Clicky

INN Blog

More Posts
 

REVLON CONSUMER PRODUCTS CORP - 10-K - Management's Discussion and Analysis of Financial Condition and Results of Operations

Edgar Online, Inc.
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 (as defined below) is providing this overview in accordance with the SEC'sDecember 2003 interpretive guidance regarding MD&A.

Overview

Overview of the Business

Revlon Consumer Products Corporation ("Products Corporation" and together with
its subsidiaries, the "Company") is a wholly-owned operating subsidiary of
Revlon, Inc., which 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 Revlon, Inc. and 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 beginning October 1, 2012, the Company is consolidating and reporting
Latin America and Canada (previously reported separately) as the combined Latin
America and Canada region. As a result, 2012 and all corresponding prior year
amounts have been reclassified to conform to this presentation.

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

Overview of Net Sales and Earnings Results


Consolidated net sales in 2012 were $1,426.1 million, an increase of $44.7
million, or 3.2%, compared to $1,381.4 million in 2011. Excluding the
unfavorable impact of foreign currency fluctuations of $21.2 million,
consolidated net sales increased by $65.9 million, or 4.8% in 2012 compared to
2011, driven by higher net sales in the Company's U.S., Latin America and
Canada, and Asia Pacific regions, partially offset by lower net sales in the
Company's Europe, Middle East and Africa region.

Consolidated net income in 2012 was $71.2 million, compared to $64.0 million in
2011. The increase in consolidated net income in 2012, compared to 2011, was
primarily due to:


$30.8 million of higher gross profit due to a $44.7 million increase in

There are No Baby Steps in Sales.

consolidated net sales, partially offset by a $13.9 million increase in

         cost of sales in 2012;




     •   an $11.2 million loss on the early extinguishment of debt in 2011 as a
         result of the 2011 Refinancings (as hereinafter defined) that did not
         recur in 2012; and




                                       25

--------------------------------------------------------------------------------

Table of Contents

• a $5.8 million decrease in interest expense in 2012, primarily driven by

lower weighted average borrowing rates as a result of the 2011 Term Loan

Facility Refinancing (as hereinafter defined);

with the foregoing partially offset by:

$24.1 million of restructuring and related charges recognized in

connection with the September 2012 Program (as hereinafter defined); and

$12.8 million of higher selling, general and administrative ("SG&A")

expense primarily driven by higher insurance expense.


Recent Events

September 2012 Program

During 2012, the Company recorded charges totaling $24.1 million related to the
restructuring that the Company announced in September 2012 (the "September 2012
Program"), which primarily involved the Company exiting its owned manufacturing
facility in France and its leased manufacturing facility in Maryland;
rightsizing its organizations in France and Italy; and realigning its operations
in Latin America, including consolidating Latin America and Canada into a single
operating region, which became effective in the fourth quarter of 2012. Certain
of the actions were subject to consultations with employees, works councils or
unions, and government authorities, which have substantially been concluded as
of December 31, 2012. Of the $24.1 million charge: (a) $20.7 million is recorded
in restructuring charges; (b) $1.6 million is recorded as a reduction to net
sales; (c) $1.2 million is recorded in cost of goods sold; and (d) $0.6 million
is recorded in SG&A expenses. Included within the $20.7 million restructuring
charges is a net non-cash pension curtailment gain of $1.5 million.

The Company expects to recognize approximately $1 million of additional charges
in 2013 for a total of approximately $25 million in charges related to the
September 2012 Program. The Company expects to pay cash of approximately $24
million related to the September 2012 Program, of which $3.8 million was paid in
2012 and the remainder is expected to be paid in 2013.

The Company expects approximately $7.5 million of cost reductions to benefit
2013 and annualized cost reductions thereafter are expected to be approximately
$10 million.

See Note 3, "Restructuring Charges," to the Consolidated Financial Statements in this Form 10-K.

There are No Baby Steps in Sales.


Pure Ice Acquisition

On July 2, 2012, the Company acquired certain assets of Bari Cosmetics, Ltd.,
including trademarks and other intellectual property related to Pure Ice nail
enamel and Bon Bons cosmetics brands (the "Pure Ice Acquisition"). The Company
paid $66.2 million of total consideration for the Pure Ice Acquisition in cash,
comprised of $45.0 million cash on hand and $21.2 million drawn under Products
Corporation's 2011 Revolving Credit Facility. The results of operations related
to the Pure Ice Acquisition are included in the Company's consolidated financial
statements commencing on the date of acquisition. As of December 31, 2012, there
were no outstanding borrowings under Products Corporation's 2011 Revolving
Credit Facility (excluding $10.4 million of outstanding undrawn letters of
credit).

Other Events

Fire at Revlon Venezuela Facility


On June 5, 2011, the Company's facility in Venezuela was destroyed by fire. For
the years ended December 31, 2012, 2011 and 2010, the Company's subsidiary in
Venezuela ("Revlon Venezuela") had net sales of approximately 2%, 2% and 3%,
respectively, of the Company's consolidated net sales. At December 31, 2012,
2011 and 2010, total assets of Revlon Venezuela were approximately 2%, 2% and
3%, respectively, of the Company's total assets. Prior to the fire,
approximately 50% of Revlon Venezuela's net sales were comprised of products
imported from the Company's Oxford, North Carolina facility and approximately
50% were comprised of products locally manufactured at the Revlon Venezuela
facility. Revlon Venezuela did not have any net sales from the date of the fire
until August 12, 2011. The Company's net sales in Venezuela since August 12,
2011 have been primarily comprised of: (i) products imported from the Company's
Oxford, North Carolina facility;



                                       26

--------------------------------------------------------------------------------

Table of Contents


and (ii) commencing in the first quarter of 2012, certain products imported from
third party manufacturers outside of Venezuela, which were locally manufactured
at the Revlon Venezuela facility prior to the fire.

The Company maintains comprehensive property insurance, as well as business
interruption insurance. Business interruption insurance is intended to reimburse
for lost profits and other costs incurred, which are attributable to the loss,
during the loss period, subject to the terms and conditions of the applicable
policies.

For the years ended December 31, 2012 and 2011, the Company incurred business
interruption losses of $2.8 million and $9.7 million, respectively, related to
the fire. Additionally, in June 2011, the Company recorded a $4.9 million
impairment loss related to Revlon Venezuela's net book value of inventory,
property, plant and equipment destroyed by the fire, for total losses of $14.6
million incurred for the year ended December 31, 2011. The business interruption
losses incurred in the years ended December 31, 2012 and 2011 include estimated
profits lost as a result of the interruption of Revlon Venezuela's business and
costs incurred directly related to the fire. The Company's insurance coverage
provides for business interruption losses to be reimbursed, subject to the terms
and conditions of such policy, for a period of time, which period for the
coverage related to the Venezuela fire ended on October 2, 2012. The business
interruption losses incurred through December 31, 2012 are not indicative of
future expected profits for Revlon Venezuela.

For the years ended December 31, 2012 and 2011, the Company received interim
advances of $6.6 million and $19.7 million, respectively, from its insurance
carrier in connection with the fire, for total cumulative receipts of $26.3
million received from the date of the fire through December 31, 2012. During the
years ended December 31, 2012 and 2011, the Company recognized $2.8 million and
$14.6 million, respectively, of income from insurance recoveries, which entirely
offset the business interruption losses and 2011 impairment loss noted above.
The income from insurance recoveries is included within SG&A expenses in the
Company's Consolidated Statements of Income and Comprehensive Income for the
years ended December 31, 2012 and 2011. The Company recorded deferred income
related to the insurance proceeds received, but not yet recognized, of $8.9
million and $5.1 million as of December 31, 2012 and 2011, respectively, which
is included in accrued expenses and other in the Company's Consolidated Balance
Sheet.

The final amount and timing of the ultimate insurance recovery is currently unknown. See Note 22, "Subsequent Events - Insurance Settlement on Loss of Inventory," to the Consolidated Financial Statements in this Form 10-K for discussion related to the final settlement of the inventory portion of the total insurance claim.

There are No Baby Steps in Sales.


Results of Operations

Year ended December 31, 2012 compared with the year ended December 31, 2011

In the tables, all dollar amounts are in millions and numbers in parenthesis ( ) denote unfavorable variances.

Net sales:


Consolidated net sales in 2012 were $1,426.1 million, an increase of $44.7
million, or 3.2%, compared to $1,381.4 million in 2011. Excluding the
unfavorable impact of foreign currency fluctuations of $21.2 million,
consolidated net sales increased by $65.9 million, or 4.8% in 2012, primarily
driven by higher net sales of Revlon color cosmetics, Revlon ColorSilkhair color
and SinfulColors color cosmetics, as well as the inclusion of the net sales of
Pure Ice color cosmetics beginning in July 2012. These increases were partially
offset by lower net sales of fragrances and other beauty care products.



                                           Year Ended December 31,               Change               XFX Change  (a)
                                             2012             2011           $            %            $            %
United States                            $      799.8       $   757.4     $  42.4          5.6 %    $   42.4         5.6 %
Asia Pacific                                    238.9           233.4         5.5          2.4           4.4         1.9
Europe, Middle East and Africa                  184.4           208.7       (24.3 )      (11.6 )        (8.9 )      (4.3 )
Latin America and Canada                        203.0           181.9        21.1         11.6          28.0        15.4

Consolidated Net Sales                   $    1,426.1       $ 1,381.4     $  44.7          3.2 %    $   65.9         4.8 %





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


United States



                                       27

--------------------------------------------------------------------------------

Table of Contents


In the U.S., net sales in 2012 increased 5.6% to $799.8 million, compared to
$757.4 million in 2011, primarily driven by the higher net sales of Revlon color
cosmetics and SinfulColors color cosmetics, as well as the inclusion of the net
sales of Pure Ice color cosmetics beginning in July 2012, partially offset by
lower net sales of Almay color cosmetics. Excluding the results of the recently
acquired Pure Ice color cosmetics, net sales in the U.S. increased in 2012.

