principal
face amount of the 93⁄4% Senior Secured Notes outstanding as of December 31, 2010.
The 93⁄4% Senior Secured Notes are supported by, among other things, guarantees from Revlon, Inc.
and, subject to certain limited exceptions, Products Corporation’s domestic subsidiaries. The obligations of
Products Corporation under the 93⁄4% Senior Secured Notes and the obligations under the guarantees are
secured by, subject to certain limited exceptions, substantially all of the assets of Products Corporation and
the guarantors, including second-priority liens on the collateral securing the 2010 Term Loan Facility and
third-priority liens on the collateral securing the 2010 Revolving Credit Facility, subject to certain excep-
tions. (See Note 9, “Long-Term Debt and Redeemable Preferred Stock,” to the Consolidated Financial
Statements).
The 93⁄4% Senior Secured Notes indenture contains covenants that, among other things, limit (i) the
issuance of additional debt and redeemable stock by Products Corporation; (ii) the incurrence of liens;
(iii) the issuance of debt and preferred stock by Products Corporation’s subsidiaries; (iv) the payment of
dividends on capital stock of Products Corporation and its subsidiaries and the redemption of capital stock
of Products Corporation and certain subordinated obligations; (v) the sale of assets and subsidiary stock by
Products Corporation; (vi) transactions with affiliates of Products Corporation; (vii) consolidations, merg-
ers and transfers of all or substantially all of Products Corporation’s assets; and (viii) certain restrictions on
transfers of assets by or distributions from subsidiaries of Products Corporation. All of these limitations and
prohibitions, however, are subject to a number of qualifications and exceptions, which are specified in the
93⁄4% Senior Secured Notes indenture. Products Corporation was in compliance with all applicable
covenants under its 93⁄4% Senior Secured Notes as of December 31, 2010.
Senior Subordinated Term Loan
In October 2009, Revlon, Inc. consummated its Exchange Offer in which each issued and outstanding
share of Revlon, Inc.’s Class A Common Stock was exchangeable on a one-for-one basis for a newly-issued
series of Revlon, Inc. Preferred Stock. Revlon, Inc. issued to stockholders (other than MacAndrews &
Forbes and its affiliates) 9,336,905 shares of Preferred Stock in exchange for the same number of shares of
Class A Common Stock tendered for exchange in the Exchange Offer. The Class A Common Stock
tendered in the Exchange Offer represented approximately 46% of the shares of Class A Common Stock
held by stockholders other than MacAndrews & Forbes and its affiliates.
Each share of Preferred Stock issued in the Exchange Offer has a liquidation preference of $5.21 per
share, is entitled to receive a 12.75% annual dividend payable quarterly in cash and is mandatorily
redeemable for $5.21 in cash on October 8, 2013. Each share of Preferred Stock entitles its holder to receive
cash payments of approximately $7.87 over the four-year term of the Preferred Stock, through the quarterly
payment of 12.75% annual cash dividends and a $5.21 per share liquidation preference at maturity
47
(assuming Revlon, Inc. does not engage in one of certain specified change of control transactions), in each
case to the extent that Revlon, Inc. has lawfully available funds to effect such payments. Each share of
Preferred Stock has the same voting rights as a share of Class A Common Stock, except with respect to
certain mergers.
Upon consummation of the Exchange Offer, MacAndrews & Forbes contributed to Revlon, Inc. the
$48.6 million of the $107.0 million aggregate outstanding principal amount of the Senior Subordinated Term
Loan that was contributed to Revlon, Inc. by MacAndrews & Forbes (the “Contributed Loan”), repre-
senting $5.21 of outstanding principal amount for each of the 9,336,905 shares of Revlon, Inc.’s Class A
Common Stock exchanged in the Exchange Offer, and Revlon, Inc. issued to MacAndrews & Forbes
9,336,905 shares of Class A Common Stock at a ratio of one share of Class A Common Stock for each $5.21
of outstanding principal amount of the Senior Subordinated Term Loan contributed to Revlon. Also upon
consummation of the Exchange Offer, the terms of the Senior Subordinated Term Loan Agreement were
amended to extend the maturity date on the Contributed Loan which remains owing from Products
Corporation to Revlon, Inc. from August 2010 to October 8, 2013, to change the annual interest rate on the
Contributed Loan from 11% to 12.75%, to extend the maturity date on the $58.4 million principal amount
of the Senior Subordinated Term Loan which remains owing from Products Corporation to MacAndrews &
Forbes (the “Non-Contributed Loan”) from August 2010 to October 8, 2014 and to change the annual
interest rate on the Non-Contributed Loan from 11% to 12%.
Interest under the Senior Subordinated Term Loan is payable in arrears in cash on January 8, April 8,
July 8 and October 8 of each year. 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 its respective maturity dates without
premium or penalty, provided that prior to such loan’s respective maturity dates all shares of Revlon, Inc.’s
Preferred Stock have been or are being concurrently redeemed and all payments due thereon are paid in
full or are concurrently being paid in full.
In connection with the Exchange Offer, the Preferred Stock was recorded by Revlon, Inc. as a long-
term liability at its fair value of $47.9 million. The total amount to be paid by Revlon, Inc. at maturity is
$48.6 million, which represents the $5.21 liquidation preference for each of the 9,336,905 shares of Preferred
Stock issued in the Exchange Offer.
In addition, in connection with Revlon, Inc.’s Exchange Offer, as of December 31, 2009, Revlon, Inc.
had incurred capitalized fees of approximately $6.7 million related to the consummation of such offer, all of
which were paid as of December 31, 2010. As a result of the consummation of the Exchange Offer, these
fees will be amortized by Revlon, Inc. over the four-year term of the Preferred Stock.
Interest Rate Swap Transactions
In September 2007 and April 2008, Products Corporation executed two floating-to-fixed Interest Rate
Swaps each with a notional amount of $150.0 million over a period of two years relating to indebtedness
under Products Corporation’s former 2006 Term Loan Facility (prior to its complete refinancing in March
2010). In September 2009, one of the Company’s two floating-to-fixed interest rate swaps, with a notional
amount of $150.0 million, expired.
Prior to its expiration in April 2010, the Company’s other floating-to-fixed interest rate swap had a
notional amount of $150.0 million initially relating to indebtedness under Products Corporation’s former
2006 Term Loan Facility (prior to its complete refinancing in March 2010) and which also related, through
its expiration in April 2010, to a notional amount of $150.0 million relating to indebtedness under Products
Corporation’s 2010 Term Loan Facility (the “2008 Interest Rate Swap”). Under the terms of the 2008
Interest Rate Swap, Products Corporation was required to pay to the counterparty a quarterly fixed interest
rate of 2.66% on the $150.0 million notional amount under the 2008 Interest Rate Swap (which, based upon
the 4.0% applicable margin, effectively fixed the interest rate on such notional amounts at 6.66% for the
2-year term of such swap), commencing in July 2008, while receiving a variable interest rate payment from
the counterparty equal to three-month U.S. dollar LIBOR.
48
The 2008 Interest Rate Swap was initially designated as a cash flow hedge of the variable interest rate
payments on Products Corporation’s former 2006 Term Loan Facility (prior to its complete refinancing in
March 2010) under the Derivatives and Hedging Topic of the FASB Accounting Standards Codification
(the “Derivatives and Hedging Topic”). However, as a result of the 2010 Refinancing, effective March 11,
2010 (the closing date of the 2010 Refinancing), the 2008 Interest Rate Swap no longer met the criteria
specified under the Derivatives and Hedging Topic to allow for the deferral of the effective portion of
unrecognized hedging gains or losses in other comprehensive income since the scheduled variable interest
payment specified on the date originally documented at the inception of the hedge will not occur. As a
result, as of March 11, 2010, the Company reclassified an unrecognized loss of $0.8 million from Accu-
mulated Other Comprehensive Loss into earnings.
Impact of Foreign Currency Translation — Venezuela
During 2010 and 2009, the Company’s subsidiary in Venezuela had net sales of approximately 3% and
4%, respectively, of the Company’s consolidated net sales. At December 31, 2010 and 2009, total assets in
the Company’s subsidiary in Venezuela were approximately 3% and 5%, respectively, of the Company’s
total assets.
Highly-Inflationary Economy: Effective January 1, 2010, Venezuela has been designated as a highly
inflationary economy under U.S. GAAP. As a result, beginning January 1, 2010, the U.S. dollar is the
functional currency for the Company’s subsidiary in Venezuela. Through December 31, 2009, prior to being
designated as highly inflationary, currency translation adjustments of Revlon Venezuela’s balance sheet
were reflected in shareholders’ equity as part of Other Comprehensive Income; however subsequent to
January 1, 2010, such adjustments are reflected in earnings.
Currency Devaluation: On January 8, 2010, the Venezuelan government announced the devaluation
of its local currency (“Bolivars”) relative to the U.S. dollar and the official exchange rate for non-essential
goods changed from 2.15 to 4.30. The Company uses Venezuela’s official rate to translate the financial
statements of Revlon Venezuela. In 2010, the devaluation had the impact of reducing reported net sales and
operating income by $33.4 million and $8.4 million, respectively. Additionally, to reflect the impact of the
currency devaluation, a one-time foreign currency loss of $2.8 million was recorded in January 2010 as a
result of the required re-measurement of Revlon Venezuela’s balance sheet. As Venezuela has been
designated as a highly inflationary economy effective January 1, 2010, this foreign currency loss was
reflected in earnings in the first quarter of 2010.
In December 2010, the Venezuelan government announced a further devaluation of Bolivars relative
to the U.S. dollar for essential goods from 2.60 to 4.30. Given that the Company has immaterial transactions
at the official rate for essential goods, the further devaluation will not have a material impact on the
Company’s results of operations or financial condition.
Separately, during the fourth quarter of 2009, due to currency restrictions in Venezuela, Revlon
Venezuela exchanged Bolivars for U.S. dollars through a parallel market exchange transaction in order to
pay for certain U.S. dollar-denominated liabilities, which resulted in a $2.8 million foreign exchange loss.
(See “Results of Operations — Year ended December 31, 2009 compared with the year ended
December 31, 2008 — Foreign Currency Losses”).
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 2010 Revolving Credit Facility and other permitted lines of credit.
The 2010 Credit Agreements, the indenture governing Products Corporation’s 93⁄4% Senior Notes and the
Senior Subordinated Term Loan Agreement 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,
49
purchases of permanent wall displays, capital expenditure requirements, payments in connection with the
Company’s restructuring programs, severance not otherwise included in the Company’s restructuring
programs, debt service payments and costs, debt repurchases and regularly scheduled pension and post-
retirement benefit plan contributions and benefit payments. The Company’s cash contributions to its
pension and post-retirement benefit plans in 2010 were $25.8 million. In accordance with the minimum
pension contributions required under the Employee Retirement Income Security Act of 1974, as amended
by the Pension Protection Act of 2006 and as amended by the Worker, Retiree and Employer Recovery Act
of 2008, the Company expects cash contributions to its pension and post-retirement benefit plans to be
approximately $30 million in the aggregate for 2011. The Company’s purchases of permanent wall displays
and capital expenditures in 2010 were $33.7 million and $15.2 million, respectively. The Company expects
purchases of permanent wall displays and capital expenditures in the aggregate for 2011 to be approxi-
mately $40 million and $20 million, respectively. (See “Restructuring Costs and Other, 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 intended to reduce
inventory levels over time; centralized purchasing to secure discounts and efficiencies in procurement;
providing discounts to U.S. customers for more timely payment of receivables; prudent 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 may also, from time to time, seek to retire or purchase its outstanding debt obligations in
open market purchases, in privately negotiated transactions or otherwise and may seek to refinance some or
all of its indebtedness based upon market conditions. Any retirement or purchase of debt may be funded
with operating cash flows of the business or other sources and will depend upon prevailing market
conditions, liquidity requirements, contractual restrictions and other factors, and the amounts involved
may be material.
The Company expects that operating revenues, cash on hand and funds available for borrowing under
the 2010 Revolving Credit Facility and other permitted lines of credit will be sufficient to enable the
Company to cover its operating expenses for 2011, 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 2009 Programs),
severance not otherwise included in the Company’s restructuring programs, debt service payments and
costs, debt repurchases and regularly scheduled pension and post-retirement plan contributions and benefit
payments.
There can be no assurance that available funds will be sufficient to meet the Company’s cash
requirements on a consolidated basis. If the Company’s anticipated level of revenues is not achieved
because of, among other things, decreased consumer spending in response to weak economic conditions or
weakness in the cosmetics category in the mass retail channel; adverse changes in currency exchange rates
and/or currency controls; 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
50
display space; changes in retailer pricing or promotional strategies; or less than anticipated results from the
Company’s existing or new products or from its advertising, promotional and/or marketing plans; or if the
Company’s expenses, including, without limitation, for pension expense under its benefit plans, advertising,
promotional and marketing activities or for sales 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.
Any 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 2010 Credit
Agreements and in such event the Company could be required to take measures, including, among other
things, reducing discretionary spending. (See also Item 1A.“Risk Factors” for further discussion of certain
risks associated with the Company’s business and indebtedness).
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, promotional or marketing expenses;
reducing or delaying capital spending;
implementing new or revising existing restructuring programs;
refinancing 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 also Item 1A.“Risk Factors” for
further discussion of certain risks associated with the Company’s business and indebtedness).
Revlon, Inc. expects that the payment of the quarterly dividends on its Preferred Stock will be funded
by cash interest payments to be received by Revlon, Inc. from Products Corporation on the Contributed
Loan (the $48.6 million portion of the Senior Subordinated Term Loan that was contributed to Revlon, Inc.
by MacAndrews & Forbes), subject to Revlon, Inc. having sufficient surplus or net profits in accordance
with Delaware law. Additionally, Revlon, Inc. expects to pay the liquidation preference of the Preferred
Stock on October 8, 2013 with the cash payment to be received by Revlon, Inc. from Products Corporation
in respect of the maturity of the principal amount outstanding under the Contributed Loan, subject to
Revlon, Inc. having sufficient surplus in accordance with Delaware law. The payment of such interest and
principal under the Contributed Loan to Revlon, Inc. by Products Corporation is permissible under the
2010 Credit Agreements, the Senior Subordinated Term Loan Agreement and the 93⁄4% Senior Secured
Notes Indenture.
51
In accordance with the terms of the certificate of designation of the Preferred Stock, during 2010,
Revlon, Inc. paid to holders of record of the Preferred Stock an aggregate of $6.2 million of regular
dividends on the Preferred Stock. In addition, on January 10, 2011, Revlon, Inc. paid to holders of record of
the Preferred Stock at the close of business on December 31, 2010 the Regular Dividend in the amount of
$0.171074 per share, or $1.6 million in the aggregate, for the period from October 8, 2010 through
January 10, 2011.
Products Corporation enters into foreign currency forward exchange contracts and option contracts
from time to time to hedge certain net cash flows denominated in currencies other than the local currencies
of the Company’s foreign and domestic operations. The foreign currency forward exchange contracts are
entered into primarily for the purpose of hedging anticipated inventory purchases and certain intercom-
pany payments denominated in currencies other than the local currencies of the Company’s foreign and
domestic operations and generally have maturities of less than one year. At December 31, 2010, the
notional amount of FX Contracts outstanding was $46.0 million. The fair value of FX Contracts outstanding
at December 31, 2010 was $(1.9) 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, 2010:
Contractual Obligations
Long-term debt, including current portion . . . . . . .
Long-term debt — affiliates(a) . . . . . . . . . . . . . . . . .
Redeemable preferred stock(b) . . . . . . . . . . . . . . . .
Interest on long-term debt(c) . . . . . . . . . . . . . . . . . .
Interest on long-term debt — affiliates(d)
. . . . . . . .
Preferred stock dividend(e). . . . . . . . . . . . . . . . . . . .
Capital lease obligations . . . . . . . . . . . . . . . . . . . . .
Operating leases . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase obligations (f) . . . . . . . . . . . . . . . . . . . . . .
Other long-term obligations(g) . . . . . . . . . . . . . . . . .
Total
$1,124.0
58.4
48.6
370.7
28.0
18.6
2.4
76.8
65.7
53.0
Payments Due by Period
(dollars in millions)
Less than
1 year
1-3 years
3-5 years
$
8.0
—
—
92.2
7.0
6.2
1.3
15.6
65.2
43.3
$ 16.0
—
48.6
158.9
14.0
12.4
1.0
26.6
0.5
7.6
$1,100.0
58.4
—
119.6
7.0
—
0.1
14.6
—
1.9
Total contractual obligations . . . . . . . . . . . . . . . . . .
$1,846.2
$238.8
$285.6
$1,301.6
After 5
years
$ —
—
—
—
—
—
—
20.0
—
0.2
$20.2
(a) Amount refers to the aggregate principal amount outstanding under the Non-Contributed Loan, after giving effect to the
consummation of the Exchange Offer in October 2009 in which MacAndrews & Forbes contributed to Revlon, Inc. $48.6 million
of the $107.0 million aggregate outstanding principal amount of the Senior Subordinated Term Loan made by MacAndrews &
Forbes to Products Corporation. Pursuant to the terms of the Exchange Offer, the maturity date on the Non-Contributed Loan
which remains owing from Products Corporation to MacAndrews & Forbes was extended from August 2010 to October 8, 2014.
(b) Reflects the Preferred Stock issued in the Exchange Offer, which has a liquidation preference of $5.21 per share. Each share of
Preferred Stock entitles its holder to receive cash payments of approximately $7.87 over the four-year term of the Preferred Stock,
through the quarterly payment of 12.75% annual cash dividends and a $5.21 per share liquidation preference payable at maturity
on October 8, 2013 (assuming Revlon, Inc. does not engage in one of certain specified change of control transactions), in each
case to the extent that Revlon, Inc. has lawfully available funds to effect such payments. If Revlon, Inc. engages in one of certain
specified change of control transactions (not including any transaction with MacAndrews & Forbes) within three years of
consummation of the Exchange Offer, the holders of the Preferred Stock will have the right to receive a special dividend if the per
share equity value of the Company in the change of control transaction is higher than the liquidation preference plus paid and
accrued and unpaid dividends on the Preferred Stock, capped at an amount that would provide aggregate cash payments of up to
$12.00 per share.
(c) Consists of interest primarily on the $330.0 million in aggregate principal amount of the 93⁄4% Senior Secured Notes and on the
2010 Term Loan Facility through the respective maturity dates based upon assumptions regarding the amount of debt
outstanding under the 2010 Credit Facilities and assumed interest rates.
52
(d)
Includes 12% interest on the aggregate principal amount outstanding under the Non-Contributed Loan, which has a maturity
date on October 8, 2014.
(e) Reflects the 12.75% annual cash dividend, payable quarterly over the four-year term of the Preferred Stock, subject to Revlon,
Inc. having lawfully available funds to effect such payments.
(f) 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.
(g) Consists primarily of obligations related to third-party warehousing services, pension funding obligations (amount due within
one year only, as subsequent pension funding obligation amounts cannot be reasonably estimated since the return on pension
assets in future periods, as well as future pension assumptions, are not known) and 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.
53
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.
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
these plans. These factors include assumptions about the discount rate, expected long-term 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 defined benefit pension plan obligations and
assets.
The Company selected a weighted-average discount rate of 5.17% in 2010, representing a decrease
from the 5.68% weighted-average discount rate selected in 2009 for the Company’s U.S. defined benefit
pension plans. The Company selected an average discount rate for the Company’s international defined
benefit pension plans of 5.32% in 2010, representing a decrease from the 5.63% average discount rate
selected in 2009. 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 2010 were primarily due to
decreasing long-term interest yields on high-quality corporate bonds during 2010. At December 31, 2010,
the decrease in the discount rates from December 31, 2009 had the effect of increasing the Company’s
projected pension benefit obligation by approximately $33.4 million. For 2011, the Company expects that
the aforementioned decrease in the discount rate will have the effect of increasing the net periodic benefit
cost for its U.S. and international defined benefit pension plans by approximately $0.3 million, as compared
to the net periodic benefit cost for 2010. However, for 2011, the Company expects an overall decline in net
periodic benefit cost primarily due to the increase in the fair value of pension plan assets at December 31,
2010.
Each year during the first quarter, the Company selects an expected long-term rate of return on its
pension plan assets. For the Company’s U.S. defined benefit pension plans, the expected long-term rate of
return on the pension plan assets used in both 2010 and 2009 was 8.25%. The average expected long-term
rate of return used for the Company’s international plans in both 2010 and 2009 was 6.50%.
The table below reflects the Company’s estimates of the possible effects of changes in the discount
rates and expected long-term rates of return on its 2010 net periodic benefit costs and its projected benefit
obligation at December 31, 2010 for the Company’s principal defined benefit pension plans, with all other
assumptions remaining constant:
Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected long-term rate of return . . . . . . . . . . . . . . . . .
$(0.2)
(1.0)
Net periodic
benefit costs
Projected
pension
benefit
obligation
$(17.3)
—
Net periodic
benefit costs
$0.3
1.1
Projected
pension
benefit
obligation
$17.8
—
Effect of
25 basis points increase
Effect of
25 basis points decrease
54
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 both 2010
and 2009 was 3.5%, for the U.S. defined benefit pension plans excluding the Revlon Employees’ Retirement
Plan and the Revlon Pension Equalization Plan, as the rate of future compensation increases is no longer
relevant to such plans due to the plan amendments made in May 2009.
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.
Goodwill:
The Company reviews its goodwill for impairment at least annually, or whenever events or changes in
circumstances would indicate possible impairment. The Company performs its annual impairment test of
goodwill as of September 30th. The Company compared its estimated fair value of the enterprise to its net
assets and the fair value of the enterprise was substantially greater than the enterprise’s net assets. Based on
the annual tests performed by the Company as of September 30, 2010 and 2009, the Company concluded
that no impairment of goodwill existed at either date. The Company operates in one reportable segment,
which is also the only reporting unit for purposes of accounting for goodwill. Since the Company currently
only has one reporting unit, all of the goodwill has been assigned to the enterprise as a whole. The amount
outstanding for goodwill, net, was $182.7 and $182.6 million at December 31, 2010 and 2009, respectively.
Income Taxes:
The Company records income taxes based on amounts payable with respect to the current year and
includes the effect of deferred taxes. The effective tax rate reflects statutory tax rates, tax-planning
opportunities available in various jurisdictions in which the Company operates, and the Company’s
estimate of the ultimate outcome of various tax audits and issues. Determining the Company’s effective
tax rate and evaluating tax positions requires significant judgment.
The Company recognizes deferred tax assets and liabilities for the future impact of differences between
the financial statement carrying amounts of assets and liabilities and their respective tax bases, as well as for
operating loss and tax credit carryforwards. The Company measures deferred tax assets and liabilities using
enacted tax rates expected to apply to taxable income in the years in which management expects that the
Company will recover or settle those differences. The Company has established valuation allowances for
deferred tax assets when management has determined that it is not more likely than not that the Company
will realize a tax benefit. (See “Management’s Discussion and Analysis of Financial Condition and Results
of Operations — (Benefit from) provision for income taxes,” for a discussion of the benefit from income
taxes in 2010 primarily attributable to the one-time non-cash benefit of $260.6 million related to a reduction
of the Company’s deferred tax valuation allowance on its net U.S. deferred tax assets at December 31,
2010).
The Company recognizes a tax position in its financial statements when it is more likely than not that
the position will be sustained upon examination, based on the merits of such position.
Recent Accounting Pronouncements
In December 2010, the FASB issued Accounting Standards Update No. 2010-28, “When to Perform
Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts,
which amends ASC Topic 350, Intangibles — Goodwill and Other” (“ASU 2010-28”). ASU 2010-28
amends the criteria for performing Step 2 of the goodwill impairment test for reporting units with zero
or negative carrying amounts. For such reporting units, Step 2 of the goodwill impairment test will be
required if qualitative factors exist that indicate it is more likely than not that a goodwill impairment exists.
The provisions of ASU 2010-28 are effective for fiscal years, and interim periods within those years,
55
beginning after December 15, 2010. The Company will adopt the provisions of ASU 2010-28 in 2011 and
does not expect that its adoption will have a material impact on the Company’s results of operations,
financial condition or its disclosures.
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 and Venezuela, 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.
The Company determined that the Venezuelan economy should be considered a highly inflationary
economy under U.S. GAAP based upon a blended inflation index of the Venezuelan National Consumer
Price Index (“NCPI”) and the Venezuelan Consumer Price Index (“CPI”). (See “Financial Condition,
Liquidity and Capital Resources — Impact of Foreign Currency Translation — Venezuela” for details
regarding the designation of Venezuela as a highly inflationary economy effective January 1, 2010 and the
Venezuelan government’s announcement of the devaluation of its local currency on January 8, 2010).
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Sensitivity
The Company has exposure to changing interest rates primarily under the 2010 Term Loan Facility and
2010 Revolving Credit Facility. 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 and April 2008, Products
Corporation executed the two floating-to-fixed Interest Rate Swaps, each 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 (prior to its complete refinancing in March 2010). In September 2009 and April 2010,
respectively, the Company’s two floating-to-fixed interest rate swaps, each with a notional amount of
$150.0 million, expired. (See “Financial Condition, Liquidity and Capital Resources — Interest Rate Swap
Transactions”).
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 U.S. Dollar LIBOR yield curve at December 31, 2010. The information is presented in
U.S. dollar equivalents, which is the Company’s reporting currency.
56
Debt
2011
2012
2013
2014
2015
Thereafter
Total
Expected maturity date for the year ended December 31,
(dollars in millions, except for rate information)
Fair Value
December 31,
2010
Short-term variable rate
(various currencies) . . . . . $ 3.7
Average interest rate(a) . . .
6.4%
Long-term fixed rate —
third party ($US) . . . . . . .
Average interest rate(a) . . .
Long-term fixed rate —
affiliates ($US) . . . . . . . . .
Average interest rate(a) . . .
Long-term variable rate —
third party ($US) . . . . . . .
Average interest
rate(a)(d) . . . . . . . . . . . . .
$ 48.6(b)
12.75%
$ 330.0
9.75%
$58.4(c)
12.0%
$
3.7
$
3.7
378.6
401.3
58.4
60.3
8.0
$8.0
8.0
8.0
762.0
794.0
798.0
6.0% 6.0% 6.1% 6.4%
6.4%
Total debt . . . . . . . . . . . . . . . $11.7
$8.0 $ 56.6
$66.4
$1,092.0
$—
$1,234.7
$1,263.3
(a) Weighted average variable rates are based upon implied forward rates from the U.S. Dollar LIBOR yield curves at December 31,
2010.
(b) Represents the $48.6 million to be paid by Revlon, Inc. at maturity for the Preferred Stock issued in the voluntary exchange offer
consummated in October 2009 (i.e., the earlier of (i) October 8, 2013 and (ii) the consummation of certain change of control
transactions), subject to Revlon, Inc. having sufficient surplus in accordance with Delaware law to effect such payments. Annual
cash dividends of 12.75% on the Preferred Stock are payable quarterly over the four-year term of the Preferred Stock, subject to
Revlon, Inc. having sufficient surplus or net profits in accordance with Delaware law to effect such payments.
(c) Represents the $58.4 million aggregate principal amount outstanding of the Non-Contributed Loan as of December 31, 2010
which loan matures on October 8, 2014 and bears interest at an annual rate of 12%, which is payable in arrears in cash on
January 8, April 8, July 8, and October 8 of each year. (See “Financial Condition, Liquidity and Capital Resources — Senior
Subordinated Term Loan”).
(d) The 2010 Term Loan Facility bears interest at the Eurodollar Rate (as defined in the 2010 Term Loan Agreement) plus 4.00% per
annum (provided that in no event shall the Eurodollar Rate be less than 2.00% per annum).
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 through foreign exchange forward and option contracts. Products Corporation enters into
these contracts with major financial institutions in an attempt to minimize counterparty risk. These
contracts generally have a duration of less than twelve months and are primarily against the U.S. dollar.
57
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.
Forward Contracts
Average
Contractual
Rate
$/FC
Original US
Dollar
Notional
Amount
Contract Value
December 31,
2010
Fair Value
December 31,
2010
Sell Canadian Dollars/Buy USD . . . . . . . . . . . . .
Sell Australian Dollars/Buy USD . . . . . . . . . . . .
Sell British Pounds/Buy USD . . . . . . . . . . . . . . .
Sell South African Rand/Buy USD . . . . . . . . . . .
Buy Australian Dollars/Sell New Zealand
Dollars . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sell New Zealand Dollars/Buy USD . . . . . . . . . .
Sell Hong Kong Dollars/Buy USD . . . . . . . . . . .
0.9742
0.9339
1.5447
0.1372
1.3169
0.7142
0.1286
$17.3
12.1
7.4
5.4
3.4
0.3
0.1
$16.9
11.1
7.3
5.0
3.4
0.3
0.1
$(0.4)
(1.0)
(0.1)
(0.4)
—
—
—
Total forward contracts . . . . . . . . . . . . . . . . . . . .
$46.0
$44.1
$(1.9)
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.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures
None.
Item 9A. Controls and Procedures
(a) Disclosure Controls and Procedures. The Company maintains disclosure controls and proce-
dures that are designed to ensure that information required to be disclosed in the Company’s reports under
the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within
the time periods specified in the SEC’s rules and forms, and that such information is accumulated and
communicated to management, including the Company’s Chief Executive Officer and Chief Financial
Officer, as appropriate, to allow timely decisions regarding required disclosure. The Company’s manage-
ment, 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
58
• 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, 2010 and in making this assessment used the criteria set forth
by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Inte-
grated 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, 2010, the Company’s internal control
over financial reporting was effective.