Asia Pacific


In Asia Pacific, net sales in 2012 increased 2.4% to $238.9 million, compared to
$233.4 million in 2011. Excluding the favorable impact of foreign currency
fluctuations, net sales increased $4.4 million, or 1.9%, in 2012, primarily
driven by higher net sales of Revlon color cosmetics. From a country
perspective, net sales increased in Japan and certain distributor territories
(which together contributed 4.1 percentage points to the increase in the
region's net sales in 2012, as compared to 2011), partially offset by a decrease
in net sales in China (which offset by 2.1 percentage points the increase in the
region's net sales in 2012, as compared to 2011).

Europe, Middle East and Africa


In Europe, the Middle East and Africa, net sales in 2012 decreased 11.6% to
$184.4 million, compared to $208.7 million in 2011. Excluding the unfavorable
impact of foreign currency fluctuations, net sales decreased $8.9 million, or
4.3%, in 2012, primarily driven by lower net sales of fragrances and a higher
returns accrual of $1.6 million recorded in 2012 related to the September 2012
Program. From a country perspective, net sales decreased in Italy, France and
certain distributor territories (which together contributed 5.9 percentage
points to the decrease in the region's net sales in 2012, as compared to 2011),
partially offset by an increase in net sales in South Africa (which offset by
1.2 percentage points the decrease in the region's net sales in 2012, as
compared to 2011). The decrease in the net sales in France and Italy was
partially driven by the $1.6 million higher returns accrual noted above.

Latin America and Canada


In Latin America and Canada, net sales in 2012 increased 11.6% to $203.0
million, compared to $181.9 million in 2011. Excluding the unfavorable impact of
foreign currency fluctuations, net sales increased $28.0 million, or 15.4%, in
2012, primarily driven by higher net sales of Revlon color cosmetics, Revlon
ColorSilk hair color and Almay color cosmetics. From a country perspective, net
sales increased throughout the region. Venezuela's increase in net sales in 2012
was partially driven by the loss of sales during June through December 2011 as a
result of the June 2011 fire which destroyed Revlon Venezuela's facility. Net
sales in Argentina and Venezuela also benefited from higher selling prices given
market conditions and inflation, which accounted for approximately one-third of
the $28.0 million increase in the region's net sales.

Gross profit:



                                       Year Ended December 31,
                                        2012               2011        Change
           Gross profit              $     919.6         $  888.8      $  30.8
           Percentage of net sales          64.5 %           64.3 %        0.2 %

The 0.2 percentage point increase in gross profit as a percentage of net sales for 2012, compared 2011, was primarily due to:

• lower manufacturing costs, including materials and freight costs, as a

result of supply chain cost reduction initiatives, which increased gross

         profit as a percentage of net sales by 0.6 percentage points; and




     •   lower sales returns and allowances which increased gross profit as a

percentage of net sales by 0.4 percentage points;

with the foregoing partially offset by:

                                       28

--------------------------------------------------------------------------------

Table of Contents

• the impact of product mix, which reduced gross profit as a percentage of

         net sales by 0.5 percentage points;



• higher costs related to inventory obsolescence, which reduced gross profit

         as a percentage of net sales by 0.3 percentage points; and




     •   restructuring related charges recognized in connection with the September

2012 Program, which reduced gross profit as a percentage of net sales by

0.1 percentage points.



SG&A expenses:



                                   Year Ended December 31,
                                   2012               2011         Change
               SG&A expenses   $      690.9       $      678.1     $ (12.8 )

The $12.8 million increase in SG&A expenses for 2012, as compared to 2011, was driven primarily by:

$9.8 million of higher general and administrative expenses, principally

         due to higher insurance expense and higher compensation expense; and




     •   $6.9 million lower benefit from insurance proceeds related to the
         Venezuela fire recognized in SG&A expenses in 2012, as compared to 2011;


with the foregoing partially offset by:

$8.7 million of favorable impact of foreign currency fluctuations.


Restructuring charges:



                                       Year Ended December 31,
                                         2012               2011      Change
            Restructuring charges   $         20.7         $   -      $ (20.7 )


During 2012, the Company recorded charges totaling $24.1 million related to the
September 2012 Program, which primarily involved the Company exiting its owned
manufacturing facility in France and its leased manufacturing facility in
Maryland; rightsizing its organizations in France and Italy; and realigning its
operations in Latin America, including consolidating Latin America and Canada
into a single operating region. Of the $24.1 million charge: (a) $20.7 million
is recorded in restructuring charges; (b) $1.6 million is recorded as a
reduction to net sales; (c) $1.2 million is recorded in cost of goods sold; and
(d) $0.6 million is recorded in SG&A expenses. See Note 3, "Restructuring
Charges," to the Consolidated Financial Statements in this Form 10-K for further
discussion of the above.

Interest expense:



                                    Year Ended December 31,
                                    2012              2011          Change
              Interest expense   $      85.3       $      91.1     $    5.8




                                       29

--------------------------------------------------------------------------------

Table of Contents


The $5.8 million decrease in interest expense for 2012, as compared to 2011, was
primarily due to lower weighted average borrowing rates as a result of the 2011
Term Loan Facility Refinancing. (See "Financial Condition, Liquidity and Capital
Resources - Long Term Debt Instruments" and Note 10, "Long-Term Debt" to the
Consolidated Financial Statements in this Form 10-K).

Loss on early extinguishment of debt, net:



                                                 Year Ended December 31,
                                               2012                 2011          Change

Loss on early extinguishment of debt, net $ - $ 11.2 $ 11.2



As a result of the 2011 Refinancings, the Company recognized a loss on the early
extinguishment of debt of $11.2 million during 2011, due to $1.7 million of fees
which were expensed as incurred in connection with the 2011 Refinancings, as
well as the write-off of $9.5 million of unamortized debt discount and deferred
financing fees as a result of such refinancings.

Foreign currency losses, net:



                                          Year Ended December 31,
                                         2012                2011          Change

Foreign currency losses, net $ 2.7 $ 4.4 $

1.7

The decrease in foreign currency losses, net of $1.7 million during 2012, as compared to 2011, was primarily driven by:




     •   lower losses as a result of the revaluation of certain U.S. Dollar
         denominated intercompany payables and foreign currency denominated
         intercompany receivables from the Company's foreign subsidiaries during
         2012 as compared to 2011; and



• a foreign currency loss of $1.7 million recorded in 2011 related to the

re-measurement of Revlon Venezuela's balance sheet that did not recur in

2012. See "Financial Condition, Liquidity and Capital Resources - Impact

of Foreign Currency Translation - Venezuela" for further discussion;

with the foregoing partially offset by:

$0.8 million of higher foreign currency losses related to the Company's

         foreign currency forward exchange contracts ("FX Contracts") during 2012
         compared to 2011.


Provision for income taxes:



                                         Year Ended December 31,
                                         2012              2011         Change
         Provision for income taxes   $      44.8       $      35.4     $  (9.4 )


The provision for income taxes in 2012 included a non-cash benefit of $15.8
million related to the reduction of the Company's deferred tax valuation
allowance on certain of its net deferred tax assets for certain jurisdictions
within the U.S. at December 31, 2012 as a result of the Company's improved
earnings trends and cumulative taxable income in those jurisdictions. The
provision for income taxes in 2011 included a non-cash benefit of $16.9 million
recorded in 2011 related to the reduction of the Company's deferred tax
valuation allowance on its net deferred tax assets for certain jurisdictions
outside the U.S. at December 31, 2011 as a result



                                       30

--------------------------------------------------------------------------------

Table of Contents


of the Company's improved earnings trends and cumulative taxable income in those
jurisdictions. Excluding these non-cash benefits, the provision for income taxes
in 2012 was higher than 2011 primarily due to increased pre-tax income,
partially offset by various discrete items, including the favorable resolution
of tax matters in certain foreign jurisdictions.

The effective tax rate for 2012 is higher than the federal statutory rate of 35%
due principally to: (a) foreign dividends and earnings taxable in the U.S.; and
(b) the impact of certain expenses for which there is no tax benefit recognized,
primarily related to the September 2012 Program (see Note 3, "Restructuring
Charges" to the Consolidated Financial Statements in this Form 10-K), partially
offset by the effect of the $15.8 million reduction of the deferred tax
valuation allowance described above.

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.
The ultimate realization of deferred tax assets is generally dependent upon the
generation of future taxable income during the periods in which those temporary
differences become deductible. Management considers the scheduled reversal of
deferred tax liabilities, projected future taxable income and tax planning
strategies in making this assessment.

Based on the level of historical losses for certain jurisdictions within the
U.S., the Company had maintained a deferred tax valuation allowance against
certain of its deferred tax assets. As of December 31, 2012, the Company had
experienced improved earnings trends and had cumulative taxable income in such
jurisdictions. 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
concluded that it was more likely than not that the Company would realize the
benefits of certain of its net deferred tax assets existing at December 31, 2012
in those jurisdictions. Therefore, at December 31, 2012, the Company realized a
non-cash benefit of $15.8 million related to a reduction of the Company's
deferred tax valuation allowance on certain of its net deferred tax assets for
certain jurisdictions within the U.S. The Company reflected this benefit in the
tax provision and this non-cash benefit increased net income at December 31,
2012.

Based upon the level of historical taxable losses for certain jurisdictions
outside the U.S., the Company had maintained a deferred tax valuation allowance
against its deferred tax assets. As of December 31, 2011, the Company
experienced improved earnings trends and had cumulative taxable income in such
jurisdictions. 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
concluded that it was more likely than not that the Company would realize the
benefits of the net deferred tax assets existing at December 31, 2011 in those
jurisdictions. Therefore, at December 31, 2011, the Company realized a non-cash
benefit of $16.9 million related to a reduction of the Company's deferred tax
valuation allowance on its net deferred tax assets for certain jurisdictions
outside the U.S. The Company has reflected this benefit in the tax provision and
this non-cash benefit increased the Company's net income at December 31, 2011.

As a result of the reduction of the Company's deferred tax valuation allowance
in the U.S. during 2010, as discussed below in the "Year ended December 31, 2011
compared with the year ended December 31, 2010 - Provision for (benefit from)
income taxes", the Company's tax provision has reflected a higher effective tax
rate beginning with the first quarter of 2011. However, the increase in the
effective tax rate did not affect the Company's cash taxes paid in 2011 and 2012
and will not affect the Company's cash taxes paid thereafter until the Company
has fully used its tax loss carryforwards and other tax attributes in the U.S.

See Note 13, "Income Taxes," to the Consolidated Financial Statements in this Form 10-K for further discussion of the above.

Year ended December 31, 2011 compared with the year ended December 31, 2010

In the tables, all dollar amounts are in millions and numbers in parenthesis ( ) denote unfavorable variances.

Net sales:


Consolidated net sales in 2011 were $1,381.4 million, an increase of $60.0
million, or 4.5%, compared to $1,321.4 million in 2010. Excluding the favorable
impact of foreign currency fluctuations of $17.0 million, consolidated net sales
increased by $43.0 million, or 3.3% in 2011, primarily driven by the inclusion
of the net sales of SinfulColors color cosmetics beginning in March 2011, as
well as higher net sales of Revlon and



                                       31

--------------------------------------------------------------------------------

Table of Contents


Almay color cosmetics and Revlon ColorSilk hair color. These increases were
partially offset by lower net sales of Revlon beauty tools and lower net sales
of other beauty care products in Venezuela as a result of the June 2011 fire at
Revlon Venezuela's facility.



                                            Year Ended December 31,              Change              XFX Change  (a)
                                              2011             2010          $           %             $            %
United States                             $      757.4       $   729.1     $ 28.3         3.9 %    $    28.3        3.9 %
Asia Pacific                                     233.4           209.9       23.5        11.2            8.4        4.0
Europe, Middle East and Africa                   208.7           200.4        8.3         4.1            4.0        2.0
Latin America and Canada                         181.9           182.0       (0.1 )      (0.1 )          2.3        1.3

Consolidated Net Sales                    $    1,381.4       $ 1,321.4     $ 60.0         4.5 %    $    43.0        3.3 %





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


United States


In the U.S., net sales in 2011 increased 3.9% to $757.4 million, compared to
$729.1 million in 2010, primarily driven by the inclusion of the net sales of
SinfulColors color cosmetics beginning in March 2011, as well as higher net
sales of Almay color cosmetics and Revlon ColorSilk hair color, partially offset
by lower net sales of Revlon beauty tools and Revlon color cosmetics. Excluding
the results of SinfulColors color cosmetics, net sales in the U.S. increased in
2011.

Asia Pacific

In Asia Pacific, net sales in 2011 increased 11.2% to $233.4 million, compared
to $209.9 million in 2010. Excluding the favorable impact of foreign currency
fluctuations, net sales increased $8.4 million, or 4.0%, in 2011, primarily
driven by higher net sales of Revlon color cosmetics. From a country
perspective, net sales increased in China and certain distributor markets (which
together contributed 6.2 percentage points to the increase in the region's net
sales in 2011, as compared to 2010), partially offset by a decrease in net sales
in Japan and Australia (which together offset by 2.1 percentage points the
increase in the region's net sales in 2011, as compared to 2010).

Europe, Middle East and Africa


In Europe, the Middle East and Africa, net sales in 2011 increased 4.1% to
$208.7 million, compared to $200.4 million in 2010. Excluding the favorable
impact of foreign currency fluctuations, net sales increased $4.0 million, or
2.0%, in 2011, primarily driven by higher net sales of Revlon color cosmetics.
From a country perspective, net sales increased in South Africa (which
contributed 2.5 percentage points to the increase in the region's net sales in
2011, as compared to 2010), partially offset by a decrease in net sales in Italy
(which offset by 0.8 percentage points the increase in the region's net sales in
2011, as compared to 2010).

Latin America and Canada

In Latin America and Canada, net sales in 2011 decreased 0.1% to $181.9 million,
compared to $182.0 million in 2010. Excluding the unfavorable impact of foreign
currency fluctuations, net sales increased $2.3 million, or 1.3%, in 2011,
primarily driven by higher net sales of Revlon color cosmetics, partially offset
by lower net sales of other beauty care products. From a country perspective,
net sales increased in Argentina and Latin America Export (which together
contributed 3.9 percentage points to the increase in the region's net sales in
2011, as compared to 2010), partially offset by a decrease in net sales in
Venezuela and Canada (which together offset by 3.1 percentage points the
increase in the region's net sales in 2011, as compared to 2010). Venezuela's
decline in net sales was due to the loss of a significant portion of sales from
June through December 2011 as a result of the June 2011 fire which destroyed
Revlon Venezuela's facility. Revlon Venezuela resumed sales of imported goods on
August 12, 2011; however, the Company had not recorded any sales of locally
manufactured goods in Venezuela since the fire in June 2011.

Gross profit:



                                       32

--------------------------------------------------------------------------------

  Table of Contents
                                      Year Ended December 31,
                                       2011               2010        Change
          Gross profit              $     888.8         $  866.1      $  22.7
          Percentage of net sales          64.3 %           65.5 %       (1.2 )%

The 1.2 percentage point decrease in gross profit as a percentage of net sales for 2011, compared to 2010, was primarily due to:

• the impact of product mix, which reduced gross profit as a percentage of

         net sales by 1.3 percentage points; and




     •   higher allowances, which reduced gross profit as a percentage of net sales

by 0.9 percentage points;

with the foregoing partially offset by:

• favorable foreign currency fluctuations, which increased gross profit as a

         percentage of net sales by 0.6 percentage points;



• lower pension expenses within cost of goods, which increased gross profit

as a percentage of net sales by 0.2 percentage points.



SG&A expenses:



                                   Year Ended December 31,
                                   2011               2010         Change
               SG&A expenses   $      678.1       $      659.3     $ (18.8 )

The $18.8 million increase in SG&A expenses for 2011, as compared to 2010, was driven primarily by:

$17.8 million of higher general and administrative expenses primarily due

to (i) the inclusion of operating expenses of SinfulColors from the date

         of acquisition in March 2011, (ii) higher compensation expenses,
         (iii) higher professional fees and (iv) higher depreciation costs; and



$8.7 million of unfavorable impact of foreign currency fluctuations;

with the foregoing partially offset by:

$9.7 million, net, from insurance recoveries, which is comprised of $14.6

         million of income from insurance recoveries related to the fire that
         destroyed Revlon Venezuela's facility, partially offset by the $4.9

million impairment loss related to Revlon Venezuela's net book value of

inventory, property, plant and equipment destroyed by the fire. The $9.7

million, net, from insurance recoveries entirely offset the business

interruption losses incurred from June 5, 2011 through December 31, 2011.

(See "Management's Discussion and Analysis of Financial Condition and

         Results of Operations - Fire at Revlon Venezuela's Facility" for further
         discussion).


Interest expense:



                                    Year Ended December 31,
                                    2011              2010          Change
              Interest expense   $      91.1       $      96.7     $    5.6




                                       33

--------------------------------------------------------------------------------

Table of Contents


The $5.6 million decrease in interest expense for 2011, as compared to 2010, was
primarily due to lower weighted average borrowing rates as a result of the 2011
Refinancings. (See "Financial Condition, Liquidity and Capital Resources - 2011
Refinancings" and Note 10, "Long-Term Debt," to the Consolidated Financial
Statements in this Form 10-K).

Loss on early extinguishment of debt, net:



                                                 Year Ended December 31,
                                                  2011               2010       Change
  Loss on early extinguishment of debt, net   $        11.2         $   9.7     $  (1.5 )


As a result of the 2011 Refinancings, the Company recognized a loss on the early
extinguishment of debt of $11.2 million during 2011, due to $1.7 million of fees
which were expensed as incurred in connection with the 2011 Refinancings, as
well as the write-off of $9.5 million of unamortized debt discount and deferred
financing fees as a result of such refinancings.

During March 2010, Products Corporation consummated the refinancing of its 2006
bank term loan facility and its 2006 revolving credit facility (together
referred to as the "2010 Refinancing"). As a result of the 2010 Refinancing, the
Company recognized a loss on the early extinguishment of debt of $9.7 million
during 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 as a result of
such refinancing.