KPMG LLP, the Company’s independent registered public accounting firm that audited the Compa-
ny’s financial statements included in this Annual Report on Form 10-K for the period ended December 31,
2010, has issued a 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, 2010 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, 2010, 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, assumptions, forecasts,
plans, anticipations, targets, outlooks, initiatives, visions, objectives, strategies, opportunities, drivers, focus
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 state-
ments include, without limitation, the Company’s expectations and estimates (whether qualitative or
quantitative) as to:
(i)
(ii)
the Company’s future financial performance;
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
exchange rates and/or currency controls; decreased sales of the Company’s products as a result
of increased competitive activities by the Company’s competitors, changes in consumer pur-
chasing habits, including with respect to shopping channels; retailer inventory management;
retailer space reconfigurations or reductions in retailer display space; changes in retailer pricing
or promotional strategies; less than anticipated results from the Company’s existing or new
products or from its advertising, promotional and/or marketing plans; or if the Company’s
expenses, including, without limitation, for pension expense under its benefit plans, advertising,
59
(iii)
(iv)
(v)
(vi)
(vii)
(viii)
promotional and marketing activities or for sales returns related to any reduction of retail space,
product discontinuances or otherwise, exceed the 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
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;
our expectations regarding our strategic goal to profitably grow our business and as to the
business strategies employed to achieve this goal, which are: (a) continuing to build our strong
brands by focusing on innovative, high-quality, consumer-preferred brand offering; effective
consumer brand communication; appropriate levels of advertising and promotion; and superb
execution with our retail partners; (b) continuing to develop our organizational capability
through attracting, retaining and rewarding highly capable people and through performance
management, development planning, succession planning and training; (c) continuing to drive
common global processes which are designed to provide the most efficient and effective
allocation of our resources; (d) continuing to focus on increasing our operating profit and
cash flow; and (e) continuing to improve our capital structure by focusing on strengthening our
balance sheet and reducing debt;
restructuring activities, restructuring costs and charges, the timing of restructuring payments
and the benefits from such activities;
the Company’s expectation that operating revenues, cash on hand and funds available for
borrowing under Products Corporation’s 2010 Revolving Credit Facility and other permitted
lines of credit will be sufficient to enable the Company to cover its operating expenses for 2011,
including the cash requirements referred to in item (viii) below;
the Company’s expected principal sources of funds, including operating revenues, cash on hand
and funds available for borrowing under Products Corporation’s 2010 Revolving Credit Facility
and other permitted lines of credit, as well as the availability of funds from refinancing Products
Corporation’s indebtedness, selling assets or operations, capital contributions and/or loans from
MacAndrews & Forbes, the Company’s other affiliates and/or third parties and/or the sale of
additional equity securities of Revlon, Inc. or additional debt securities of Revlon, Inc. or
Products Corporation;
the Company’s expected principal 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 per-
manent wall displays, capital expenditure requirements, restructuring programs, severance not
otherwise included in the Company’s restructuring programs, debt service payments and costs,
debt repurchases (including, without limitation, that the Company may also, from time to time,
seek to retire or purchase its outstanding debt obligations in open market purchases, in privately
negotiated transactions or otherwise and may seek to refinance some or all of its indebtedness
based upon market conditions) and regularly scheduled pension and post-retirement benefit
plan contributions and benefit payments, and its estimates of the amount and timing of its
operating expenses, restructuring costs and payments, severance costs and payments, debt
service payments (including payments required under Products Corporation’s debt instru-
ments), debt repurchases, cash contributions to the Company’s pension plans and its other post-
retirement benefit plans and benefit payments in 2011, purchases of permanent wall displays
and capital expenditures;
60
(ix) matters concerning the Company’s market-risk sensitive instruments, 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;
(x)
(xi)
(xii)
(xiii)
(xiv)
the Company’s plan to efficiently manage its cash and working capital, including, among other
things, programs to reduce inventory levels over time; centralized purchasing to secure dis-
counts and efficiencies in procurement; providing discounts to U.S. customers for more timely
payment of receivables; prudent management of accounts payable; and targeted controls on
general and administrative spending;
the Company’s expectations regarding its future pension expense, cash contributions and
benefit payments under its benefit plans;
the Company’s expectation that the payment of the quarterly dividends on the Preferred Stock
will be funded by cash interest payments to be received by Revlon, Inc. from Products
Corporation on the Contributed Loan and its expectation of paying the liquidation preference
of the Preferred Stock on October 8, 2013 with the cash payment to be received by Revlon, Inc.
from Products Corporation in respect of the maturity of the principal amount outstanding under
the Contributed Loan, in each case subject to Revlon, Inc. having sufficient surplus or net
profits in accordance with Delaware law;
the Company’s expectations that consistent with the Company’s strategy to build its strong
brands, in the first quarter of 2011, the Company currently intends to support its brands with
increased advertising spending, as compared to the first quarter of 2010, due to increased media
pressure and higher advertising rates; and
the Company’s expectation and belief that as a result of the Company having achieved three
cumulative years, as well as its third consecutive year, of positive U.S. GAAP pre-tax income
and taxable income in the U.S as of December 31, 2010 and the Company’s tax position, and
based upon the Company’s projections for future taxable income over the periods in which its
deferred tax assets are recoverable, it is more likely than not that the Company will realize the
benefits of the net deferred tax assets existing at December 31, 2010 based on the recognition
threshold and measurement of a tax position in accordance with the Income Taxes Topic and
that as a result of the reduction of the Company’s deferred tax valuation allowance on its net
U.S. deferred tax assets at December 31, 2010, the Company expects that, beginning with the
first quarter of 2011, the tax provision will reflect a higher effective tax rate and that any such
increase in the effective tax rate will not affect the Company’s cash taxes paid until the domestic
tax loss carryforwards are fully utilized.
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,” “assumptions,”
“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, long-range plans, 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
2011 and 2010 (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). Except as expressly set forth in this Form 10-K, 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
61
materially from those contained in any forward-looking statement. In addition to factors that may be
described in the Company’s filings with the SEC, including this filing, the following factors, among others,
could cause the Company’s actual results to differ materially from those expressed in any forward-looking
statements made by the Company:
(i)
(ii)
(iii)
(iv)
unanticipated circumstances or results affecting the Company’s financial performance, includ-
ing 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
pension expense and/or cash contributions under its benefit plans and/or benefit payments,
advertising, promotional and/or marketing expenses or lower than expected results from the
Company’s advertising, promotional and/or marketing plans; higher than expected sales 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 retail space and/or product discontinuances or a greater than
expected impact from retailer pricing or promotional strategies; and changes in the competitive
environment and actions by the Company’s competitors, including business combinations,
technological breakthroughs, new products offerings, increased advertising, promotional and
marketing spending and advertising, promotional and/or marketing successes by competitors,
including increases in share in the mass retail channel;
in addition to the items discussed in (i) above, the effects of and changes in economic conditions
(such as continued volatility in the financial markets, inflation, monetary conditions and foreign
currency fluctuations and currency controls, as well as in trade, monetary, fiscal and tax policies
in international markets) and political conditions (such as military actions and terrorist
activities);
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 create value through profitable growth 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 brands or product lines, launching
of new product lines, including difficulties or delays, or higher than expected expenses, including
for sales 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;
difficulties, delays or unanticipated costs in achieving our strategic goal to profitably grow our
business and as to the business strategies employed to achieve this goal, such as (a) difficulties,
delays or our inability to build our strong brands, such as due to less than effective product
development, less than expected acceptance of our new or existing products by consumers
and/or retail customers, less than expected acceptance of our advertising, promotional and/or
marketing plans by our consumers and/or retail customers, less than expected investment in
advertising, promotional and/or marketing activities or greater than expected competitive
investment, less than expected acceptance of our brand communication by consumers and/or
retail partners, less than expected levels of advertising, promotional and/or marketing activities
for our new product launches and/or less than expected levels of execution with our retail
partners or higher than expected costs and expenses; (b) difficulties, delays or the inability to
develop our organizational capability; (c) difficulties, delays or unanticipated costs in connec-
tion with our plans to drive our company to act globally, such as due to higher than anticipated
levels of investment required to support and build our brands globally or less than anticipated
62
results from our national and multi-national brands; (d) difficulties, delays or unanticipated
costs in connection with our plans to improve our operating profit and cash flow, such as
difficulties, delays or the inability to take actions intended to improve results in sales returns,
cost of goods sold, general and administrative expenses, working capital management and/or
sales growth; and/or (e) difficulties, delays or unanticipated costs in consummating, or our
inability to consummate, transactions to improve our capital structure, strengthen our balance
sheet and/or reduce debt, including higher than expected costs (including interest rates);
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 cost reduc-
tions or other benefits from the 2009 Programs, 2008 Programs, 2007 Programs and/or 2006
Programs and the risk that the 2009 Programs, 2008 Programs, 2007 Programs and/or the 2006
Programs may not satisfy the Company’s objectives;
lower than expected operating revenues, cash on hand and/or funds available under the 2010
Revolving Credit Facility and/or other permitted lines of credit or higher than anticipated
operating expenses, such as referred to in clause (viii) below;
the unavailability of funds under Products Corporation’s 2010 Revolving Credit Facility or
other permitted lines of credit, or from refinancing indebtedness, or from 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;
(v)
(vi)
(vii)
(viii) higher than expected operating expenses, sales returns, working capital expenses, permanent
wall display costs, capital expenditures, restructuring costs, severance not otherwise included in
the Company’s restructuring programs, debt service payments, debt repurchases, regularly
scheduled cash pension plan contributions and/or post-retirement benefit plan contributions
and/or benefit payments;
(ix)
(x)
(xi)
(xii)
interest rate or foreign exchange rate changes affecting the Company and its market-risk
sensitive financial instruments and/or difficulties, delays or the inability of the counterparty to
perform such transactions;
difficulties, delays or the inability of the Company to efficiently manage its cash and working
capital;
lower than expected returns on pension plan assets and/or lower discount rates, which could
result in higher than expected cash contributions and/or pension expense;
difficulties, delays or the inability of the Company to pay the quarterly dividends or the
liquidation preference on the Preferred Stock, such as due to the unavailability of funds from
Products Corporation related to its payments to Revlon, Inc. under the Contributed Loan or the
unavailability of sufficient surplus or net profits to make such dividend payments in accordance
with Delaware law or the unavailability of sufficient surplus to make such liquidation prefer-
ence payments in accordance with Delaware law;
(xiii)
lower than expected, or other unanticipated changes in, advertising spending to support the
Company’s brands in the first quarter of 2011, as compared to the first quarter of 2010; and/or
(xiv)
changes in the Company’s earnings trends, tax position or future taxable income in the U.S. that
may impact the amount or timing of the Company’s realization of the benefits of the net
deferred tax assets existing at December 31, 2010 and changes in or unexpected circumstances
impacting the Company’s effective tax rate and cash taxes paid.
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.
63
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 2011 Annual Stockholders Meeting (the “2011 Proxy State-
ment”), which sections are incorporated by reference herein.
The information set forth under the caption “Code of Business Conduct and Senior Financial Officer
Code of Ethics” in the 2011 Proxy Statement is also incorporated herein by reference.
The information set forth under the caption “Section 16(a) Beneficial Ownership Reporting Com-
pliance” in the 2011 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 2011 Proxy Statement is also incorporated
herein by reference.
Information regarding the Company’s director nomination process, audit committee and audit com-
mittee financial expert matters may be found in the 2011 Proxy Statement under the captions “Corporate
Governance-Board of Directors and its Committees — Nominating and Corporate Governance Commit-
tee-Director Nominating Processes; Diversity” and “Corporate Governance-Board of Directors and its
Committees — 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 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 2011 Proxy Statement is incorporated
herein by reference. The information set forth under the caption “Corporate Governance-Board of
Directors and its Committees — Compensation Committee — Composition of the Compensation Com-
mittee” and “— Compensation Committee Report” in the 2011 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 “Security Ownership of Certain Beneficial Owners and
Management” and “Equity Compensation Plan Information” in the 2011 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 — Board of Directors and its Committees — Controlled Company Exemption”
and “Corporate Governance-Board of Directors and its Committees — Audit Committee-Composition of
the Audit Committee”, respectively, in the 2011 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 2011 Proxy Statement is incorporated herein by reference.
64
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 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 Gover-
nance Committee and Compensation 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. If the Company changes the Senior Financial Officer Code of Ethics in any material
respect or waives any provision of the Code of Business Conduct for its executive officers or Directors,
including waivers of the Senior Financial Officer Code of Ethics for any of its Senior Financial Officers, the
Company expects to provide the public with notice of any such change or waiver by publishing an
appropriate description of such event on its corporate website, www.revloninc.com, or by other appropriate
means as required or permitted under applicable rules of the SEC. The Company does not currently expect
to make any such waivers. 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.
65
Item 15. Exhibits, Financial Statement Schedules
(a)
List of documents filed as part of this Report:
PART IV
(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 October 29, 2009 (incorporated by
reference to Exhibit 3.1 to Revlon, Inc.’s Quarterly Report on Form 10-Q for the quarter ended
September 30, 2009 filed with the SEC on October 29, 2009).
Amended and Restated By-Laws of Revlon, Inc., dated as of May 1, 2009 (incorporated by
reference to Exhibit 3.1 of Revlon, Inc.’s Current Report on Form 8-K filed with the SEC on
April 29, 2009).
Certificate of Designation of Series A Preferred Stock of Revlon, Inc. (incorporated by reference
to Exhibit (d)(9) to Amendment No. 8 of Revlon, Inc.’s Schedule TO/Schedule 13E-3 filed with the
SEC on October 8, 2009).
Instruments Defining the Rights of Security Holders, Including Indentures.
Second Amended and Restated Term Loan Agreement dated as of March 11, 2010 (the “2010
Term Loan Agreement”), among Products Corporation as borrower, the lenders party thereto,
Citicorp USA, Inc. (“CUSA”) as administrative agent and collateral agent, JPMorgan Chase
Bank, N.A. and Bank of America, N.A. as co-syndication agents, Credit Suisse Securities
(USA) LLC (“Credit Suisse”) and Natixis, New York Branch (“Natixis”) as co-documentation
agents, Citigroup Global Markets Inc. (“CGMI”), J.P. Morgan Securities Inc. (“JPM
Securities”), Banc of America Securities LLC (“BAS”) and Credit Suisse as joint lead
arrangers, and CGMI, JPM Securities, BAS, Credit Suisse and Natixis as joint bookrunners
(incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K of Products
Corporation filed with the SEC on March 16, 2010 (the “Products Corporation March 16, 2010
Form 8-K”).
Second Amended and Restated Revolving Credit Agreement dated as of March 11, 2010 (the
“2010 Revolving Credit Agreement” and together with the 2010 Term Loan Agreement, the
“2010 Credit Agreements”), among Products Corporation as borrower, certain subsidiaries of
Products Corporation from time to time party thereto as local borrowing subsidiaries, the
lenders party thereto, CUSA as administrative agent and collateral agent, CGMI and Wells
Fargo Capital Finance, LLC (“Wells Fargo”) as joint lead arrangers, and CGMI, Wells Fargo,
BAS, JPM Securities and Credit Suisse as joint bookrunners (incorporated by reference to
Exhibit 4.2 to the Products Corporation March 16, 2010 Form 8-K).
Third Amended and Restated Pledge and Security Agreement dated as of March 11, 2010
among Revlon, Inc., Products Corporation and certain domestic subsidiaries of Products
Corporation in favor of CUSA, as collateral agent for the secured parties (incorporated by
reference to Exhibit 4.3 to the Products Corporation March 16, 2010 Form 8-K).
3.
3.1
3.2
3.3
4.
4.1
4.2
4.3
66
4.4
4.5
4.6
4.7
4.8
4.9
4.10
4.11
4.12
4.13
4.14
4.15
Third Amended and Restated Intercreditor and Collateral Agency Agreement, dated as of
March 11, 2010, among CUSA, as administrative agent for the lenders under the 2010 Credit
Agreements, U.S. Bank National Association, as trustee for certain noteholders, CUSA, as
collateral agent for the secured parties, Revlon, Inc., Products Corporation and certain
domestic subsidiaries of Products Corporation (incorporated by reference to Exhibit 4.4 to
the Products Corporation March 16, 2010 Form 8-K).
Amended and Restated Guaranty, dated as of March 11, 2010, by and among Revlon, Inc.,
Products Corporation and certain domestic subsidiaries of Products Corporation, in favor of
CUSA, as collateral agent for the secured parties (incorporated by reference to Exhibit 4.5 to
the Products Corporation March 16, 2010 Form 8-K).
Schedule of Borrowers; Denomination Currencies; Currency Sublimits; Maximum Sublimits;
and Local Fronting Lenders under the 2010 Revolving Credit Agreement (incorporated by
reference to Exhibit 4.6 to the Products Corporation March 16, 2010 Form 8-K).
Form of Revolving Credit Note under the 2010 Revolving Credit Agreement (incorporated by
reference to Exhibit 4.7 to the Products Corporation March 16, 2010 Form 8-K).
Third Amended and Restated Copyright Security Agreement, dated as of March 11, 2010,
among Products Corporation and CUSA, as collateral agent for the secured parties
(incorporated by reference to Exhibit 4.8 to the Products Corporation March 16, 2010
Form 8-K).
Third Amended and Restated Copyright Security Agreement, dated as of March 11, 2010,
among Almay, Inc. and CUSA, as collateral agent for the secured parties (incorporated by
reference to Exhibit 4.9 to the Products Corporation March 16, 2010 Form 8-K).
Third Amended and Restated Patent Security Agreement, dated as of March 11, 2010, among
Products Corporation and CUSA, as collateral agent for the secured parties (incorporated by
reference to Exhibit 4.10 to the Products Corporation March 16, 2010 Form 8-K).
Third Amended and Restated Trademark Security Agreement, dated as of March 11, 2010,
among Products Corporation and CUSA, as collateral agent for the secured parties
(incorporated by reference to Exhibit 4.11 to the Products Corporation March 16, 2010
Form 8-K).
Third Amended and Restated Trademark Security Agreement, dated as of March 11, 2010,
for the secured parties
among Charles Revson Inc. and CUSA, as collateral agent
(incorporated by reference to Exhibit 4.12 to the Products Corporation March 16, 2010
Form 8-K).
Form of Term Loan Note under the 2010 Term Loan Agreement (incorporated by reference to
Exhibit 4.13 to the Products Corporation March 16, 2010 Form 8-K).
Amended and Restated Term Loan Guaranty, dated as of March 11, 2010, by Revlon, Inc.,
Products Corporation and certain domestic subsidiaries of Products Corporation in favor of
CUSA, as collateral agent for the secured parties (incorporated by reference to Exhibit 4.14 to
the Products Corporation March 16, 2010 Form 8-K).
Indenture, dated as of November 23, 2009, between Products Corporation and U.S. Bank
National Association, as trustee, relating to Products Corporation’s 93⁄4% Senior Secured Notes
due November 15, 2015 (incorporated by reference to Exhibit 4.22 to Products Corporation’s
Annual Report on Form 10-K for the fiscal year ended December 31, 2009 filed with the SEC
on February 25, 2010 (the “Products Corporation 2009 Form 10-K”).
67
10.
10.1
10.2
*10.3
10.4
*10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
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).
Amended and Restated Employment Agreement, dated as of November 29, 2010, between
Products Corporation and David L. Kennedy.
Amended and Restated Employment Agreement, dated as of May 1, 2009, between Products
Corporation and Alan T. Ennis (incorporated by reference to Exhibit 10.2 to the Revlon, Inc.
2009 Second Quarter Form 10-Q).
Amended and Restated Employment Agreement, dated as of February 14, 2011, between
Products Corporation and Robert K. Kretzman.
Employment Agreement, dated as of April 29, 2009, between Products Corporation and
Steven Berns (incorporated by reference to Exhibit 10.4 to the Revlon Inc.’s Quarterly Report
on Form 10-Q for the quarter ended June 30, 2009 filed with the SEC on July 30, 2009).
Amended and Restated Employment Agreement, dated as of May 1, 2009, between Products
Corporation and Chris Elshaw (incorporated by reference to Exhibit 10.7 to Revlon, Inc.’s
Annual Report on Form 10-K filed with the SEC on February 25, 2010 (the “Revlon, Inc. 2009
10-K”).
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 (incorporated by
reference to Exhibit 10.7 to Revlon, Inc.’s Annual Report on Form 10-K for the fiscal year
ended December 31, 2008 filed with the SEC on February 25, 2009 (“Revlon, Inc.’s 2008
10-K”)).
Form of Restricted Stock Agreement under the Stock Plan (incorporated by reference to
Exhibit 10.8 to Revlon, Inc.’s 2008 10-K).
Revlon Executive Incentive Compensation Plan (incorporated by reference to Annex C to
Revlon, Inc.’s Annual Proxy Statement on Schedule 14A filed with the SEC on April 21, 2010).
Amended and Restated Revlon Pension Equalization Plan, amended and restated as of
December 14, 1998 (the “PEP”) (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).
Amendment to the PEP, dated as of May 28, 2009 (incorporated by reference to Exhibit 10.13
to the Revlon, Inc. 2009 Form 10-K).
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).
68
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
10.24
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 10.2 to Revlon,
Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2009 filed with the SEC
on April 30, 2009).
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).
Contribution and Stockholder Agreement, dated as of August 10, 2009, by and between
Revlon, Inc. and MacAndrews & Forbes (incorporated by reference to Annex B-1 to
Exhibit (a)(1)(J) of Revlon, Inc.’s Schedule TO/Schedule 13E-3 filed with the SEC on
September 24, 2009).
Amendment No. 1 to the Contribution and Stockholder Agreement, dated as of September 23,
2009, by and between Revlon, Inc. and MacAndrews & Forbes (incorporated by reference to
Annex B-2 of Exhibit (a)(1)(J) of Revlon Inc.’s Schedule TO/Schedule 13E-3 filed with the
SEC on September 24, 2009).
Senior Subordinated Term Loan Agreement, dated as of January 30, 2008, between Products
Corporation and MacAndrews & Forbes (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).
Amendment No. 1 to Senior Subordinated Term Loan Agreement, dated as of November 14,
2008, between Products Corporation and MacAndrews & Forbes (incorporated by reference to
Exhibit 10.1 to the Current Report on Form 8-K of Products Corporation filed with the SEC on
November 14, 2008).
Amended and Restated Amendment No. 2 to the Senior Subordinated Term Loan Agreement,
dated as of September 23, 2009, by and between Products Corporation and MacAndrews &
Forbes (incorporated by reference to Annex C of Exhibit (a)(1)(J) of Revlon Inc.’s
Schedule TO/Schedule 13E-3 filed with the SEC on September 24, 2009).
Amended and Restated Contribution, Assignment and Assumption Agreement, dated as of
October 13, 2009, by and between Revlon, Inc. and MacAndrews & Forbes (incorporated by
reference to Exhibit 10.23 to the Revlon, Inc. 2009 Form 10-K).
Letter Agreement between Revlon, Inc. and MacAndrews & Forbes, dated January 30, 2008
(incorporated by reference to Exhibit 10.2 to Revlon, Inc.’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.
*24.1
*24.2
*24.3
Powers of Attorney.
Power of Attorney executed by Ronald O. Perelman.
Power of Attorney executed by Barry F. Schwartz.
Power of Attorney executed by Alan S. Bernikow.
69
*24.4
*24.5
*24.6
*24.7
*24.8
*24.9
Power of Attorney executed by Paul J. Bohan.
Power of Attorney executed by Meyer Feldberg.
Power of Attorney executed by David L. Kennedy.
Power of Attorney executed by Debra L. Lee.
Power of Attorney executed by Tamara Mellon
Power of Attorney executed by Richard J. Santagati.
*24.10
Power of Attorney executed by Kathi P. Seifert.
*31.1
*31.2
32.1
(furnished
herewith)
32.2
(furnished
herewith)
Certification of Alan T. Ennis, Chief Executive Officer, dated February 17, 2011, pursuant to
Rule 13a-14(a)/15d-14(a) of the Exchange Act.
Certification of Steven Berns, Chief Financial Officer, dated February 17, 2011, pursuant to
Rule 13a-14(a)/15d-14(a) of the Exchange Act.
Certification of Alan T. Ennis, Chief Executive Officer, dated February 17, 2011, pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Certification of Steven Berns, Chief Financial Officer, dated February 17, 2011, 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
70
REVLON, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
Page
Report of Independent Registered Public Accounting Firm (Consolidated Financial
Statements) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F-2
Report of Independent Registered Public Accounting Firm (Internal Control Over Financial
Reporting) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F-3
Audited Financial Statements:
Consolidated Balance Sheets as of December 31, 2010 and 2009 . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Operations for each of the years in the three-year period ended
F-4
December 31, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F-5
Consolidated Statements of Stockholders’ Deficiency and Comprehensive Income (Loss) for
each of the years in the three-year period ended December 31, 2010 . . . . . . . . . . . . . . . . . . .
F-6
Consolidated Statements of Cash Flows for each of the years in the three-year period ended
December 31, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F-8
F-9
Financial Statement Schedule:
Schedule II — Valuation and Qualifying Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-70
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, 2010 and 2009, and the related consolidated statements of operations, stockholders’
deficiency and comprehensive income (loss), and cash flows for each of the years in the three-year period
ended December 31, 2010. 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 man-
agement. 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, 2010 and 2009, and the
results of their operations and their cash flows for each of the years in the three-year period ended
December 31, 2010, in conformity with U.S. generally accepted accounting principles. Also in our opinion,
the related financial statement schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the effectiveness of Revlon, Inc. and subsidiaries’ internal control over financial
reporting as of December 31, 2010, 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 February 17, 2011, expressed an unqualified opinion on the effectiveness of the
Company’s internal control over financial reporting.
/s/ KPMG LLP
New York, New York
February 17, 2011
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,
2010, 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’ man-
agement 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 prep-
aration 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, 2010, 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,
2010 and 2009, and the related consolidated statements of operations, stockholders’ deficiency and
comprehensive income (loss), and cash flows for each of the years in the three-year period ended
December 31, 2010, and our report dated February 17, 2011 expressed an unqualified opinion on those
consolidated financial statements and financial statement schedule.
/s/ KPMG LLP
New York, New York
February 17, 2011
F-3
REVLON, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in millions, except share and per share amounts)
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trade receivables, less allowance for doubtful accounts of $3.1 and
$3.8 as of December 31, 2010 and 2009, respectively . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes — current . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, plant and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes — noncurrent . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31,
2010
December 31,
2009
$
76.7
$
54.5
197.5
115.0
39.6
47.3
476.1
106.2
229.4
92.3
182.7
181.7
119.2
3.9
44.3
403.6
111.7
4.8
91.5
182.6
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,086.7
$
794.2
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 debt — affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Redeemable preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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, 3,125,000 issued and outstanding as
of December 31, 2010 and 2009, respectively . . . . . . . . . . . . . . . . . .
Class A Common Stock, par value $0.01 per share;
900,000,000 shares authorized; 50,000,497 and 50,021,063 shares
issued as of December 31, 2010 and 2009, respectively . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital
Treasury stock, at cost; 532,838 and 385,677 shares of Class A
Common Stock as of December 31, 2010 and 2009, respectively . . .
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . .
Total stockholders’ deficiency. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
3.7
8.0
88.3
218.5
318.5
1,100.9
58.4
48.1
201.5
55.7
$
0.3
13.6
82.4
213.0
309.3
1,127.8
58.4
48.0
216.3
68.0
—
—
0.5
1,012.0
(7.2)
(1,551.4)
(150.3)
(696.4)
0.5
1,007.2
(4.7)
(1,878.7)
(157.9)
(1,033.6)
Total liabilities and stockholders’ deficiency . . . . . . . . . . . . . . . . . . .
$ 1,086.7
$
794.2
See Accompanying Notes to Consolidated Financial Statements
F-4
REVLON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in millions, except share and per share amounts)
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
1,321.4 $
455.3
$
1,295.9
474.7
1,346.8
490.9
Year Ended December 31,
2009
2010
2008
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative expenses . . . . . . . . . . . . .
Restructuring costs and other, net . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other expenses (income):
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense — preferred stock dividend . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of debt issuance costs . . . . . . . . . . . . . . . . . .
Loss on early extinguishment of debt, net . . . . . . . . . . . . .
Foreign currency losses, net . . . . . . . . . . . . . . . . . . . . . . . .
Miscellaneous, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other expenses, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from continuing operations before income taxes . . .
(Benefit from) provision for income taxes . . . . . . . . . . . . . . .
Income from continuing operations, net of taxes . . . . . . . . . .
Income (loss) from discontinued operations, net of taxes . . .
Gain on disposal of discontinued operations . . . . . . . . . . . . .
Income from discontinued operations, including gain on
disposal, net of taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
866.1
666.6
(0.3)
199.8
90.5
6.4
(0.5)
5.9
9.7
6.3
1.7
120.0
79.8
(247.2)
327.0
0.3
—
0.3
821.2
629.1
21.3
170.8
91.5
1.5
(0.5)
5.8
5.8
8.9
1.0
114.0
56.8
8.3
48.5
0.3
—
0.3
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
327.3 $
48.8 $
Basic income per common share:
Continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . .
Discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . .
6.30
0.01
0.94
0.01
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
6.31 $
0.95 $
Diluted income per common share:
Continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . .
Discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . .
6.25
0.01
0.94
0.01
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
6.26 $
0.94 $
855.9
709.3
(8.4)
155.0
119.7
—
(0.7)
5.6
0.7
0.1
0.4
125.8
29.2
16.1
13.1
(0.4)
45.2
44.8
57.9
0.26
0.87
1.13
0.26
0.87
1.13
Weighted average number of common shares outstanding:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
51,892,824
51,552,213
51,248,710
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
52,302,636
51,725,485
51,311,010
See Accompanying Notes to Consolidated Financial Statements
F-5
REVLON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIENCY
AND COMPREHENSIVE INCOME (LOSS)
(dollars in millions)
Balance, January 1, 2008 . . . . . . . . . . . . . . . . . . . . .
Treasury stock acquired, at cost(a) . . . . . . . . . . . .
Stock-based compensation amortization . . . . . . . .
Comprehensive (loss) income:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . .
Revaluation of financial derivative
instruments(b) . . . . . . . . . . . . . . . . . . . . . . . .
Elimination of currency translation adjustment
related to Bozzano Sale Transaction(d) . . . . .
Currency translation adjustment . . . . . . . . . . . .
Amortization of pension related costs(c) . . . . . .
Pension re-measurement . . . . . . . . . . . . . . . . .
Total comprehensive loss . . . . . . . . . . . . . . . . . . .
Balance, December 31, 2008 . . . . . . . . . . . . . . . . . .
Treasury stock acquired, at cost(a) . . . . . . . . . . . .
Stock-based compensation amortization . . . . . . . .
Discount on Preferred Stock . . . . . . . . . . . . . . . .
Comprehensive (loss) income:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . .
Revaluation of financial derivative
instruments(b) . . . . . . . . . . . . . . . . . . . . . . . .
Currency translation adjustment . . . . . . . . . . . .
Amortization of pension related costs(c) . . . . . .
Pension re-measurement . . . . . . . . . . . . . . . . .
Pension curtailment gain(e) . . . . . . . . . . . . . . . .
Total comprehensive income . . . . . . . . . . . . . . . .
Balance, December 31, 2009 . . . . . . . . . . . . . . . . . .
Treasury stock acquired, at cost(a) . . . . . . . . . . . .
Stock-based compensation amortization . . . . . . . .
Excess tax benefits from stock-based
compensation. . . . . . . . . . . . . . . . . . . . . . . . . .
Comprehensive (loss) income:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . .
Revaluation of financial derivative
instruments(b) . . . . . . . . . . . . . . . . . . . . . . . .
Currency translation adjustment . . . . . . . . . . . .
Amortization of pension related costs(c) . . . . . .
Pension re-measurement(e) . . . . . . . . . . . . . . . .
Pension curtailment gain(e) . . . . . . . . . . . . . . . .
Total comprehensive income . . . . . . . . . . . . . . . .
Balance, December 31, 2010 . . . . . . . . . . . . . . . . . .
Additional
Paid-In-
Capital
(Capital
Deficiency)
Common
Stock
$0.5
$ 994.1
6.8
Treasury
Stock
Accumulated
Deficit
$(2.5) $(1,985.4)
(1.1)
57.9
Accumulated
Other
Comprehensive
Loss
Total
Stockholders’
Deficiency
$ (88.7)
$(1,082.0)
(1.1)
6.8
(3.3)
37.3
(8.2)
1.1
(121.3)
0.5
1,000.9
5.6
0.7
(3.6)
(1.1)
(1,927.5)
(183.1)
48.8
3.7
9.8
12.0
(9.5)
9.2
(4.7)
(2.5)
(1,878.7)
(157.9)
0.5
1,007.2
3.6
1.2
327.3
1.7
7.4
5.4
(8.4)
1.5
$0.5
$1,012.0
$(7.2) $(1,551.4)
$(150.3)
57.9
(3.3)
37.3
(8.2)
1.1
(121.3)
(36.5)
(1,112.8)
(1.1)
5.6
0.7
48.8
3.7
9.8
12.0
(9.5)
9.2
74.0
(1,033.6)
(2.5)
3.6
1.2
327.3
1.7
7.4
5.4
(8.4)
1.5
334.9
$ (696.4)
(a) Pursuant to the share withholding provision of the Third Amended and Restated Revlon, Inc. Stock Plan, certain employees, in
lieu of paying withholding taxes on the vesting of certain restricted stock, authorized the withholding of an aggregate 147,161;
129,224; and 125,874 shares of Revlon, Inc. Class A Common Stock during 2010, 2009 and 2008, respectively, to satisfy the
minimum statutory tax withholding requirements related to such vesting. For details on such withholding taxes on the vesting of
certain restricted stock, see Note 15, “Stockholders’ Equity — Treasury Stock”.
(b) See Note 11, “Financial Instruments,” Note 17, “Accumulated Other Comprehensive Loss,” and the discussion of Critical
Accounting Policies in this Form 10-K for details regarding the net amount of hedge accounting derivative losses recognized
due to the Company’s use of derivative financial instruments.
F-6
(c) See Note 14, “Savings Plan, Pension and Post-retirement Benefits,” and Note 17, “Accumulated Other Comprehensive Loss,” for
details on the change in Accumulated Other Comprehensive Loss as a result of the amortization of unrecognized prior service
costs and actuarial losses (gains) arising during 2010, 2009 and 2008 related to the Company’s pension and other post-retirement
plans.
(d) For details on the Bozzano Sale Transaction (as hereinafter defined), see Note 2, “Discontinued Operations”.
(e) See Note 14,“Savings Plan, Pension and Post-retirement Benefits,” and Note 17, “Accumulated Other Comprehensive Loss,” for
details on the increase in pension liabilities recorded within Accumulated Other Comprehensive Loss as the result of the re-
measurement of the pension liabilities, as well as the curtailment gain recognized by the Company in connection with the May
2009 Pension Plan Amendments (as hereinafter defined) in 2009 and the curtailment gain recognized by the Company in
connection with the amendments to the Canadian defined benefit pension plan in 2010, which both reduced its pension liability
and were recorded as an offset against the net actuarial losses previously reported within Accumulated Other Comprehensive Loss
in the respective years.
See Accompanying Notes to Consolidated Financial Statements
F-7
REVLON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in millions)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net income to net cash provided by operating activities:
(Income) loss from discontinued operations, net of taxes . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of debt discount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock compensation amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Benefit from) provision for deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on early extinguishment of debt, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of debt issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on disposal of discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on sale of certain assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension and other post-retirement expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in assets and liabilities:
(Increase) decrease in trade receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Decrease in inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Increase) decrease in prepaid expenses and other current assets . . . . . . . . . . . . . . . .
Increase (decrease) in accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase (decrease) in accrued expenses and other current liabilities . . . . . . . . . . . . .
Pension and other post-retirement plan contributions . . . . . . . . . . . . . . . . . . . . . . . .
Purchase of permanent displays . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from the sale of assets of discontinued operations . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from the sale of certain assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash (used in) provided by investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in short-term borrowings and overdraft
. . . . . . . . . . . . . . . . . . .
Repayment under the 2006 Revolving Credit Facility, net . . . . . . . . . . . . . . . . . . . . . . . .
Repayments under the 2006 Term Loan Facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Borrowings under the 2010 Term Loan Facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from the issuance of long-term debt, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from the issuance of long-term debt — affiliates . . . . . . . . . . . . . . . . . . . . . . . .
Repayment of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayment of long-term debt — affiliates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payment of financing costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other financing activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used in financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CASH FLOWS FROM DISCONTINUED OPERATIONS ACTIVITIES:
Net cash provided by (used in) discontinued operating activities . . . . . . . . . . . . . . . . . . .
Net cash used in discontinued financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in cash from discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by (used in) discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of exchange rate changes on cash and cash equivalents . . . . . . . . . . . . . . . . . . . . .
Net increase in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION:
Cash paid during the period for:
December 31,
2009
2008
2010
$ 327.3
$ 48.8
$ 57.9
(0.3)
57.0
2.7
3.6
(259.3)
9.7
5.9
—
—
9.5
(19.2)
7.0
(7.4)
20.8
12.5
(25.8)
(33.7)
(13.1)
97.2
(15.2)
—
0.3
(14.9)
(10.6)
—
(815.0)
786.0
—
—
(6.0)
—
(17.5)
0.3
(62.8)
(0.3)
60.1
0.7
5.6
(1.2)
5.8
5.8
—
(1.7)
27.5
(4.0)
41.5
5.2
(5.9)
(17.2)
(24.3)
(32.9)
(4.0)
109.5
(14.3)
—
2.5
(11.8)
6.0
—
(18.7)
—
326.4
—
(381.7)
—
(29.6)
(0.9)
(98.5)
—
—
—
—
2.7
22.2
54.5
$ 76.7
0.2
—
—
0.2
2.3
1.7
52.8
$ 54.5
0.4
86.3
0.7
6.8
2.8
0.7
5.6
(45.2)
(12.7)
7.5
13.0
1.8
(5.8)
(10.4)
(7.0)
(12.8)
(47.2)
(9.3)
33.1
(19.6)
107.6
13.6
101.6
3.1
(43.5)
(6.3)
—
—
170.0
(167.6)
(63.0)
(4.6)
(1.1)
(113.0)
(10.8)
(0.4)
(1.0)
(12.2)
(1.8)
7.7
45.1
$ 52.8
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Preferred stock dividend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes, net of refunds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 77.3
$
6.2
$ 16.2
$ 123.0
$ 97.9
$ — $ —
$ 24.8
$ 14.9
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:
Treasury stock received to satisfy minimum tax withholding liabilities . . . . . . . . . . . . . .
Redeemable preferred stock issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . .
Loan contributed from MacAndrews & Forbes to Revlon, Inc.
$
2.5
$
1.1
$ — $ 48.0
$ — $ (48.6)
$
1.1
$ —
$ —
See Accompanying Notes to Consolidated Financial Statements
F-8
REVLON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts in millions, except share and 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 (“Products
Corporation”) and its subsidiaries. Revlon, Inc. is a direct and indirect majority-owned subsidiary of
MacAndrews & Forbes Holdings Inc. (“MacAndrews & Forbes Holdings” and, together with certain of its
affiliates other than the Company, “MacAndrews & Forbes”), a corporation wholly-owned by Ronald O.
Perelman.
The Company’s vision is glamour, excitement and innovation through high-quality products at
affordable prices. The Company operates in a single segment and manufactures, markets and sells an
extensive array of cosmetics, women’s hair color, beauty tools, anti-perspirant deodorants, fragrances,
skincare and other beauty care products. The Company’s principal customers include large mass volume
retailers and chain drug and food stores in the U.S., as well as certain department stores and other specialty
stores, such as perfumeries, outside the U.S. The Company also sells beauty products to U.S. military
exchanges and commissaries and has a licensing business pursuant to which the Company licenses certain of
its key brand names to third parties for the manufacture and sale of complementary beauty-related products
and accessories in exchange for royalties.
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 income has
historically consisted predominantly of the net income of Products Corporation, and in 2010, 2009 and 2008
included approximately $7.3 million, $9.5 million and $7.7 million, respectively, in expenses incidental to
being a public holding company.
The accompanying Consolidated Financial Statements include the accounts of the Company after
elimination of all material intercompany balances and transactions.
The preparation of financial statements in conformity with U.S. generally accepted accounting
principles 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, deferred
tax valuation allowances, reserves for estimated tax liabilities, restructuring costs, certain estimates and
assumptions used in the calculation of the net periodic benefit costs and the projected benefit obligations
for the Company’s pension and other post-retirement plans, including the expected long term return on
pension plan assets and the discount rate used to value the Company’s year-end pension benefit obligations.
Effective for periods beginning January 1, 2010, the Company is reporting Canada separately (pre-
viously Canada was included in the Europe region) and is reporting South Africa as part of the Europe,
Middle East and Africa region (previously South Africa was included in the Asia Pacific region). As a
result, prior year amounts have been reclassified to conform to this presentation.
Certain prior year amounts in the Consolidated Financial Statements have been reclassified to
conform to the current year’s presentation.
F-9
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 $4.7 million and $31.0 million as of December 31, 2010 and 2009, respectively. Accounts
payable includes $3.4 million and $17.2 million of outstanding checks not yet presented for payment at
December 31, 2010 and 2009, respectively.
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, 2010 and 2009, 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.
The allowance for doubtful accounts is recorded against accounts receivable balances when they are
deemed uncollectible. Recoveries of accounts receivable previously reserved are recorded in the Consol-
idated Statements of Operations when received. At December 31, 2010 and 2009, the Company’s three
largest customers accounted for an aggregate of approximately 31% and 30%, 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.
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 30 years; buildings, 20 to 45 years;
machinery and equipment, 3 to 15 years; office furniture and fixtures, 2 to 15 years and capitalized software,
2 to 5 years. Leasehold improvements and building improvements are amortized over their estimated useful
lives or the terms of the leases or remaining life of the original structure, respectively, 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 permanent wall displays amounting to approximately $48.7 million and
$49.8 million as of December 31, 2010 and 2009, respectively, which are amortized generally over a period
of 1 to 3 years. 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 2010, 2009 and 2008 was $35.2 million, $40.2 million
and $65.8 million, respectively. The Company has included, in other assets, net costs related to the issuance
of the Company’s debt instruments amounting to approximately $29.6 million and $27.7 million as of
December 31, 2010 and 2009, respectively, which are amortized over the terms of the related debt
F-10
instruments. In addition, the Company has included, in other assets, trademarks, net, of $6.7 million and
$6.9 million as of December 31, 2010 and 2009, respectively, and patents, net, of $1.0 million as of both
December 31, 2010 and 2009. Patents and trademarks are recorded at cost and amortized ratably over
approximately 10 years. Amortization expense for patents and trademarks for 2010, 2009 and 2008 was
$1.4 million, $1.4 million and $1.9 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 the Intangibles — Goodwill and Other Topic of the FASB Accounting
Standards Codification (“Intangibles — Goodwill and Other Topic”), and does not amortize its goodwill.
The Company reviews its goodwill for impairment at least annually, or whenever events or changes in
circumstances would indicate possible impairment. The Company performs its annual impairment test of
goodwill as of September 30th. The Company compared its estimated fair value of the enterprise to its net
assets and the fair value of the enterprise was substantially greater than the enterprise’s net assets. Based on
the annual tests performed by the Company as of September 30, 2010 and 2009, the Company concluded
that no impairment of goodwill existed at either date. The Company operates in one reportable segment,
which is also the only reporting unit for purposes of accounting for goodwill. Since the Company currently
only has one reporting unit, all of the goodwill has been assigned to the enterprise as a whole.
The amount outstanding of goodwill, net, was $182.7 million and $182.6 million at December 31, 2010
and 2009, respectively. Accumulated amortization of goodwill aggregated $117.5 million and $117.4 million
at December 31, 2010 and 2009, respectively. Amortization of goodwill ceased as of January 1, 2002 upon
the Company’s adoption of the guidance set forth under the Intangibles — Goodwill and Other Topic of the
FASB Accounting Standards Codification (the “Intangibles — Goodwill and Other Topic”).
In accordance with the Intangibles — Goodwill and Other Topic, 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.
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 and estimates of customer inventory and promotional sales. 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. Revenues derived from licensing arrangements, including any pre-payments, are recog-
nized in the period in which they become due and payable, but not before the initial license term
commences.
Cost of Sales:
Cost of sales includes all of the costs to manufacture the Company’s products. For products manu-
factured in the Company’s own facilities, such costs include raw materials and supplies, direct labor and
F-11
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 included as
sales and promotional incentives. 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:
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, pro-
motional 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 over-
head, principally personnel and related expenses, insurance and professional fees.
Advertising:
Advertising within SG&A includes television, print and other advertising production costs which are
expensed the first time the advertising takes place. The costs of promotional displays are expensed in the
period in which they are shipped to customers. Advertising expenses were $265.2 million, $230.5 million and
$260.2 million for 2010, 2009 and 2008, 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 costs, which provide
advertising 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, slotting fees and marketing
development funds, 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 $58.7 million, $58.7 million and $65.5 million for 2010, 2009
and 2008, respectively.
Income Taxes:
Income taxes are calculated using the asset and liability method in accordance with the provisions of
the Income Taxes Topic of the FASB Accounting Standards Codification (the “Income Taxes Topic”).
Under this method, deferred tax assets and liabilities are recognized for the estimated future tax conse-
quences attributable to differences between the financial statement carrying amounts of assets and
liabilities and their respective tax bases, as well as for operating loss and tax credit carryforwards. Deferred
tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or settled. The effect of a change in
income tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the
enactment date. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than
not that a tax benefit will not be realized.
In addition, the Income Taxes Topic 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. The Income Taxes Topic also provides guidance on derecognition, classification, interest and
penalties, accounting in interim periods, disclosure and transition. (See Note 12, “Income Taxes”).
F-12
Research and Development:
Research and development expenditures are expensed as incurred. The amounts charged against
earnings in 2010, 2009 and 2008 for research and development expenditures were $24.0 million, $23.9 million
and $24.3 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.
Venezuela
Effective January 1, 2010, the Company determined that the Venezuelan economy was considered a
highly inflationary economy under U.S. GAAP based upon a blended inflation index of the Venezuelan
National Consumer Price Index (“NCPI”) and the Venezuelan Consumer Price Index (“CPI”). The
Company uses Venezuela’s official exchange rate to translate the financial statements of its Venezuelan
subsidiary.
Basic and Diluted Income 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. (See Note 13, “Basic and Diluted Earnings Per Common Share”).
Stock-Based Compensation:
The Company recognizes stock-based compensation costs for its stock options and restricted stock,
measured at the fair value of each award at the time of grant, as an expense over the vesting period of the
instrument. Upon the exercise of stock options or the vesting of restricted stock, any resulting tax benefits
are recognized in additional paid-in-capital. Any resulting tax deficiencies are recognized in the consol-
idated income statement as tax expense to the extent that the tax deficiency amount exceeds any existing
additional paid-in-capital resulting from previously realized excess tax benefits from previous awards. The
Company reflects such excess tax benefits as cash flows from financing activities in the consolidated
statements of cash flows.
Derivative Financial Instruments:
The Company is exposed to certain risks relating to its ongoing business operations. The primary risks
managed by using derivative financial instruments are foreign currency exchange rate risk and interest rate
risk. The Company uses derivative financial instruments, primarily (1) foreign currency forward exchange
contracts (“FX Contracts”) intended for the purpose of managing foreign currency exchange risk by
reducing the effects of fluctuations in foreign currency exchange rates on the Company’s net cash flows and
(2) interest rate hedging transactions intended for the purpose of managing interest rate risk associated with
Products Corporation’s variable rate indebtedness.
F-13
Foreign Currency Forward Exchange Contracts
The Company enters into FX Contracts primarily to hedge the anticipated net cash flows resulting
from inventory purchases and intercompany payments denominated in currencies other than the local
currencies of the Company’s foreign and domestic operations and generally have maturities of less than one
year. The Company does not apply hedge accounting to its FX Contracts. The Company records FX
Contracts in its consolidated balance sheet at fair value and changes in fair value are immediately
recognized in earnings. Fair value of the Company’s FX Contracts is determined by using observable
market transactions of spot and forward rates.
Interest Rate Swap Transactions
Products Corporation’s 2008 Interest Rate Swap (as hereinafter defined) expired in April 2010. At
December 31, 2010, the Company did not have any outstanding interest rate swaps.
Recent Accounting Pronouncements:
In December 2010, the FASB issued Accounting Standards Update No. 2010-28, “When to Perform
Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts,
which amends ASC Topic 350, Intangibles — Goodwill and Other” (“ASU 2010-28”). ASU 2010-28
amends the criteria for performing Step 2 of the goodwill impairment test for reporting units with zero
or negative carrying amounts. For such reporting units, Step 2 of the goodwill impairment test will be
required if qualitative factors exist that indicate it is more likely than not that a goodwill impairment exists.
The provisions of ASU 2010-28 are effective for fiscal years, and interim periods within those years,
beginning after December 15, 2010. The Company will adopt the provisions of ASU 2010-28 in 2011 and
does not expect that its adoption will have a material impact on the Company’s results of operations,
financial condition or its disclosures.
2. DISCONTINUED OPERATIONS
In July 2008, the Company disposed of the non-core Bozzano business, a men’s hair care and shaving
line of products, and certain other non-core brands, including Juvena and Aquamarine, which were sold
only in the Brazilian market (the “Bozzano Sale Transaction”). The transaction was effected through the
sale of the Company’s indirect Brazilian subsidiary, Ceil Comércio E Distribuidora Ltda. (“Ceil”), to
Hypermarcas S.A., a Brazilian publicly-traded, consumer products corporation. The purchase price was
approximately $107 million in cash, including approximately $3 million in cash on Ceil’s balance sheet on
the closing date. Net proceeds, after the payment of taxes and transaction costs, were approximately
$95 million.
(See Note 9, “Long-Term Debt and Redeemable Preferred Stock,” regarding Products Corporation’s
use of the $63 million of the net proceeds from the Bozzano Sale Transaction to repay $63 million in
aggregate principal amount of the Senior Subordinated Term Loan.)
The consolidated balance sheets at December 31, 2010 and 2009, respectively, were updated to reflect
the assets and liabilities of the Ceil subsidiary as a discontinued operation. The following table summarizes
F-14
the assets and liabilities of the discontinued operation, excluding intercompany balances eliminated in
consolidation, at December 31, 2010 and 2009, respectively:
December 31,
2010
December 31,
2009
Assets:
Prepaid expenses and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liabilities:
Accrued expenses and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$0.1
$0.1
$1.0
1.0
1.6
$2.6
$0.1
$0.1
$1.0
1.0
1.9
$2.9
The income statements for the year ended December 31, 2010, 2009 and 2008, respectively, were
adjusted to reflect the Ceil subsidiary as a discontinued operation (which was previously reported in the
Latin America region). The following table summarizes the results of the Ceil discontinued operations for
each of the respective periods:
Year Ended December 31,
2010
2008
2009
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ — $ — $20.6
0.1
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.1
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.5
(Benefit) provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(0.4)
Net income (loss). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
(0.3)
0.3
—
—
(0.3)
0.3
During 2008, the Company recorded a one-time gain from the Bozzano Sale Transaction of $45.2 mil-
lion, net of taxes of $10.4 million. Included in this gain calculation is a $37.3 million elimination of currency
translation adjustments.
3. RESTRUCTURING COSTS AND OTHER, NET
In May 2009, the Company announced a worldwide restructuring (the “May 2009 Program”), which
involved consolidating certain functions; reducing layers of management, where appropriate, to increase
accountability and effectiveness; streamlining support functions to reflect the new organizational structure;
and further consolidating the Company’s office facilities in New Jersey.
During 2009, the Company recorded charges of $21.3 million in restructuring costs and other, net,
which were comprised of:
•
•
a $20.8 million charge related to the May 2009 Program;
$1.3 million of charges related to employee severance and other employee-related termination
costs related to restructuring actions in the U.K., Mexico and Argentina announced in the first
quarter of 2009 (together with the May 2009 Program, the “2009 Programs”); and
•
a $0.8 million charge related to the 2008 Programs (as hereinafter defined);
with the foregoing partially offset by
•
income of $1.6 million related to the sale of a facility in Argentina in the first quarter of 2009.
During 2010, a $0.3 million adjustment was recorded to restructuring costs and other, net, to reflect
lower than originally anticipated expenses associated with the May 2009 Program.
F-15
The $20.5 million of net charges related to the May 2009 Program has been or is expected to be paid out
as follows: $11.0 million paid in 2009, $6.9 million paid in 2010 and the balance of $2.6 million expected to be
paid thereafter.
During 2008, the Company recorded income of $8.4 million to restructuring costs and other, net,
primarily due to a gain of $7.0 million related to the sale of a facility in Mexico and a net gain of $5.9 million
related to the sale of a non-core trademark. In addition, during 2008 the Company reduced by $0.4 million
restructuring costs that were associated with certain restructurings announced in 2006 (the “2006 Pro-
grams”), primarily due to the charges for employee severance and other employee-related termination
costs being slightly lower than originally estimated. These gains were partially offset by a charge of
$4.9 million for certain restructuring activities in 2008, of which $0.8 million related to a restructuring in
Canada, $1.1 million related to the Company’s decision to close and sell its facility in Mexico, $2.9 million
related to the Company’s realignment of certain functions within customer business development, infor-
mation management and administrative services in the U.S. and $0.1 million related other various
restructurings (together the “2008 Programs”).
Restructuring programs implemented in 2007 (the “2007 Programs”) primarily related to the closure of
the Company’s facility in Irvington, New Jersey and personnel reductions in the Company’s information
management function and its sales force in Canada.
Details of the activity described above during 2010, 2009 and 2008 are as follows:
Balance
Beginning of
Year
(Income)
Expenses,
Net
Utilized, Net
Cash
Noncash
Balance
End of Year
2010
Employee severance and other personnel
benefits:
2008 Programs . . . . . . . . . . . . . . . . . . . . . . . .
2009 Programs . . . . . . . . . . . . . . . . . . . . . . . .
Lease exit . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total restructuring costs and other, net . . . . . .
2009
Employee severance and other personnel
benefits:
2006 Programs . . . . . . . . . . . . . . . . . . . . . . . .
2007 Programs . . . . . . . . . . . . . . . . . . . . . . . .
2008 Programs . . . . . . . . . . . . . . . . . . . . . . . .
2009 Programs . . . . . . . . . . . . . . . . . . . . . . . .
Leases and equipment write-offs . . . . . . . . . . .
Total restructuring accrual . . . . . . . . . . . . . . . .
Gain on sale of Argentina facility. . . . . . . . . . .
Total restructuring costs and other, net . . . . . .
$ 0.3
7.6
7.9
2.3
$10.2
$ 0.3
0.1
3.0
—
3.4
—
$ 3.4
$ —
—
—
—
$ —
$ —
—
—
—
—
—
$ —
$ —
(0.2)
(0.2)
(0.1)
$ (0.3)
$ (0.3)
(6.4)
(6.7)
(0.6)
$ (7.3)
$ (0.3)
(0.1)
(3.5)
(11.9)
(15.8)
(0.3)
$(16.1)
$ —
—
0.8
19.5
20.3
2.6
22.9
(1.6)
$21.3
$ —
1.0
1.0
1.6
$ 2.6
$ —
—
0.3
7.6
7.9
2.3
$10.2
F-16
Balance
Beginning of
Year
(Income)
Expenses,
Net
Utilized, Net
Cash
Noncash
Balance
End of Year
2008
Employee severance and other personnel
benefits:
2006 Programs . . . . . . . . . . . . . . . . . . . . . . . .
2007 Programs . . . . . . . . . . . . . . . . . . . . . . . .
2008 Programs . . . . . . . . . . . . . . . . . . . . . . . .
Leases and equipment write-offs . . . . . . . . . . .
Total restructuring accrual . . . . . . . . . . . . . . . .
Gain on sale of Mexico facility . . . . . . . . . . . . .
Gain on sale of non-core trademark . . . . . . . . .
Total restructuring costs and other, net . . . . . .
$ 4.1
0.6
—
4.7
0.2
$ 4.9
$ (0.4)
—
4.9
4.5
—
4.5
(7.0)
(5.9)
$ (8.4)
$ (3.4)
(0.5)
(1.7)
(5.6)
(0.2)
$ (5.8)
$ —
—
(0.2)
(0.2)
—
$(0.2)
$ 0.3
0.1
3.0
3.4
—
$ 3.4
As of December 31, 2010, 2009 and 2008, the unpaid balance of the restructuring costs and other, net
for reserves, was included in “Accrued expenses and other” and “Other long-term liabilities” in the
Company’s Consolidated Balance Sheets. The remaining balance at December 31, 2010 for employee
severance and other personnel benefits is $2.6 million, of which $1.6 million is expected to be paid by the
end of 2011 and the balance of $1.0 million is expected to be paid thereafter.
4.
INVENTORIES
December 31,
2010
2009
Raw materials and supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Work-in-process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 39.7
9.9
65.4
$ 42.7
12.0
64.5
5. PREPAID EXPENSES AND OTHER
$115.0
$119.2
December 31,
2010
2009
Prepaid expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 19.9
27.4
$ 22.3
22.0
$ 47.3
$ 44.3
F-17
6. PROPERTY, PLANT AND EQUIPMENT, NET
Land and improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Building and improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Machinery, equipment and capital leases. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Office furniture, fixtures and capitalized software. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Construction-in-progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
1.9
63.5
136.8
79.7
11.9
7.2
$
1.9
62.0
135.1
102.6
11.8
11.4
December 31,
2010
2009
Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
301.0
(194.8)
324.8
(213.1)
$ 106.2
$ 111.7
Depreciation expense for the years ended December 31, 2010, 2009 and 2008 was $19.5 million,
$17.5 million and $17.8 million, respectively.
7. ACCRUED EXPENSES AND OTHER
December 31,
2010
2009
Sales returns and allowances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Advertising and promotional costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Compensation and related benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Derivative financial instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 76.2
25.3
51.8
19.2
18.7
1.6
2.1
23.6
$ 83.3
34.1
35.9
8.8
16.2
7.6
3.5
23.6
$ 218.5
$ 213.0
8. SHORT-TERM BORROWINGS
Products Corporation had outstanding short-term bank borrowings (excluding borrowings under the
2006 Credit Agreements (prior to its complete refinancing in March 2010) in 2009 and the 2010 Credit
Agreements in 2010, which are reflected in Note 9,“Long-Term Debt and Redeemable Preferred Stock”),
aggregating $3.7 million and $0.3 million at December 31, 2010 and 2009, respectively. The weighted
average interest rate on these short-term borrowings outstanding at December 31, 2010 and 2009 was 5.9%
and 6.0%, respectively.
F-18
9. LONG-TERM DEBT AND REDEEMABLE PREFERRED STOCK
2010 Term Loan Facility due 2015, net of discounts (See (a) below) . . . . . . . . . . . . $ 782.0
—
2006 Term Loan Facility due 2012 (See “2010 Transactions” below) . . . . . . . . . . . .
—
2010 Revolving Credit Facility due 2014 (See (a) below). . . . . . . . . . . . . . . . . . . . .
93⁄4% Senior Secured Notes due 2015, net of discounts (See (b) below) . . . . . . . . .
326.9
58.4
Senior Subordinated Term Loan due 2014 (See (c) below) . . . . . . . . . . . . . . . . . . .
$
—
815.0
—
326.4
58.4
December 31,
2010
2009
Less current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,167.3
(8.0)
1,199.8
(13.6)
1,159.3
1,186.2
Redeemable Preferred Stock (See (d) below) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
48.1
48.0
$1,207.4
$1,234.2
The Company completed several debt reduction transactions during 2010 and 2009.
2010 Transactions
Refinancing of the 2006 Term Loan and Revolving Credit Facilities
In March 2010, Products Corporation consummated a credit agreement refinancing (the “2010
Refinancing”) consisting of the following transactions:
• The 2010 Refinancing included refinancing Products Corporation’s term loan facility, which was
scheduled to mature on January 15, 2012 and had $815.0 million aggregate principal amount
outstanding at December 31, 2009 (the “2006 Term Loan Facility”), with a 5-year, $800.0 million
term loan facility due March 11, 2015 (the “2010 Term Loan Facility”) under a second amended and
restated term loan agreement dated March 11, 2010 (the “2010 Term Loan Agreement”), among
Products Corporation, as borrower, the lenders party thereto, Citigroup Global Markets Inc.
(“CGMI”), J.P. Morgan Securities Inc. (“JPM Securities”), Banc of America Securities LLC
(“BAS”) and Credit Suisse Securities (USA) LLC (“Credit Suisse”), as joint lead arrangers,
CGMI, JPM Securities, BAS, Credit Suisse and Natixis, New York Branch (“Natixis”), as joint
bookrunners, JPMorgan Chase Bank, N.A. and Bank of America, N.A. as co-syndication agents,
Credit Suisse and Natixis as co-documentation agents, and Citicorp USA, Inc. (“CUSA”), as
administrative agent and collateral agent.
• The 2010 Refinancing also included refinancing Products Corporation’s 2006 revolving credit
facility, which was scheduled to mature on January 15, 2012 and had nil outstanding borrowings at
December 31, 2009 (the “2006 Revolving Credit Facility” and together with the 2006 Term Loan
Facility, the “2006 Credit Facilities” and such agreements, the “2006 Credit Agreements”), with a
4-year, $140.0 million asset-based, multi-currency revolving credit facility due March 11, 2014 (the
“2010 Revolving Credit Facility” and, together with the 2010 Term Loan Facility, the “2010 Credit
Facilities”) under a second amended and restated revolving credit agreement dated March 11, 2010
(the “2010 Revolving Credit Agreement” and, together with the 2010 Term Loan Agreement, the
“2010 Credit Agreements”), among Products Corporation, as borrower, the lenders party thereto,
CGMI and Wells Fargo Capital Finance, LLC (“WFS”), as joint lead arrangers, CGMI, WFS, BAS,
JPM Securities and Credit Suisse, as joint bookrunners, and CUSA, as administrative agent and
collateral agent.
• Products Corporation used the approximately $786 million of proceeds from the 2010 Term Loan
Facility, which was drawn in full on the March 11, 2010 closing date and issued to lenders at 98.25%
of par, plus approximately $31 million of available cash and approximately $20 million then drawn
on the 2010 Revolving Credit Facility to refinance in full the $815.0 million of outstanding
F-19
indebtedness under its 2006 Term Loan Facility and to pay approximately $7 million of accrued
interest and approximately $15 million of fees and expenses incurred in connection with consum-
mating the 2010 Refinancing, of which approximately $9 million was capitalized.