Foreign currency losses:



                                        Year Ended December 31,
                                       2011                2010          Change

Foreign currency losses $ 4.4 $ 6.3 $

1.9

The $1.9 million decrease in foreign currency losses during 2011, as compared to 2010, was primarily driven by:

• a $1.1 million lower foreign currency loss in 2011 compared to 2010

related to the re-measurements of Revlon Venezuela's balance sheet (see

"Financial Condition, Liquidity and Capital Resources - Impact of Foreign

         Currency Translation - Venezuela"); and



$2.0 million of lower foreign currency losses related to the Company's FX

Contracts during 2011 compared to 2010;

with the foregoing partially offset by:

• the unfavorable impact of the revaluation of certain U.S.

dollar-denominated intercompany payables from the Company's foreign

subsidiaries compared to 2010.

Provision for (benefit from) income taxes:



                                               Year Ended December 31,
                                               2011              2010            Change

Provision for (benefit from) income taxes $ 35.4 $ (235.3 ) $ (270.7 )




                                       34

--------------------------------------------------------------------------------

Table of Contents


The provision for income taxes in 2011 included a non-cash benefit of $16.9
million related to the reduction of the Company's deferred tax valuation
allowance on its net deferred tax assets for certain jurisdictions outside the
U.S. at December 31, 2011 as discussed above in "Results of Operations -
Provision for Income Taxes". The benefit for income taxes in 2010 included a
non-cash benefit of $248.5 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. Excluding these non-cash benefits, the provision for income
taxes in 2011 was higher than 2010 primarily due to higher deferred tax expense
for the U.S. in 2011 due to the reduction of the valuation allowance in the U.S.
on December 31, 2010 and higher pre-tax income in the U.S. in 2011. In addition,
the provision for income taxes in 2010 benefited from various discrete items,
including the favorable resolution of tax matters in the U.S. and certain
foreign jurisdictions, that did not recur in 2011.

The effective tax rate for 2011 is higher than the federal statutory rate of 35%
due principally to: (i) foreign dividends and earnings taxable in the U.S.; and
(ii) foreign and U.S. tax effects attributable to operations outside the U.S.,
including pre-tax losses in a number of jurisdictions outside the U.S. for which
there is no tax benefit recognized in the period, partially offset by the effect
of the reduction of the deferred tax valuation allowance described above.

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 had experienced improved earnings
trends and had cumulative taxable income. 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 were
recoverable, management concluded that it was more likely than not that the
Company would realize the benefits of the net deferred tax assets existing at
December 31, 2010. Therefore, at December 31, 2010, the Company realized a
non-cash benefit of $248.5 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 reflected this benefit in the tax provision and
this non-cash benefit increased net income at December 31, 2010.

See Note 13, "Income Taxes," to the Consolidated Financial Statements in this Form 10-K for further discussion of the above.

Financial Condition, Liquidity and Capital Resources


At December 31, 2012, the Company had liquidity of $237.6 million, consisting of
cash and cash equivalents (net of any outstanding checks) of $108.0 million, as
well as $129.6 million in available borrowings under the 2011 Revolving Credit
Facility (based upon the borrowing base less $10.4 million of undrawn
outstanding letters of credit and nil then drawn under the 2011 Revolving Credit
Facility at such date).

Cash Flows

At December 31, 2012, the Company had cash and cash equivalents of $116.3 million, compared with $101.7 million at December 31, 2011. The following table summarizes the Company's cash flows from operating, investing and financing activities for 2012, 2011 and 2010 (all amounts are in millions):



                                                                Year Ended December 31,
                                                          2012           2011           2010
Net cash provided by operating activities                $ 104.1        $  88.0        $  96.7
Net cash used in investing activities                      (86.3 )        (52.6 )        (14.9 )
Net cash used in financing activities                       (3.4 )         (7.5 )        (62.3 )
Effect of exchange rate changes on cash and cash
equivalents                                                  0.2           

(2.9 ) 2.7



Net cash provided by operating activities was $104.1 million, $88.0 million and
$96.7 million for 2012, 2011 and 2010, respectively. As compared to 2011, cash
provided by operating activities in 2012 was impacted by favorable changes in
working capital and lower cash interest paid, partially offset by the renewal
and partial pre-payment of certain of the Company's multi-year insurance
programs. As compared to 2010, cash provided



                                       35

--------------------------------------------------------------------------------

Table of Contents

by operating activities in 2011 was impacted by higher interest payments, increased permanent display spending and increased pension contributions.

Net cash used in investing activities was $86.3 million, $52.6 million and $14.9 million for 2012, 2011 and 2010, respectively.

Net cash used in investing activities for 2012 included:

$66.2 million for the Pure Ice Acquisition; and




  •   $20.9 million used for capital expenditures.

Net cash used in investing activities for 2011 included:

$39.0 million for the SinfulColors Acquisition (as hereinafter defined).

On March 17, 2011, the Company acquired certain assets, including

trademarks and other intellectual property, inventory, certain receivables

and manufacturing equipment, related to SinfulColors cosmetics, Wild and

         Crazy cosmetics, freshMinerals cosmetics and freshcover cosmetics, which
         products are sold principally in the U.S. mass retail channel (the
         "SinfulColors Acquisition"); and




  •   $13.9 million used for capital expenditures.

Net cash used in investing activities in 2010 included $15.2 million of capital expenditures.

Net cash used in financing activities was $3.4 million, $7.5 million and $62.3 million for 2012, 2011 and 2010, respectively.

Net cash used in financing activities for 2012 included:

• an aggregate $8.0 million of scheduled amortization payments on the 2011

Term Loan Facility in 2012;

with the foregoing partially offset by:



  •   a $6.3 million increase in short term borrowings and overdraft.

Net cash used in financing activities for 2011 included:

• payment of the $4.3 million of fees incurred in connection with the 2011

         Refinancings; and




     •   an aggregate $4.0 million of scheduled amortization payments on the 2011

Term Loan Facility in 2011;

with the foregoing partially offset by:

• cash provided by Products Corporation's issuance of the $800.0 million

aggregate principal amount of the 2011 Term Loan Facility, or $796.0

million, net of discounts, partially offset by cash used for the repayment

of $794.0 million remaining aggregate principal amount of Products

Corporation's 2010 Term Loan Facility.

Net cash used in financing activities for 2010 included:

• cash used for repayment of $815.0 million remaining aggregate principal

amount of Products Corporation's 2006 bank 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 $17.0 million, which was comprised of

(i) the payment of $15.3 million of fees incurred in connection with the

2010 refinancing of Products Corporation's 2006 bank term loan facility

and revolving credit facility 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 Products Corporation's 9 1/2% Senior

Notes in November 2009 with the 9 3/4% Senior Secured Notes due November

         2015.


2012 Debt Transaction

Products Corporation was party to the Senior Subordinated Term Loan Agreement, consisting of (i) the $58.4 million Non-Contributed Loan (as hereinafter defined) which, at December 31, 2011, remained owing from

                                       36

--------------------------------------------------------------------------------

Table of Contents

Products Corporation to MacAndrews & Forbes, and which matures on October 8,
2014, and (ii) the $48.6 million Contributed Loan (as hereinafter defined),
which remains due from Products Corporation to Revlon, Inc. and which matures on
October 8, 2013. On April 30, 2012, MacAndrews & Forbes exercised its right to
assign its interest in the Non-Contributed Loan to various third parties. In
connection with such assignment, Products Corporation entered into an Amended
and Restated Senior Subordinated Term Loan Agreement with MacAndrews & Forbes
(the "Amended and Restated Senior Subordinated Term Loan Agreement") to:
(1) modify the interest rate on the Non-Contributed Loan from its prior 12%
fixed rate to a floating rate of LIBOR plus 7%, with a 1.5% LIBOR floor,
resulting in an interest rate of approximately 8.5% per annum (or a 3.5%
reduction per annum) upon the effectiveness of the Amended and Restated Senior
Subordinated Term Loan Agreement; (2) insert certain prepayment premiums; and
(3) designate Citibank, N.A. as the administrative agent for the Non-Contributed
Loan. Refer to "Amended and Restated Senior Subordinated Term Loan Agreement"
below for further discussion of the above.

2011 Refinancings


In the second quarter of 2011, Products Corporation consummated refinancing of
its 2010 Term Loan Facility with the 2011 Term Loan Facility and Products
Corporation's 2010 Revolving Credit Facility with the 2011 Revolving Credit
Facility (together referred to as the "2011 Refinancings"), reducing interest
rates and extending maturities.

In May 2011, Products Corporation consummated a refinancing of the 2010 Term
Loan Facility (the "2011 Term Loan Facility Refinancing"), which included
replacing Products Corporation's 2010 bank term loan facility, which was
scheduled to mature on March 11, 2015 and had $794.0 million aggregate principal
amount outstanding at December 31, 2010 (the "2010 Term Loan Facility"), with a
6.5-year, $800.0 million term loan facility due November 19, 2017 (the "2011
Term Loan Facility"). Products Corporation used $796 million of proceeds from
the 2011 Term Loan Facility, which was drawn in full on the May 19, 2011 closing
date and issued to lenders at 99.5% of par, to refinance in full the $792.0
million of then outstanding indebtedness under its 2010 Term Loan Facility and
to pay approximately $2 million of accrued interest. Products Corporation
incurred $3.6 million of fees in connection with consummating the 2011 Term Loan
Facility Refinancing, of which $1.9 million was capitalized.