2009 Transactions
Exchange Offer and Extension of the Maturity of the Senior Subordinated Term Loan
In October 2009, Revlon, Inc. consummated its voluntary exchange offer (as amended, the “Exchange
Offer”) in which Revlon, Inc. issued to stockholders (other than MacAndrews & Forbes and its affiliates)
9,336,905 shares of Series A preferred stock, par value $0.01 per share (the “Preferred Stock”), in exchange
for the same number of shares of Class A Common Stock tendered for exchange in the Exchange Offer.
Upon consummation of the Exchange Offer, MacAndrews & Forbes contributed to Revlon, Inc. $48.6 mil-
lion of the $107.0 million aggregate outstanding principal amount of the Senior Subordinated Term Loan
made by MacAndrews & Forbes to Products Corporation (the “Contributed Loan”) and the terms of the
Senior Subordinated Term Loan Agreement were amended to extend the maturity date on the Contributed
Loan which remains owing from Products Corporation to Revlon, Inc. from August 2010 to October 8,
2013, to change the annual interest rate on the Contributed Loan from 11% to 12.75%, to extend the
maturity date on the $58.4 million principal amount of the Senior Subordinated Term Loan which remains
owing from Products Corporation to MacAndrews & Forbes (the “Non-Contributed Loan”) from August
2010 to October 8, 2014 and to change the annual interest rate on the Non-Contributed Loan from 11% to
12%. (See “Senior Subordinated Term Loan Agreement” in this Note 9 for details regarding such amended
terms).
Refinancing of the 91⁄2% Senior Notes
In November 2009, Products Corporation issued and sold $330.0 million in aggregate principal amount
of 93⁄4% Senior Secured Notes due November 15, 2015 (as hereinafter defined) in a private placement which
was priced at 98.9% of par. (See “2006 Credit Agreements” in this Note 9).
Products Corporation used the $319.8 million of net proceeds from the 93⁄4% Senior Secured Notes (net
of original issue discount and underwriters fees), together with $42.6 million of other cash and borrowings
under the 2006 Revolving Credit Facility (prior to its complete refinancing in March 2010), to repay or
redeem all of the $340.5 million aggregate principal amount outstanding of Products Corporation’s
91⁄2% Senior Notes due April 1, 2011 (the “91⁄2% Senior Notes”), plus an aggregate of $21.9 million for
accrued interest, applicable redemption and tender premiums and fees and expenses related to refinancing
the 91⁄2% Senior Notes, as well as the amendments to the 2006 Credit Agreements required to permit such
refinancing to be conducted on a secured basis. Pursuant to a registration rights agreement, on June 1, 2010,
Products Corporation commenced an offer to exchange the original 93⁄4% Senior Secured Notes for up to
$330 million in aggregate principal amount of its 93⁄4% Senior Secured Notes due 2015 that have been
registered under the Securities Act of 1933, as amended (the “Securities Act”). On July 16, 2010, all of the
old notes were exchanged for new notes which have substantially identical terms as the old notes, except
that the new notes are registered with the SEC under the Securities Act and the transfer restrictions and
registration rights applicable to the old notes do not apply to the new notes. In connection with this
refinancing transaction, the Company recognized a loss on the extinguishment of debt of $13.5 million,
which was partially offset by a $7.7 million gain on the repurchases of an aggregate principal amount of
$49.5 million of the 91⁄2% Senior Notes prior to their complete refinancing in November 2009 at an
aggregate purchase price of $41.0 million, which is net of the write-off of the ratable portion of unamortized
debt discounts and deferred financing fees resulting from such repurchases.
F-20
(a) 2010 Credit Agreements
2010 Revolving Credit Facility
Availability under the 2010 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 2010 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 $30.0 million;
(iii) Products Corporation in standby and commercial letters of credit denominated in U.S. dollars
and other currencies up to $60.0 million; and
(iv) Products Corporation and certain of its international subsidiaries designated from time to time in
revolving credit loans and bankers’ acceptances denominated in U.S. dollars and other
currencies.
If the value of the eligible assets is not sufficient to support the $140.0 million borrowing base under the
2010 Revolving Credit Facility, Products Corporation will not have full access to the 2010 Revolving Credit
Facility. Products Corporation’s ability to make borrowings under the 2010 Revolving Credit Facility is also
conditioned upon the satisfaction of certain conditions precedent and Products Corporation’s compliance
with other covenants in the 2010 Revolving Credit Agreement.
Borrowings under the 2010 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 3.00% per
annum or (ii) the Alternate Base Rate plus 2.00% per annum. Local Loans (as defined in the 2010
Revolving Credit Agreement) bear interest, if mutually acceptable to Products Corporation and the
relevant foreign lenders, at the Local Rate, and otherwise (i) if in foreign currencies or in U.S. dollars at the
Eurodollar Rate or the Eurocurrency Rate plus 3.0% per annum or (ii) if in U.S. dollars at the Alternate
Base Rate plus 2.0% per annum.
Prior to the termination date of the 2010 Revolving Credit Facility, revolving loans are required to be
prepaid (without any permanent reduction in commitment) with:
(i)
(ii)
the net cash proceeds from sales of Revolving Credit First Lien Collateral (as defined below) by
Products Corporation or any of its subsidiary guarantors (other than dispositions in the ordinary
course of business and certain other exceptions); and
the net proceeds from the issuance by Products Corporation or any of its subsidiaries of certain
additional debt, to the extent there remains any such proceeds after satisfying Products
Corporation’s repayment obligations under the 2010 Term Loan Facility.
Products Corporation pays to the lenders under the 2010 Revolving Credit Facility a commitment fee
of 0.75% of the average daily unused portion of the 2010 Revolving Credit Facility, which fee is payable
quarterly in arrears. Under the 2010 Revolving Credit Facility, Products Corporation also 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 (as defined in the 2010 Revolving Credit Agreement) for revolving credit
loans that are Eurodollar Rate (as defined in the 2010 Revolving Credit Agreement) loans
F-21
(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.
Under certain circumstances, Products Corporation will have the right to request that the 2010
Revolving Credit Facility be increased by up to $60.0 million, provided that the lenders are not committed
to provide any such increase.
Under certain circumstances if and when the difference between (i) the borrowing base under the 2010
Revolving Credit Facility and (ii) the amounts outstanding under the 2010 Revolving Credit Facility is less
than $20.0 million for a period of two consecutive days or more, and until such difference is equal to or
greater than $20.0 million for a period of 30 consecutive business days, the 2010 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 2010 Revolving Credit Facility) of 1.0 to 1.0.
The 2010 Revolving Credit Facility matures on March 11, 2014.
2010 Term Loan Facility
Under the 2010 Term Loan Facility, Eurodollar Loans (as defined in the 2010 Term Loan Agreement)
bear interest at the Eurodollar Rate (as defined in the 2010 Term Loan Agreement) plus 4.00% per annum
(provided that in no event shall the Eurodollar Rate be less than 2.00% per annum) and Alternate Base
Rate (as defined in the 2010 Term Loan Agreement) loans bear interest at the Alternate Base Rate plus
3.00% per annum (provided that in no event shall the Alternate Base Rate be less than 3.00% per annum).
Prior to the termination date of the 2010 Term Loan Facility, on June 30, September 30, December 31
and March 31 of each year (commencing June 30, 2010), Products Corporation is required to repay
$2.0 million of the principal amount of the term loans outstanding under the 2010 Term Loan Facility on
each respective date. In addition, the term loans under the 2010 Term Loan Facility are required to be
prepaid with:
(i)
the net cash proceeds in excess of $10.0 million for each 12-month period ending on March 31
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 a reinvestment right for
365 days and carryover of unused annual basket amounts up to a maximum of $25.0 million and
subject to certain specified dispositions of 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” (as defined under the 2010 Term Loan
Agreement), commencing with excess cash flow for the 2011 fiscal year payable in the first
quarter of 2012.
Any such prepayments are applied to reduce Products Corporation’s future regularly scheduled term
loan amortization payments, to be applied in the direct order of maturity to the remaining installments
thereof or as otherwise directed by Products Corporation.
The 2010 Term Loan Facility contains a financial covenant limiting Products Corporation’s first lien
senior secured leverage ratio (the ratio of Products Corporation’s Senior Secured Debt that has a lien on the
collateral which secures the 2010 Term Loan Facility that is not junior or subordinated to the liens securing
the 2010 Term Loan Facility (excluding debt outstanding under the 2010 Revolving Credit Facility) to
EBITDA, as each such term is defined in the 2010 Term Loan Facility), to 4.0 to 1.0 for each period of four
consecutive fiscal quarters ending during the period from March 31, 2010 to the March 2015 maturity date
of the 2010 Term Loan Facility.
F-22
Under certain circumstances, Products Corporation will have the right to request the 2010 Term Loan
Facility to be increased by up to $300.0 million, provided that the lenders are not committed to provide any
such increase.
The 2010 Term Loan Facility matures on March 11, 2015.
Provisions Applicable to the 2010 Revolving Credit Facility and the 2010 Term Loan Facility
The 2010 Credit Facilities are supported by, among other things, guarantees from Revlon, Inc. and,
subject to certain limited exceptions, Products Corporation’s domestic subsidiaries. The obligations of
Products Corporation under the 2010 Credit Facilities and the obligations under such guarantees are
secured by, subject to certain limited exceptions, substantially all of the assets of Products Corporation and
the guarantors, including:
(i) mortgages on owned real property, including Products Corporation’s facility in Oxford, North
Carolina;
(ii)
(iii)
(iv)
the capital stock of Products Corporation and the subsidiary guarantors and 66% of the voting
capital stock and 100% of the non-voting capital stock of Products Corporation’s and the
subsidiary guarantors’ first-tier, non-U.S. 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 Prod-
ucts Corporation and the subsidiary guarantors.
The liens on 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 to the foregoing (the “Revolving Credit First Lien Collateral”) secure the 2010
Revolving Credit Facility on a first priority basis, the 2010 Term Loan Facility on a second priority basis and
Products Corporation’s 93⁄4% Senior Secured Notes due November 2015 (the “93⁄4% Senior Secured Notes”)
and the related guarantees on a third priority basis. The liens on the capital stock of Products Corporation
and its subsidiaries, intellectual property and intangible property (other than intangible property included
in the Revolving Credit First Lien Collateral) (the “Term Loan First Lien Collateral”) secure the 2010 Term
Loan Facility on a first priority basis and the 2010 Revolving Credit Facility and the 93⁄4% Senior Secured
Notes and the related guarantees on a second priority basis. Such arrangements are set forth in the Third
Amended and Restated Intercreditor and Collateral Agency Agreement, dated March 11, 2010, by and
among Products Corporation and CUSA, as administrative agent and as collateral agent for the benefit of
the secured parties for the 2010 Term Loan Facility, 2010 Revolving Credit Facility and the 93⁄4% Senior
Secured Notes (the “2010 Intercreditor Agreement”). The 2010 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 and foreign working capital lines.
Each of the 2010 Credit Facilities contains various restrictive covenants prohibiting Products Corpo-
ration 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 NYSE listing fees, and other
expenses related to being a public holding company;
F-23
(b)
(c)
(d)
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 Third Amended and Restated Revlon, Inc. Stock Plan and/or the payment of
withholding taxes in connection with the vesting of restricted stock awards under such
plan;
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; and
subject to certain limitations, to make other restricted payments to affiliates of Products
Corporation in amounts up to $5.0 million per year ($10.0 million in 2010), other restricted
payments in an aggregate amount not to exceed $20.0 million and other restricted
payments based upon certain financial tests;
(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 involving aggregate payments
or consideration in excess of $10.0 million other than upon terms that are not materially less
favorable when taken as a whole to Products Corporation or its subsidiaries as terms that would
be obtainable at the time for a comparable transaction or series of similar transactions in arm’s
length dealings with an unrelated third person and where such payments or consideration exceed
$20.0 million, unless such transaction has been approved by all of the independent directors of
Products Corporation, subject to certain exceptions.
The events of default under each of the 2010 Credit Facilities include customary events of default for
such types of agreements, including, among others:
(i)
(ii)
(iii)
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 2010 Credit Facilities or the ancillary security
documents, subject in certain instances to grace periods;
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 $25.0 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 $25.0 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 2010 Term Loan Facility, a cross default under the 2010 Revolving Credit
Facility, and in the case of the 2010 Revolving Credit Facility, a cross default under the 2010 Term
Loan Facility;
F-24
(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 of 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 a majority of such continuing directors) shall cease to be a
majority of the directors;
(viii) Revlon, Inc. shall have any meaningful assets or indebtedness or shall conduct any meaningful
business other than its ownership of Products Corporation and such activities as are customary
for a publicly traded holding company which is not itself an operating company, in each case
subject to limited exceptions; and
(ix)
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, subject to certain
exceptions, including exceptions as to Products Corporation’s Senior Subordinated Term Loan.
If Products Corporation is in default under the senior secured leverage ratio under the 2010 Term Loan
Facility or the consolidated fixed charge coverage ratio under the 2010 Revolving Credit Facility, Products
Corporation may cure such default by issuing certain equity securities to, or receiving capital contributions
from, Revlon, Inc. and applying such cash 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 2010 Credit Agree-
ments upon closing the 2010 Refinancing and as of December 31, 2010. At December 31, 2010, the
aggregate principal amount outstanding under the 2010 Term Loan Facility was $794.0 million and
availability under the $140.0 million 2010 Revolving Credit Facility, based upon the calculated borrowing
base less $21.2 million of outstanding undrawn letters of credit and nil then drawn on the 2010 Revolving
Credit Facility, was $111.7 million.
(b) 93⁄4% Senior Secured Notes due 2015
In November 2009, Products Corporation issued and sold $330.0 million in aggregate principal amount
of the 93⁄4% Senior Secured Notes due November 15, 2015 (the “93⁄4% Senior Secured Notes”) in a private
placement which was priced at 98.9% of par, receiving net proceeds (net of original issue discount and
underwriters fees) of $319.8 million. Including the amortization of the original issue discount, the effective
interest rate on the 93⁄4% Senior Secured Notes is 10%. In connection with and prior to the issuance of the
93⁄4% Senior Secured Notes, Products Corporation entered into amendments to the 2006 Credit Agree-
ments to permit the issuance of the 93⁄4% Senior Secured Notes on a secured basis and incurred $4.7 million
of related fees and expenses. The Company capitalized $4.5 million of such fees and expenses which was
expensed upon the refinancing of the 2006 Credit Agreements in March 2010. In connection with
consummating such refinancing, the Company incurred $10.5 million of fees and expenses related to
the issuance of the 93⁄4% Senior Secured Notes, all of which the Company capitalized and which will be
amortized over the remaining life of the 93⁄4% Senior Secured Notes.
The $319.8 million of net proceeds, together with $42.6 million of other cash and borrowings under the
2006 Revolving Credit Facility (prior to its complete refinancing in March 2010), were used to repay or
F-25
redeem all of the $340.5 million aggregate principal amount outstanding of Products Corporation’s
91⁄2% Senior Notes due April 1, 2011, plus an aggregate of $21.9 million for accrued interest, applicable
redemption and tender premiums and fees and expenses related to refinancing the 91⁄2% Senior Notes, as
well as the amendments to the 2006 Credit Agreements (prior to their complete refinancing in March
2010) required to permit such refinancing to be conducted on a secured basis. Pursuant to a registration
rights agreement, on June 1, 2010, Products Corporation commenced an offer to exchange the original
93⁄4% Senior Secured Notes for up to $330 million in aggregate principal amount of its 93⁄4% Senior Secured
Notes due 2015 that have been registered under the Securities Act. On July 16, 2010, all of the old notes
were exchanged for new notes which have substantially identical terms as the old notes, except that the new
notes are registered with the SEC under the Securities Act and the transfer restrictions and registration
rights applicable to the old notes do not apply to the new notes.
The 93⁄4% Senior Secured Notes were issued pursuant to an indenture, dated as of November 23, 2009
(the “93⁄4% Senior Secured Notes Indenture”), among Products Corporation, Revlon, Inc. and Products
Corporation’s domestic subsidiaries (subject to certain limited exceptions) (the “Subsidiary Guarantors”
and, collectively with Revlon, Inc., the “Guarantors”), which Guarantors also currently guarantee Products
Corporation’s 2010 Credit Agreements, and U.S. Bank National Association, as trustee. The 93⁄4% Senior
Secured Notes are supported by guarantees from the Guarantors.
The 93⁄4% Senior Secured Notes and the related guarantees are secured, subject to certain permitted
liens:
•
together with the obligations under the 2010 Revolving Credit Agreement (on an equal and ratable
basis), by a second-priority lien on the collateral that is subject to a first-priority lien securing
Products Corporation’s obligations under the 2010 Term Loan Agreement (i.e., substantially all of
Products Corporation’s and the Subsidiary Guarantors’ intellectual property and intangibles, all of
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 and
certain other assets of Products Corporation and the Subsidiary Guarantors (excluding the assets
described below)), subject to certain limited exceptions; and
• by a third-priority lien on the collateral that is subject to a first-priority lien securing Products
Corporation’s obligations under the 2010 Revolving Credit Agreement and subject to a second-
priority lien securing Products Corporation’s obligations under the 2010 Term Loan Agreement
(i.e., substantially all of Products Corporation’s and the Subsidiary Guarantors’ inventory, accounts
receivable, equipment, investment property, deposit accounts and certain real estate), subject to
certain limited exceptions.
The liens securing the 93⁄4% Senior Secured Notes and the related guarantees are subject to the
provisions of an intercreditor agreement, which, among other things, governs the priority of the liens on the
collateral securing the 93⁄4% Senior Secured Notes and provides different rights as to enforcement,
procedural provisions and other similar matters for holders of liens securing Products Corporation’s
obligations under the 2010 Credit Agreements.
The 93⁄4% Senior Secured Notes are senior secured obligations of Products Corporation and rank pari
passu in right of payment with all existing and future senior indebtedness of Products Corporation and the
Guarantors, including the indebtedness under the 2010 Credit Agreements, and are senior in right of
payment to all of Products Corporation’s and the Guarantors’ present and future indebtedness that is
expressly subordinated in right of payment (including the Contributed Loan and the Non-Contributed
Loan). The 93⁄4% Senior Secured Notes are effectively subordinated to the outstanding indebtedness and
other liabilities of Products Corporation’s non-guarantor subsidiaries. The 93⁄4% Senior Secured Notes
mature on November 15, 2015. Interest is payable on May 15 and November 15 of each year, beginning
May 15, 2010.
F-26
The 93⁄4% Senior Secured Notes may be redeemed at the option of Products Corporation:
•
•
•
in an amount up to an aggregate of 35% of the original principal amount issued under the
93⁄4% Senior Secured Notes Indenture, from time to time prior to November 15, 2012, with the
proceeds of certain equity offerings, at a purchase price equal to 109.75% of the principal amount,
plus accrued and unpaid interest, if any, to the date of redemption;
in whole or in part at any time prior to November 15, 2012 at a redemption price equal to the
principal amount, plus accrued and unpaid interest, if any, to the date of redemption, plus the
applicable premium (as specified in the 93⁄4% Senior Secured Notes Indenture); and
in whole or in part at any time after November 15, 2012 at various fixed prices specified in the
93⁄4% Senior Secured Notes Indenture.
Upon a Change in Control (as defined in the 93⁄4% Senior Secured Notes Indenture), subject to certain
conditions, each holder of the 93⁄4% Senior Secured Notes will have the right to require Products Corpo-
ration to repurchase all or a portion of such holder’s 93⁄4% Senior Secured Notes at a price equal to 101% of
the principal amount, plus accrued and unpaid interest, if any, to the date of repurchase.
The 93⁄4% Senior Secured Notes Indenture contains covenants that, among other things, limit (i) the
issuance of additional debt and redeemable stock by Products Corporation; (ii) the incurrence of liens;
(iii) the issuance of debt and preferred stock by Products Corporation’s subsidiaries; (iv) the payment of
dividends on capital stock of Products Corporation and its subsidiaries and the redemption of capital stock
of Products Corporation and certain subordinated obligations; (v) the sale of assets and subsidiary stock by
Products Corporation; (vi) transactions with affiliates of Products Corporation; (vii) consolidations, merg-
ers and transfers of all or substantially all of Products Corporation’s assets; and (viii) certain restrictions on
transfers of assets by or distributions from subsidiaries of Products Corporation. All of these limitations and
prohibitions, however, are subject to a number of qualifications and exceptions, which are specified in the
93⁄4% Senior Secured Notes Indenture.
The 93⁄4% Senior Secured 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 30% 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 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.
(c) Senior Subordinated Term Loan Agreement
In January 2008, Products Corporation entered into the Senior Subordinated Term Loan Agreement
with MacAndrews & Forbes and on February 1, 2008 used the $170.0 million of proceeds from such loan to
repay in full the $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 $2.55 million of related fees and
expenses. In connection with such repayment, Products Corporation also used cash on hand to pay
$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 September 2008, Products Corporation used $63.0 million of the net proceeds from the Bozzano Sale
Transaction to partially repay $63.0 million of the outstanding aggregate principal amount of the Senior
Subordinated Term Loan. Following such partial repayment, there remained outstanding $107.0 million in
aggregate principal amount under such loan. Upon consummation of the Exchange Offer, MacAndrews &
Forbes contributed to Revlon, Inc. the $48.6 million Contributed Loan, representing $5.21 of outstanding
F-27
principal amount for each of the 9,336,905 shares of Class A Common Stock exchanged in the Exchange
Offer, and Revlon, Inc. issued to MacAndrews & Forbes 9,336,905 shares of Class A Common Stock at a ratio
of one share of Class A Common Stock for each $5.21 of outstanding principal amount of the Senior
Subordinated Term Loan contributed to Revlon. Also, upon consummation of the Exhange Offer, the terms
of the Senior Subordinated Term Loan Agreement were amended to extend the maturity date on the
Contributed Loan which remains owing from Products Corporation to Revlon, Inc. from August 2010 to
October 8, 2013, to change the annual interest rate on the Contributed Loan from 11% to 12.75%, to extend
the maturity date on the Non-Contributed Loan from August 2010 to October 8, 2014 and to change the
annual interest rate on the Non-Contributed Loan from 11% to 12%.
Interest under the Senior Subordinated Term Loan is payable in arrears in cash on January 8, April 8,
July 8 and October 8 of each year. 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 its respective maturity dates without
premium or penalty, provided that prior to such loan’s respective maturity dates all shares of Revlon, Inc.’s
Preferred Stock have been or are being concurrently redeemed and all payments due thereon are paid in
full or are concurrently being paid in full.
The Senior Subordinated Term Loan is an unsecured obligation of Products Corporation and is
subordinated in right of payment to all existing and future senior debt of Products Corporation, currently
including indebtedness under (i) Products Corporation’s 2010 Credit Agreements, and (ii) Products
Corporation’s 93⁄4% Senior Secured Notes. Prior to its respective maturity dates, the Senior Subordinated
Term Loan is also subordinated in right of payment to Revlon, Inc.’s Preferred Stock. The Senior
Subordinated Term Loan has the right to payment equal in right of payment with any present and future
senior subordinated indebtedness of Products Corporation.
The Senior Subordinated Term Loan Agreement contains covenants (other than the subordination
provisions discussed above) 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 Senior Subordinated Term Loan Agreement includes a cross acceleration provision which
provides that it shall be an event of default under such 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 Senior Subordinated
Term Loan to be due and payable immediately.
The 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 such agreement, non-compliance with any of the material covenants in such
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 Senior Subordinated Term Loan Agreement), Products
Corporation is required to repay the Senior Subordinated Term Loan in full, provided that prior to such
loan’s respective maturity dates all shares of Revlon, Inc.’s Preferred Stock have been or are being
concurrently redeemed and all payments due thereon are paid in full or are concurrently being paid in
full, after fulfilling an offer to repay Products Corporation’s 93⁄4% Senior Secured Notes and to the extent
permitted by Products Corporation’s 2010 Credit Agreements.
F-28
In connection with the closing of the 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 such 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
Non-Contributed Loan, 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, Inc.
elect to conduct an equity offering.
(d) Redeemable Preferred Stock
In October 2009, Revlon, Inc. consummated the Exchange Offer in which each issued and outstanding
share of Revlon, Inc.’s Class A Common Stock was exchangeable on a one-for-one basis for a newly-issued
series of Revlon, Inc. Preferred Stock. Revlon, Inc. issued to stockholders (other than MacAndrews &
Forbes and its affiliates) 9,336,905 shares of Preferred Stock in exchange for the same number of shares of
Class A Common Stock exchanged in the Exchange Offer. The Preferred Stock was initially recorded by
Revlon, Inc. as a long-term liability at its fair value of $47.9 million. The total amount to be paid by Revlon,
Inc. at maturity is approximately $48.6 million, which represents the $5.21 liquidation preference for each of
the 9,336,905 shares of Preferred Stock issued in the Exchange Offer (the “Liquidation Preference”).
Each share of Preferred Stock issued in the Exchange Offer has a liquidation preference of $5.21 per
share, is entitled to receive a 12.75% annual dividend payable quarterly in cash (the “Regular Dividend”)
and is mandatorily redeemable for $5.21 in cash on October 8, 2013. Each share of Preferred Stock entitles
its holder to receive cash payments of approximately $7.87 over the four-year term of the Preferred Stock,
through the quarterly payment of 12.75% annual cash dividends and a $5.21 per share liquidation
preference at maturity (assuming Revlon, Inc. does not engage in one of certain specified change of
control transactions), in each case to the extent that Revlon, Inc. has lawfully available funds to effect such
payments. If Revlon, Inc. engages in one of certain specified change of control transactions (not including
any transaction with MacAndrews & Forbes) within three years of consummation of the Exchange Offer,
the holders of the Preferred Stock will have the right to receive a special dividend if the per share equity
value of the Company in the change of control transaction is higher than the liquidation preference plus
paid and accrued and unpaid dividends on the Preferred Stock, capped at an amount that would provide
aggregate cash payments of up to $12.00 per share, as further described below.
The terms of Revlon, Inc.’s Preferred Stock, with 25 million authorized shares, principally provide as
follows: The Preferred Stock ranks senior to Revlon, Inc.’s Class A Common Stock and Class B Common
Stock with respect to dividend distributions and distributions upon any liquidation, winding up or disso-
lution of Revlon, Inc. Revlon, Inc. may authorize, create and issue additional shares of preferred stock that
may rank junior to, on parity with or senior to the issued Preferred Stock with respect to dividend
distributions and distributions upon liquidation, winding up or dissolution without the consent of the
holders of the issued Preferred Stock. Holders of the Preferred Stock are entitled to receive, out of legally
available funds, cumulative preferential dividends accruing at a rate of 12.75% of the Liquidation Pref-
erence (as referred to below) annually, payable quarterly in cash. Holders of Preferred Stock are also
entitled to receive upon a change of control (as defined in the certificate of designation of the Preferred
Stock) transaction through October 8, 2012, a pro rata portion of the equity value received in such
transaction, capped at an amount that would provide aggregate cash payments of $12.00 per share over the
term of the Preferred Stock. If the equity value received in the change of control transaction is greater than
or equal to $12.00 per share, then each holder of Preferred Stock will be entitled to receive an amount equal
to $12.00 minus the Liquidation Preference minus any paid and/or accrued and unpaid dividends on the
Preferred Stock. If the per share equity value received in the change of control transaction is less than
$12.00, then each holder of Preferred Stock is entitled to receive an amount equal to such per share equity
value minus the Liquidation Preference minus any paid and/or accrued and unpaid dividends on the
Preferred Stock. If the per share equity value received in the change of control transaction does not exceed
F-29
the Liquidation Preference plus any paid and/or accrued and unpaid dividends, then each holder of the
Preferred Stock is not entitled to an additional payment upon any such change of control transaction (the
foregoing payments being the “Change of Control Amount”). In the event that Revlon, Inc. fails to pay any
required dividends on the Preferred Stock, the amount of such unpaid dividends will be added to the
amount payable to holders of the Preferred Stock upon redemption. In addition, during any period when
Revlon, Inc. has failed to pay a dividend and until all unpaid dividends have been paid in full, Revlon, Inc. is
prohibited from paying dividends or distributions on any shares of stock that rank junior to the Preferred
Stock (including Revlon, Inc.’s Common Stock), other than dividends or distributions payable in shares of
stock that rank junior to the Preferred Stock. Holders of the Preferred Stock are entitled to a Liquidation
Preference of $5.21 per share in the event of any liquidation, dissolution or winding up of Revlon, Inc., plus
an amount equal to the accumulated and unpaid dividends thereon. If the assets are not sufficient to pay the
full Liquidation Preference to both the holders of the Preferred Stock and holders of stock that ranks on
parity with the Preferred Stock with respect to distributions and distributions upon any liquidation, winding
up or dissolution of Revlon, Inc., the holders of both the Preferred Stock and such parity stock will share
ratably in the distribution of assets. The Preferred Stock does not have preemptive rights. To the extent that
Revlon, Inc. has lawfully available funds to effect such redemption, Revlon, Inc. is required to redeem the
Preferred Stock on the earlier of (i) October 8, 2013 and (ii) the consummation of a change of control
transaction. Revlon, Inc. does not have the right to redeem any shares of the Preferred Stock at its option.
So long as shares of the Preferred Stock remain outstanding, if Revlon, Inc. issues any shares of common
stock or preferred stock to MacAndrews & Forbes or any of its affiliates at a price per share that is lower
than the then-current fair market value of such stock on the date of any such issuance, then an appropriate
adjustment to the amount payable to the holders of the Preferred Stock upon a change of control
transaction before October 8, 2012 will be made to reflect the aggregate difference between the issuance
price per share and such then-current fair market value. However, no adjustment will be made as a result of:
(i)
(ii)
any securities offerings by Revlon, Inc. (including any rights offering), in which the same security
is offered to all holders of the applicable class of securities or series of stock on a pro rata basis;
the declaration or payment of any dividends or distributions to the holders of all of then-
outstanding classes of equity securities of Revlon, Inc. on a pro rata basis;
(iii) any issuance by reclassification of securities of Revlon, Inc.;
(iv)
the issuance of any securities of Revlon, Inc. (including upon the exercise of options or rights) or
options or rights to purchase those shares pursuant to any present or future employee, director or
consultant benefit plan, program or practice of or assumed by Revlon, Inc. or any of its
subsidiaries or as full or partial consideration in connection with any acquisition by Revlon,
Inc. or its subsidiaries; or
(v)
the issuance of any securities of Revlon, Inc. pursuant to any option, warrant, right or exercisable,
exchangeable or convertible security outstanding as of October 8, 2009.