In June 2011, Products Corporation consummated a refinancing of the 2010
Revolving Credit Facility, which included refinancing Products Corporation's
2010 revolving credit facility, which was scheduled to mature on March 11, 2014
and had nil outstanding borrowings at December 31, 2010, with a 5-year, $140.0
million asset-based, multi-currency revolving credit facility due June 16, 2016.
Products Corporation incurred $0.7 million of fees in connection with
consummating the 2011 Revolving Credit Facility Refinancing, all of which were
capitalized.

The following is a summary description of the 2011 Term Loan Facility and 2011
Revolving Credit Facility. Investors should refer to the principal refinancing
agreements (copies of which are included as exhibits to the Company's Form 10-Q
for the period ended June 30, 2011, filed with the SEC on July 28, 2011) for
complete terms and conditions. Unless otherwise indicated, capitalized terms
have the meanings given to them in the 2011 Term Loan Agreement and/or the 2011
Revolving Credit Agreement, as applicable.

2011 Term Loan Facility


Under the 2011 Term Loan Facility, Eurodollar Loans bear interest at the
Eurodollar Rate plus 3.50% per annum (with the Eurodollar Rate not to be less
than 1.25%) and Alternate Base Rate loans bear interest at the Alternate Base
Rate plus 2.50% (with the Alternate Base Rate not to be less than 2.25%). Prior
to the November 2017 termination date of the 2011 Term Loan Facility, on
September 30, December 31, March 31 and June 30 of each year, Products
Corporation is required to repay $2 million of the principal amount of the term
loans outstanding under the 2011 Term Loan Facility on each respective date. For
other prepayment terms (including, without limitation, the requirement to
pre-pay the 2011 Term Loan Facility with 50% of Products Corporation's "excess
cash flow", commencing with excess cash flow for the 2012 fiscal year payable in
the first 100 days of 2013, which prepayments are applied to reduce Products
Corporation's future regularly scheduled term loan amortization payments in the
direct order of maturities), see Note 10, "Long-Term Debt," to the Consolidated
Financial Statements in this Form 10-K. In addition to its regularly scheduled
$2.0 million principal repayment due on March 31, 2013, prior to April 10, 2013,
Products Corporation will also be required to repay approximately $19.5 million
of indebtedness under the 2011 Term Loan Facility, representing 50% of its 2012
"excess cash flow" (as defined under the 2011 Term Loan Agreement), which
repayment would satisfy Products



                                       37

--------------------------------------------------------------------------------

Table of Contents

Corporation's future regularly scheduled term loan amortization payments in the direct order of maturities beginning in June 2013 through September 2015.


The 2011 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 2011 Term Loan Facility that is not junior or subordinated to the
liens securing the 2011 Term Loan Facility (excluding debt outstanding under the
2011 Revolving Credit Facility) to EBITDA), to no more than 4.0 to 1.0 for each
period of four consecutive fiscal quarters during the period from June 30, 2011
to such facility's November 2017 maturity date.

Under certain circumstances, Products Corporation has the right to request the
2011 Term Loan Facility to be increased by up to $300 million, provided that the
lenders are not committed to provide any such increase.

The 2011 Term Loan Facility matures on November 19, 2017; provided, however, it
will mature on August 15, 2015 if Products Corporation's 9 3/4% Senior Secured
Notes have not been refinanced, redeemed, repurchased, defeased or repaid in
full on or before such date. See "2013 Senior Notes Refinancing" below for a
discussion of the 2013 refinancing of the 9 3/4% Senior Secured Notes.

2011 Revolving Credit Facility


Availability under the 2011 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.

If the value of the eligible assets is not sufficient to support the
$140.0 million borrowing base under the 2011 Revolving Credit Facility, Products
Corporation will not have full access to the 2011 Revolving Credit Facility.
Products Corporation's ability to borrow under the 2011 Revolving Credit
Facility is also conditioned upon the satisfaction of certain conditions
precedent and Products Corporation's compliance with other covenants in the 2011
Revolving Credit Agreement.

Under the 2011 Revolving Credit Facility, borrowings (other than loans in foreign currencies) bear interest, if made as Eurodollar Loans, at the Eurodollar Rate, plus the applicable margin set forth in the grid below and, if made as Alternate Base Rate loans, at the Alternate Base Rate, plus the applicable margin set forth in the grid below:



                                                                                 Eurodollar
                                                                                   Loans,
                                                                                Eurocurrency
                                                                                  Loans or
                                                     Alternate Base                Local
Excess Availability                                    Rate Loans                Rate Loans
Greater than or equal to $92,000,000                            1.00 %                   2.00 %
Less than $92,000,000 but greater than or
equal to $46,000,000                                            1.25 %                   2.25 %
Less than $46,000,000                                           1.50 %                   2.50 %


Local Loans 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 the applicable margin set forth in the grid above or (ii) if in
U.S. dollars at the Alternate Base Rate plus the applicable margin set forth in
the grid above. For other fees payable to the lenders under the 2011 Revolving
Credit Facility (including, without limitation, a commitment fee of 0.375% of
the average daily unused portion of the 2011 Revolving Credit Facility), see
Note 10, "Long-Term Debt and," to the Consolidated Financial Statements in this
Form 10-K.

For prepayment terms under the 2011 Revolving Credit Facility, see Note 10, "Long-Term Debt," to the Consolidated Financial Statements in this Form 10-K.


Under certain circumstances, Products Corporation has the right to request that
the 2011 Revolving Credit Facility be increased by up to $60.0 million, provided
that the lenders are not committed to provide any such increase.



                                       38

--------------------------------------------------------------------------------

Table of Contents


Under certain circumstances if and when the difference between (i) the borrowing
base under the 2011 Revolving Credit Facility and (ii) the amounts outstanding
under the 2011 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
2011 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) of a minimum of 1.0 to
1.0.

The 2011 Revolving Credit Facility matures on June 16, 2016; provided, however,
it will mature on August 15, 2015 if Products Corporation's 9 3/4% Senior
Secured Notes have not been refinanced, redeemed, repurchased, defeased or
repaid in full on or before such date. See "2013 Senior Notes Refinancing" below
for a discussion of the 2013 refinancing of the 9 3/4% Senior Secured Notes.

Covenants and Defaults Applicable to the 2011 Credit Facilities

The 2011 Credit Facilities contain various restrictive covenants prohibiting Products Corporation and its subsidiaries from:

(i) incurring additional indebtedness or guarantees, with certain exceptions;

(ii) making dividend and other payments or loans to Revlon, Inc. or other affiliates, with certain exceptions, including among others:


(a) exceptions permitting Products Corporation to pay dividends or make other
payments to Revlon, Inc. to enable it to, among other things, pay expenses
incidental to being a public holding company, including, among other things,
professional fees such as legal, accounting and insurance fees, regulatory fees,
such as SEC filing fees and 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 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 an amount up to $10 million per year (plus
$10 million for each calendar year commencing with 2011), other restricted
payments in an aggregate amount not to exceed $35 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 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 million, unless such transaction has been approved by
all of the independent directors of Products Corporation, subject to certain
exceptions.



                                       39

--------------------------------------------------------------------------------

Table of Contents


The events of default under the 2011 Credit Facilities include customary events
of default for such types of agreements. For a description of the events of
defaults, see Note 10, "Long-Term Debt," to the Consolidated Financial
Statements in this Form 10-K. If Products Corporation is in default under the
senior secured leverage ratio under the 2011 Term Loan Facility or the
consolidated fixed charge coverage ratio under the 2011 Revolving Credit
Agreement, 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. Products Corporation may exercise this cure
right two times in any four-quarter period.

Products Corporation was in compliance with all applicable covenants under the
2011 Term Loan Agreement and 2011 Revolving Credit Agreement upon closing the
respective 2011 Refinancings and as of December 31, 2012. At December 31, 2012,
the aggregate principal amount outstanding under the 2011 Term Loan Facility was
$788.0 million and availability under the $140.0 million 2011 Revolving Credit
Facility, based upon the calculated borrowing base less $10.4 million of
outstanding undrawn letters of credit and nil then drawn on the 2011 Revolving
Credit Facility, was $129.6 million. During 2012 and 2011, the average
borrowings outstanding under the 2011 Revolving Credit Facility were $4.1
million and $5.8 million, respectively.

For further detail regarding the 2011 Refinancings, see Note 10, "Long-Term Debt," to the Consolidated Financial Statements in this Form 10-K.

9 3/4% Senior Secured Notes due 2015


In November 2009, Products Corporation issued and sold $330.0 million in
aggregate principal amount of the 9  3/4% Senior Secured Notes due November 15,
2015 (the "9 3/4% 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 9 3/4% Senior Secured Notes
is 10%. Pursuant to a registration rights agreement, in July 2010, Products
Corporation completed an offer to exchange the original 9 3/4% Senior Secured
Notes for up to $330 million in aggregate principal amount of its 9 3/4% Senior
Secured Notes due 2015 that have been registered under the Securities Act of
1933, as amended (the "Securities Act"), in which 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 9 3/4% Senior Secured Notes bear interest at an annual rate of 9 3/4%, which
is payable on May 15 and November 15 of each year, requiring bi-annual interest
payments of $16.1 million on each interest payment date, based on the
$330.0 million aggregate principal face amount of the 9 3/4% Senior Secured
Notes outstanding as of December 31, 2012.

Upon a Change in Control (as defined in the 9 3/4% Senior Secured Notes
Indenture), subject to certain conditions, each holder of the 9 3/4% Senior
Secured Notes will have the right to require Products Corporation to repurchase
all or a portion of such holder's 9 3/4% 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 9 3/4% 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, mergers 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 9 3/4% Senior Secured
Notes Indenture. Products Corporation was in compliance with all applicable
covenants under its 9 3/4% Senior Secured Notes Indenture as of December 31,
2012.

For further discussion regarding the 9 3/4% Senior Secured Notes, due November
2015, see Note 10, "Long-Term Debt," to the Consolidated Financial Statements in
this Form 10-K.

See "2013 Senior Notes Refinancing" below for a discussion of the 2013 refinancing of the 9 3/4% Senior Secured Notes.

                                       40

--------------------------------------------------------------------------------

Table of Contents

Amended and Restated Senior Subordinated Term Loan


In October 2009, Revlon, Inc. consummated a voluntary exchange offer transaction
(the "2009 Exchange Offer"), 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 (the "Contributed Loan"), representing
$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 2009 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 2009 Exchange Offer, the terms of the
Senior Subordinated Term Loan Agreement were amended to extend the maturity date
of 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 of the
$58.4 million principal amount of the Senior Subordinated Term Loan which, at
December 31, 2011, remained 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%.

On April 30, 2012, MacAndrews & Forbes exercised its right to assign its
interest in the Non-Contributed Loan. In connection with such assignment,
Products Corporation entered into the Amended and Restated Senior Subordinated
Term Loan Agreement with MacAndrews & Forbes and a related Administrative Letter
was entered into with Citibank, N.A. and MacAndrews & Forbes, to among other
things:



     •   modify the interest rate on the Non-Contributed Loan from its prior 12%
         fixed rate to a floating rate of LIBOR plus 7%, with a 1.5% LIBOR floor,
         resulting in an interest rate of approximately 8.5% per annum (or a 3.5%

reduction per annum) upon the effectiveness of the Amended and Restated

Senior Subordinated Term Loan Agreement. Interest under the Amended and

Restated Senior Subordinated Term Loan Agreement is payable quarterly in

         arrears in cash;



• insert prepayment premiums such that Products Corporation may optionally

prepay the Non-Contributed Loan (i) through October 31, 2013 with a

prepayment premium based on a formula designed to provide the assignees of

the Non-Contributed Loan with the present value, using a discount rate of

75 basis points over U.S. Treasuries, of the principal, premium and

interest that would have accrued on the Non-Contributed Loan from any such

prepayment date through October 31, 2013 (provided that, pursuant to the

loan's terms (both before and after giving effect to these amendments), no

portion of the principal amount of the Non-Contributed Loan may be repaid

prior to its October 8, 2014 maturity date unless and until 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), (ii) from November 1, 2013 through April 30, 2014
         with a 2% prepayment premium on the aggregate principal amount of the

Non-Contributed Loan being prepaid, and (iii) from May 1, 2014 through

         maturity on October 8, 2014 with no prepayment premium; and




     •   designate Citibank, N.A. as the administrative agent for the
         Non-Contributed Loan.

Concurrently with the effectiveness of the Amended and Restated Senior Subordinated Term Loan Agreement, MacAndrews & Forbes assigned its entire interest in the Non-Contributed Loan to several third parties.

For further discussion regarding the Amended and Restated Senior Subordinated Term Loan, see Note 10, "Long-Term Debt," to the Consolidated Financial Statements in this Form 10-K.

Impact of Foreign Currency Translation - Venezuela


For the years ended December 31, 2012, 2011 and 2010, Revlon Venezuela had net
sales of approximately 2%, 2% and 3%, respectively, of the Company's
consolidated net sales. At December 31, 2012 and 2011, total assets of Revlon
Venezuela were approximately 2% and 2%, respectively, of the Company's total
assets.

Highly-Inflationary Economy: Effective January 1, 2010, Venezuela was 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 Revlon
Venezuela. Through December 31, 2009, prior to Venezuela being designated as
highly inflationary, currency translation adjustments of Revlon Venezuela's
balance sheet were reflected in stockholder's deficiency



                                       41

--------------------------------------------------------------------------------

Table of Contents

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, Venezuelan Bolivars ("Bolivars"),
relative to the U.S. dollar and the official exchange rate for non-essential
goods changed from 2.15 to 4.30. Throughout 2010, the Company used Venezuela's
official rate to translate Revlon Venezuela's financial statements. In 2010, the
devaluation had the impact of reducing the Company's reported net sales and
operating income by $33.4 million and $8.4 million, respectively. Additionally,
to reflect the impact of the currency devaluation, the Company recorded a
one-time foreign currency loss of $2.8 million in January 2010 as a result of
the required re-measurement of Revlon Venezuela's balance sheet. As Venezuela
was designated as a highly inflationary economy effective January 1, 2010, this
foreign currency loss was reflected in earnings in the first quarter of 2010.

Currency Restrictions: Currency restrictions enacted by the Venezuelan
government in 2003 have become more restrictive and have impacted Revlon
Venezuela's ability to obtain U.S. dollars in exchange for Bolivars at the
official foreign exchange rates from the Venezuelan government and its foreign
exchange commission, the Comisión de Administracion de Divisas ("CADIVI"). In
May 2010, the Venezuelan government took control over the previously
freely-traded foreign currency exchange market and in June 2010, replaced it
with a new foreign currency exchange system, the Sistema de Transacciones en
Moneda Extranjera ("SITME"). SITME provides a mechanism to exchange Bolivars
into U.S. dollars. However, U.S. dollars accessed through SITME can only be used
for product purchases and related services, such as freight, and are not
available for other transactions, such as the payment of dividends. Also, SITME
can only be used for amounts of up to $50,000 per day, subject to a monthly
maximum of $350,000 per legal entity, and is generally only available to the
extent the applicant has not exchanged and received U.S. dollars from CADIVI
within the previous 90 days. In the second quarter of 2011, the Company began
using a SITME rate of 5.5 Bolivars per U.S. dollar to translate Revlon
Venezuela's financial statements, as this was the rate at which the Company
accessed U.S. dollars in the SITME market during the second quarter of 2011 (the
"SITME Rate"). The Company had previously utilized Venezuela's official exchange
rate of 4.3 Bolivars per U.S. dollar to translate Revlon Venezuela's financial
statements from January 1, 2010 through March 31, 2011. Through December 31,
2012, the Company continued using the SITME Rate to translate Revlon Venezuela's
financial statements.

To reflect the impact of the change in exchange rates from Venezuela's official
exchange rate to the SITME Rate, a foreign currency loss of $1.7 million was
recorded in the second quarter of 2011. As Venezuela was designated as a highly
inflationary economy effective January 1, 2010, the Company reflected this
foreign currency loss in earnings for the year ended December 31, 2011. For the
year ended December 31, 2011, the change in the exchange rates in Venezuela
unfavorably impacted the Company's consolidated net sales by $4.6 million.

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 2011 Revolving Credit
Facility and other permitted lines of credit. The 2011 Credit Agreements, the
9 3/4% Senior Secured Notes Indenture and the Amended and Restated 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, purchases of permanent wall
displays, capital expenditure requirements, debt service payments and costs, tax
payments, pension and post-retirement benefit plan contributions, payments in
connection with the Company's restructuring programs, severance not otherwise
included in the Company's restructuring programs and debt repurchases. The
Company's cash contributions to its pension and post-retirement benefit plans in
2012 were $29.8 million. The Company expects cash contributions to its pension
and post-retirement benefit plans to be approximately $20 million in the
aggregate for 2013. The Company's cash taxes paid in 2012 were $17.8 million.
The Company expects to pay cash taxes of approximately $20 million in the
aggregate for 2013. The Company's purchases of permanent wall displays and
capital expenditures in 2012 were $43.2 million and $20.9 million, respectively.
The Company expects purchases of permanent wall displays and capital
expenditures in the aggregate for 2013 to be approximately $50 million and $25
million, respectively. The Company has undertaken, and continues to assess,
refine and implement steps to efficiently manage its working capital, including,
among other things,



                                       42

--------------------------------------------------------------------------------

Table of Contents


initiatives intended to optimize inventory levels over time; centralized
procurement to secure discounts and efficiencies; prudent management of accounts
receivable and accounts payable; and controls on general and administrative
spending. In the ordinary course of business, the Company's source or use of
cash from operating activities may vary on a quarterly basis as a result of a
number of factors, including the timing of working capital flows.

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, the intended purpose of which 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. Any such
activities may be funded with cash on hand, funds available under the 2011
Revolving Credit Facility and/or other permitted additional sources of capital,
which actions could increase the Company's total debt.

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 2011 Revolving Credit Facility and other permitted lines
of credit will be sufficient to enable the Company to cover its operating
expenses for 2013, 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, debt service payments and costs, tax payments, pension
and post-retirement plan contributions, payments in connection with the
Company's restructuring programs, severance not otherwise included in the
Company's restructuring programs and debt repurchases.

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 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 2011 Credit Agreements and in such event, the
Company could be required to take measures, including, among other things,
reducing discretionary spending. (See Item 1A. "Risk Factors-The Company's
ability to service its debt and meet its cash requirements depends on many
factors, including achieving anticipated levels of revenue and expenses. If such
revenue or expense levels prove to be other than as anticipated, the Company may
be unable to meet its cash requirements or Products Corporation may be unable to
meet the requirements of the financial covenants under the 2011 Credit
Agreements, which could have a material adverse effect on the Company's
business, financial condition and/or results of operations" and certain other
risk factors discussing certain risks associated with the Company's business and
indebtedness).

Products Corporation enters into FX Contracts and foreign currency 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 FX Contracts are entered into primarily for the purpose of
hedging anticipated inventory purchases and certain 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.