The form of the adjustment will be determined in good faith by a majority of the independent members
of Revlon, Inc.’s Board of Directors, and will be binding and conclusive on all holders of the Preferred
Stock. The Preferred Stock generally has the same voting rights as the Class A Common Stock, except that
the holders of Preferred Stock will not be entitled to vote on any merger, combination or similar transaction
in which the holders of Preferred Stock either (i) retain their shares of Preferred Stock or (ii) receive shares
of preferred stock in the surviving corporation of such merger with terms identical to, or no less favorable in
the aggregate to the holders of the Preferred Stock than, the terms of the Preferred Stock as long as, in any
such case, the surviving or resulting company of any such merger, combination or similar transaction is not
materially less creditworthy than Revlon, Inc. was immediately prior to the consummation of any such
transaction.
In accordance with the terms of the certificate of designation of the Preferred Stock, during 2010,
Revlon, Inc. paid to holders of record of the Preferred Stock an aggregate of $6.2 million of regular
dividends on the Preferred Stock (at an annual rate of 12.75% of the $5.21 per share liquidation preference,
F-30
the “Regular Dividend”). In addition, on January 10, 2011, Revlon, Inc. paid to holders of record of the
Preferred Stock at the close of business on December 31, 2010 the Regular Dividend in the amount of
$0.171074 per share, or $1.6 million in the aggregate, for the period from October 8, 2010 through
January 10, 2011.
Long-Term Debt Maturities
The aggregate amounts of contractual long-term debt maturities at December 31, 2010 in the years
2011 through 2015 and thereafter are as follows:
Years Ended December 31,
2011. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2012. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term
debt
maturities
$
8.0(a)
8.0(a)
8.0(a)(b)
66.4(c)
1,092.0(d)
—
Total long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,182.4
Discounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(15.1)
Total long-term debt, net of discounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,167.3
(a) Amount refers to the quarterly amortization payments required under the 2010 Term Loan Facility.
(b) Amount does not include the $48.6 million of Preferred Stock which is required to be redeemed on the earlier of (i) October 8,
2013 and (ii) the consummation of certain change of control transactions. (See “Redeemable Preferred Stock” in this Note 9).
(c) Amount refers to the quarterly amortization payments required under the 2010 Term Loan Facility and the aggregate principal
amount outstanding under the Non-Contributed Loan. Pursuant to the terms of the Exchange Offer, the maturity date on the
Non-Contributed Loan which remains owing from Products Corporation to MacAndrews & Forbes was extended from August
2010 to October 8, 2014. Amount excludes amounts available under the 2010 Revolving Credit Facility, which as of December 31,
2010, was undrawn.
(d) Amount refers to the aggregate principal amount expected to be outstanding under the 2010 Term Loan Facility on its March 11,
2015 maturity date as well as the principal balance due on the 93⁄4% Senior Secured Notes which mature on November 15, 2015.
The difference between this amount and the carrying amounts of the 2010 Term Loan Facility and the 93⁄4% Senior Secured Notes
is due to the issuance of the $800.0 million in aggregate principal amount of the 2010 Term Loan Facility and the $330.0 million in
aggregate principal amount of the 93⁄4% Senior Secured Notes at a discount, which were priced at 98.25% and 98.9% of par,
respectively.
10. FAIR VALUE MEASUREMENTS
The Fair Value Measurements and Disclosures Topic of the FASB Accounting Standards Codification
(the “Fair Value Measurements and Disclosures Topic”) 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. The fair value framework under the Fair Value Measurements and
Disclosures Topic requires the categorization of assets and liabilities into three levels based upon the
assumptions used to price the assets or liabilities. Level 1 provides the most reliable measure of fair value,
whereas Level 3, if applicable, generally would require significant management judgment. The three levels
for categorizing assets and liabilities fair value measurement requirements are as follows:
• Level 1: Fair valuing the asset or liability using observable inputs, such as quoted prices in active
markets for identical assets or liabilities;
• Level 2: Fair valuing the asset or liability using inputs other than quoted prices that are observable
for the applicable asset or liability, either directly or indirectly, such as quoted prices for similar (as
opposed to identical) assets or liabilities in active markets and quoted prices for identical or similar
assets or liabilities in markets that are not active; and
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• Level 3: Fair valuing the asset or liability using unobservable inputs that reflect the Company’s
own assumptions regarding the applicable asset or liability.
As of December 31, 2010, the fair values of the Company’s financial assets and liabilities, namely its FX
Contracts and Preferred Stock, are categorized as presented in the table below:
Total
Level 1
Level 2
Level 3
Assets:
Derivatives:
FX Contracts(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$0.2
Total assets at fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$0.2
Liabilities:
Derivatives:
FX Contracts(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2.1
Redeemable Preferred Stock (Change of Control
Amount)(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.2
Total liabilities at fair value . . . . . . . . . . . . . . . . . . . . . . . . . .
$2.3
$—
$—
$—
—
$—
$0.2
$0.2
$ —
$ —
$2.1
$ —
—
$2.1
0.2
$0.2
(a) The fair value of the Company’s FX Contracts was measured based on observable market transactions
of spot and forward rates at December 31, 2010. (See Note 11, “Financial Instruments.”)
(b) Upon consummation of the Exchange Offer, Revlon, Inc. initially recorded the Preferred Stock as a
long-term liability at a fair value of $47.9 million (see Note 9, “Long-Term Debt and Redeemable
Preferred Stock”), which was comprised of two components:
• Liquidation Preference: Upon initial valuation of the Preferred Stock, the total amount to be paid
by Revlon, Inc. at maturity is approximately $48.6 million, which represents the $5.21 liquidation
preference for each of the 9,336,905 shares of Preferred Stock issued in the Exchange Offer (the
“Liquidation Preference”). The Liquidation Preference was initially measured at fair value based
on the yield to maturity of the $48.6 million portion of the Senior Subordinated Term Loan (as
hereinafter defined) that was contributed to Revlon, Inc. by MacAndrews & Forbes (the “Con-
tributed Loan”), adjusted for an estimated average subordination premium for subordinated note
issues. The Liquidation Preference is subsequently measured at the present value of the amount to
be paid at maturity, accruing interest cost using the rate implicit at the issuance date since both the
amount to be paid and the maturity date are fixed.
• Change of Control Amount: Holders of the Preferred Stock are entitled to receive upon a change
of control transaction (as defined in the certificate of designation of the Preferred Stock) through
October 8, 2012, a pro rata portion of the equity value received in such transaction, capped at an
amount that would provide aggregate cash payments of $12.00 per share over the term of the
Preferred Stock. If the equity value received in the change of control transaction is greater than or
equal to $12.00 per share, then each holder of Preferred Stock will be entitled to receive an amount
equal to $12.00 minus the Liquidation Preference minus any paid and/or accrued and unpaid
dividend on the Preferred Stock. If the per share equity value received in the change of control
transaction is less than $12.00, then each holder of Preferred Stock is entitled to receive an amount
equal to such per share equity value minus the Liquidation Preference minus any paid and/or
accrued and unpaid dividend on the Preferred Stock. If the per share equity value received in the
change of control transaction does not exceed the Liquidation Preference plus any paid and/or
accrued and unpaid dividend, then each holder of the Preferred Stock is not entitled to an
additional payment upon any such change of control transaction (the foregoing payments being
the “Change of Control Amount”). The fair value of the Change of Control Amount of the
Preferred Stock, which is deemed to be a Level 3 liability, is based on the Company’s assessment of
the likelihood of the occurrence of specified change of control transactions within three years of the
consummation of the Exchange Offer. There was no change in the fair value of the Change in
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Control Amount from the initial valuation performed upon the October 2009 consummation of the
Exchange Offer through December 31, 2010.
11. FINANCIAL INSTRUMENTS
The fair value of the Company’s debt, including the current portion of long-term debt and Preferred
Stock, is based on the quoted market prices for the same issues or on the current rates offered for debt of
similar remaining maturities. The estimated fair value of such debt and Preferred Stock at December 31,
2010 was approximately $1,259.6 million, which was more than the carrying values of such debt and
Preferred Stock at December 31, 2010 of $1,215.4 million. The estimated fair value of such debt and
Preferred Stock at December 31, 2009 was approximately $1,241.4 million, which was less than the carrying
values of such debt and Preferred Stock at December 31, 2009 of $1,247.8 million.
The carrying amounts of cash and cash equivalents, marketable securities, trade receivables, notes
receivable, accounts payable and short-term borrowings approximate their fair values.
Products Corporation also maintains standby and trade letters of credit for various corporate purposes
under which Products Corporation is obligated, of which approximately $21.2 million and $12.2 million
(including amounts available under credit agreements in effect at that time) were maintained at Decem-
ber 31, 2010 and 2009, respectively. Included in these amounts is approximately $9.1 million and $9.3 million
at December 31, 2010 and 2009, respectively, in standby letters of credit which support Products
Corporation’s self-insurance programs. The estimated liability under such programs is accrued by Products
Corporation.
Derivative Financial Instruments
The Company uses derivative financial instruments, primarily (1) FX Contracts, intended for the
purpose of managing foreign currency exchange risk by reducing the effects of fluctuations in foreign
currency exchange rates on the Company’s net cash flows and (2) interest rate hedging transactions
intended for the purpose of managing interest rate risk associated with Products Corporation’s variable rate
indebtedness.
While the Company may be exposed to credit loss in the event of the counterparty’s non-performance,
the Company’s exposure is limited to the net amount that Products Corporation would have received, if any,
from the counterparty over the remaining balance of the terms of the FX Contracts. The Company does not
anticipate any non-performance and, furthermore, even in the case of any non-performance by the
counterparty, the Company expects that any such loss would not be material.
Foreign Currency Forward Exchange Contracts
The FX Contracts are entered into primarily to hedge the anticipated net cash flows resulting from
inventory purchases and intercompany payments denominated in currencies other than the local currencies
of the Company’s foreign and domestic operations and generally have maturities of less than one year.
The U.S. dollar notional amount of the FX Contracts outstanding at December 31, 2010 and 2009 was
$46.0 million and $54.3 million, respectively.
Interest Rate Swap Transactions
Prior to its expiration in April 2010, the Company’s floating-to-fixed interest rate swap had a notional
amount of $150.0 million initially relating to indebtedness under Products Corporation’s former 2006 Term
Loan Facility (prior to its complete refinancing in March 2010) and which also related, through its
expiration in April 2010, to a notional amount of $150.0 million relating to indebtedness under Products
Corporation’s 2010 Term Loan Facility (the “2008 Interest Rate Swap”). Under the terms of the 2008
Interest Rate Swap, Products Corporation was required to pay to the counterparty a quarterly fixed interest
rate of 2.66% on the $150.0 million notional amount under the 2008 Interest Rate Swap (which, based upon
the 4.0% applicable margin, effectively fixed the interest rate on such notional amounts at 6.66% for the
F-33
2-year term of such swap), commencing in July 2008, while receiving a variable interest rate payment from
the counterparty equal to three-month U.S. dollar LIBOR.
The 2008 Interest Rate Swap was initially designated as a cash flow hedge of the variable interest rate
payments on Products Corporation’s former 2006 Term Loan Facility (prior to its complete refinancing in
March 2010) under the Derivatives and Hedging Topic. However, as a result of the 2010 Refinancing,
effective March 11, 2010 (the closing date of the 2010 Refinancing), the 2008 Interest Rate Swap no longer
met the criteria specified under the Derivatives and Hedging Topic to allow for the deferral of the effective
portion of unrecognized hedging gains or losses in other comprehensive income since the scheduled
variable interest payment specified on the date originally documented at the inception of the hedge will not
occur. As a result, as of March 11, 2010, the Company reclassified an unrecognized loss of $0.8 million from
Accumulated Other Comprehensive Loss into earnings.
Quantitative Information — Derivative Financial Instruments
The effects of the Company’s derivative instruments on its consolidated financial statements were as
follows:
(a)
Fair Value of Derivative Financial Instruments in the Consolidated Balance Sheet at
December 31, 2010 and 2009, respectively:
Derivatives:
Derivatives designated as hedging
Fair Values of Derivative Instruments as of December 31,
Assets
Liabilities
Balance Sheet
Classification
2010
Fair
Value
2009
Fair
Value
Balance Sheet
Classification
2010
Fair
Value
2009
Fair
Value
instruments:
2008 Interest Rate Swap(a)
. . . . . . . . Prepaid expenses
$ —
$ — Accrued expenses
$ —
$1.8
Derivatives not designated as hedging
instruments:
FX contracts(b) . . . . . . . . . . . . . . . . . Prepaid expenses
0.2
$0.2
0.1
Accrued expenses
$0.1
2.1
$2.1
1.7
$3.5
(a) At December 31, 2009, the fair value of the 2008 Interest Rate Swap, which expired in April 2010, was determined by using the
three-month U.S. Dollar LIBOR index at the latest receipt date, or October 16, 2009.
(b) The fair values of the FX Contracts at December 31, 2010 and 2009 were determined by using observable market transactions of
spot and forward rates at December 31, 2010 and 2009, respectively.
(b) Effects of Derivative Financial Instruments on Income and Other Comprehensive Income
(Loss) (“OCI”) for 2010 and 2009, respectively:
Derivative Instruments Gain (Loss) Effect on
Consolidated Statement of
Operations as of December 31,
Amount of
Gain (Loss)
Recognized in
OCI
(Effective
Portion)
2010
2009
Income Statement
Classification
of Gain (Loss)
Reclassified from
OCI to Income
Amount of
Gain (Loss)
Reclassified
from OCI
to Income
(Effective
Portion)
2010
2009
Derivatives designated as hedging instruments:
2008 Interest Rate Swap(a)
. . . . . . . . . . . . . . . . . . . . . . . . . $ — $(1.7)
Interest expense
$(0.9)
$(5.0)
F-34
Amount of
Gain (Loss)
Recognized in
Foreign
Currency
Gains
(Losses), Net
2010
2009
Income
Statement
Classification
of Gain (Loss)
Reclassified from
OCI to Income
Amount of
Gain (Loss)
Recognized in
Interest
Expense
(Ineffective
Portion)
2010
2009
Derivatives not designated as hedging instruments:
FX Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(3.1)
2008 Interest Rate Swap(a) . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
$(5.9)
Interest expense
— Interest expense
$ — $—
(0.8) —
$(3.1)
$(5.9)
$(0.8)
$—
(a) Effective March 11, 2010 (the closing date of the 2010 Refinancing), the 2008 Interest Rate Swap, which expired in April 2010,
was no longer designated as a cash flow hedge. (See “Interest Rate Swap Transactions” in this Note 11.)
12.
INCOME TAXES
The Company’s income before income taxes and the applicable provision for (benefit from) income
taxes are as follows:
Year Ended December 31,
2009
2010
2008
Income from continuing operations before income taxes:
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 31.3
48.5
$ 79.8
$ 24.6
32.2
$ 56.8
Provision for (benefit from) income taxes:
United States federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State and local . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(219.4)
(44.5)
16.7
$ 0.3
(2.1)
10.1
$(22.0)
51.2
$ 29.2
$ 0.6
(3.0)
18.5
Current:
United States federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State and local . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred:
United States federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State and local . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefits of operating loss carryforwards:
United States federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State and local . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F-35
$(247.2)
$ 8.3
$ 16.1
$ 10.1
(2.5)
18.7
26.3
$ 13.5
—
13.3
26.8
(220.3)
(40.2)
1.2
(259.3)
(9.2)
(1.8)
(3.2)
(14.2)
—
—
(1.2)
(1.2)
(13.2)
(2.1)
(2.0)
(17.3)
$ 10.3
(1.3)
22.7
31.7
0.6
—
2.2
2.8
(10.3)
(1.7)
(6.4)
(18.4)
$(247.2)
$ 8.3
$ 16.1
The actual tax on income before income taxes is reconciled to the applicable statutory federal income
tax rate as follows:
Year Ended December 31,
2009
2010
2008
Computed expected tax expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State and local taxes, net of U.S. 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 27.9
(0.1)
$ 19.9
(1.4)
$ 10.2
(2.0)
(10.5)
(286.8)
14.5
7.8
(4.0)
(24.7)
14.4
4.1
0.5
(18.2)
26.7
(1.1)
Tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(247.2)
$ 8.3
$ 16.1
Deferred taxes are the result of temporary differences between the bases of assets and liabilities for
financial reporting and income tax purposes. Deferred tax assets and liabilities at December 31, 2010 and
2009 were comprised of the following:
Deferred tax assets:
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net operating loss carryforwards — U.S.
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net operating loss carryforwards — foreign . . . . . . . . . . . . . . . . . . . . . . . . . .
Employee benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State and local taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales related reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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,
2010
2009
$
3.5
186.4
83.1
76.0
2.2
29.1
29.0
409.3
(113.0)
296.3
(15.4)
(12.3)
(27.7)
$
5.8
186.9
83.3
91.0
3.9
31.6
38.9
441.4
(414.3)
27.1
(18.1)
(0.4)
(18.5)
Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 268.6
$
8.6
As previously disclosed, in assessing the recoverability of its deferred tax assets, management regularly
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 the Income Taxes Topic. 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
reduction of deferred tax liabilities, projected future taxable income and tax planning strategies in making
this assessment.
In accordance with the Income Taxes Topic, based upon the level of historical taxable losses for the
U.S., the Company had maintained a deferred tax valuation allowance against its deferred tax assets in the
U.S. As of December 31, 2010, the Company achieved three cumulative years, as well as three consecutive
years, of positive U.S. GAAP pre-tax income and taxable income in the U.S. As a result of such earnings
trends and the Company’s tax position, and based upon the Company’s projections for future taxable
F-36
income over the periods in which the deferred tax assets are recoverable, management believes that it is
more likely than not that the Company will realize the benefits of the net deferred tax assets existing at
December 31, 2010 based on the recognition threshold and measurement of a tax position in accordance
with the Income Taxes Topic. Therefore, at December 31, 2010, the Company realized a one-time non-cash
benefit of $260.6 million related to a reduction of the Company’s deferred tax valuation allowance on its net
U.S. deferred tax assets at December 31, 2010. The Company has reflected this benefit in the tax provision
and this one-time non-cash benefit has increased net income at December 31, 2010.
The valuation allowance decreased by $301.3 million during 2010 and increased by $23.1 million during
2009. The primary driver of the decrease in the valuation allowance during 2010 was the reduction of the
valuation allowance with respect to the deferred tax assets in the U.S., as noted above. The primary drivers
of the increase in the valuation allowance during 2009 were foreign exchange fluctuations and the impact of
the re-measurement of pension liabilities in 2009, partially offset by use of tax loss carryforwards.
After December 31, 2010, the Company has tax loss carryforwards of approximately $754.2 million, of
which $278.8 million are foreign and $475.4 million are domestic (including $19.4 million of consolidated
federal net operating losses available from the MacAndrews & Forbes Group (as hereinafter defined) from
periods prior to the March 25, 2004 deconsolidation). The losses expire in future years as follows: 2011-
$13.4 million; 2012-$9.9 million; 2013-$12.1 million; 2014-$10.9 million; 2015 and beyond-$529.0 million;
and unlimited-$178.9 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.
The Company remains subject to examination of its income tax returns in various jurisdictions
including, without limitation, the U.S. (federal), for tax years ended December 31, 2007 through Decem-
ber 31, 2010, and Australia and South Africa, for tax years ended December 31, 2006 through December 31,
2010. The Company classifies interest and penalties recognized under the Income Taxes Topic as a
component of the provision for income taxes in the consolidated statement of operations. During the
years ended December 31, 2010 and 2009, the Company recognized through the consolidated statement of
operations a reduction of $5.6 million and $0.6 million, respectively, in accrued interest and penalties.
At December 31, 2010 and 2009, the Company had tax reserves of $44.1 million and $49.3 million,
respectively, including $12.3 million and $17.9 million, respectively, of accrued interest and penalties. All of
the tax reserves, to the extent reduced and unutilized in future periods, would affect the Company’s
effective tax rate. A reconciliation of the beginning and ending amount of the tax reserves is as follows:
Balance at January 1, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase based on tax positions taken in a prior year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Decrease 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, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase based on tax positions taken in a prior year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Decrease 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 50.9
5.5
(0.1)
7.2
(5.8)
(8.4)
$ 49.3
9.9
(16.1)
7.4
—
(6.4)
Balance at December 31, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 44.1
In addition, the Company believes that it is reasonably possible that its tax reserves during 2011 will
increase by approximately $6.0 million as a result of changes in various tax positions, each of which is
individually insignificant.
F-37
The Company has not provided for U.S. federal income taxes and foreign withholding taxes on
$77.9 million of foreign subsidiaries’ undistributed earnings as of December 31, 2010 because such earnings
are intended to be indefinitely reinvested overseas. The amount of unrecognized deferred tax liabilities for
temporary differences related to investments in undistributed earnings is not practicable to determine at
this time.
As a result of the closing of the 2004 Revlon Exchange Transactions (as hereinafter defined in Note 18,
“Related Party Transactions — Transfer Agreements”), as of March 25, 2004, Revlon, Inc., Products Corporation
and their U.S. subsidiaries were no longer included in the affiliated group of which MacAndrews & Forbes was
the common parent (the “MacAndrews & Forbes Group”) for federal income tax purposes. Revlon Holdings (as
hereinafter defined in Note 18, “Related Party Transactions — Transfer Agreements”), 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”), for
taxable periods beginning on or after January 1, 1992 through and including March 25, 2004, during which
Revlon, Inc. and Products Corporation or a subsidiary of Products Corporation was a member of the
MacAndrews & Forbes Group. In these taxable periods, 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. Revlon, Inc. and Products Corporation remain liable under
the MacAndrews & Forbes Tax Sharing Agreement for all such taxable periods through and including March 25,
2004 for amounts determined to be due as a result of a redetermination arising from an audit or otherwise, equal
to the taxes that Revlon, Inc. or Products Corporation would otherwise have had to pay if it were to have filed
separate federal, state or local income tax returns for such periods.
Following the closing of the 2004 Revlon Exchange Transactions, Revlon, Inc. became the parent of a
new consolidated group for federal income tax purposes and Products Corporation’s federal taxable income
and loss are 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 is 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 in 2010 with respect to periods covered by
the MacAndrews & Forbes Tax Sharing Agreement, and the Company expects that there will not be any
such payments in 2011. During 2010, there were no federal tax payments from Products Corporation to
Revlon, Inc. pursuant to the Revlon Tax Sharing Agreement with respect to 2009 and $0.2 million with
respect to 2010. The Company expects that there will be no federal tax payment from Products Corporation
to Revlon, Inc. pursuant to the Revlon Tax Sharing Agreement during 2011 with respect to 2010.
Pursuant to the asset transfer agreement referred to in Note 18, “Related Party Transactions
— Transfer Agreements,” 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 the
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.
13. BASIC AND DILUTED EARNINGS PER COMMON SHARE
For each of the years ended December 31, 2010, 2009 and 2008, options to purchase 987,886; 1,231,337;
and 1,405,486 shares, respectively, 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 $31.68, $33.17 and $36.76, respectively,
that could potentially dilute basic earnings per share in the future were excluded from the calculation of
diluted earnings per common share as their effect would be anti-dilutive.
F-38
For each of the years ended December 31, 2010, 2009 and 2008, 280,877; 968,156; and 1,581,439 shares,
respectively, of unvested restricted stock that could potentially dilute basic earnings per share in the future
were excluded from the calculation of diluted earnings per common share as their effect would be anti-
dilutive.
The components of basic and diluted earnings per share for each of the years ended December 31,
2010, 2009 and 2008, respectively, are as follows:
2010(a)
Years Ended December 31,
2008
2009
(shares in millions)
Numerator:
Income from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $327.0
0.3
Income from discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 48.5
0.3
$ 13.1
44.8
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $327.3
$ 48.8
$ 57.9
Denominator:
Weighted average common shares outstanding — Basic. . . . . . . . . . . . . . . . .
Effect of dilutive restricted stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
51.89
0.41
Weighted average common shares outstanding — Diluted . . . . . . . . . . . . .
52.30
51.55
0.18
51.73
51.25
0.06
51.31
Basic earnings per share:
Continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6.30
0.01
Discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 0.94
0.01
$ 0.26
0.87
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6.31
$ 0.95
$ 1.13
Diluted earnings per share:
Continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6.25
0.01
Discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 0.94
0.01
$ 0.26
0.87
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6.26
$ 0.94
$ 1.13
(a) Basic and diluted earnings per share for the year ended December 31, 2010 were favorably impacted by an increase in net income
driven by a one-time non-cash benefit of $260.6 million related to the Company’s net U.S. deferred tax assets at December 31,
2010, recognized through a reduction in the Company’s deferred tax valuation allowances as a result of the Company achieving
three cumulative years, as well as three consecutive years, of positive U.S. GAAP pre-tax income and taxable income in the U.S.,
and based upon the Company’s current expectations for realization of such deferred tax benefits in the U.S. (See Note 12,“Income
Taxes”).
14. SAVINGS PLAN, PENSION AND POST-RETIREMENT BENEFITS
Savings Plan:
The Company offers a qualified defined contribution plan for its 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 participants to contribute up to 6%,
of eligible compensation through payroll deductions, subject to certain annual dollar limitations imposed by
the Code. The Company matches employee contributions at fifty cents for each dollar contributed up to the
first 6% of eligible compensation (i.e., for a total match of 3% of employee contributions). In 2010, 2009
and 2008, the Company made cash matching contributions to the Savings Plan of approximately $2.3 mil-
lion, $2.4 million and $2.7 million, respectively.
In May 2009, Products Corporation amended, effective December 31, 2009, its qualified and non-
qualified defined contribution savings plans for its U.S.-based employees, creating a new discretionary
profit sharing component under such plans that will enable the Company, should it elect to do so, to make
discretionary profit sharing contributions. The Company will determine in the fourth quarter of each year
F-39
whether and, if so, to what extent, discretionary profit sharing contributions would be made for the
following year. For 2010, the Company made discretionary profit sharing contributions to the Savings Plan
of approximately $6.0 million (of which $4.5 million was paid in 2010 and $1.5 million was paid in January
2011), or 5% of eligible compensation, which was credited on a quarterly basis. In December 2010, the
Company determined that the discretionary profit sharing contribution during 2011 would be 3% of eligible
compensation, to be credited on a quarterly basis. (The savings plan amendments described above in this
Note 14 are hereinafter referred to as the “May 2009 Savings Plan Amendments”).
Pension Benefits:
The Company sponsors three qualified defined benefit pension plans covering a substantial portion of
the Company’s employees in the U.S. The Company also has non-qualified 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 non-
qualified plans are funded from the general assets of the Company.
In May 2009, and effective December 31, 2009, Products Corporation amended its U.S. qualified
defined benefit pension plan (the Revlon Employees’ Retirement Plan), covering a substantial portion of
the Company’s employees in the U.S., to cease future benefit accruals under such plan after December 31,
2009. Products Corporation also amended its non-qualified pension plan (the Revlon Pension Equalization
Plan) to similarly cease future benefit accruals under such plan after December 31, 2009. In connection with
such amendments, no additional benefits have accrued since December 31, 2009, other than interest credits
on participant account balances under the cash balance program of the Company’s U.S. pension plans. Also,
service credits for vesting and early retirement eligibility will continue to accrue in accordance with the
terms of the respective plans. (The plan amendments described above in this Note 14 are hereinafter
referred to as the “May 2009 Pension Plan Amendments” and, together with the May 2009 Savings Plan
Amendments, as the “May 2009 Plan Amendments”).
In 2009, the Company recorded an $8.6 million decrease in its pension liabilities which was offset
against accumulated other comprehensive income (loss) as a result of the pension curtailment and the re-
measurement of the pension liabilities performed in connection with the May 2009 Pension Plan Amend-
ments and the May 2009 Program (as defined in Note 3, “Restructuring Costs and Other, Net”). The net
decrease in pension liabilities was comprised of a non-cash curtailment gain of approximately $9.2 million
which was recorded as an offset against the net actuarial losses previously reported within Accumulated
Other Comprehensive Loss, partially offset by a net increase in pension liabilities of $0.6 million as a result
of the re-measurements noted above.
Effective December 31, 2010, Products Corporation amended its Canadian defined benefit pension
plan (the Affiliated Revlon Companies Employment Plan) to cease future benefit accruals under such plan
after December 31, 2010. In connection with such amendment, in 2010, the Company recorded a
$1.1 million decrease in its pension liabilities, which was comprised of a non-cash curtailment gain of
$1.1 million recorded as an offset against the net actuarial losses previously reported within Accumulated
Other Comprehensive Loss.
Other Post-retirement Benefits:
The Company previously sponsored an unfunded retiree benefit plan, which provides death benefits
payable to beneficiaries of a very limited number of former employees. Participation in this plan was limited
to participants enrolled as of December 31, 1993. The Company also administers an unfunded medical
insurance plan on behalf of Revlon Holdings LLC, certain costs of which have been apportioned to Revlon
Holdings under the transfer agreements among Revlon, Inc., Products Corporation and MacAndrews &
Forbes. (See Note 18, “Related Party Transactions — Transfer Agreements”).
F-40
The following table provides an aggregate reconciliation of the projected benefit obligations, plan
assets, funded status and amounts recognized in the Company’s Consolidated Financial Statements related
to the Company’s significant pension and other post-retirement plans.
Pension Plans
Other
Post-retirement
Benefit Plans
2010
2009
2010
2009
Change in Benefit Obligation:
Benefit obligation — beginning of year . . . . . . . . . . . . . . . . . . .
Service cost. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Plan amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Actuarial loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Curtailment gain. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Settlement gain. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Currency translation adjustments . . . . . . . . . . . . . . . . . . . . . . . .
Plan participant contributions . . . . . . . . . . . . . . . . . . . . . . . . . .
$(614.5)
(1.5)
(33.8)
—
(31.3)
1.5
—
36.4
1.1
(0.2)
$(560.1)
(7.6)
(34.8)
(0.2)
(55.0)
9.2
0.5
38.2
(4.5)
(0.2)
$(14.8)
—
(0.9)
—
(1.1)
—
—
0.9
(0.2)
—
$(13.2)
—
(0.9)
—
(1.3)
—
—
1.0
(0.4)
—
Benefit obligation — end of year . . . . . . . . . . . . . . . . . . . . . . . .
$(642.3)
$(614.5)
$(16.1)
$(14.8)
Change in Plan Assets:
Fair value of plan assets — beginning of year . . . . . . . . . . . . . .
Actual return on plan assets. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employer contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Plan participant contributions . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Settlement gain. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Currency translation adjustments . . . . . . . . . . . . . . . . . . . . . . . .
$ 405.6
56.0
24.9
0.2
(36.4)
—
(0.8)
$ 342.3
74.6
23.3
0.2
(38.2)
(0.5)
3.9
$ — $ —
—
1.0
—
(1.0)
—
—
—
0.9
—
(0.9)
—
—
Fair value of plan assets — end of year . . . . . . . . . . . . . . . . . . .
$ 449.5
$ 405.6
$ — $ —
Unfunded status of plans at December 31, . . . . . . . . . . . . . . . . . .
$(192.8)
$(208.9)
$(16.1)
$(14.8)
In respect of the Company’s pension plans and other post-retirement benefit plans, amounts recog-
nized in the Company’s Consolidated Balance Sheets at December 31, 2010 and 2009, respectively, consist
of the following:
Pension Plans
Other
Post-retirement
Benefit Plans
2010
December 31,
2009
2010
2009
Accrued expenses and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension and other post-retirement benefit liabilities . . . . . . . . . . .
$
(6.4)
(186.4)
$ (6.2)
(202.7)
$ (1.0)
(15.1)
$ (1.2)
(13.6)
Accumulated other comprehensive loss. . . . . . . . . . . . . . . . . . . . .
(192.8)
180.1
(208.9)
179.3
(16.1)
4.1
(14.8)
3.3
$ (12.7)
$ (29.6)
$(12.0)
$(11.5)
With respect to the above accrued net periodic benefit costs, the Company has recorded receivables
from affiliates of $2.9 million and $2.8 million at December 31, 2010 and 2009, respectively, relating to
pension plan liabilities retained by such affiliates.
F-41
The projected benefit obligation, accumulated benefit obligation, and fair value of plan assets for the
Company’s pension plans are as follows:
December 31,
2010
2009
Projected benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value of plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$642.3
640.6
449.5
$614.5
611.2
405.6
Net Periodic Benefit Cost:
During 2010, the Company recognized $18.0 million of lower net periodic benefit cost driven primarily
by the impact of the May 2009 Plan Amendments which ceased future benefit accruals under the Revlon
Employees’ Retirement Plan and the Revlon Pension Equalization Plan after December 31, 2009 and
which resulted in a change in the amortization period of actuarial gains (losses) from the remaining service
period to the remaining life expectancy of plan participants.
The net periodic benefit cost for the year ended December 31, 2009 includes a non-cash curtailment
gain of $0.8 million related to the recognition of previously unrecognized prior service costs that had been
reported in accumulated other comprehensive loss in the second quarter of 2009.
The components of net periodic benefit cost for the pension plans and other post-retirement benefit
plans are as follows:
Pension Plans
Other
Post-retirement
Benefit Plans
Years Ended December 31,
2010
2009
2008
2010
2009
2008
Net periodic benefit cost:
Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected return on plan assets . . . . . . . . . . . . . . . . .
Amortization of prior service credit. . . . . . . . . . . . . .
Amortization of actuarial loss . . . . . . . . . . . . . . . . . .
Curtailment gain. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Portion allocated to Revlon Holdings LLC . . . . . . . .
$ 1.5
33.8
(32.1)
0.1
5.1
—
8.4
(0.1)
$ 7.6
34.8
(27.8)
(0.1)
12.8
(0.8)
26.5
(0.1)
$ 8.3
34.5
(37.2)
(0.4)
1.3
—
$ — $ — $ —
0.8
—
—
0.2
—
0.9
—
—
0.2
—
0.9
—
—
0.1
—
6.5
(0.1)
1.1
(0.1)
1.0
1.0
(0.1) —
Amounts recognized in accumulated other comprehensive loss at December 31, 2010 in respect of the
Company’s pension plans and other post-retirement plans, which have not yet been recognized as a
component of net periodic pension cost, are as follows:
$ 8.3
$ 26.4
$ 6.4
$ 1.0
$ 0.9
$1.0
Net actuarial loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prior service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Portion allocated to Revlon Holdings LLC . . . . . . . . . . . . . . . .
$179.9
0.2
180.1
(0.7)
$179.4
Pension Benefits
Post-retirement
Benefits
$ 4.1
—
4.1
(0.1)
Total
$184.0
0.2
184.2
(0.8)
$ 4.0
$183.4
The total actuarial losses and prior service costs in respect of the Company’s pension plans and other
post-retirement plans included in accumulated other comprehensive loss at December 31, 2010 and
F-42
expected to be recognized in net periodic pension cost during the fiscal year ended December 31, 2011 is
$5.2 million and $0.3 million, respectively.
Pension Plan Assumptions:
The following weighted-average assumptions were used to determine the Company’s projected benefit
obligation of the Company’s U.S. and International pension plans at the end of the respective year:
U.S. Plans
International
Plans
2010
2009
2010
2009
Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rate of future compensation increases . . . . . . . . . . . . . . . . . . . . . .
5.17% 5.68% 5.32% 5.63%
3.50
3.50
4.39
3.53
The following weighted-average assumptions were used to determine the Company’s net periodic
benefit cost of the Company’s U.S. and International pension plans during the respective year:
U.S. Plans
2009
2010
2008
International Plans
2009
2008
2010
Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected long-term return on plan assets. . . . .
Rate of future compensation increases . . . . . . .
5.68% 6.35% 6.24% 5.63% 6.40% 5.70%
8.25
3.50
8.25
4.00
6.90
4.30
8.25
4.00
6.50
4.39
6.50
4.00
The 5.17% weighted-average discount rate used to determine the Company’s projected benefit
obligation of the Company’s U.S. plans at the end of 2010 was derived by reference to appropriate
benchmark yields on high quality corporate bonds, with terms which approximate the duration of the
benefit payments and the relevant benchmark bond indices considering the individual plan’s characteristics,
such as the Citigroup Pension Discount Curve, to select a rate at which the Company believes the
U.S. pension benefits could have been effectively settled. The discount rates used to determine the
Company’s projected benefit obligation of the Company’s primary international plans at the end of
2010 were derived from similar local studies, in conjunction with local actuarial consultants and asset
managers.
During the first quarter of each year, the Company selects an expected long-term rate of return on its
pension plan assets. The Company considers a number of factors to determine its expected long-term rate of
return on plan assets assumption, including, without limitation, recent and historical performance of plan
assets, asset allocation and other third-party studies and surveys. The Company considered the pension plan
portfolios’ asset allocations over a variety of time periods and compared them with third-party studies and
reviewed the performance of the capital markets in recent years and other factors and advice from various
third parties, such as the pension plans’ advisors, investment managers and actuaries. While the Company
considered both the recent performance and the historical performance of pension plan assets, the
Company’s assumptions are based primarily on its estimates of long-term, prospective rates of return.
Using the aforementioned methodologies, the Company selected the 8.25% long-term rate of return on
plan assets assumption used for the U.S pension plans during 2010. Differences between actual and
expected asset returns are recognized in the net periodic benefit cost over the remaining service period of
the active participating employees.
The rate of future compensation increases is an assumption used by the actuarial consultants for
pension accounting and is determined based on the Company’s current expectation for such increases.
Investment Policy:
The Investment Committee for the Company’s U.S. pension plans (the “Investment Committee”) has
adopted (and revises from time to time) an investment policy for the U.S. pension plans with the objective of
meeting or exceeding, over time, the expected long-term rate of return on plan assets assumption, weighed
against a reasonable risk level. In connection with this objective, the Investment Committee retains
professional investment managers that invest plan assets in the following asset classes: common and
F-43
preferred stock, mutual funds, fixed income securities, common and collective funds, hedge funds, group
annuity contracts and cash and other investments. The Company’s international plans follow a similar
methodology in conjunction with local actuarial consultants and asset managers.
The investment policy adopted by the Investment Committee provides for investments in a broad
range of publicly-traded securities, among other things. The investments are in domestic and international
stocks, ranging from small to large capitalization stocks, debt securities ranging from domestic and
international treasury issues, corporate debt securities, mortgages and asset-backed issues. Other invest-
ments may include cash and cash equivalents and hedge funds. The investment policy also allows for private
equity, not covered in investments described above, provided that such investment is approved by the
Investment Committee prior to their selection. Also global balanced strategies are utilized to provide for
investments in a broad range of publicly traded stocks and bonds in both domestic and international
markets as described above. In addition, the global balanced strategies can include commodities, provided
that such investments are approved by the Investment Committee prior to their selection.
The Investment Committee’s investment policy does not allow the use of derivatives for speculative
purposes, but such policy does allow its investment managers to use derivatives for the purpose of reducing
risk exposures or to replicate exposures of a particular asset class.
The Company’s U.S. and international pension plans currently have the following target ranges for
these asset classes, which target ranges are intended to be flexible guidelines for allocating the plans’ assets
among various classes of assets, and are reviewed periodically and considered for readjustment when an
asset class weighting is outside of its target range (recognizing that these are flexible target ranges that may
vary from time to time) with the objective of achieving the expected long-term rate of return on plan assets
assumption, weighed against a reasonable risk level, as follows:
Target Ranges
U.S. Plans
International Plans
Asset Class:
Common and preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0% - 10%
Mutual funds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20% - 30%
Fixed income securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20% - 30%
Common and collective funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25% - 35%
0% - 15%
Hedge funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0% - 5%
Group annuity contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0% - 10%
Cash and other investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0%
0%
0%
0% - 100%
0%
0%
0%
Fair Value of Pension Plan Assets:
The following table presents information on the fair value of the U.S. and international pension plan
assets at December 31, 2010 and 2009, respectively:
U.S. Plans
International
Plans
2010
2009
2010
2009
Fair value of plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$403.2
$364.1
$46.3
$41.5
The Company determines the fair values of the Company’s U.S. and international pension plan assets
as follows:
• Common and preferred stock: The fair values of the investments included in the common and
preferred stock asset class generally reflect the closing price reported on the major market where the
individual securities are traded. The Company classifies common and preferred stock investments
primarily within Level 1 of the valuation hierarchy.
• Mutual funds: The fair values of the investments included in the mutual funds asset class are
determined using net asset value (“NAV”) provided by the administrator of the funds. The NAV is
F-44
based on the closing price reported on the major market where the individual securities are traded.
The Company classifies mutual fund investments primarily within Level 1 of the valuation hierarchy.
• Fixed income securities: The fair values of the investments included in the fixed income securities
asset class are based on a compilation of primarily observable market information and/or broker
quotes. The Company classifies fixed income securities investments primarily within Level 2 of the
valuation hierarchy.
• Common and collective funds: The fair values of the investments included in the common and
collective funds asset class are determined using NAV provided by the administrator of the funds.
The NAV is based on the value of the underlying assets owned by the trust, minus its liabilities, and
then divided by the number of shares outstanding. The Company classifies common and collective
fund investments primarily within Level 2 of the valuation hierarchy.
• Hedge funds: The hedge fund asset class includes hedge funds that primarily invest in a grouping of
equities, fixed income instruments, currencies, derivatives and/or commodities. The fair value of
investments included in the hedge funds class are determined using NAV provided by the admin-
istrator of the funds. The NAV is based on securities listed or quoted on a national securities
exchange or market, or traded in the over-the-counter market, and is valued at the closing quotation
posted by that exchange or trading system. Securities not listed or quoted on a national securities
exchange or market are valued primarily through observable market information or broker quotes.
The hedge fund investments generally can be sold on a quarterly or monthly basis and may employ
leverage. The Company classifies hedge fund investments primarily within Level 2 and Level 3 of the
valuation hierarchy.
• Group annuity contract: The group annuity contract asset class primarily invests in equities,
corporate bonds and government bonds. The fair value of securities listed or quoted on a national
securities exchange or market, or traded in the over-the-counter market, are valued at the closing
quotation posted by that exchange or trading system. Securities not listed or quoted on a national
securities exchange or market are valued primarily through observable market information or
broker quotes. The Company classifies group annuity contract investments primarily within Level 2
of the valuation hierarchy.
F-45
The fair values of the U.S. and International pension plan assets at December 31, 2010, by asset
categories were as follows:
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
Significant
Observable Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
Common and Preferred Stock:
U.S. small/mid cap equity . . . . . . . . . . . . .
$ 20.4
$ 20.4
$ —
$ —
Mutual Funds(a):
Corporate bonds . . . . . . . . . . . . . . . . . . . .
Government bonds . . . . . . . . . . . . . . . . . .
U.S. large cap equity . . . . . . . . . . . . . . . . .
International equities . . . . . . . . . . . . . . . .
Emerging markets international equity . .
Cash and cash equivalents . . . . . . . . . . . .
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fixed Income Securities:
Corporate bonds . . . . . . . . . . . . . . . . . . . .
Government bonds . . . . . . . . . . . . . . . . . .
Common and Collective Funds(a) :
Corporate bonds . . . . . . . . . . . . . . . . . . . .
Government bonds . . . . . . . . . . . . . . . . . .
U.S. large cap equity . . . . . . . . . . . . . . . . .
U.S. small/mid cap equity . . . . . . . . . . . . .
International equities . . . . . . . . . . . . . . . .
Emerging markets international equity . .
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Hedge Funds(a):
Government bonds . . . . . . . . . . . . . . . . . .
U.S. large cap equity . . . . . . . . . . . . . . . . .
U.S. small/mid cap equity . . . . . . . . . . . . .
International equities . . . . . . . . . . . . . . . .
Foreign exchange contracts. . . . . . . . . . . .
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Group Annuity Contract . . . . . . . . . . . . . . .
Cash and Cash Equivalents . . . . . . . . . . . . .
Fair value of plan assets at December 31,
23.1
2.8
64.9
0.8
2.8
4.9
2.8
84.3
12.7
32.8
19.6
16.9
17.4
65.1
18.8
1.8
(2.8)
6.9
5.4
5.0
23.7
6.8
2.1
10.5
23.1
2.8
64.9
0.8
2.8
4.9
2.8
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
10.5
—
—
—
—
—
—
—
84.2
12.7
32.8
19.6
16.9
17.4
65.1
18.8
1.8
(2.8)
2.5
—
1.9
23.7
6.3
2.1
—
—
—
—
—
—
—
—
0.1
—
—
—
—
—
—
—
—
—
4.4
5.4
3.1
—
0.5
—
—
2010. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$449.5
$133.0
$303.0
$13.5
(a) The investments in mutual funds, common and collective funds and hedge funds are disclosed above within the
respective underlying investments’ class (i.e., various equities, corporate bonds, government bonds, etc.) while the
fair value hierarchy levels of the investments are based on the Company’s direct ownership unit of account.
F-46
The fair values of the U.S. and International pension plan assets at December 31, 2009, by asset
categories were as follows:
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
Significant
Observable Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
Common and Preferred Stock:
U.S. small/mid cap equity . . . . . . . . . . . . .
$ 16.3
$ 16.3
$ —
$ —
Mutual Funds(a):
Corporate bonds . . . . . . . . . . . . . . . . . . . .
Government bonds . . . . . . . . . . . . . . . . . .
U.S. large cap equity . . . . . . . . . . . . . . . . .
International equities . . . . . . . . . . . . . . . .
Cash and cash equivalents . . . . . . . . . . . .
Other(a) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fixed Income Securities:
Corporate bonds . . . . . . . . . . . . . . . . . . . .
Government bonds . . . . . . . . . . . . . . . . . .
Common and Collective Funds(a):
Hedge Funds(a):
Corporate bonds . . . . . . . . . . . . . . . . . . . .
Government bonds . . . . . . . . . . . . . . . . . .
U.S. large cap equity . . . . . . . . . . . . . . . . .
U.S. small/mid cap equity . . . . . . . . . . . . .
International equities . . . . . . . . . . . . . . . .
Emerging markets international equity . .
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . .
Government bonds . . . . . . . . . . . . . . . . . .
U.S. large cap equity . . . . . . . . . . . . . . . . .
U.S. small/mid cap equity . . . . . . . . . . . . .
International equities . . . . . . . . . . . . . . . .
Foreign exchange contracts. . . . . . . . . . . .
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Group Annuity Contract . . . . . . . . . . . . . . .
Cash and Cash Equivalents . . . . . . . . . . . . .
Fair value of plan assets at December 31,
14.5
19.5
52.0
1.3
2.5
2.6
76.6
10.3
32.8
17.5
12.6
13.0
60.8
11.1
1.2
10.3
5.4
5.7
3.4
12.6
2.4
2.0
19.2
14.5
19.5
52.0
1.3
2.5
2.6
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
19.2
—
—
—
—
—
—
76.6
10.3
32.8
17.5
12.6
13.0
60.8
11.1
1.2
10.3
0.8
—
0.5
12.6
2.1
2.0
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
4.6
5.7
2.9
—
0.3
—
—
2009. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$405.6
$127.9
$264.2
$13.5
(a) The investments in mutual funds, common and collective funds and hedge funds are disclosed above within the
respective underlying investments’ class (i.e., various equities, corporate bonds, government bonds, etc.) while the
levels of the investments are based on the Company’s direct ownership unit of account.
F-47
The following table sets forth a summary of changes in the fair values of the U.S. and International
pension plans’ Level 3 assets at December 31, 2010:
Total
Fixed Income
Securities
Hedge Funds
Balance, January 1, 2009. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $12.4
1.1
Actual return on plan assets still held at end of year . . . . . . . . . . .
Balance, December 31,2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Actual return on plan assets still held at end of year . . . . . . . . . . .
Purchases, sales, and settlements. . . . . . . . . . . . . . . . . . . . . . . . . . .
13.5
(0.1)
0.1
$ —
—
—
—
0.1
Balance, December 31, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $13.5
$0.1
$12.4
1.1
13.5
(0.1)
—
$13.4
Contributions:
The Company’s intent is to fund at least the minimum contributions required to meet applicable
federal employee benefit and local laws, or to directly pay benefit payments where appropriate. During
2010, the Company contributed $24.9 million to its pension plans and $0.9 million to its other post-
retirement benefit plans. During 2011, the Company expects to contribute approximately $30 million to its
pension and other post-retirement benefit plans.
Estimated Future Benefit Payments:
The following benefit payments, which reflect expected future service, as appropriate, are expected to
be paid out of the Company’s pension and other post-retirement benefit plans:
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Years 2016 to 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total
Pension
Benefits
$ 38.6
40.0
40.8
41.6
42.0
219.9
Total
Other
Benefits
$1.2
1.3
1.3
1.4
1.3
6.7
F-48
15. STOCKHOLDERS’ EQUITY
Information about the Company’s common and treasury stock issued and/or outstanding is as follows:
Balance, January 1, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock issuances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted stock grants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cancellation of restricted stock . . . . . . . . . . . . . . . . . . . . . . .
Withholding of restricted stock to satisfy taxes . . . . . . . . . . .
Balance, December 31, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock issuances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted stock grants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cancellation of restricted stock . . . . . . . . . . . . . . . . . . . . . . .
Withholding of restricted stock to satisfy taxes . . . . . . . . . . .
Balance, December 31, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock issuances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted stock grants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cancellation of restricted stock . . . . . . . . . . . . . . . . . . . . . . .
Withholding of restricted stock to satisfy taxes . . . . . . . . . . .
Common Stock
Class A
Class B
49,292,340
—
939,925
(81,910)
—
50,150,355
—
33,500
(162,792)
—
50,021,063
—
—
(20,566)
—
3,125,000
—
—
—
—
3,125,000
—
—
—
—
3,125,000
—
—
—
—
Balance, December 31, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . .
50,000,497
3,125,000
Treasury
Stock
130,579
—
—
—
125,874
256,453
—
—
—
129,224
385,677
—
—
—
147,161
532,838
Common Stock
As of December 31, 2010, the Company’s authorized common stock consisted of 900 million shares of
Class A Common Stock and 200 million shares of Class B common stock, par value $0.01 per share
(“Class B Common Stock” and together with the Class A Common Stock, the “Common Stock”). In
October 2009, Revlon, Inc, amended its certificate of incorporation to (1) clarify that the provision
requiring that holders of its Class A Common Stock and holders of its Class B Common Stock receive the
same consideration in certain business combinations shall only apply in connection with transactions
involving third parties and (2) increase the number of Revlon, Inc.’s authorized shares of preferred stock
from 20 million to 50 million and, accordingly, to increase the number of Revlon, Inc.’s authorized shares of
capital stock from 1,120,000,000 to 1,150,000,000. The holders of Class A Common Stock and Class B
Common Stock vote as a single class on all matters, except as otherwise required by law, with each share of
Class A Common Stock entitling its holder to one vote and each share of the Class B Common Stock
entitling its holder to ten votes. All of the shares of Class B Common Stock are owned by REV Holdings
LLC, a wholly-owned subsidiary of MacAndrews & Forbes. The holders of the Company’s two classes of
Common Stock are entitled to share equally in the earnings of the Company from dividends, when and if
declared by Revlon, Inc.’s Board of Directors. Each outstanding share of Class B Common Stock is
convertible into one share of Class A Common Stock.
On October 8, 2009, Revlon, Inc. consummated the Exchange Offer in which each issued and
outstanding share of Revlon, Inc.’s Class A Common Stock was exchangeable on a one-for-one basis
for the Preferred Stock. Revlon, Inc. issued to stockholders (other than MacAndrews & Forbes and its
affiliates) 9,336,905 shares of Preferred Stock in exchange for the same number of shares of Class A
Common Stock tendered for exchange in the Exchange Offer. The Class A Common Stock tendered in the
Exchange Offer represented approximately 46% of the shares of Class A Common Stock held by
stockholders other than MacAndrews & Forbes and its affiliates. Each share of Preferred Stock has the
same voting rights as a share of Class A Common Stock, except with respect to certain mergers. In
connection with consummating the Exchange Offer, Revlon, Inc. issued to MacAndrews & Forbes
F-49
9,336,905 shares of Class A Common Stock at a ratio of one share of Class A Common Stock for each $5.21
of outstanding principal amount of the Senior Subordinated Term Loan contributed to Revlon. (See Note 9,
“Long-Term Debt and Redeemable Preferred Stock”).
In September 2008, Revlon, Inc. effected a 1-for-10 reverse stock split (the “Reverse Stock Split”) of
Revlon, Inc.’s Class A and Class B Common Stock. As a result of the Reverse Stock Split, each ten shares of
Revlon, Inc.’s Class A and Class B Common Stock issued and outstanding immediately prior to 11:59 p.m.
on September 15, 2008 were automatically combined into one share of Class A Common Stock and Class B
Common Stock, respectively.
As of December 31, 2010, MacAndrews & Forbes beneficially owned approximately 77% of Revlon,
Inc.’s Class A Common Stock, 100% of Revlon, Inc.’s Class B Common Stock, together representing
approximately 78% of Revlon, Inc.’s outstanding shares of Common Stock (representing approximately
77% of the combined voting power of Revlon’s Class A and Class B common stock and Revlon’s Preferred
Stock), and beneficially owned approximately 66% of the combined Revlon Class A Common Stock,
Class B Common Stock and Preferred Stock. As filed by Fidelity with the SEC on November 10, 2009 and
reporting, as of November 9, 2009 on a Schedule 13G/A, Fidelity held nil shares of Class A Common Stock.
Subsequently, Fidelity advised the Company that, as of the April 8, 2010 record date for Revlon, Inc.’s 2010
Annual Stockholders’ Meeting, FMR (singly or together with other affiliates of Fidelity) owned
8,233,526 shares of Revlon, Inc.’s outstanding Class A common stock and Revlon, Inc.’s Series A preferred
stock, in the aggregate, representing approximately 9.2% of Revlon, Inc.’s issued and outstanding shares of
voting capital stock at such date.
Treasury Stock
Pursuant to the share withholding provisions of the Stock Plan (as hereinafter defined), during 2010,
certain employees and executives, in lieu of paying withholding taxes on the vesting of certain shares of
restricted stock, authorized the withholding of an aggregate 147,161 shares of Revlon, Inc. Class A Common
Stock to satisfy their minimum statutory tax withholding requirements related to such vesting events. These
shares were recorded as treasury stock using the cost method, at $17.01, $17.02 and $10.79 per share,
respectively, the NYSE closing price per share on the applicable vesting dates, for a total of approximately
$2.5 million.
Pursuant to the share withholding provisions of the Stock Plan, during 2009, certain employees and
executives, in lieu of paying withholding taxes on the vesting of certain shares of restricted stock, authorized
the withholding of an aggregate 129,224 shares of Revlon, Inc. Class A Common Stock to satisfy their
minimum statutory tax withholding requirements related to such vesting events. These shares were
recorded as treasury stock using the cost method, at $7.14, $5.21, $5.22 and $16.90 per share, respectively,
the NYSE closing price per share on the applicable vesting dates, for a total of approximately $1.1 million.
Pursuant to the share withholding provisions of the Stock Plan, during 2008, certain employees and
executives, in lieu of paying withholding taxes on the vesting of certain shares of restricted stock, authorized
the withholding of an aggregate 125,874 shares of Revlon, Inc. Class A Common Stock to satisfy their
minimum statutory tax withholding requirements related to such vesting events. These shares were
recorded as treasury stock using the cost method, at $11.70, $9.40, $8.00 and $8.27 per share, respectively,
the NYSE closing price per share on the applicable vesting dates (as adjusted for Revlon, Inc.’s September
2008 1-for-10 Reverse Stock Split), for a total of approximately $1.1 million.
16. STOCK COMPENSATION PLAN
Revlon, Inc. maintains the Third Amended and Restated Revlon, Inc. Stock Plan (the “Stock Plan”),
which provides for 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.
F-50
Stock options:
Non-qualified stock options granted under the Stock Plan are granted at prices that equal or exceed the
fair market value of Class A Common Stock on the grant date and have a term of 7 years (option grants
under the Stock Plan prior to June 4, 2004 have a term of 10 years). Option grants generally vest over service
periods that range from 1 year to 4 years.
Total net stock option compensation expense includes amounts attributable to the granting of, and the
remaining requisite service period of, stock options issued under the Stock Plan, which awards were
unvested at January 1, 2006 or granted on or after such date. Net stock option compensation expense for the
years ended December 31, 2010, 2009 and 2008 was nil, $0.2 million and $0.3 million, or nil, nil and $0.01 per
share, respectively, for both basic and diluted earnings per share. As of December 31, 2009, there was no
remaining unrecognized stock option compensation expense as all stock options were fully vested as of
December 31, 2009.
At December 31, 2010, 2009 and 2008 there were 987,886; 1,231,337; and 1,336,871 stock options
exercisable under the Stock Plan, respectively.
A summary of the status of stock option grants under the Stock Plan as of December 31, 2010, 2009 and
2008 and changes during the years then ended is presented below:
Stock Options
(000’s)
Weighted Average
Exercise Price
Outstanding at January 1, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited and expired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding at December 31, 2008. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited and expired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding at December 31, 2009. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited and expired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,168.1
—
—
(762.6)
1,405.5
—
—
(174.2)
1,231.3
—
—
(243.4)
Outstanding at December 31, 2010. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
987.9
$41.94
—
—
51.60
36.76
—
—
62.14
33.17
—
—
39.22
31.68
The following table summarizes information about the Stock Plan’s stock options outstanding at
December 31, 2010:
Range of
Exercise Prices
$23.10 to $30.00
30.01 to 37.60
37.61 to 72.60
23.10 to 72.60
Outstanding
Number of
Options
(000’s)
Weighted
Average
Years
Remaining
189.5
647.8
150.6
987.9
1.29
0.36
1.31
0.69
Weighted
Average
Exercise
Price
$25.58
30.39
44.90
31.68
Aggregate
Intrinsic
Value
Number of
Options
(000’s)
—
—
—
—
189.5
647.8
150.6
987.9
Exerciseable
Weighted
Average
Years
Remaining
1.29
0.36
1.31
0.69
Weighted
Average
Exercise
Price
$25.58
30.39
44.90
31.68
Restricted stock awards and restricted stock units:
The Stock Plan allows for awards of restricted stock and restricted stock units to employees and
directors of Revlon, Inc. and its affiliates, including Products Corporation. The restricted stock awards
F-51
granted under the Stock Plan vest over service periods that generally range from 1.5 years to 3 years. There
were no restricted stock awards granted in 2010. In 2009 and 2008, Revlon, Inc. granted 33,500 and
939,925 shares, respectively, of restricted stock and restricted stock units under the Stock Plan with
weighted average fair values, based on the market price of Class A Common Stock on the dates of grant,
of $4.39 and $7.22, respectively. At December 31, 2010 and 2009, there were 690,689 and 1,141,428 shares,
respectively, of restricted stock and restricted stock units outstanding and unvested under the Stock Plan.
A summary of the status of grants of restricted stock and restricted stock units under the Stock Plan as
of December 31, 2010, 2009 and 2008 and changes during the years then ended is presented below:
Outstanding at January 1, 2008. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding at December 31, 2008. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding at December 31, 2009. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted
Stock
(000’s)
1,164.8
939.9
(379.4)
(81.6)
1,643.7
33.5
(373.0)
(162.8)
1,141.4
—
(430.2)
(20.5)
Outstanding at December 31, 2010. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
690.7
Weighted
Average
Grant Date
Fair
Value
$13.45
7.22
14.47
13.46
9.65
4.39
13.13
8.83
8.48
—
8.94
8.13
8.20
(a) Of the amounts vested during 2010, 2009 and 2008, 147,161; 129,224; and 125,874 shares, respectively, were
withheld by the Company to satisfy certain grantees’ minimum withholding tax requirements, which withheld
shares became Revlon, Inc. treasury stock and are not sold on the open market. (See discussion under “Treasury
Stock” in Note 15, “Stockholders’ Equity”).
The Company recognizes non-cash compensation expense related to restricted stock awards and
restricted stock units under the Stock Plan using the straight-line method over the remaining service period.
The Company recorded compensation expense related to restricted stock awards under the Stock Plan of
$3.6 million, $5.4 million and $6.5 million during 2010, 2009 and 2008, respectively. The deferred stock-
based compensation related to restricted stock awards is $2.2 million and $5.9 million at December 31, 2010
and 2009, respectively. The deferred stock-based compensation related to restricted stock awards is
expected to be recognized over a weighted-average period of 0.94 years. The total fair value of restricted
stock and restricted stock units that vested during the years ended December 31, 2010 and 2009 was
$7.2 million and $4.9 million, respectively.
F-52
17. ACCUMULATED OTHER COMPREHENSIVE LOSS
The components of accumulated other comprehensive loss during 2010, 2009 and 2008, respectively,
are as follows:
Balance January 1, 2008 . . . . . . . . .
Unrealized losses(a) . . . . . . . . . . . . .
Reclassifications into net
income(a) . . . . . . . . . . . . . . . . . . .
Elimination of currency translation
adjustment related to Bozzano
Sale Transaction. . . . . . . . . . . . . .
Amortization of pension related
costs(b) . . . . . . . . . . . . . . . . . . . . .
Pension re-measurement . . . . . . . . .
Balance December 31, 2008 . . . . . .
Unrealized gains (losses)(c) . . . . . . .
Reclassifications into net
income(c) . . . . . . . . . . . . . . . . . . .
Amortization of pension related
costs (b)(d) . . . . . . . . . . . . . . . . . . .