                                       43

--------------------------------------------------------------------------------

Table of Contents

At December 31, 2012, the notional amount and fair value of FX Contracts outstanding was $43.9 million and $(0.3) million, respectively.

2013 Senior Notes Refinancing


On February 8, 2013, Products Corporation successfully completed its
previously-announced offering, pursuant to an exemption from registration under
the Securities Act, of $500 million aggregate principal amount of 5 3/4% Senior
Notes due 2021 (the "5 3/4% Senior Notes"). The 5 3/4% Senior Notes are
unsecured and were issued to investors at par. The 5 3/4% Senior Notes will
mature on February 15, 2021. Interest on the 5 3/4% Senior Notes will accrue at
5 3/4% per annum, paid every six months on February 15th and August 15th, with
the first interest payment due on August 15, 2013.

The 5 3/4% Senior Notes were issued pursuant to an Indenture (the "Indenture"),
dated as of February 8, 2013 (the "Closing Date"), by and among Products
Corporation, Products Corporation's domestic subsidiaries (the "Guarantors"),
which also currently guarantee Products Corporation's 2011 Term Loan Facility
and 2011 Revolving Credit Facility, and U.S. Bank National Association, as
trustee. The Guarantors have issued guarantees (the "Guarantees") of Products
Corporation's obligations under the 5 3/4% Senior Notes and the Indenture on a
senior unsecured basis. The holders of the 5 3/4% Senior Notes and the
Guarantees will have certain registration rights pursuant to a Registration
Rights Agreement (the "Registration Rights Agreement"), dated as of the Closing
Date, by and among Products Corporation, the Guarantors and the representatives
of the several initial purchasers of the 5 3/4% Senior Notes.

Products Corporation used the net proceeds from the issuance of the 5 3/4%
Senior Notes to: (i) pay the tender offer consideration, including applicable
consent payments, in connection with Products Corporation's cash tender offer to
purchase any and all of the $330 million outstanding aggregate principal amount
of its 9 3/4% Senior Secured Notes due November 2015 (discussed in more detail
below); (ii) pay the applicable premium and accrued interest, along with related
fees and expenses, on the 9 3/4% Senior Secured Notes that are subsequently
redeemed by Products Corporation following the tender offer; and (iii) pay
applicable fees and expenses incurred in connection with the issuance of the
5 3/4% Senior Notes, the tender offer and any redemption. Products Corporation
expects to use the remaining balance available from the issuance of the 5 3/4%
Senior Notes for general corporate purposes, including debt reduction
transactions such as repaying a portion of its 2011 Term Loan Facility due
November 2017 and repaying the Contributed Loan portion of its Amended and
Restated Senior Subordinated Term Loan at maturity in October 2013.

Tender Offer


On February 8, 2013, Revlon, Inc. also announced the early tender results for
Products Corporation's previously-announced cash tender offer and consent
solicitation (the "Tender Offer") to purchase any and all of its 9 3/4% Senior
Secured Notes due 2015 (CUSIP No. 761519 BB2). As of 11:59 p.m., New York City
time, on February 7, 2013 (the "Consent Date"), holders of the 9 3/4% Senior
Secured Notes had validly tendered and not withdrawn $192.4 million aggregate
principal amount of such 9  3/4% Senior Secured Notes (the "Consent Notes"),
which represent approximately 58% of the $330.0 million aggregate principal
amount of the 9 3/4% Senior Secured Notes outstanding. In addition, on the
Closing Date, Products Corporation effected a covenant defeasance on the balance
of the 9 3/4% Senior Secured Notes by entering into a supplemental indenture to
the indenture governing the 9 3/4% Senior Secured Notes, which pursuant to the
Tender Offer, eliminated substantially all of the covenants and certain events
of default under such indenture. Products Corporation will redeem on March 11,
2013 the aggregate principal amount of 9 3/4% Senior Secured Notes that may be
outstanding on such date.

Ranking

The 5 3/4% Senior Notes are Products Corporation's unsubordinated, unsecured
obligations and rank senior in right of payment to any future subordinated
obligations of Products Corporation and rank pari passu in right of payment with
all existing and future senior debt of Products Corporation. Similarly, each
Guarantee is the relevant Guarantor's unsubordinated, unsecured obligation and
ranks senior in right of payment to any future subordinated obligations of such
Guarantor and ranks pari passu in right of payment with all existing and future
senior debt of such Guarantor.

The 5 3/4% Senior Notes and the Guarantees will rank effectively junior to Products Corporation's 2011 Term Loan Facility and 2011 Revolving Credit Facility, which are secured, as well as indebtedness and preferred

                                       44

--------------------------------------------------------------------------------

Table of Contents

stock of Products Corporation's foreign and immaterial subsidiaries (the "Non-Guarantor Subsidiaries"), none of which will guarantee the 5 3/4% Senior Notes.


Optional Redemption

On and after February 15, 2016, the 5 3/4% Senior Notes may be redeemed at the
option of Products Corporation, at any time as a whole, or from time to time in
part, at the following redemption prices (expressed as percentages of principal
amount), plus accrued interest to the date of redemption, if redeemed during the
12-month period beginning on February 15th of the years indicated below:



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


Products Corporation may redeem the 5 3/4% Senior Notes at its option at any
time or from time to time prior to February 15, 2016, as a whole or in part, at
a redemption price per 5 3/4% Senior Note equal to the sum of (1) the then
outstanding principal amount thereof, plus (2) accrued and unpaid interest (if
any) to the date of redemption, plus (3) the applicable premium based on the
applicable treasury rate plus 75 basis points.

Prior to February 15, 2016, Products Corporation may, from time to time, redeem
up to 35% of the aggregate principal amount of the 5 3/4% Senior Notes and any
additional notes with, and to the extent Products Corporation actually receives,
the net proceeds of one or more equity offerings from time to time, at 105.75%
of the principal amount thereof, plus accrued interest to the date of
redemption.

Change of Control


Upon the occurrence of specified change of control events, Products Corporation
will be required to make an offer to purchase all of the 5 3/4% Senior Notes.
The purchase price will be 101% of the outstanding principal amount of the
5 3/4% Senior Notes as of the date of any such repurchase plus accrued and
unpaid interest to the date of repurchase.

Certain Covenants

The Indenture limits Products Corporation's and the Guarantors' ability, and the ability of certain other subsidiaries, to:



  •   incur or guarantee additional indebtedness ("Limitation on Debt");



• pay dividends, make repayments on indebtedness that is subordinated in

right of payment to the 5 3/4% Senior Notes and make other "restricted

         payments" ("Limitation on Restricted Payments");




  •   make certain investments;




  •   create liens on their assets to secure debt;




  •   enter into transactions with affiliates;



• merge, consolidate or amalgamate with another company ("Successor Company");




  •   transfer and sell assets ("Limitation on Asset Sales"); and



• permit restrictions on the payment of dividends by Products Corporation's

subsidiaries ("Limitation on Dividends from Subsidiaries").

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




                                       45

--------------------------------------------------------------------------------

Table of Contents


In addition, if during any period of time the 5 3/4% Senior Notes receive
investment grade ratings from both Standard & Poor's and Moody's Investors
Services, Inc. and no default or event of default has occurred and is continuing
under the Indenture, Products Corporation and its subsidiaries will not be
subject to the covenants on Limitation on Debt, Limitation on Restricted
Payments, Limitation on Asset Sales, Limitation on Dividends from Subsidiaries
and certain provisions of the Successor Company covenant.

Registration Rights


On the Closing Date, Products Corporation, the Guarantors and the
representatives of the initial purchasers of the 5  3/4% Senior Notes entered
into the Registration Rights Agreement. Pursuant to the Registration Rights
Agreement, Products Corporation and the Guarantors agreed with the
representatives of the initial purchasers, for the benefit of the holders of the
5 3/4% Senior Notes, that Products Corporation will, at its cost, among other
things: (i) file a registration statement with respect to the 5 3/4% Senior
Notes within 150 days after the Closing Date to be used in connection with the
exchange of the 5 3/4% Senior Notes and related guarantees for publicly
registered notes and related guarantees with substantially identical terms in
all material respects (except for the transfer restrictions relating to the
5 3/4% Senior Notes and interest rate increases as described below); (ii) use
its reasonable best efforts to cause the applicable registration statement to
become effective under the Securities Act within 210 days after the Closing
Date; and (iii) use its reasonable best efforts to effect an exchange offer of
the 5 3/4% Senior Notes and the related guarantees for registered notes and
related guarantees within 270 days after the Closing Date. In addition, under
certain circumstances, Products Corporation may be required to file a shelf
registration statement to cover resales of the 5 3/4% Senior Notes. If Products
Corporation fails to satisfy such obligations, it will be obligated to pay
additional interest to each holder of the 5 3/4% Senior Notes that are subject
to transfer restrictions, with respect to the first 90-day period immediately
following any such failure, at a rate of 0.25% per annum on the principal amount
of the 5  3/4% Senior Notes that are subject to transfer restrictions held by
such holder. The amount of additional interest will increase by an additional
0.25% per annum with respect to each subsequent 90-day period until all
registration requirements have been satisfied, up to a maximum amount of
additional interest of 0.50% per annum on the principal amount of the 5 3/4%
Senior Notes that are subject to transfer restrictions.