Pension re-measurement(e) . . . . . . .
Pension curtailment gain(e) . . . . . . .
Balance December 31, 2009 . . . . . .
Unrealized gains (losses). . . . . . . . .
Reclassifications into net
income(f) . . . . . . . . . . . . . . . . . . .
Amortization of pension related
costs(b) . . . . . . . . . . . . . . . . . . . . .
Pension re-measurement . . . . . . . . .
Pension curtailment gain(g) . . . . . . .
Foreign
Currency
Translation
$(13.2)
(8.2)
Actuarial (Loss)
Gain on
Post-retirement
Benefits
Prior Service
Cost
on Post-
retirement
Benefits
$ (74.9)
—
$ 1.5
—
Deferred
Loss-
Hedging
$(2.1)
(5.3)
Accumulated
Other
Comprehensive
Loss
$ (88.7)
(13.5)
—
37.3
—
—
15.9
9.8
—
—
—
—
25.7
7.4
—
—
—
—
—
—
1.5
(121.0)
(194.4)
—
—
12.9
(9.3)
9.2
(181.6)
—
—
5.3
(8.4)
1.5
—
—
(0.4)
(0.3)
0.8
—
—
(0.9)
(0.2)
—
(0.3)
—
—
0.1
—
—
2.0
—
—
—
(5.4)
(1.3)
5.0
—
—
—
(1.7)
—
1.7
—
—
—
2.0
37.3
1.1
(121.3)
(183.1)
8.5
5.0
12.0
(9.5)
9.2
(157.9)
7.4
1.7
5.4
(8.4)
1.5
Balance December 31, 2010 . . . . . .
$ 33.1
$(183.2)
$(0.2)
$ —
$(150.3)
(a) Amounts related to “Deferred Loss — Hedging” represent (1) net unrealized losses of $5.3 million on
the Interest Rate Swaps (see Note 11, “Financial Instruments”) and (2) the reversal of amounts
recorded in Accumulated Other Comprehensive Loss pertaining to net settlement receipts of $0.2 mil-
lion and net settlement payments of $2.2 million on the Interest Rate Swaps.
(b) Amounts represent the change in Accumulated Other Comprehensive Loss as a result of the amor-
tization of unrecognized prior service costs and actuarial losses (gains) arising during 2008, 2009 and
2010 related to the Company’s pension and other post-retirement plans. (See Note 14, “Savings Plan,
Pension and Post-retirement Benefits”).
(c) Amounts related to “Deferred Loss — Hedging” represent (1) the change in net unrealized losses of
$1.3 million on the Interest Rate Swaps (see Note 11,“Financial Instruments”) and (2) the reversal of
amounts recorded in Accumulated Other Comprehensive Loss pertaining to net settlement receipts of
$0.8 million and net settlement payments of $5.8 million on the Interest Rate Swaps.
F-53
(d) The amortization of pension related costs of $12.0 million recorded in Accumulated Other Compre-
hensive Loss includes a non-cash curtailment gain of $0.8 million recognized in earnings related to the
recognition of previously unrecognized prior service costs resulting from the May 2009 Pension Plan
Amendments.
(e) The $9.5 million increase in pension liabilities recorded within Accumulated Other Comprehensive
Loss is the result of the re-measurement of the pension liabilities, primarily in connection with the May
2009 Pension Plan Amendments and the May 2009 Program. In connection with the May 2009 Pension
Plan Amendments, the Company also recognized a curtailment gain of $9.2 million, which reduced its
pension liability and was recorded as an offset against the net actuarial losses previously reported within
Accumulated Other Comprehensive Loss. (See Note 14, “Savings Plan, Pension and Post-retirement
Benefits”).
(f) Amounts related to “Deferred Loss — Hedging” represent (1) the reclassification of an unrecognized
loss of $0.8 million on the 2008 Interest Rate Swap prior to its expiration in April 2010 from
Accumulated Other Comprehensive Loss into earnings due to the discontinuance of hedge accounting
as a result of the 2010 Refinancing (see Note 9,“Long-Term Debt and Redeemable Preferred Stock”)
and (2) the reversal of amounts recorded in Accumulated Other Comprehensive Loss pertaining to the
net settlement payment of $0.9 million on the 2008 Interest Rate Swap.
(g) The Company recognized a $1.5 million curtailment gain, primarily in connection with the amendments
to its Canadian defined benefit pension plan in 2010, which reduced pension liability and was recorded
as an offset against the net actuarial losses previously reported within Accumulated Other Compre-
hensive Loss. (See Note 14, “Savings Plan, Pension and Post-retirement Benefits”).
18. RELATED PARTY TRANSACTIONS
As of December 31, 2010, MacAndrews & Forbes beneficially owned shares of Revlon, Inc.’s Class A
Common Stock and Class B Common Stock having approximately 77% of the combined voting power of all
of Revlon, Inc.’s outstanding shares of Common Stock and Preferred Stock. As a result, MacAndrews &
Forbes is able to elect Revlon, Inc.’s entire Board of Directors and control the vote on all matters submitted
to a vote of Revlon, Inc.’s stockholders. MacAndrews & Forbes is wholly-owned by Ronald O. Perelman,
Chairman of Revlon, Inc.’s Board of Directors.
Transfer Agreements
In June 1992, Revlon, Inc. and Products Corporation entered into an asset transfer agreement with
Revlon Holdings LLC, a Delaware limited liability company and formerly a Delaware corporation known
as Revlon Holdings Inc. (“Revlon Holdings”), and which is an affiliate and an indirect wholly-owned
subsidiary of MacAndrews & Forbes, and certain of Revlon Holdings’ wholly-owned subsidiaries. Revlon,
Inc. and Products Corporation also entered into a real property asset transfer agreement with Revlon
Holdings. Pursuant to such agreements, on June 24, 1992 Revlon Holdings transferred assets to Products
Corporation and Products Corporation assumed all of the liabilities of Revlon Holdings, other than certain
specifically excluded assets and liabilities (the liabilities excluded are referred to as the “Excluded
Liabilities”). Certain consumer products lines sold in demonstrator-assisted distribution channels consid-
ered not integral to the Company’s business and that historically had not been profitable and certain other
assets and liabilities were retained by Revlon Holdings. Revlon Holdings agreed to indemnify Revlon, Inc.
and Products Corporation against losses arising from the Excluded Liabilities, and Revlon, Inc. and
Products Corporation agreed to indemnify Revlon Holdings against losses arising from the liabilities
assumed by Products Corporation. The amounts reimbursed by Revlon Holdings to Products Corporation
for the Excluded Liabilities was $0.3 million for each of 2010, 2009 and 2008.
Reimbursement Agreements
Revlon, Inc., Products Corporation and MacAndrews & Forbes Inc. (a wholly-owned subsidiary of
MacAndrews & Forbes Holdings) have entered into reimbursement agreements (the “Reimbursement
Agreements”) pursuant to which (i) MacAndrews & Forbes Inc. is obligated to provide (directly or through
F-54
affiliates) certain professional and administrative services, including, without limitation, employees, to
Revlon, Inc. and its subsidiaries, including, without limitation, Products Corporation, and purchase services
from third party providers, such as insurance, legal and accounting services and air transportation services,
on behalf of Revlon, Inc. and its subsidiaries, including Products Corporation, to the extent requested by
Products Corporation, and (ii) Products Corporation is obligated to provide certain professional and
administrative services, including, without limitation, employees, to MacAndrews & Forbes and purchase
services from third party providers, such as insurance, legal and accounting services, on behalf of
MacAndrews & Forbes to the extent requested by MacAndrews & Forbes, provided that in each case
the performance of such services does not cause an unreasonable burden to MacAndrews & Forbes or
Products Corporation, as the case may be.
Products Corporation reimburses MacAndrews & Forbes for the allocable costs of the services
purchased for or provided to Products Corporation and its subsidiaries and for the reasonable out-of-pocket
expenses incurred in connection with the provision of such services. MacAndrews & Forbes reimburses
Products Corporation for the allocable costs of the services purchased for or provided to MacAndrews &
Forbes and for the reasonable out-of-pocket expenses incurred in connection with the purchase or provision
of such services. Each of Revlon, Inc. and Products Corporation, on the one hand, and MacAndrews &
Forbes Inc., on the other, has agreed to indemnify the other party for losses arising out of the provision of
services by it under the Reimbursement Agreements, other than losses resulting from its willful misconduct
or gross negligence.
The Reimbursement Agreements may be terminated by either party on 90 days’ notice. Products
Corporation does not intend to request services under the Reimbursement Agreements unless their costs
would be at least as favorable to Products Corporation as could be obtained from unaffiliated third parties.
Revlon, Inc. and Products Corporation participate in MacAndrews & Forbes’ directors and officers
liability insurance program, which covers Revlon, Inc. and Products Corporation, as well as MacAndrews &
Forbes. The limits of coverage are available on an aggregate basis for losses to any or all of the participating
companies and their respective directors and officers. Revlon, Inc. and Products Corporation reimburse
MacAndrews & Forbes from time to time for their allocable portion of the premiums for such coverage or
they pay the insurers directly, which premiums the Company believes are more favorable than the
premiums the Company would pay were it to secure stand-alone coverage. Any amounts paid by Revlon,
Inc. and Products Corporation directly to MacAndrews & Forbes in respect of premiums are included in the
amounts paid under the Reimbursement Agreements. The net amounts reimbursable from (payable to)
MacAndrews & Forbes to (from) Products Corporation for the services provided under the Reimburse-
ment Agreements for 2010, 2009 and 2008 were $0.1 million, nil, and $(1.4) million (primarily in respect of
reimbursements for insurance premiums in 2008), respectively.
Tax Sharing Agreements
As a result of a debt-for-equity exchange transaction completed in March 2004 (the “2004 Revlon
Exchange Transactions”), as of March 25, 2004, Revlon, Inc., Products Corporation and their U.S. subsid-
iaries were no longer included in the MacAndrews & Forbes Group for U.S. federal income tax purposes.
See Note 12,“Income Taxes,” for further discussion on these agreements and related transactions in 2010,
2009 and 2008.
Registration Rights Agreement
Prior to the consummation of Revlon, Inc.’s initial public equity offering in February 1996, Revlon, Inc.
and Revlon Worldwide Corporation (which subsequently merged into REV Holdings), the then direct
parent of Revlon, Inc., entered into a registration rights agreement (the “Registration Rights Agreement”),
and in February 2003, MacAndrews & Forbes executed a joinder agreement to the Registration Rights
Agreement, pursuant to which REV Holdings, MacAndrews & Forbes and certain transferees of Revlon,
Inc.’s Common Stock held by REV Holdings (the “Holders”) had the right to require Revlon, Inc. to
register under the Securities Act all or part of the Class A Common Stock owned by such Holders, including,
F-55
without limitation, shares of Class A Common Stock purchased by MacAndrews & Forbes in connection
with the $50.0 million equity rights offering consummated by Revlon, Inc. in 2003 and shares of Class A
Common Stock issuable upon conversion of Revlon, Inc.’s Class B Common Stock owned by such Holders
(a “Demand Registration”). In connection with the closing of the 2004 Revlon Exchange Transactions and
pursuant to the 2004 Investment Agreement, MacAndrews & Forbes executed a joinder agreement that
provided that MacAndrews & Forbes would also be a Holder under the Registration Rights Agreement and
that all shares acquired by MacAndrews & Forbes pursuant to the 2004 Investment Agreement are deemed
to be registrable securities under the Registration Rights Agreement. This included all of the shares of
Class A Common Stock acquired by MacAndrews & Forbes in connection with Revlon, Inc.’s $110 million
rights offering of shares of its Class A Common Stock and related private placement to MacAndrews &
Forbes, which was consummated in March 2006, and Revlon, Inc.’s $100 million rights offering of shares of
its Class A Common Stock and related private placement to MacAndrews & Forbes, which was consum-
mated in January 2007.
Revlon, Inc. may postpone giving effect to a Demand Registration for a period of up to 30 days if
Revlon, Inc. believes such registration might have a material adverse effect on any plan or proposal by
Revlon, Inc. with respect to any financing, acquisition, recapitalization, reorganization or other material
transaction, or if Revlon, Inc. is in possession of material non-public information that, if publicly disclosed,
could result in a material disruption of a major corporate development or transaction then pending or in
progress or in other material adverse consequences to Revlon, Inc. In addition, the Holders have the right to
participate in registrations by Revlon, Inc. of its Class A Common Stock (a “Piggyback Registration”). The
Holders will pay all out-of-pocket expenses incurred in connection with any Demand Registration. Revlon,
Inc. will pay any expenses incurred in connection with a Piggyback Registration, except for underwriting
discounts, commissions and expenses attributable to the shares of Class A Common Stock sold by such
Holders.
Senior Subordinated Term Loan
For a description of transactions with MacAndrews & Forbes in 2009 in connection with the Senior
Subordinated Term Loan, including, without limitation, the extension of the maturity date and the change
in the annual interest rate on the Contributed Loan and the Non-Contributed Loan portions of the Senior
Subordinated Term Loan and other related transactions in connection with the closing of the 2009
Exchange Offer, see Note 9, “Long-Term Debt and Redeemable Preferred Stock — 2009 Transac-
tions — Exchange Offer and Extension of the Maturity of the Senior Subordinated Term Loan.”
Contribution and Stockholders Agreement
In connection with consummating the 2009 Exchange Offer, Revlon, Inc. and MacAndrews & Forbes
entered into a Contribution and Stockholder Agreement (as amended, the “Contribution and Stockholder
Agreement”), pursuant to which through October 8, 2013:
• During any period in which Revlon, Inc. may not be subject to the reporting requirements of
Section 13(a) or 15(d) of the Exchange Act, Revlon, Inc. will file or furnish, as appropriate, with the
SEC on a voluntary basis all periodic and other reports that are required of a company that is subject
to such reporting requirements;
• Revlon, Inc. will maintain a majority of independent directors on its Board of Directors, each of
whom meets the “independence” criteria as set forth in Section 303A.02 of the NYSE Listed
Company Manual; and
• Revlon, Inc. will not engage in any transaction with any affiliate, other than Revlon, Inc.’s subsid-
iaries, or with any legal or beneficial owner of 10% or more of the voting power of Revlon, Inc.’s
voting stock, unless (i) any such transaction or series of related transactions involving aggregate
payments or other consideration in excess of $5 million has been approved by all of Revlon, Inc.’s
independent directors and (ii) any such transaction or series of related transactions involving
aggregate payments or other consideration in excess of $20 million has been determined, in the
F-56
written opinion of a nationally recognized investment banking firm, to be fair, from a financial point
of view, to Revlon, Inc., and in each case subject to certain exceptions.
MacAndrews & Forbes agreed that it will not complete certain short-form mergers under Section 253
of the DGCL unless either (i) such transaction has been approved in advance by a majority of the
independent directors of Revlon, Inc.’s Board of Directors, as well as satisfying certain other conditions; or
(ii) the short-form merger is preceded by a “qualifying tender offer” (as defined in the Contribution and
Stockholder Agreement) for the shares of Class A Common Stock held by persons other than MacAn-
drews & Forbes, subject to certain other conditions. In any such merger, the holders of Preferred Stock
would retain their shares of Preferred Stock, or receive shares of preferred stock in the surviving
corporation of such merger with terms identical to, or no less favorable than, the terms of the Preferred
Stock (with, for the avoidance of doubt, the same terms as though issued on the date of original issuance of
the Preferred Stock).
Fidelity Stockholders Agreement
In connection with the 2004 Revlon Exchange Transactions, Revlon, Inc. and Fidelity Management &
Research Co. (“Fidelity”), a wholly-owned subsidiary of FMR LLC (“FMR”), entered into a stockholders
agreement (the “Fidelity Stockholders Agreement”) pursuant to which, among other things, (i) Revlon, Inc.
agreed to continue to maintain a majority of independent directors (as defined by NYSE listing standards)
on its Board of Directors, as it currently does; (ii) Revlon, Inc. established and maintains its Nominating and
Corporate Governance Committee of the Board of Directors; and (iii) Revlon, Inc. agreed to certain
restrictions with respect to its conducting any business or entering into any transactions or series of related
transactions with any of its affiliates, any holders of 10% or more of the outstanding voting stock or any
affiliates of such holders (in each case, other than its subsidiaries). The Fidelity Stockholders Agreement
will terminate when Fidelity ceases to be the beneficial holder of at least 5% of Revlon, Inc.’s outstanding
voting stock. In November 2009, affiliates of Fidelity filed a Schedule 13G/A with the SEC disclosing that
they ceased to own any shares of Class A Common Stock. Subsequently, Fidelity advised the Company that,
as of the April 8, 2010 record date for Revlon, Inc.’s 2010 Annual Stockholders’ Meeting, FMR (singly or
together with other affiliates of Fidelity) owned 8,233,526 shares of Revlon, Inc.’s outstanding Class A
common stock and Revlon, Inc.’s Series A preferred stock, in the aggregate, representing approximately
9.2% of Revlon, Inc.’s issued and outstanding shares of voting capital stock at such date.
Other
Pursuant to a lease dated April 2, 1993 (the “Edison Lease”), Revlon Holdings leased to Products
Corporation the Edison, N.J. research and development facility for a term of up to 10 years with an annual
rent of $1.4 million and certain shared operating expenses payable by Products Corporation which, together
with the annual rent, were not to exceed $2.0 million per year. In August 1998, Revlon Holdings sold the
Edison facility to an unrelated third party, which assumed substantially all liability for environmental claims
and compliance costs relating to the Edison facility, and in connection with the sale Products Corporation
terminated the Edison Lease and entered into a new lease with the new owner. Revlon Holdings agreed to
indemnify Products Corporation through September 1, 2013 (the term of the new lease) to the extent that
rent under the new lease exceeds the rent that would have been payable under the terminated Edison Lease
had it not been terminated. Effective October 2010, Products Corporation entered into a renewal of the
lease with the owner through September 2025. The Revlon Holdings indemnification will terminate on
September 1, 2013. The net amounts reimbursed by Revlon Holdings to Products Corporation with respect
to the Edison facility for 2010, 2009 and 2008 were $0.3 million, $0.4 million and $0.4 million, respectively.
Certain of Products Corporation’s debt obligations, including the 2010 Credit Agreements and
Products Corporation’s 93⁄4% Senior Secured Notes, have been, and may in the future be, supported by,
among other things, guaranties from Revlon, Inc. and, subject to certain limited exceptions, all of the
domestic subsidiaries of Products Corporation. The obligations under such guaranties are secured by,
among other things, the capital stock of Products Corporation and, subject to certain limited exceptions, the
F-57
capital stock of all of Products Corporation’s domestic subsidiaries and 66% of the capital stock of Products
Corporation’s and its domestic subsidiaries’ first-tier foreign subsidiaries.
During 2008, Products Corporation paid $0.4 million to a nationally-recognized security services
company, in which MacAndrews & Forbes had a controlling interest, for security officer services. Products
Corporation’s decision to engage such firm was based upon its expertise in the field of security services, and
the rates were competitive with industry rates for similarly situated security firms. Effective in August 2008,
MacAndrews & Forbes disposed of its interest in such security services company and accordingly from and
after such date is no longer a related party.
During 2010, Fidelity Management Trust Company, a wholly-owned subsidiary of FMR, acted as
trustee of the 401(k) Plan. During 2010 and 2009, the Company paid Fidelity Management Trust Company
approximately nil and $0.2 million, respectively, to administer the Company’s 2009 Exchange Offer with
respect to 401(k) Plan participants and to administer the Company’s 401(k) Plan. The fees for such services
were based on standard rates charged by Fidelity Management Trust Company for similar services and are
not material to the Company or FMR.
19. COMMITMENTS AND CONTINGENCIES
Products Corporation currently leases manufacturing, executive, research and development, and sales
facilities and various types of equipment under operating and capital lease agreements. Rental expense was
$18.2 million, $16.8 million and $15.3 million for the years ended December 31, 2010, 2009 and 2008,
respectively. Minimum rental commitments under all noncancelable leases, including those pertaining to
idled facilities, with remaining lease terms in excess of one year from December 31, 2010 aggregated
$79.2 million. Such commitments for each of the five years and thereafter subsequent to December 31, 2010
are $16.9 million, $14.8 million, $12.8 million, $10.0 million, $4.7 million and $20.0 million, respectively.
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, financial condition and/or its results
of operations.
As previously announced, on October 8, 2009 the Company consummated its voluntary exchange offer
in which, among other things, Revlon, Inc. issued to stockholders who elected to exchange shares (other
than MacAndrews & Forbes) 9,336,905 shares of its Preferred Stock in exchange for the same number of
shares of Revlon, Inc. Class A Common Stock tendered in the Exchange Offer (the “Exchange Offer”). On
April 24, 2009, May 1, 2009, May 5, 2009 and May 12, 2009, respectively, four purported class actions were
filed by each of Vern Mercier, Arthur Jurkowitz, Suri Lefkowitz and T. Walter Heiser in the Court of
Chancery of the State of Delaware (the “Chancery Court”). On May 4, 2009, a purported class action was
filed by Stanley E. Sullivan in the Supreme Court of New York, New York County. Each such lawsuit was
brought against Revlon, Inc., Revlon, Inc.’s then directors and MacAndrews & Forbes, and challenged a
merger proposal made by MacAndrews & Forbes on April 13, 2009, which would have resulted in
MacAndrews & Forbes and certain of its affiliates owning 100% of Revlon, Inc.’s outstanding Common
Stock (in lieu of consummating such merger proposal, the Company consummated the aforementioned
Exchange Offer). Each action sought, among other things, to enjoin the proposed merger transaction. On
June 24, 2009, the Chancery Court consolidated the four Delaware actions (the “Initial Consolidated
Action”), and appointed lead counsel for plaintiffs. As announced on August 10, 2009, an agreement in
principle was reached to settle the Initial Consolidated Action, as set forth in a Memorandum of Under-
standing (as amended in September 2009, the “Settlement Agreement”).
On December 24, 2009, an amended complaint was filed in the Sullivan action alleging, among other
things, that defendants should have disclosed in the Company’s Offer to Exchange for the Exchange Offer
information regarding the Company’s financial results for the fiscal quarter ended September 30, 2009. On
January 6, 2010, an amended complaint was filed by plaintiffs in the Initial Consolidated Action making
allegations similar to those in the amended Sullivan complaint. Revlon initially believed that by filing the
F-58
amended complaint, plaintiffs in the Initial Consolidated Action had formally repudiated the Settlement
Agreement, and on January 8, 2010, defendants filed a motion to enforce the Settlement Agreement.
In addition to the amended complaints in the Initial Consolidated Action and the Sullivan action, on
December 21, 2009, Revlon, Inc.’s current directors, a former director and MacAndrews & Forbes were
named as defendants in a purported class action filed in the Chancery Court by Edward Gutman. Also on
December 21, 2009, a second purported class action was filed in the Chancery Court against Revlon, Inc.’s
current directors and a former director by Lawrence Corneck. The Gutman and Corneck actions make
allegations similar to those in the amended complaints in the Sullivan action and the Initial Consolidated
Action. On January 15, 2010, the Chancery Court consolidated the Gutman and Corneck actions with the
Initial Consolidated Action (the Initial Consolidated Action, as consolidated with the Gutman and
Corneck actions, is hereafter referred to as the “Consolidated Action”). A briefing schedule was then
set to determine the leadership structure for plaintiffs in the Consolidated Action.
On March 16, 2010, after hearing oral argument on the leadership issue, the Chancery Court changed
the leadership structure for plaintiffs in the Consolidated Action. Thereafter, newly appointed counsel for
the plaintiffs in the Consolidated Action and the defendants agreed that the defendants would withdraw
their motion to enforce the Settlement Agreement and that merits discovery would proceed. Defendants
agreed not to withdraw any of the concessions that had been provided to the plaintiffs as part of the
Settlement Agreement.
On May 25, 2010, plaintiffs’ counsel in the Consolidated Action filed an amended complaint alleging
breaches of fiduciary duties arising out of the Exchange Offer and that defendants should have disclosed in
the Company’s Offer to Exchange information regarding the Company’s financial results for the fiscal
quarter ended September 30, 2009. Merits discovery is now proceeding in the Consolidated Action.
On December 31, 2009, a purported class action was filed in the U.S. District Court for the District of
Delaware by John Garofalo against Revlon, Inc., Revlon, Inc.’s current directors, a former director and
MacAndrews & Forbes alleging federal and state law claims stemming from the alleged failure to disclose in
the Offer to Exchange certain information relating to the Company’s financial results for the fiscal quarter
ended September 30, 2009. Defendants and plaintiff have agreed to stay proceedings in this action until
April 15, 2011 to permit plaintiff to participate in the merits discovery in the Consolidated Action. A similar
agreement has been reached with the plaintiff in the Sullivan action with the same stay period.
On May 11, 2010, a purported derivative action was filed in the U.S. District Court for the District of
Delaware by Richard Smutek, derivatively and on behalf of Revlon, Inc. against Revlon, Inc.’s current
directors and MacAndrews & Forbes alleging breach of fiduciary duty in allowing the Exchange Offer to
proceed and failing to disclose in the Offer to Exchange certain information related to the Company’s
financial results for the fiscal quarter ended September 30, 2009. On August 16, 2010, defendants moved to
dismiss the complaint. Briefing on defendants’ motions to dismiss was completed on December 10, 2010.
Thereafter, the parties requested oral argument on the motions to dismiss. The motions to dismiss are
currently pending along with two discovery motions. On September 27, 2010, plaintiff filed a motion to
compel discovery. In response, defendants moved to strike plaintiff’s motion to compel discovery or, in the
alternative, for an extension of time for defendants to respond to plaintiff’s motion.
Plaintiffs in each of these actions are seeking, among other things, an award of damages and the costs
and disbursements of such actions, including a reasonable allowance for the fees and expenses of each such
plaintiff’s attorneys and experts. Because the Smutek action is styled as a derivative action on behalf of the
Company, any award of damages, costs and disbursements would be made to and for the benefit of the
Company. The Company believes the allegations contained in the amended Sullivan complaint, the
amended complaint in the Consolidated Action, the Garofalo complaint and the Smutek complaint are
without merit and intends to vigorously defend against them.
F-59
20. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the unaudited quarterly results of operations:
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from continuing operations . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) from discontinued operations . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Basic income(loss) per common share(a):
Year Ended December 31, 2010
1st
Quarter
$305.5
196.8
2.2
—
2.2
2nd
Quarter
$327.7
220.7
16.0
0.4
16.4
3rd
Quarter
$319.0
208.6
12.6
(0.1)
12.5
4th
Quarter
$369.2
240.0
296.2
—
296.2
Continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.04
—
0.31
0.01
0.24
(0.00)
5.71
(0.00)
Net income per common share . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 0.04
$ 0.32
$ 0.24
$ 5.71
Diluted income (loss) per common share(a):
Continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.04
—
0.31
0.01
0.24
(0.00)
5.66
(0.00)
Net income per common share . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 0.04
$ 0.31
$ 0.24
$ 5.66
(a)
Income from continuing operations, net income and basic and diluted earnings per share for the fourth
quarter of 2010 were favorably impacted by an increase in net income driven by a one-time non-cash
benefit of $260.6 million related to reduction of the Company’s deferred tax valuation allowance on its
U.S. net deferred tax assets at December 31, 2010 as a result of the Company achieving three
cumulative years, as well as three consecutive years, of positive U.S. GAAP pre-tax income and
taxable income in the U.S., and based upon the Company’s current expectations for realization of such
deferred tax benefits in the U.S. The Company reflected this benefit in the provision for income taxes.
(See Note 12, “Income Taxes”).
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) from continuing operations . . . . . . . . . . . . . . . . . . .
Income from discontinued operations . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Basic (loss) income per common share:
Year Ended December 31, 2009
1st
Quarter
$303.3
192.3
12.7
—
12.7
2nd
Quarter
$321.8
201.2
(0.1)
0.3
0.2
3rd
Quarter
$326.2
208.3
23.1
—
23.1
4th
Quarter
$344.6
219.4
12.8
—
12.8
Continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.25
—
(0.00)
0.01
0.45
—
0.25
(0.00)
Net income per common share . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 0.25
$ 0.00
$ 0.45
$ 0.25
Diluted (loss) income per common share:
Continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.25
—
(0.00)
0.01
0.45
—
0.25
(0.00)
Net income per common share . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 0.25
$ 0.00
$ 0.45
$ 0.24
F-60
21. GEOGRAPHIC, FINANCIAL AND OTHER INFORMATION
The Company manages its business on the basis of one reportable operating segment. (See Note 1,
“Summary of Significant Accounting Policies”, for a brief description of the Company’s business). As of
December 31, 2010, the Company had operations established in 14 countries outside of the U.S. and its
products are sold throughout the world. Generally, net sales by geographic area are presented by attributing
revenues from external customers on the basis of where the products are sold. During 2010, 2009 and 2008,
Walmart and its affiliates worldwide accounted for approximately 22%, 23% and 23%, respectively, of the
Company’s net sales. The Company expects that Walmart and a small number of other customers will, in the
aggregate, continue to account for a large portion of the Company’s net sales. As is customary in the
consumer products industry, none of the Company’s customers is under an obligation to continue
purchasing products from the Company in the future.
In the tables below, certain prior year amounts have been reclassified to conform to the current
period’s presentation.
Year Ended December 31,
2010
2009
2008
Geographic area:
Net sales:
United States . . . . . . . . . . . . . . . . . . . . . .
Outside of the United States . . . . . . . . . .
Long-lived assets — net:
United States . . . . . . . . . . . . . . . . . . . . . .
Outside of the United States . . . . . . . . . .
Classes of similar products:
Net sales:
Color cosmetics . . . . . . . . . . . . . . . . . . . .
Beauty care and fragrance . . . . . . . . . . . .
$ 729.1
592.3
$1,321.4
2010
$ 558.4
52.2
$ 610.6
55% $ 747.9
45%
548.0
$1,295.9
58% $ 782.6
42%
564.2
$1,346.8
58%
42%
December 31,
2009
2008
9%
91% $ 339.2
51.4
$ 390.6
87% $ 339.0
13%
45.9
$ 384.9
88%
12%
Year Ended December 31,
2010
2009
2008
$ 816.1
505.3
$1,321.4
62% $ 785.5
38%
510.4
$1,295.9
61% $ 831.0
39%
515.8
$1,346.8
62%
38%
22. GUARANTOR FINANCIAL INFORMATION
Products Corporation’s 93⁄4% Senior Secured Notes are fully and unconditionally guaranteed on a
senior secured basis by Revlon, Inc. and Products Corporation’s domestic subsidiaries (other than certain
immaterial subsidiaries) that guarantee the Products Corporation’s obligations under its 2010 Credit
Agreements (the “Guarantor Subsidiaries”).