Disclosures about Contractual Obligations and Commercial Commitments


The following table aggregates all contractual obligations and commercial
commitments that affect the Company's financial condition and liquidity position
as of December 31, 2012:



                                                                    Payments Due by Period
                                                                     (dollars in millions)
                                                          Less than 1                                       After 5
Contractual Obligations                      Total           year           1-3 years       3-5 years        years
Current portion of long-term debt -
affiliates(a)                              $    48.6     $        48.6              -               -             -
Long-term debt, including current
portion (b)                                  1,176.4              21.5     $     390.9     $     764.0            -
Interest on long-term debt (c)                 294.0              83.0           142.4            68.6            -
Interest on current portion of long-term
debt - affiliates (d)                            6.2               6.2              -               -             -
Capital lease obligations                        5.6               2.5             2.8             0.3            -
Operating leases                                62.8              18.1            20.1             9.3          15.3
Purchase obligations (e )                       73.1              73.1              -               -             -
Other long-term obligations (f)                 67.7              48.2            13.4             6.1            -

Total contractual obligations              $ 1,734.4     $       301.2     $     569.6     $     848.3     $    15.3





                                       46

--------------------------------------------------------------------------------

  Table of Contents
(a)  Represents the $48.6 million aggregate principal amount outstanding of the
     Contributed Loan (the portion of the Amended and Restated Senior
     Subordinated Term Loan that remains owing from Products Corporation to
     Revlon, Inc.) and which matures on October 8, 2013.

(b) Amount includes the $58.4 million aggregate principal amount outstanding of

the Non-Contributed Loan (the portion of the Amended and Restated Senior

     Subordinated Term Loan that remains owing from Products Corporation to
     various third parties) as of December 31, 2012, which loan matures on
     October 8, 2014 and bears interest at at a floating rate of LIBOR plus 7%,
     with a 1.5% LIBOR floor.

(c) Consists of interest through the respective maturity dates on (i) the $788.0

million in aggregate principal amount outstanding under the 2011 Term Loan

Facility based upon assumptions regarding the amount of debt outstanding

under the 2011 Term Loan Agreement; (ii) the $330.0 million in aggregate

principal amount of the 9 3/4% Senior Secured Notes; and (iii) the $58.4

million aggregate principal amount outstanding of the Non-Contributed Loan;

based on interest rates under such debt agreements as of December 31, 2012.


(d)  Consists of the 12.75% interest on the aggregate principal amount
     outstanding under the Contributed Loan, which has a maturity date on
     October 8, 2013.


(e)  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.


(f)  Consists primarily of media and advertising contracts, 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), software licensing agreements and obligations related to

third-party warehousing services. Such amounts exclude employment

agreements, severance and other immaterial contractual commitments, which

severance and other contractual commitments related to restructuring

activities are discussed under "Recent Events - September 2012 Program".

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 U.S. generally accepted accounting principles ("U.S. GAAP"). 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 of operations 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.



                                       47

--------------------------------------------------------------------------------

Table of Contents

Allowance for Doubtful Accounts:


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 consolidated
statements of income and comprehensive income when received.

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 historical returns experience,
planned product discontinuances and promotional sales, which would permit
customers to return items based upon the Company's trade terms. The Company
records estimated sales returns as a reduction to sales and cost of sales, and
an increase in accrued liabilities and inventories.

Returned products, which are recorded as inventories, are valued based upon the
amount that the Company expects to realize upon their subsequent disposition.
The physical condition and marketability of the returned products are the major
factors the Company considers in estimating realizable value. Cost of sales
includes the cost of refurbishment of returned products. Actual returns, as well
as realized values on returned products, may differ significantly, either
favorably or unfavorably, from the Company's estimates if factors such as
product discontinuances, customer inventory levels or competitive conditions
differ from the Company's estimates and expectations and, in the case of actual
returns, if economic conditions differ significantly from the Company's
estimates and expectations.

Trade Support Costs:


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

Inventories:


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

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 net periodic
benefit cost 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 3.78% in 2012,
representing a decrease from the 4.38% weighted-average discount rate selected
in 2011 for the Company's U.S. defined benefit pension plans. The Company
selected a weighted-average discount rate for the Company's international
defined benefit pension plans of 4.33% in 2012, representing a decrease from the
4.77% weighted-average discount rate selected in 2011. 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 2012 were primarily due to decreasing long-term interest yields on
high-quality corporate bonds during 2012. At December 31, 2012, the decrease in
the discount rates from



                                       48

--------------------------------------------------------------------------------

Table of Contents

December 31, 2011 had the effect of increasing the Company's projected pension
benefit obligation by approximately $51 million. For 2013, the Company expects
that the aforementioned decrease in the discount rate will have the effect of
decreasing the net periodic benefit cost for its U.S. and international defined
benefit pension plans by approximately $2.0 million, as compared to the net
periodic benefit cost for 2012.

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 was 7.75% and 8.00% for 2012 and 2011, respectively. The weighted
average expected long-term rate of return used for the Company's international
plans was 6.22% and 6.25% for 2012 and 2011, respectively.

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 2012
net periodic benefit costs and its projected benefit obligation at December 31,
2012 for the Company's principal defined benefit pension plans, with all other
assumptions remaining constant:



                                                    Effect of                                    Effect of
                                            25 basis points increase                     25 basis points decrease
                                                                Projected                                    Projected
                                                                 pension                                      pension
                                       Net periodic              benefit            Net periodic              benefit
                                       benefit costs            obligation          benefit costs           obligation
Discount rate                         $          (0.1 )        $      (21.3 )      $           0.1         $        22.1
Expected long-term rate of return                (1.1 )                  -                     1.1                    -


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 for the Company's projected pension benefit
obligation in both 2012 and 2011 was 3.0% and 3.5%, respectively, 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:


Goodwill totaled $217.8 million and $194.7 million as of December 31, 2012 and
2011, respectively. The Company operates in one operating segment and 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 its goodwill has been assigned to the enterprise as a whole. The
determination of the fair value of goodwill requires management to make
estimates and assumptions. Goodwill is reviewed for impairment annually, using
September 30th carrying values. As the Company has a negative carrying value,
managment performed an assessment of qualitative factors and concluded that it
is more likely than not that a goodwill impairment does not exist. The Company
did not record any impairment of goodwill during the years ended December 31,
2012, 2011 or 2010. In addition, the Company assesses potential impairments to
goodwill when there is evidence that events or changes in circumstances indicate
that the carrying amount may not be recovered. As of December 31, 2012, there
have been no significant events since the timing of the Company's annual
impairment test that would have triggered additional impairment testing.

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.



                                       49

--------------------------------------------------------------------------------

Table of Contents


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. In 2010, the Company recognized a
non-cash benefit of $248.5 million related to a reduction of the Company's
deferred tax valuation allowance on its net deferred tax assets in the U.S. at
December 31, 2010. In 2011, the Company recognized a non-cash benefit of $16.9
million related to a reduction of the Company's deferred tax valuation allowance
on its net deferred tax assets in certain jurisdictions outside the U.S. at
December 31, 2011. In 2012, the Company recognized a non-cash benefit of $15.8
million related to a reduction of the Company's deferred tax valuation allowance
on certain of its net deferred tax assets for certain jurisdictions within the
U.S. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Provision for (benefit from) income taxes," for further
discussion.

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.

Recently Adopted Accounting Pronouncements:


In May 2011, the Financial Accounting Standards Board ("FASB") issued Accounting
Standards Update ("ASU") No. 2011-04, "Amendments to Achieve Common Fair Value
Measurement and Disclosure Requirements in U.S. GAAP and International Financial
Reporting Standards ("IFRS")," which amends Accounting Standards Codification
("ASC") 820, "Fair Value Measurement." ASU No. 2011-04 modifies ASC 820 to
include disclosure of all transfers between Level 1 and Level 2 asset and
liability fair value categories. In addition, ASU No. 2011-04 provides guidance
on measuring the fair value of financial instruments managed within a portfolio
and the application of premiums and discounts on fair value measurements. ASU
No. 2011-04 requires additional disclosure for Level 3 measurements regarding
the sensitivity of fair value to changes in unobservable inputs and any
interrelationships between those inputs. The Company adopted ASU No. 2011-04
beginning January 1, 2012 and such adoption did not have a material impact on
the Company's results of operations, financial condition or disclosures.

In June 2011, the FASB issued ASU No. 2011-05, "Presentation of Comprehensive
Income." ASU No. 2011-05 eliminates the option to report other comprehensive
income and its components in the statement of changes in equity. Under ASU
No. 2011-05, an entity can elect to present items of net income and other
comprehensive income in one continuous statement or in two separate, but
consecutive, statements. In addition, in December 2011, the FASB issued ASU
No. 2011-12, "Deferral of the Effective Date for Amendments to the Presentation
of Reclassifications of Items Out of Accumulated Other Comprehensive Income in
Accounting Standards Update No. 2011-05." ASU No. 2011-12 defers the requirement
to present components of reclassifications of comprehensive income by income
statement line item on the statement of comprehensive income, with all other
requirements of ASU No. 2011-05 unaffected. The Company adopted ASU No. 2011-05
and ASU No. 2011-12 beginning January 1, 2012 and has elected to present items
of net income and other comprehensive income in one continuous statement.

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 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.

Effective January 1, 2010, 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).



                                       50

--------------------------------------------------------------------------------

Table of Contents

Wordcount: 16150



USER COMMENTS:


  More Newswires

More Newswires >>
  Most Popular Newswires

More Popular Newswires >>
Hot Off the Wires  Hot off the Wires

More Hot News >>

insider icon Denotes premium content. Learn more about becoming an Insider here.
There are No Baby Steps in Sales.