The following Condensed Consolidating Financial Statements present the financial information as of
December 31, 2010 and 2009, and for the years ended December 31, 2010, 2009 and 2008 for (i) Products
Corporation on a stand-alone basis; (ii) the Guarantor Subsidiaries on a stand-alone basis; (iii) the
subsidiaries of Products Corporation that do not guarantee Products Corporation’s 93⁄4% Senior Secured
Notes (the “Non-Guarantor Subsidiaries”) on a stand-alone basis; and (iv) Products Corporation, the
Guarantor Subsidiaries and the Non-Guarantor Subsidiaries on a consolidated basis. The Condensed
Consolidating Financial Statements are presented on the equity method, under which the investments in
subsidiaries are recorded at cost and adjusted for the applicable share of the subsidiary’s cumulative results
of operations, capital contributions, distributions and other equity changes. The principal elimination
entries eliminate investments in subsidiaries and intercompany balances and transactions.
F-61
Consolidating Condensed Balance Sheets
As of December 31, 2010
Products
Corporation
Guarantor
Subsidiaries
Non-
Guarantor
Subsidiaries
Eliminations
Consolidated
ASSETS
Cash and cash equivalents . . . . . . . . . .
Trade receivables, less allowances for
doubtful accounts . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes — current . . . .
Prepaid expenses and other . . . . . . . . .
Intercompany receivables . . . . . . . . . .
Investment in subsidiaries . . . . . . . . . .
Property, plant and equipment, net . . .
Deferred income taxes —
noncurrent . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . .
Goodwill, net . . . . . . . . . . . . . . . . . . . .
$
20.5
$
0.1
$ 56.1
$
—
$
76.7
91.0
76.6
34.4
72.5
895.1
(229.8)
89.4
214.0
55.8
150.6
14.9
2.4
—
3.2
432.0
(184.7)
0.6
—
4.2
30.0
91.6
36.0
5.9
22.4
331.1
—
16.2
2.6
27.3
2.1
—
—
—
—
(1,658.2)
414.5
—
—
—
—
197.5
115.0
40.3
98.1
—
—
106.2
216.6
87.3
182.7
Total assets . . . . . . . . . . . . . . . . . . . .
$1,470.1
$ 302.7
$591.3
$(1,243.7)
$1,120.4
$
$
LIABILITIES AND STOCKHOLDER’S DEFICIENCY
Short-term borrowings . . . . . . . . . . . . .
Current portion of long-term debt . . .
Accounts payable. . . . . . . . . . . . . . . . .
Accrued expenses and other . . . . . . . .
Intercompany payables . . . . . . . . . . . .
Long-term debt . . . . . . . . . . . . . . . . . .
Long-term debt — affiliates . . . . . . . . .
Other long-term liabilities . . . . . . . . . .
—
8.0
54.3
140.1
516.4
1,100.9
107.0
200.5
1.8
—
4.4
9.0
613.4
—
—
9.1
$
1.9
—
25.8
67.1
528.4
—
—
47.6
Total liabilities . . . . . . . . . . . . . . . . .
Stockholder’s deficiency . . . . . . . . . . .
2,127.2
(657.1)
637.7
(335.0)
670.8
(79.5)
$
—
—
—
—
(1,658.2)
—
—
—
(1,658.2)
414.5
$
3.7
8.0
84.5
216.2
—
1,100.9
107.0
257.2
1,777.5
(657.1)
Total liabilities and
stockholder’s deficiency . . . . . . . .
$1,470.1
$ 302.7
$591.3
$(1,243.7)
$1,120.4
F-62
Consolidating Condensed Balance Sheets
As of December 31, 2009
Products
Corporation
Guarantor
Subsidiaries
Non-
Guarantor
Subsidiaries
Eliminations
Consolidated
ASSETS
Cash and cash equivalents . . . . . . . . . .
Trade receivables, less allowances for
doubtful accounts . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes — current . . . .
Prepaid expenses and other . . . . . . . . .
Intercompany receivables . . . . . . . . . .
Investment in subsidiaries . . . . . . . . . .
Property, plant and equipment, net . . .
Deferred income taxes —
noncurrent . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . .
Goodwill, net . . . . . . . . . . . . . . . . . . . .
$
27.4
$
0.4
$ 26.7
$
—
$
54.5
81.1
76.2
—
60.1
855.1
(248.1)
94.3
—
56.8
150.6
15.5
3.5
—
4.3
443.7
(215.1)
1.1
—
2.7
30.0
85.1
39.5
3.9
22.6
299.8
—
16.3
4.8
25.6
2.0
—
—
—
—
(1,598.6)
463.2
—
—
—
—
181.7
119.2
3.9
87.0
—
—
111.7
4.8
85.1
182.6
Total assets . . . . . . . . . . . . . . . . . . . .
$1,153.5
$ 286.1
$ 526.3
$(1,135.4)
$ 830.5
$
LIABILITIES AND STOCKHOLDERS’ DEFICIENCY
Short-term borrowings . . . . . . . . . . . . .
Current portion of long-term debt . . .
Accounts payable. . . . . . . . . . . . . . . . .
Accrued expenses and other . . . . . . . .
Intercompany payables . . . . . . . . . . . .
Long-term debt . . . . . . . . . . . . . . . . . .
Long-term debt — affiliates . . . . . . . . .
Other long-term liabilities . . . . . . . . . .
—
13.6
55.8
133.2
495.1
1,127.8
107.0
214.8
$ —
—
5.0
9.5
604.6
—
—
15.7
$
0.3
—
21.6
66.2
498.9
—
—
53.8
Total liabilities . . . . . . . . . . . . . . . . .
Stockholder’s deficiency . . . . . . . . . . .
2,147.3
(993.8)
634.8
(348.7)
640.8
(114.5)
$
—
—
—
—
(1,598.6)
—
—
—
(1,598.6)
463.2
$
0.3
13.6
82.4
208.9
—
1,127.8
107.0
284.3
1,824.3
(993.8)
Total liabilities and
stockholder’s deficiency . . . . . . . .
$1,153.5
$ 286.1
$ 526.3
$(1,135.4)
$ 830.5
F-63
Consolidating Condensed Statement of Operations
For the Year Ended December 31, 2010
Non-
Guarantor
Subsidiaries
$546.1
203.8
342.3
227.2
(0.1)
115.2
7.4
0.3
(0.5)
—
—
11.2
45.7
64.1
51.1
16.4
34.7
—
—
Eliminations
Consolidated
$(148.3)
(148.3)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(52.2)
$1,321.4
455.3
866.1
659.3
(0.3)
207.1
6.2
90.5
(0.5)
4.5
9.7
6.3
1.7
118.4
88.7
(235.3)
324.0
0.3
—
$ 34.7
$ (52.2)
$ 324.3
Products
Corporation
Guarantor
Subsidiaries
Net sales . . . . . . . . . . . . . . . . . . . . . . .
Cost of sales . . . . . . . . . . . . . . . . . . . . .
$ 854.2
367.8
Gross profit . . . . . . . . . . . . . . . . . . .
486.4
Selling, general and administrative
expenses . . . . . . . . . . . . . . . . . . . . . .
Restructuring costs and other, net . . . .
Operating income. . . . . . . . . . . . . . .
Other expenses (income):
Intercompany interest, net . . . . . . . .
Interest expense . . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . .
Amortization of debt issuance
costs . . . . . . . . . . . . . . . . . . . . . . .
Loss on early extinguishment of
debt, net . . . . . . . . . . . . . . . . . . . .
Foreign currency (gains) losses,
net. . . . . . . . . . . . . . . . . . . . . . . . .
Miscellaneous, net . . . . . . . . . . . . . .
Other expenses, net . . . . . . . . . . .
399.6
(0.2)
87.0
(0.1)
89.9
—
4.5
9.7
(4.6)
(46.9)
52.5
Income from continuing operations
before income taxes . . . . . . . . . . . . .
34.5
(Benefit from) provision for income
taxes . . . . . . . . . . . . . . . . . . . . . . . . .
(255.8)
$69.4
32.0
37.4
32.5
—
4.9
(1.1)
0.3
—
—
—
(0.3)
2.9
1.8
3.1
4.1
Income (loss) from continuing
operations. . . . . . . . . . . . . . . . . . . . .
Income from discontinued operations,
net of taxes. . . . . . . . . . . . . . . . . . . .
Equity in income of subsidiaries . . . . .
0.3
33.7
Net income . . . . . . . . . . . . . . . . . . . . .
$ 324.3
290.3
(1.0)
—
18.5
$17.5
F-64
Consolidating Condensed Statement of Operations
For the Year Ended December 31, 2009
Products
Corporation
Guarantor
Subsidiaries
Non-
Guarantor
Subsidiaries
Net sales . . . . . . . . . . . . . . . . . . . . . . .
Cost of sales . . . . . . . . . . . . . . . . . . . . .
$852.6
373.0
$ 71.0
31.2
Gross profit . . . . . . . . . . . . . . . . . . .
479.6
Selling, general and administrative
expenses . . . . . . . . . . . . . . . . . . . . . .
Restructuring costs and other, net . . . .
Operating income. . . . . . . . . . . . . . .
Other expenses (income):
Intercompany interest, net . . . . . . . .
Interest expense . . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . .
Amortization of debt issuance
costs . . . . . . . . . . . . . . . . . . . . . . .
Loss on early extinguishment of
debt, net . . . . . . . . . . . . . . . . . . . .
Foreign currency (gains) losses,
net. . . . . . . . . . . . . . . . . . . . . . . . .
Miscellaneous, net . . . . . . . . . . . . . .
Other expenses, net . . . . . . . . . . .
Income from continuing operations
before income taxes . . . . . . . . . . . . .
Provision for income taxes . . . . . . . . .
Income (loss) from continuing
operations. . . . . . . . . . . . . . . . . . . . .
Income from discontinued operations,
net of taxes. . . . . . . . . . . . . . . . . . . .
Equity in earnings of subsidiaries . . . .
375.7
16.7
87.2
(2.0)
91.2
—
5.5
5.8
(0.8)
(36.6)
63.1
24.1
(25.6)
49.7
(12.4)
0.3
8.8
—
12.5
39.8
33.7
1.2
4.9
(1.5)
0.1
—
—
—
0.4
(4.8)
(5.8)
10.7
23.1
$500.9
199.1
301.8
210.2
3.4
88.2
4.9
0.3
(0.5)
—
—
9.3
42.4
56.4
31.8
10.6
21.2
—
—
Eliminations
Consolidated
$(128.6)
(128.6)
$1,295.9
474.7
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(21.3)
821.2
619.6
21.3
180.3
1.4
91.6
(0.5)
5.5
5.8
8.9
1.0
113.7
66.6
8.1
58.5
0.3
—
Net income . . . . . . . . . . . . . . . . . . . . .
$ 58.8
$ 0.1
$ 21.2
$ (21.3)
$
58.8
F-65
Consolidating Condensed Statement of Operations
For the Year Ended December 31, 2008
Products
Corporation
Guarantor
Subsidiaries
Eliminations
Consolidated
Net sales . . . . . . . . . . . . . . . . . . . . . . .
Cost of sales . . . . . . . . . . . . . . . . . . . . .
$898.9
398.5
Gross profit . . . . . . . . . . . . . . . . . . .
500.4
Selling, general and administrative
expenses . . . . . . . . . . . . . . . . . . . . . .
Restructuring costs and other, net . . . .
Operating income. . . . . . . . . . . . . . .
Other expenses (income):
Intercompany interest, net . . . . . . . .
Interest expense . . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . .
Amortization of debt issuance
costs . . . . . . . . . . . . . . . . . . . . . . .
Loss on early extinguishment of
debt, net . . . . . . . . . . . . . . . . . . . .
Foreign currency (gains) losses,
net. . . . . . . . . . . . . . . . . . . . . . . . .
Miscellaneous, net . . . . . . . . . . . . . .
Other expenses, net . . . . . . . . . . .
(Loss) income from continuing
operations before income taxes . . . .
Provision for income taxes . . . . . . . . .
(Loss) income from continuing
operations. . . . . . . . . . . . . . . . . . . . .
Income from discontinued operations,
net of taxes. . . . . . . . . . . . . . . . . . . .
Equity in earnings of subsidiaries . . . .
431.4
(3.4)
72.4
(1.7)
119.1
(0.4)
5.6
0.7
—
(35.5)
87.8
(15.4)
(0.4)
—
80.8
$81.6
34.4
47.2
40.5
—
6.7
(1.6)
0.1
—
—
—
(1.4)
3.2
0.3
6.4
(1.2)
Non-
Guarantor
Subsidiaries
$510.0
201.7
308.3
229.7
(5.0)
83.6
3.3
0.5
(0.3)
—
—
1.5
32.7
37.7
45.9
17.5
28.4
44.8
—
$(143.7)
(143.7)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(138.9)
$1,346.8
490.9
855.9
701.6
(8.4)
162.7
—
119.7
(0.7)
5.6
0.7
0.1
0.4
125.8
36.9
15.9
21.0
44.8
—
65.8
Net income . . . . . . . . . . . . . . . . . . . . .
$ 65.8
$ 73.2
$(138.9)
$
(15.0)
7.6
—
58.1
$65.7
F-66
Consolidating Condensed Statement of Cash Flow
For the Year Ended December 31, 2010
Products
Corporation
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Eliminations
Consolidated
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash provided by (used in)
operating activities . . . . . . . . . . .
$ 70.8
$(0.9)
$26.8
$—
$ 96.7
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures . . . . . . . . . . . .
Proceeds from sales of certain
(13.7)
assets . . . . . . . . . . . . . . . . . . . . . .
—
(0.1)
—
Net cash used in investing
activities . . . . . . . . . . . . . . . . . . . .
(13.7)
(0.1)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in short-
term borrowings and overdraft . .
(12.8)
0.7
Repayments under the 2006 Term
Loan Facility . . . . . . . . . . . . . . . .
(815.0)
Borrowings under the 2010 Term
Loan Facility . . . . . . . . . . . . . . . .
Repayments of long-term debt . . . .
Payment of financing costs . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . .
786.0
(6.0)
(17.0)
0.8
Net cash (used in) provided by
financing activities . . . . . . . . . . . .
(64.0)
Effect of exchange rate changes on
cash and cash equivalents . . . . . .
—
—
—
—
—
—
0.7
—
Net (decrease) increase in cash
and cash equivalents . . . . . . . .
(6.9)
(0.3)
Cash and cash equivalents at
beginning of period . . . . . . . . .
27.4
0.4
(1.4)
0.3
(1.1)
1.5
—
—
—
—
(0.5)
1.0
2.7
29.4
26.7
—
—
—
—
—
—
—
—
—
—
—
—
—
(15.2)
0.3
(14.9)
(10.6)
(815.0)
786.0
(6.0)
(17.0)
0.3
(62.3)
2.7
22.2
54.5
Cash and cash equivalents at end
of period . . . . . . . . . . . . . . . . .
$ 20.5
$ 0.1
$56.1
$—
$ 76.7
F-67
Consolidating Condensed Statement of Cash Flow
For the Year Ended December 31, 2009
Products
Corporation
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Eliminations
Consolidated
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash provided by (used in)
operating activities . . . . . . . . . . .
$ 112.1
$(1.5)
$ (7.3)
$—
$ 103.3
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures . . . . . . . . . . . .
Proceeds from the sale of certain
assets including a non-core
trademark . . . . . . . . . . . . . . . . . .
(11.1)
—
(0.2)
(3.0)
—
2.5
Net cash used in investing
activities . . . . . . . . . . . . . . . . . . . .
(11.1)
(0.2)
(0.5)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in short-
term borrowings and overdraft . .
5.2
Repayments under the 2006 Term
Loan Facility . . . . . . . . . . . . . . . .
(18.7)
Proceeds from the issuance of
long-term debt, net . . . . . . . . . . .
Repayment of long-term debt. . . . .
Payment of financing costs . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . .
326.4
(381.4)
(23.4)
(0.6)
Net cash (used in) provided by
financing activities . . . . . . . . . . . .
(92.5)
Net cash provided by discontinued
operations . . . . . . . . . . . . . . . . . .
Effect of exchange rate changes on
cash and cash equivalents . . . . . .
Net increase (decrease) in cash
and cash equivalents . . . . . . . .
Cash and cash equivalents at
0.2
—
8.7
beginning of period . . . . . . . . .
18.7
1.0
—
—
—
—
—
1.0
—
0.1
(0.6)
1.0
(0.2)
—
—
(0.3)
—
(0.3)
(0.8)
—
2.2
(6.4)
33.1
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(14.3)
2.5
(11.8)
6.0
(18.7)
326.4
(381.7)
(23.4)
(0.9)
(92.3)
0.2
2.3
1.7
52.8
Cash and cash equivalents at end
of period . . . . . . . . . . . . . . . . .
$ 27.4
$ 0.4
$26.7
$—
$ 54.5
F-68
Consolidating Condensed Statement of Cash Flow
For the Year Ended December 31, 2008
Products
Corporation
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Eliminations
Consolidated
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash provided by (used in)
operating activities . . . . . . . . . . .
$ 37.0
$(3.7)
$ (0.2)
$—
$ 33.1
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures . . . . . . . . . . . .
Proceeds from the sale of assets of
discontinued operations. . . . . . . .
(14.6)
107.6
Proceeds from the sale of certain
assets including a non-core
trademark . . . . . . . . . . . . . . . . . .
Net cash provided by (used in)
6.1
—
—
investing activities . . . . . . . . . . . .
99.1
(0.7)
—
7.5
3.2
(0.7)
(4.3)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in short-
term borrowings and overdraft . .
3.6
0.5
(1.0)
Repayment under the 2006
Revolving Credit Facility, net . . .
(43.5)
Repayments under the 2006 Term
Loan Facility . . . . . . . . . . . . . . . .
(6.3)
Proceeds from the issuance of
long-term debt — affiliates . . . . .
Repayment of long-term debt. . . . .
Repayment of long-term
debt — affiliates. . . . . . . . . . . . . .
Payment of financing costs . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . .
170.0
(167.4)
(63.0)
(4.6)
(0.8)
Net cash (used in) provided by
financing activities . . . . . . . . . . . .
(112.0)
Net cash (used in) provided by
discontinued operations. . . . . . . .
(12.7)
—
—
—
—
—
—
—
0.5
—
—
—
—
(0.2)
—
—
(0.3)
(1.5)
0.5
Effect of exchange rate changes on
cash and cash equivalents . . . . . .
Net increase (decrease) in cash
—
(0.1)
(1.7)
and cash equivalents . . . . . . . .
11.4
(4.0)
Cash and cash equivalents at
beginning of period . . . . . . . . .
7.3
5.0
0.3
32.8
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(19.6)
107.6
13.6
101.6
3.1
(43.5)
(6.3)
170.0
(167.6)
(63.0)
(4.6)
(1.1)
(113.0)
(12.2)
(1.8)
7.7
45.1
Cash and cash equivalents at end
of period . . . . . . . . . . . . . . . . .
$ 18.7
$ 1.0
$33.1
$—
$ 52.8
F-69
REVLON, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 2010, 2009 and 2008
(dollars in millions)
Schedule II
Balance at
Beginning of
Year
Charged to
Cost and
Expenses
Other
Deductions
Balance at
End of
Year
Allowance for Doubtful Accounts(a):
2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance for Volume and Early Payment
Discounts(b):
2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance for Sales Returns(c):
2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 3.8
3.3
3.5
$14.4
13.5
15.2
$65.5
70.2
80.4
$ (0.6)
0.9
0.4
$60.9
56.2
56.0
$75.4
86.0
84.7
$ (0.1)
(0.4)
(0.6)
$(60.1)
(55.3)
(57.7)
$(81.0)
(90.7)
(94.9)
$ 3.1
3.8
3.3
$15.2
14.4
13.5
$59.9
65.5
70.2
(a) Doubtful accounts written off, less recoveries, reclassifications and foreign currency translation adjustments.
(b) Discounts taken, reclassifications and foreign currency translation adjustments.
(c)
Sales returns as a reduction to sales and cost of sales, and an increase to accrued liabilities and inventories.
F-70
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant
has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Revlon, Inc.
(Registrant)
By:
/s/ Alan T. Ennis
By:
/s/ Steven Berns
By:
/s/ Gina M. Mastantuono
Alan T. Ennis
President,
Chief Executive Officer and
Director
Steven Berns
Executive Vice President
and
Chief Financial Officer
Gina M. Mastantuono
Senior Vice President,
Corporate Controller and
Chief Accounting Officer
Dated: February 17, 2011
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by
the following persons on behalf of the Registrant on February 17, 2011 and in the capacities indicated.
Signature
Title
*
(Ronald O. Perelman)
*
(Barry F. Schwartz)
*
(David L. Kennedy)
*
(Alan S. Bernikow)
*
(Paul J. Bohan)
*
(Meyer Feldberg)
*
(Debra L. Lee)
*
(Tamara Mellon)
*
(Richard J. Santagati)
*
(Kathi P. Seifert)
Chairman of the Board and Director
Director
Vice Chairman and Director
Director
Director
Director
Director
Director
Director
Director
* Robert K. Kretzman, by signing his name hereto, does hereby sign this report on behalf of the directors of
the registrant above whose typed names asterisks appear, pursuant to powers of attorney duly executed
by such directors and filed with the Securities and Exchange Commission.
By: /s/ Robert K. Kretzman
Robert K. Kretzman
Attorney-in-fact
(This page intentionally left blank)
PERFORMANCE GRAPH
The following graph compares the cumulative total stockholder return on shares of the Company’s Class A
Common Stock with that of the S&P 500 Index — Total Returns, the S&P 500 Household Products Index
and the S&P 500 Personal Products Index through December 31, 2010. The comparison for each of the
periods presented below assumes that $100 was invested on December 31, 2005 in shares of the Company’s
Class A Common Stock and the stocks included in the relevant indices, and that all dividends, if any, were
reinvested. These indices, which reflect formulas for dividend reinvestment and weighting of individual
stocks, do not necessarily reflect returns that could be achieved by individual investors.
FIVE-YEAR TOTAL STOCKHOLDER RETURN
REVLON, INC. VS. S&P INDICES
Comparison of 5 Year Cumulative Total Return
Assumes Initial Investment of $100
December 2010
$200
$180
$160
$140
$120
$100
$80
$60
$40
$20
$0
12/31/05
12/31/06
12/31/07
12/31/08
12/31/09
12/31/10
Revlon, Inc. Class A Common Stock
S&P 500 Household Products Index
S&P 500 Personal Products Index
S&P 500 Index - Total Returns
SOURCE: Zacks Investment Research, Inc.
NOTES:
The dollar amounts listed below have been rounded down to the whole dollar.
Year-end dates give effect to the last trading day for each respective year.
Summary
Revlon, Inc. Class A Common Stock . . . . . .
S&P 500 Index — Total Returns . . . . . . . . .
S&P 500 Personal Products Index . . . . . . . .
S&P 500 Household Products Index . . . . . .
12/31/2005 12/31/2006 12/31/2007 12/31/2008 12/31/2009 12/31/2010
$100
$100
$100
$100
$41
$115
$127
$114
$38
$122
$150
$132
$21
$76
$97
$114
$54
$97
$140
$121
$31
$111
$165
$130
SHAREHOLDER INFORMATION
REVLON, INC.
Common Stock and Related Stockholder Matters
The Company’s Class A Common Stock, par value $0.01 per share, is listed on the New York Stock Exchange (the “NYSE”) under the
symbol “REV.” The following table sets forth the range of high and low closing prices as reported by the NYSE for the Company’s
Class A Common Stock for each quarter in 2010 and 2009.
QUARTER
First
Second
Third
Fourth
High
$18.13
18.04
13.69
14.50
2010
2009
Low
$14.18
11.01
10.67
9.36
High
$ 7.23
5.95
6.27
19.75
Low
$2.30
2.48
4.34
4.65
As of the close of business on December 31, 2010, there were 533 holders of record of the Company’s Class A Common Stock (which
does not include the number of beneficial owners holding indirectly through a broker, bank or other nominee). The closing price as
reported by the NYSE for the Company’s Class A Common Stock on December 31, 2010 was $9.84 per share.
The Company has not declared a cash dividend on its Class A Common Stock subsequent to the Company’s initial public offering in
1996 and does not anticipate that any cash dividends will be declared on its Class A Common Stock in the foreseeable future. The
timing, amount and form of dividends, if any, will depend on, among other things, the Company’s results of operations, financial
condition, cash requirements and other factors deemed relevant by the Company’s Board of Directors. The declaration and payment
of dividends are subject to the discretion of the Company’s Board of Directors and are subject to certain limitations under Delaware
law, and are also limited by the terms of the Company’s credit agreements, indenture and certain other debt instruments. See
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 9 (“Long-Term Debt and
Redeemable Preferred Stock”) of the “Notes to Consolidated Financial Statements” in the Company’s Annual Report on Form 10-K
for the year ended December 31, 2010, which was filed with the SEC on February 17, 2011, for a discussion of certain matters affecting
the declaration and payment of dividends.
Transfer Agent & Registrar
American Stock Transfer & Trust Company
59 Maiden Lane
New York, NY 10038
(800) 937-5449
Notice of Annual Meeting
The 2011 Annual Meeting of Stockholders will be held on June 2, 2011 at 10:00 a.m. (EDT) at
Revlon’s Research Center
2121 Route 27
Edison, NJ 08818
Independent Registered
Public Accounting Firm
KPMG LLP
New York, NY
Corporate Address
Revlon, Inc.
237 Park Avenue
New York, NY 10017
212-527-4000
Corporate and Investor Information
The Company’s Annual Report on Form 10-K for the year ended December 31, 2010, filed with the SEC on February 17, 2011, is
available without charge upon written request to:
Revlon, Inc.
237 Park Avenue
New York, NY 10017
Attention: Investor Relations
A printable copy of such report is also available on the Company’s corporate website, www.revloninc.com, as well as the SEC’s website
at www.sec.gov.
Investor Relations and Media Contact
Elise A. Garofalo, Senior Vice President, Treasurer and Investor Relations
212-527-5264
Consumer Information Center
1-800-4-Revlon (1-800-473-8566)
Visit our Websites at
For investors:
www.revloninc.com
For consumers:
www.revlon.com
The product and brand names used throughout this report are registered or unregistered trademarks of Revlon Consumer Products
Corporation.
Printed in the U.S.A.
· 2011 Revlon, Inc.
This annual report contains forward-looking statements under the caption “Dear Shareholders” which represent the Company’s
expectations, beliefs and estimates as to future events and financial performance, including: (a) our strategic goal to profitably grow
our business, including to (1) build our strong brands, emphasizing the key drivers of profitable growth: innovative, high-quality,
consumer-preferred brand offering, effective brand communication, appropriate levels of advertising and promotion and superb
execution with our retail partners (including our belief that we are improving competitiveness at the point of purchase by
implementing exciting new graphic and layout changes to our retail walls and introducing more impactful, eye-catching displays
to improve the in-store messaging to, and connection with, consumers); (2) develop our organizational capability, including our
priority to continuously strengthen our capability by promoting from within and by recruiting talented and experienced professionals
across all functions in the organization while being focused on achieving our strategic objective of profitably growing our business;
(3) drive our company to act globally, including our belief that we are leveraging brand positioning, portfolio planning, and brand
communications plans globally, and that we are improving our operating efficiency through many activities, including global supply
chain management; (4) increase our operating profit and cash flow; and (5) improve our capital structure, including our belief that our
capital structure provides us with the stability and flexibility to continue to execute our business strategy; and (b) in 2011, our
remaining centered on profitably growing our business and building upon the solid foundation and competitive margin structure we
have established. Forward-looking statements involve risks, uncertainties and other factors that could cause actual results to differ
materially from those expressed in any forward-looking statements. Please see Part I, Item 1A.“Risk Factors” and Part II,“Forward-
Looking Statements” in our Annual Report on Form 10-K included in this annual report for a full description of these risks,
uncertainties and other factors, as well as other important information with respect to our forward-looking statements. Revlon, Inc.
filed the CEO and CFO certifications required under Section 302 of the Sarbanes-Oxley Act of 2002 as Exhibits 31.1 and 31.2,
respectively, to its Annual Report on Form 10-K for the fiscal year ended December 31, 2010, as filed with the SEC on February 17,
2011. On June 18, 2010, Revlon, Inc. filed the Annual CEO Certification, without qualification, pursuant to Section 303A.12(a) of the
NYSE Listed Company Manual.
Board of Directors
Officers
Investor Relations
Ronald O. Perelman
Chairman of the Board,
Revlon, Inc.;
Chairman and Chief Executive Officer,
MacAndrews & Forbes Holdings Inc.
Ronald O. Perelman
Chairman of the Board
David L. Kennedy***
Vice Chairman of the Board
Elise A. Garofalo
Senior Vice President,
Treasurer and Investor Relations
David L. Kennedy
Vice Chairman of the Board,
Revlon, Inc.;
Senior Executive Vice President,
MacAndrews & Forbes Holdings Inc.;
Vice Chairman and Chief Administrative
Officer,
Scientific Games Corporation
Alan T. Ennis
President and Chief Executive Officer
Alan S. Bernikow(1, 2)*
Retired Deputy Chief Executive Officer,
Deloitte & Touche LLP
Paul J. Bohan(1, 3)
Retired Managing Director,
Salomon Smith Barney
Meyer Feldberg(1, 3)**
Dean Emeritus,
Columbia Business School
Debra L. Lee(3)
Chairman and Chief Executive Officer,
BET Networks
Tamara Mellon
Chief Creative Officer and Founder,
J. Choo Limited
Richard J. Santagati(2, 3)
Retired President of Merrimack College
Barry F. Schwartz(2)
Executive Vice Chairman and Chief
Administrative Officer,
MacAndrews & Forbes Holdings Inc.
Kathi P. Seifert(1, 2)
Chairperson,
Katapult, LLC
Alan T. Ennis***
President and Chief Executive Officer
Steven Berns***
Executive Vice President and Chief
Financial Officer
Chris Elshaw***
Executive Vice President and Chief
Operating Officer
Julia Goldin
Executive Vice President and Global
Chief Marketing Officer
Robert K. Kretzman***
Executive Vice President and Chief
Administrative Officer
Alan Meyers
Executive Vice President and Chief
Science Officer
Elise A. Garofalo
Senior Vice President,
Treasurer and Investor Relations
Lauren Goldberg
Senior Vice President and General
Counsel
Gina Mastantuono
Senior Vice President,
Corporate Controller and
Chief Accounting Officer
Mark M. Sexton
Senior Vice President, Taxes
Michael T. Sheehan
Senior Vice President,
Deputy General Counsel and
Secretary
1.
2.
3.
*
**
***
Audit Committee member
Compensation Committee member
Nominating and Corporate Governance Committee member
Audit Committee Chairman; Compensation Committee Chairman
Nominating and Corporate Governance Committee Chairman
Executive Officer